[GRAYBAR logo]
INFORMATION STATEMENT
MAY 12, 2008
GRAYBAR ELECTRIC COMPANY, INC.
34 NORTH MERAMEC AVENUE
CLAYTON, MISSOURI 63105
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INFORMATION STATEMENT
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This Information Statement is furnished to each holder of record of
Common Stock of Graybar Electric Company, Inc. (the "Company") and each owner
of Voting Trust Interests issued under the Voting Trust Agreement referred to
below in connection with the Annual Meeting of Shareholders of the Company.
That meeting is to be held at 9:30 A.M. on June 12, 2008 at the Commerce Bank
Building, 8000 Forsyth Boulevard, Clayton, Missouri 63105.
The record holders of Common Stock outstanding at the close of
business on April 24, 2008 will be entitled to attend and to vote at the
meeting. On April 24, 2008, there were 7,989,317 outstanding shares of Common
Stock. Each share is entitled to one vote.
On April 24, 2008, 6,429,184 of the issued and outstanding shares of
Common Stock of the Company, constituting approximately 80% of the total
outstanding, were held of record in the names of the Voting Trustees under the
Voting Trust Agreement referred to below under "Beneficial Ownership of More
Than 5% of the Outstanding Common Stock." The Voting Trustees as a group
possess the voting power associated with the shares held of record under the
Voting Trust Agreement, and such voting power is sufficient to assure the
election of the persons nominated by the Board of Directors for election as
directors and approval of any other matters brought before the meeting.
The Voting Trustees have indicated as a group that they presently
intend to vote the shares of Common Stock held by them FOR the persons
nominated by the Board of Directors for election as directors. In addition,
the Voting Trustees are authorized to vote in their discretion with respect to
such other matters as may properly come before the meeting.
This Information Statement will be sent to holders of Common Stock
and owners of Voting Trust Interests on or about May 12, 2008.
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WE ARE NOT ASKING YOU FOR A PROXY AND YOU
ARE REQUESTED NOT TO SEND US A PROXY.
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BENEFICIAL OWNERSHIP OF MORE THAN 5%
OF THE OUTSTANDING COMMON STOCK
The following table sets forth certain information as of April 24,
2008 with respect to the beneficial ownership of the only person known to the
Company to be the beneficial owner of more than 5% of the outstanding shares
of Common Stock. Such beneficial ownership relates solely to voting power
because the Voting Trustees do not have any power to dispose of or direct the
disposition of the shares of Company Common Stock held under the Voting Trust
Agreement. The Voting Trust Agreement terminates on March 15, 2017, unless
sooner terminated by the vote of a majority of the Voting Trustees or the vote
of the owners of Voting Trust Interests representing at least seventy-five
percent (75%) of the number of shares of Common Stock deposited thereunder.
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
------------------------------------ --------------------- ----------------
D. E. DeSousa, L. R. Giglio, T. S. Gurganous,
R. D. Offenbacher and R. A. Reynolds, Jr. as
Voting Trustees under a Voting Trust
Agreement dated as of March 16, 2007
34 North Meramec Avenue
Clayton, Missouri 63105 6,429,184 80%
BENEFICIAL OWNERSHIP OF MANAGEMENT
The following table sets forth information with respect to the
ownership of Voting Trust Interests representing shares of Common Stock held
in the Voting Trust as of April 24, 2008 by the persons nominated by the Board
of Directors for election as directors, all of whom are presently directors of
the Company, and by all executive officers and directors of the Company as a
group. On April 24, 2008, no single director or executive officer owned
beneficially more than 1% of the Voting Trust Interests. No director or
executive officer owns shares of Common Stock of record. The Voting Trustees,
when acting in that capacity, as a group possess the voting power associated
with approximately 80% of the outstanding shares of Common Stock but possess
no power of disposition with respect to such shares.
AMOUNT AND NATURE OF AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP
- ------------------------ -------------------- ------------------------ --------------------
R. A. Cole.............................. 8,548 K. M. Mazzarella....................... 6,622
D. B. D'Alessandro...................... 6,906 R. L. Nowak............................ 10,959
D. E. DeSousa........................... 6,797 R. D. Offenbacher...................... 13,666
T. F. Dowd.............................. 8,104 R. A. Reynolds, Jr..................... 22,558
L. R. Giglio............................ 10,236 K. B. Sparks........................... 12,683
T. S. Gurganous......................... 11,173
F. H. Hughes............................ 0 Executive officers and directors
R. C. Lyons............................. 2,640 as a group (15 persons)................ 133,466
(1.7%)
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DIRECTORS
NOMINEES FOR ELECTION AS DIRECTORS
Thirteen directors are to be elected to serve until the next Annual
Meeting of Shareholders and until their successors have been elected and
qualified. The persons nominated by the Board of Directors for election as
directors, each of whom is currently a director, are named in the table below.
All of the nominees are presently employees of the Company or one of its
subsidiaries. Accordingly, for purposes of serving on the Board or any
committee, none of the directors is deemed to be independent within the
meaning of the listing standards of the New York Stock Exchange, which the
Board has elected to use for purposes of determining independence. Certain
additional information concerning the nominees is set forth below.
YEAR IN WHICH
BECAME A
NAME AGE BUSINESS EXPERIENCE LAST FIVE YEARS DIRECTOR
- ---- --- ----------------------------------- --------
R. A. Cole 58 Employed by Company in 1972; Group Vice President, November 2001 1998
to July 2003; District Vice President, July 2003 to present.
D. B. D'Alessandro 47 Employed by Company in 1983; Vice President, IT Strategy Project, 2004
June 2001 to February 2003; Vice President and Chief Information
Officer, February 2003 to May 2005; Senior Vice President and
Chief Financial Officer, May 2005 to present.
D. E. DeSousa 49 Employed by Company in 1981; Senior Vice President, Comm/Data 2000
Business, January 2003 to June 2003; Senior Vice President, Sales
and Distribution, June 2003 to April 2008; Senior Vice
President-U.S. Business, April 2008 to present.
T. F. Dowd (1) 64 Employed by Company in 1997; Vice President, Secretary and General 1997
Counsel, September 1997 to December 2005; Senior Vice President,
Secretary and General Counsel, December 2005 to present.
L. R. Giglio 53 Employed by Company in 1978; Senior Vice President, Operations, 2002
April 2002 to present.
T. S. Gurganous 58 Employed by Company in 1973; Group Vice President, November 2001 1995
to July 2003; District Vice President, July 2003 to present.
F. H. Hughes 61 President and Chief Executive Officer of our majority-owned 2004
subsidiary, Graybar Electric Canada Limited, and its wholly owned
subsidiary, Graybar Canada Limited, January 2001 to present.
<FN>
(1) Mr. Dowd has announced his intention to retire effective as of August 1, 2008.
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YEAR IN WHICH
BECAME A
NAME AGE BUSINESS EXPERIENCE LAST FIVE YEARS DIRECTOR
- ---- --- ----------------------------------- --------
R. C. Lyons 51 Employed by Company in 1979; Vice President-Electrical Sales, 2006
January 2003 to July 2003; District Vice President, July 2003 to
present.
K. M. Mazzarella 48 Employed by Company in 1980; Vice President, Strategic Planning, 2004
June 2001 to January 2004; Vice President, Human Resources and
Strategic Planning, January 2004 to December 2005; Senior Vice
President, Human Resources and Strategic Planning, December 2005 to
April 2008; Senior Vice President-Sales and Marketing,
Comm/Data, April 2008 to present.
R. L. Nowak 61 Employed by Company in 1970; Vice President-Electrical Sales, 2006
January 2003 to July 2003; District Vice President, July 2003 to
present.
R. D. Offenbacher 57 Employed by Company in 1968; Group Vice President, November 2001 to 1994
June 2003; Senior Vice President, Comm/Data Business, June 2003 to
February 2004; Senior Vice President, Sales and Marketing, February
2004 to April 2008; Senior Vice President-Sales and
Marketing, Electrical, April 2008 to present.
R. A. Reynolds, Jr. 59 Employed by Company in 1972; President and Chief Executive Officer, 1993
July 2000 to present; Chairman of the Board, April 2001
to present.
K. B. Sparks 62 Employed by Company in 1968; Group Vice President, November 2001 2001
to July 2003; District Vice President, July 2003 to present.
TRANSACTIONS WITH DIRECTOR
F. H. Hughes, a director of the Company, is a director, officer and
more than 10% shareholder of a company that leases ten warehouse and office
facilities to our Canadian indirect, majority-owned subsidiary, Graybar Canada
Limited, of which Mr. Hughes is President and Chief Executive Officer. The
leases have been in effect since we acquired the predecessor of Graybar Canada
Limited in 1991. The annual rent for these facilities aggregated $1,341,733
(Canadian) in 2007. Under the terms of the leases, the subsidiary is
responsible for all taxes, insurance and maintenance expenses related to the
use of the facilities. In addition, Graybar Canada Limited has entered into an
agreement to purchase these leased facilities at fair market value as
determined by mutual agreement or through an appraisal process, with the first
purchase being scheduled for January of 2009. The remaining nine purchases are
scheduled for January of 2011. T. F. Dowd and K. M. Mazzarella, acting in
their capacity as directors of the Canadian subsidiary, reviewed the lease
transactions and concluded that the terms are comparable to those that could
have been obtained in arms-length transactions with unaffiliated third parties
based on a study done of market rents of similar properties in each area and,
as to the other terms, a comparison to leases entered into by the Company
generally. The agreement to purchase the leased properties was reviewed and
approved by the Executive
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Committee of our Board of Directors, in a manner consistent with our Code of
Business Conduct and Ethics described below.
INFORMATION ABOUT THE BOARD OF DIRECTORS
AND CORPORATE GOVERNANCE MATTERS
Our business is managed with the direction of our Board of Directors.
The Board conducts its business through meetings of the Board and its
committees. The Board of Directors met six times in 2007. All incumbent
directors attended more than 75% of the total number of meetings of the Board
and all Board committees of which they were members. A meeting of the Board of
Directors is typically scheduled in conjunction with the annual meeting of
shareholders, and it is expected that all directors will attend the annual
meeting absent a schedule conflict or other valid reason. All of the persons
who were then directors attended the 2007 Annual Meeting.
Our Code of Business Conduct and Ethics requires any Vice President
or other officer who is not a member of the Board to obtain the approval of
the President prior to engaging in any conduct that might result in or be
perceived to result in a conflict between the personal interest of the Vice
President or other officer and our best interest. The President and any member
of the Board must obtain the approval of a majority of the disinterested
directors before engaging in any such conduct.
BOARD COMMITTEES
The Board of Directors has designated an Executive Committee
consisting of Ms. Mazzarella and Messrs. D'Alessandro, DeSousa, Dowd, Giglio,
Offenbacher and Reynolds. Except as otherwise provided by law and the
Company's Certificate of Incorporation, the Executive Committee has all the
authority of the Board and all Board Committees.
The Company has an Audit Committee, which met eight times in 2007.
Ms. Mazzarella and Messrs. Dowd, Gurganous, Hughes, Lyons, Nowak and Sparks
are the current members of the Audit Committee. The Audit Committee is
governed by a written charter approved by the Board of Directors, a current
copy of which is available at www.graybar.com within the "About Us" page under
Committee Charters, Audit Committee. The Audit Committee and the Board of
Directors review and assess the adequacy of the charter at least annually and
it was revised in December 2007. None of the members of the Audit Committee is
independent because none of the directors is independent. See
"Directors-Nominees for Election as Directors." None of the members of the
Audit Committee is an audit committee financial expert as that term is defined
in the rules promulgated by the Securities and Exchange Commission (SEC). See
"Audit Committee Report." The Company has chosen not to appoint an outside
financial expert to the Audit Committee because it is inconsistent with our
employee ownership structure to appoint non-employees to the Board of
Directors.
The Board of Directors has also appointed an advisory Compensation
Committee, which met seven times in 2007. Ms. Mazzarella and Messrs.
D'Alessandro, DeSousa, Giglio and Offenbacher currently serve on the
Compensation Committee that reviews the Company's compensation policy and
makes recommendations to the Chief Executive Officer and the Board of
Directors with respect to plan changes. The Compensation Committee also
recommends salary adjustments to the Board of Directors for the Chief
Executive Officer after considering data received from our outside
compensation consultant. The Compensation Committee is governed by a written
charter, a current copy of which is available at www.graybar.com within the
"About Us" page under Committee Charters, Compensation Committee. See
"Compensation Committee Report."
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The Company has no nominating committee. The Board of Directors has
determined that it is appropriate for the entire Board to participate in the
consideration of director nominees who, for the most part, historically have
been long-time employees of the Company, or one of its subsidiaries, with a
broad range of management experience within the Company. When identifying a
nominee to fill a vacancy or new position on the Board, the directors consider
the recommendation of our Chief Executive Officer, the background and
reputation of the candidate in terms of character, personal and professional
integrity, his or her business experience, including positions held as an
employee of the Company, or one of its subsidiaries, and how the person would
complement the other directors in terms of expertise and experience. The Board
of Directors does not have a policy with regard to consideration of potential
candidates recommended for consideration by holders of Common Stock and owners
of Voting Trust Interests. The Board of Directors believes that the procedure
used traditionally, which generally has been for the Board to select employees
who have been promoted throughout their careers until they reach a relatively
senior management position either in the field or at Corporate headquarters,
has served the Company and its employee-shareholders well.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
At December 31, 2007, all members of the Compensation Committee were
officers, directors and employees of the Company.
DIRECTOR COMPENSATION
Directors are paid a meeting fee of $300 for each regular Board
meeting attended.
AUDIT COMMITTEE REPORT
We constitute the Audit Committee of the Board of Directors of the
Company. We oversee the Company's financial reporting process on behalf of the
Board of Directors. Other members of management have the primary
responsibility for the financial statements and the reporting process,
including the systems of internal control over financial reporting. In
fulfilling our oversight responsibilities, we reviewed the audited financial
statements with these members of management, including a discussion of the
quality, not just the acceptability, of the accounting principles used, the
reasonableness of the significant judgments made and the clarity of the
disclosures contained in the financial statements.
We reviewed with the independent auditors, Ernst & Young LLP, who are
responsible for expressing an opinion on the conformity of the Company's
audited financial statements with generally accepted accounting principles,
their judgments as to the quality, not just the acceptability, of the
Company's accounting principles and such other matters as are required to be
discussed with the Committee by Statement on Auditing Standards No. 61,
Communications with Audit Committee (AICPA, Professional Standards, Vol. 1, AU
Section 380), as amended and as adopted by the Public Company Accounting
Oversight Board in Rule 3200T.
We received the written disclosures and the letter from Ernst & Young
LLP, the independent accountants, required by the Independence Standards Board
Standard No. 1, Independence Discussions with Audit Committee, as adopted by
the Public Accounting Oversight Board in Rule 3600T, and have discussed with
Ernst & Young LLP, the independent accountant, the independent accountant's
independence.
We discussed with the Company's internal and independent auditors the
overall scope and plans for their respective audits. We met with the internal
and independent auditors to discuss the results of
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their examinations, their evaluations of the Company's internal controls and
the overall quality of the Company's financial reporting.
In reliance on the reviews and discussions referred to above, we
recommended to the Board of Directors that the audited financial statements be
included in the Annual Report on Form 10-K for the year ended December 31,
2007 for filing with the SEC. The Board approved such inclusion.
Submitted by:
T. S. Gurganous, Chair
T. F. Dowd
F. H. Hughes
R. C. Lyons
K. M. Mazzarella
R. L. Nowak
K. B. Sparks
Members of the Audit Committee
COMPENSATION DISCUSSION AND ANALYSIS
NAMED EXECUTIVE OFFICERS
The names and titles of our "named executive officers" for SEC
compensation reporting purposes for the fiscal year ended December 31, 2007
are:
NAME TITLE
R. A. Reynolds, Jr. Chairman, President and Chief Executive Officer
D. B. D'Alessandro Senior Vice President and Chief Financial Officer
D. E. DeSousa (1) Senior Vice President, Sales and Distribution
L. R. Giglio Senior Vice President, Operations
R. D. Offenbacher (2) Senior Vice President, Sales and Marketing
<FN>
(1) Effective April 1, 2008, Mr. D. E. DeSousa was named Senior Vice
President-U.S. Business.
(2) Effective April 1, 2008, Mr. R. D. Offenbacher was named Senior Vice
President-Sales and Marketing, Electrical.
COMPENSATION PHILOSOPHY AND OBJECTIVES
Our compensation philosophy is to reward achievement of specific,
annual financial goals, to be internally equitable among our executives and
all other employees, and to foster long-term employment relationships with key
personnel. The principles that underlie our compensation elements for
employees also apply to the compensation of the named executive officers.
We do not grant stock options or other equity-based compensation
because we feel that equity-based compensation is inconsistent with the
philosophy behind our employee ownership structure. All stock owned by the
named executive officers, as is the case with all other employees, has been
- 7 -
purchased by them under employee common stock purchase plans or has been
received as a stock dividend on shares so purchased.
We use the following objectives to evaluate and determine
compensation for the named executive officers:
o Total compensation is a combination of base salary, annual cash
incentive, retirement and health and welfare benefits designed
to attract, motivate and retain a highly qualified executive
team in a manner consistent with our being an employee-owned
company.
o A significant portion of executive compensation should be at
risk, by being tied to our business performance and each
individual's contribution to that performance.
EXECUTIVE COMPENSATION ELEMENTS
Applying this philosophy and set of objectives, we have established a
total compensation program for the named executive officers that includes
substantially the same elements that are used for all our management
employees. The process for arriving at these elements is described below.
The primary compensation elements for our named executive officers
are as follows:
BASE SALARY. Base salary is the fixed pay element that compensates
the named executive officers for services rendered during the fiscal
year.
Named executive officer salaries, including that of our Chief
Executive Officer, are reviewed annually and are determined based on
a number of factors, including the relative level of responsibility
of the position within the Company, the position's impact on
profitability and the executive's achievement of performance and
development objectives. See "Executive Compensation Process."
PERFORMANCE-BASED NON-EQUITY INCENTIVE COMPENSATION. Our Management
Incentive Plan (MIP) is a performance-based annual cash incentive
award designed to motivate eligible management employees to achieve
specific pre-defined annual financial goals set for their respective
business units and to reward the achievement of such goals. Those
goals are Company-wide for the named executive officers and other
participants whose responsibilities are at the Corporate level. The
named executive officers and other corporate participants are
compensated based upon Company-wide performance because their goals
and actions impact operations throughout the Company.
The same MIP formula is used for the named executive officers as for
other management employees except for structural differences related
to the applicable business unit (Corporate, District or Branch). MIP
has been an integral part of our management compensation program for
more than 30 years since we do not award stock options or other
equity-based compensation.
Awards payable under MIP vary based on level of responsibility. The
most senior executive officers have the highest level of
responsibility and, therefore, the highest percentage of their total
compensation contingent upon the achievement of the annual
Corporate-wide financial goals. These goals have been selected
because they have the most impact on the profitability of the
Company.
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o Annual incentive award payments under MIP are based on actual
performance against budget for sales, gross margin and net
profit. Each year, the Board of Directors approves budgets
consistent with Company growth and other strategic objectives as
determined during the annual strategic planning meeting of the
Board of Directors. Parameters used to set the growth objectives
include the growth that we believe that we can finance
internally, the expected growth in the markets we serve and an
increase in market share.
o Named executive officers have a guideline incentive, ranging
from 65% to, in the case of our Chief Executive Officer, 80% of
base salary. To receive any incentive award under MIP,
performance against net profit and gross margin budgets must be
at least 60%, which yields two points per component. Results at
or above 60% of the budgeted amounts for net profit and gross
margin are assigned points according to an index provided to all
participants in advance of each MIP year. Additional points are
awarded for sales performance that exceeds 100% of the
applicable sales budget. The maximum amount payable under MIP is
150% (150 points) of the applicable guideline incentive as
discussed in the next paragraph.
Incentive awards payable to all Corporate MIP participants, including
the named executive officers, are calculated based on their guideline
incentive (eligible base salary multiplied by the applicable guideline
percentage), which ranges from 20% to 80%, multiplied by the Corporate
performance index. The Corporate performance index is calculated based on the
aggregate performance of all Districts against budget.
The following table sets forth the base components of the 2007 MIP
performance index for the named executive officers:
- --------------------------------------------------------------------------------------------------------------------
NET PROFIT GROSS MARGIN SALES
POINTS POINTS POINTS
- --------------------------------------------------------------------------------------------------------------------
Corporate Up to 70 Up to 70 Up to 10
(Location of named executive officers)
- --------------------------------------------------------------------------------------------------------------------
Net Profit = Actual results vs. budgeted net profit before tax, MIP, and profit sharing.
Gross Margin = Actual results vs. budgeted gross margin dollars.
Sales = Actual results vs. budgeted sales.
- --------------------------------------------------------------------------------------------------------------------
<FN>
NOTE: For the combined Net Profit and Gross Margin components, up to 6 points can be earned for achieving 60% of
the budgets, up to 100 points for achieving 100% of the budgets and up to 140 points for achieving 110% or more
of the budgets. One point can be earned for each one percent of sales that exceeds the sales budgets, up to a
maximum of 10 points.
- --------------------------------------------------------------------------------------------------------------------
In 2007, the Districts' performance against budget for the various
MIP components resulted in 70 points being awarded for net profit, 49 points
for gross margin and 2 points for sales. The sum of the points awarded
(performance index) for Corporate's attainment of the 2007 goals was 121.
As an example, a named executive officer with a guideline percentage
of 65% and a performance index of 121 for 2007 would earn an MIP payment of
65% times 121% times the named executive officer's base salary.
DEFERRAL OF BASE SALARY AND MIP COMPENSATION. Named executive
officers are not eligible to participate to the same extent in the savings
opportunities afforded all other employees under the
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Company's qualified profit sharing and savings plan due to income limitations
imposed by the Internal Revenue Code (IRC). To accommodate this difference,
the named executive officers are offered a savings replacement opportunity
that allows them to voluntarily elect to defer a portion of their base salary
and/or incentive award compensation to a nonqualified plan. If they do so, a
portion of any profit sharing contribution will also be deferred as described
under "Retirement Plans." See "Executive Compensation - Nonqualified Deferred
Compensation."
HEALTH AND WELFARE BENEFITS. Health and welfare benefits are designed
to provide competitive, basic health, life and disability insurance for all
eligible employees, including the named executive officers. We periodically
review the competitiveness of these benefits against the benefits offered by
broader general industry, as obtained from national survey data collected by
our outside compensation consultant.
PERQUISITES AND OTHER PERSONAL BENEFITS. We reimburse the named
executive officers and other management employees for social and country club
memberships when used primarily to conduct business activities. Named
executive officers and other executives may also receive spousal travel
benefits when our interests warrant spousal attendance at specific meetings or
functions related to their duties. See "Executive Compensation - All Other
Compensation."
RETIREMENT PLANS.
o Profit Sharing and Savings Plan. The Company's tax-qualified
-------------------------------
profit sharing and savings plan permits Company contributions,
based on the performance of the Company, to be allocated on the
same basis to all eligible employees, including the named
executive officers. See "Executive Compensation - All Other
Compensation." To the extent that an employee's or a named
executive officer's annual allocated profit sharing contribution
amount under the plan exceeds the limitations imposed by
Sections 401 and 415 of the IRC, such excess benefits may be
paid in cash or deferred for later payment under the Company's
nonqualified, unfunded, noncontributory plan, depending upon the
election to defer compensation, made by each eligible employee,
including the named executive officer, in the year prior to the
plan year. See "Executive Compensation - Nonqualified Deferred
Compensation."
o Pension Plan. We also provide a tax-qualified defined benefit
------------
pension plan to all eligible employees, including the named
executive officers. Pension benefits may be paid from the
Company's nonqualified, unfunded, noncontributory plan for any
employees, including the named executive officers, to the extent
their pension plan benefit exceeds the limitations imposed by
Sections 401(a)(17) and 415 of the IRC. See "Executive
Compensation - Pension Benefits."
Named executive officers also receive director's fees for their board
participation. See "Director Compensation."
EXECUTIVE COMPENSATION PROCESS
Annually, the Compensation Committee engages an outside compensation
consultant (Towers Perrin was hired in 2007) to provide competitive market
data against which the Chief Executive Officer's compensation is compared. On
a periodic basis, including 2007, the outside consultant also provides market
data for other executives, including the other named executive officers.
This market data is one consideration when establishing executive pay
levels. Other factors evaluated are individual responsibilities, performance
and contribution and internal equity among
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executives. The Compensation Committee considers all of this data when making
pay recommendations to the Board of Directors for the Chief Executive Officer.
In turn, the Chief Executive Officer reviews similar data in setting
compensation for other senior management personnel, including the remaining
named executive officers. Pay levels are established after reviewing the
elements of compensation independently and in the context of total
compensation.
The primary competitive market is a peer group of publicly traded
companies (the "Peer Group") in the wholesale distribution industry. A
secondary source used by the Company is the broader general industry for
companies of similar size. The Peer Group, which is periodically reviewed and
updated by the Committee, for 2007 consisted of:
o Advance Auto Parts, Inc. o Avnet, Inc. o Schein Henry, Inc.
o Agilysys, Inc. o Bell Microproducts, Inc. o SYNNEX Corp.
o Airgas, Inc. o BlueLinx Holdings, Inc. o Thermo Fisher Scientific, Inc.
o Anixter International, Inc. o Brightpoint, Inc. o United Stationers, Inc.
o Applied Industrial o CDW Computer Centers, Inc. o Watsco, Inc.
Technologies, Inc. o Genuine Parts Co. o WESCO International, Inc.
o Arrow Electronics, Inc. o Grainger (WW), Inc.
The 2007 study of Peer Group proxy data provided by our outside
consultant, similar to recent historical surveys, indicated that although
comparability varies slightly by position, generally our named executive
officers and other executives are compensated below the median market level
for total compensation. We rely exclusively on annual cash compensation and
provide no equity incentives, which are a significant element of compensation
for most of the other members of the Peer Group. As is the case with all
employees, the named executive officers do not receive a discretionary bonus
or stock awards or options.
In 2007, the outside consultant also performed a competitive review
of our employee benefits (excluding profit sharing) compared against the
general industry. Our benefits (as a percentage of pay) were found to be
generally comparable to the median of the competitive market.
EMPLOYMENT AGREEMENTS, SEVERANCE AND CHANGE-IN-CONTROL BENEFITS
We do not have employment agreements, change-in-control benefits or
executive severance benefits for any of the named executive officers because
we feel that these types of benefits are inconsistent with the philosophy
behind our employee ownership structure. Named executive officers are eligible
for the same severance programs provided to all employees of the Company. See
"Executive Compensation - Potential Post-Employment Payments."
COMPENSATION COMMITTEE REPORT
We constitute the Compensation Committee of the Board of Directors of
the Company. We have responsibility for recommending, implementing, and
continually monitoring adherence to the Company's compensation philosophy,
objectives, policies and practices.
We have reviewed and discussed the foregoing Compensation Discussion
and Analysis with management and, based on such review and discussion, have
recommended to the Board of Directors inclusion of the Compensation Discussion
and Analysis in this Information Statement and,
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through incorporation by reference from this Information Statement, in the
Company's Annual Report on Form 10-K for the year ended December 31, 2007.
Submitted by:
K. M. Mazzarella, Chair
D. B. D'Alessandro
D. E. DeSousa
L. R. Giglio
R. D. Offenbacher
Members of the Compensation Committee
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The table below sets forth information regarding all elements of the
compensation paid or earned by each of the named executive officers for the
fiscal year ended December 31, 2007.
- --------------------------------------------------------------------------------------------------------------------
CHANGE IN
PENSION VALUE
& NONQUALIFIED
NON-EQUITY DEFERRED
INCENTIVE PLAN COMPENSATION ALL OTHER
NAME AND SALARY COMPENSATION EARNINGS COMPENSATION
PRINCIPAL POSITION YEAR ($) (1) ($) (2) ($) (3) ($) (4) TOTAL ($)
- --------------------------------------------------------------------------------------------------------------------
R. A. Reynolds, Jr.
Chairman, President & 2007 $580,536 $561,959 $569,090 $215,589 $1,927,174
Chief Executive Officer 2006 $535,608 $604,166 $251,786 $175,922 $1,567,482
- --------------------------------------------------------------------------------------------------------------------
D. B. D'Alessandro
Senior Vice President & 2007 $220,213 $173,198 $212,905 $ 73,658 $ 679,974
Chief Financial Officer 2006 $200,193 $183,478 $124,258 $ 57,925 $ 565,854
- --------------------------------------------------------------------------------------------------------------------
D. E. DeSousa (5)
Senior Vice President, 2007 $263,619 $207,337 $273,241 $ 90,881 $ 835,078
Sales & Distribution 2006 $248,904 $228,120 $157,132 $ 72,469 $ 706,625
- --------------------------------------------------------------------------------------------------------------------
L. R. Giglio
Senior Vice President, 2007 $239,172 $188,109 $334,433 $ 80,767 $ 842,481
Operations 2006 $222,948 $204,332 $218,174 $ 67,534 $ 712,988
- --------------------------------------------------------------------------------------------------------------------
R. D. Offenbacher (6)
Senior Vice President, 2007 $248,207 $195,215 $273,547 $ 84,862 $ 801,831
Sales & Marketing 2006 $225,391 $206,571 $139,271 $ 67,466 $ 638,699
- --------------------------------------------------------------------------------------------------------------------
<FN>
(1) Amounts earned in the year indicated, including amounts deferred by
certain named executive officers pursuant to deferred compensation
agreements with the Company.
(2) Payments made in 2008 and 2007 for the fiscal years 2007 and 2006,
respectively, under MIP. Includes amounts deferred by certain named
executive officers pursuant to deferred compensation agreements with
the Company.
(3) Amounts related to annual changes in pension values for the year
indicated. See the Pension Benefits Table.
- 12 -
(4) Amounts (including any that have been deferred) include annual amounts
contributed by the Company to the profit sharing and savings plan,
perquisites and other personal benefits and other miscellaneous items.
See "All Other Compensation."
(5) Effective April 1, 2008, Mr. D. E. DeSousa was named Senior Vice
President-U.S. Business.
(6) Effective April 1, 2008, Mr. R. D. Offenbacher was named Senior Vice
President-Sales and Marketing, Electrical.
ALL OTHER COMPENSATION
The table below itemizes the value of All Other Compensation received
by the named executive officers for 2007 as shown in the Summary Compensation
Table.
- --------------------------------------------------------------------------------------------------------------------
REGISTRANT
CONTRIBUTIONS TO
PERQUISITES AND DEFINED FEES EARNED OR
OTHER PERSONAL CONTRIBUTION PLANS TAX PAID IN CASH
NAME BENEFITS ($) (1) ($) (2) REIMBURSEMENTS ($) (3) ($) (4)
- --------------------------------------------------------------------------------------------------------------------
R. A. Reynolds, Jr. $31,609 $177,412 $5,368 $1,200
- --------------------------------------------------------------------------------------------------------------------
D. B. D'Alessandro $12,051 $ 60,407 $ 0 $1,200
- --------------------------------------------------------------------------------------------------------------------
D. E. DeSousa $14,310 $ 73,673 $1,698 $1,200
- --------------------------------------------------------------------------------------------------------------------
L. R. Giglio $12,709 $ 66,421 $ 437 $1,200
- --------------------------------------------------------------------------------------------------------------------
R. D. Offenbacher $13,901 $ 68,092 $1,669 $1,200
- --------------------------------------------------------------------------------------------------------------------
<FN>
(1) Amounts paid by the Company for dues for memberships in social clubs,
dues for memberships in country clubs and occasional spousal travel as
explained in "Compensation Discussion and Analysis - Executive
Compensation Elements."
(2) Total qualified and nonqualified Company contributions made under our
profit sharing and savings plan on April 1, 2008 for 2007.
(3) Amounts for taxes reimbursed for spousal travel.
(4) Annual director's fees.
- 13 -
NON-EQUITY INCENTIVE PLAN AWARDS
This table sets forth additional information regarding the range of
possible MIP payouts for 2007. The actual payment is shown in the Summary
Compensation Table under the heading "Non-Equity Incentive Plan Compensation."
- --------------------------------------------------------------------------------------------------------------------
ESTIMATED POSSIBLE PAYOUTS UNDER
NON-EQUITY INCENTIVE PLAN AWARDS
-------------------------------------------------------------------------------------
NAME THRESHOLD ($) (1) TARGET ($) (1) MAXIMUM ($) (1)
- --------------------------------------------------------------------------------------------------------------------
R. A. Reynolds, Jr. $27,866 $464,429 $696,644
- --------------------------------------------------------------------------------------------------------------------
D. B. D'Alessandro $ 8,588 $143,138 $214,707
- --------------------------------------------------------------------------------------------------------------------
D. E. DeSousa $10,281 $171,352 $257,028
- --------------------------------------------------------------------------------------------------------------------
L. R. Giglio $ 9,328 $155,462 $233,193
- --------------------------------------------------------------------------------------------------------------------
R. D. Offenbacher $ 9,680 $161,335 $242,003
- --------------------------------------------------------------------------------------------------------------------
<FN>
(1) Threshold represents the amount payable if actual results were 60% of
each of the net profit, gross margin and sales budgets, Target
represents the amount payable if actual results were 100% of those
budgets and Maximum represents the amount payable if actual results
were 110% of net profit and gross margin budgets and 105% of the sales
budgets. No MIP payment would have been due if the Threshold had not
been reached.
PENSION BENEFITS
The Company has a qualified defined benefit pension plan covering all
eligible employees, including the named executive officers. The plan provides
retirement benefits based on an employee's final average earnings and years of
service. Employees become fully vested after five years of service, regardless
of age, and employees may retire and begin receiving full pensions at the age
of 65, at age 55 with 20 years or more of service or any age with 30 years of
service under the plan. Employees may also receive reduced early retirement
benefits at age 50 with 25 years of service.
While the formula for executives is the same as for all employees,
compensation under the qualified plan is limited by the Internal Revenue Code
(IRC) and does not include amounts deferred under a deferred compensation
agreement. Therefore, to the extent that an employee's or a named executive
officer's annual pension benefit under the plan exceeds the limitations
imposed by Sections 401(a)(17) and 415 of the IRC, such excess benefits are to
be paid as a supplemental pension benefit under the Company's nonqualified,
unfunded, supplemental plan.
The annual benefit formula for the pension plans (qualified and
nonqualified) is defined as the greater of (a) minus (b), where
(a) is 1% of the Annual Eligible Pay multiplied by years of Company
service, and
(b) is 1% of his annual social security amount multiplied by years
of Company service, up to a maximum of 33-1/3% of such annual
social security amount.
- 14 -
The formula below provides a simplified illustration as to how the benefits
are calculated:
[ Annual Years of ] [ Annual Social Years of ]
[ 1% X Eligible X Company ] minus [ 1% X Security X Company ]
[ Pay Service ] [ Amount Service ]
o Annual Eligible Pay is an employee's average annual earnings
(base pay, overtime and incentive payments) for the highest
consecutive 60 months of Company service. There is a minimum
benefit of $18 per month per year of service, up to a maximum of
30 years of service.
o Benefits may be adjusted for pre-retirement spousal protection
and certain early retirement penalties.
o Qualified plan benefits are available in several alternate
annuity payment forms, which are actuarially equivalent, or are
payable as a lump sum. Nonqualified pension plan benefits are
paid in installments beginning the January following termination
or retirement based on the plan schedule, which may be up to ten
years, depending on the value of the benefits.
PENSION BENEFITS TABLE
The following table sets forth information regarding the present
value of the accumulated benefits under our qualified defined benefit pension
plan and the nonqualified supplemental plan. No payments were made to any
named executive officer under those plans during 2007.
- --------------------------------------------------------------------------------------------------------------------
NUMBER OF YEARS PRESENT VALUE OF
CREDITED ACCUMULATED
NAME PLAN NAME SERVICE (#) BENEFIT ($)
- --------------------------------------------------------------------------------------------------------------------
Qualified Plan 35.6 $1,024,983
R. A. Reynolds, Jr.
Nonqualified Plan 35.6 $3,463,817
- --------------------------------------------------------------------------------------------------------------------
Qualified Plan 24.8 $ 552,463
D. B. D'Alessandro
Nonqualified Plan 24.8 $ 184,110
- --------------------------------------------------------------------------------------------------------------------
Qualified Plan 26.9 $ 762,692
D. E. DeSousa
Nonqualified Plan 26.9 $ 617,799
- --------------------------------------------------------------------------------------------------------------------
Qualified Plan 29.8 $ 996,034
L. R. Giglio
Nonqualified Plan 29.8 $ 616,259
- --------------------------------------------------------------------------------------------------------------------
Qualified Plan 39.6 $1,203,392
R. D. Offenbacher
Nonqualified Plan 39.6 $ 762,683
- --------------------------------------------------------------------------------------------------------------------
ASSUMPTIONS. The change in pension values provided in the Summary
Compensation Table and the present value of accumulated benefits provided in
the Pension Benefits Table are based on the following assumptions:
o Accumulated benefits for all named executive officers are based
on years of Company service and Annual Eligible Pay through
December 31, 2007.
o If the named executive officer was not yet eligible for an
unreduced benefit as of December 31, 2007, it is assumed that
the participant will remain employed until the date when he is
first
- 15 -
eligible for an unreduced early retirement benefit, and then the
benefit is paid immediately. As of December 31, 2007, Messrs.
Reynolds and Offenbacher were eligible for an unreduced early
retirement benefit under both the qualified and nonqualified
plans.
o Participants are assumed to select the lump sum optional form of
payment, which is based on a combination of the Pension Benefit
Guaranty Corporation (PBGC) interest rate used to calculate lump
sum payments, the IRS prescribed lump sum interest rates and the
mortality assumptions prescribed by Section 417(e) of the IRC.
The lump sum interest rate for payments as of January 1, 2008 is
3.6% and is assumed to increase to a normative level of 5.5%
over 15 years.
o As required for the named executive officers who are not
eligible for an unreduced early benefit on December 31, 2007,
pension benefits have been calculated with salary and service
through December 31, 2007 but assumed not to be payable until
the date when they are first eligible. Therefore, the lump sum
payable at the participant's earliest unreduced commencement
date has been discounted back to the reporting date (December
31, 2007) using the discount rate used for financial reporting
purposes (6.0% for December 31, 2007). No adjustment has been
made for pre-retirement spousal protection.
CONTINGENT BENEFITS. If the participant terminates employment prior
to retirement eligibility, an annuity is payable at age 65 or an actuarially
reduced benefit is payable between ages 55-65 for participants who terminated
with at least 20 years of Company service. A pre-retirement spousal annuity is
payable if a married participant dies while employed or prior to commencing
payment of benefits. Participants on long-term disability continue to earn
credit toward pension benefits.
NONQUALIFIED DEFERRED COMPENSATION
As discussed in the Compensation Discussion and Analysis, certain
executives, including named executive officers, may voluntarily defer 2% to
15% of base salary and/or 2% to 25% of incentive payments pursuant to their
individual deferred compensation agreements. The Company does not fund or
match any of these voluntary employee contributions. In addition, the deferred
compensation accounts include Company contributions that would have been paid
to the qualified profit sharing and savings plan except for the annual
limitations imposed by the Internal Revenue Code.
At the end of each calendar quarter, deferred compensation accounts
are credited with interest based on the average crediting rate for the prior
calendar quarter under the stable value fund (fixed income) investment
alternative of the Company's profit sharing and savings plan. Nonqualified
deferred compensation payments are made in installments beginning in the
January following termination or retirement based on the plan schedule, which
may be up to ten years, depending on the value of the benefits.
- 16 -
The following table provides information with respect to the
nonqualified deferred compensation accounts for each of the named executive
officers. No withdrawals or distributions were paid to any of the named
executive officers during 2007.
- --------------------------------------------------------------------------------------------------------------------
EXECUTIVE REGISTRANT
CONTRIBUTIONS IN CONTRIBUTIONS IN AGGREGATE EARNINGS AGGREGATE BALANCE
LAST FISCAL YEAR LAST FISCAL YEAR IN LAST FISCAL AT LAST FISCAL YEAR
NAME ($) (1) ($) (2) YEAR ($) END ($) (3)
- --------------------------------------------------------------------------------------------------------------------
R. A. Reynolds, Jr. $ 0 N/A $60,948 $1,331,695
- --------------------------------------------------------------------------------------------------------------------
D. B. D'Alessandro $ 6,552 $26,657 $ 1,424 $ 37,555
- --------------------------------------------------------------------------------------------------------------------
D. E. DeSousa $ 0 N/A $ 0 $ 0
- --------------------------------------------------------------------------------------------------------------------
L. R. Giglio $ 8,843 $32,671 $ 5,544 $ 129,342
- --------------------------------------------------------------------------------------------------------------------
R. D. Offenbacher $88,746 $34,342 $25,673 $ 593,339
- --------------------------------------------------------------------------------------------------------------------
<FN>
(1) Amounts of base salary and incentive payment deferred in 2007.
(2) The portion of Company profit sharing contributions exceeding the
limits imposed with respect to the qualified plan that were credited to
deferred compensation accounts for 2007 for those named executive
officers electing to defer compensation earned during 2007.
(3) These balances, as of December 31, 2007, include interest, deferred
salary and incentive payments and deferred profit sharing contributions
accrued and reported in prior years but do not include the nonqualified
profit sharing contributions that were paid on April 1, 2008 discussed
in the preceding note.
POTENTIAL POST-EMPLOYMENT PAYMENTS
Each named executive officer participates in the same benefit plans
with the same options available to him or her as all employees of the Company
upon voluntary or involuntary termination (with or without cause), early or
normal retirement, disability or death. Termination following a change of
control would be treated the same as any other termination.
PAYMENTS MADE UPON VOLUNTARY TERMINATION, RETIREMENT OR DISABILITY.
In the case of a voluntary termination, retirement or disability, named
executive officers are entitled to receive all compensation and benefits
earned, accrued and vested during their term of employment.
PAYMENTS MADE UPON INVOLUNTARY TERMINATION (WITH OR WITHOUT CAUSE).
If a named executive officer were terminated without cause (layoff),
compensation and benefits paid would be the same as for a voluntary
termination, retirement or disability, except that an additional severance
payment would be made in a single lump sum payment equal to one week of base
pay for each year of completed service. Assuming a termination was effective
for reason of layoff as of December 31, 2007, the severance amount that would
have been payable to the named executive officers was: R. A. Reynolds, Jr. -
$402,958, D. B. D'Alessandro - $110,876, D. E. DeSousa - $137,826, L. R.
Giglio - $135,901, R. D. Offenbacher - $198,874.
- 17 -
If a named executive officer were terminated with cause, all earned,
accrued and vested compensation and benefits would be paid with the exception
of earned vacation and earned floating holiday compensation.
PAYMENTS MADE UPON DEATH. In the event of the death of an employee,
including a named executive officer, compensation and benefits would be paid
the same as for a voluntary termination, retirement or disability.
In addition, available death benefits for each of the named executive
officers at December 31, 2007 were as follows:
o $250,000 under the Company's basic life insurance plan,
o $250,000 under the Company's basic life accidental death and
dismemberment insurance plan, if applicable, and
o $500,000 under the Company's business travel insurance plan, if
applicable.
PAYMENTS MADE UPON A CHANGE OF CONTROL. The Company has not entered
into Change of Control Severance Agreements with any of the named executive
officers or any other employee.
RELATIONSHIP WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP audited the financial statements of the Company and
its subsidiaries in 2007 and will be considered for reappointment by the Board
of Directors in June 2008. Ernst & Young LLP has advised the Company that
neither the firm nor any of its members or associates has any direct financial
interest or any material indirect financial interest in the Company or any of
its affiliates other than as accountants. No representative of Ernst & Young
LLP is expected to attend the Annual Meeting of Shareholders.
The fees billed to the Company by Ernst & Young LLP with respect to
the years 2007 and 2006 were as follows:
2007 2006
---- ----
Audit Fees $682,837 $695,740
Audit-Related Fees $196,905 $ 37,180
Tax Fees $195,663 $179,487
Audit Fees include amounts billed for the audit of the Company's
annual consolidated financial statements, the timely review of the financial
statements included in the Forms 10-Q filed by the Company during each year,
general consultations on accounting and disclosure matters, and international
statutory audits. Audit-Related Fees include audits of the Company's employee
benefit plans, advisory services related to the management report on internal
controls, and other audit-related services. Tax Fees include services rendered
for tax compliance, tax advice, and tax planning. It is expected that Ernst &
Young LLP will provide similar non-audit services during the year 2008. In
connection with its review and evaluation of non-audit services, the Audit
Committee has considered and concluded that the provision of the non-audit
services is compatible with maintaining the independence of Ernst & Young LLP.
- 18 -
The Audit Committee has established procedures for the pre-approval
of all audit and non-audit services to be performed by the independent auditor
retained to audit the Company's financial statements. Under these procedures,
types of services and an estimated range of fees are established and
pre-approved annually. Invoices for pre-approved services that are within the
pre-approved range may be paid by the Senior Vice President and Chief
Financial Officer or the Vice President and Controller. If the fees for any
type of service are expected to exceed the pre-approved limit, a request must
be submitted to the Audit Committee Chair. Services other than those included
in the annual pre-approval must be considered and authorized in advance by the
Audit Committee on an engagement-by-engagement basis.
MISCELLANEOUS
Effective December 1, 2007, the Company renewed the insurance
covering directors and officers, along with the fiduciary liability which
covers certain other employees against liabilities imposed on them as a result
of their employment with the Company. This coverage is provided by National
Union Fire Insurance Company of Pittsburgh (a member of the AIG Group) and
Allied World Assurance Company for a total premium of $175,561 through
November 30, 2008.
Owners of Common Stock and Voting Trust Interests may communicate
directly with the Board of Directors by mail at Graybar Board of Directors, 34
North Meramec Avenue, Clayton, Missouri 63105. All such communications will be
received directly by the Chairman of the Board and the Senior Vice President,
Secretary and General Counsel and reviewed with the other directors as they
deem appropriate.
The management of the Company knows of no other matters to be brought
before the meeting.
By Order of the Board of Directors
THOMAS F. DOWD
Secretary
May 12, 2008
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K FOR THE YEAR 2007 WILL BE MADE AVAILABLE WITHOUT
CHARGE UPON WRITTEN REQUEST ADDRESSED TO THE SECRETARY OF THE COMPANY AT ITS
PRINCIPAL EXECUTIVE OFFICES. A COPY IS ALSO ACCESSIBLE AT WWW.GRAYBAR.COM
WITHIN THE "ABOUT US" PAGE UNDER "SEC FILINGS." ADDITIONALLY, A COPY OF THE
COMPANY'S REPORT CAN BE OBTAINED AT THE SEC'S PUBLIC REFERENCE ROOM AT 100 F
STREET, N.E., WASHINGTON, DC 20549, OR BY CALLING THE SEC AT 1-800-SEC-0330.
ALSO, A COPY OF OUR ELECTRONICALLY FILED MATERIALS CAN BE OBTAINED AT
WWW.SEC.GOV.
- 19 -