UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant x
Filed by a Party other than the Registrant ¨
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¨ | Preliminary Proxy Statement | ¨ | 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 Rule 14a-12 |
MeadWestvaco Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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MeadWestvaco Corporation 501 South 5th Street Richmond, Virginia 23219 |
March 21, 2012
Dear Fellow Stockholders:
You are cordially invited to join us at the 2012 Annual Meeting of Stockholders of MeadWestvaco Corporation. The meeting will begin at 11:00 a.m., local time, on Monday, April 23, 2012. The meeting will take place in the Duke of Windsor Room of the Waldorf=Astoria Hotel at 301 Park Avenue, New York, New York.
Please vote on all matters listed in the enclosed Notice of 2012 Annual Meeting of Stockholders. This year our proxy materials include three proposals. Your Board of Directors recommends votingFOR Proposal 1, the election of our twelve directors;FOR Proposal 2, the ratification of the appointment of our independent registered public accounting firm;FOR Proposal 3, an advisory resolution to approve executive compensation. Please refer to the proxy statement for detailed information on each of the proposals and the Annual Meeting.
Your interest in your company as demonstrated by the representation of your shares at our Annual Meeting is a great source of strength for your company. Your vote is very important to us and, accordingly, whether or not you expect to attend the meeting, we ask that you sign, date and promptly return the enclosed proxy.
Very truly yours,
John A. Luke, Jr.
Chairman and
Chief Executive Officer
MeadWestvaco Corporation
Notice of 2012 Annual Meeting of Stockholders
The 2012 Annual Meeting of Stockholders of MeadWestvaco Corporation will be held on Monday, April 23, 2012, at 11:00 a.m., local time, at the Waldorf=Astoria Hotel at 301 Park Avenue, New York, New York. Stockholders will be asked to vote on the following matters:
| 1. | To elect the twelve directors listed in the proxy statement for a term of one year each and until their successors are elected and qualified; |
| 2. | To consider and vote upon a proposal to ratify the action of the Audit Committee of the Board of Directors in appointing PricewaterhouseCoopers LLP as the company’s independent registered public accounting firm for the year 2012; |
| 3. | To consider and vote upon an advisory resolution to approve executive compensation; and |
| 4. | To transact other business that may properly come before the Annual Meeting. |
All holders of common stock of record at the close of business on March 1, 2012 will be entitled to receive notice of and to vote at the Annual Meeting and at any adjournment or postponement thereof. A list of those stockholders will be available for inspection at the executive offices of MeadWestvaco and will also be available for inspection at the Annual Meeting.Whether or not you expect to be at the meeting, please sign, date and promptly return the enclosed proxy or vote by telephone or electronically, as described on the proxy card.
Brokers are not permitted to vote on the election of directors and Proposal 3 without instructions from the beneficial owner. Therefore, if your shares are held in the name of your broker, bank or other nominee, your vote is especially important this year. Unless you vote your shares, your shares will not be voted in the election of directors or Proposal 3.
By Order of the Board of Directors
Wendell L. Willkie, II
Senior Vice President, General Counsel and Secretary
March 21, 2012
Important Notice Regarding the Availability of
Proxy Materials for the Stockholder
Meeting to be Held on April 23, 2012
The proxy statement and annual report to stockholders are available at www.meadwestvaco.com/proxymaterials.
Proxy Statement
MeadWestvaco Corporation
501 South 5th Street
Richmond, Virginia 23219
Your Board of Directors (“Board”) is providing you with this Proxy Statement in connection with the Board’s solicitation of proxies for the 2012 Annual Meeting of Stockholders of MeadWestvaco Corporation (“MeadWestvaco” or the “company”) to be held on April 23, 2012 at 11:00 a.m., local time, at the Waldorf=Astoria Hotel, 301 Park Avenue, New York, New York, and any adjournment or postponement thereof. On or about March 21, 2012, we will mail the Proxy Statement, a proxy card, and the Annual Report of MeadWestvaco for the year 2011 to stockholders of record of MeadWestvaco common stock at the close of business on March 1, 2012. Although the Annual Report and Proxy Statement are being mailed together, the Annual Report should not be deemed to be part of the Proxy Statement.
Who is entitled to vote at the meeting?
Only holders of record of MeadWestvaco’s common stock at the close of business on March 1, 2012 will be entitled to vote.
What are the voting rights of the holders of MeadWestvaco common stock?
Each share of outstanding common stock will be entitled to one vote on each matter considered at the meeting.
Who can attend the meeting?
Attendance at the meeting will be limited to holders of record as of March 1, 2012, or their authorized representatives (not to exceed one per stockholder), management, the Board and guests of management.
What constitutes a quorum?
The presence, in person or by proxy, of the holders of a majority of the votes entitled to be cast at the Annual Meeting is necessary to constitute a quorum. As of the record date, March 1, 2012, 172,348,397 shares of MeadWestvaco common stock, representing the same number of votes, were outstanding. Therefore, the presence of the holders of record of common stock representing at least 86,174,199 votes will be required to establish a quorum. Abstentions and shares represented by “broker non-votes” will be counted in determining whether there is a quorum.
How do I vote?
It is important that your stock be represented at the meeting. Whether or not you plan to attend, please sign, date and return the enclosed proxy promptly in order to be sure that your shares will be voted. If you are a registered stockholder (that is, if you hold your stock in certificate form or if you participate in the MeadWestvaco Savings Plan), and attend the meeting, you may deliver your completed proxy card in person. “Street name” stockholders (that is, those who hold their stock through a broker or other nominee) who wish to vote at the meeting will need to obtain a proxy form from the institution that holds their shares.
Can I vote by telephone or electronically?
If you are a registered stockholder, you may vote by telephone, or electronically through the Internet, by following the instructions included with your proxy card. The deadline for voting by telephone or electronically is 5:00 p.m., Eastern Daylight Time, on April 22, 2012. If your shares are held in “street name,” please check your voting instruction form or contact your broker or nominee to determine whether you will be able to vote by telephone or electronically.
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Can I revoke my proxy or change my vote after I return my proxy card?
Yes. You may revoke your proxy or change your vote at any time before it is voted at the meeting. Regardless of the way in which you submitted your original proxy, you may revoke or change it by submitting a written revocation or a later-dated proxy to the Secretary of MeadWestvaco, voting by telephone or electronically, or by attending and voting at the Annual Meeting. If your shares are held in “street name” please check your voting instructions form or contact your broker or nominee in order to revoke or change your voting instruction.
What vote is required to approve each item?
Election of Directors. The Board of Directors has adopted a majority vote standard in uncontested director elections. Because the company did not receive advance notice under its bylaws of any stockholder nominees for directors, the 2012 election of directors is an uncontested election. To be elected in an uncontested election, a director nominee must receive more “For” votes than “Against” votes. Abstentions and broker non-votes will have no effect on the election of directors since only votes “For” or “Against” a nominee will be counted. A broker non-vote occurs when a bank, broker or other nominee does not have authority to vote on any particular item without instructions from the beneficial owner and has not received instructions.
Effect of an Incumbent Director Not Receiving the Required Vote. MeadWestvaco is a Delaware corporation, and under Delaware law, if an incumbent director does not receive sufficient votes to be elected, that director remains in office until the director’s successor is duly elected and qualified or until the director’s death, resignation or retirement. To address this potential outcome, the Board has also adopted a director resignation policy. Under this policy, any incumbent director who is not elected in accordance with the bylaws will tender his or her resignation to the Chairman of the Board and the Nominating and Governance Committee promptly following certification of the stockholder vote. The Nominating and Governance Committee will promptly consider the resignation tendered by the director, and the Nominating and Governance Committee will recommend to the Board whether to accept the tendered resignation or reject it. In considering whether to accept or reject the tendered resignation, the Nominating and Governance Committee will consider all factors deemed relevant by the members of the Nominating and Governance Committee, including, the reasons why stockholders voted “Against” the election of such director, the length of service and qualifications of the director, the director’s contributions to the company and the MeadWestvaco Corporate Governance Principles. Unless all the directors are affected, no director whose tendered resignation is under consideration will participate in the deliberative process as a member of the Nominating and Governance Committee or the process of the Board described below. The Board will act on the Nominating and Governance Committee’s recommendation within 90 days following certification of the stockholder vote. In considering the Nominating and Governance Committee’s recommendation, the Board will consider the factors considered by the Nominating and Governance Committee and such additional information deemed relevant by the Board. Following the Board’s decision, the company will promptly disclose the Board’s decision whether to accept the director’s resignation as tendered (including an explanation of the process by which the decision was reached and, if applicable, the reasons for rejecting the resignation). To the extent that one or more directors’ resignations are accepted by the Board, the Nominating and Governance Committee will recommend to the Board whether to fill such vacancy or vacancies or to reduce the size of the Board.
Other Items. The affirmative vote of the majority of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote on the subject matter is required to: ratify the appointment of our independent registered public accounting firm (Proposal 2); and approve an advisory resolution to approve executive compensation (Proposal 3). A properly executed proxy marked “Abstain” with respect to any such matter will not be voted, although it will be counted as entitled to vote on the matter. Accordingly, an abstention will have the effect of a negative vote. Broker non-votes will not have any effect on the outcome of votes for these items.
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Although the advisory vote on Proposal 3 is non-binding, our Board will review the results of the votes and, consistent with our record of stockholder engagement, will take them into account in making subsequent determinations concerning executive compensation.
Representatives of Computershare, our independent stock transfer agent, will count the votes and act as the inspector of election.
What are the Board’s recommendations?
All shares of MeadWestvaco common stock entitled to vote and represented by properly executed proxies received prior to the Annual Meeting, and not revoked, will be voted as instructed on those proxies. If no instructions are indicated, the shares will be voted as recommended by the Board of Directors. The Board’s recommendation is set forth together with the description of each item in this Proxy Statement. In summary, the Board recommends a vote:
| • | FOR election of the nominated slate of twelve directors (see Item 1); |
| • | FOR ratification of the appointment of PricewaterhouseCoopers LLP as the company’s independent registered public accounting firm for 2012 (see Item 2); and |
| • | FOR the advisory resolution to approve executive compensation (see Item 3). |
If any other matters are properly presented for consideration at the Annual Meeting, or any adjournment or postponement thereof, the persons named in the enclosed form of proxy will have discretion to vote on those matters in accordance with their own judgment to the same extent as the person signing the proxy would be entitled to vote. The company does not currently anticipate that any other matters will be raised at the Annual Meeting.
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Ownership of Directors and Executive Officers
How much company stock do the company’s directors and executive officers own?
The following table shows the amount of MeadWestvaco common stock beneficially owned, unless otherwise indicated, by our directors, the executive officers named in the Summary Compensation Table and the directors and executive officers as a group. Except as otherwise indicated and subject to applicable community property laws, each owner has sole voting and investment powers with respect to the securities listed.
Name | Total Shares Beneficially Owned(1) | Options Exercisable Within 60 Days | Percent of Class Beneficially Owned | |||||||||
Directors | ||||||||||||
Michael E. Campbell(2) | 35,320 | 3,000 | * | |||||||||
Dr. Thomas W. Cole, Jr.(2) | 34,884 | 3,000 | * | |||||||||
James G. Kaiser(2) | 40,727 | 3,000 | * | |||||||||
Richard B. Kelson(2) | 34,762 | 3,000 | * | |||||||||
James M. Kilts(2) | 21,266 | 0 | * | |||||||||
Susan J. Kropf(2) | 40,225 | 3,000 | * | |||||||||
Douglas S. Luke(2)(3) | 72,112 | 3,000 | * | |||||||||
John A. Luke, Jr.(4) | 2,561,993 | 1,956,174 | 1.5 | % | ||||||||
Gracia C. Martore(2) | 826 | 0 | ||||||||||
Robert C. McCormack(2) | 36,290 | 3,000 | * | |||||||||
Timothy H. Powers(2) | 24,225 | 0 | * | |||||||||
Jane L. Warner(2) | 36,290 | 3,000 | * | |||||||||
Alan D. Wilson(2) | 2,425 | 0 | * | |||||||||
Other Named Executive Officers | ||||||||||||
James A. Buzzard(5) | 662,857 | 529,831 | * | |||||||||
E. Mark Rajkowski(5) | 565,328 | 418,691 | * | |||||||||
Wendell L. Willkie, II(5) | 383,725 | 283,280 | * | |||||||||
Robert A. Feeser(5) | 294,468 | 232,834 | * | |||||||||
All Directors and Executive Officers as a Group | 6,319,442 | 4,564,854 | 3.7 | % | ||||||||
| * | Less than 1% of MeadWestvaco common stock. |
| (1) | Information concerning beneficial ownership of shares is as of March 1, 2012, the most recent practicable date. Includes the number of shares that each such person beneficially owns as of March 1, 2012, including shares such person has the right to acquire within 60 days thereafter (shares that can be acquired within 60 days thereafter are also set forth in the column “Options Exercisable Within 60 Days”). |
| (2) | Each non-employee director holds 31,350 stock units (representing the same number of shares of MeadWestvaco common stock) granted under the MeadWestvaco Corporation Compensation Plan for Non-Employee Directors, with the exception of Mr. Powers, who holds 23,225 stock units, Mr. Kilts, who holds 21,266 stock units, Mr. Wilson who holds 2,425 stock units and Ms. Martore who holds 826 stock units. The rights of each non-employee director in respect of these stock units are vested at all times, and distributions of the stock units are required to be made in MeadWestvaco common stock on the earliest practicable date following the end of the calendar quarter in which the director’s board membership is terminated. |
| (3) | Includes 2,978 MeadWestvaco shares held in a trust of which Mr. Luke is a co-trustee. Includes 34,784 shares owned by Mr. Luke that serve as collateral security for a line of credit. |
| (4) | Includes 39,380 MeadWestvaco shares held indirectly through employee benefit plans and 32,304 shares held in trust for or by members of Mr. Luke’s immediate family. |
| (5) | Includes MeadWestvaco shares held indirectly through employee benefit plans by Messrs. Buzzard, Rajkowski, Willkie and Feeser in the amounts of 14,139 shares, 3,440 shares, 16,724 shares and 7,770 shares, respectively. |
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Ownership of Certain Beneficial Owners
Who are the largest owners of the company’s stock?
Based upon Schedule 13D and 13G filings with the Securities and Exchange Commission, the following investment advisers are believed to have beneficial ownership (as defined for certain purposes by the Securities and Exchange Commission) as of December 31, 2011 of more than 5% of the company’s common stock by virtue of having investment authority and, to some extent, voting authority over the number of shares indicated.
| Shares | Percent of Class* | |||||||
BlackRock, Inc.(1) 40 East 52nd Street New York, New York 10022 | 19,824,715 | 11.6 | % | |||||
Capital World Investors(2) 333 South Hope Street Los Angeles, CA 90071 | 17,204,800 | 10.1 | % | |||||
The Vanguard Group, Inc.(3) 100 Vangurd Blvd. Malvern, PA 19355 | 9,015,159 | 5.3 | % | |||||
| * | As of December 31, 2011, based on 170,861,250 shares outstanding as of that date. |
| (1) | Based on Schedule 13G/A filed by BlackRock, Inc. on January 10, 2012. The reporting person has sole voting power with respect to 19,824,715 shares, shared voting power with respect to no shares, sole dispositive power with respect to 19,824,715 shares and shared dispositive power with respect to no shares. |
| (2) | Based on Schedule 13G/A filed by Capital World Investors on February 10, 2012. The reporting person has sole voting power with respect to 11,659,800 shares, shared voting power with respect to no shares, sole dispositive power with respect to 17,204,800 shares, and shared dispositive power with respect to no shares. |
| (3) | Based on Schedule 13G filed by the Vanguard Group, Inc. on February 6, 2012. The reporting person has sole voting power with respect to 236,433 shares, shared voting power with respect to no shares, sole dispositive power with respect to 8,778,726 shares, and shared dispositive power with respect to 236,433 shares. |
The MeadWestvaco stock ownership plans for salaried and hourly employees held, as of March 1, 2012, an aggregate amount of 9,597,247 MeadWestvaco shares, or approximately 5.6% of the total outstanding shares as of that date, for which full voting rights are exercisable by members of the plans. As of that date, there were approximately 11,941 participants in these plans.
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Corporate Governance
1. Election of Directors
The Board of Directors of the company, pursuant to the company’s bylaws, has determined that the number of directors of the company will be twelve. Pursuant to the company’s bylaws, each director is elected annually. Directors in this uncontested election will be elected if the director nominee receives more “For” votes than “Against” votes. There is no provision for cumulative voting in the election of directors. At the meeting, the Corporate Secretary or Assistant Secretary named in the enclosed proxy (or a substitute) will, if authorized, vote the shares covered by such proxy for election of the twelve nominees for directors.
The present nominees, Michael E. Campbell, Dr. Thomas W. Cole, Jr., James G. Kaiser, Richard B. Kelson, James M. Kilts, Susan J. Kropf, Douglas S. Luke, John A. Luke, Jr., Gracia C. Martore, Timothy H. Powers, Jane L. Warner and Alan D. Wilson, if elected, will be elected for terms expiring at the 2013 Annual Meeting of Stockholders and until their successors are elected and qualified.The Board of Directors unanimously recommends a vote FOR the named nominees. Should any of these nominees become unavailable for election for any reason presently unknown, the Corporate Secretary or Assistant Secretary named in the enclosed proxy (or a substitute) will vote for the election of such other person or persons, if any, as the Board of Directors may recommend, or the Board may decrease the size of the Board. Pursuant to the company’s bylaws, Mr. Robert C. McCormack will retire from the Board on April 23, 2012.
All of the preceding twelve persons currently serve as directors of MeadWestvaco and have done so since the combination of The Mead Corporation and Westvaco Corporation was completed in January 2002 with the exception of Timothy H. Powers who became a director in January 2006, James M. Kilts who became a director in October 2006, Alan D. Wilson who became a director in June 2011 and Gracia C. Martore who became a director in February 2012. Set forth on the following pages is the principal occupation of, and certain other information regarding the director nominees.
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Nominees for Election as Directors
Name | Age* | Director of MeadWestvaco Since | ||||||
MICHAEL E. CAMPBELL | 64 | 2002 | ||||||
| Chairman, President and Chief Executive Officer, Arch Chemicals, Inc., a global biocides company, 1999-2011. Director: National Association of Manufacturers, Milliken & Company. Former director and chairman: American Chemistry Council and Society of Chemical Industry. | ||||||||
DR. THOMAS W. COLE, JR. | 71 | 2002 | ||||||
| Interim President of the Interdenominational Theological Center, an educational group, 2009-2010. Interim Chancellor, University of Massachusetts at Amherst, 2007-2008. President and Chief Executive Officer, Great Schools Atlanta, an educational organization, 2004-2006. President Emeritus since 2002 and President, 1989-2002, Clark Atlanta University. Chairman, The Quality Education for Minorities Network. | ||||||||
JAMES G. KAISER | 69 | 2002 | ||||||
| Chairman and Chief Executive Officer, Avenir Partners, Inc., an automotive business, since 1998. President, Kaiser Services, LLC, a business development company, since 1997. Manager, Kaiser Ridgeway, a real estate development company, LLC, since 2002. President and Chief Executive Officer, Quanterra Incorporated 1994-1996. Quanterra succeeded to businesses of the environmental analytical services division of International Technology Corporation and Enseco (a unit of Corning Incorporated) for which Mr. Kaiser had been President and Chief Executive Officer since June 1992 after serving in various management positions at Corning since 1982. Director, Sunoco, Inc. | ||||||||
RICHARD B. KELSON | 65 | 2002 | ||||||
| Private equity investor and advisor to middle-market companies. Chairman, President and Chief Executive Officer, Servco, LLC, a strategic sourcing and supply chain management company, since 2009. Operating Advisor, Pegasus Capital Advisors, L.P., a private equity fund manager, 2006-2009. Chairman’s Counsel, Alcoa, Inc., a global manufacturer of aluminum and aluminum based products, 2006; Executive Vice President and Chief Financial Officer, 1997-2005. Director: PNC Financial Services, Commercial Metals Company, Ecovative Design, LLC, KaBOOM!, Inc. Former director, Lighting Science Group Corporation, 2007-2010. Member, University of Pittsburgh School of Law Board of Visitors. | ||||||||
JAMES M. KILTS | 64 | 2006 | ||||||
| Founding Partner, Centerview Capital, a private equity firm, since 2006. Vice Chairman, The Procter & Gamble Company, a global consumer products company, 2005-2006. Chairman, President and Chief Executive Officer, The Gillette Company, a global consumer products company, 2001-2005. President and Chief Executive Officer, Nabisco Holdings Corporation, 1998-2000. Director: Metropolitan Life Insurance Company, Nielsen Holdings, N.V. (non-executive Chairman), Pfizer, Inc. Former director, The New York Times Company, 2005-2008. Former Chairman of Supervisory Board, The Nielsen Company, B.V., 2007-2011. Member: Board of Trustees, Knox College, Board of Trustees, University of Chicago, Board of Overseers of Weill Cornell Medical College. | ||||||||
*Ages of directors are as of March 1, 2012.
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Nominees for Election as Directors
Name | Age* | Director of MeadWestvaco Since | ||||||
SUSAN J. KROPF | 63 | 2002 | ||||||
| President and Chief Operating Officer, Avon Products, Inc., a global manufacturer and marketer of beauty and related products, 2001-2006; Director, 1998-2006. Director: Coach, Inc., The Kroger Company, The Sherwin-Williams Company, Wallace Foundation. | ||||||||
DOUGLAS S. LUKE | 70 | 2002 | ||||||
| President and Chief Executive Officer, HL Capital, Inc., a private investment company with diversified interests in marketable securities and private equities, since 1999. Director, Regency Centers Inc. Trustee, The Adirondack Nature Conservancy/Adirondack Land Trust. | ||||||||
JOHN A. LUKE, JR. | 63 | 2002 | ||||||
| Chairman and Chief Executive Officer, MeadWestvaco Corporation, since 2002. Chairman, President and Chief Executive Officer, MeadWestvaco, 2002-2003. Chairman, President and Chief Executive Officer, Westvaco Corporation, 1996-2002. Director: American Forest and Paper Association, The Bank of New York Mellon, The Timken Company, Factory Mutual Insurance Company, National Association of Manufacturers. Trustee: American Enterprise Institute for Public Policy Research, Richmond Performing Arts Center, Virginia Museum of Fine Arts. | ||||||||
GRACIA C. MARTORE | 60 | 2012 | ||||||
| President and Chief Executive Officer, Gannett Co., Inc., a media and marketing solutions company, since 2011; President and Chief Operating Officer, 2010-2011; Executive Vice President and Chief Financial Officer, 2006-2010; Senior Vice President and Chief Financial Officer, 2003-2006; Senior Vice President of Finance and Treasurer, 2001-2003. Director: Factory Mutual Insurance Company, Gannett Co., Inc., Gannett Foundation. | ||||||||
TIMOTHY H. POWERS | 63 | 2006 | ||||||
| Chairman, President and Chief Executive Officer, Hubbell Incorporated, a manufacturer of electrical products, since September 2004; President and Chief Executive Officer, 2001-2004; Senior Vice President and Chief Financial Officer, 1998-2001. Director, National Electrical Manufacturers Association. Board of Trustees, Manufacturers Alliance/MAPI. | ||||||||
JANE L. WARNER | 65 | 2002 | ||||||
| Executive Vice President, since 2007, Group Vice President, 2005-2007, Worldwide Finishing Systems, Illinois Tool Works, Inc., a global industrial products company. President, Plexus Systems, 2004-2005. Vice President, EDS and President, Global Manufacturing and Communications Industries, 2002-2004, Managing Director, Automotive Industry Group, 2000-2002. Director: Tenneco Corporation, John G. Shedd Aquarium. | ||||||||
ALAN D. WILSON | 54 | 2011 | ||||||
| Chairman, since 2009, President, since 2007, and Chief Executive Officer, since 2008, McCormick & Company, Inc., a global spice and specialty foods company; President, North American Consumer Products, 2005-2006; President, U.S. Consumer Foods Group, 2003-2005; Vice President-Sales and Marketing, McCormick U.S. Consumer Foods Group, 2001-2003. Director: Grocery Manufacturers Association, Greater Baltimore Committee, Maryland Economic Development Commission. Former Director, Williams Scotsman, Inc. 2006-2007. | ||||||||
*Ages of directors are as of March 1, 2012.
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Director Compensation
How are directors compensated?
Each non-employee director of the company receives $75,000 as an annual cash retainer for service as a director. Board members may elect to defer all or a portion of the annual cash retainer under the MeadWestvaco Corporation Compensation Plan for Non-Employee Directors. Directors who are also employees of the company receive no additional compensation for service as a director.
Each year, non-employee directors also receive a grant of MeadWestvaco stock units equivalent to $100,000 at the time of grant. Distributions of stock units are made in MeadWestvaco common stock upon termination of a director’s board membership.
In addition to the compensation described above, the Audit Committee Chair receives a $20,000 annual retainer, the Compensation and Organization Development Committee Chair receives a $15,000 annual retainer and the Chair of each of the other standing Committees receives an annual retainer of $10,000. Each of the members of the Audit Committee, other than the Chair, receives an annual retainer of $10,000. The lead director receives an annual retainer of $25,000.
How often did the Board meet during 2011?
During 2011, the Board of Directors met six times, and no incumbent director attended less than 75 percent of the aggregate of: (1) the total number of meetings of the Board of Directors held in 2011 while he or she was a director and (2) the total number of meetings held in 2011 by all committees of the Board of Directors on which he or she served while he or she was a director.
Non-Employee Director Compensation Table
Name | Fees Earned or Paid in Cash $(1) | Stock Awards $(2) | All Other Compensation $(3) | Total Compensation $ | ||||||||||||
Michael E. Campbell | $ | 110,000 | $ | 100,000 | $ | 2,500 | $ | 212,500 | ||||||||
Dr. Thomas W. Cole, Jr. | $ | 75,000 | $ | 100,000 | $ | 0 | $ | 175,000 | ||||||||
James G. Kaiser | $ | 85,000 | $ | 100,000 | $ | 0 | $ | 185,000 | ||||||||
Richard B. Kelson | $ | 95,000 | $ | 100,000 | $ | 5,000 | $ | 200,000 | ||||||||
James M. Kilts | $ | 75,000 | $ | 100,000 | $ | 5,000 | $ | 180,000 | ||||||||
Susan J. Kropf | $ | 75,000 | $ | 100,000 | $ | 0 | $ | 175,000 | ||||||||
Douglas S. Luke | $ | 75,000 | $ | 100,000 | $ | 5,000 | $ | 180,000 | ||||||||
Robert C. McCormack* | $ | 85,000 | $ | 100,000 | $ | 2,500 | $ | 187,500 | ||||||||
Timothy H. Powers | $ | 100,000 | $ | 100,000 | $ | 0 | $ | 200,000 | ||||||||
Jane L. Warner | $ | 95,000 | $ | 100,000 | $ | 0 | $ | 195,000 | ||||||||
Alan D. Wilson | $ | 75,000 | $ | 100,000 | $ | 0 | $ | 175,000 | ||||||||
| * | Mr. McCormack will retire from MeadWestvaco’s Board of Directors on April 23, 2012. |
| (1) | This column includes fees earned or paid in cash, representing the annual retainer, and where applicable the lead director retainer, the committee chair retainers and the audit committee member retainer. |
| (2) | The amounts shown in this column represent the aggregate grant date fair market value of stock units granted in 2011 to non-employee directors computed in accordance with FASB ASC Topic 718. Assumptions used in the calculation of these amounts are included in Note K to the company’s audited financial statements for the year ended December 31, 2011 included in the company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2012. |
| (3) | The amounts included in this column represent matching contributions by the MeadWestvaco Foundation with respect to charitable contributions made by the director. The MeadWestvaco |
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Foundation provides for a maximum annual dollar amount for matching funds of $2,500 per calendar year for two designated programs (for an annual total amount of $5,000). |
| (4) | The table below reflects for each director, the aggregate number of outstanding stock and option awards at December 31, 2011. In January 2004 the Board of Directors discontinued the practice of providing an automatic annual grant of stock options to each director. |
| Stock Options | Vested Stock Grants | Total Shares Subject to Outstanding Awards as of December 31, 2011 | ||||||||||
Michael E. Campbell | 3,000 | 31,094 | 34,094 | |||||||||
Dr. Thomas W. Cole, Jr. | 3,000 | 31,094 | 34,094 | |||||||||
James G. Kaiser | 3,736 | 31,094 | 34,830 | |||||||||
Richard B. Kelson | 3,000 | 31,094 | 34,094 | |||||||||
James M. Kilts | 0 | 21,093 | 21,093 | |||||||||
Susan J. Kropf | 3,736 | 31,094 | 34,830 | |||||||||
Douglas S. Luke | 3,000 | 31,094 | 34,094 | |||||||||
Robert C. McCormack* | 3,000 | 31,094 | 34,094 | |||||||||
Timothy H. Powers | 0 | 23,075 | 23,075 | |||||||||
Jane L. Warner | 3,000 | 31,094 | 34,094 | |||||||||
Alan D. Wilson | 0 | 2,405 | 2,405 | |||||||||
| * | Mr. McCormack will retire from MeadWestvaco’s Board of Directors on April 23, 2012. |
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Board Committees
What committees has the Board established?
MeadWestvaco currently has five principal standing committees of the Board of Directors: Audit; Compensation and Organization Development; Finance; Nominating and Governance; and The Committee on Safety, Health and the Environment. Each of these committees operates under a written charter adopted by the Board of Directors and included on the company’s website atwww.meadwestvaco.com under the “Investors” tab at the top of the page and then under the “Corporate Governance” tab. Printed copies are available to any stockholder upon request by calling 1-800-432-9874. MeadWestvaco also has an Executive Committee that may be convened under certain circumstances when a special meeting of the Board of Directors is not practical or is not warranted.
The current members of the Board committees are as follows:
Audit | Finance | |
Richard B. Kelson, Chairman | Robert C. McCormack, Chairman* | |
James G. Kaiser | Michael E. Campbell | |
Gracia C. Martore | James M. Kilts | |
Timothy H. Powers | Susan J. Kropf | |
Jane L. Warner | Douglas S. Luke | |
(all independent directors) | Gracia C. Martore | |
(all independent directors) | ||
Compensation and Organization Development | Nominating and Governance | |
Timothy H. Powers, Chairman | Michael E. Campbell, Chairman | |
Dr. Thomas W. Cole, Jr. | James M. Kilts | |
Richard B. Kelson | Susan J. Kropf | |
James M. Kilts | Robert C. McCormack* | |
Alan D. Wilson | Timothy H. Powers | |
(all independent directors) | (all independent directors) | |
Executive | Safety, Health and the Environment | |
John A. Luke, Jr., Chairman | Jane L. Warner, Chairman | |
Michael E. Campbell | Dr. Thomas W. Cole, Jr. | |
Richard B. Kelson | James G. Kaiser | |
Robert C. McCormack* | Douglas S. Luke | |
Timothy H. Powers | Alan D. Wilson | |
Jane L. Warner | (all independent directors) | |
| * | Mr. McCormack will retire from MeadWestvaco’s Board of Directors on April 23, 2012. |
The functions of the current Board committees are as follows:
Audit Committee
Assists the Board of Directors in fulfilling its responsibilities to stockholders, potential stockholders and the investment community relating to corporate accounting, reporting practices of the company and the quality and integrity of the financial reports of the company. The Committee assists the Board of Directors in reviewing and monitoring (1) the integrity of the financial statements of the company and internal control over financial reporting, (2) the compliance by the company with legal and regulatory requirements, (3) the independence and qualifications of the company’s independent registered public accounting firm and (4) the performance of the company’s internal audit function and independent registered public accounting firm. Included within the scope of its responsibilities, the Committee meets periodically with management to review the company’s risk assessment and risk management policies. The Audit Committee also has sole authority to appoint and replace the independent registered public accounting firm, subject to stockholder ratification. None of the members serve on more than three audit committees. All members are “financially literate” under New York Stock Exchange listing
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standards, and at least one member has such accounting or related financial management expertise as to be considered a “financial expert” under Securities and Exchange Commission rules. The Board has designated the Audit Committee Chair, Richard B. Kelson and Committee members Gracia C. Martore and Timothy H. Powers as “audit committee financial experts” as a result of their experience in senior corporate executive positions with financial oversight responsibilities. The Audit Committee met six times in 2011.
Compensation and Organization Development Committee
Reviews and approves the company’s compensation philosophy. It is charged with the responsibility for assuring that officers and key management personnel are effectively compensated in terms that are motivating, internally equitable and externally competitive. The Committee approves compensation of the company’s executive officers including the Leadership Team (the Chairman and Chief Executive Officer and his direct reports), reviews compensation for remaining senior management, sets the criteria for awards under incentive compensation plans and determines whether such criteria have been met. The Committee seeks to ensure that the company’s compensation policies and plans are appropriately aligned with the company’s strategic objectives to protect and enhance shareholder value. The Committee generally oversees policies and practices of the company that advance its organization development, including succession planning as well as those designed to achieve the most productive engagement of the company’s workforce and the attainment of greater diversity. The Compensation and Organization Development Committee met five times in 2011. The details of the process and procedures followed by the Committee are disclosed in the Compensation Discussion and Analysis and report of the Compensation and Organization Development Committee at page 21.
Executive Committee
Provides for the exercise of certain powers of the Board between meetings of the Board when a special meeting of the Board is not practical or is not warranted. The Executive Committee did not meet in 2011.
Finance Committee
Oversees the company’s financial affairs and recommends those financial actions and policies that are most appropriate to accommodate the company’s operating strategies while maintaining a sound financial condition. The Committee reviews the company’s capital structure, financial plans, policies and requirements as well as strategic actions proposed by the company’s management. Included within the scope of its responsibilities the Committee oversees the company’s risk management programs and activities, and meets periodically with management to review the company’s strategic and financial risk exposures and the steps management has taken to monitor and control such exposures. The Committee also reviews funding recommendations concerning the company’s pension plans together with the investment performance of such plans and the company’s risk management policies and practices. The Finance Committee met three times in 2011.
Nominating and Governance Committee
Studies and makes recommendations concerning the qualifications of all directors, and selects and recommends candidates for election and re-election to the Board and persons to fill vacancies on the Board, as well as the compensation paid to non-employee directors. The Committee also reviews and considers other matters of corporate governance, including trends and emerging expectations, as well as best practices. In advising the Board and management, the Committee may consider a range of governance matters, including Board structure, Board composition, committees and criteria for committee appointment, Board meeting policies, and the ongoing relationship between the Board and management. The Nominating and Governance Committee met four times in 2011.
The Committee on Safety, Health and the Environment
Reviews implementation of the company’s workplace safety and health program. The Committee also reviews the stewardship of the company with respect to conservation of natural resources and its ability
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to protect the natural environment. The Committee receives regular reports from management, reviews safety, health and environmental matters with management, including the company’s compliance record and programs, and makes recommendations as needed. Included within the scope of its responsibilities the Committee meets periodically with management to review the company’s property risk exposures, as well as operational risk exposures impacting safety, health and the environment, and the steps management has taken to monitor and control such exposures. The Committee on Safety, Health and the Environment met two times in 2011.
Corporate Governance Principles
MeadWestvaco’sCorporate Governance Principles, adopted by the Board of Directors in January 2003 and subsequently amended, address, among other things, standards for evaluating the independence of the company’s directors. The full text of thePrinciples,which contain the Board’s independence standards, is available on the company’s website atwww.meadwestvaco.com under the “Investors” tab at the top of the page and then under the “Corporate Governance” tab. Printed copies are available to any stockholder upon request by calling 1-800-432-9874.
Pursuant to thePrinciples, the Board, with the support of the Nominating and Governance Committee, reviewed the independence of directors in February 2012. Transactions and relationships, if any, between each director or any member of his or her immediate family and the company and its subsidiaries were considered. As provided in thePrinciples, the purpose of this review was to determine whether any such relationships or transactions were inconsistent with a determination that the director is independent. The Committee reviewed whether there were commercial, banking, consulting, legal, accounting, charitable and familial relationships between the company and individual directors or their immediate family members. The Committee identified one director, Ms. Jane L. Warner, who currently serves as an executive officer of a company that in the last three fiscal years transacted business with MeadWestvaco on a routine basis under standard commercial terms. In the case of Ms. Warner, who became an executive officer of Illinois Tool Works, Inc. in 2007, MeadWestvaco sales of product to such company in 2009 and 2011 were approximately a fifteenth of one percent of the annual consolidated revenues of such company (there were no sales in 2010), which is well under the independence thresholds established by the Board. Mr. Campbell, Mr. Kaiser, Mr. Kelson, Mr. Kilts and Ms. Kropf are directors of companies with which MeadWestvaco does business. The amount that MeadWestvaco paid to or received from each of these companies in each of the last three fiscal years for goods and services is well below one percent of the annual consolidated gross revenues of these companies.
As a result of this review, the Board affirmatively determined that, with the exception of John A. Luke, Jr., the Chairman and Chief Executive Officer of the company, all of the directors, including each of the members of the Audit, Compensation and Organization Development, and Nominating and Governance Committees, are independent of the company under the standards set forth in theCorporate Governance Principles and the New York Stock Exchange listing standards: Mr. Campbell, Dr. Cole, Mr. Kaiser, Mr. Kelson, Mr. Kilts, Ms. Kropf, Mr. Douglas Luke, Ms. Martore, Mr. Powers, Ms. Warner and Mr. Wilson. The Board determined in 2011 that Mr. McCormack (who will retire from the Board on April 23, 2012) was an independent director.
MeadWestvaco Nominating and Governance Committee
Charter
The Board of Directors of MeadWestvaco adopted a Nominating and Governance Committee charter on January 30, 2002 that was subsequently amended. The Nominating and Governance Committee Charter is included on the company’s website atwww.meadwestvaco.com under the “Investors” tab at the top of the page and then under the “Corporate Governance” tab. Printed copies are available to any stockholder upon request by calling 1-800-432-9874. The charter sets forth the purposes, goals and responsibilities of the Committee. The charter also provides that the Committee annually evaluates its performance. In accordance with the company’sCorporate Governance Principles, the members of the
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Nominating and Governance Committee are required to be independent directors under the criteria established by the Board, consistent with the requirements of the New York Stock Exchange.
Director Candidates
In accordance with theCorporate Governance Principles, the Nominating and Governance Committee is responsible for recommending qualified individuals for membership on the Board of Directors. The Committee is dedicated to periodically reviewing with the Board the requisite qualifications of Board members as well as the composition of the Board as a whole. This assessment addresses independence of Board members, as well as the consideration of professional expertise, educational background, experience, judgment, knowledge and other factors that promote diversity of views and experience in the context of the needs of the Board. General criteria for the nomination of all director candidates include:
| • | the highest integrity and ethical standards; |
| • | the ability to provide wise and informed guidance to management; |
| • | a willingness to pursue thoughtful, objective inquiry on important issues before the company; |
| • | a commitment to enhancing stockholder value; and |
| • | a range of experience and knowledge commensurate with the company’s needs as well as the expectations of knowledgeable investors. |
The Board succession plan states that the Committee seeks the following additional attributes:
| • | a demonstrated track record of success; |
| • | independence, objectivity, perspective and judgment; |
| • | willingness to challenge prevailing opinion; |
| • | capacity for teamwork and compatibility with other Board members; |
| • | specific knowledge in significant areas; and |
| • | consistent availability. |
In addition, the background and specific competencies of candidates are considered. These include business management, financial expertise, manufacturing background, marketing experience, knowledge of the packaging industry, global business experience, innovation, service in government, academia or other public sector professions and independence under the standards of the New York Stock Exchange. The Committee assesses the effectiveness of this objective when evaluating new director candidates and when assessing the composition of the Board. In 2011 and 2012, the Nominating and Governance Committee recommended and the Board approved the addition of two new members, Alan D. Wilson and Gracia C. Martore. The Committee works with an executive search firm to assist in the identification of qualified director candidates. Mr. Wilson and Ms. Martore were initially recommended by other Board members based on their qualifications and experience.
The Committee has recommended to the Board, and the Board has approved the nomination of twelve of the current thirteen Board members (Mr. McCormack will retire from the Board on April 23, 2012) for election as director for a term of one year and until their successors are elected and qualified. Nominees were identified and proposed as candidates for service on the company’s Board based on their record of service and individual contributions to the overall mission and responsibilities of the Board under MeadWestvaco’sCorporate Governance Principles.In addition, the Committee and the Board considered a number of additional factors in the selection of the nominees including but not limited to the following:
| (1) | for Michael E. Campbell, his background, experience and judgment as chief executive officer of a major publicly traded manufacturing company which provides him with leadership, business and governance skills that benefit our Board; |
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| (2) | for Dr. Thomas W. Cole, Jr., his professional and scientific experience and background and judgment as executive for institutions of higher education which provides him with leadership and governance skills that benefit our Board; |
| (3) | for James G. Kaiser, his background, experience and judgment as an executive officer for companies in the manufacturing and service sectors which provides him with leadership, business perspective and operating skills that benefit our Board; |
| (4) | for Richard B. Kelson, his background, experience and judgment as an executive officer for a major publicly traded global company in the areas of finance, safety and environment and law which provides him with leadership, governance and financial expertise that benefit our Board; |
| (5) | for James M. Kilts, his background, experience and judgment as chief executive officer of major publicly traded global consumer products companies which provides valuable leadership, business perspective, market expertise and governance skills that benefit our Board; |
| (6) | for Susan J. Kropf, her background, experience and judgment as an executive officer of a major publicly traded global consumer products company which provides valuable leadership, business perspective, market expertise and governance skills that benefits our Board; |
| (7) | for Douglas S. Luke, his background, experience and judgment as chief executive officer of a financial investment company which provides valuable leadership and financial expertise that benefits our Board; |
| (8) | for John A. Luke, Jr., his background, experience and judgment, and his unique knowledge and understanding of MeadWestvaco’s operations as chief executive officer of the company which provides him with valuable leadership, business and governance skills that benefit our Board; |
| (9) | for Gracia C. Martore, her background, experience and judgment as chief executive officer and chief financial officer of a major publicly traded media company which provides her with leadership, business, financial and governance skills that benefit our Board; |
| (10) | for Timothy H. Powers, his background, experience and judgment as chief executive officer and chief financial officer of a major publicly traded manufacturing company which provides him with broad leadership, management and governance skills that benefit our Board; |
| (11) | for Jane L. Warner, her background, experience and judgment as an executive officer for major publicly traded manufacturing companies which provides valuable leadership, operational and business expertise that benefit the Board; and |
| (12) | for Alan D. Wilson, his background, experience and judgment as chief executive officer of a major publicly traded multinational consumer foods company which provides him with leadership, market expertise, and business and governance skills that benefit our Board. |
As indicated above, the substantial business and professional background and experience, as well as the considerable knowledge and judgment of each member of the MeadWestvaco Board is directly relevant to and supportive of the Board’s ongoing deliberations regarding the important matters before it, including the oversight of the company’s business and its management, as well as the execution of the company’s strategy.
Stockholder Recommendations for Director Candidates
The Nominating and Governance Committee will consider stockholder recommendations for nominees to the Board of Directors. Stockholders’ recommendations for director nominees should also provide to the Nominating and Governance Committee the information as set forth in the company’s bylaws with respect to any individual they wish to recommend and such recommendations are treated in the same manner as other recommendations for nominees for director. In addition, any stockholder entitled to vote for the election of directors at a meeting may nominate persons for election as directors in accordance with the requirements, including timing information, set forth in the company’s bylaws.
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Code of Conduct
The MeadWestvaco Code of Conduct applies to all MeadWestvaco directors and employees worldwide, including the Chief Executive Officer and the Chief Financial Officer. These policies and principles support the company’s core values of integrity, respect for the individual, commitment to excellence and teamwork. TheCode of Conduct can be found on the company’s website atwww.meadwestvaco.com under the “Investors” tab at the top of the page and then under the “Corporate Governance” tab. Printed copies are available to any stockholder upon request by calling 1-800-432-9874. Any future changes or amendments to our Code of Conduct and any waiver of our Code of Conduct that applies to our Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, or member of the Board of Directors, will be posted on the company’s website atwww.meadwestvaco.com under the “Investors” tab at the top of the page and then under the “Corporate Governance” tab.
Contact MeadWestvaco Board
Anyone who wants specifically to raise a concern to the Board of Directors, the non-management members of the Board of Directors, or the lead director, including concerns about the company’s accounting, internal accounting controls or auditing matters, may contact the Chair of the Audit Committee directly. Such communications will also be received and reviewed by the General Counsel and treated as confidentially as possible, consistent with ensuring appropriate and careful review of the matter. Communications may be anonymous. The Chair of the Audit Committee will report as appropriate to the Board of Directors regarding such concerns. The company’sCode of Conduct prohibits any employee from taking any adverse action against anyone who in good faith provides information concerning suspected violations of law or company policy.
To convey a concern to the Chair of the Audit Committee, you may call 1-888-536-1502, or write to: Audit Committee Chair, MeadWestvaco Corporation, Attention: General Counsel, 501 South 5th Street, Richmond, Virginia 23219-0501. If preferred, concerns may be emailed using the form set forth at the following address:http://www.meadwestvaco.com/InvestorRelations/CorporateGovernance/MWV001063. Inclusion of your name and email address is optional.
Director Attendance at Annual Meetings
Directors are invited and encouraged to attend the company’s Annual Meeting of Stockholders. All directors attended the 2011 meeting.
Board Leadership Structure
MeadWestvaco’s business is conducted by its officers and employees under the direction of the chief executive officer (“CEO”) and the oversight of the Board of Directors. Currently, Mr. John A. Luke, Jr. serves as Chairman of the Board and CEO. The Board believes that a single person, acting in the capacities of Chairman and CEO, serves as the most effective bridge between the Board and management and provides critical leadership for carrying out the company’s strategic initiatives and confronting its challenges. The Board believes that the company can most effectively execute its strategy and business plans to maximize stockholder value if the Chairman of the Board is also a member of the management team. Notwithstanding the foregoing, the company has adopted various policies to provide for a strong and independent board. All directors, with the exception of the Chairman, are independent as defined under NYSE regulations, and all Committees of the Board (with the exception of the Executive Committee) are made up entirely of independent directors. In addition, the Board and Nominating and Governance Committee have assembled a Board comprised of capable and experienced directors who are currently or have recently been leaders of major companies or institutions, are independent thinkers and have a wide range of expertise and skills.
In addition, in 2007 the independent directors of the Board established the position of an independent lead director. The lead director chairs executive session meetings of non-management directors. Mr. Michael E. Campbell was designated as lead director to serve for an initial term of three years, which was extended by the Board for an additional three year term in 2010. The lead director’s duties
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and responsibilities include: (i) presiding at all meetings of the Board at which the Chairman and CEO is not present, including executive sessions of the independent directors; (ii) orchestrating dialogue among the independent directors to enhance productivity of conversations with management; (iii) serving as liaison between the Chairman and CEO and the independent directors; (iv) working with the Chairman and CEO in developing the Board’s agenda, including the review of the form of information sent to the Board, and proposed meeting schedules to assure that there is sufficient time for discussion of all agenda items; and (v) in extraordinary circumstances (for example, the incapacity of the Chairman and CEO) serving as the Board’s representative for consultation with management, shareholders and other interested parties. Based on these duties and responsibilities, the Board believes that the lead director provides an effective balance to the combined role of CEO and Chairman.
Additionally, the Board regularly meets in executive session without the presence of management. The lead director presides at these meetings and provides the Board’s guidance and feedback to the Chairman and the company’s management team. Further, the Board has full access to the company’s leadership team.
Executive Sessions
The non-management directors met in executive session at each of the six regularly scheduled Board meetings in 2011. The lead director chairs the executive sessions and reports back as appropriate to the Chief Executive Officer.
Board’s Role in the Oversight of Risk
Under the MeadWestvacoCorporate Governance Principles, it is the duty of the Board to oversee the management of MeadWestvaco’s business, including the oversight of risk. The company’s Leadership Team is responsible for the comprehensive management of all material risks to the company’s businesses. The Board and its Committees, in their oversight role, periodically reviews the company’s risk management policies and programs to provide that risk management is consistent with the company’s corporate strategy and effective in fostering a culture of risk-aware and risk-adjusted decision-making throughout the organization. The company’s risk management program functions to bring to the Board’s attention the company’s most material risks for evaluation, including strategic, operational, financial and legal risks.
The Board and its Committees work with the company’s Leadership Team to promote and cultivate a corporate culture and environment that incorporates enterprise-wide risk management into corporate strategy and business operations. The Board has delegated to its Committees responsibility to evaluate elements of the company’s risk management program based on each Committee’s expertise and applicable regulatory requirements. Each Committee coordinates and reports on its risk assessment review with other Committees and the full Board. In evaluating risk, the Board and its Committees consider whether the company’s risk programs adequately identify material risks the company faces in a timely manner; implement appropriate risk management strategies that are responsive to such material risk; and adequately transmit necessary information with respect to material risks within the organization.
Director Stock Ownership
In February 2005, the Board approved stock ownership guidelines for non-employee directors pursuant to which non-employee directors are encouraged to own, at a minimum, MeadWestvaco stock or stock units equal to three times their annual cash retainer within three years of joining the Board. Discretion may be applied in periods of volatile markets.
Prohibition Against Hedging
The company has a policy that prohibits our directors and officers from hedging their ownership of the company’s stock, including trading in options, puts, calls or other derivative instruments related to company stock or debt.
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Certain Relationships and Related Transactions
The Board recognizes that Related Person Transactions (as defined below) can present potential or actual conflicts of interest and create the appearance that company decisions are based on considerations other than the best interests of the company and its stockholders. In January 2007, the Board delegated authority to the Nominating and Governance Committee (the “N&G Committee”) to review and approve Related Person Transactions, and the Committee has adopted a written policy and procedures set forth below for the review, approval, or ratification of Related Person Transactions. A “Related Person Transaction” is any transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness), or any series of similar transactions, arrangements or relationships, in which (a) the aggregate amount involved will or may be expected to exceed $120,000 in any fiscal year, (b) the company is a participant, and (c) any Related Person has or will have a direct or indirect interest (other than solely as a result of being a director or trustee (or any similar position) or a less than 10 percent beneficial owner of another entity). A “Related Person” is any (a) person who is an executive officer, director or nominee for election as a director of the company, (b) greater than 5 percent beneficial owner of the company’s outstanding common stock, or (c) Immediate Family Member of any of the foregoing. An “Immediate Family Member” is any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law and any person (other than a tenant or employee) sharing the household of a person. The N&G Committee shall review all of the relevant facts and circumstances of all Related Person Transactions that require the N&G Committee’s approval and either approve or disapprove of the entry into the Related Person Transaction, subject to the following exceptions:
| • | employment of an executive officer, who is not an immediate family member of another executive officer or director of the company (provided compensation approved by the Compensation and Organization Development Committee of the Board); |
| • | compensation paid to a director approved by the Board; |
| • | any transaction with another company for which a Related Person’s only relationship is as (i) an employee (other than an executive officer) or director, (ii) a beneficial owner of less than 10 percent of that company’s outstanding equity, if the aggregate amount involved does not exceed the greater of $1,000,000 or 2 percent of that company’s total annual revenue; |
| • | any charitable contribution, grant or endowment by MeadWestvaco to a charitable organization, foundation or university where a Related Person’s only relationship is as an employee (other than an executive officer) or director, if the aggregate amount involved does not exceed the lesser of $1,000,000 or 2 percent of the charitable organization’s total annual receipts; |
| • | transactions where all stockholders received proportional benefits. |
In determining whether to approve or ratify a Related Person Transaction, the N&G Committee will take into account, among other factors it deems appropriate, whether the Related Person Transaction is on terms that are or would be generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the Related Person’s interest in the transaction.
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Report of the Audit Committee of the Board of Directors
Membership and Role of the Audit Committee
The Audit Committee consists of five members of the company’s Board of Directors. Each member of the Audit Committee is required to meet heightened independence standards and possesses other qualifications as required by the New York Stock Exchange. All of the members of the Audit Committee, moreover, are independent of the company under the standards set forth in theCorporate Governance Principles. The Audit Committee operates under a written charter adopted by the Board of Directors. The full text of the Audit Committee Charter is included on the company’s website atwww.meadwestvaco.com under the “Investors” tab at the top of the page and then under the “Corporate Governance” tab. Printed copies are available to any stockholder upon request by calling 1-800-432-9874.
The primary function of the Audit Committee is to assist the Board of Directors in reviewing and monitoring (1) the integrity of the financial statements of the company and internal control over financial reporting, (2) the compliance by the company with legal and regulatory requirements, (3) the independence and qualifications of the company’s independent registered public accounting firm and (4) the performance of the company’s internal audit function and independent registered public accounting firm.
Review of the Company’s Audited Financial Statements for the Year Ended December 31, 2011 and Internal Control over Financial Reporting as of December 31, 2011
Management is responsible for the financial reporting process, including the system of internal controls, and for the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. PricewaterhouseCoopers LLP, the company’s independent registered public accounting firm for 2011, is responsible for auditing those financial statements and the company’s internal control over financial reporting. The Audit Committee discussed with PricewaterhouseCoopers LLP the matters that are required to be discussed under Public Company Accounting Oversight Board (“PCAOB”) Standards. The Audit Committee also received the written disclosures and letter from PricewaterhouseCoopers LLP required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the Audit Committee concerning independence (Independence Discussion with Audit Committees), and has discussed with PricewaterhouseCoopers LLP the independence of PricewaterhouseCoopers LLP from MeadWestvaco and its management. The Audit Committee has reviewed and discussed the audited financial statements and management’s assessment of the effectiveness of internal control over financial reporting with management.
The Audit Committee of MeadWestvaco reviewed and discussed the foregoing as reflected in the minutes of the Audit Committee, and on the basis of that review and the discussions referred to above, recommended to the Board of Directors that the audited financial statements of MeadWestvaco for the year ended December 31, 2011 be included in the Annual Report on Form 10-K for the year ended December 31, 2011 for filing by MeadWestvaco with the United States Securities and Exchange Commission.
The Audit Committee met six times in 2011. After each meeting, the Audit Committee met in executive sessions with the independent registered public accounting firm and the director of internal audit to review, among other things, staffing, the audit plan and reports on effectiveness of internal control over financial reporting.
The Audit Committee approved 100% of the audit, audit-related, tax and other services for the company performed by the independent registered public accounting firm in 2011 and 2010.
The Audit Committee concluded that the provision of non-audit services in 2011 and 2010 by PricewaterhouseCoopers LLP was compatible with their independence.
Submitted by:
Richard B. Kelson, Chairman | Timothy H. Powers | |
James G. Kaiser | Jane L. Warner | |
Gracia C. Martore |
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The following fees were billed to MeadWestvaco for services rendered by PricewaterhouseCoopers LLP for the years ended December 31, 2011 and 2010:
| Year ended December 31, 2011 | Year ended December 31, 2010 | |||||||
Audit fees | $ | 6,601,000 | $ | 5,674,000 | ||||
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Audit-related fees(1) | ||||||||
Other attest services | 20,000 | 20,000 | ||||||
Other audit-related | 265,000 | 125,000 | ||||||
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Total audit-related fees | $ | 285,000 | $ | 145,000 | ||||
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Tax fees | ||||||||
Tax compliance and other matters(2) | $ | 108,000 | $ | 95,000 | ||||
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Other fees(3) | $ | 25,000 | $ | 49,000 | ||||
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| (1) | Audit-related fees in 2011 and 2010 are comprised of agreed-upon procedures and accounting advisory services. Fees in 2011 also include $150,000 for the review of an S-4 registration statement related to the spin-off and merger of the company’s Consumer & Office Products business with ACCO Brands Corporation. |
| (2) | Tax fees reflect fees for professional services performed by PricewaterhouseCoopers LLP (“PwC”) for tax advice, international tax compliance and tax technology. PwC has not provided any services related to tax shelter transactions, nor has PwC provided any services under contingent fee arrangements. |
| (3) | Other fees are comprised of license fees for access to the PwC accounting and reporting database and other advisory services. |
Policy for Approval of Audit and Permitted Non-Audit Services
All audit, audit-related, tax and other services were pre-approved by the Audit Committee, which concluded that the provision of such services by PricewaterhouseCoopers LLP was compatible with the maintenance of that firm’s independence in the conduct of its auditing functions. The Audit Committee’s Pre-Approval Policy provides for pre-approval of specifically described audit, audit-related and tax services by the Committee on an annual basis as long as the Audit Committee is informed of each service, but an individual service engagement anticipated to exceed pre-established thresholds must be separately approved. The policy authorizes the Audit Committee to delegate to one or more of its members pre-approval authority with respect to permitted non-audit services.
2. Proposal to Ratify Appointment of the Independent Registered Public Accounting Firm
The Audit Committee of the Board of Directors has appointed PricewaterhouseCoopers LLP to serve as the company’s independent registered public accounting firm for 2012. Pursuant to the company’s bylaws and as a matter of good corporate governance, the Board is submitting this selection for ratification by the stockholders at the 2012 Annual Meeting. PricewaterhouseCoopers LLP currently serves as the company’s independent registered public accounting firm, and received $7,019,000 in fees and expenses during the year ended December 31, 2011. The Audit Committee has been advised by PricewaterhouseCoopers LLP that neither the firm, nor any of its partners or staff, has any direct financial interest or material indirect financial interest in the company or any of its subsidiaries. Representatives of PricewaterhouseCoopers LLP who plan to attend the Annual Meeting, will have an opportunity to make a statement if they desire and will be available to respond to appropriate questions. If the stockholders do not ratify this appointment, the Audit Committee will consider the appointment of another independent registered public accounting firm.
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The Board of Directors unanimously recommends a vote FOR the ratification of the appointment of PricewaterhouseCoopers LLP as the company’s independent registered public accounting firm.
Executive Compensation
Compensation and Organization Development Committee
The Compensation and Organization Development Committee, a Board committee, consists of five members of the company’s Board of Directors, none of whom is or has been at any time an employee of the company or its subsidiaries, and none of whom is receiving any compensation from the company or its subsidiaries other than as a director. All of the members of the Compensation and Organization Development Committee, moreover, are independent of the company under the standards set forth in theCorporate Governance Principlesand the rules of the New York Stock Exchange. The Committee is charged with assuring that the company’s executive officers are effectively compensated in terms that are motivating, externally competitive and internally equitable. The Committee considers and approves all compensation and benefits for the company’s executive officers. The Committee also reviews compensation of the company’s business unit presidents, key personnel and corporate officers. With regard to compensation, the Committee approves awards for cash and equity compensation and sets criteria for awards under incentive compensation plans for the company’s executive officers and determines whether such criteria have been met. In addition, the Committee reviews and recommends for approval by the Board of Directors the company’s various employee benefit plans, as appropriate. The Committee also oversees the development of the company’s leadership succession plan and employee relations strategies. The Compensation and Organization Development Committee Charter is included on the company’s website atwww.meadwestvaco.com under the “Investors” tab at the top of the page and then under the “Corporate Governance” tab. Printed copies are available to any stockholder upon request by calling 1-800-432-9874.
Compensation Discussion and Analysis
Business Overview
In 2011, MWV continued its transformation into a global packaging company. Guided by its maximizing value discipline, which at its core is about generating higher levels of profitable growth through an economic profit lens, the company:
| • | Achieved record segment operating results for the year |
| • | Earnings of $258 million from continuing operations, or $1.49 per share |
| • | Pre-tax earnings from the company’s business segments (before Corporate and Other) of $838 million, a 15% increase from $731 million in 2010 |
| • | Exceeded productivity savings targets by $69 million resulting in 2011 annual incentive plan payout; see page 30 |
| • | Generated solid cash flow from operations of $565 million |
| • | Delivered strong return to shareholders—paid a regular quarterly dividend of $.25 cents per common share each quarter |
| • | Achieved change in economic profit (as measured by the company ) of $119 million resulting in 2010 long-term awards vesting; see page 31 |
| • | Delivered annual total shareholder return of 18% representing top quartile performance relative to Peer Group |
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MWV has demonstrated year over year improvement in operating income, as measured by Earnings Before Interest and Taxes (EBIT), as well as a higher operating profitability, as measured by EBIT Margin, reflecting a strong and sustainable business model as follows:
EBIT* / EBIT Margin
| * | EBIT definition appears on page 29, which is the basis for funding of the 2011 annual incentive plan pursuant to which awards were payable. |
Business Strategy
MWV continues to position itself as the global leader in packaging and packaging solutions for several growing consumer products markets, including food, beverage, healthcare, personal care, home and garden and tobacco. The company is focused on generating profitable growth in these markets by building strong customer relationships through deep market knowledge, and developing insight-inspire innovation. The company is also implementing the same strategies in its other businesses, including Specialty Chemicals (“SCD”), Community Development & Land Management (“CDLM”) and Consumer & Office Products.
In November 2011, MWV announced a profitable growth strategy that is expected to generate sustainable incremental profitable revenue growth over the next three to five years. In order to achieve this, the company is executing on the following four areas:
| I. | Commercial Excellence Discipline: Develop and execute growth plans for key strategic accounts—the foundation of all strategic growth priorities |
| • | Focuses on Key Customers, linking their strategic priorities with MWV solutions |
| • | Links MWV with Key Accounts across multiple leadership levels |
| • | Raises performance criteria for all commercial talent |
| • | Improves the way MWV goes to market |
| • | Distinguishes MWV from its competitors |
| The Commercial Excellence Discipline enhances and expands the range of profitable growth opportunities for MWV and its customers. |
| II. | Innovation:Commercialize innovation platforms and develop capabilities for next-generation technologies—committed to managing insight inspired innovation to meet customers’ requirements and consumers’ most urgent unmet needs |
| III. | Growth in Emerging Markets: identify and build leading positions in Brazil, China and India |
| IV. | Expanded Participation:identify and build positions in attractive packaging end markets for new materials and packaging systems to compliment the breath of the company’s packaging business. |
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Through this disciplined approach to these four areas of growth, MWV expects to drive sustainable incremental profitable revenue growth in each of its businesses.
In addition to the company’s success in global packaging markets, the Specialty Chemicals business produced record results in 2011 delivering 19% increased sales growth and 44% profit growth in its segment. This growth was driven by continued success in penetrating higher value markets for pine chemicals, asphalt additives and carbon technologies. Similarly, MWV’s CDLM business continued to make progress in enhancing land values (through entitlements and master planning activities) laying the groundwork to maximize future real estate values through development projects as well as ongoing rural land sales.
Consistent with its commitment to maximize long-term shareholder value, the company also announced it would spin off the Consumer & Office Products business and merge it with ACCO Brands in a tax efficient transaction.
Executive Summary
MWV’s compensation program is designed to reward senior leaders for the successful execution of MWV’s strategy and achievement of its goals. The Compensation Discussion and Analysis discusses the compensation program and the compensation decisions made for fiscal year 2011 with respect to the following named executive officers:
John A. Luke, Jr., Chairman and Chief Executive Officer
E. Mark Rajkowski, Senior Vice President and Chief Financial Officer
James A. Buzzard, President
Wendell L. Willkie, II, Senior Vice President, General Counsel and Secretary; and
Robert A. Feeser, Senior Vice President
2011 Say on Pay Advisory Vote on Executive Compensation
As MWV evaluated its compensation practices and talent needs for 2011, we were mindful of the strong support the company’s shareholders expressed for our pay for performance compensation philosophy when they approved the company’s executive compensation Say on Pay vote and supported our decision to conduct an annual Say on Pay frequency vote. As a result, the Committee retained the company’s general approach to executive compensation, emphasizing performance-based short-term and long-term compensation, which rewards our most senior executives only when they deliver value for the company’s shareholders. MWV believes that its strong pay for performance culture, compensation decisions and sound compensation practices, highlights of which are described below, contributed to the company’s success in 2011 and position it for continued success.
Strong Pay for Performance-Based Culture
| • | Designed 2011 annual incentive plan based on economic profit (“EP”) goals linked to financial returns that exceed the cost of capital, which over the long-term drives shareholder value |
Financial Results and Compensation Decisions
| • | Approved 2011 annual incentive payouts at 155% of target levels due to outstanding performance against financial goals for annual incentive performance-based compensation established by the Compensation and Organization Development Committee |
| • | EBIT of $629 million against a target of $575 million |
| • | Economic Profit of $127 million against a target of $85 million |
| • | A 6.5% increase in Revenue against a target increase of 4% |
| • | Productivity savings of $239 million against a target of $170 million |
| • | Authorized vesting of 2010 long-term performance-based equity at 118% of target level, due to above target level performance with respect to cumulative change in economic profit between January 1, 2010 and December 31, 2011 |
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Sound Compensation Practices that Promote Good Corporate Governance
| • | Maintained a Recoupment/Clawback Policy applicable to all incentive programs |
| • | Continued Stock Ownership Guidelines, encouraging executives to build and maintain ownership in the company |
| • | Administered equity incentive program based on Equity Grant Practices Policy |
| • | Retained expert executive compensation consultants, one of whom reports directly to the Committee |
| • | Reviewed and expanded the Compensation Peer Group of eleven to twenty companies to reflect the broader businesses in which MWV competes |
| • | Reviewed MWV pay and financial performance against internal measures and compensation Peer Group to ensure compensation outcomes aligned with relative performance |
| • | Continued practice of not providing “gross ups” to the named executive officers (other than modified gross up in change of control agreements, which have not been changed since 2008) |
| • | Maintained anti-hedging policy that prohibits company directors and officers from hedging their ownership of company stock (see page 17) |
| • | Continued practice of not providing dividends on unvested performance shares – no dividends are paid until performance shares are earned and vested |
| • | Reviewed and actively discussed succession plans |
| • | Assessed risk associated with company’s compensation policies and programs and evaluated potential linkage between compensation and risk taking |
Objectives of the Company’s Executive Compensation Program
An understanding of the company’s executive compensation program begins with the objectives the program is intended to accomplish. These include:
| • | Rewarding strong performance. The company’s compensation program links rewards to strong performance through the achievement of annual and long-term corporate, business unit and individual goals based on company strategy. |
| • | Aligning the interests of the company’s executives with those of shareholders. A significant portion of the total compensation paid to the company’s named executive officers is delivered in the form of equity-based compensation. This, along with our requirement that executives hold meaningful amounts of equity, serves to further align the interests of the company’s executives with those of its shareholders. |
| • | Offering competitive compensation. The company seeks to offer a total rewards program that is competitive with the compensation practices of general industry and select peer companies in order to attract, retain and provide appropriate incentives for outstanding talent that is critical to executing the company’s strategy. |
How executive compensation is determined
The role of the Compensation and Organization Development Committee, CAP and of management
Committee Role. The Committee is charged with responsibility for assuring that the company’s executive officers and key management personnel are effectively compensated with respect to all elements of compensation. The Committee establishes the Chairman and Chief Executive Officer’s compensation, including base salary and annual and long-term incentive awards, and reviews and approves compensation for the other executive officers of the company. Additional information on the role of the Committee appears on page 21.
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Consultant Role. An independent executive compensation consulting firm, Compensation Advisory Partners (“CAP”), LLC, is engaged by and reports directly to the Committee. CAP assists the Committee in reviewing the company’s executive compensation programs, its pay and performance linkages against internal and external benchmarks and the company’s peer group. CAP also advises the Committee on executive compensation matters relating to compensation strategy, program design, competitive trends and regulatory matters. CAP participates in most Committee meetings, including executive sessions at which management is not present.
Management Role. Management assists the Committee in fulfilling its responsibilities by evaluating executive performance, proposing appropriate business performance targets for the annual and long-term incentive plans and by developing recommendations as to appropriate base salary levels and incentive award amounts, as well as compensation and benefit design changes.
Chairman and CEO Role. While the Chairman and Chief Executive Officer provides recommendations to the Committee with respect to the compensation for his direct reports, the Committee has final authority with regard to compensation decisions for executive officers reporting to him. Decisions with respect to the Chairman and Chief Executive Officer’s compensation (including base salary, annual and long-term incentive targets and awards) are made by the Committee in executive session, with no input from anyone on the management team.
How the elements of the company’s 2011 compensation program were selected
With the assistance of management and CAP (as described above), the Committee determined the elements of the company’s compensation program so as to further the company’s objectives to provide a competitive total rewards program, to promote a pay-for-performance philosophy and to align the interests of executives with shareholders.
2011 Key Compensation Elements
Element | Description | Performance Considerations | Primary Objective | |||
Base Salary | Fixed cash payment | Based on level and scope of responsibility and experience, with increases driven by individual performance | Maintain competitive pay practices | |||
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Annual Incentive Compensation Opportunity | Short-term cash payment | Measured by performance towards short-term company financial and strategic objectives and influenced by business unit performance, if applicable | Promote achievement of short-term financial and strategic objectives | |||
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Long-Term Incentive Compensation Opportunity | 100% delivered in the form of stock options | Creation of shareholder value and realization of long-term financial and strategic goals | Promote alignment with shareholders |
The Committee believes the combination of base salary, annual incentive award payable in cash, and long-term equity incentive compensation is appropriate to provide a competitive program based on prevailing market practices, which enables MWV to attract and retain key talent that is necessary for the
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company to successfully execute our strategy. The Committee uses these key compensation elements as a means to differentiate between executives based on individual job responsibility and competitive position and to reflect the individual executive’s ability to influence the company’s financial performance.
For the 2011 year the Committee authorized no increases in base salary for the named executive officers. However, the Committee removed the five percent voluntary reduction to the named executive officers’ base salaries, which measure was taken in support of the company’s cost savings initiatives in 2009.
With respect to determining the appropriate mix of compensation, the Committee believes it is appropriate to link a significant portion of target compensation to performance through the use of an annual cash incentive stock options and performance-based restricted stock units (“RSU”). The RSUs vest only upon the achievement of the company’s strategic pre-established goals. Stock options, deliver compensation only if the company’s stock price rises above the stock option exercise price, which is the market price on the grant date. The Committee does not believe that any specific formula should be used to determine the allocation between performance-based compensation and base salary though, as demonstrated below, the majority of compensation to the named executive officers is performance-based.
The Committee also reviews other elements of executive compensation, including qualified retirement plans, perquisites and change of control arrangements, on a regular basis. While the Committee considers these programs in the context of its assessment of overall benefits and post-termination compensation design, it does not consider these elements as a factor in its annual compensation. Each of these is discussed below.
In 2011, performance-based (or at risk) compensation consisted of annual incentive cash awards and non-qualified stock options. Each of the named executive officers received compensation opportunities described in the table below. Both the annual incentive and the long-term award are performance-based. Total direct compensation opportunity for 2011 included base salary, stock options and the opportunity to earn an annual incentive and a long-term award, neither of which are guaranteed.
NAME | BASE SALARY | ANNUAL INCENTIVE AWARD TARGET | LONG-TERM INCENTIVE AWARD | AT-RISK PERFORMANCE- BASED COMPENSATION | TOTAL DIRECT COMPENSATION OPPORTUNITY | |||||||
| STOCK OPTIONS | PERFORMANCE- BASED RSUs* | |||||||||||
John A. Luke, Jr. | 29% | 31% | 40% | 0% | 71% | $3,702,012 | ||||||
E. Mark Rajkowski | 40% | 28% | 32% | 0% | 60% | $1,471,083 | ||||||
James A. Buzzard | 38% | 33% | 29% | 0% | 62% | $1,804,853 | ||||||
Wendell L. Willkie, II | 44% | 26% | 30% | 0% | 56% | $1,123,110 | ||||||
Robert A. Feeser | 46% | 30% | 24% | 0% | 54% | $ 999,155 | ||||||
| * | NOTE: In light of the 2010 performance-based RSU grant which was front loaded to approximate a three-year grant, the Committee did not award any performance-based RSUs to named executive officers in 2011. |
The use of market comparison data
The “Comparison Group” or “Peer Group”
The Committee compares the company’s executive compensation program to that of a select group of peer companies. This review is done with respect to the structure of the company’s executive compensation program, target incentive compensation and actual compensation.
The peer group used by the Committee in 2011 consisted of twenty companies, some of whom (along with other companies) MeadWestvaco may compete with for executive talent. This group is referred to as the “Comparison Group” or the “Peer Group.” The companies included in the Comparison Group
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were selected by the Committee based on the recommendation of CAP. The Comparison Group was expanded in 2011 from eleven companies to twenty to reflect a broader more accurate group of businesses with which MWV competes. Criteria utilized by CAP in determining the designated peer group it recommended to the Committee were:
| • | Public companies within the packaging or chemicals industry; |
| • | Companies that compete for talent with MeadWestvaco; and |
| • | Companies that typically have a similar size in terms of revenue, market capitalization and mix of businesses. |
Note: As a general rule, CAP focuses on companies that are approximately fifty percent to two hundred percent of MWV’s revenue, with the total group having a median revenue around that of MWV.
The following chart includes member companies of the Comparison Group:
AptarGroup, Inc. | Huntsman Corporation | |
Air Products & Chemicals, Inc. | International Paper Company | |
Avery Denison Corporation | Owens-Illinois, Incorporated | |
Ball Corporation | Packaging Corporation of America | |
Bemis Company, Incorporated | Rock-Tenn Company | |
Crown Holdings, Incorporated | Sealed Air Corporation | |
Domtar Corporation | Silgan Holdings, Incorporated | |
Eastman Chemical Company | Sonoco Products Company | |
Graphic Packaging Holding Company | Temple-Inland, Inc | |
Grief Incorporated | Weyerhaeuser Company |
The percentile numbers for market capitalization and revenue of the Peer Group versus MWV, as of December 31, 2010 are listed in millions below; this criteria was used by the Committee to select the expanded Peer Group in 2011:
Market Capitalization | Revenue | |||
25th Percentile | $2,877 | $3,715 | ||
Median | $3,612 | $5,339 | ||
75th Percentile | $5,493 | $6,882 | ||
MWV | $4,401 | $5,693 |
Compensation Structure, Targets and CAP Report Review
In 2011, CAP conducted a comparison of the company’s executive compensation structure and practices, as they relate to the named executive officers, to those of the Comparison Group. This review covered several aspects of the company’s program, including compensation elements, target and actual pay levels and performance measures. Based on its review, CAP concluded that the structure of the company’s compensation program (e.g., the mix of salary, annual incentives, and long-term performance incentive awards) was consistent with market practice and appropriately supported the company’s strategies and objectives. CAP also concluded that the overall total direct target compensation levels for the named executive officers as a group were appropriately positioned competitively around the median as compared to the Comparison Group.
Other market data from established executive compensation surveys was also used in reviewing compensation target levels for each of the key elements of the company’s compensation program (base salary, annual incentive and long-term incentive compensation) and for the combined total of these elements. Overall, we position total compensation within a competitive range. For each of the key elements, the Committee reviewed the competitive median relative to the Comparison Group and
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general survey data as a guide to establish compensation and target levels. The Committee did not target a specific percentile ranking for individual elements of compensation or total direct compensation targets. Instead, the Committee reviewed each element of compensation within the competitive range (at or around the median), assuming payout of performance-based awards at target. In addition, an executive’s actual compensation may be more or less than the target amount set by the Committee based on performance, changes in stock price and other factors.
Reviewing compensation targets based on market comparison data (of the Comparison Group and general survey data) is intended to ensure that the company’s overall compensation practices are competitive in terms of attracting, retaining and motivating superior executive talent. Because each compensation element is targeted to be within a competitive range (at or around the median) based on available data, compensation decisions made with respect to one element of compensation do not necessarily affect decisions made with respect to other compensation elements. It is also for this reason that no specific formula is used to determine the allocation between cash and equity-based compensation. In addition, because a named executive officer’s compensation target is established and/or confirmed by reference to persons with similar duties at the Comparison Group, the Committee does not establish any fixed relationship between the compensation of the Chairman and Chief Executive Officer and that of any other named executive officer.
The role of individual performance goals
Individual goals are set each year for the named executive officers. These include financial, organizational and operational objectives that are tied to the company’s business plan and overall strategy as they relate to such officer’s responsibilities and job function. In addition to the achievement of corporate goals, the Committee considers an executive’s performance (as evaluated and communicated by management to the Committee) against his or her individual goals for the year when making compensation decisions. This enables the Committee to differentiate compensation among executives, as necessary, and emphasizes the link between personal performance and compensation. Adjustments based on individual performance, if any, are made after consideration of the company’s progress against established performance goals.
Performance-Based Elements of the Company’s Executive Compensation Program
As stated earlier, key elements of the company’s executive compensation program are performance-based and include an annual incentive award opportunity and a long-term equity-based incentive compensation award.
2011 Performance-Based Annual Incentive Awards (Cash)
The annual incentive award program provides the named executive officers an opportunity to receive an annual cash payment in addition to base salary. Annual incentive awards are intended to reward the named executive officer primarily for the performance of the company.
Target Awards: The annual incentive award targets for the named executive officers are reviewed annually by the Committee to confirm that they are reasonable and appropriate (at or around the median) when viewed against external competitive data. These targets are expressed as a percentage of base salary and were increased in 2011 for Messrs. Buzzard and Rajkowski to reflect current job scope, increased responsibility and competitive data. The table below illustrates the 2011 annual incentive award target for each named executive officer.
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2011 Annual Incentive Award Targets
NAME | BASE SALARY | TARGET AS % OF BASE SALARY | $ VALUE OF TARGET | |||||||
John A. Luke, Jr. | $ | 1,060,110 | 110% | $ | 1,166,121 | |||||
E. Mark Rajkowski | $ | 592,840 | 70% | $ | 414,988 | |||||
James A. Buzzard | $ | 690,510 | 85% | $ | 586,934 | |||||
Wendell L. Willkie, II | $ | 494,120 | 60% | $ | 296,472 | |||||
Robert A. Feeser | $ | 459,669 | 65% | $ | 298,785 | |||||
Performance goals for 2011 Annual Incentive Awards
The 2011 goal setting process was a collaborative one pursuant to which management initially made recommendations to the Committee and the Board of Directors. The proposed 2011 annual incentive goals were then reviewed with the Committee and the Board in January of 2011 with input from CAP, and were subsequently approved in February 2011. For 2011, the Committee approved a performance-based incentive pool for Leadership Team Members, including all of the named executive officers, equal to two and one-half percent of the actual 2011 Earnings Before Interest and Taxes (“EBIT”) achieved by the company. Funding of this pool is required before any annual incentive award may be paid to a named executive officer. Accordingly, the payout of any award to named executive officers is based initially on the extent to which the performance-based funding occurs, followed by the Committee’s exercise of discretion to award an annual incentive, within the authorized incentive pool, based on the attainment of the following 2011 performance goals: Enterprise Economic Profit for the company, weighted at fifty percent; and Economic Profit Actions (“EP Actions”), including two controllable metrics as follows: (i) Revenue Growth weighted at twenty five percent and (ii) Productivity weighted at twenty five percent of the total annual incentive opportunity.
The Committee believes these metrics to be crucial indicators of the company’s success. It is the Committee’s view that driving economic profit leads to long-term value for our shareholders. With respect to EP Actions, the Committee endorsed management’s view that there was opportunity to improve results with respect to certain controllable metrics that would contribute to year over year increases in the company’s economic profit. The Committee believes these metrics promote company growth without compromising the quality of earnings or providing inappropriate incentives for executives to engage in activities that involve undue risk.
Actual EBIT is defined as full year net sales less the cost of goods sold and selling, general and administrative expenses (SG&A), excluding interest income and expenses, corporate income taxes, extraordinary items, discontinued operations, restructuring charges and certain one-time costs and the cumulative effect of accounting changes.
Economic Profit or enterprise economic profit is a measure of performance that is defined as after-tax actual EBIT, less the company’s weighted average cost of capital applied to the capital employed (net debt plus total equity). Adjustments are made for pension (asset, income, and liability), historical (pre-2010) goodwill and intangibles (asset, expense and liability), and non-operational items such as restructuring charges and certain tax credits; after-tax EBIT is calculated using a planned operational tax rate.
EP Actions include the following:
| • | Revenue Growth is defined as the change in net sales excluding all major portfolio activities in 2011 (acquisitions/divestitures), with currency variances plus or minus five percent from established plan assumptions to be evaluated on a discretionary basis. |
| • | Productivity is defined as full year gross value of all sourcing, manufacturing and supply change productivity initiatives and projects. |
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The Committee reviewed the company’s 2011 performance as compared to the annual incentive goals described above and determined that the company both met and exceeded its 2011 targets. The Committee certified a 2011 performance-based incentive pool of $15,725,000, equal to two and one-half percent of 2011 actual EBIT. Threshold targets and stretch goals for the other performance criteria and the actual results for 2011 are included in the table below.
2011 | PERFORMANCE | 2011 GOALS | ILLUSTRATIVE PAYOUT RANGE | WEIGHTING | ACTUAL PERFORMANCE | WEIGHTED APPROVED PAYOUT | ||||||||||
ECONOMIC | THRESHOLD | $ | 55 mm | 50% | 50% | 77% | ||||||||||
| TARGET | $ | 85 mm | 100% | $127 mm | ||||||||||||
| STRETCH | $ | 138 mm | 200% | |||||||||||||
EP ACTIONS | ||||||||||||||||
Revenue | THRESHOLD | 2% | 50% | 25% | 34% | |||||||||||
Growth | TARGET | 4% | 100% | 6.5% | ||||||||||||
| STRETCH | 8% | 200% | ||||||||||||||
| THRESHOLD | $ | 125 mm | 50% | 25% | ||||||||||||
Productivity | TARGET | $ | 170 mm | 100% | $239 mm | 44% | ||||||||||
| STRETCH | $ | 210 mm | 200% |
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| Approved Payout Total | 155% | |||||||||||||||
In order to arrive at a payout number for each named executive officer, the target annual incentive award for each executive is multiplied by the total weighted payout percentage noted above and then adjusted, if applicable, by the executive’s performance factor to arrive at the annual incentive award amount earned for 2011.
Target Annual | X | Weighted Payout% | X | Individual Performance Factor (100% to 120%) | = | 2011 Annual Award |
While the weighted payout based on actual 2011 company performance against these goals exceeded target performance and reached the 183% performance level, it was management’s recommendation, with which the Committee concurred, to adjust payouts to the 155% of target performance level (subject to adjustment for individual executive performance). The Committee authorized 2011 annual incentive award payments at 155% of target performance. Individual performance factors assigned to the named executive officers for 2011 performance ranged from a 100% to 120% and resulted in adjusted payouts of 2011 annual incentive awards for some of the named executive officers.
2011 Long-Term Compensation Awards (Equity)
In 2011, the Committee authorized long-term incentive awards for the named executive officers comprised solely in equity with no cash component. Historically, a portion of such long-term award was delivered in the form of performance-based RSUs and another portion in the form of non-qualified stock options. As previously disclosed, the Committee awarded to each named executive officer a 2010 award of performance-based RSUs, front loaded in an amount approximating a three-year grant with no future grant of RSUs to be made to any named executive officer in 2011 or 2012. Consistent with this disclosure, the Committee authorized no RSUs to any named executive officer in 2011. As was intended when the long-term incentive plan was redesigned for 2010, the Committee did authorize annual awards to such officers in the form of non-qualified stock options, which vest ratably over a three-year period beginning on the first, second and third anniversary of the award date. These awards are performance contingent on an increase in the company’s stock price over the 2011 stock option exercise price which is the market price on the grant date. Given the front loading of the 2010 performance-based RSU grant, the equity values of the 2011 award reported in the Summary Compensation Table for each named executive officer are lower than the values reported for 2010 awards.
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Long-Term Target Awards:
Beginning in 2008, based on market data, the Committee established and used long-term incentive targets (expressed as a percentage of base salary) as a reference point (or guideline) for the purpose of determining long-term award amounts for the named executive officers. In subsequent years, largely due to volatility in the equity market, the Committee began reviewing external competitive market data, Peer Group and general industry trends to ensure that each executive’s total compensation would continue to be at or around the median. Awards made in 2011 reflect market data and general industry trends rather than the hard and fast guidelines previously established.
Payout or Vesting of Prior Year Awards
Long-term incentive compensation awards in 2010 consisted of performance-based RSUs and non-qualified stock options. A (2010 to 2014) five-year performance period applied to the portion of the 2010 award delivered in the form of RSUs, subject to the achievement of EBIT and EP financial metrics as follows: EBIT threshold level of performance ($325 million) in 2010, 2011 or 2012 and cumulative change in economic profit over the five-year performance period of up to $273 million. These awards did not become eligible for vesting until after December 31, 2011. Enterprise economic profit (“EP”) is a measure of performance defined as total after-tax (EBIT) less the company’s weighted average cost of capital applied to the total capital employed. Cumulative change in economic profit measures the change in EP between two periods; for example, if 2010 actual EP was $8 million and 2011 actual EP was $100 million, the cumulative change in EP from 2010 to 2011 is $92 million. The Committee reviewed the company’s performance for 2010 and 2011 as compared to the long-term incentive goals and determined that the company met both the EBIT threshold level of performance ($325 million) in 2010 and exceeded the target performance level for cumulative change in EP. The vesting/payout reflected in the table below became effective February 27, 2012.
2010—2014 Long-Term Incentive Awards
2010-2014 Long-Term Period | Performance | Goal | Actual Performance | Approved Payout | ||||
Cumulative Change in EP ($mm) | Threshold | $42mm | ||||||
| Target | $92mm | $119mm | 118% | |||||
| Stretch | $273mm |
The vesting and payment of these awards is reflected as follows: 100 percent of the award is settled in common shares of MWV stock and will be reported in the company’s 2013 proxy statement in the Option Exercises and Stock Vested during Fiscal 2012 table. The Committee will continue to monitor the company’s performance against cumulative change in EP goals, on an annual basis, for the remainder of the five-year period ending December 31, 2014 and depending on the performance achieved may authorize additional vesting; provided, however, that if and to the extent the company’s cumulative change in EP performance does not continue to improve for the balance of the performance period, no vesting will occur and any remaining units eligible for payment (for above target performance) will be forfeited. In no event will vesting occur with respect to performance already recognized or for performance above the 200% of target level.
Post-Employment Arrangements
While the company does not maintain employment contracts for any of its named executive officers, each such officer is covered by the company’s broad-based severance program and by a change of control agreement. The primary purpose of these agreements is to help ensure that the company can retain and rely upon the undivided focus of its senior executives, before, during and after the negotiation of a change of control. The company’s agreements contain what is known as “double trigger” provisions which require both a change of control and a termination in order for severance to be payable. The agreements also include a severance calculation based on actual base salary and cash incentive paid, rather than target compensation, and include a modified gross-up feature for excise taxes.
31
A modified gross-up permits the company to reduce its cost resulting from any parachute excise tax. While the company agreed to keep whole each of the named executive officers covered by a change of control agreement for any excise tax imposed by the Internal Revenue Code on a change of control, it will do so only if the payment exceeds a designated percentage; otherwise, the executive’s severance payment is reduced by the amount necessary to avoid payment of the excise tax. While the company does have this feature in place for the excise tax for pre-existing contracts, this benefit is no longer available in new employment contracts of this nature.
Other benefits
Perquisites
Consistent with its pay-for-performance philosophy, the company provides only limited perquisites to executives. The company also covered residential security guard services and limited personal use of the company plane for some of the named executive officers during 2011, the purpose of which is to ensure the safety of our chairman and chief executive officer and to make the most efficient use of their time. All of these expenses are disclosed in the Summary Compensation Table on page 35.
Qualified Plans
The company maintains a qualified defined benefit pension plan and a qualified defined contribution 401(k) savings plan in the form of an employee stock ownership plan. The defined benefit pension plan formula is described under the Pension Benefits Table and narrative on page 40. The savings plan formula permits an employee who contributes three percent of pay to receive a one-hundred percent matching contribution on such amount and an additional fifty percent matching contribution on the next two percent of pay contributed. Matching contributions under the savings plan are one-hundred percent vested immediately. Both the defined benefit and the savings plans provide for broad-based participation by company employees and cover each of the named executive officers.
Restoration Plans
The company also maintains two non-qualified excess benefit plans that, with respect to earnings and benefits, exceed Internal Revenue Code limits on qualified plan benefits and mirror the benefit formulas under the defined benefit and savings plans. The non-qualified savings plan provides for the same matching contribution formula as the qualified plan described above and also permits executives to defer base salary and annual incentive cash compensation. The plan offers executives a choice of conventional investment vehicles with no assurance of any particular rate of return and does not guarantee an above market rate of return. The plan offers the same investment vehicles available under the company’s qualified 401(k) savings plan, with the addition of three other funds.
The company maintains these qualified and non-qualified plans to ensure an overall competitive compensation and benefits offering and to attract and retain superior talent. The Committee believes it is essential that overall compensation and benefits, including retirement benefits, be competitive in the market place. All of the named executive officers participate in these plans. Further description of these plans accompanies the Pension Benefits and Non-qualified Deferred Compensation Tables on pages 42 and 43.
SERP
The company also maintains a non-qualified supplemental executive retirement plan, which was designed to attract and retain executives who join the company in mid-career. In 2007 the plan was closed to any new participants. See the Pension Benefits Table and narrative on page 40.
Clawback/Recoupment Policy
The company maintains a recoupment policy which supplements the provisions on suspension or termination of incentive compensation awards based on misconduct in the company’s existing incentive arrangements. This policy permits the company to recoup annual and long-term cash or equity incentive
32
awards paid to certain executive officers and members of senior management (including all of the named executive officers). The policy provides that in the event a covered executive receives an award based on materially inaccurate financial information or other materially inaccurate performance metric criteria, the Committee may require the executive repay all or a portion of the award attributable to such inaccurate information. The Committee’s ability to recoup an award is limited to awards made in the current and immediately preceding year in which the inaccuracy is discovered except in the event of fraud.
Stock Ownership Guidelines
The company maintains stock ownership guidelines designed to align the long-term interests of its executives with the interests of its shareholders. The guidelines require that each named executive officer hold company stock valued at a multiple of base salary as set forth in the following table. In the case of new hires or promotions, ownership guidelines must be met within five years after the relevant event. Company stock considered towards this guideline include shares credited to an account in the company’s 401(k) plan, stock units payable under the company’s non-qualified restoration plan, service-based RSU awards and shares directly or indirectly owned.
Stock ownership as of December 31, 2011 reflects the following progress towards these guidelines based on the closing price of stock on such date as reported by the New York Stock Exchange.
NAME | GUIDELINE MULTIPLE OF SALARY | MULTIPLE OF SALARY ACHIEVED AS OF 12-31-11 | ||
John A. Luke, Jr. | 5X | 16.3 X | ||
E. Mark Rajkowski | 3X | 6.2 X | ||
James A. Buzzard | 3X | 6.0 X | ||
Wendell L. Willkie, II | 3X | 6.5 X | ||
Robert A. Feeser | 3X | 2.9 X |
All executives have met and exceeded the guidelines with the exception of Mr. Feeser who has until September 2015 to satisfy the guidelines.
Equity Grant Practices
The company maintains a written policy on practices for granting equity awards, which describes the Committee’s practices relating to equity grants to executives and the timing of such grants in relation to material non-public information and which specifically prohibits the backdating of stock options. The policy also describes the Committee’s delegation of authority to the Chairman and Chief Executive Officer to award equity to non-executive employees. The company does not have a practice or policy of timing its grants in relation to the announcement of material non-public information. In accordance with the policy, all stock option grants have an exercise price equal to the closing price of the company’s common stock on the date of grant.
Tax and Accounting Considerations
Tax and accounting considerations are one of many factors considered by the Committee in determining compensation mix and amount. Section 162(m) of the Internal Revenue Code does not permit a tax deduction to public companies for individual compensation over one million dollars per year to the Chief Executive Officer and the next three most highly compensated individuals other than the Chief Financial Officer. This limitation does not apply to performance-based compensation as defined under federal tax laws. The Committee designed the annual and long-term incentive program, stock option grants and performance-based RSUs described above (other than the service-based RSUs, if any) to meet the requirements of Section 162(m) and to ensure the deductibility of compensation payable under such programs. However, while the Committee considers the Section 162(m) impact on each component of compensation, it may in some instances determine to pay compensation even though it is not deductible where it believes such compensation furthers the company’s objectives and is otherwise appropriate.
33
COMPENSATION COMMITTEE REPORT
The Compensation and Organization Development Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.
THE COMPENSATION AND
ORGANIZATION DEVELOPMENT
COMMITTEE
Timothy H. Powers, Chairman
Dr. Thomas W. Cole, Jr.
Richard B. Kelson
James M. Kilts
Alan D. Wilson
Compensation Committee Interlocks and Insider Participation
The Compensation and Organization Development Committee currently consists of Mr. Powers as Chairman, Dr. Cole, Mr. Kelson, Mr. Kilts and Mr. Wilson. None of our executive officers served as:
| (i) | a member of the compensation committee (or other board committee performing equivalent functions, or in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served on our Compensation and Organization Development Committee; |
| (ii) | a director of another entity, one of whose executive officers served on our Compensation and Organization Development Committee; or |
| (iii) | a member of the compensation committee (or other board committee performing equivalent functions, or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served as our director. |
34
Summary Compensation Table
The following table presents information concerning total compensation paid to the Chairman and Chief Executive Officer and certain other executive officers of the company (collectively, the “named executive officers”).
NAME AND PRINCIPAL | YEAR | SALARY | BONUS | STOCK AWARDS(1) | OPTIONS AWARDS(2) | NON- EQUITY INCENTIVE PLAN COMPEN- SATION | CHANGE IN PENSION VALUE & NON- QUALIFIED DEFERRED COMP EARNINGS(3) | ALL OTHER COMPEN- SATION(4) | TOTAL | |||||||||||||||||||||||||||
JOHN A. LUKE, JR. | 2011 | $ | 1,055,693 | $ | 0 | $ | 0 | $ | 1,480,198 | $ | 1,988,236 | $ | 4,237,010 | $ | 226,687 | $ | 8,987,824 | |||||||||||||||||||
CHAIRMAN & CEO | 2010 | $ | 1,007,105 | $ | 0 | $ | 5,910,078 | $ | 1,785,851 | $ | 2,332,242 | $ | 3,726,832 | $ | 218,989 | $ | 14,981,097 | |||||||||||||||||||
| 2009 | $ | 1,007,105 | $ | 0 | $ | 591,744 | $ | 713,431 | $ | 2,215,630 | $ | 1,436,441 | $ | 144,095 | $ | 6,108,446 | ||||||||||||||||||||
E. MARK RAJKOWSKI | 2011 | $ | 590,433 | $ | 0 | $ | 0 | $ | 465,662 | $ | 771,878 | $ | 765,092 | $ | 87,301 | $ | 2,680,366 | |||||||||||||||||||
| SVP, CHIEF FINANCIAL OFFICER | 2010 | $ | 550,200 | $ | 0 | $ | 1,516,065 | $ | 478,290 | $ | 723,022 | $ | 409,166 | $ | 85,031 | $ | 3,761,774 | |||||||||||||||||||
| 2009 | $ | 551,358 | $ | 0 | $ | 173,700 | $ | 209,399 | $ | 713,635 | $ | 196,935 | $ | 72,861 | $ | 1,917,888 | ||||||||||||||||||||
JAMES A. BUZZARD PRESIDENT | 2011 | $ | 687,633 | $ | 0 | $ | 0 | $ | 530,286 | $ | 1,000,722 | $ | 2,641,475 | $ | 82,292 | $ | 4,942,408 | |||||||||||||||||||
| 2010 | $ | 655,985 | $ | 0 | $ | 2,264,327 | $ | 666,589 | $ | 1,104,816 | $ | 1,626,211 | $ | 71,969 | $ | 6,389,897 | ||||||||||||||||||||
| 2009 | $ | 655,985 | $ | 0 | $ | 256,964 | $ | 309,811 | $ | 1,049,575 | $ | 775,302 | $ | 39,970 | $ | 3,087,607 | ||||||||||||||||||||
WENDELL L. WILLKIE, II | 2011 | $ | 492,124 | $ | 0 | $ | 0 | $ | 334,514 | $ | 459,532 | $ | 1,215,578 | $ | 75,735 | $ | 2,577,483 | |||||||||||||||||||
| SVP, GEN’L COUNSEL & SEC’Y | 2010 | $ | 456,415 | $ | 0 | $ | 942,715 | $ | 282,352 | $ | 553,384 | $ | 659,037 | $ | 73,739 | $ | 2,967,642 | |||||||||||||||||||
| 2009 | $ | 457,161 | $ | 0 | $ | 118,857 | $ | 143,304 | $ | 546,198 | $ | 392,049 | $ | 70,631 | $ | 1,728,200 | ||||||||||||||||||||
ROBERT A. FEESER | 2011 | $ | 459,669 | $ | 0 | $ | 0 | $ | 240,701 | $ | 463,117 | $ | 926,785 | $ | 277,449 | $ | 2,367,721 | |||||||||||||||||||
SVP | 2010 | $ | 459,669 | $ | 0 | $ | 844,059 | $ | 241,328 | $ | 619,404 | $ | 542,451 | $ | 128,352 | $ | 2,835,263 | |||||||||||||||||||
| 2009 | $ | 459,669 | $ | 0 | $ | 80,358 | $ | 96,878 | $ | 600,000 | $ | 47,534 | $ | 100,275 | $ | 1,384,714 | ||||||||||||||||||||
| (1) | No stock awards were granted to any of the named executive officers in 2011. |
| (2) | The amounts shown in this column represents the aggregate grant date fair market value of stock option awards granted in 2011 computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Committee (“ASC”) Topic 718. Assumptions used in the calculation of these amounts are included in footnote K to the company’s audited financial statements for the fiscal year ended December 31, 2011 included in the company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2012. |
| (3) | The amounts in this column represent the actuarial increase in the present value of the named executive officers’ benefits under all pension plans maintained by the company between December 31, 2010 and December 31, 2011. The amounts calculated were determined with the following assumptions: ASC 715-30 (formerly SFAS No. 87) discount rate of 4.25% for 2011 and 5.25% for 2010, respectively, and an assumed unreduced retirement age (age 65 or 62 with 20 years of service). While these amounts appear as a lump sum, the normal form of payment is an annuity payment except with respect to Mr. Feeser who earned a benefit under a prior plan, a portion of which is payable in lump sum form. The significant rise in pension value for 2011 reflects a 100 basis point drop in the discount rate from 5.25% to 4.25%; the pension number reported is an accounting value and will not be realized by the named executive officers during 2011. While this change in rate increases the company’s liability from an accounting perspective, it does not increase the retirement benefit payable to the executive. None of the named executive officers are guaranteed a specified rate of return on any investment or receive above market earnings in the MeadWestvaco Deferred Income Plan, and thus no amount in this column is attributable to non-qualified deferred compensation earnings. |
| (4) | The amounts shown in this column for 2011 are derived as follows: |
| Mr. Luke: |
| $5,000 reimbursement by the company for financial planning |
| $9,800 annual contribution by the company to qualified 401(k) savings plan |
| $125,717 annual contribution by the company to non-qualified savings plan |
| $5,175 annual life insurance premium paid by the company |
| $3,150 executive health screening paid by company |
| $73,331 charges for home security services paid by the company |
35
| $4,514 the incremental cost to the company due to personal usage of the company’s aircraft is calculated by dividing the total variable cost (including fuel, maintenance and landing fees) by the total flight hours for such year and multiplying such amount by the total number of flight hours for the executive’s personal usage for the year |
| Mr. Rajkowski: |
| $5,000 reimbursement by the company for financial planning |
| $9,800 annual contribution by the company to qualified 401(k) savings plan |
| $42,738 annual contribution by the company to non-qualified savings plan |
| $2,820 annual life insurance premium paid by the company |
| $3,150 executive health screening paid by company |
| $17,022 related to commuting expenses including lodging |
| $6,771 the incremental cost to the company due to personal usage of the company’s aircraft is calculated by dividing the total variable cost (including fuel, maintenance and landing fees) by the total flight hours for such year and multiplying such amount by the total number of flight hours for the executive’s personal usage for the year |
| Mr. Buzzard: |
| $1,575 reimbursement by the company for financial planning |
| $9,800 annual contribution by the company to qualified 401(k) savings plan |
| $61,898 annual contribution by the company to non-qualified savings plan |
| $3,369 annual life insurance premium paid by the company |
| $2,500 matching funds paid by MeadWestvaco Foundation to non-profits designated by executive |
| $3,150 executive health screening paid by company |
| Mr. Willkie: |
| $4,509 reimbursement by the company for financial planning |
| $9,800 annual contribution by the company to qualified 401(k) savings plan |
| $32,020 annual contribution by the company to non-qualified savings plan |
| $2,339 annual life insurance premium paid by the company |
| $5,000 matching funds paid by MeadWestvaco Foundation to non-profits designated by executive |
| $3,150 executive health screening paid by company |
| $15,531 related to commuting expenses including lodging |
| $3,386 the incremental cost to the company due to personal usage of the company’s aircraft is calculated by dividing the total variable cost (including fuel, maintenance and landing fees) by the total flight hours for such year and multiplying such amount by the total number of flight hours for the executive’s personal usage for the year |
| Mr. Feeser: |
| $750 reimbursement by the company for financial planning |
| $9,800 annual contribution by the company to qualified 401(k) savings plan |
| $33,286 annual contribution by the company to non-qualified savings plan |
| $2,363 annual life insurance premium paid by the company |
| $2,000 matching funds paid by MeadWestvaco Foundation to non-profits designated by executive |
| $150,000 relocation benefit paid by the company in connection with request that Mr. Feeser relocate to Richmond; given the depressed housing market in 2011, Mr. Feeser would have lost significant value on his home so the company made him whole with respect to a portion of the loss he incurred on the sale of his home, without any gross-up. While this represents an exception to the broad-based relocation policy for salaried employees, the company has made similar exceptions to the policy for other salaried employees asked to relocate in light of current housing conditions |
| $3,150 executive health screening paid by company |
| $68,200 representing a commuting allowance for administrative simplicity to cover meals, lodging and transportation costs |
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| $7,900 the incremental cost to the company due to personal usage of the company’s aircraft is calculated by dividing the total variable cost (including fuel, maintenance and landing fees) by the total flight hours for such year and multiplying such amount by the total number of flight hours for the executive’s personal usage for the year |
37
Grants of Plan Based Awards in 2011
On February 28, 2011, the Compensation and Organization Development Committee (the “Committee”) established 2011 annual incentive awards and made grants under the company’s 2005 Performance Incentive Plan, as amended and restated, in the form of non-qualified stock options, which vest in one-third increments on each anniversary of the grant date. The award vests in full on February 28, 2014.
No dividend rights attach to non-qualified stock options.
The table below shows the cash and equity awards that were granted to each of the named executive officers during 2011 under various plans.
| Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards or Units (# of awards) | All Other Option Awards (# of awards)(2) | Exercise or Base Price of Option Awards ($)(2) | Grant Date Fair Market Value of Stock & Option Awards(3) ($) | |||||||||||||||||||||||||||||||||||||||
Name | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (# of awards) | Target (# of awards) | Maximum (# of awards) | |||||||||||||||||||||||||||||||||||||
John A. Luke, Jr. | $ | 583,061 | $ | 1,166,121 | $ | 6,000,000 | N/A | |||||||||||||||||||||||||||||||||||||
| 2/28/2011 | 0 | 0 | 0 | $ | 0 | |||||||||||||||||||||||||||||||||||||||
| 2/28/2011 | 0 | 187,130 | $ | 29.35 | $ | 1,480,198 | ||||||||||||||||||||||||||||||||||||||
E. Mark Rajkowski | $ | 207,494 | $ | 414,988 | $ | 6,000,000 | N/A | |||||||||||||||||||||||||||||||||||||
| 2/28/2011 | 0 | 0 | 0 | $ | 0 | |||||||||||||||||||||||||||||||||||||||
| 2/28/2011 | 0 | 58,870 | $ | 29.35 | $ | 465,662 | ||||||||||||||||||||||||||||||||||||||
James A. Buzzard | $ | 293,467 | $ | 586,934 | $ | 6,000,000 | N/A | |||||||||||||||||||||||||||||||||||||
| 2/28/2011 | 0 | 0 | 0 | $ | 0 | |||||||||||||||||||||||||||||||||||||||
| 2/28/2011 | 0 | 67,040 | $ | 29.35 | $ | 530,286 | ||||||||||||||||||||||||||||||||||||||
Wendell L. Willkie, II | $ | 148,236 | $ | 296,472 | $ | 6,000,000 | N/A | |||||||||||||||||||||||||||||||||||||
| 2/28/2011 | 0 | 0 | 0 | $ | 0 | |||||||||||||||||||||||||||||||||||||||
| 2/28/2011 | 0 | 42,290 | $ | 29.35 | $ | 334,514 | ||||||||||||||||||||||||||||||||||||||
Robert A. Feeser | $ | 149,392 | $ | 298,785 | $ | 6,000,000 | N/A | |||||||||||||||||||||||||||||||||||||
| 2/28/2011 | 0 | 0 | 0 | 0 | $ | 0 | ||||||||||||||||||||||||||||||||||||||
| 2/28/2011 | 30,430 | $ | 29.35 | $ | 240,701 | |||||||||||||||||||||||||||||||||||||||
| (1) | These columns reflect threshold, target and maximum amounts potentially payable under the 2011 Annual Incentive Award calculating such amounts based on a percentage of base salary. The maximum payout is merely the individual dollar limit established by the company’s 2005 Performance Incentive Plan, as amended and restated, and does not reflect the Committee’s evaluation of each individual’s performance against goals for the year. See Compensation Discussion and Analysis for discussion of 2011 Annual Incentive Award targets and amounts actually earned in 2011. Payment reflected in the “Non-Equity Incentive Plan Compensation” column in the Summary Compensation Table illustrates above performance at 155%; subject to adjustment for individual performance |
| (2) | These columns reflect the number of shares and the exercise price of non-qualified stock options granted under the company’s 2005 Performance Incentive Plan, as amended and restated |
| (3) | This amount represents the full grant date fair market value of equity awards (options) in 2011 |
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Outstanding Equity Awards At 2011 Fiscal Year End
The table below shows the equity awards that have been previously awarded to each of the named executive officers and which remained outstanding as of December 31, 2011.
| Option Awards(1) | Stock Awards(2) | |||||||||||||||||||||||||||||||||||
| Number of Securities Underlying Unexercised Options | Number of Securities Underlying Unexercised Unearned Options (d) | Option Exercise Price (e) | Option Expiration Date (f) | Number of Shares of Stock That Have Not Yet Vested (g) | Market Value of Unvested Shares of Stock ($)(6) (h) | Equity Incentive Plan Awards: Number of Unvested Units or Shares (i) | Plan Awards: Payout Value of Unearned Shares ($)(6) (j) | |||||||||||||||||||||||||||||
Name(a) | Exercisable (b) | Unexercisable (c) | ||||||||||||||||||||||||||||||||||
John A. Luke, Jr. | 50,000 | 0 | 0 | $ | 31.3750 | 5/24/2012 | ||||||||||||||||||||||||||||||
| 175,000 | 0 | 0 | $ | 24.0000 | 1/28/2013 | |||||||||||||||||||||||||||||||
| 100,000 | 0 | 0 | $ | 28.5900 | 2/23/2014 | |||||||||||||||||||||||||||||||
| 192,300 | 0 | 0 | $ | 28.1750 | 2/27/2016 | |||||||||||||||||||||||||||||||
| 186,580 | 0 | 0 | $ | 32.1100 | 2/26/2017 | |||||||||||||||||||||||||||||||
| 237,340 | 0 | 0 | $ | 27.2000 | 2/25/2018 | |||||||||||||||||||||||||||||||
| 511,420 | 255,710 | (3) | 0 | $ | 9.0800 | 2/23/2019 | ||||||||||||||||||||||||||||||
| 92,724 | 185,446 | (4) | 0 | $ | 23.8300 | 2/22/2020 | ||||||||||||||||||||||||||||||
| 0 | 187,130 | (5) | 0 | $ | 29.3500 | 2/28/2021 | ||||||||||||||||||||||||||||||
| 0 | $ | 0 | 336,543 | $ | 10,079,470 | |||||||||||||||||||||||||||||||
E. Mark Rajkowski | 35,000 | 0 | 0 | $ | 29.6150 | 8/16/2014 | ||||||||||||||||||||||||||||||
| 47,720 | 0 | 0 | $ | 28.1750 | 2/27/2016 | |||||||||||||||||||||||||||||||
| 51,840 | 0 | 0 | $ | 32.1100 | 2/26/2017 | |||||||||||||||||||||||||||||||
| 64,680 | 0 | 0 | $ | 27.2000 | 2/25/2018 | |||||||||||||||||||||||||||||||
| 75,107 | 75,053 | (3) | 0 | $ | 9.0800 | 2/23/2019 | ||||||||||||||||||||||||||||||
| 24,834 | 49,666 | (4) | 0 | $ | 23.8300 | 2/22/2020 | ||||||||||||||||||||||||||||||
| 0 | 58,870 | (5) | 0 | $ | 29.3500 | 2/28/2021 | ||||||||||||||||||||||||||||||
| 0 | $ | 0 | 89,011 | $ | 2,665,883 | |||||||||||||||||||||||||||||||
James A. Buzzard | 10,000 | 0 | 0 | $ | 31.3750 | 5/24/2012 | ||||||||||||||||||||||||||||||
| 27,500 | 0 | 0 | $ | 24.0000 | 1/28/2013 | |||||||||||||||||||||||||||||||
| 22,500 | 0 | 0 | $ | 28.5900 | 2/23/2014 | |||||||||||||||||||||||||||||||
| 42,560 | 0 | 0 | $ | 28.1750 | 2/27/2016 | |||||||||||||||||||||||||||||||
| 41,300 | 0 | 0 | $ | 32.1100 | 2/26/2017 | |||||||||||||||||||||||||||||||
| 55,824 | 0 | 0 | $ | 27.2000 | 2/25/2018 | |||||||||||||||||||||||||||||||
| 131,863 | 111,044 | (3) | 0 | $ | 9.0800 | 2/23/2019 | ||||||||||||||||||||||||||||||
| 30,283 | 69,220 | (4) | 0 | $ | 23.8300 | 2/22/2020 | ||||||||||||||||||||||||||||||
| 0 | 67,040 | (5) | 0 | $ | 29.3500 | 2/28/2021 | ||||||||||||||||||||||||||||||
| 0 | $ | 0 | 132,640 | $ | 3,972,578 | |||||||||||||||||||||||||||||||
Wendell L. Willkie, II | 20,000 | 0 | 0 | $ | 31.3750 | 5/24/2012 | ||||||||||||||||||||||||||||||
| 35,000 | 0 | 0 | $ | 24.0000 | 1/28/2013 | |||||||||||||||||||||||||||||||
| 20,000 | 0 | 0 | $ | 28.5900 | 2/23/2014 | |||||||||||||||||||||||||||||||
| 28,700 | 0 | 0 | $ | 28.1750 | 2/27/2016 | |||||||||||||||||||||||||||||||
| 37,130 | 0 | 0 | $ | 32.1100 | 2/26/2017 | |||||||||||||||||||||||||||||||
| 47,670 | 0 | 0 | $ | 27.2000 | 2/25/2018 | |||||||||||||||||||||||||||||||
| 0 | 51,363 | (3) | 0 | $ | 9.0800 | 2/23/2019 | ||||||||||||||||||||||||||||||
| 14,661 | 29,319 | (4) | 0 | $ | 23.8300 | 2/22/2020 | ||||||||||||||||||||||||||||||
| 0 | 42,290 | (5) | 0 | $ | 29.3500 | 2/28/2021 | ||||||||||||||||||||||||||||||
| 0 | $ | 0 | 56,675 | $ | 1,697,430 | |||||||||||||||||||||||||||||||
Robert A. Feeser | 10,000 | 0 | 0 | $ | 31.3750 | 5/24/2012 | ||||||||||||||||||||||||||||||
| 17,500 | 0 | 0 | $ | 28.5900 | 2/23/2014 | |||||||||||||||||||||||||||||||
| 21,700 | 0 | 0 | $ | 30.2100 | 2/22/2015 | |||||||||||||||||||||||||||||||
| 19,090 | 0 | 0 | $ | 28.1750 | 2/27/2016 | |||||||||||||||||||||||||||||||
| 3,960 | 0 | 0 | $ | 27.5100 | 3/31/2016 | |||||||||||||||||||||||||||||||
| 23,480 | 0 | 0 | $ | 32.1100 | 2/26/2017 | |||||||||||||||||||||||||||||||
| 29,730 | 0 | 0 | $ | 27.2000 | 2/25/2018 | |||||||||||||||||||||||||||||||
| 37,447 | 34,723 | (3) | 0 | $ | 9.0800 | 2/23/2019 | ||||||||||||||||||||||||||||||
| 12,530 | 25,060 | (4) | 0 | $ | 23.8300 | 2/22/2020 | ||||||||||||||||||||||||||||||
| 0 | 30,430 | (5) | 0 | $ | 29.3500 | 2/28/2021 | ||||||||||||||||||||||||||||||
| 0 | $ | 0 | 47,556 | $ | 1,424,292 | |||||||||||||||||||||||||||||||
| (1) | Stock options vest with respect to one-third of the shares subject to grant on each of the first three anniversaries of the option’s grant date. |
| (2) | 2010 performance-based RSUs are eligible for accelerated vesting as early as February 28, 2012, but may not vest in full until February 28, 2015, subject to the satisfactory attainment of performance goals |
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attached to such awards as determined by the Committee. Values for performance-based grants in 2010 are based on target performance. Column (i) also includes service-based RSUs granted on February 23, 2009 that vest in full on the third anniversary of the grant date, February 23, 2012. |
| (3) | Remaining unexercisable options become exercisable on February 23, 2012. |
| (4) | One-third of the unexercisable options became exercisable on February 22, 2011, one-third of the unexercisable options became exercisable on February 22, 2012 (representing two-thirds of the original grant) and one-third become exercisable on February 22, 2013. |
| (5) | One-third of the unexercisable options became exercisable on February 28, 2012, one-third become exercisable on February 28, 2013 and one-third become exercisable on February 28, 2014. |
| (6) | Market values based on stock price of $29.95, which was the closing price of the company’s stock on December 31, 2011. |
Option Exercises and Stock Vested during Fiscal 2011
This table shows the stock options that were exercised by, and the restricted stock that vested for, each named executive officer during 2011. Option award value realized is calculated by subtracting the aggregate exercise price of the options exercised from the aggregate market value of the shares of the company common stock.
| Option Awards | Stock Awards | |||||||||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized Upon Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized Upon Vesting ($) | ||||||||||||
John A. Luke, Jr. | 0 | $ | 0 | 97,088 | $ | 2,869,436 | ||||||||||
E. Mark Rajkowski | 75,000 | $ | 1,787,500 | 26,461 | $ | 782,055 | ||||||||||
James A. Buzzard | 0 | $ | 0 | 42,164 | $ | 1,246,157 | ||||||||||
Wendell L. Willkie, II | 141,526 | $ | 2,550,399 | 19,504 | $ | 576,441 | ||||||||||
Robert A. Feeser | 0 | $ | 0 | 12,160 | $ | 359,389 | ||||||||||
Pension Benefits
Qualified Retirement Plan: The company’s qualified retirement plan covers all salaried employees, except for those covered under a cash balance formula, and provides an unreduced benefit payable at age 65 (or 62 if the employee has 20 years of service). None of the named executive officers participate in the cash balance formula. The retirement benefit payable is equal to 1.6% of final average earnings (or pay) times years of benefit service (up to a maximum of 40 years), minus an employee’s primary social security benefit multiplied by 1.25% times years of benefit service (up to a maximum of 40 years of service). The formula is illustrated below:
| [ | 1.6% x Years of Benefit x Final Average Pay Service (up to 40) | ] — [ | 1.25% x Years of Benefit x Primary Social Service (up to 40) Security Benefit | ] |
The normal form of payment is a 50% joint and survivor annuity for married participants and a single life annuity for unmarried participants. Participants may choose optional annuity and installment forms (spousal consent required of married participants). A cash lump sum is not available to any executive listed in the table with the exception of Mr. Feeser who earned a benefit under a company predecessor plan payable in lump sum form. Final average pay generally includes all income reported on Form W-2, but excludes long-term incentive compensation, severance pay, and retention and hiring bonuses. Final average pay includes the participant’s highest 5 years of pay within the last 10 year period. Employees
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become 100% vested in their retirement benefit after completing 5 years of service. An employee may retire early and receive a benefit at age 55 (with 5 years of service) subject to reduction for early payment. The reduction, generally, is 3% per year for each year by which the actual retirement date precedes the participant’s 65th birthday and 6% per year for each year by which the actual retirement date precedes the participant’s 62nd birthday. As Messrs. Luke, Buzzard and Willkie are over age 55, they are eligible to retire early based on their service with the company.
The company amended its qualified retirement plan for salaried and non-bargained employees to add a cash balance feature, which generally became effective for existing employees under age 40 as of January 1, 2008 and for existing employees age 40 and older (as of such date) who chose the new cash balance formula. For new employees hired on or after January 1, 2007, the new formula became effective January 1, 2007.
Retirement Restoration Plan: The company maintains a non-qualified retirement restoration plan that mirrors benefits provided under the qualified retirement plan following the same formula but recognizing compensation in excess of the Internal Revenue Code limit, which was $245,000 for 2011. All of the named executive officers are participants in this plan. Benefits are payable in annuity form only and a lump sum is not available except for Mr. Feeser who earned a benefit payable under a predecessor plan, a portion of which is payable in lump sum form.
MeadWestvaco Executive Retirement Plan (“MERP”): The company also maintains a non-qualified supplemental executive retirement plan, whose purpose is to assist in recruiting mid-career executive hires that may forfeit retirement benefits due to early termination from another employer. The plan follows the benefit formula and vesting schedule under the company’s qualified retirement plan described above, but recognizes additional service equal to .75 year of credited service for each year of actual service completed by an executive up to a maximum number of years equal to the executive’s age at hire minus 30.
Generally, plan benefits are payable in annuity form and are subject to reduction for early retirement. In the case of an executive whose service and age equal 80 the reduction for early payment is reduced. Mr. Buzzard is not entitled to additional service under this plan as his age at date of hire minus 30 equals 0. Given Mr. Luke’s long service with the company, he accrues limited service under the plan. During 2007 the MERP was amended to close participation to any new executive hired on or after January 1, 2007. During 2008, the MERP was amended to comply with Internal Revenue Code Section 409A and to remove the lump sum benefit payable upon a change of control.
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Pension Benefits Table at 2011 Fiscal Year End
The table below shows the present value of accumulated benefits payable to each of the named executive officers, including the number of years of service credited to each executive, under the company’s defined benefit pension plans determined using interest rate and mortality rate assumptions consistent with those used in the company’s financial statements.
NAME | PLAN NAME | NUMBER OF YEARS OF CREDITED SERVICE(1) (#) | PRESENT VALUE OF ACCUMULATED BENEFIT(2) ($) | PAYMENTS DURING LAST FISCAL YEAR ($) | ||||||||||
JOHN A. LUKE, JR. | QUALIFIED | 32.667 | $ | 1,511,217 | $ | 0 | ||||||||
| RESTORATION | 32.667 | $ | 17,006,799 | $ | 0 | |||||||||
| MERP | 32.980 | $ | 178,859 | $ | 0 | |||||||||
E. MARK RAJKOWSKI | QUALIFIED | 7.417 | $ | 206,276 | $ | 0 | ||||||||
| RESTORATION | 7.417 | $ | 824,416 | $ | 0 | |||||||||
| MERP | 12.980 | $ | 787,806 | $ | 0 | |||||||||
JAMES A. BUZZARD | QUALIFIED | 33.583 | $ | 1,341,218 | $ | 0 | ||||||||
| RESTORATION | 33.583 | $ | 7,543,528 | $ | 0 | |||||||||
| MERP | 33.583 | $ | 0 | $ | 0 | |||||||||
WENDELL L. WILLKIE, II | QUALIFIED | 17.000 | $ | 699,060 | $ | 0 | ||||||||
| RESTORATION | 17.000 | $ | 1,987,408 | $ | 0 | |||||||||
| MERP | 26.875 | $ | 1,599,915 | $ | 0 | |||||||||
ROBERT A. FEESER | QUALIFIED | 24.583 | $ | 645,615 | $ | 0 | ||||||||
| RESTORATION | 24.583 | $ | 1,952,859 | $ | 0 | |||||||||
| MERP | 24.583 | $ | 113,063 | $ | 0 | |||||||||
| (1) | The number of years of credited service includes service recognized under the MERP in excess of actual service performed by the executive. The MERP potentially provides an additional .75 year of credited service for each year of actual service up to a maximum equal to the executive’s age at hire minus 30. |
| (2) | The Present Value of the Accumulated Benefit was provided by Aon Hewitt as the present value of the December 31, 2011 accrued benefit using the following assumptions: ASC 715-30 discount rate of 4.25%; the normal form of benefit payment is an annuity; lump sums are assumed payable using the 417(e) mortality table and the November 2011 417(e) lump sum rates without phase in (1.99% for the first 5 years, 4.47% for the next 15 years and 5.26% for the remaining years). The postretirement mortality table used for the annuity calculation is the RP2000 table projected to 2019, (congruent with ASC 715-30 assumptions), also assuming no withdrawal, disability, or death prior to retirement age. ASC 715-30 valuations for the qualified and restoration plans have assumptions for these events; the MERP only has an assumption for preretirement death; retirement at unreduced retirement age. These calculations include both vested and non-vested benefits. While these amounts appear as a lump sum, the normal form of payment under these plans is an annuity except for Mr. Feeser who earned a benefit under a predecessor company plan, a portion of which is payable in lump sum form. |
Non-qualified Deferred Compensation
MeadWestvaco Deferred Income Plan: The company maintains a non-qualified deferred compensation plan that permits executives to voluntarily defer up to 80% of base salary and, annual incentive cash compensation. The plan also operates as an excess benefit plan enabling employees to defer salary and company matching contributions in excess of Internal Revenue Code limits that apply to the company’s qualified 401(k) plan. Any amounts contributed by executives may be allocated towards notional
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accounts into up to 20 investment funds as directed by the participant except with respect to company matching contributions, which are automatically invested in a company “phantom” stock fund. There is no guaranteed investment return with respect to any of the funds. Executives may choose to receive a distribution of their account balance in the year after termination of employment, or early or normal retirement in either a lump sum or installment payments. Limited in-service withdrawals are permitted based on future dates specified in advance by participants and evidenced by written distribution elections.
The investment funds available to an executive under the deferred income plan generally mirror the investment options available to all employees who participate in the company’s broad based qualified 401(k) savings plan, plus three additional funds which are available to investors.
Non-qualified Deferred Compensation at 2011 Fiscal Year End
The table below presents information on each of the named executive officers’ non-qualified deferred compensation plan accounts for 2011.
NAME | EXECUTIVE CONTRIBUTIONS IN LAST FISCAL YEAR | REGISTRANT CONTRIBUTIONS IN LAST FISCAL YEAR(1) | AGGREGATE EARNINGS IN LAST FISCAL YEAR | AGGREGATE WITHDRAWALS/ DISTRIBUTIONS(2) | AGGREGATE BALANCE AT LAST FISCAL YEAR-END | |||||||||||||||
JOHN A. LUKE, JR. | $ | 48,588 | $ | 125,717 | $ | 497,336 | $ | 0.00 | $ | 3,362,062 | ||||||||||
E. MARK RAJKOWSKI | $ | 27,172 | $ | 42,738 | $ | 28,995 | $ | 0.00 | $ | 470,529 | ||||||||||
JAMES A. BUZZARD | $ | 37,978 | $ | 61,898 | $ | 236,094 | $ | (120,693 | ) | $ | 2,507,643 | |||||||||
WENDELL L. WILLKIE, II | $ | 22,647 | $ | 32,020 | $ | 128,249 | $ | 0.00 | $ | 930,929 | ||||||||||
ROBERT A. FEESER | $ | 360,706 | $ | 33,286 | $ | 123,285 | $ | 0.00 | $ | 3,505,799 | ||||||||||
| (1) | Amounts shown as Registrant Contributions in Last Fiscal Year are also included as 2011 compensation in the Summary Compensation Table, in the “All Other Compensation” Column. Full company match provided relative to annual incentive award if Internal Revenue Code limitations prevented executive from deferring applicable portion of the incentive award. |
| (2) | This represents a scheduled withdrawal. |
Potential Payments Upon Termination and Change of Control
The tables below reflect the amount of compensation that would become payable to each of the named executive officers under existing plans and arrangements if the named executive’s employment had terminated on December 31, 2011 given the named executive’s compensation and service levels as of such date and, if applicable, based on the company’s closing stock price on that date. These benefits are in addition to benefits available prior to the occurrence of any termination of employment (including benefits under then-exercisable stock options), and benefits available to all salaried employees, such as distributions under the company’s 401(k) plan, early retirement subsidy and accrued vacation pay.
The actual amounts that would be paid upon a named executive officer’s termination of employment can be determined only at the time of an executive’s actual separation from the company. Due to the number of factors that affect the nature and amount of any benefits provided upon the events discussed below, any actual amounts paid or distributed may be higher or lower than reported below. Factors that could affect these amounts include the timing during the year of any such event, the company’s stock price, and the executive’s age.
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Potential Payments Upon Involuntary Termination
(other than Change of Control)
The table below shows the severance benefits that would be payable to each of the named executive officers who experience an involuntary termination of employment from the company on December 31, 2011, excluding death, disability or a termination based on “misconduct” as defined in the company’s standard severance plan available to all salaried employees.
| John A. Luke Jr. | E. Mark Rajkowski | James A. Buzzard | Wendell L. Willkie, II | Robert A. Feeser | ||||||||||||||||
Cash Severance(1) | $ | 2,120,220 | $ | 1,185,680 | $ | 1,381,020 | $ | 988,240 | $ | 919,338 | ||||||||||
2009 Service-Based RSU Awards(2) | $ | 1,445,706 | $ | 424,372 | $ | 627,792 | $ | 290,375 | $ | 196,312 | ||||||||||
2010 Performance-Based RSU(3) | $ | 3,505,971 | $ | 899,363 | $ | 1,343,246 | $ | 559,238 | $ | 500,716 | ||||||||||
Post-Termination Health Care(4) | $ | 3,331 | $ | 3,331 | $ | 1,851 | $ | 3,145 | $ | 3,145 | ||||||||||
Outplacement Services and Financial Planning(5) | $ | 10,700 | $ | 10,700 | $ | 10,700 | $ | 10,700 | $ | 10,700 | ||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 7,085,928 | $ | 2,523,446 | $ | 3,364,609 | $ | 1,851,698 | $ | 1,630,211 | ||||||||||
| (1) | The company maintains a broad-based standard severance plan, which covers all salaried and non-union employees, including the named executive officers and which provides for a cash lump sum severance payment in the amount of two times base salary for these executives. |
| (2) | This represents the value of two thirds of unvested 2009 service-based RSUs that would vest if the date of involuntary termination was on December 31, 2011. The values for all named executive officers other than Mr. Luke reflect a two-thirds pro-ration, based on service for two full years of the three year vesting period. While there is no incremental value for Mr. Luke as he is retirement eligible and already eligible for such pro-ration, the table reflects the full value of what he would receive in an involuntary termination of employment on December 31, 2011. |
| (3) | This represents the value of the 2010 performance-based RSU awards that would vest due to involuntary termination on December 31, 2011, and reflects performance at 118% of target performance level, pro-rated at forty percent (40%) for all executives other than Mr. Luke. While, there is no incremental value for Mr. Luke as he is already eligible for such pro-ration, the table reflects the full value of what he would receive in an involuntary termination of employment on December 31, 2011. |
| (4) | This represents the value of the subsidized portion of health care (company paid benefit) for a period of three (3) months following termination of employment, based on current health care plan coverage selections. |
| (5) | This represents the value of nine (9) months of outplacement services, a benefit that is also provided for under the terms of the plan, standard severance and financial counseling. |
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Potential Payments Upon Termination — Retirement(1)
The table below shows the value of any stock options, service-based RSUs and performance-based RSUs whose vesting will be accelerated due to retirement at age sixty-five (or sixty-two with twenty years of service) assuming a December 31, 2011 termination date.
| John A. Luke, Jr. | E. Mark Rajkowski | James A. Buzzard | Wendell L. Willkie, II | Robert A Feeser | ||||||||||||||||
Stock Options(2) | $ | 6,583,875 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||
2009 Service-based RSU Award(3) | $ | 1,445,706 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||
2010 Performance-based RSU Award(4) | $ | 3,505,971 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 11,535,552 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||
| (1) | This represents incremental compensation associated with a termination due to retirement at age sixty-five (or age sixty-two with twenty years of service) on December 31, 2011; all equity is valued based on stock price of $29.95, which was the closing price of the company’s stock on December 31, 2011. |
| (2) | This represents the intrinsic value of unvested stock options that would vest if retirement was on December 31, 2011. |
| (3) | This represents the value of two-thirds of unvested 2009 service-based RSUs that vest due to retirement on December 31, 2011 |
| (4) | This represents the value of 2010 performance-based RSU awards that would vest due to retirement on December 31, 2011 and reflects performance at 118% of target performance level, pro-rated at forty percent (40%). |
Potential Payments Upon Termination — Death, Disability(1)
The table below shows the value of any stock options, service-based restricted stock units and performance-based restricted stock units whose vesting will be accelerated in the event of termination of employment due to death, disability assuming a December 31, 2011 termination date. Named executive officers are eligible for disability compensation under the company’s disability benefit plans and death benefits under life insurance plans offered by the company to all full-time salaried employees.
| John A. Luke, Jr. | E. Mark Rajkowski | James A. Buzzard | Wendell L. Willkie, II | Robert A. Feeser | ||||||||||||||||
Stock Options(2) | $ | 6,583,875 | $ | 1,905,634 | $ | 2,781,339 | $ | 1,276,752 | $ | 896,294 | ||||||||||
2009 Service-based RSU Award(3) | $ | 1,445,706 | $ | 424,372 | $ | 627,792 | $ | 290,375 | $ | 196,312 | ||||||||||
2010 Performance-based RSU Award(4) | $ | 3,505,971 | $ | 899,363 | $ | 1,343,246 | $ | 559,238 | $ | 500,716 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 11,535,552 | $ | 3,229,369 | $ | 4,752,377 | $ | 2,126,365 | $ | 1,593,322 | ||||||||||
| (1) | This represents the full value of compensation associated with a termination due to death or disability on December 31, 2011; all equity is valued based on stock price of $29.95, which was the closing price of the company’s stock on December 31, 2011. |
| (2) | This represents the intrinsic value of unvested stock options that would vest or continue to vest due to death or disability on December 31, 2011 for executives other than Mr. Luke; while there is no incremental value for Mr. Luke as he is retirement eligible and already eligible for accelerated vesting of stock options, the full value of his options is included above. |
| (3) | This represents the value of unvested 2009 service-based RSUs that would vest due to death or disability on December 31, 2011. The values for all named executive officers other than Mr. Luke reflect a two-thirds pro-ration, based on service for two full years of the three-year vesting period; |
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while there is no incremental value for Mr. Luke as he is retirement eligible and already eligible for such pro-ration, the table reflects the full value of what he would receive in the event of termination due to death or disability on December 31, 2011. |
| (4) | This represents the value of 2010 performance-based RSU awards that would vest due to death or disability on December 31, 2011 and reflects performance at 118% of target performance level, pro-rated at forty percent (40%) for all executives other than Mr. Luke; while there is no incremental value for Mr. Luke as he is retirement eligible and already eligible for such pro-ration, the table shows the full value of what he would receive in the event of termination due to death or disability on December 31, 2011. |
Potential Payments Upon Termination Following a Change of Control
Change of Control Agreements:
Each of the named executive officers is covered by a change of control agreement. These agreements were amended by the company in 2007 to become effective January 1, 2008. The agreements automatically renew January 1, 2012 for a two-year term ending December 31, 2013. As amended, each change of control agreement provides for continued employment for two years after a change of control on terms substantially similar to those in effect before the change of control. An executive will receive severance benefits in the event of a qualifying termination of employment upon or within two years following a change of control, or prior to a change of control if the termination occurs at the request of a party to the change of control or is otherwise in connection with a change of control. The table below, titled Change of Control, presents the amount that would have been realized by each of the named executive officers if a change of control and immediate termination of employment had occurred as of December 31, 2011.
Aqualifying termination is a termination of employment by the company other than for cause or disability, or a termination of employment by the executive for good reason.
Under the change of control agreements, achange of control is defined as:
| (1) | acquisition by an individual or entity of 20% of the stock or voting rights of the company; |
| (2) | contested change in a majority of the company’s board; |
| (3) | consummation of a business combination, unless (a) more than 60% of the stock and voting rights is retained by the shareholders of the company before the change of control, (b) a majority of the surviving company’s board were members of the company’s board, before the change of control, and (c) no new shareholder owns 20% or more of the resulting company; or |
| (4) | shareholder approval of a complete liquidation of the company. |
Amerger of equals is defined as a business combination in which (i) at least 50% of the members of the continuing board were members of the company’s board and (ii) either (x) the CEO position in the surviving company is occupied by an individual employed by the company before the business combination, or (y) a majority of the leadership positions reporting directly to the CEO of the surviving company are occupied by individuals employed by the company before the business combination.
Good reason means a material reduction in position, duties, responsibilities or salary grade, a failure of the company to comply with the agreement, or a change in the executive’s office location of more than 40 miles. In the event of a merger of equals, however, an executive’s position may be changed as long as the executive continues to have responsibilities that are in the aggregate comparable to the executive’s previous responsibilities, and an across the board change in compensation is not considered a triggering event. In the event of a merger of equals, neither a reduced scope of responsibilities resulting from the fact that the merger has created a larger organization, nor a change in title or reporting responsibilities, shall be the sole basis for good reason.
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Cause is defined to mean the executive’s willful and continued failure to perform duties, willful engagement in gross misconduct, or a violation of the company’s Code of Conduct that is materially injurious to the company.
Under the change of control agreements and the terms of equity awards granted after 2005, upon certain terminations of employment following a change of control, executives are provided the benefits described below.
Severance Compensation:
In the event of a qualifying termination of employment following a business combination that is not a merger of equals, a lump sum severance amount is payable to each executive equal to no more than three times the executive’s compensation, which is defined under the agreement as annual base salary plus average annual incentive compensation paid over the three years before the change of control. Each executive is also entitled to a pro rata bonus for the year of termination and a cash lump sum payment in lieu of health care continuation coverage for a period of three years (two years for Mr. Feeser), plus payment for outplacement services and financial planning. As a condition to receipt of severance benefits, an executive is required to execute a general release of claims against the company. Payment of the severance lump sum amount shall be made within thirty days of the executive’s termination of employment.
Pension Benefits:
In the event of a qualifying termination of employment following a business combination that is not a merger of equals, the executive is entitled to a lump sum payment equal to the actuarial equivalent of the qualified defined benefit and restoration plan benefit (excluding the MeadWestvaco Executive Retirement Plan) that would have been earned if the executive had remained employed by the company during the severance period. This value is disclosed in the table below in the “pension” row. In the event of a merger of equals business combination, no enhanced pension is payable.
In the event of a business combination that is not a merger of equals, the MERP provides for accelerated vesting of an executive’s benefit, but no immediate payment. During 2008, the company amended the MERP to comply with Internal Revenue Code Section 409A and eliminated the change of control lump sum benefit. The value of the “accelerated vesting” of the MERP benefit is included in the table below in the “pension” row. While it appears as a lump sum, it is payable in annuity form.
Equity Acceleration:
Terms and conditions of equity awards (including those for named executive officers) are set forth in individual award agreements, not in change of control agreements. Generally, stock options and restricted stock assumed by an acquirer vest upon an executive’s termination of employment (without cause) within two years following a business combination that is not a merger of equals. If awards are not assumed by an acquirer, the amounts shown as “intrinsic value of stock options,” “service-based RSU Award” and “performance-based RSU Award shares” in the table below would be the value of awards that would become fully vested immediately prior to the change of control event. Unearned 2010 performance-based RSUs will be deemed earned as of the change of control (“COC”) date on a pro rata basis assuming target performance. Such COC earned units will then generally vest and become payable on the earlier of (x) one-year following the change of control date, or (y) December 31, 2014, assuming continued employment by the executive through such dates (except in the case of involuntary termination absent cause, death, disability or retirement, in which case the vesting/payment date is accelerated to actual termination date). The pro-ration is determined by multiplying the executive’s target award units by a fraction, the numerator of which is the total months of service completed in the performance period and the denominator of which is sixty, subtracting any units earned prior to the change of control. Any dividend equivalent units attached to the underlying award are forfeited except for those dividend equivalents earned prior to the change of control.
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Excise Taxes:
The company has agreed to make each executive covered by a change of control agreement whole for any parachute excise tax imposed under section 4999 of the Internal Revenue Code on a change of control payment, unless the payments are less than 110% of the safe harbor amount. The safe harbor amount is 2.99 times the executive’s average taxable compensation for the five years that ended before the change of control. If the gross-up payment is not made, the amounts payable under the agreement will be reduced by the amount necessary to avoid imposition of the excise tax.
The change of control agreements have a term of two years and were renewed January 1, 2012 for a two-year term through December 31, 2013 and may be extended, unless the company gives one-year advance notice of non-renewal. The named executive officers are not covered by any employment agreement other than the change of control agreements. The table below as of December 31, 2011 reflects the terms and conditions of the change in control agreements in place on January 1, 2008.
Change Of Control Severance Payments(1)
| JOHN A. LUKE JR. | E. MARK RAJKOWSKI | JAMES A. BUZZARD | WENDELL L. WILLKIE, II | ROBERT A. FEESER | ||||||||||||||||
CASH SEVERANCE(2) | $ | 7,728,202 | $ | 3,215,177 | $ | 4,225,921 | $ | 2,581,942 | $ | 1,796,607 | ||||||||||
PRO-RATA BONUS(3) | $ | 1,515,957 | $ | 478,886 | $ | 718,130 | $ | 366,527 | $ | 438,635 | ||||||||||
INTRINSIC VALUE OF STOCK OPTIONS(4) | $ | 6,583,875 | $ | 1,905,634 | $ | 2,781,339 | $ | 1,276,752 | $ | 896,294 | ||||||||||
2009 SERVICE-BASED RSU AWARDS(5) | $ | 2,168,560 | $ | 636,557 | $ | 941,688 | $ | 435,563 | $ | 294,468 | ||||||||||
2010 PERFORMANCE-BASED RSU AWARD(6) | $ | 2,971,160 | $ | 762,168 | $ | 1,138,340 | $ | 473,929 | $ | 424,332 | ||||||||||
PENSION(7) | $ | 0 | $ | 1,525,193 | $ | 1,220,281 | $ | 648,586 | $ | 959,287 | ||||||||||
POST-TERMINATION HEALTH CARE(8) | $ | 47,369 | $ | 47,369 | $ | 30,143 | $ | 51,261 | $ | 34,174 | ||||||||||
OUTPLACEMENT SERVICES AND FINANCIAL PLANNING(9) | $ | 10,700 | $ | 10,700 | $ | 10,700 | $ | 10,700 | $ | 10,700 | ||||||||||
VALUE OF BENEFIT PRIOR TO GROSS-UP | $ | 21,025,823 | $ | 8,581,684 | $ | 11,066,542 | $ | 5,845,260 | $ | 4,854,497 | ||||||||||
EXCISE TAX GROSS-UP | $ | 0 | $ | 2,210,519 | $ | 2,697,379 | $ | 1,523,619 | $ | 1,417,838 | ||||||||||
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TOTAL | $ | 21,025,823 | $ | 10,792,203 | $ | 13,763,921 | $ | 7,368,879 | $ | 6,272,335 | ||||||||||
| (1) | This assumes a stock price of $29.95, which was the closing price of the company’s stock on December 31, 2011 and a termination date of December 31, 2011; actual value will vary based on changes in the company’s stock price on the termination date. |
| (2) | The change of control cash severance is equal to three times salary + average annual cash incentive awards over last three years, (except for Mr. Feeser whose change of control benefit is based on a two times multiple). |
| (3) | This represents pro-rata bonus (based on three-year average annual incentives) payable upon termination in connection with a change of control. |
| (4) | This represents intrinsic value of unvested stock options; while there is no incremental value for Mr. Luke as he is retirement eligible and already eligible for accelerated vesting, the table above reflects the full value that Mr. Luke would receive in a termination of employment following a change of control on December 31, 2011. |
| (5) | This represents the full value of unvested service-based RSUs, which vest as of termination date under a change of control scenario for all executives other than Mr. Luke. While there is no |
48
incremental value for Mr. Luke as he is already retirement eligible, the table reflects the full value that he would receive in a termination of employment following a change of control on December 31, 2011. |
| (6) | The 2010 award vests at the target performance level and is prorated at forty percent (40%) for service reflecting twenty four (24) months of a sixty (60) month performance period. |
| (7) | This represents incremental pension value upon a change of control attributable to the MeadWestvaco Executive Retirement Plan (MERP) “accelerated vesting,” and enhanced pension under the change of control agreement. The MERP benefit is not payable in lump sum form. In the case of Messrs. Rajkowski and Feeser, who are not yet age 55 and not fully vested, the full MERP benefit is included in the value reported above. With respect to Mr. Buzzard, the value includes an enhanced retirement subsidy due to his age and long service with the company. In the case of Mr. Luke, this value decreased to zero since the small early retirement subsidy under the enhanced pension does not offset the loss in value for waiting two years for the payment to begin. |
| (8) | This represents cash lump sum payment in lieu of continued health care coverage for three years after termination of employment (two years in the case of Mr. Feeser). |
| (9) | This represents the value of nine months of outplacement services and financial counseling for one year. |
Equity Compensation Plan Information
At December 31, 2011
(shares in thousands)
Plan Category | 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)) | |||||||||
| (a | ) | (b | ) | (c | ) | |||||||
Equity compensation plans approved by stockholders(1) | 14,555 | $ | 22.82 | 9,529 | ||||||||
Equity compensation plans not approved by stockholders(2) | — | — | — | |||||||||
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Total | 14,555 | $ | 22.82 | 9,529 | ||||||||
| (1) | Column (a) includes 3,190,000 shares that may be issued in connection with outstanding service-based and performance-based restricted stock unit awards. The number of shares that may be issued in connection with outstanding performance-based restricted stock awards has been calculated at the maximum award level. Column (b) excludes the impact of outstanding restricted stock unit awards as they have no exercise price. |
| (2) | There are no equity compensation plans of the company that have not been approved by stockholders. |
For additional information related to the above plans, see Note K of the company’s Consolidated Financial Statements in Item 8—Financial Statements and Supplementary Data, of the company’s Annual Report on Form 10-K for the year ended December 31, 2011.
49
3. Proposal to Approve Advisory Resolution to Approve Executive Compensation
We are asking stockholders to approve an advisory resolution to approve the company’s executive compensation as reported in this Proxy Statement. We had an outstanding 2011 fiscal year, substantially exceeding the financial goals for our performance based compensation, including:
| • | Record segment operating results—2011 earnings from continuing operations of $258 million |
| • | 2011 pre-tax income from the company’s business segments (before Corporate and Other) increased 15% to $838 million |
| • | Adjusted EBIT of $629 million against a target of $575 million |
| • | Economic Profit of $127 million against a target of $85 million |
| • | A 6.5% increase in Revenue against a target increase of 4% |
| • | Productivity savings of $239 million against a target of $170 million |
We believe that our strong pay for performance culture contributed to the company’s success in 2011. Some of the key aspects of our executive compensation program include the following:
| • | We target named executive officer compensation around the market median for our Peer Group with additional opportunities based on above target performance |
| • | Approximately 55 to 70% of compensation is at-risk for our named executive officers |
| • | Our annual and long-term incentive plans are based on Economic Profit (“EP”) goals that reward financial returns that exceed the cost of capital. It is well established that improving EP returns creates long-term value for shareholders. |
We have implemented corporate governance best practices with respect to our compensation plans and programs, including the following highlights:
| • | Our compensation program includes significant features that enhance alignment with shareholder interests, including our stock ownership guidelines and our compensation Recoupment/Clawback policy |
| • | Our Compensation and Organization Development Committee retains an expert executive compensation consultant |
| • | We carefully balance risk and incentive under our compensation plans and programs. |
The “Compensation Discussion and Analysis” beginning on page 21 of this Proxy Statement, describes in more detail how the company’s executive compensation policies and procedures operate and are designed to achieve our compensation objectives, as well as the Summary Compensation Table and other related compensation tables and narrative, appearing on pages 35 through 49, which provide detailed information on the compensation of the named executive officers. The Compensation and Organization Development Committee and the Board of Directors believe that the policies and procedures articulated in the “Compensation Discussion and Analysis” are effective in achieving our goals and that the compensation of the named executive officers reported in this Proxy Statement has contributed and will contribute to the company’s success in delivering value to shareholders.
In accordance with recently adopted Section 14A of the Exchange Act, and as a matter of good corporate governance, we are asking stockholders to approve the following advisory resolution at the 2012 Annual Meeting:
RESOLVED, that the compensation paid to the company’s named executive officers, disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussionand Analysis, the Summary Compensation Table and related compensation tables, notes and narrative discussion in the Proxy Statement for the company’s 2012 Annual Meeting of Stockholders is hereby APPROVED.
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This advisory resolution, commonly referred to as a “say-on-pay” resolution, is non-binding on the Board of Directors. Although non-binding, the Board and the Compensation and Organization Development Committee will review and consider the voting results when making future decisions regarding the company’s executive compensation program consistent with its approach in 2011 as noted on page 23.
The Board of Directors has resolved to hold annual advisory votes on executive compensation. Accordingly, the next advisory vote on executive compensation will occur at the 2013 Annual Meeting, unless the Board of Directors modifies its policy on the frequency of holding such advisory votes.
The Board of Directors unanimously recommends a vote FOR the advisory resolution on executive compensation.
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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the company’s officers and directors, and persons who own more than 10% of a registered class of the company’s equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (“SEC”) and the New York Stock Exchange. Officers, directors and greater than 10% stockholders are required by SEC regulations to furnish the company with copies of all Section 16(a) forms they file. The company’s administrative staff regularly assists its executive officers and directors in preparing initial ownership reports and reporting ownership changes, and typically files these reports on their behalf.
Based solely upon a review of the copies of such reports furnished to the company and of such reports in its possession, and of representations by certain reporting persons, the company believes that all of its directors, executive officers and greater than 10% stockholders filed the required reports on a timely basis under Section 16(a).
Expenses of Solicitation
All expenses of this solicitation, including the cost of preparing and mailing this Proxy Statement, will be borne by the company. In addition to solicitation by mail, directors, officers and employees of the company may solicit proxies and voting instructions in person, by telephone or other means of communication. Such directors, officers and employees will not be additionally compensated but may be reimbursed for reasonable out-of-pocket expenses in connection with such solicitation. The company has retained Georgeson Inc., at an estimated cost of $14,500, plus reimbursement of expenses, to assist in its solicitation of proxies from brokers, nominees, institutions and individuals. Arrangements also will be made with custodians, nominees and fiduciaries for forwarding proxy solicitation materials to beneficial owners of shares held of record by such custodians, nominees and fiduciaries, and the company will reimburse such custodians, nominees and fiduciaries for reasonable expenses incurred in connection therewith.
Stockholder Proposals and Nominations
Stockholder proposals intended for inclusion in the company’s 2013 Proxy Statement under SEC Rule 14a-8 must be received by the Secretary of the company not later than the close of business on November 21, 2012. In addition, MeadWestvaco’s bylaws outline procedures that stockholders of record must follow to nominate directors or to bring other business before stockholders’ meetings. For a stockholder to nominate a candidate for director at or bring other business before the 2013 Annual Meeting of Stockholders, notice of such nomination or stockholder proposal must be given to the Secretary of the company not earlier than December 24, 2012 and not later than January 23, 2013. Any such notice must contain information and conform to requirements specified in the company’s bylaws, a copy of which can be obtained by contacting the Secretary of the company.
Delivery of Documents to Stockholders Sharing an Address
If you are the beneficial owner, but not the record holder, of the company’s shares, your broker, bank or other nominee may only deliver one copy of the company’s proxy statement and annual report to multiple stockholders who share an address unless that nominee has received contrary instructions from one or more of the stockholders. The company will deliver promptly, upon written or oral request, a separate copy of the proxy statement and annual report to a stockholder at a shared address to which a single copy of the documents was delivered. A stockholder who wishes to receive a separate copy of the proxy statement and annual report, now or in the future, should submit their request to the company by telephone at (212) 318-5714 or by submitting a written request to Corporate Secretary, MeadWestvaco Corporation, 299 Park Avenue, New York, New York 10171. Beneficial owners sharing an address who are receiving multiple copies of proxy materials and annual reports and wish to receive a single copy of such materials in the future will need to contact their broker, bank or other nominee to request that only a single copy of each document be mailed to all stockholders at the shared address in the future.
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Other Matters
Any stockholder who would like a copy of our 2011 Annual Report on Form 10-K may obtain one, without charge, by addressing a request to the Corporate Secretary, MeadWestvaco Corporation, 299 Park Avenue, New York, New York 10171. The Company’s copying costs will be charged if copies of exhibits to the Form 10-K are requested. You may also obtain a copy of the Form 10-K, including exhibits, from the investor relations portion of our website (http://www.meadwestvaco.com/InvestorRelations/index.htm) by clicking on “SEC Filings.”
Wendell L. Willkie, II
Senior Vice President, General Counsel and Secretary
March 21, 2012
53
NOTES
MeadWestvaco Corporation
501 South 5th Street
Richmond, Virginia 23219-0501
http://www.mwv.com
Corporate Secretary
Telephone 212-318-5714
For stockholder information
Call toll free 1-800-432-9874
YOUR VOTE IS IMPORTANT. PLEASE VOTE TODAY.
We encourage you to take advantage of Internet or telephone voting. Both are available 24 hours a day, 7 days a week.
Internet and telephone votes must be received by 5 p.m., eastern daylight time, on Sunday, April 22, 2012 to be counted in the final tabulation.
INTERNET http://www.proxyvoting.com/mwv
Use the Internet to vote your proxy. Have your proxy card in hand when you access the web site.
TELEPHONE 1-866-540-5760
Use any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call.
MeadWestvaco Corporation
If you vote your proxy by Internet or by telephone, you do NOT need to mail back your proxy card. To vote by mail, mark, sign and date your proxy card and return it in the enclosed postage-paid envelope.
Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card.
WO # 19457
FOLD AND DETACH HERE
The Board of Directors recommends a vote “FOR” all nominees listed below, “FOR” proposal 2 and “FOR” proposal 3.
Plea se mark your votes as indicated in this example
1. Election of the nominated slate of director nominees:
FORAGAINSTABSTAIN
1.1 Michael E. Campbell
1.2 1.2 Dr. Thomas W. Cole,Jr.
1.3 James G. Kaiser
1.4 Richard B. Kelson
1.5 James M. Kilts
1.6 Susan J. Kropf
1.7 Douglas S. Luke
1.8 John A. Luke, Jr.
1.9 Gracia C. Martore
1.10 Timothy H. Powers
1.11 Jane L. Warner
1.12 Alan D. Wilson
3. Advisory resolution to approve executive compensation.
The proxies or, in the case of the MeadWestvaco Corporation Savings Plans, the Trustee, are directed to vote as specified above and in their discretion on any matters properly coming before the meeting and any adjournment thereof. If no direction is made, the proxies will vote FOR all nominees listed above, FOR Proposal 2 and
FOR Proposal3.Please date, sign and return this proxy promptly. Please sign exactly as your name appears on this proxy. If signing for estates, trusts or corporations, title should be stated.
Mark Here for Address Change or Comments
SEE REVERSE
Please Sign, Date and Return the Proxy Card Promptly Using the Enclosed Envelope. When signing as attorney, executor, administrator, trustee or guardian, give full title . If more than one trustee, all should sign.
SignatureSignatureDate
You can now access your MeadWestvaco Corporation account online. Access your MeadWestvaco Corporation account online via Investor Service Direct® (ISD).The transfer agent for MeadWestvaco Corporation, now makes it easy and convenient to get current information on your shareholder account.
• View account status
• View payment history for dividends
• View certificate history
• Make address changes
• View book-entry information
• Obtain a duplicate 1099 tax form
Visit us on the web at www.bnymellon.com/shareowner/equityaccess
For Technical Assistance Call 1-877-978-7778 between 9am-7pm
Monday-Friday Eastern Time
Investor Service Direct®
Available 24 hours per day, 7 days per week
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Choose MLinkSM for fast, easy and secure 24/7 online access to your future proxy materials, investment plan statements, tax documents and more. Simply log on to Investor Service Direct® at www.bnymellon.com/shareowner/equityaccess where step-by-step instructions will prompt you through enrollment.
You can view the Annual Report and Proxy Statement
on the Internet at www.meadwestvaco.com/proxymaterials
FOLD AND DETACH HERE
MEADWESTVACO CORPORATIO
NANNUAL MEETING OF MEADWESTVACO STOCKHOLDERS, APRIL 23, 2012
The undersigned holder(s) of Common Stock of MEADWESTVACO CORPORATION, a Delaware corporation (hereinafter referred to as the “company”), here by appoints Wendell L. Willkie, II, and John J. Carrara (the “Proxies”) and either of them, attorneys of the undersigned, each with power of substitution, to vote all of the Common Stock of the undersigned entitled to vote at the Annual Meeting
of MeadWestvaco Stockholders to be held at the Waldorf=Astoria Hotel, 301 Park Avenue, New York, NY, on Monday, April 23, 2012 and at any and all adjournments or postponements of such meeting, upon the matters set forth on the reverse side hereof, and the Proxies are authorized to vote in their discretion, upon such other business as may properly come before the meeting.
This proxy is solicited on behalf of the Board of Directors of the company. This proxy when properly executed will be voted in the manner directed herein by the undersigned stockholder. If no instructions are indicated, the shares will be voted in accordance with the recommendations of the Board of Directors.
For participants in the MeadWestvaco Corporation Savings Plans: As to those shares of Common Stock of MeadWestvaco Corporation that are held for me in the aforementioned Plans, by signing this card, I instruct the Trustee of such Plans to sign a proxy for me in substantially the form set forth on the reverse side. Voting rights will be exercised by the Trustee as directed. If no instructions are received, the Trustee shall vote the shares as directed by MeadWestvaco Corporation Benefit Plans Investment Policy Committee or its designee.
Address Change/Comments (Mark the corresponding box on the reverse side)
(CONTINUED AND TO BE VOTED AND SIGNED ON REVERSE SIDE)
SHAREOWNER SERVICESP.O. BOX 3550SOUTH HACKENSACK, NJ 07606-9250
SHAREOWNER SERVICESP.O. BOX 3550SOUTH HACKENSACK, NJ 07606-9250
WO#19457