Con-way Inc.
Jennifer Pileggi
Senior Vice President, General Counsel & Secretary
2855 Campus Drive, Suite 300
San Mateo CA 94403
October 17, 2007
VIA EDGAR
Daniel Morris
Attorney Advisor
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549-3561
RE: Con-way Inc.
Definitive Proxy Statement on Schedule 14A
Filed on March 9, 2007
File No. 001-05046
Dear Mr. Morris:
Con-way Inc. (the "Company") is submitting this letter in response to
the written comments of the staff (the "Staff") of the Securities and
Exchange Commission (the "Commission") contained in your letter dated August
21, 2007 (the "Comment Letter"), with respect to the Definitive Proxy
Statement on Schedule 14A filed by the Company with the Commission on
March 9, 2007 (File No. 001-05046) (the "Proxy Statement").
The headings and numbered items of this letter correspond to the
headings and numbered items contained in the Comment Letter. For the
convenience of the Staff, each of the comments from the Comment Letter is
restated prior to the Company's response. Capitalized terms used but not
defined in this letter have the meanings given to those terms in the Proxy
Statement. The page numbers referred to in the text below are the relevant
page numbers of the Proxy Statement.
As a prefatory comment, in 2005 the Company began moving from its
historic holding company approach to an operating company approach. The
Company is currently engaged in a systematic review of its compensation
objectives, policies and practices, in part to ensure that they are properly
aligned with the objectives of the new operating company approach. In
addition, our Compensation Committee retained a new compensation consultant
for 2007 and took a somewhat different approach when setting the 2007
executive compensation that will be addressed in the Company's 2008 proxy
statement. As a result, in some cases the responses below relating to 2006
executive compensation will not apply to the discussion of 2007 executive
compensation in our 2008 proxy statement.
COMPENSATION COMMITTEE, PAGE 14
1. Please revise your discussion of the functions performed by your
compensation consultants to address, for each compensation consultant,
the nature and scope of their assignment, including their role in
determining and recommending compensation, and any other material
elements of the consultants' functions. Refer to Item 407(e)(3)(iii) of
Regulation S-K.
RESPONSE: Additional disclosure regarding the role of the Company's
compensation consultant can be found on page 22. In our 2008 proxy
statement, we will consolidate our discussion of the compensation
consultant's role in a single section of the proxy statement.
2006 DIRECTOR COMPENSATION, PAGE 19
2. Please disclose all assumptions made in the valuation of awards in the
stock and option awards columns of the table by reference to a
discussion of those assumptions in your financial statements, footnotes
to the financial statements, or discussion in management's discussion
and analysis. See Instruction to Regulation S-K Item 402(k), which
refers to Instruction 1 to Item 402(c)(2)(v) and (vi).
RESPONSE: We will include these disclosures in future filings.
3. For each director, please disclose by footnote to the stock and option
awards columns of the director compensation table the grant date fair
value of each equity award computed in accordance with FAS 123R. See
Instruction to Regulation S-K Item 402(k)(2)(iii) and (iv).
RESPONSE: We will include these disclosures in future filings.
COMPENSATION OF EXECUTIVE OFFICERS, PAGE 21
ATTRACTING, RETAINING AND MOTIVATING HIGHLY TALENTED EXECUTIVES, PAGE 22
4. We note that you benchmark your compensation against companies in two
peer groups: the Dow Jones Transportation Average and a general
industry peer group. Please identify the companies in the general peer
group and describe how the company's "relative size" is measured and how
it impacts its benchmarking activities. If you have benchmarked
different elements of your compensation against different benchmarking
groups, please identify the companies that comprise each group. Refer
to Item 402(b)(2)(xiv) of Regulation S-K. In addition, to the extent
actual compensation was outside of the disclosed targeted percentile
ranges, please explain why.
RESPONSE: In our 2008 proxy statement (regarding 2007 compensation), we
will identify the relative size criteria used and the sources considered
for general industry market data, which differ from the size criteria
and sources used for 2006 compensation. We will also disclose that the
general industry market data used for 2007 compensation covered all
industries other than financial services. We note that for 2007
compensation the number of companies from general industry that were
considered varied by named executive officer, and ranged from more than
150 to approximately 300. We are prepared to disclose the names of
these companies in our 2008 proxy statement if the Staff wishes us to do
so.
With respect to 2006 compensation, we did not benchmark different
elements of compensation against different benchmarking groups. The Dow
Jones Transportation Average was used to benchmark all elements of
compensation for the Chief Executive Officer, Chief Financial Officer
and the president of Con-way Freight. The general industry peer group
was used to benchmark all elements of compensation for the other named
executive officers.
Although for 2006 compensation the Compensation Committee did target
base salaries, short-term incentive compensation and long-term incentive
compensation at the 50%, 60% and 50% percentiles, respectively, the
Committee discontinued this practice for 2007 compensation. As a result,
in our 2008 proxy statement there will be no occasion to disclose how
actual compensation compared to these percentile targets.
ELEMENTS OF COMPENSATION, PAGE 23
5. Please provide an expanded analysis of the levels of compensation paid
to the named executive officers. For example, with respect to the
awarding of stock options and "special bonuses and awards", you should
provide an expanded analysis of how you arrived at and why you paid
these levels of compensation for 2006. For each element of
compensation, please ensure that you provide a reasonably complete
analysis of the specific factors considered by the committee in
ultimately approving specific pieces of each named executive officer's
compensation package and the reasons why the committee believes that the
amounts paid are appropriate in light of the various items it considered
in making specific compensation decisions.
RESPONSE: No special bonuses or awards were given to named executive
officers in 2006.
The Compensation Committee seeks to provide total compensation to the
Company's named executive officers that compares reasonably to the total
compensation provided to executives at other companies based on
comparative market data. As discussed further below, many factors are
taken into account in determining how this targeted level of
compensation is delivered to executives.
Each year, an independent compensation consultant is engaged to assist
the Committee in assessing whether the total direct compensation (annual
base salary, short-term incentive compensation and long-term incentive
compensation) compares reasonably, based on relevant market data
supplied by the consultant. We believe that the Committee is in a
unique position, with its knowledge of Company circumstances, the
characteristics of the executive team, and the market data provided by
the consultant, to use its judgment in setting pay levels.
In addition, the Committee periodically engages an independent
consultant (which may or may not be the same consultant that advises the
Committee on total direct compensation) to assist in assessing the
comparability of the post-employment compensation and perquisites
provided by the Company to named executive officers to the same types of
compensation received by executives in other companies based on
applicable comparative market data supplied by the compensation
consultant. In the event that more than one compensation consultant is
engaged by the Compensation Committee in any year, we will disclose the
requisite information regarding the nature and scope of each
consultant's assignment, including the consultant's role in determining
and recommending compensation. Post-employment compensation and
perquisites are discussed further below.
In the annual assessment, the compensation consultant provides
comparative market data not only for the total direct compensation, but
also for each of the three elements of compensation comprising total
direct compensation (annual base salary, short-term incentive
compensation and long-term incentive compensation). As in prior years,
for 2006 compensation the Committee targeted annual base salary, short-
term incentive compensation and long-term incentive compensation at the
50%, 60% and 50% percentiles relative to peer group companies.
However, these target percentiles were intended only as a starting
point, and the actual compensation paid to the named executive officers
typically varies from these target percentiles. For example, it is the
Committee's policy to apply the same multiple of base salary when
setting short-term and long-term incentive compensation award
opportunities for executives at a given grade level, reflecting the
Committee's view that executives at a given executive grade level have
equivalent levels of responsibility within the Company and should
receive comparable incentive compensation opportunities. In addition,
an executive may receive a salary that is above the 50% percentile for a
number for reasons, including the qualifications of the executive and
the strategic and operational goals for which the executive has
responsibility, and if so the executive may also receive target
incentive compensation above the targeted 60% and 50% percentiles,
respectively, since target short-term and long-term incentive
compensation is based on multiples of annual base salary.
As noted on page 21, as part of the Company's pay for performance
philosophy, the Committee ties a significant portion of the executive's
compensation to achievement of the Company's business objectives,
putting compensation "at risk." In addition, as the executive achieves
a more senior position within the Company, the Committee ties a greater
portion of an executive's total direct compensation to performance.
This is reflected in the table below for the named executive officers
with respect to 2006 compensation.
- -----------------------------------------------------------------------------
|Named |Title |Annual |Short-Term |Long-term |Percentage of|
|Executive | |Base |Incentive |Incentive |Total Direct|
|Officer | |Salary(1)|Compensation |Compensation |Compensation |
| | | |Opportunity at |Opportunity |"At Risk" |
| | | |Target(as a |at Target (as| |
| | | |percentage of |a multiple of| |
| | | |base salary) |base salary) | |
- -----------------------------------------------------------------------------
|Douglas W.|President |$675,012 | 100% | 4 | 80% |
|Stotlar |and Chief| | | | |
| |Executive | | | | |
| |Officer | | | | |
- -----------------------------------------------------------------------------
|Kevin C.|Senior |$350,012 | 75% | 2.25 | 75% |
|Schick |Vice | | | | |
| |President | | | | |
| |and Chief| | | | |
| |Financial | | | | |
| |Officer | | | | |
- -----------------------------------------------------------------------------
|Robert L.|Senior |$360,412 | 60% | 1.25 | 65% |
|Bianco |Vice | | | | |
| |President | | | | |
- -----------------------------------------------------------------------------
|John G.|Senior |$341,276 | 60% | 1.25 | 65% |
|Labrie |Vice | | | | |
| |President | | | | |
- -----------------------------------------------------------------------------
|David S.|Senior |$418,756 | 75% | 2.25 | 75% |
|McClimon |Vice | | | | |
| |President | | | | |
- -----------------------------------------------------------------------------
(1)2006 annualized base salaries, which differ slightly from W-2 salaries
shown in Summary Compensation Table
The Committee believes amounts shown in the table above for the
specified elements of compensation are appropriate because the total
direct compensation compares reasonably to compensation provided to
executives at other companies based on applicable comparative market
data provided by the compensation consultant, and the compensation
promotes the Company's policies of pay for performance, increasing
percentages of "at risk" compensation for more senior executives and
internal fairness (by providing comparable incentive compensation
opportunities for executives at the same executive grade level).
The named executive officers also receive post-employment compensation
and perquisites. Post-employment compensation includes retirement
benefits, death and disability benefits, and compensation payable in
connection with a termination of employment following a change in
control. Company executives and other key employees are also eligible
to participate in the Company's deferred compensation plans.
Factors considered by the Committee in approving the elements of post-
employment compensation and perquisites for named executive officers
include:
* for perquisites and all elements of post-employment compensation,
whether the amounts received or receivable by the named executive
officers compare reasonably with amounts received by officers at
other companies based on applicable comparative market data (as
noted above, the Committee periodically engages independent
consultants to assist in this assessment);
* in the case of retirement and disability benefits, that all
regular full-time Company employees, and not just the named
executive officers, are eligible to receive these types of
benefits;
* in the case of compensation payable in connection with a
termination of employment following a change in control, that
payment of the compensation is contingent both upon a change in
control and a qualifying termination of employment (i.e., a
"double trigger"), and that the assurances provided to executives
by maintaining the program are expected to benefit the Company
through the retention of key executive officers during periods of
uncertainty;
Based on these factors, the Committee concluded that the amounts paid or
payable to the named executive officers as post-employment compensation
and perquisites for 2006 are appropriate.
6. It appears that you have not provided a quantitative discussion of all
the terms of the necessary targets to be achieved in order for your
executive officers to earn their incentive compensation. Please discuss
the specific items of company and subsidiary performance used to
determine incentive amounts and how your incentive awards are
specifically structured around such performance goals. Please note that
qualitative goals generally need to be presented to conform to the
requirements of Item 402(b)(2)(v). To the extent you believe that
disclosure of the targets is not required because it would result in
competitive harm such that the targets could be excluded under
Instruction 4 to Item 402(b) of Regulation S-K, please provide on a
supplemental basis a detailed explanation for such conclusion. Please
also note that to the extent that you have an appropriate basis for
omitting the specific targets, you must discuss how difficult it would
be for the named executive officers or how likely it will be for you to
achieve the undisclosed target levels or other factors. General
statements regarding the level of difficulty, or ease, associated with
achieving performance goals either corporately or individually are not
sufficient. Please provide insight into the factors considered by the
committee prior to the awarding of performance-based compensation such
as historical analyses prior to the granting of these awards or
correlations between historical bonus practice and the incentive
parameters set for the relevant fiscal period.
RESPONSE: For 2006, our incentive compensation included short-term
incentive compensation in the form of annual performance bonuses and
long-term incentive compensation in the form of Value Management Plan
awards ("VMP awards") and stock option awards.
The specific aspects of Company and subsidiary performance used to
determine annual performance bonuses are described on pages 25 and 26.
For Messrs. Stotlar, Schick and McClimon, we have disclosed the specific
target and actual levels of achievement, as well as the amount of bonus
earned, expressed both in Dollars and as a percentage of the target
amount. For Messrs. Bianco and Labrie, we have disclosed the same
information for the portion of their annual performance bonus that was
tied to parent Company performance. We believe this disclosure complies
with the requirements of Item 402(b) of Regulation S-K.
For Messrs. Bianco and Labrie, we did not disclose the specific target
and actual levels of achievement for that portion of their annual
performance bonuses that were tied to performance of Company
subsidiaries. Ninety percent of Mr. Bianco's annual performance bonus
award was based on operating income before incentive compensation and
expense for workers compensation and lost or damaged freight of Menlo
Worldwide, LLC and on improvement in the working capital of Menlo
Logistics, Inc. Fifty percent of Mr. Labrie's award was based on the
performance of four subsidiary companies - Con-way Truckload, Con-way
Expedite and Brokerage, Con-way Forwarding and Road Systems.
Specific target and actual levels of achievement, as well as amounts
earned, expressed both in Dollars and as a percentage of the target
amount, were disclosed for four of the five named executive officers
with respect to the 2004 - 2006 Value Management Plan cycle. This
information was not disclosed with respect to Mr. Bianco's 2004 - 2006
cycle, which was based on EBITDA and ROCE for the Company's Menlo
Worldwide, LLC affiliate. Specific performance targets were also not
disclosed for the two remaining Value Management Plan award cycles (2005
- 2007 and 2006 - 2008), although the terms of these awards, and a
discussion of the level of difficulty in achieving the performance
goals, were described on page 30.
Disclosure of the specific goals regarding subsidiary performance causes
competitive harm to the Company by providing competitors with sensitive
financial information that would not otherwise be made available. The
Company does not issue separate financial statements for its
subsidiaries, so information regarding performance of Company
subsidiaries is available to the public only to the extent it is
required to be incorporated into the consolidated financial statements
of the parent Company. However, we note that because the Company's Con-
way Freight subsidiary constitutes a substantial part of overall Company
performance, we did disclose the Con-way Freight performance goals
applicable to both short-term and long-term incentive awards.
In addition, in many cases incentive compensation awards for executives
at the Company's subsidiaries are tied to metrics designed to improve
specific aspects of business operations. For example, Mr. Bianco's 2006
annual performance bonus was based in part on improvement in working
capital (including days sales outstanding, or "DSO") for Menlo
Logistics, Inc., and Mr. Labrie's annual performance bonus was based in
part on miles per gallon statistics for Con-way Truckload, margins for
Con-way Brokerage, and safety rates, inventory turns and other
efficiency metrics for Road Systems. Disclosure of these metrics
provides valuable information to competitors that can be used to the
disadvantage of the Company and its subsidiaries.
Disclosure of specific performance goals for ongoing award cycles, such
as the Company's Value Management Plan awards which have three-year
cycles, is particularly problematic, whether the goals are tied to
performance of the Company, its subsidiaries or a combination. The
Company's financial results continue to be driven primarily by the
performance of its Con-way Freight less-than-truckload ("LTL")
subsidiary. The LTL segment for the transportation market is highly
competitive, with six companies estimated to have in excess of 60% of
the LTL market based on revenue. Disclosing specific three-year EBITDA
and ROCE targets, for the Company as a whole or for Con-way Freight
individually, could signal to competitors a shift in the Company's
strategy and pricing philosophy, which could trigger a competitive
response by competitors to the detriment of the Company and its
shareholders.
Disclosure of these specific performance goals could also result in
increased volatility of the Company's common stock, to the detriment of
the Company and its shareholders. Although each year the Company
prepares an internal three-year plan on which Value Management Plan
performance goals are based, and provides annual guidance regarding
anticipated earnings per share, the Company does not release the three-
year plan to shareholders and the investment community. Disclosure of
three-year performance goals may result in misguided expectations on the
part of stock analysts covering the Company and of actual and
prospective shareholders who read the analysts' reports, thereby
increasing volatility.
Regarding the factors considered by the Compensation Committee prior to
the awarding of performance-based compensation, in 2006 both short-term
and long-term performance-based compensation was tied to financial plan.
(See discussion on page 25 and pages 28 and 29). The primary factor
considered in setting performance goals was the expected performance of
the Company as shown in the financial plan. In evaluating the financial
plan, the Committee considers market conditions, the business cycle,
operating plan priorities and other factors and tries to gauge the
relative degree of difficulty the Company will face in meeting its
financial plan. Based on this assessment, the Committee sets the
performance goals. The Committee did not consider historical analyses
in establishing 2006 performance goals.
7. Your disclosure suggests that compensation is significantly impacted by
individual performance. Please provide additional detail and an
analysis of how individual performance contributed to actual 2006
compensation for the named executive officers. For example, disclose
the elements of individual performance, both quantitative and
qualitative, and specific contributions the compensation committee
considered in its evaluation, and if applicable, how they were weighted
and factored into specific compensation decisions. Please expand your
discussion and analysis of the factors the committee considered in
establishing personal objectives for Mr. Rohr. See Item 402(b)(2)(vii)
of Regulation S-K.
RESPONSE: Individual performance is typically taken into account when
making adjustments to annual base salaries and when making stock option
grants to executives. (See discussion on page 22).
However, in 2006 the salary increases awarded to the named executive
officers were driven primarily by the desire to bring the executive
closer to market levels. At the time the salary increases were awarded,
each of the named executive officers had been in his current position
for a relatively short time and was receiving a salary significantly
below market.
The starting point for determining the target number of stock options to
be granted to each named executive officer is determined by allocating
50% of that executive's long-term incentive compensation opportunity to
stock options (See discussion on page 27). The results of these
calculations are then used to determine target stock option awards for
all executives, with the same target stock option award for each
executive within a given executive grade level. For 2006 compensation,
the target stock option awards for Messrs. Stotlar, Schick, Bianco,
Labrie and McClimon were 55,000, 16,800, 7,800, 7,800 and 16,800
options, respectively. The actual option grants to Messrs. Schick,
Bianco, Labrie and McClimon were 16,000, 8,700, 8,700 and 18,400,
respectively. The adjustments to the target number of awards for these
executives were recommended by the Chief Executive Officer, based on his
assessment of their relative levels of responsibility and relative
potential to impact business results, and approved by the Compensation
Committee.
We note that the Company does not employ an executive with a surname of
"Rohr," and assume that the last sentence of comment 7 was not intended
to be included in the comment letter.
8. The Compensation Discussion and Analysis should be sufficiently precise
to capture material differences in compensation policies with respect to
individual named executive officers. Refer to Section II.B.1 of
Commission Release No. 33-8732A. Please provide a detailed analysis of
how and why the compensation and equity awarded to Mr. Stotlar differs
so widely from that of the other named executive officers. If policies
or decisions relating to a named executive offer are materially
different than the other officers, please discuss on an individualized
basis.
RESPONSE: The compensation and equity awarded to all of the named
executive officers, including Mr. Stotlar, was in line with the
comparative market data considered by the Compensation Committee. The
wide variance in Mr. Stotlar's compensation and equity awards from that
of the other named executive officers reflects the substantially higher
level of responsibility and greater potential impact on the Company's
results of the chief executive officer relative to the other top
executives.
SHORT-TERM INCENTIVE COMPENSATION, PAGE 24
9. Please describe the circumstances under which payouts may exceed maximum
levels.
RESPONSE: Short-term incentive compensation may never exceed maximum
levels. As noted on page 25, "[n]o performance bonus is earned if
performance is at or below the specified threshold level, and a
performance bonus equal to 200% of target bonus is paid if the maximum
performance goals are reached or exceeded."
VALUE MANAGEMENT PLAN AWARDS, PAGE 27
10. Please expand your disclosure to discuss the factors considered in
determining whether awards for an executive employed by a subsidiary
will be based upon EBITDA/ROCE for the company or the subsidiary.
RESPONSE: Typically, a substantial portion of a Value Management Plan
award made to an executive employed by a subsidiary is based on
EBITA/ROCE for that subsidiary, since the executive's actions most
directly affect the performance of that subsidiary. However, for some
executive officers employed by a subsidiary, the Committee may also
elect to tie a portion of the award to EBITDA/ROCE of the Company as a
whole, so that the executive is motivated to consider the effect of his
or her actions both on the subsidiary that employs that executive and on
the Company as a whole. As noted on page 30, the portion attributable
to EBITDA/ROCE of the Company ranges from 20% to 50% for the 2006 - 2008
Value Management Plan award cycle for Messrs. Bianco, Labrie and
McClimon.
TERMINATION OF EMPLOYMENT FOLLOWING A CHANGE IN CONTROL, PAGE 31
11. Please describe and explain how the appropriate payment and benefit
levels are determined under the various circumstances that trigger
payments or provision of benefits under the severance agreements and
change of control agreements. See paragraphs (b)(1)(v) and (j)(3) of
Item 402 of Regulation S-K. Also please discuss how these arrangements
fit into your overall compensation objectives and affect the decisions
you made regarding other compensation elements and the rationale for
decisions made in connection with these arrangements.
RESPONSE: As noted on page 32, additional disclosure can be found on
pages 50 through 52, including a description of the payment and benefit
levels available to the named executive officers upon a change in
control. In future filings, we will disclose how these arrangements fit
into our overall compensation objectives. See also our response to
Comment 5 above.
2006 SUMMARY COMPENSATION TABLE, PAGE 40
12. Please disclose all assumptions made in the valuation of awards in the
stock awards column of the table by reference to a discussion of those
assumptions in your financial statements, footnotes to the financial
statements, or discussion in management's discussion and analysis. See
Instruction 1 to Item 402(c)(2)(v) and (vi) of Regulation S-K.
Response: We will include these disclosures in future filings.
OUTSTANDING EQUITY AWARDS AT 2006 FISCAL YEAR-END, PAGE 43
13. Please disclose the vesting dates of options, shares of stock and equity
incentive plan awards held at fiscal-year end by footnote to the
applicable column where the outstanding award is reported. Refer to
Instruction 2 of Item 402(f)(2) of Regulation S-K.
RESPONSE: We will include these disclosures in future filings.
2006 NONQUALIFIED DEFERRED COMPENSATION, PAGE 48
14. Pursuant to the Instruction to paragraph (i)(2) of Item 402 of
Regulation S-K, please include a footnote quantifying the extent to
which amounts reported in the contributions and earnings columns are
reported as compensation in the last completed fiscal year in the
registrant's Summary Compensation Table and amounts reported in
"Aggregate Balance December 31, 2006" previously were reported as
compensation to the named executive officer in the registrant's Summary
Compensation Table for prior years.
RESPONSE: We will include these disclosures in future filings.
15. We note the disclosure in footnote (3), which briefly discusses the
method by which investment earnings are calculated. Please consider
paragraph (i)(3)(ii) of Item 402 of Regulation S-K when drafting
appropriate corresponding disclosure, which requires quantification of
interest rates and other earnings measures applicable during the last
fiscal year.
RESPONSE: We will include these disclosures in future filings.
GENERAL - COMPANY STATEMENT
At your request, the Company further acknowledges that:
* the Company is responsible for the adequacy and accuracy of the
disclosure in the Proxy Statement;
* Staff comments or changes to disclosure in response to Staff comments do
not foreclose the Commission from taking any action with respect to the
Proxy Statement; and
* the Company may not assert Staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
* * *
If you have any questions or comments regarding the foregoing or need
any additional information, please contact the undersigned at (650) 378-5326.
Very truly yours,
/s/ Jennifer W. Pileggi
Jennifer W. Pileggi
Senior Vice President, General Counsel
and Secretary
Date: October 17, 2007