UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

SCHEDULE 14A

(RULE 14a-101)

SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No.     )

Filed by the Registrant þ

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

 

The Goodyear Tire & Rubber Company

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement)

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notice of
2009 Annual Meeting of Shareholders
and
Proxy Statement

 

 

The Goodyear Tire & Rubber Company

 

1144 East Market Street

Akron, Ohio 44316-0001

 

 

 

YOUR VOTE IS IMPORTANT

 

Please vote. Most shareholders may vote by internet or telephone as well as by mail.
Please refer to your proxy card or page 54 of the Proxy Statement for information on how to vote by
internet or telephone. If you choose to vote by mail, please complete, date and sign your proxy card and
promptly return it in the enclosed envelope.

 

 

ROBERT J. KEEGAN

CHAIRMAN OF THE BOARD,

CHIEF EXECUTIVE OFFICER

AND PRESIDENT

 

March   , 2009

 

Dear Shareholders:

 

You are cordially invited to attend Goodyear’s 2009 Annual Meeting of Shareholders, which will be held at the Goodyear Theater, 1201 East Market Street, Akron, Ohio, at 9:00 a.m., Akron Time, on Tuesday, April 7, 2009. During the meeting, we will discuss each item of business described in the Notice of Annual Meeting of Shareholders and Proxy Statement, and give a report on matters of current interest to our shareholders.

 

This booklet includes the Notice of Annual Meeting as well as the Proxy Statement, which provides information about Goodyear and describes the business we will conduct at the meeting.

 

We hope you will be able to attend the meeting.  Whether or not you plan to attend, it is important that you vote via the internet, by telephone or by completing, dating, signing and promptly returning your proxy card. This will ensure that your shares will be represented at the meeting. If you attend and decide to vote in person, you may revoke your proxy. Remember, your vote is important!

 

Sincerely,

 

Robert J. Keegan

Chairman of the Board,

Chief Executive Officer

and President

 

TABLE OF CONTENTS

 

 

THE GOODYEAR TIRE & RUBBER COMPANY

 

To the Shareholders:

 

The 2009 Annual Meeting of Shareholders of The Goodyear Tire & Rubber Company, an Ohio corporation, will be held at the Goodyear Theater (in Goodyear’s Principal Office Complex), 1201 East Market Street, Akron, Ohio, on Tuesday, April 7, 2009 at 9:00 a.m., Akron Time, for the following purposes:

 

 

The Board of Directors fixed the close of business on February 13, 2009 as the record date for determining shareholders entitled to notice of, and to vote at, the 2009 Annual Meeting. Only holders of record of Goodyear common stock at the close of business on February 13, 2009 will be entitled to vote at the 2009 Annual Meeting and adjournments, if any, thereof.

 

March   , 2009

By order of the Board of Directors:

 

 

C. Thomas Harvie, Secretary

 

 

Please complete, date and sign your Proxy and return it promptly in the
enclosed envelope, or vote via the internet or by telephone.

 

The Goodyear Tire & Rubber Company

 

 

 

This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of The Goodyear Tire & Rubber Company, an Ohio corporation (“Goodyear,” “Company,” “we,” “our” or “us”), to be voted at the annual meeting of shareholders to be held April 7, 2009 (the “Annual Meeting”), and at any adjournments thereof, for the purposes set forth in the accompanying notice.

 

Goodyear’s executive offices are located at 1144 East Market Street, Akron, Ohio 44316-0001. Our telephone number is 330-796-2121.

 

Our Annual Report to Shareholders for the year ended December 31, 2008 is enclosed with this Proxy Statement. The Annual Report is not considered part of the proxy solicitation materials. The approximate date on which this Proxy Statement and the related materials are first being sent to shareholders is March   , 2009.

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be Held on April 7, 2009:

 

The Proxy Statement, Proxy Card and Annual Report to Shareholders for the year ended December 31, 2008 are available at www.proxyvote.com.

Shares Voting.  Holders of shares of the common stock, without par value, of Goodyear (the “Common Stock”) at the close of business on February 13, 2009 (the “record date”) are entitled to notice of, and to vote the shares of Common Stock they hold on the record date at, the Annual Meeting. As of the close of business on the record date, there were 241,351,132 shares of Common Stock outstanding and entitled to vote at the Annual Meeting. Each share of Common Stock is entitled to one vote.

Quorum.  In order for any business to be conducted, holders of at least a majority of shares entitled to vote must be represented at the meeting, either in person or by proxy.

Adjourned Meeting.  The holders of a majority of shares represented at the meeting, whether or not a quorum is present, may adjourn the meeting. If the time and place of the adjourned meeting is announced at the time adjournment is taken, no other notice need be given.

Vote Required.  In the election of directors, the eleven candidates receiving the most votes will be elected, subject to Goodyear’s Majority Election of Directors Policy. For a description of that policy, see “Majority Election of Directors Policy” below. Amendments to our Amended Articles of Incorporation (Proxy Item 2) require the affirmative vote of at least two-thirds, and amendments to our Code of Regulations (Proxy Items 2 and 3) require the affirmative vote of at least a majority, of the shares of Common Stock outstanding on the record date. The amendment to the Code of Regulations contemplated by Proxy Item 2 will not be adopted if the related amendment to the Amended Articles of Incorporation fails to receive the requisite two-thirds affirmative vote. The affirmative vote of at least a majority of the shares of Common Stock outstanding on the record date is required for any other management or shareholder proposal to be adopted at the Annual Meeting.

 

Abstentions and “broker non-votes,” which occur when your broker does not have discretionary voting authority on a matter and you do not provide voting instructions, have the same effect as votes against any proposal voted upon by shareholders and have no effect on the election of directors.

Cumulative Voting for Directors.  In the voting for directors, you have the right to vote cumulatively for the candidates nominated. Under the Ohio General Corporation Law, all of the shares of Common Stock may be voted cumulatively in the election of directors if any shareholder gives written notice to our President, a Vice President or the Secretary, not less than 48 hours before the time set for the Annual Meeting, and an announcement of the notice is made at the beginning of the Annual Meeting by the Chairman or the Secretary or by or on behalf of the shareholder giving such notice. If cumulative voting is in effect, you may (a) give one candidate the number of votes equal to eleven times the number of shares of Common Stock you are entitled to vote, or (b) distribute your votes among the eleven candidates as desired.

Majority Election of Directors Policy.  In accordance with Goodyear’s Corporate Governance Guidelines, if a director nominee receives, in any uncontested election of directors for which cumulative voting is not in effect, a greater number of votes “withheld” from his or her election than votes “for” such election, he or she will promptly offer his or her resignation as a director to the Board of Directors. Within 90 days, the Board will decide, after taking

into account the recommendation of the Governance Committee (in each case excluding the nominee(s) in question), whether to accept the resignation. The Governance Committee and the Board may consider any relevant factors in deciding whether to accept a director’s resignation. The Board’s explanation of its decision shall be promptly disclosed in a filing with the Securities and Exchange Commission.

Voting of Proxy.  Messrs. Darren R. Wells, C. Thomas Harvie and Bertram Bell, have been designated as proxies to vote (or withhold from voting) shares of Common Stock in accordance with your instructions. You may give your instructions using the accompanying proxy card, via the internet or by telephone.

 

Your shares will be voted for the eleven nominees identified at pages 6 through 9, unless your instructions are to withhold your vote from any one or more of the nominees or to vote cumulatively for one or more of the nominees for election. The proxies may cumulatively vote your shares if they consider it appropriate, except to the extent you expressly withhold authority to cumulate votes as to a nominee.

 

Your Board of Directors anticipates that all of the nominees named will be available for election. In the event an unexpected vacancy occurs, your proxy may be voted for the election of a new nominee designated by the Board of Directors.

 

Proxies received and not revoked prior to the Annual Meeting will be voted in favor of the proposals of the Board of Directors to amend Goodyear’s Amended Articles of Incorporation and Code of Regulations to provide for the majority election of directors (Proxy Item 2), to amend Goodyear’s Code of Regulations to authorize the Board of Directors to amend the Regulations (Proxy Item 3), and to ratify the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for Goodyear for 2009 (Proxy Item 4), unless your instructions are otherwise.

Voting Shares Held in Street Name.  If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in “street name,” and these proxy materials are being forwarded to you by your broker, bank or nominee who is considered the shareholder of record with respect to those shares. As the beneficial owner, you have the right to direct your broker, bank or nominee on how to vote and are also invited to attend the Annual Meeting. Your broker, bank or nominee has enclosed a voting instruction card for you to use in directing the broker, bank or nominee regarding how to vote your shares. If you do not return the voting instruction card, the broker or other nominee will determine if it has the discretionary authority to vote on the particular matter. Under applicable New York Stock Exchange rules, brokers have the discretion to vote on routine matters, such as the election of directors (Proxy Item 1) and the ratification of the selection of an accounting firm (Proxy Item 4), as well as other matters deemed by the New York Stock Exchange to be routine, such as the approval of amendments to Goodyear’s Amended Articles of Incorporation and Code of Regulations to provide for the majority election of directors (Proxy Item 2) and the approval of an amendment to Goodyear’s Code of Regulations to authorize the Board of Directors to amend the Regulations (Proxy Item 3). If you do not provide voting instructions to your broker, your shares will not be voted on any proposal on which your broker does not have discretionary authority (resulting in a broker non-vote). Broker non-votes will have no effect on the election of directors, but will have the same effect as a vote against the other proposals.

Confidentiality.  Your vote will be confidential except (a) as may be required by law, (b) as may be necessary for Goodyear to assert or defend claims, (c) in the case of a contested election of director(s), or (d) at your express request.

Revocability of Proxy.  You may revoke or revise your proxy (whether given by mail, via the internet or by telephone) by the delivery of a later proxy or by giving notice to Goodyear in writing or in open meeting. Your proxy revocation or revision will not affect any vote previously taken. If you hold your shares in “street name” please refer to the information forwarded by your broker, bank or nominee who is considered the shareholder of record for procedures on revoking or changing your proxy.

 

Goodyear is committed to having sound corporate governance principles. Having such principles is essential to running Goodyear’s business efficiently and to maintaining Goodyear’s integrity in the marketplace. Goodyear’s Corporate Governance Guidelines, Business Conduct Manual, Board of Directors and Executive Officers Conflict of Interest Policy and charters for each of the Audit, Compensation, Corporate Responsibility and Compliance, Finance, and Governance Committees are available at http://www.goodyear.com/investor/investor_governance.html. Please note, however, that information contained on the website is not incorporated by reference in this Proxy Statement or considered to be a part of this document. A copy of the committee charters and corporate governance policies may also be obtained upon request to the Goodyear Investor Relations Department.

 

Board Independence

 

The Board has determined that ten of the current directors (and nine of the nominees) are independent within the meaning of Goodyear’s independence standards, which are based on the criteria established by the New York Stock Exchange and are included as Annex I to Goodyear’s Corporate Governance Guidelines. Mr. Keegan, the Chairman of the Board and Chief Executive Officer, is not considered independent. In addition, in light of his ongoing relationship with the United Steelworkers (the “USW”), Mr. Wessel is not considered independent. Further, the Board expects that Mr. Wessel will recuse himself from discussions and deliberations regarding Goodyear’s relationship with the USW. The Board also determined that the nature and size of the ordinary course commercial relationships between Goodyear and Xerox Corporation did not implicate the independence of Mr. Firestone.

 

Board Structure and Committee Composition

 

As of the date of this Proxy Statement, Goodyear’s Board has 12 directors, each elected annually, and the following five committees: (1) Audit, (2) Compensation, (3) Corporate Responsibility and Compliance, (4) Finance, and (5) Governance. The current membership and the function of each of the committees are described below. Each of the committees operates under a written charter adopted by the Board. During 2008, the Board held nine meetings. Each director attended at least 75% of all Board and applicable Committee meetings. Directors are expected to attend annual meetings of Goodyear’s shareholders. All of the directors attended the last annual meeting of shareholders. As described on Goodyear’s website at http://www.goodyear.com/investor/investorcontactbrd.html, shareholders may communicate with the Board or any of the directors (including the Lead Director or the Non-Management Directors as a group) by sending correspondence to the Office of the Secretary, The Goodyear Tire & Rubber Company, 1144 East Market Street, Akron, Ohio 44316-0001. All communications will be compiled by the Secretary and submitted to the Board or the individual directors on a periodic basis.

 

 

X = Committee member; * = Independent; ** = Chair
(1) Ms. Streeter has been a director since October 7, 2008.
(2) Mr. Keegan does not serve on any Board committees, although he participates in many committee meetings as Chairman of the Board.

 

Audit Committee

 

The Audit Committee assists the Board in fulfilling its responsibilities for oversight of the integrity of Goodyear’s financial statements, Goodyear’s compliance with legal and regulatory requirements related to financial reporting, the independent registered public accounting firm’s qualifications and independence, and the performance of Goodyear’s internal auditors and independent registered public accounting firm. Among other things, the Audit Committee prepares the Audit Committee report for inclusion in the annual proxy statement; annually reviews the Audit Committee charter and the Committee’s performance; appoints, evaluates and determines the compensation of Goodyear’s independent registered public accounting firm; reviews and approves the scope of the annual audit plan; reviews and pre-approves all auditing services and permitted non-audit services (and related fees) to be performed by the independent registered public accounting firm; oversees investigations into complaints concerning financial matters; and reviews policies and guidelines with respect to risk assessment and risk management, including Goodyear’s major financial risk exposures. The Audit Committee works closely with management as well as Goodyear’s independent registered public accounting firm. The Audit Committee has the authority to obtain advice and assistance from, and receive appropriate funding from Goodyear for, outside legal, accounting or other advisors as the Audit Committee deems necessary to carry out its duties. The Board has determined that each member of the Audit Committee is independent within the meaning of Goodyear’s independence standards and applicable Securities and Exchange Commission rules and regulations, and each of Messrs. Boland and McCollough is an audit committee financial expert. The report of the Audit Committee is on page 53 of this Proxy Statement.

 

Compensation Committee

 

The Board of Directors has delegated to the Compensation Committee primary responsibility for establishing and administering Goodyear’s compensation programs for executive officers and other key personnel. The Compensation Committee is composed entirely of independent directors. The Compensation Committee oversees Goodyear’s compensation and benefit plans and policies, administers its stock plans (including reviewing and recommending equity grants to executive officers and other key personnel), and reviews and approves annually all compensation decisions relating to executive officers, including the CEO. The Compensation Committee also prepares a report on executive compensation for inclusion in the annual proxy statement and reviews and discusses the Compensation Discussion and Analysis with management and recommends its inclusion in the annual proxy statement. The report of the Compensation Committee is on page 29 of this Proxy Statement.

 

In performing its duties, the Compensation Committee meets periodically with the CEO to review compensation policies and specific levels of compensation paid to executive officers and other key personnel, and reports and makes recommendations to the Board regarding executive compensation policies and programs. The Compensation Committee informs the non-management directors of the Board of its decisions regarding compensation for the CEO and other elected officers. Under its charter, the Compensation Committee may delegate its authority to one or more of its members as appropriate.

 

The Compensation Committee has the authority to retain and terminate outside advisors, including compensation consultants, to assist it in evaluating actual and proposed compensation for executive officers. The Compensation Committee also has the authority to approve any such consultant’s fees and the other terms of such retention. From time to time, the Compensation Committee solicits advice from outside compensation consultants on executive compensation matters relating to the CEO and other executive officers. This advice has consisted primarily of assistance with benchmarking compensation for senior executives and directors, and advice on current and evolving market practices for specific components of compensation, such as incentive awards, severance and change in control protection policies, non-qualified benefit plans and perquisites.

 

Committee on Corporate Responsibility and Compliance

 

The Committee on Corporate Responsibility and Compliance reviews Goodyear’s legal compliance programs as well as its business conduct policies and practices and its policies and practices regarding its relationships with shareholders, employees, customers, governmental agencies and the general public. The Committee may also recommend appropriate new policies to the Board of Directors.

Finance Committee

 

The Finance Committee consults with management and makes recommendations to the Board of Directors regarding Goodyear’s capital structure, dividend policy, tax strategies, compliance with terms in financing arrangements, risk management strategies, banking arrangements and lines of credit, and pension plan funding. The Finance Committee also reviews and consults with management regarding policies with respect to interest rate and foreign exchange risk, liquidity management, counterparty risk, derivative usage, credit ratings, and investor relations activities.

 

Governance Committee

 

The Governance Committee identifies, evaluates and recommends to the Board of Directors candidates for election to the Board of Directors. The Committee also develops and recommends appropriate corporate governance guidelines, recommends policies and standards for evaluating the overall effectiveness of the Board of Directors in the governance of Goodyear and undertakes such other activities as may be delegated to it from time to time by the Board of Directors. The Board has determined that each member of the Governance Committee is independent.

 

Consideration of Director Nominees

 

The policy of the Governance Committee is to consider properly submitted shareholder nominations for candidates for membership on the Board as described below under “Identifying and Evaluating Nominees for Director.” In evaluating such nominations, the Governance Committee seeks to address the criteria described below under “Director Selection Guidelines” as well as any needs for particular expertise on the Board.

 

Any shareholder desiring to submit a proposed candidate for consideration by the Governance Committee should send the name of such proposed candidate, together with biographical data and background information concerning the candidate, to: The Secretary, The Goodyear Tire & Rubber Company, 1144 East Market Street, Akron, Ohio 44316-0001.

 

Director Selection Guidelines

 

The Board of Directors has approved Director Selection Guidelines that apply to prospective Board members. Under these criteria, members of the Board should have a reputation for high moral character, integrity and sound judgment, substantial business expertise, financial literacy, achievement in his or her chosen field, adequate time to devote to Goodyear, and the ability to effectively serve several years prior to retirement at age 70. A person’s particular expertise and ability to satisfy Goodyear’s independence standards and those of the New York Stock Exchange may also be evaluated. Each Director must have the ability to fully represent Goodyear’s diverse constituencies.

 

Identifying and Evaluating Nominees for Director

 

The Governance Committee considers candidates for Board membership suggested by its members and other Board members, as well as management and shareholders. The Committee also retains third-party executive search firms to identify candidates. In addition, under our prior master labor agreement with the USW, the USW had the right to nominate a candidate for consideration for membership on the Board. Mr. Wessel, who became a Director in December 2005, was identified and recommended by the USW. Ms. Streeter was identified initially as a candidate for membership to the Board by Mr. Keegan.

 

Once a prospective nominee has been identified, the Committee makes an initial determination as to whether to conduct a full evaluation of the candidate. This initial determination is based on whatever information is provided to the Committee with the recommendation of the prospective candidate, as well as the Committee’s own knowledge of the prospective candidate, which may be supplemented by inquiries to the person making the recommendation or others. The preliminary determination is based primarily on the need for additional Board members and the likelihood that the prospective nominee can satisfy the Director Selection Guidelines described above. If the Committee determines, in consultation with the Chairman of the Board and other Board members as appropriate, that additional consideration is warranted, it may request a third-party search firm to gather additional information about the prospective nominee’s background and experience and to report its findings to the Committee. The Committee then evaluates the prospective nominee against the standards and qualifications set out in Goodyear’s Director Selection Guidelines.

The Committee also considers such other relevant factors as it deems appropriate, including the current composition of the Board, the balance of management and independent directors, the need for Audit Committee expertise and the evaluations of other prospective nominees. In connection with this evaluation, the Committee determines whether to interview the prospective nominee, and if warranted, one or more members of the Committee, and others as appropriate, interview prospective nominees in person or by telephone. After completing this evaluation and interview, the Committee makes a recommendation to the full Board as to the persons who should be elected to the Board, and the Board makes its decision after considering the recommendation and report of the Committee.

 

Executive Sessions

 

Non-management directors meet regularly in executive sessions without management. An executive session is generally held in conjunction with each regularly scheduled Board meeting. Executive sessions are led by a “Lead Director,” who is elected by the Board. Mr. Boland currently serves as the Lead Director.

 

The Board of Directors has selected the following eleven nominees recommended by the Governance Committee for election to the Board of Directors. Although the number of directors is currently set at twelve, on December 9, 2008, the Board determined that as of the date of the Annual Meeting the number of directors would be eleven. The directors will hold office from their election until the next Annual Meeting of Shareholders, or until their successors are elected and qualified. If any of these nominees for director becomes unavailable, the persons named in the proxy intend to vote for any alternate designated by the current Board of Directors.

 

JAMES C. BOLAND

 

Retired.  Formerly Vice Chairman of Cavaliers Operating Company, LLC

 

Mr. Boland was the President and Chief Executive Officer of Cavs/Gund Arena Company (the Cleveland Cavaliers professional basketball team and Gund Arena) from 1998 to December 31, 2002. He was Vice Chairman of that organization from January 1, 2003 to June 30, 2007, which, following a change in ownership, was renamed the Cavaliers Operating Company, LLC. Prior to his retirement from Ernst & Young in 1998, Mr. Boland served for 22 years as a partner of Ernst & Young in various roles including Vice Chairman and Regional Managing Partner, as well as a member of the firm’s Management Committee. Mr. Boland is also a director of Invacare Corporation and The Sherwin-Williams Company.

 

Age: 69

 

Director since: December 18, 2002

 

JAMES A. FIRESTONE

 

Executive Vice President and President, Corporate Operations of Xerox Corporation

 

Mr. Firestone is an Executive Vice President of Xerox Corporation and has been President, Corporate Operations since September 2008. Mr. Firestone was President of Xerox North America from October 2004 to September 2008. He has also served as head of Xerox’s channels group and as chief strategy officer. Before joining Xerox in 1998, Mr. Firestone worked for IBM Corporation as general manager of the Consumer Division and for Ameritech Corporation as president of Consumer Services. He began his business career in 1978 with American Express, where during his 15-year tenure he ultimately rose to President, Travelers Cheques. Mr. Firestone is also a director of The Japan Fund, Inc.

 

Age: 54

 

Director since: December 3, 2007

 

ROBERT J. KEEGAN

 

Chairman of the Board, Chief Executive Officer and President of Goodyear

 

Mr. Keegan joined Goodyear on October 1, 2000, and he was elected President and Chief Operating Officer and a Director of Goodyear on October 3, 2000 and President and Chief Executive Officer effective January 1, 2003. Mr. Keegan became Chairman of the Board effective July 1, 2003. Prior to joining Goodyear, Mr. Keegan was an Executive Vice President of Eastman Kodak Company. He held various marketing, financial and managerial posts at Eastman Kodak Company from 1972 through September 2000, except for a two year period beginning in 1995 when he was an Executive Vice President of Avery Dennison Corporation.

 

Age: 61

 

Director since: October 3, 2000

 

 

Retired.  Formerly Chairman and Chief Executive Officer of Circuit City Stores Inc.

 

Mr. McCollough was elected Chairman, President and Chief Executive Officer of Circuit City Stores Inc., a consumer electronic retailer, in 2002 and served in that capacity until 2005. He remained Chairman and Chief Executive Officer until his retirement in 2006. He served as President and Chief Executive Officer from 2000 to 2002 and as President and Chief Operating Officer from 1997 to 2000. Mr. McCollough joined Circuit City in 1987 as general manager of corporate operations, and was named assistant vice president in 1989, president of central operations in 1991, and senior vice president of merchandising in 1994. Mr. McCollough is also a director of VF Corporation and La-Z-Boy Inc.

 

Age: 59

 

Director since: April 10, 2007

 

DENISE M. MORRISON

 

Senior Vice President and President — North America Soup, Sauces and Beverages, Campbell Soup Company

 

Ms. Morrison has served as Senior Vice President and President — North America Soup, Sauces and Beverages of Campbell Soup Company since October 2007. From June 2005 to October 2007 she was President of the Campbell USA Soup, Sauce and Beverage division and from April 2003 to June 2005 was President of Global Sales and Chief Customer Officer. She has been a Senior Vice President of Campbell Soup since April 2003. Prior to joining Campbell Soup, Ms. Morrison served in various managerial positions at Kraft Foods, including as Executive Vice President/General Manager of the Snacks Division from October 2001 to March 2003 and the Confections Division from January 2001 to September 2001. Ms. Morrison also served in various managerial positions at Nabisco Inc. from 1995 to 2000 and at Nestle USA from 1984 to 1995.

 

Age: 55

 

Director since:  February 23, 2005

 

RODNEY O’NEAL

 

Chief Executive Officer and President, Delphi Corporation

 

Mr. O’Neal has served in various managerial positions at Delphi Corporation since 2000 and has served as the Chief Executive Officer and President since January 1, 2007. He was President and Chief Operating Officer of Delphi Corporation from January 1, 2005 to December 31, 2006. Mr. O’Neal also served in various managerial and engineering positions at General Motors Corporation from 1976 to 1999, including Vice President of General Motors and President of Delphi Interior Systems prior to Delphi’s separation from General Motors. Mr. O’Neal is also a director of the Delphi Corporation and Sprint Nextel Corporation.

 

Age: 55

 

Director since: February 3, 2004

 

SHIRLEY D. PETERSON

 

Retired.  Formerly partner in the law firm of Steptoe & Johnson LLP

 

Mrs. Peterson was President of Hood College from 1995 to 2000. From 1989 to 1993 she served in the U.S. Government, first appointed by the President as Assistant Attorney General in the Tax Division of the Department of Justice, then as Commissioner of the Internal Revenue Service. She was also a partner in the law firm of Steptoe & Johnson LLP where she served a total of 22 years from 1969 to 1989 and from 1993 to 1994. Mrs. Peterson is also a director of AK Steel Corporation, Champion Enterprises, Inc. and Wolverine Worldwide Inc.

 

Age: 67

 

Director since: April 13, 2004

 

STEPHANIE A. STREETER

 

Formerly Chairman, President and Chief Executive Officer of Banta Corporation

 

Ms. Streeter joined Banta Corporation, a provider of printing and supply chain management services, as President and Chief Operating Officer in January 2001, was elected Chief Executive Officer in 2002 and Chairman in 2004. She served as Chairman, President and Chief Executive Officer of Banta until its acquisition by R.R. Donnelley & Sons in 2007. Ms. Streeter also spent 14 years with Avery Dennison Corporation in a variety of product and business management positions, including as Group Vice President of Worldwide Office Products from 1996 to 2000. Ms. Streeter is also a director of Kohl’s Corporation.

 

Age: 51

 

Director since: October 7, 2008

 

G. CRAIG SULLIVAN

 

Retired.  Formerly Chairman and Chief Executive Officer, The Clorox Company

 

Mr. Sullivan served as Chairman and Chief Executive Officer of Clorox from 1992 to 2003. Prior to assuming that role in 1992, he served in various managerial positions at Clorox including group vice president responsible for both manufacturing and marketing of household products. Before joining Clorox, Mr. Sullivan held various sales management positions with The Procter & Gamble Company and American Express. Mr. Sullivan is also a director of Kimberly-Clark Corporation and Mattel, Inc.

 

Age: 68

 

Director since: April 11, 2006

 

THOMAS H. WEIDEMEYER

 

Retired.  Formerly Senior Vice President and Chief Operating Officer of United Parcel Service, Inc.

 

Until his retirement in February 2004, Mr. Weidemeyer served as Senior Vice President and Chief Operating Officer of United Parcel Service, Inc., a transportation and logistics company, since January 2001, and President and Chief Operating Officer of UPS Airlines since July 1994. Mr. Weidemeyer became Manager of the Americas International Operation in 1989, and in that capacity directed the development of the UPS delivery network throughout Central and South America. In 1990, Mr. Weidemeyer became Vice President and Airline Manager of UPS Airlines and in 1994 was elected its President and Chief Operating Officer. Mr. Weidemeyer is also a director of NRG Energy, Inc. and Waste Management, Inc.

 

Age: 61

 

Director since: December 9, 2004

 

MICHAEL R. WESSEL

 

President of The Wessel Group Incorporated,

 

Mr. Wessel has served as President of The Wessel Group Incorporated, a government and political affairs consulting firm, since May 2006. Prior to founding the Wessel Group, Mr. Wessel served as Senior Vice President of the Downey McGrath Group, a government affairs consulting firm, from March 1999 to December 2005 and as Executive Vice President from January 2006 to April 2006. Mr. Wessel is an attorney with almost 30 years experience as a policy and international trade advisor in Washington, D.C. In 1977, as a staff assistant to Congressman Richard Gephardt, he advised government officials on a wide range of domestic and international issues. He was named legislative director in 1984, policy director in 1989 and general counsel in 1991 for Congressman Gephardt. Mr. Wessel also served as a key economic and trade policy advisor for Mr. Gephardt’s presidential campaigns in 1987-88 and 2003-04, as well as John Kerry’s campaign in 2004. He was a senior policy advisor for the Clinton/Gore Transition Office in 1992 and 1993.

 

Age: 49

 

Director since: December 6, 2005

 

Mr. Steven A. Minter was not nominated for re-election to the Board of Directors due to the retirement age provisions of Goodyear’s Corporate Governance Guidelines. Mr. Minter will be retiring from the Board at the Annual Meeting after 24 years of distinguished service. Goodyear and the Board of Directors are deeply grateful for his leadership and guidance during his tenure on the Board.

 

Our Board of Directors recommends that the shareholders approve an amendment to the Amended Articles of Incorporation requiring a majority vote for the election of directors in uncontested elections for which cumulative voting is not in effect. The Board also recommends that the shareholders approve an amendment to the Code of Regulations to delete a provision mandating that, in all elections of directors, the candidate receiving the greatest number of votes, a plurality vote, shall be elected. The Amended Articles currently do not specify the voting standard for the election of directors. Consequently, the Regulations provision, consistent with the default provisions of Ohio law, currently governs the Company’s director voting standard. Shareholder approval is required for the adoption of the proposed amendments to the Amended Articles and the Regulations.

 

In February 2008, our Board of Directors adopted a policy to assure that, in an uncontested election for which cumulative voting is not in effect, a director who fails to receive a greater number of votes “for” his or her election than votes “withheld” from such election would promptly offer his or her resignation to the Board. The Board would then decide, through a process managed by the Governance Committee, whether to accept the resignation. Our Majority Election of Directors Policy is included in our Corporate Governance Guidelines, which are available on the Company’s website at www.goodyear.com/investor/investorgovernance.html, and is described on page 1 of this Proxy Statement.

 

Historically, Ohio law provided that each director nominee who receives the highest number of affirmative votes cast is elected, regardless of whether such votes constitute a majority of all votes cast (including votes withheld). This system, referred to as plurality voting, has always been utilized by the Company for director elections. Ohio law was amended, effective January 1, 2008, to provide that the articles of incorporation may set forth alternative election standards, and, if no alternative is specified in the articles, plurality voting would continue to apply.

 

For the past few years, the Board has monitored developments in corporate governance closely as the practices surrounding the majority vote standard have evolved. Over that time, the legal and other potential consequences of adopting a majority vote standard have become clearer. A number of public companies have adopted some form of a majority vote standard, and there is now more experience and knowledge as to how it can be implemented. The Board has continued to evaluate the merits, risks and uncertainties relating to a majority vote standard and, after careful consideration, believes it is now in the best interests of the Company and its shareholders to strengthen the

approach initially adopted by the Company by amending the Amended Articles of Incorporation and the Code of Regulations to provide for a majority vote standard.

 

This would ensure that each vote is specifically counted “for” or “against” a director’s election, and would further enhance the accountability of each director to the Company’s shareholders. No director would be elected unless he or she received more votes cast “for” than “against” his or her election.

 

The proposed amendments to the Amended Articles and the Regulations would provide for a majority vote standard in our Amended Articles that could not be further amended without shareholder approval and would delete the requirement for plurality voting from the Regulations. If the proposed amendments are adopted, an affirmative majority of the total number of votes cast with respect to the election of a director nominee will be required for election in an uncontested election for which cumulative voting is not in effect. Abstentions and “broker non-votes” will have no effect in determining whether the required affirmative majority vote has been obtained. For contested elections or elections for which cumulative voting is in effect, plurality voting would apply.

 

If this proposal is approved by the shareholders, the following new article will be added to the Amended Articles:

 

“SEVENTH: In order for a nominee to be elected a director of the corporation in an uncontested election for which cumulative voting is not in effect, the nominee must receive a greater number of votes cast “for” his or her election than “against” his or her election. In a contested election or if cumulative voting is in effect, the nominees receiving the greatest number of votes shall be elected, up to the number of directors to be elected. An election shall be considered contested if there are more nominees for election than director positions to be filled in that election.”

 

And the following provision of the Regulations (Article II, Section 2) will be amended as follows:

 

“At a meeting of shareholders at which directors are to be elected, only persons nominated as candidates shall be eligible for election as directors and the candidates receiving the greatest number of votes shall be elected.”

 

If this proposal is approved by the shareholders, our current Majority Election of Directors Policy would remain in effect only to the extent needed to address “holdover” terms for any incumbent directors who fail to be re-elected under the new majority vote standard. Under Ohio law, an incumbent director who is not re-elected will continue in office as a “holdover” director until his or her successor is elected by a subsequent shareholder vote, or his or her earlier resignation, removal from office or death.

 

Adoption of the amendment to the Amended Articles of Incorporation requires the affirmative vote of at least two-thirds, and adoption of the amendment to the Code of Regulations requires the affirmative vote of at least a majority, of the shares of Common Stock outstanding on the record date. The amendment to the Code of Regulations contemplated by this Proxy Item 2 will not be adopted if the related amendment to the Amended Articles of Incorporation fails to receive the requisite two-thirds affirmative vote.

 

Your Board of Directors unanimously recommends that shareholders vote FOR approval of the amendments to Goodyear’s Amended Articles of Incorporation and Code of Regulations to provide for the majority election of directors (Proxy Item 2).

 

Our Board of Directors recommends that the Code of Regulations be amended by adding a provision authorizing the Board to make future amendments to the Regulations to the extent permitted by the Ohio General Corporation Law. For Ohio corporations, regulations are the equivalent of by-laws.

 

Our Regulations were first adopted in 1955 and contain many awkward and out-of-date provisions. The Board of Directors is not currently permitted to amend the Regulations. Previously, Ohio law did not permit the Board to amend the Regulations.

 

The Ohio General Corporation Law was amended in October 2006 to allow the Board of Directors to amend the Regulations without shareholder approval, within certain statutory limitations, thus bringing Ohio law into line with the law of most other states. However, the amended Ohio statute requires us to first seek shareholder approval in order for the Board to make future amendments to the Regulations. Other Ohio corporations have made this change to allow their regulations to be updated.

Under the 2006 amendments to the Ohio General Corporation Law, the Board is not permitted to amend the Regulations in various areas that impact fundamental shareholder rights. Specifically, the Board may not amend the Regulations to do any of the following: (1) change the authority of the shareholders themselves; (2) establish or change the percentage of shares that must be held by shareholders in order to call a shareholders meeting or change the time period required for notice of a shareholders meeting; (3) establish or change the quorum requirements at shareholder meetings; (4) prohibit the shareholders or directors from taking action by written consent without a meeting; (5) change directors’ terms of office or provide for the classification of directors; (6) change the quorum or voting requirements at directors meetings; or (7) remove the requirement that a “control share acquisition” of an “issuing public corporation” must be approved by the shareholders of the corporation to be acquired. In addition, the Board may not delegate the authority to amend the Regulations to a Board Committee. This proposal does not seek to change in any way these limitations placed on the Board under the Ohio General Corporation Law with respect to amendments to the Regulations, and would only allow the Board to amend the Regulations to the extent permitted by the Ohio General Corporation Law.

 

Under Ohio law, the shareholders can always override amendments made by the Board, and the Regulations may never divest the shareholders of the power to adopt, amend or repeal the Regulations.

 

The Board of Directors recommends that Article X of the Regulations be amended to add the following underlined language:

 

“The Regulations of the Company may be amended or new Regulations may be adopted by the shareholders, at a meeting held for such purpose by the affirmative vote of the holders of shares entitling them to exercise a majority of the voting power of the Company on such proposal or, without a meeting, by the written consent of the holders of shares entitling them to exercise two-thirds of the voting power on such proposal. The Regulations of the Company may also be amended by the directors to the extent permitted by the Ohio General Corporation Law.”

 

Adoption of the amendment to the Regulations requires the affirmative vote of a majority of our outstanding Common Stock.

 

Your Board of Directors unanimously recommends that shareholders vote FOR approval of an amendment to Goodyear’s Code of Regulations to authorize the Board of Directors to amend the Regulations (Proxy Item 3).

 

The Audit Committee of the Board has appointed PricewaterhouseCoopers LLP (“PwC”) as the independent registered public accounting firm to audit Goodyear’s consolidated financial statements as of and for the fiscal year ending December 31, 2009 and its internal control over financial reporting as of December 31, 2009. During fiscal year 2008, PwC served as Goodyear’s independent registered public accounting firm and also provided audit related, tax and other services. See “Principal Accountant Fees and Services” on page 52.

 

The following resolution will be presented by the Board of Directors at the Annual Meeting:

 

“RESOLVED, that the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Company for the year ending December 31, 2009 is hereby ratified.”

 

In the event the appointment of PwC is not ratified by the shareholders, the adverse vote will be deemed to be an indication to the Audit Committee that it should consider selecting another independent registered public accounting firm for 2010.

 

Your Board of Directors does not intend to bring any other business before the Annual Meeting and is not aware of any other business intended to be presented by any other person.

 

After the conclusion of the matters described above, shareholders will have an opportunity to ask appropriate questions regarding Goodyear and its operations.

 

If any other matters properly come before the Annual Meeting, your proxy will be voted by Messrs. Wells, Harvie or Bell in such manner as they, in their discretion, deem appropriate.

 

The persons identified in the table below have reported that they beneficially owned at December 31, 2008 more than 5% of the outstanding shares of the Common Stock as follows:

 

 

 

 

In addition, The Northern Trust Company, 50 South LaSalle Street, Chicago, Illinois 60675, has indicated that at the record date it held 10,996,827 shares, or approximately 4.6% of the outstanding shares, of Common Stock as the trustee of various employee savings plans sponsored by Goodyear and certain subsidiaries.

On February 13, 2009, each director and nominee, each person named in the Summary Compensation Table on page 30, and all directors and executive officers as a group, beneficially owned the number of shares of Common Stock set forth in the table below.

 

 

 

 

 

 

Compensation Philosophy

 

The key objectives of our executive compensation program are to:

 

 

To help us achieve these objectives, we strive to offer our executive officers compensation and benefits that are tied to our performance, including equity-based compensation, and that are attractive and competitive for talent in the marketplace. The key components of compensation provided to our executive officers are:

 

 

 

 

The following table provides an overview of the relationship between the objectives and components of our compensation program. A more detailed discussion of each component is provided later in this Compensation Discussion and Analysis.

 

 

We are guided by the following core principles in establishing compensation for our executives, including the Chairman, Chief Executive Officer and President (“CEO”) and the other executive officers named in the Summary Compensation Table (together with the CEO, the “named executive officers”):

 

First, compensation programs should motivate our executives to take actions that are aligned with our short-and long-term strategic objectives, and appropriately balance risk versus potential reward.

 

Second, as executives move to a greater level of responsibility, the percentage of their pay based on performance should increase to ensure the highest level of accountability to shareholders.

 

Third, performance pay should offer an opportunity for above average compensation for above average performance balanced by the risk of below average compensation when our performance does not meet our goals.

 

Fourth, the percentage of total compensation paid in the form of equity should also increase as executives have increasing responsibility for corporate performance, thereby more closely aligning their interests with those of our stockholders.

 

We generally target base salaries for our named executive officers below median market rates, as required by our master labor agreement (the “USW Agreement”) with the USW, and we target performance-based and equity compensation at rates that are either at the median market rate or somewhat above such rate. This approach minimizes fixed expense associated with salary and enables annual cash compensation and total compensation to fluctuate directly with performance against operating goals and changes in share price, thereby ensuring that overall costs are aligned with performance and that executives receive a leveraged and attractive compensation opportunity that varies based on results. This approach provides an opportunity for compensation in excess of market median rates through superior performance. Conversely, executives may earn less than market median rates for performance that does not meet our goals and/or due to declines in our stock price.

 

Consistent with general market practice, the Compensation Committee believes that base salary should comprise approximately 20% of “primary compensation,” which we define to include salary, annual cash incentive and long-term compensation. The remaining approximately 80% of primary compensation is a mix of annual cash incentive, stock options, performance shares (currently paid half in cash and half in stock), and long-term cash-based incentive awards. The design and mix of variable compensation has been evolving over the past several years. The market value of our Common Stock, which has declined and experienced significant volatility during 2008, and the availability of shares under our equity compensation plans will impact our ability to use stock-based compensation to deliver a specified level of targeted compensation opportunity.

 

Compensation Decision-Making

 

Our Board of Directors has delegated to the Compensation Committee of the Board primary responsibility for establishing and administering our compensation programs for executive officers and other key personnel. The Compensation Committee oversees our compensation and benefit plans and policies, administers our stock plans (including reviewing and recommending equity grants to executive officers), and reviews and approves annually all compensation decisions relating to executive officers, including those for the CEO and the other named executive officers.

In performing its duties, the Compensation Committee meets periodically with the CEO to review compensation policies and specific levels of compensation paid to executive officers and other key personnel, and reports and makes recommendations to the Board regarding executive compensation policies and programs. In addition, the CEO annually makes recommendations to the Compensation Committee regarding salary adjustments and the setting of annual incentive targets and long-term compensation targets and awards for executive officers, including the other named executive officers. In determining the compensation of a named executive officer, the Compensation Committee considers our performance and relative shareholder return, the compensation of officers with similar responsibilities at comparable companies, the awards given to the named executive officer in past years, the relationship between the compensation to be received by the officer and the compensation to be received by the other named executive officers, including comparing the relationship to that found at comparable companies, and such other factors that the Committee deems relevant that are discussed elsewhere in this Compensation Discussion and Analysis. The Compensation Committee informs the other non-management directors of its decisions regarding compensation for the CEO and the other named executive officers.

 

At least annually, the Compensation Committee reviews our executive compensation practices to determine whether they meet, and are consistent with, the key objectives of our compensation program. From time to time, members of our Executive Compensation group in our Corporate Human Resources Department make presentations to the Compensation Committee and the Board on compensation matters, including compensation philosophy, elements and mix of compensation, and our various compensation programs.

 

The Compensation Committee generally adheres to the guidelines and philosophy described above under “Compensation Philosophy.” However, significant changes in our business or the markets in general, may cause the Compensation Committee to deviate from these guidelines if deemed appropriate. This allows the Compensation Committee to motivate our executives and other key personnel to attain appropriate short-term and long-term performance goals and to manage the Company for sustained long-term growth, serve the best interests of the Company and our stockholders, and attract and retain talented executives.

 

Role of Compensation Consultant

 

The Compensation Committee has the authority to retain and terminate outside advisors, including compensation consultants, to assist it in evaluating actual and proposed compensation for our executive officers. During 2008, the Compensation Committee retained Frederic W. Cook & Co., Inc., as its independent compensation consultant, to provide advice and assistance on executive compensation matters, including the 2008 compensation decisions that are discussed elsewhere in this Compensation Discussion and Analysis. As part of its engagement, Frederic W. Cook & Co. reviewed our executive compensation peer group and conducted a competitive analysis of the primary compensation opportunities for the named executive officers as well as our operational and stock price performance relative to the resulting peer group. Frederick W. Cook & Co. also conducted a comprehensive review of the design of our primary compensation programs, including our variable incentive plans and other compensation plans, and provided recommendations for changes where appropriate. Frederic W. Cook & Co. also reviewed our non-qualified deferred compensation plans in connection with amendments made to those plans in order to comply with Section 409A of the Internal Revenue Code, our CEO’s employment agreement in connection with its renewal and our non-employee director compensation program. Frederic W. Cook & Co. works with Goodyear only under the direction of the Compensation Committee and did not provide any other advice or consulting services to us in 2008.

 

Benchmarking of Primary Compensation

 

As noted above, the Compensation Committee generally targets primary compensation levels for named executive officers at median market rates. For these purposes, the Compensation Committee has determined “market” rates by considering two sources:

 

 

For 2008 compensation decisions, the peer group noted above consisted of: 3M, Caterpillar, Deere & Co., DuPont, Eaton, Emerson Electric, Honeywell, Illinois Tool Works, Johnson Controls, Lear, Paccar, PPG Industries, Textron, TRW Automotive, United Technologies and Whirlpool. This peer group was used because its membership reflects alignment with the nature of our business, workforce and global complexity. The peer group does not include other companies in the tire industry because no other U.S.-based tire company is similar in size and

complexity to us and non-U.S.-based tire companies do not publish comparable compensation information. The Compensation Committee may continue to make changes in the peer group from time to time based on the criteria described above or other relevant factors.

 

Data with respect to comparable elements of primary compensation is compiled for the peer group of companies described above from available sources, including, in most cases, the most recently available annual proxy statements containing executive compensation data.

 

Elements of Compensation

 

Annual Compensation

 

Base Salaries

 

We provide base salaries to recognize the skills, competencies, experience and individual performance each named executive officer brings to his position. We target base salaries below median market rates, as required by the USW Agreement, and place correspondingly greater emphasis on performance-based incentive and equity compensation. Salary guidelines for each named executive officer’s position are based primarily on market data that we derive through our benchmarking practices, as described above. We also develop salary guidelines from compensation surveys using regression analysis based on revenues of the surveyed companies. In addition to data derived from these surveys, the Compensation Committee reviews general surveys prepared by national human resource consulting firms indicating past, present and projected salary structures and annual increases for executive positions. The Compensation Committee also considers the CEO’s recommendations (other than with respect to his base salary), which are based in substantial part on the guidelines described above as well as on certain subjective factors, including the CEO’s evaluation of the performance of each named executive officer against corporate, operating unit and individual objectives established at the start of each year, their current and future responsibilities, our recent financial performance, retention considerations, and general economic and competitive conditions.

 

2008 Base Salary Decisions

 

Using the methodologies described above for setting salary guidelines, in December 2007 we compared total compensation levels for our named executive officers and 16 additional executives against survey data provided by Frederic W. Cook & Co. We concluded that the base salaries of our named executive officers who are direct reports to the CEO were, in the aggregate, below the market median, in accordance with the USW Agreement.

 

In 2008, the overall increase in base salaries for all executive officers, excluding the CEO and executive officers who received significant promotions, was 3.3%. Base salary increases were determined in February 2008. Mr. Keegan, Mr. Kramer, Mr. Harvie and Mr. de Bok received increases of 3.4%, 3.6%, 6.3% and 13.6%, respectively. Mr. Wells was elected as our Chief Financial Officer effective October 17, 2008 at an annual base salary of $450,000. Mr. de Bok received a greater increase in his base salary due to his increased responsibilities following his appointment as President of our new Europe, Middle East and Africa business unit, which was formed in the first quarter of 2008 by combining our former European Union and Eastern Europe, Middle East and Africa business units. Mr. Schmitz received a base salary of $407,549 for the portion of the year he was our Chief Financial Officer. Salaries of the current named executive officers in 2008 were an average of 5% lower than the median indicated by the salary guidelines described above. Since no annual incentives were paid with respect to 2008, salaries in 2008 represented all of the total annual cash compensation paid to the named executive officers. Due to the current economic environment, we do not anticipate providing any base salary increases to our named executive officers in 2009.

 

Annual Cash Incentives — Performance Recognition Plan

 

The Performance Recognition Plan provides annual cash-based incentives for approximately 730 participants, including all named executive officers. Awards under the Performance Recognition Plan are designed to emphasize important short-term operating and tactical objectives that directly drive the creation of shareholder value and provide appropriate balance with the metrics used in our long-term incentives. Awards generally have the following characteristics:

 

 

 

Each financial performance criterion has a target level as well as a minimum and maximum level, which are determined based on the perceived difficulty of the established targets and actual results for those financial measures in prior years. For corporate officers, funding of the incentive pool available for payouts is based on overall company results with respect to the two financial performance criteria. Funding of the incentive pool for officers of our four operating units is based 60% on that operating unit’s results and 40% on overall company results. In this manner, we believe our executives are held most accountable for financial results in the areas where they have the most control and influence, but are also motivated to work cooperatively with other operating units to maximize results for the entire Company.

 

In determining the funding of the incentive pool available for payouts, the Compensation Committee first compares actual results with the target performance level for the two financial performance criteria. This comparison is done for the Company overall, and for each operating unit. These results are referred to as the “actual results.” Then, the Committee considers and takes into account the following three factors to determine whether the actual results should be adjusted:

 

 

After the size of the incentive pool has been determined as described above, the payout for each named executive officer is determined. In this process, the officer’s target incentive amount is first multiplied by the same percentage used to determine the aggregate incentive pool applicable to such officer. (For example, if the incentive pool applicable to such officer is funded at 150% of the aggregate target incentive amount, the officer’s individual payout initially would be set at 150% of his individual incentive target.) Then, the CEO assesses the officer’s individual performance and contributions towards Company goals and makes his recommendations with respect to individual payout amounts to the Compensation Committee, which considers the CEO’s recommendations and determines the final payouts. The Compensation Committee undertakes the same process for the CEO and makes the determination as to the final payout amount for the CEO. Participants can earn between 0% and 200% of their target incentive, but the total payout for all participants may not exceed the aggregate incentive pool.

 

To illustrate how the Performance Recognition Plan works, assume an award with a target level of $50,000. If the company-wide and operating unit performance criteria are attained in an amount equal to 150% of their target amounts, the amount contributed to the overall incentive pool in respect of this award is $75,000 (i.e., 150% of $50,000). However, the individual having this award would be eligible to receive a payout between $0 and $100,000 (i.e., up to 200% of the target level), depending on the individual’s own performance and contribution to Company goals.

 

Awards are generally paid in cash. However, named executive officers may elect to defer all or a portion of their award in the form of cash or stock units. If deferred in the form of stock units, we will match 20% of the deferred amount with additional stock units that will vest in one year subject to the executives’ continued employment. Any stock units are converted to shares of Common Stock and paid to the participant in January of the fourth year following the end of the plan year under which the award was earned. See “Executive Deferred Compensation Plan” below.

Future awards under the Performance Recognition Plan may utilize different or additional financial performance criteria, as well as other quantifiable performance measures that are tied to the achievement of important strategic objectives that drive the success of our business.

 

2008 Payouts Under Performance Recognition Plan

 

In 2008, the performance criteria used for incentive awards under the Performance Recognition Plan were as follows:

 

 

Adjusted EBIT is derived from our audited financial statements by reducing net sales for cost of goods sold, selling, administrative and general expense, and finance charges, and EBIT is derived from our audited financial statements by reducing net sales for cost of goods sold and selling, administrative and general expense. The Compensation Committee used adjusted EBIT to measure overall company results, rather than EBIT, to provide our officers an incentive to reduce finance charges, given existing debt levels.

 

The Compensation Committee established the performance targets for the Performance Recognition Plan in February 2008. The Compensation Committee set the corporate adjusted EBIT target taking into account increased performance expectations for each operating unit. The North American Tire and Europe, Middle East and Africa Tire (“EMEA”) EBIT targets also reflected increased performance expectations during 2008. The corporate and North American Tire operating cash flow targets were established taking into account the Voluntary Employees’ Beneficiary Association funding obligations. Consistent with past practices, the Compensation Committee also excluded accelerated depreciation expense related to plant closures from the corporate adjusted EBIT target. Overall, the Compensation Committee believed the financial targets reflected a significant stretch for the Company given the dynamic and increasingly competitive business environment, the challenging economic environment, rapidly increasing costs of raw materials, and the incremental growth required from 2007 actual results.

 

In February 2009, the Compensation Committee reviewed actual results for 2008 with respect to achievement of the company-wide and operating unit financial performance criteria.

 

For overall company results (the performance of which is relevant for determining incentive amounts for Messrs. Keegan, Wells and Harvie), target adjusted EBIT was $880 million and actual adjusted EBIT (adjusted as described above) was $472 million, or approximately 46% below target, and target operating cash flow was ($50) million and actual operating cash flow (adjusted as described above) was ($834) million, significantly below target.

 

As noted above, funding of the incentive pool for officers of our four operating units is based 60% on that operating unit’s results and 40% on overall company results. The North American Tire unit (the performance of which is relevant for determining Mr. Kramer’s incentive payment) fell short of its minimum EBIT and operating cash flow targets. The EMEA unit (the performance of which is relevant for determining Mr. de Bok’s incentive payment) also fell short of its minimum EBIT and operating cash flow targets.

 

We experienced difficult industry conditions during 2008 as the global economic slowdown increased both in severity and geographic scope throughout the course of the year. These industry conditions were characterized by dramatically lower motor vehicle sales and production, weakness in the demand for replacement tires, and recessionary economic conditions in many parts of the world. As a result of these factors, we did not meet the challenging performance targets established in February 2008 for incentive awards under the Performance Recognition Plan. In light of the global economic slowdown, its impact on our business and our performance against our targets, we determined not to fund the 2008 corporate, North American Tire or EMEA incentive pools for our named executive officers.

 

The table below presents information regarding the potential and actual awards for our named executive officers under the Performance Recognition Plan:

 

 

 

 

Long-Term Compensation

 

Long-term incentives are delivered through grants of stock options and performance shares under our 2005 and 2008 Performance Plans (collectively, the “Performance Plans”) and long-term cash-based incentive awards under our Executive Performance Plan. Long-term performance-based compensation is generally designed to represent approximately 60% of the primary compensation of named executive officers, assuming target performance levels. This is consistent with our emphasis on long-term compensation, which better ties the executive’s compensation to long-term operational success and shareholder value creation. The mix of long-term compensation between stock option grants, performance share grants, and cash-based long-term incentives was based, in part, on the number of shares available for grant under the Performance Plans, as well as considerations relating to managing the dilutive effect of share-based awards.

 

The amount and terms of grants to named executive officers under the Performance Plans and the Executive Performance Plan are based on criteria established by the Compensation Committee and typically include responsibility level, base salary level, current Common Stock market price, officer performance, recent Goodyear performance, internal pay equity, and, with respect to the Performance Plans, the number of shares available under the plan. As discussed above under “Compensation Philosophy,” the Compensation Committee makes grants under these plans with the objective of providing a target primary compensation opportunity at or somewhat above median market rates.

 

Cash-Based Awards Under the Executive Performance Plan

 

The Executive Performance Plan provides long-term incentive compensation opportunities in order to motivate key personnel to achieve our long-term business objectives and to attract, retain and reward key personnel. This plan was originally established, in 2003, to address the limitations of providing compensation through our Performance Plans. Due to the relatively low market price of our Common Stock at the time, the quantity of shares that would have been necessary to provide meaningful incentive compensation would have exceeded the number of available shares under the 2002 Performance Plan and would have created an unacceptable level of potential share dilution. As a result, the Compensation Committee determined that a cash-based plan was the most appropriate tool for providing performance and retention incentives. The market value of our Common Stock and the availability of shares under our equity compensation plans continue to impact our ability to use stock-based compensation to deliver a specified level of targeted compensation opportunity. As a result, the Executive Performance Plan remains a valuable compensation tool.

 

The Compensation Committee generally makes Executive Performance Plan grants at its first meeting following completion of the prior fiscal year (typically in February). Awards of units under the Executive Performance Plan generally have the following characteristics:

 

 

The number of target units awarded annually to each named executive officer is based on a number of considerations, including market data about competitive long-term compensation and the CEO’s recommendations. In determining target awards, the CEO takes into consideration certain subjective factors, including the CEO’s evaluation of the performance of each named executive officer, our recent performance, internal pay equity, retention considerations and general economic and competitive conditions.

 

The performance criteria for grants made for the 2006-2008, 2007-2009 and 2008-2010 performance periods were cumulative net income and cumulative cash flow, net of debt, each weighted equally. Results were based on our consolidated performance, with no award tied to business unit performance. In this manner, the plan emphasizes long-term consolidated financial results, balances performance measures used under the Performance Recognition Plan and reinforces the need for teamwork among executives. Net income was used as a measure to focus on bottom line improvement. Cash flow focused on our efforts to manage the cash requirements associated with our business, including our debt, pension and OPEB obligations and our efforts to improve our capital structure, and adjusting for net debt provides incentive to reduce our obligations, including our debt and pension obligations. The amount of debt that is netted out is equal to the amount of total debt on the consolidated balance sheet plus expected domestic pension funding obligations for the next three fiscal years, less cash on the consolidated balance sheet.

 

167,590 units were granted in respect of the 2006-2008 performance period, 174,150 units were granted in respect of the 2007-2009 performance period, and 183,720 units were granted in respect of the 2008-2010 performance period.

 

2008 Grants Under the Executive Performance Plan

 

The Compensation Committee awarded an aggregate of 183,720 units in respect of the 2008-2010 performance period under the Executive Performance Plan. The performance criteria for the 2008 grants are cumulative net income and cumulative total cash flow, net of debt, each weighted equally. The performance targets for the 2008-2010 period generally require relatively greater improvement in performance than had been contemplated under prior years’ grants and will be achieved, at the target performance level, if we successfully execute our three-year operating plan. The Compensation Committee determined that it was appropriate for the 2008-2010 performance targets to be consistent with our three-year operating plan which reflected the Company’s emergence from a challenging period of recovery that began in 2003. The targets are premised on the Company meaningfully growing both net income and cumulative total cash flow during the three-year performance period.

 

The value of the units granted for the 2008-2010 performance period (assuming payout at $100 per unit) represents approximately 51% of the value of total long-term compensation awarded to the current named executive officers in 2008. Included in the grants for the 2008-2010 performance period were grants of 43,890; 6,700; 12,000; 7,700; and 9,500 units to Messrs. Keegan, Wells, Kramer, Harvie and de Bok, respectively. Mr. Schmitz was granted 8,800 units for the 2008-2010 performance period, but those units were forfeited upon his departure from the Company. Payment on each unit may range between $0 and $200 depending upon the attainment of the performance criteria described above.

 

Performance Shares

 

In 2006, in order to more closely align executive compensation to the performance of our Common Stock and to better manage concerns about stockholder dilution, and in response to new accounting rules with respect to stock options under Statement of Financial Accounting Standards No. 123R, “Share-Based Payments” (“SFAS 123R”), we introduced performance shares as a new component of long-term compensation for named executive officers and other key personnel. We believe that performance shares, like the cash-based Executive Performance Plan, drive operational performance while also driving shareholder value creation, thereby better aligning the interests of our executives with those of our shareholders.

 

Performance shares are granted under the 2005 and 2008 Performance Plans and generally have the following terms:

 

 

The number of performance shares awarded annually to each named executive officer, measured by the percentage of total long-term compensation represented by such shares, is based on a number of considerations, including market data for comparable long-term incentive compensation and the CEO’s recommendations, which are based in part on certain subjective factors, including the CEO’s evaluation of the performance of each named executive officer, our recent performance, share availability under our equity compensation plans, internal pay equity, retention considerations, and general economic and competitive conditions.

 

Performance shares granted beginning in 2009, once vested, will be paid all in stock.

 

2008 Performance Share Grants

 

In 2008, the Compensation Committee awarded an aggregate of 1,054,325 target performance shares. The vesting period for these shares is 2008-2010 and the performance criteria over this period are cumulative net income and cumulative total cash flow, net of debt, each weighted equally, as described above under “Cash-Based Awards Under the Executive Performance Plan.” The aggregate target value of the performance shares granted to the current named executive officers in 2008 (measured at grant date fair value) was $1,669,522. This represented approximately 13% of total long-term compensation awarded to the current named executive officers in 2008. In 2008, target grants of 20,279; 7,077; 16,111; 9,910; and 10,469 performance shares for the 2008-2010 performance period were made to Messrs. Keegan, Wells, Kramer, Harvie and de Bok, respectively, having the terms described above. Mr. Schmitz received a target grant of 7,479 performance shares for the 2008-2010 performance period, but those performance shares were forfeited upon his departure from the Company.

 

Payouts for the 2006-2008 Performance Periods Under the Executive Performance Plan and With Respect to Performance Shares

 

Following the sale of our Engineered Products business in July 2007, the Compensation Committee modified the cumulative net income and cumulative total cash flow, net of debt targets to reflect the sale of that business. In February 2009, the Compensation Committee approved payouts in respect of awards granted for the 2006-2008 performance period. The table below shows the performance goals and corresponding payout percentages for awards granted for the 2006-2008 performance period.

 

 

The Executive Performance Plan and the 2005 Performance Plan permits the Committee to make adjustments to actual company results for the performance measures for extraordinary items and other relevant factors. Over the three-year performance period, actual company results were adjusted to reflect the impact of the USW strike, to exclude restructuring charges and to exclude the gain on, and the cash proceeds from, the sale of our Engineered Products business. The table below shows actual adjusted results with respect to the performance measures over the 2006-2008 performance period.

 

 

During the performance period of these grants, we faced a number of substantial challenges impacting the tire industry generally, such as industry overcapacity, recessionary economic conditions in many parts of the world in 2008, particularly in North America and Europe, volatile and high raw material and energy costs, weakness in the North American auto industry, and increased competition from low-cost manufacturers. We also faced several Company-specific challenges, such as a significant negotiation with the USW on the terms of a new master labor agreement, the USW strike and the recovery from the USW strike, the implementation of a capital structure improvement plan, and the need to implement significant cost reductions. In the face of these challenges, the targets established for the 2006 grants were considered aggressive targets, the achievement of which would mean

we were on our way to financial recovery and poised for future growth. Our performance during the period reflects significant price and product mix improvements that more than offset raw material cost inflation, the completion of our capital structure improvement plan, additional debt reduction initiatives, the substantial progress made on our cost reduction and other strategic initiatives, including significant increases in our cost reduction targets, and the strong performance of our international business units, many of which achieved record results in sales and segment operating income during the three-year performance period. We exceeded our cumulative total cash flow, net of debt target for the 2006-2008 performance period due to our efforts to manage cash flow during the performance period, particularly as economic conditions worsened in 2008. However, we did not achieve our cumulative net income target for the 2006-2008 performance period, primarily due to the global economic downturn in 2008, especially in the fourth quarter of 2008, as we took actions to focus on cash management by reducing production and managing inventory levels.

 

Based on the results over the 2006-2008 performance period, the Compensation Committee approved payout of the Executive Performance Plan awards for such period in an amount equal to 100% of the target amount per unit.

 

The table below shows payout amounts for each of the named executive officers in respect of their grants under the Executive Performance Plan for the performance period 2006-2008:

 

 

In reviewing and considering payouts under the Executive Performance Plan for the 2006-2008 performance period, the Compensation Committee considered not only the impact of the lost tax deductions associated with such payouts under Section 162(m) of the Code, but also the significant U.S. deferred tax assets available to us from prior periods, as well as the benefits realized by us and our stockholders from the successful efforts of our senior management team in leading the turnaround effort over the past several years. In balancing these considerations, the Compensation Committee concluded that it would be appropriate to approve payouts in respect of the grants for the 2006-2008 performance period, notwithstanding the loss of the associated tax deduction.

 

Based on the results over the 2006-2008 performance period, the Compensation Committee approved payouts with respect to performance share awards for such period in an amount equal to 100% of the target number of performance shares. Performance shares are paid 50% in cash and 50% in stock.

 

The table below shows the payout for each of the named executive officers in respect of their grants of performance shares for the performance period 2006-2008:

 

 

 

 

Stock Options

 

The Compensation Committee annually grants stock options to named executive officers and other key employees to link executives to results earned by shareholders and build executive ownership. Stock options constitute an important element of our long-term incentive compensation program and support several important

objectives and principles. Because options result in gains only in the event that the stock price appreciates, they serve to align the interests of management with shareholders.

 

Stock options are granted under the Performance Plans and generally have the following terms:

 

 

Each stock option granted through 2007 included a right to the automatic grant of a new option (a “reinvestment option”) for the number of shares tendered in the exercise of the original stock option and withheld to pay income taxes. The reinvestment option will be granted on, and will have an exercise price equal to the market value of our Common Stock on, the date of exercise of the original option. Reinvestment options are generally subject to the same terms and conditions as the original stock option but do not include the right for a further reinvestment option. All reinvestment options vest one year from the date of grant and will expire on the date the original option would have expired. The Compensation Committee did not include the reinvestment option feature in its February 2008 stock option grants under the 2005 Performance Plan due, in part, to changes in the accounting for compensation expense associated with stock option grants under SFAS 123R. In addition, the 2008 Performance Plan does not provide for a reinvestment option feature.

 

The portion of long-term incentive compensation provided in the form of stock option grants each year is determined based on the number of available options under the Performance Plans, as well as market data on long term-compensation. We use a Black-Scholes valuation model to determine the number of stock options needed to provide the desired value consistent with overall median market compensation.

 

2008 Stock Option Grants

 

In 2008, the Compensation Committee awarded an aggregate of 1,581,360 stock options (excluding reinvestment options) under the 2005 and 2008 Performance Plans. The aggregate value of the stock options (excluding reinvestment options) granted to the current named executive officers in 2008 (measured at grant date fair value) was $4,851,550. This represented approximately 36% of total long-term compensation awarded to the current named executive officers in 2008. In February 2008, grants of 237,123; 12,333; 50,740; 33,311 and 29,905 stock options were made to Messrs. Keegan, Wells, Kramer, Harvie and de Bok, respectively, having the terms described above. Mr. Schmitz was granted 25,444 stock options in February 2008, but those stock options were forfeited upon his departure from the Company.

 

During 2008, reinvestment option grants were made to Messrs. Keegan and Harvie, with a grant date fair value of $391,650 and $489,258, respectively. See Note 5 to the Grants of Plan-Based Awards table below. All options granted to named executive officers during 2008 were non-qualified stock options. Each unexercised stock option terminates automatically if the optionee ceases to be an employee of Goodyear or one of its subsidiaries for any reason, except that (a) upon retirement or disability of the optionee more than six months after the grant date, the stock option will become immediately exercisable and remain exercisable until the earlier of five years or its expiration date, and (b) in the event of the death of the optionee more than six months after the grant thereof, each stock option will become exercisable and remain exercisable until the earlier of three years after the date of death of the optionee or its expiration date.

 

Restricted Stock

 

The Compensation Committee occasionally grants restricted stock to named executive officers and other key employees, typically to replace similar stock-based awards or other benefits at a prior employer, to recognize extraordinary effort or for retention purposes. Restricted stock links executives to the results earned by shareholders and builds executive stock ownership.

 

Restricted stock has a minimum restriction period of three years, subject to the pro rata lapse of those restrictions. During the restriction period, the recipient is not entitled to delivery of the shares, restrictions are placed on the transferability of the shares, and all or a portion of the shares will be forfeited if the recipient terminates employment for reasons other than as approved by the Compensation Committee. Upon expiration of the restriction period, the appropriate number of shares of Common Stock will be delivered to the grantee free of all

restrictions. During the restriction period for restricted shares, the grantee shall be entitled to vote restricted shares and, unless the Compensation Committee otherwise provides, to receive dividends, if any.

 

In February 2008, the Compensation Committee granted 93,492 and 59,835 shares of restricted stock to Messrs. Kramer and de Bok, respectively. These shares will vest 50% three years from the date of grant (in February 2011) and 50% four years from the date of grant (in February 2012). The Compensation Committee determined to make these grants in consideration of Mr. Kramer’s and Mr. de Bok’s significant contributions to Goodyear and importance to Goodyear in the future.

 

Pension Benefits

 

We provide most named executive officers with pension benefits under both qualified and non-qualified pension plans. The qualified plan benefits are pursuant to a defined benefit pension plan, the Goodyear Salaried Pension Plan (the “Salaried Plan”), and a defined contribution plan, the Goodyear Savings Plan (the “Savings Plan”). The non-qualified plan benefits are pursuant to a partially funded, defined benefit plan, the Goodyear Supplementary Pension Plan (the “Supplementary Plan”). Named executive officers serving outside the United States, such as Mr. de Bok, participate in local Goodyear or governmental pension plans, rather than the Salaried Plan or Savings Plan.

 

The Salaried Plan is designed to provide tax-qualified pension benefits for U.S.-based salaried employees hired prior to January 1, 2005. Messrs. Keegan, Wells, Harvie and Kramer participate in the Salaried Plan along with other Goodyear employees. Effective December 31, 2008, the Salaried Plan accrued benefit is frozen. Future tax-qualified benefit accruals for these four named executive officers and other Goodyear salaried employees are provided by Company contributions under the retirement contributions feature of the Savings Plan. (Salaried employees hired after December 31, 2004 participate in the retirement contributions feature of the Savings Plan from their date of hire.) Mr. de Bok does not participate in the Salaried Plan. He participates in Goodyear’s Netherlands Pension Plan and in government-sponsored (but Company-funded) pension plans in The Netherlands and Belgium.

 

The Supplementary Plan provides additional pension benefits to executive officers and certain other key individuals identified by the Compensation Committee. All of the current named executive officers participate in the Supplementary Plan. The Supplementary Plan provides pension benefits to participants who retire with at least 30 years of service or retire after age 55 with ten years of service. However, benefits payable under the Supplementary Plan are offset by the amount of any benefits payable under the Salaried Plan, the retirement contributions feature of the Savings Plan, applicable non-U.S. pension plans, and certain prior employer pension plans. The Committee believes supplemental executive retirement plans such as the Supplementary Plan are an important part of executive compensation and are utilized by most large companies, many of which compete with the Company for executive talent. Retirement benefits, including those provided through a supplemental executive retirement plan, are a critical component of an executive’s overall compensation program and are essential to attracting, motivating and retaining talented executives with a history of leadership. Retirement benefits are an important factor in an executive’s decision to accept or reject a new position.

 

We also maintain a non-qualified unfunded Excess Benefit Plan that pays an additional pension benefit over that paid under the Salaried Plan if a participant does not meet the eligibility requirements of the Supplementary Plan. The additional benefit is equal to the amount a participant would have received from the Salaried Plan but does not because of the limitations imposed by the Code on pension benefits under qualified plans. This plan is provided to allow the continuation of benefits from the qualified plan to individuals whose income exceeds the Code guidelines for qualified plans. For employees hired after December 31, 2004, and for all employees as of December 31, 2008, there is a corresponding non-qualified defined contribution excess plan that mirrors the retirement contributions feature of the Savings Plan.

 

Mr. Schmitz participated in the Savings Plan and the Supplementary Plan prior to his departure from the Company. Mr. Schmitz forfeited his Company contributions under the Savings Plan since he had less than two years of service at the time of his departure and he will not receive any benefits under the Supplementary Plan since he was not eligible for retirement at the time of his departure.

 

For more information regarding the terms of these plans and the named executive officers’ accrued benefits under these plans, see the table captioned “Pension Benefits” and the accompanying narrative elsewhere in this Proxy Statement.

Severance and Change-in-Control Benefits

 

We provide for the payment of severance benefits to our named executive officers upon certain types of terminations of employment. The Goodyear Continuity Plan for Salaried Employees (the “Continuity Plan”) provides certain severance benefits to our employees and employees of our domestic subsidiaries who participate in the Executive Performance Plan, Performance Recognition Plan or Savings Plan. The Continuity Plan was adopted on April 10, 2007 and amended and restated The Goodyear Employee Severance Plan for Salaried Employees that was originally adopted in 1989.

 

The Continuity Plan was designed to attract, retain and motivate employees, provide for stability and continuity in the event of an actual or threatened change-in-control, and ensure that our employees are able to devote their full time and attention to the Company’s operations in the event of an actual or threatened change-in-control.

 

The Continuity Plan and the related change-in-control triggers (commonly referred to as “double triggers”) are described in more detail under the heading “Potential Payments Upon Termination or Change-in-Control” elsewhere in this Proxy Statement, and generally provide for the payment of severance benefits if employment is terminated during certain periods before or within two years following a change-in-control of the Company. The change-in-control triggers in our 2008 Performance Plan are substantially similar to those in the Continuity Plan. We selected the specific change-in-control triggers used in the Continuity Plan, such as the acquisition of 20% or more of Goodyear’s Common Stock, a significant change in the composition of the Board of Directors or the acquisition of actual control of Goodyear, based upon our review of market practices, including provisions included in similar agreements of other public companies, and statutory provisions, such as the Ohio Control Share Acquisition Law, that could also be triggered in the event of a change-in-control. Based upon that review, we determined that the terms and conditions of the Continuity Plan, including the specific change-in-control triggers, were consistent with market practices and are a necessary component of a competitive compensation program. We also believe that the Continuity Plan is in the best interests of the Company and our shareholders because it ensures that we will have the continued commitment of our employees in the event of an actual or threatened change-in-control.

 

For additional information regarding the terms of the Continuity Plan and benefits payable under such plan, see “Potential Payments Upon Termination or Change-in-Control” elsewhere in this Proxy Statement.

 

In addition to benefits provided under the Continuity Plan, under appropriate circumstances, such as reductions in force or elimination of positions, we may provide severance benefits to executive officers, including the named executive officers, whose employment terminates prior to retirement. In determining whether to provide such benefits and in what amount, we consider all relevant facts and circumstances, including length of service, circumstances of the termination, the executive officer’s contributions to Company objectives, and other relevant factors. When we provide such benefits, typically the amount of severance is the equivalent of six to 18 months of base salary plus an amount based on the individual’s target annual incentive payment then in effect over an equivalent period. The severance payment may be paid in a lump sum or in installments. We also may provide limited outplacement and personal financial planning services to eligible executive officers following their termination.

 

Consistent with our severance practices described above, we provided Mr. Schmitz with installment payments totaling $973,127, comprised of $941,700 representing base salary, target annual incentive payment and health, welfare and other benefit payments for a 12 month period, $18,927 representing unused and accrued vacation and $12,500 for up to 12 months of outplacement services.

 

Mr. Keegan’s employment agreement also provides for the payment of severance compensation if we terminate his employment without “cause” or if Mr. Keegan terminates his employment for “good reason,” as such terms are defined in that agreement. For additional information regarding the terms of Mr. Keegan’s employment agreement and the severance benefits payable under such agreement, see “Potential Payments Upon Termination or Change-in-Control” elsewhere in this Proxy Statement. In December 2008, Mr. Keegan’s employment agreement was amended to extend the term of the agreement from February 28, 2009 until February 28, 2012. The amendments also made other changes required in order to comply with Section 409A of the Internal Revenue Code.

 

The Compensation Committee believes that our severance benefits are a necessary component of a competitive compensation program and that those severance benefits are not significantly different from the severance benefits typically in place at other companies.

Perquisites

 

We provide certain executive officers with certain personal benefits and perquisites, as described below. The Compensation Committee has reviewed and approved the perquisites described below. While the Compensation Committee does not consider these perquisites to be a significant component of executive compensation, it recognizes that such perquisites are an important factor in enabling our executive officers to focus on our business with minimal disruption.

 

Home Security Systems.  In order to enhance their safety, we pay for the cost of home security systems for a limited number of executive officers. We cover the cost of installation, monitoring and maintenance for these systems.

 

Use of Company Aircraft.  In limited circumstances, executive officers are permitted to use our company aircraft for personal travel. In these circumstances, the executive is also required to reimburse us for a portion of the cost of such use in an amount determined using the Standard Industry Fare Level.

 

Tire Program.  We offer our executive officers and Board members the opportunity to receive up to two sets of tires per year at our expense. Expenses covered include the cost of tires, mounting, balancing and disposal fees. During 2008, we provided reimbursement for the taxes on the income associated with this benefit. Beginning in 2009, we ceased providing tax reimbursements to our executive officers and directors for the tire program. Mr. Keegan does not participate in this program.

 

Financial Planning and Tax Preparation Services.  We offer financial assistance to our executive officers to help them cover the cost of financial planning and tax preparation services. In providing this benefit, we seek to alleviate our executives’ concern regarding personal financial planning so that they may devote their full attention to our business. The maximum annual cost to the Company under this program is $9,000 per officer.

 

Club Memberships.  We pay the annual dues for one club membership for a limited number of executive officers. The membership is intended to be used primarily for business purposes, although executive officers may use the club for personal purposes. Executive officers are required to pay all incremental costs, other than the annual dues, related to their personal use of the club.

 

Annual Physical Exams.  Our executive officers may undergo an annual comprehensive physical examination for which we pay any amount that is not covered by insurance.

 

Executive Deferred Compensation Plan

 

The Goodyear Executive Deferred Compensation Plan (the “Deferred Compensation Plan”) is a non-qualified deferred compensation plan that provides named executive officers and other highly compensated employees the opportunity to defer various forms of compensation. The plan provides several deferral period options. During 2008, no current named executive officers made deferrals under the Deferred Compensation Plan. For participants, this is an investment decision and offers an additional means to save for retirement. There is no premium or guaranteed return associated with the deferral.

 

For additional information regarding the terms of the deferred compensation plan and participant balances, see “Nonqualified Deferred Compensation” elsewhere in this Proxy Statement.

 

Other Benefits

 

Payments to Expatriate Employees.  Where warranted, we provide tax equalization payments, housing allowances, and other similar benefits to employees, including our executive officers, living outside of their home country to compensate them for the additional costs of those assignments.

 

Goodyear Employee Savings Plan.  The Savings Plan permits eligible employees, including all of the named executive officers (other than Mr. de Bok), to contribute 1% to 50% of their compensation to their Savings Plan account, subject to an annual contribution ceiling ($15,500 in 2008). Savings Plan participants who are age 50 or older and contributing at the maximum plan limits or at the annual contribution ceiling are entitled to make “catch-up” contributions annually up to a specified amount ($5,000 in 2008). Employee pre-tax contributions to the Savings Plan are not included in the current taxable income of the employee pursuant to Section 401(k) of the Code. Employee Roth contributions are permitted under the Savings Plan and are included in current taxable income. Employee contributions are invested, at the direction of the participant, in any one or more of the fifteen available funds and/or in mutual funds under a self-directed account.

Tax Deductibility of Pay

 

Section 162(m) of the Code provides that compensation paid to a public company’s chief executive officer and its three other highest paid executive officers (other than its chief financial officer) in excess of $1 million is not deductible unless certain requirements have been satisfied. The Compensation Committee believes that awards under our Performance Plans qualify for full deductibility under Section 162(m).

 

Although compensation paid under two of our plans, the Executive Performance Plan and the Performance Recognition Plan is performance-based, it does not qualify for the deductibility exception for performance-based compensation and is subject to the Section 162(m) limitation on deductibility. As discussed in greater detail below, in light of our financial condition and capital structure in recent years, the Compensation Committee believes it is in our and our stockholders’ best interests to award incentive compensation under the Executive Performance Plan and the Performance Recognition Plan that does not qualify for the exception for performance-based compensation. The 2008 Performance Plan and the Goodyear Management Incentive Plan will permit future awards similar to those under the Executive Performance Plan and the Performance Recognition Plan to qualify for full deductibility under Section 162(m).

 

Stockholding Guidelines

 

To better link the interests of management and our stockholders, the Board, upon the recommendation of the Compensation Committee, adopted stockholding guidelines for our executive officers effective January 1, 2006. These guidelines specify a number of shares that our executive officers are expected to accumulate and hold within five years of the later of the effective date of the program or the date of appointment as an officer. The specific share requirements are based on a multiple of annual base salary ranging from one to five times, with the higher multiples applicable to executive officers having the highest levels of responsibility. The stockholding requirement for Mr. Keegan is five times his annual base salary, for Messrs. Kramer, Harvie and de Bok is four times their annual base salary, and for Mr. Wells is three times his annual base salary. Amounts invested in the Goodyear stock fund of the Savings Plan, share equivalent units in our deferred compensation plan, restricted stock, and stock owned outright by executive officers (or their spouses) are counted as ownership in assessing compliance with the guidelines. Unexercised stock options and unearned performance shares are not counted toward compliance with the guidelines.

 

The earliest compliance date for our executive officers is January 1, 2011. Messrs. Keegan, Kramer, Harvie and de Bok have met the required stockholding guidelines well in advance of the required compliance date.

 

In October 2007, the Compensation Committee revised the stockholding guidelines to incorporate stock retention provisions. If an executive officer has met their stockholding requirement, they are required to retain 25% of the net shares from any exercised options for at least one year from the date of exercise. If an executive officer has not met their stockholding requirement, they are required to retain 75% of the net shares from any exercised options until they have met their stockholding requirement. Net shares are the shares remaining after payment of the exercise price and any withholding taxes.

 

We have adopted, as part of our insider trading policy, prohibitions on the short sale of our equity securities and the purchase, sale or issuance of options or rights relating to our Common Stock.

 

We have reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on our review and discussion with management, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference in Goodyear’s Annual Report on Form 10-K for the year ended December 31, 2008.

 

The Compensation Committee

 

G. Craig Sullivan, Chairman

Denise M. Morrison

Rodney O’Neal

Thomas H. Weidemeyer

 

The table below sets forth information regarding the compensation of the CEO, the Chief Financial Officer of Goodyear (the “CFO”), the persons who were, at December 31, 2008, the other three most highly compensated executive officers of Goodyear and the former CFO (collectively, the “named executive officers”) for services in all capacities to Goodyear and its subsidiaries during 2006, 2007 and 2008.

 

 

 

 

 

 

Employment Agreement

 

Mr. Keegan’s compensation is based, in part, on a written employment agreement entered into in 2000. The agreement provided for a pension service adjustment so that the total value of all pension benefits received by Mr. Keegan from both Goodyear and Eastman Kodak Company will be equivalent to a full-career Goodyear pension. The agreement also established Mr. Keegan’s participation in our incentive compensation programs.

Mr. Keegan’s agreement was supplemented in 2004 to provide for the payment of severance compensation in the event of the termination of his employment by the Board without cause or by him for good reason. The severance compensation would consist of (i) two times the sum of Mr. Keegan’s annual base salary and target annual incentive payment opportunity in effect at the time of termination, plus (ii) the pro rata portion of Mr. Keegan’s target annual incentive payment opportunity for the year of termination. The agreement restricts Mr. Keegan from participating in any business that competes with Goodyear for a period of two years after termination. The supplemental agreement was due to expire on February 28, 2009. In December 2008, the Compensation Committee of the Board extended the term of the supplemental agreement until February 28, 2012 and made other minor changes required in order to comply with Section 409A of the Internal Revenue Code. As a result of a recent change in the tax law, beginning in 2011 annual incentive payments to Mr. Keegan under the Management Incentive Plan will be subject to the Section 162(m) limitation on deductibility even though those payments will be performance-based. In considering the extension of Mr. Keegan’s supplemental agreement, the Compensation Committee weighed the benefits realized by us and our stockholders from the successful efforts of Mr. Keegan over the past several years, his expected future contributions, the duration of the supplemental agreement and the significant U.S. deferred tax assets available to us from prior periods, against the impact of the lost tax deductions associated with any 2011 and 2012 annual incentive payments. In balancing these considerations, the Compensation Committee concluded that it would be appropriate and equitable to approve the extension of the supplemental agreement on the same economic terms that have been in effect since its initial execution, notwithstanding the recent change in the tax law.

 

The following table summarizes grants of plan-based awards made to the named executive officers during 2008.

 

 

 

 

 

 

The following table sets forth information about outstanding equity awards held by the named executive officers as of December 31, 2008.