SCHEDULE 14A INFORMATION

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Exchange Act of 1934

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AVERY DENNISON CORPORATION

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AVERY DENNISON CORPORATION

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AVERY DENNISON CORPORATION
150 North Orange Grove Boulevard
Pasadena, California 91103

 

PROXY STATEMENT

 

This proxy statement is furnished to the stockholders on behalf of the Board of Directors of Avery Dennison Corporation, a Delaware corporation (hereinafter called “Avery Dennison” or the “Company”), for solicitation of proxies for use at the Annual Meeting of Stockholders (the “Annual Meeting”) to be held on Thursday, April 23, 2009, at 1:30 p.m. and at any and all adjournments and postponements thereof. A stockholder giving a proxy pursuant to the present solicitation may revoke it at any time before it is exercised by delivering a later dated proxy, by delivering to the Secretary of the Company a written notice of revocation prior to the voting of the proxy at the Annual Meeting, or by voting in person at the Annual Meeting. Simply attending the Annual Meeting will not revoke your proxy. Votes cast by proxy or in person at the Annual Meeting will be tabulated by the election inspectors appointed for the meeting and the inspectors also will determine whether or not a quorum is present. At the Annual Meeting: (i) shares represented by proxies that reflect abstentions or “broker non-votes” (i.e., shares held by a broker or nominee that are represented at the meeting, but with respect to which such broker or nominee is not empowered to vote on a particular proposal) will be counted as shares that are present and entitled to vote at the Annual Meeting for purposes of determining the presence of a quorum; (ii) there is no cumulative voting and the director nominees receiving a majority of the votes cast (in uncontested elections) will be elected (for purposes of determining the vote required to elect directors, “a majority of the votes cast” shall mean that the number of shares voted “for” a director’s election exceeds 50% of the total votes cast with respect to that director and votes cast shall include votes to withhold authority (which shall be treated as votes “against” the election of that director) and exclude abstentions with respect to that director’s election); and (iii) for all matters other than the election of directors, the affirmative vote of the majority in voting power of the shares represented at the Annual Meeting and entitled to vote on the matter shall be the act of the stockholders and, therefore, proxies that reflect abstentions as to a particular proposal will have the same effect as a vote against that proposal and proxies that reflect broker non-votes will also have no effect on the vote. The Company has retained D. F. King & Co., Inc. to assist in soliciting proxies for this meeting at a fee estimated at $11,000 plus out of pocket expenses. Expenses incident to the preparation and mailing of the notice of meeting, proxy statement and form of proxy are to be paid by the Company. This proxy statement is to be mailed to stockholders on or about March 12, 2009.

 

The purpose of the meeting and the matters to be acted upon are set forth in the preceding Notice of Annual Meeting. In addition to the election of four directors and ratification of the appointment of PricewaterhouseCoopers LLP as independent auditors for the Company, the Senior Executive Annual Incentive Plan will be submitted for approval by the Company’s stockholders.

 

As of the date of this proxy statement, management knows of no other business that will be presented for consideration at the meeting. However, if any such other business shall properly come before the meeting, votes will be cast pursuant to these proxies in respect of any such other business in accordance with the best judgment of the persons acting under these proxies. See “GENERAL — Stockholder Proposals.”

 

 

ELECTION OF DIRECTORS (Proxy Item 1)

 

The Bylaws of the Company presently provide for eleven directors, divided into three classes. Four directors are to be elected at the 2009 Annual Meeting and will hold office until the Annual Meeting in 2012 and until their

successors are elected and have qualified. It is intended that the persons so appointed in the enclosed proxy will, unless authority is withheld, vote for the election of the four nominees proposed by the Board of Directors, all of whom are presently directors of the Company. In voting for the election of directors, each share has one vote for each position to be filled. All of the nominees have consented to being named herein and to serve if elected. In the event that any of them should become unavailable prior to the Annual Meeting, the proxy may be voted for a substitute nominee or nominees designated by the Board, or the number of directors may be reduced accordingly.

 

The following information, which has been provided by the directors, shows for each of the nominees for election to the Board of Directors and for each director whose term continues, his or her name, age and principal occupation or employment during the past five years, the name of the corporation or other organization, if any, in which such occupation or employment is or was carried on, the period during which such person has served as a director of the Company and the year in which each continuing director’s present term as director expires.

 

2009 NOMINEES

 

The Board of Directors recommends a vote FOR the four nominees below.

 

 

CONTINUING DIRECTORS

 

 

SECURITY OWNERSHIP OF MANAGEMENT

 

The following table shows the number of shares of the Company’s common stock beneficially owned by each director of the Company and each of the executive officers named on page 10, and the aggregate number of such shares beneficially owned by all directors and executive officers as of December 31, 2008.

 

		Amount and
		Nature of
		Beneficial				Percent
Name		Ownership(1)				of Class
Dean A. Scarborough			678,755	(3)		(2)
Richard M. Ferry			59,138	(4)		(2)
Peter W. Mullin			94,135	(5)		(2)
Kent Kresa			49,587	(6)		(2)
David E.I. Pyott			40,583	(7)		(2)
Julia A. Stewart			25,790	(8)		(2)
Peter K. Barker			26,430	(9)		(2)
John T. Cardis			17,053	(10)		(2)
Rolf Börjesson			12,750	(11)		(2)
Patrick T. Siewert			17,600	(12)		(2)
Ken C. Hicks			7,534	(13)		(2)
Daniel R. O’Bryant			306,201	(14)		(2)
Robert G. van Schoonenberg			380,098	(15)		(2)
Timothy S. Clyde			250,632	(16)		(2)
Robert M. Malchione			283,986	(17)		(2)
All Directors and Executive Officers as a Group (23 persons, including those named)			2,794,056	(18)		2.6%

 

 

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, as amended (“1934 Act”) requires the Company’s executive officers and directors, and persons who own more than 10% of a registered class of the Company’s equity securities (collectively, “Insiders”), to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission (“SEC”) and the New York Stock Exchange (“NYSE”). Insiders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. To the Company’s knowledge, based solely on its review of the copies of such reports furnished to the Company and written representations from certain Insiders that no other reports were required for such Insiders, the Company believes that, during the 2008 fiscal year, Insiders complied with the Section 16(a) filing requirements applicable to Insiders, except as follows: certain grants of restricted stock units were not included on Form 4s for Messrs. Bond, Butier, Clyde, Nolan and van Schoonenberg and Ms. Hill, but each of them subsequently filed, or amended a previously-filed, Form 4 to report such grants (which encompassed one such grant and report for Messrs. Bond, Butier, Clyde, Nolan and van Schoonenberg, and two such grants and reports for Ms. Hill); certain holdings of restricted stock units were not included on Form 3s that were filed by Messrs. Bond, Butier and Hemmelgarn and Ms. Miller at the time they became reporting persons under Section 16 of the Exchange Act, and accordingly each of them filed an amended Form 3 to report such holdings; and Ms. Dixon filed a late Form 4 to report a deemed sale of shares arising from a fund transfer election under the Company’s employee savings (401(k)) plan.

 

BOARD OF DIRECTORS AND COMMITTEE MEETINGS

 

During 2008, there were seven meetings of the full Board of Directors (“Board”) and seventeen meetings of committees of the Board. All of the Avery Dennison directors attended at least 75% of the aggregate number of meetings of the Board and meetings of Board committees (of which they were members) held during the time they served on the Board or committees. The Company has a policy of encouraging directors to attend the Annual Meeting of Stockholders, and ten of the directors attended the 2008 Annual Meeting.

 

After review and discussion of the relevant facts and circumstances for each director, including any relationships with Avery Dennison, the Board has determined that the following directors, who (i) have no material relationships with Avery Dennison, and (ii) meet the Board’s categorical independence standards for directors (which are attached as Exhibit A), are independent based on the NYSE listing standards: Peter K. Barker, Rolf Börjesson, John T. Cardis, Richard M. Ferry, Ken C. Hicks, Kent Kresa, David E.I. Pyott, Patrick T. Siewert and Julia A. Stewart. These nine directors constitute a majority of the Board. As a part of its independence determinations, the Board considered sales and purchases of products and services, in the ordinary course of business, between the Company and its subsidiaries and the companies at which some of the Company’s directors were officers during 2008. However, the amounts paid to or received from these companies during the last three years did not come close to the 2% threshold in the Board’s independence standards for these nine directors. The Board also determined that none of these relationships impaired the independence of these nine directors.

 

Corporate Governance

 

The Board and Avery Dennison management have taken a number of steps to enhance the Company’s corporate governance policies and procedures, and to comply with the Sarbanes-Oxley Act, as well as the NYSE listing standards. There is a corporate governance section on the Company’s Web site, which includes key information about

the Company’s corporate governance. You can access this information by going to www.averydennison.com, selecting the “Investors / Corporate Governance” section to find the Company’s Corporate Governance Guidelines; Charters for the Audit, the Compensation and Executive Personnel, and the Nominating and Governance Committees; Code of Ethics and Business Conduct for Directors, Officers and Employees; Code of Ethics for the Chief Executive Officer and Senior Financial Officers; and the Audit Committee Complaint Procedures. The Company’s Web site address provided above is not intended to function as a hyperlink, and the information on the Company’s Web site is not and should not be considered part of this proxy statement and is not incorporated by reference herein.

 

On December 1, 2005, the Board elected Kent Kresa as non-executive Chairman. Mr. Kresa presides at executive sessions of the Board. During 2008, the Board held five executive sessions with non-management directors only during regularly scheduled Board meetings, including one executive session with independent directors only. Stockholders and other interested parties may write to Mr. Kresa concerning matters other than accounting and auditing matters c/o Secretary, Avery Dennison Corporation, 150 North Orange Grove Boulevard, Pasadena, California 91103. Stockholders may also write to John T. Cardis, Chairman of the Audit Committee, regarding accounting and auditing matters c/o Secretary at the same address.

 

Standing Committees of the Board of Directors

 

The Audit Committee, which is composed of the following independent directors: John T. Cardis (Chairman), Peter K. Barker, Richard M. Ferry, Ken C. Hicks and Kent Kresa, met three times during 2008. The Audit Committee also held four teleconference reviews prior to the Company’s issuing its quarterly and annual news releases concerning financial results. The Audit Committee is appointed by the Board to assist the Board with its oversight responsibilities in monitoring (i) the integrity of the financial statements of the Company; (ii) the independent auditors’ qualifications and independence; (iii) the performance of the Company’s internal audit function and independent auditors; and (iv) the compliance by the Company with legal and regulatory requirements. A copy of the Audit Committee Charter is available on the Company’s Web site. The Board has designated Mr. Cardis and Mr. Barker as “audit committee financial experts” (as defined by applicable SEC regulations). The Board has determined that each of the members of the Audit Committee is “independent” (as defined by applicable SEC regulations).

 

The Compensation and Executive Personnel Committee (“Compensation Committee”), which is composed of the following independent directors: David E.I. Pyott (Chairman), Peter K. Barker, Richard M. Ferry and Julia A. Stewart, met seven times during 2008. The Compensation Committee is appointed by the Board to discharge the Board’s responsibilities relating to compensation of the Company’s directors, Chairman, and Chief Executive Officer (“CEO”) and other executive officers. The Compensation Committee has overall responsibility for approving and evaluating compensation plans, policies and programs of the Company, as they affect the directors, CEO and executive officers. In addition, the Compensation Committee reviews plans and candidates for succession to CEO and other executive officers. The Compensation Committee is also responsible for providing a report concerning its review of the Compensation Discussion and Analysis section of this annual proxy statement. A copy of the Compensation Committee’s Charter is available on the Company’s Web site.

 

The Ethics and Conflict of Interest Committee, which is composed of the following directors: Julia A. Stewart (Chairman), Rolf Börjesson, John T. Cardis, Kent Kresa and Patrick T. Siewert, met twice during 2008. The functions of the Ethics and Conflict of Interest Committee are to survey, monitor and provide counsel as to the business relationships, affiliations and financial transactions of directors, officers and key employees, as they may relate to possible conflicts of interest or to the Company’s Legal and Ethical Conduct Policy; monitor the Company’s compliance program; and report and make recommendations to the Board in instances where it is believed that possible violations of Company policy could exist.

 

The Finance Committee, which is composed of the following directors: Peter K. Barker (Chairman), Rolf Börjesson, John T. Cardis, Peter W. Mullin and Patrick T. Siewert, met once during 2008. The functions of the Finance Committee are to assist the Board in consideration of matters relating to the financial affairs and

capital requirements of the Company; provide an overview of the financial planning and policies of the Company; and review significant borrowings and changes in the financial structure of the Company.

 

The Nominating and Governance Committee (“Nominating Committee”), which is composed of the following independent directors: Richard M. Ferry (Chairman), Rolf Börjesson, Ken C. Hicks, David E.I. Pyott and Julia A. Stewart, met three times during 2008. The Nominating Committee is appointed by the Board (i) to assist the Board by identifying individuals qualified to become Board members consistent with criteria approved by the Board, and to recommend to the Board the director nominees for the next annual meeting of stockholders, as well as between annual meetings when appropriate; (ii) to review and recommend to the Board, the Company’s Corporate Governance Guidelines; (iii) to oversee the evaluations of the Board and management (related to corporate governance); and (iv) to recommend to the Board director nominees for each committee. A copy of the Nominating Committee’s Charter is available on the Company’s Web site. The Nominating Committee has a process under which all director candidates are evaluated. The Nominating Committee uses certain criteria in evaluating any candidate’s capabilities to serve as a member of the Board including: attendance, independence, number of other board directorships, time commitments, education, conflict of interest, senior management experience with a multinational business or other organization with the size, scope, and complexity of the Company, as well as an ability and desire to contribute to the oversight and governance of the Company and to represent the balanced interests of stockholders as a whole, rather than those of special interest groups. Further, the Nominating Committee reviews the qualifications of any candidate with those of current directors to determine coverage and gaps in experience in related industries and in functional areas, such as finance, manufacturing, technology, and investing. Sources for identifying potential nominees include members of the Nominating Committee, other Board members, executive officers of the Company, third-party search firms, and stockholders. Stockholders desiring to make recommendations concerning new directors should submit the candidate’s name, together with biographical information and professional experience, and the candidate’s written consent to nomination c/o Secretary, Nominating and Governance Committee of the Board of Directors, Avery Dennison Corporation, 150 North Orange Grove Boulevard, Pasadena, California 91103. Stockholders wishing to nominate new directors for election at an annual meeting must comply with the requirements described under the heading “GENERAL — Stockholder Proposals” on page 46.

 

In addition to the standing committees noted above, the Board has an Ad Hoc Committee, which is composed of the following directors: Kent Kresa (Chairman) and David E.I. Pyott, that met once during 2008. The Ad Hoc Committee is appointed by the Board and has been assigned the oversight responsibility for, and is empowered to take action (or if deemed appropriate to make recommendations to the Board) with respect to, the Company’s response to pending competitive practices related litigation.

 

DIRECTOR COMPENSATION FOR 2008

 

The following table provides information regarding compensation earned by the Company’s non-employee directors during 2008:

 

 

 

 

As President and CEO of the Company, Mr. Scarborough receives no fees for services rendered in his capacity as a director. Each non-employee director is paid an annual retainer fee of $55,000; the non-executive Chairman is paid an annual retainer of $220,000. Directors are paid attendance fees of $1,500 per Board meeting attended, and $2,000 per committee meeting attended as Chairman of a committee or $1,500 per committee meeting attended as a member of the committee (whether it is a standing or an ad hoc committee). The Chairmen of the Audit and the Compensation Committees are each also paid an annual retainer fee of $10,000; the Chairmen of the Finance, the Nominating and Governance, and the Ethics and Conflict of Interest Committees are each paid an annual retainer fee of $5,000. Committee members are also paid $1,500 for teleconferences. See Exhibit B for a summary of non-employee director compensation. Under the DVDCP, fees that are deferred accrue earnings at the rate of return of certain bond and equity investment funds managed by an insurance company. Under the DDECP, directors may defer fees into stock units, which will be paid out in shares of Company stock at retirement. As of December 31, 2008, the following directors held stock units in the DDECP: Mr. Barker – 2,280; Mr. Cardis – 303; Mr. Ferry – 2,372; Mr. Hicks – 1,284; Mr. Kresa – 23,637; Mr. Pyott – 14,833; and Ms. Stewart – 8,640. The Company has a matching gift program under which the Company will match an amount of up to $10,000 that a director contributes to charitable and/or educational institutions.

Each non-employee director received a stock award of 750 shares of the Company’s common stock on June 30, 2008, as a portion of their director compensation. Non-employee directors also participate in the Director Equity Plan, which provides for each non-employee director to receive a 5,000 stock option grant upon joining the Board, and an annual grant of 2,000 stock options thereafter. In February 2008, options to purchase a total of 20,000 shares (2,000 options for each non-employee director) of Company stock were granted to the non-employee directors under this plan. When stock options are granted, the option price is 100% of the fair market value of the Company’s common stock on the date of grant. All options granted have a term of ten years, and become exercisable in two equal installments on the first and second anniversaries of the grant date, except that all options held by a director, which are otherwise unexercisable on the date the director retires at or after age 72, will become fully exercisable on the date of such retirement.

 

EXECUTIVE COMPENSATION

 

COMPENSATION DISCUSSION AND ANALYSIS

 

The Compensation Discussion and Analysis (“CD&A”) provides an overview and analysis of the Company’s compensation programs. Later in this proxy statement under the heading “Additional Information Regarding Executive Compensation” is a series of tables containing information about the compensation for the following individuals, whom the Company refers to as named executive officers, or NEOs, of the Company:

 

 

The discussion below is intended to help in understanding the detailed information provided in those tables and put that information into context within the Company’s overall compensation program.

 

ROLE OF COMPENSATION COMMITTEE & EXECUTIVE OFFICERS

 

The Compensation Committee is appointed by the Board to manage the Board’s responsibilities relating to the compensation of the Company’s directors, CEO, other NEOs and other executive officers.

 

The Compensation Committee’s major responsibilities are to:

 

1. Review and approve Company objectives and goals related to CEO compensation annually, evaluate the CEO’s performance in light of those goals and objectives, and determine and approve the CEO’s overall compensation level based on this evaluation. In determining the incentive components of the CEO’s compensation, the Compensation Committee considers the Company’s performance and strategic direction and the value incentive awards to CEOs at companies of similar size.

 

2. Review and approve the annual base salary increases and annual bonus awards of the other executive officers, as well as long-term cash and equity-based incentive awards. In addition, the Compensation Committee provides periodic reports and makes recommendations to the Board on the Company’s compensation program for the other executive officers. The Compensation Committee also reviews and approves employment agreements, special or supplemental compensation and benefits for the CEO and other executive officers, including supplemental retirement benefits and perquisites.

 

 

^(*)  Mr. van Schoonenberg retired from the Company at the end of 2008.

3. Select, retain and terminate any compensation consultant used to assist the Compensation Committee in the evaluation of compensation for directors, the CEO and other executive officers. The Compensation Committee has sole authority to approve the consultant’s fees and other terms and conditions.

 

4. Conduct an annual evaluation of, and make periodic reports to, the Board on succession planning for the CEO and the CEO’s direct reports. To that end, the Compensation Committee meets annually to review and discuss succession planning for the CEO and other executive officers.

 

5. Review the Compensation Committee Charter annually and recommend any proposed changes to the Board for approval.

 

The Compensation Committee has retained the services of Watson Wyatt Worldwide (“Watson Wyatt”), an independent executive compensation consultant, to assist the Compensation Committee in determining the overall compensation program. During 2008, Watson Wyatt continued its review of the Company’s executive compensation program, including the annual bonus and long-term incentive plans. As a result of this review, the Compensation Committee determined that the cash Long-Term Incentive Plan (“LTIP”) program be phased out at the end of the 2006 - 2008 Employee performance cycle. In 2008, the CEO and other NEOs were eligible to receive stock options and performance units (“PUs”) under the Employee Stock Option and Incentive Plan, which are targeted to represent approximately 60% and 40%, respectively, of their long-term incentive opportunity.

 

The Chairman reviews and evaluates the CEO’s annual performance and makes compensation recommendations to the Compensation Committee concerning salary and incentive awards for the CEO. The CEO makes compensation recommendations, including salary adjustments and incentive awards, to the Compensation Committee, for the other NEOs and other executive officers based on the CEO’s annual review of each officer’s performance. These recommendations are presented to the Compensation Committee for review and approval. The Compensation Committee may exercise its discretion in modifying recommended salary adjustments or incentive awards.

 

The CEO and the Senior Vice President and Chief Human Resources Officer, and in some cases the CFO, participate during portions of Compensation Committee meetings to:

 

 

COMPENSATION PHILOSOPHY AND OBJECTIVES

 

The Board believes that hiring and retaining effective leaders and providing appropriate incentives for executives are essential to the Company’s success in the marketplace and to creating an attractive investment for stockholders. The Compensation Committee of the Board has responsibility for establishing and implementing the Company’s executive compensation program.

 

The Compensation Committee has established a compensation strategy and supporting plans that tie a significant portion of executive compensation to the Company’s success in meeting specified performance goals and to the appreciation in the Company’s stock price. The objectives of this strategy are to attract and retain the best possible executive talent, to motivate these executives to achieve the Company’s near- and long-term goals, to link the interests of executives and stockholders through equity-based plans and to provide a compensation program that recognizes individual contributions, as well as overall business results.

 

SETTING EXECUTIVE COMPENSATION

 

The Compensation Committee has established a total direct compensation positioning strategy for executive officers around the 65^th percentile of companies similar in size, global scope and complexity with which the

Company may compete for executive talent. “Total direct compensation” is base salary plus annual bonus (based on market reference) and annual long-term incentive opportunities (may include cash, stock options, performance units and restricted stock units). In general, base salaries are positioned around the market median with target incentive opportunities driving overall total direct compensation positioning. The Compensation Committee believes this positioning is appropriate given the Company’s business portfolio mix, product diversity and the global nature of the Company’s operations, which require its executives to have a wide range of business leadership experiences and skills. In addition, this positioning strategy is intended to drive performance, because a significant portion of executive compensation is tied to incentive compensation. Although the Compensation Committee targets total direct compensation at the 65^th percentile on an aggregate basis, some executives may be paid above the 65^th percentile, while others may be paid below the 65^th percentile for a variety of reasons, including tenure in the position, experience and individual performance.

 

COMPENSATION SURVEYS AND PEER COMPANIES

 

The Company uses different surveys and peer companies for comparison purposes, as follows:

 

 

The Company’s market basket of peer group companies is comprised of Air Products & Chemicals Inc., ArvinMeritor Inc., Baker-Hughes, Inc., Ball Corporation, Bemis Company, Inc., Black & Decker Corporation, Cabot Corporation, Cooper Tire & Rubber Company, Crane Company, Crown Holdings, Inc., Cummins Inc., Dana Holding Corporation, Danaher Corporation, Dover Corporation, Eaton Corporation, Ecolab Inc., Ferro Corporation, FMC Corporation, H. B. Fuller Company, Goodrich Corporation, W. R. Grace & Company, Harley-Davidson, Inc., Harris Corporation, Harsco Corporation, Illinois Tool Works Inc., Ingersoll-Rand Company, MASCO Corporation, MeadWestvaco Corporation, NACCO Industries, Newell Rubbermaid Inc., Olin Corporation, Owens-Illinois, Inc., PACCAR Inc., Parker-Hannifin Corporation, Pentair Inc., Pitney Bowes Inc., PolyOne Corporation, Potlatch Corporation, P.P.G. Industries Inc., The Sherwin-Williams Company, Smurfit-Stone Container Corporation, Snap-On Inc., Sonoco Products Company, The Stanley Works, Tecumseh Products Company, Temple-Inland Inc., Thermo Fisher Scientific, Inc., Thomas & Betts Corporation, Timken Company and Trinity Industries.

 

During 2008, Sequa Corp. was acquired by The Carlyle Group, and Hercules, Inc. was acquired by Ashland Inc. Sequa and Hercules were deleted from the peer group. In 2008, Owens-Illinois, Inc. and Cooper Tire & Rubber Company were added to the peer group.

KEY COMPONENTS OF COMPENSATION PROGRAM

 

The key components of the Company’s executive compensation program are:

 

 

For the Company’s executive officers, the largest component of total direct compensation opportunity is performance-based. To motivate the Company’s executives, the Compensation Committee allocates compensation between cash and equity compensation based on its assessment of the Company’s objectives and the competitive practices of other public companies. Further, the Compensation Committee considers the Company’s business portfolio to provide appropriate linkage of incentives to the Company’s objectives. Accordingly, the Company’s compensation program includes annual and long-term incentive awards.

 

For fiscal year 2008, approximately 80% of Mr. Scarborough’s and approximately 75% of the other NEOs’ total direct compensation consisted of performance-based compensation from the annual bonus plan and long-term incentive plans. In February 2009, the Compensation Committee approved the 2008 annual bonus payments and payments for the 2006-2008 LTIP performance cycle and certain equity awards.

 

Base Salary

 

Base salary provides executives with a base level of monthly income and compensates them for services rendered during the fiscal year reflecting:

 

 

The Compensation Committee uses data from compensation surveys to assist in establishing base salaries. In 2008, the CEO and the other NEOs did not receive an annual salary increase. In response to current global economic conditions, the CEO and the other NEOs will not receive an annual salary increase in 2009, as well.

 

Performance-Based Compensation

 

The Company structures its performance-based compensation program to reward the NEOs based on the Company’s performance, as well as the individual executive’s contributions. The NEOs are awarded incentive compensation in the event certain Company and individual performance objectives are achieved.

 

Performance-based compensation consists of the following:

 

 

In February 2009, the Compensation Committee adopted a compensation recovery (“clawback”) policy. Under this policy, in the event of fraud or other intentional misconduct on the part of an employee that necessitates a restatement of our financial results, the employee will be required to reimburse the Company for any bonus awards or other incentive compensation paid or issued to the employee in excess of the amount that would have been paid or issued based on the restated financial results. The Compensation Committee approved this policy after consideration of market practices and to further align the interests of our employees with our stockholders.

 

Annual Bonus Plan

 

The annual bonus plan compensates the NEOs based on the achievement of annual performance objectives and enhances the NEOs’ motivation to achieve above target results.

 

In 2008, Messrs. Scarborough, O’Bryant, van Schoonenberg, Clyde and Malchione were eligible for an annual cash bonus under the Company’s Senior Executive Leadership Compensation Plan (“SELCP”), which was approved by the stockholders in April 2004. Under the SELCP, a participant’s target award opportunity is 150% of base salary at the end of the fiscal year and the maximum award is 225% of base salary. For 2008, payments under the SELCP were based on corporate performance objectives: 33% on sales growth and 67% on earnings per share (“EPS”). Under the SELCP, Company performance objectives are established by the Compensation Committee within the first 90 days of each plan year at threshold, target and maximum payout levels. The Compensation Committee has approved standing adjustment items that the Compensation Committee reviews and updates each year within the first 90 days of the plan year. The Compensation Committee may modify the annual bonus awards based on the adjustment items. The Compensation Committee has the discretion to decrease, but not to increase, awards calculated under the SELCP. As part of this process, the Compensation Committee uses a market reference bonus opportunity consistent with the Company’s total direct compensation positioning strategy (110% of base salary for Mr. Scarborough, 60% for Messrs. O’Bryant, van Schoonenberg, Clyde, and Malchione, based on their salaries at the end of the fiscal year). In addition, participants are eligible for an individual modifier based on their respective performance against objectives; however, no bonus payment can exceed the calculated maximum SELCP award. Annual bonus payments are included in the Non-Equity Incentive Plan Compensation column in the Summary Compensation Table following the CD&A.

 

The following formula is used for calculating the annual bonus award (using a market reference bonus opportunity): Salary at year end × Bonus Opportunity % × Financial Modifier × Individual Modifier = Bonus Award

 

Financial Modifier:  The amount payable under the Company’s annual bonus plan is based on the performance of the Company. The performance is converted into a financial modifier based on the performance achieved and weighting of the selected performance objectives. So that executive officers receive bonus awards that are based on Company performance, and to give management incentive to take necessary actions to provide for long-term value creation, the Compensation Committee may modify performance-based bonus awards based on adjustment items that the Compensation Committee established within the first 90 days of the fiscal year.

 

Individual Modifier:  The NEOs have individual performance objectives that are designed to improve the Company’s performance. Individual objectives may include leadership development, employee relations, environmental health and safety, operating principles and Company values. Achievement of individual objectives is evaluated and translated into an individual modifier, which can range from 0% to 150%. For 2008, individual modifiers for the NEOs averaged 105%, based upon the annual review of performance objectives established at the beginning of the year.

 

For 2008, the Company achieved a 19% financial modifier based on the Company’s financial results for sales growth (33%) and EPS (67%). See the table and narrative below for the Company’s results against these goals, which were applied to the market reference bonus opportunities.

Annual Bonus
2008 Performance Objectives and Goals

 

		Sales Growth				EPS
Threshold (50% payout)			2.0	%		$	3.92
100% payout			8.5	%		$	4.35
150% payout			9.0	%		$	4.46
200% payout			9.5	%		$	4.56

 

To determine the financial modifier for the 2008 annual bonus awards, the Compensation Committee approved the following adjustments to reported 2008 results:

 

Annual Bonus
2008 Financial Modifier

 

		(1/3) Sales								Financial
		Growth				(2/3) EPS				Modifier
Target			8.5	%		$	4.35				100	%
Year-end Result			6.4	%		$	2.70				28	%
Adjustment Items:
Acquisitions(1)			(0.6	)%			—				(2	)%
Currency Translation(2)			(2.7	)%			—				(7	)%
Adjusted Result			3.1	%		$	2.70				19	%

 

 

 

On March 6, 2009, the Senior Executive Annual Incentive Plan (“SEAIP”) was approved by the Compensation Committee and the SEAIP is being submitted to the stockholders for approval at the 2009 Annual Meeting [see Proxy Item 3 — on page 43].

 

Under the SEAIP, if a performance goal based upon the Company’s annual Gross Profit less Marketing, General and Administrative expense (“Performance Measure”) determined from the Company’s annual Consolidated Statement of Income is achieved, participants (including the NEOs) will be eligible for an annual bonus payment based on a percentage of the Performance Measure. The CEO will be eligible for a bonus payment of up to 1.5%, and the other NEOs and participants for a bonus payment of up to 0.75%, of the Performance Measure, with the Committee having discretion to reduce any such payment.

 

Long-Term Incentives

 

For 2008, the Company’s long-term incentives consisted of the following:

 

 

In 2008, the Compensation Committee targeted the following ratios for the NEOs’ long-term incentives:

 

 

LTIP:  The objective of the 2006-2008 LTIP cycle was to focus executive attention on growth and profitability objectives of the Company and to reward participants, including the NEOs, on specific three-year goals. Under the LTIP, which was approved by the stockholders in April 2004, participants were eligible to earn cash incentive awards based on the financial and relative shareholder performance of the Company, and in some cases its business groups, over a three-year performance period. The LTIP target opportunities were 100% of base salary at the end of the cycle for Mr. Scarborough and 80% for the other NEOs. The maximum LTIP award was 200% of the target opportunities.

 

Participants were eligible to earn a cash incentive award after the end of the performance cycle. LTIP payments are included in the Non-Equity Incentive Plan Compensation column in the Summary Compensation Table following the CD&A and are for the cycle that commenced in 2006 (2006-2008 LTIP cycle). This was the last LTIP cycle.

 

Company performance objectives were determined by the Compensation Committee during the first 90 days of the 2006-2008 LTIP cycle. Company goals were set at threshold (70% payout), target (100% payout) and maximum (200% payout) levels. The Compensation Committee has approved standing adjustment items that the Compensation Committee reviews and updates for each cycle within the first 90 days of the plan cycle. The Compensation Committee may modify the performance-based LTIP awards based on the adjustment items, including the impact of divestitures, acquisitions, and restructuring and integration that occurred during the performance period that was not anticipated when the goals were established; this provides the Committee the ability to motivate and recognize management decisions made for the long-term interests of the Company.

 

For the 2006-2008 LTIP cycle, the Company had the following performance objectives and goals, which were equally weighted:

 

LTIP
2006-2008 Performance Objectives and Goals

 

						3-Year
						Cumulative				3-Year
		2008				EVA(1)				Cumulative
		EPS				(in millions)				TSR(2)(3)
Threshold (70% payout)		$	3.52			$	428				35th percentile
100% payout		$	4.40			$	535				50th percentile
150% payout		$	4.58			$	564				60th percentile
200% payout		$	4.75			$	587				70th percentile

 

 

 

To determine the achievement factor for the 2006-2008 LTIP awards, the Compensation Committee approved the following adjustments to the reported results:

 

LTIP
2006-2008 Achievement Factor

 

						3-Year
						Cumulative				3-Year
		2008				EVA				Cumulative				Achievement
		EPS				(in millions)				TSR(4)				Factor
Target		$	4.40			$	535				50.0	%			100	%
Year-end Result		$	2.70			$	351				38.2	%			25	%
Adjustment Items:
Divestitures(1)			—			$	(15	)			—				—
Acquisitions(2)		$	0.38			$	89				—				—
Restructuring and Integration(3)		$	0.60			$	170				—				92	%
Adjusted Result		$	3.68			$	595				38.2	%			117	%

 

 

 

Employee Stock Option and Incentive Plan (“Stock Plan”):  The Company’s Stock Plan provides for equity awards, including nonqualified stock options, stock appreciation rights, restricted stock, RSUs, PUs and dividend equivalents. This long-term incentive program is designed to:

 

 

Under the Stock Plan, stock options are granted at fair market value (the average of the high and the low prices on the NYSE) on the date of the grant. Annual stock options are granted on the date of the Board meeting immediately following the Compensation Committee meeting at which awards are made. Annual stock option awards vest at a rate of 25% per year over the first four years of a ten-year option term. During 2008, annual equity awards (stock options and PUs) were made to the NEOs.

 

Under the mid-term incentive program (“MTIP”), participants receive PU awards in the first year, which are settled in Company stock after the end of each three-year performance cycle (a new cycle begins each year) based on meeting certain performance objectives. The Committee believes that by denominating the MTIP equity awards in PUs, the NEOs’ compensation will be linked to a greater extent to the stock price, thus increasing the alignment with stockholder interests to create long-term value through stock price appreciation.

 

The performance objectives for PUs awarded under the MTIP are determined by the Compensation Committee during the first 90 days of each cycle. Company goals are set at threshold (50% payout), target (100% payout) and maximum (200% payout) levels. The Compensation Committee may modify the MTIP awards based on adjustment items that the Committee establishes during the first 90 days of each cycle.

 

For the 2008-2010 MTIP cycle, the performance objectives are equally weighted (one-third for each objective) based on Company Sales, Cumulative EVA and relative TSR as defined in the Stock Plan. The peer group for the

relative TSR performance objective is the Industrials and Materials subsets of the S&P 500. Avery Dennison is a member of the Industrials subset.

 

To align the NEOs with the interests of stockholders, the Compensation Committee believes that the NEOs should acquire and maintain an equity interest in the Company. To achieve this objective, the Company has a stock ownership policy for the NEOs to acquire and hold certain levels of stock ownership during their tenure with the Company.

 

Targeted Levels of Stock Ownership⁽¹⁾ (to be achieved generally within five years of assuming the position):

 

 

 

 

Under the Stock Plan and the Charter of the Compensation Committee, the Compensation Committee has the authority to make equity awards to executive officers and other employees of the Company. The Compensation Committee reviews and approves the total annual pool of stock options, PUs and RSUs, as well as annual and special equity awards to executive officers, including the size of the awards and related terms and conditions. The Compensation Committee has delegated the authority to the CEO to make equity awards for annual and special equity grants of stock options, PUs and RSUs to employees, other than executive officers. Following approval by the Compensation Committee or the CEO, as appropriate, special equity awards (other than those granted at the time of the annual grant) are granted and dated on the first day of the next third, sixth, ninth, or twelfth calendar month (if the NYSE is closed on that date, then on the first day thereafter that the NYSE is open). Special equity grants (including those for new hires, promotions, retention, and special recognition) may have different terms and vesting schedules depending on the purpose of the grant.

 

Benefits

 

The Company provides a benefit program for all eligible employees in the United States, including the NEOs, to provide them with retirement, savings, health and welfare, and disability coverage.

 

Defined Benefit Retirement Plans

 

The Company provides retirement benefits for all eligible employees, including the NEOs, under the Avery Dennison Pension Plan (“Avery Pension Plan”), the successor plan to the Retirement Plan for Employees of Avery Dennison Corporation and the Avery Associate Retirement Plan, which merged on November 30, 2008. The Company also provides the Benefit Restoration Plan (“BRP”) for eligible employees as described below. Effective January 1, 2009, the Avery Pension Plan and the BRP have been closed to new employees.

 

Benefits under the Avery Pension Plan are based on pensionable earnings, length of service, when benefits commence and how they are paid, and are currently calculated separately for each year of service. Employees vest in the Avery Pension Plan after five years of service.

 

Employees who participated in the Avery Pension Plan at any time from December 1, 1986 through November 30, 1997, may also have a benefit under the Stock Holding and Retirement Enhancement Plan of Avery Dennison Corporation (“SHARE Plan”). In order to receive a maximized benefit under the Avery Pension Plan, these employees have the option to transfer their SHARE Plan balance to the Avery Pension Plan, which will be converted into an annual annuity and combined with the monthly benefit from the Avery Pension Plan. If they choose not to transfer their SHARE Plan balance, they will receive a lump-sum payment from the SHARE Plan and a lesser benefit from the Avery Pension Plan.

 

Amounts payable under the Avery Pension Plan may be reduced in accordance with certain Code provisions, which, as applied to plan years beginning on or after December 1, 1994, currently limit the annual amount of

compensation used to determine annual benefit accruals under the Avery Pension Plan to the first $230,000 of covered compensation as of December 31, 2008. In December 1994, the Company established the BRP to provide for the payment of supplemental retirement benefits to eligible employees, including the NEOs, whose benefits under the Avery Pension Plan are limited under the foregoing Code provisions. The BRP is a nonqualified excess benefit plan. Benefits are payable under the BRP in amounts equal to the amount by which a participant’s benefits, otherwise payable under the Avery Pension Plan, are reduced under applicable provisions of the Code.

 

All NEOs currently have a benefit in at least one of the plans discussed above.

 

Supplemental Executive Retirement Plan

 

The Supplemental Executive Retirement Plan (“SERP”) is designed to provide participants with additional incentives to further the Company’s growth and development, and as an inducement to remain with the Company. Participants designated by the Compensation Committee are offered benefits under this plan to supplement other retirement benefits. The Company believes that it is in the stockholders’ best interest to retain key executives in critical roles in order to provide continuity of leadership and to focus them on the Company’s long-term success. The Compensation Committee has designated Messrs. Scarborough, van Schoonenberg and O’Bryant as participants in this plan. Benefits will commence upon retirement at a benefit level that, when added to the benefits to which they will be entitled from the Avery Pension Plan, the BRP, the SHARE Plan at the time of retirement (assuming retirement at age 65), certain Company contributions (plus interest) to the 401(k) Plan, fixed amounts representative of contributions plus interest to the deferred compensation plans, and estimated Social Security payments, will equal 62.5% for Mr. Scarborough, 57.5% for Mr. van Schoonenberg and 52.5% for Mr. O’Bryant of their respective final average compensation (annual average of their salary for the three highest twelve month periods out of their last sixty months of employment with the Company plus the average of their three highest earned annual bonuses during their last sixty months of employment with the Company). Survivor and disability benefits are also payable under the SERP under certain circumstances. Under certain circumstances, benefits are payable prior to age 65, with a reduction for early commencement.

 

Defined Contribution Retirement Plan

 

The Employee Savings Plan (“401(k) Plan”) is a tax-qualified retirement savings plan that permits employees to defer up to 25% of their annual salary and bonus or, if lower, the limit prescribed by the Internal Revenue Service to the 401(k) Plan on a before-tax basis. The employees’ elective deferrals are immediately vested upon contribution to the 401(k) Plan. The Company currently makes matching contributions to the 401(k) Plan in an amount equal to fifty cents for each dollar a participant contributes up to a maximum of 6% of the participant’s annual salary and bonus contributed, subject to certain other Code limits. After three years of service, participants vest in the amounts contributed by the Company. Employees of the Company are immediately eligible to participate in the 401(k) Plan.

 

Deferred Compensation

 

All eligible employees, including the NEOs are eligible to defer up to 75% of their base salary and 100% of cash bonuses to the 2005 Executive Variable Deferred Retirement Plan (“EVDRP”), which is a nonqualified plan. Deferrals are 100% vested. This plan provides NEOs and other employees with a long-term capital accumulation opportunity. The EVDRP provides a number of investment opportunities, including fixed income and mutual fund alternatives. Certain NEOs also participated in prior deferred compensation plans that are no longer available for new deferrals.

 

The Company makes an annual contribution to each NEO’s deferred compensation account equal to 3% of cash compensation (salary and annual bonus) in excess of the 401(k) Plan limit. This contribution is added to their deferred compensation account at the beginning of each plan year as long as the NEO has contributed at least the

pre-tax limit into the 401(k) Plan during the prior plan year and is employed by the Company at year end. This benefit is designed to supplement pre-tax 401(k) contributions that are limited for certain executives (by the Code).

 

Retiree Medical

 

Retirees, including the NEOs, may be eligible for medical coverage under the Company’s plan until they are eligible for Medicare provided they meet the following criteria: elect to retire immediately following separation from the Company; receive a pension benefit from the Avery Pension Plan; and are age 55 or older with 15 or more years of service. For employees who are at least age 60 and have 20 years of service, the cost for this coverage is shared by the Company and the retiree.

 

Medical Insurance

 

All NEOs contribute to, and participate in, medical plans available to employees. In addition, the Company provides each NEO, the NEO’s spouse and dependent children, with supplemental medical coverage, which reimburses the NEOs for medical costs not covered under the basic medical plan. Mr. Scarborough has reimbursement coverage up to $30,000 per year for himself and for each covered family member, and the other NEOs have coverage up to $20,000 per year for themselves and for each covered family member.

 

Dental Insurance

 

All NEOs contribute to, and participate in, dental plans available to employees. In addition, the Company provides each NEO, the NEO’s spouse and dependent children, supplemental dental coverage, which reimburses the NEOs for dental costs not covered under the basic dental plan. Mr. Scarborough has reimbursement coverage up to $2,000 per year for himself and for each covered family member, and the other NEOs have coverage up to $1,500 per year for themselves and for each covered family member. This benefit includes orthodontia coverage ($4,000 lifetime maximum) for dependents up to age 19.

 

Life Insurance

 

The Company provides $50,000 in life insurance for all employees, including the NEOs. In addition, the Company provides each NEO supplemental life insurance equal to three times the NEO’s base salary less $50,000 (which is covered under the Company’s basic plan) up to a maximum coverage of $700,000.

 

Employment Agreements

 

On August 1, 1997, the Company entered into an agreement with Mr. Scarborough, which was amended on May 1, 2005, to reflect his promotion to President and CEO, providing that, if his employment is terminated for any reason other than for cause, death, disability, or voluntary resignation without good reason (as such terms are defined in the agreement), he (i) would receive a payment equivalent to a pro-rated annual bonus for the year of termination; (ii) would receive salary and bonus (based on his highest combined annual base salary plus bonus in any of the three previous years) for one year before a change of control and three years after a change of control (“severance period”); (iii) would receive additional retirement and supplemental retirement benefits that would have accrued during the severance period; (iv) would continue to participate in benefit plans (including medical, dental, and life insurance) during the severance period (but reduced to the extent such benefits are provided by another employer); (v) would receive additional age and service credit under a deferred compensation plan following termination during the severance period (or the minimum age and service credit required for early retirement benefits and the retirement interest rate); and (vi) if such termination occurs after a change of control, the Company would pay for outplacement services not to exceed $50,000. Benefits and amounts to which Mr. Scarborough would be entitled under the agreement would be reduced to the extent of any benefits and earned income from any new employment or services performed during the severance period. Mr. Scarborough would receive a gross-up payment for any excise taxes that are imposed under Section 4999 of the Code.

On September 1, 2000, the Company entered into an agreement with Mr. Malchione; on January 2, 2001, the Company entered into an agreement with Mr. O’Bryant; and on January 1, 2002, the Company entered into an agreement with Mr. Clyde. These agreements are substantially the same as Mr. Scarborough’s, including the change of control provisions described above.

 

On March 31, 2005, the Company entered into a retention agreement with Mr. O’Bryant under which he will remain employed by the Company in his present position and the Company (i) contributed $1 million on April 1, 2005 to Mr. O’Bryant’s deferred compensation account, which contribution (and any earnings thereon) will vest at age 55; (ii) granted to him 30,000 shares of restricted stock, which will vest in two equal installments on April 1, 2009 and August 14, 2012; and (iii) during the period 2005-2011, agreed to grant to him incremental options each year equal to $180,000 divided by the Black-Scholes value of the Company’s stock used at the time of the annual stock option grant, with such options to vest under the same terms as other annual options granted to Mr. O’Bryant. These benefits vest upon death or disability, involuntary (not for cause) termination, good reason termination, or a change of control.

 

Perquisites

 

The Company provides the NEOs with perquisites to attract and retain executives. The Compensation Committee periodically reviews the perquisites provided to the NEOs.

 

Annual Physical

 

The NEOs are encouraged to have an annual physical, which is paid for under the executive’s supplemental medical coverage. The results are confidential between the physician and the NEO.

 

Car Program

 

The NEOs are eligible to participate in the executive car allowance program under which the Company provides each NEO with a monthly allowance. The executive is responsible for leasing or purchasing his or her own vehicle, as well as for paying for all insurance and maintenance costs. The monthly allowances for the NEOs range from $1,700 to $2,500.

 

Airline Clubs

 

The NEOs may participate in two airline clubs to use when traveling and the Company reimburses the NEOs for the cost.

 

Other

 

The NEOs are entitled to enroll in one health club and the Company reimburses the NEOs for the cost. In addition, certain NEOs are entitled to reimbursement of monthly dues for business and social club memberships.

 

Financial Counseling

 

The NEOs are entitled to receive an annual reimbursement amount for financial counseling that ranges from $15,000 to $25,000.

 

Home Computer

 

The Company provides each NEO with a home computer and related equipment.

TAX AND ACCOUNTING IMPLICATIONS

 

Deductibility of Executive Compensation

 

With its performance-based compensation programs, the Company aims to compensate the NEOs in a manner that is tax effective for the Company.

 

Under the 1993 Omnibus Budget Reconciliation Act (“OBRA”) and Section 162(m) of the Code, income tax deductions of publicly-traded companies may be limited to the extent total compensation for certain executive officers exceeds $1 million in any one year, except for compensation payments that qualify as “performance-based.” To qualify as “performance-based,” compensation payments must be based solely upon the achievement of objective performance goals and made under a plan that is administered by the Compensation Committee. In addition, the material terms of the plan must be disclosed to and approved by the stockholders and the Compensation Committee must certify that the performance goals were achieved before payments can be made. The Compensation Committee has designed certain of the Company’s compensation programs to conform with Section 162(m) of the Code and related regulations so that total compensation paid to any employee covered by Section 162(m) generally should not exceed $1 million in any one year, except for compensation payments that qualify as “performance-based.” However, the Company may pay compensation that is not deductible in certain circumstances.

 

Nonqualified Deferred Compensation

 

On October 22, 2004, the American Jobs Creation Act of 2004 was adopted, which changed the tax rules applicable to nonqualified deferred compensation arrangements. The Company believes it is operating in good-faith compliance with the statutory provisions.

 

Accounting for Stock-Based Compensation

 

The Company accounts for stock-based compensation awards under the provisions of SFAS No. 123(R).

 

COMPENSATION AND EXECUTIVE PERSONNEL COMMITTEE REPORT

 

The Compensation and Executive Personnel Committee of the Board of Directors 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 or incorporated by reference in the Company’s annual report on Form 10-K and this Proxy Statement.

 

The above Report of the Compensation and Executive Personnel Committee of the Board of Directors does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates this Report by reference therein.

 

ADDITIONAL INFORMATION REGARDING EXECUTIVE COMPENSATION

 

Executive Compensation

 

The following table and accompanying notes show, for the President and CEO, the CFO and the other three most highly compensated executive officers of the Company during 2006-2008, the compensation earned by the NEOs or the compensation expense recognized by the Company during 2006-2008.

 

SUMMARY COMPENSATION TABLE

 

 

 

The related expense for restricted stock is amortized over a 7-year and 5-month period for Mr. O’Bryant. PUs and RSUs are amortized over a 36-month period.

 

 

Stock option expense is the estimated fair value of options granted, amortized on a straight-line basis over the requisite service period. The fair value of stock option awards is estimated as of the date of grant using the Black-Scholes option-pricing model. This model requires input

assumptions for expected dividend yield, expected volatility, risk-free interest rate and the expected life of the options. The underlying assumptions used were as follows:

 

		2008				2007				2006				2005
Risk-free interest rate			4.15	%			4.68	%			4.74	%			4.11	%
Expected stock price volatility			29.86	%			24.75	%			22.51	%			20.55	%
Expected dividend yield			2.76	%			2.53	%			2.58	%			2.67	%
Expected option term			6 years				5.8 years				5.8 years				7 years

 

In connection with Mr. Scarborough’s promotion to CEO on May 2, 2005, he received a special stock option award for which the following assumptions were used: risk-free interest rate of 3.94%, expected stock price volatility of 21.00%, expected dividend yield of 2.48%, and expected option term of 7 years.

 

 

Name		Annual Bonus				2006-2008 LTIP Bonus
Dean A. Scarborough		$	220,000			$	1,105,650
Daniel R. O’Bryant		$	70,200			$	523,973
Robert G. van Schoonenberg		$	66,400			$	544,658
Timothy S. Clyde		$	55,000			$	363,540
Robert M. Malchione		$	54,700			$	448,438

 

 

 

 

     All Other Compensation for 2008

 

 

 

 

GRANTS OF PLAN-BASED AWARDS FOR 2008

 

The following table provides information regarding grants of cash incentive awards made to the NEOs in 2008.

 

 

 

 

		2008 Target Bonus
Name		(% of Annual Base Pay at Year End)
Dean A. Scarborough			110	%
Daniel R. O’Bryant			60	%
Robert G. van Schoonenberg			60	%
Timothy S. Clyde			60	%
Robert M. Malchione			60	%

 

 

 

OUTSTANDING EQUITY AWARDS FOR 2008

 

The following table provides summary information regarding the outstanding equity awards for the NEOs at December 31, 2008.