UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.  )

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Notice of Annual Meeting
of Stockholders
and
Proxy Statement

 

 

1300 South MoPac Expressway, 3rd Floor
Austin, Texas 78746

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held Friday, May 1, 2009

 

 

If you need help in voting your shares, please call D. F. King & Co., Inc., our proxy solicitation firm, at 800-549-6697.

 

 

Your vote is important. You are invited to attend the meeting in person. Whether or not you plan to attend, and no matter how many shares you own, please mark your vote on the enclosed proxy card, sign it, date it, and return it by mail or vote by telephone or on the internet. By voting before the meeting, you will help us ensure that there are enough stockholders voting to hold a meeting and avoid added proxy solicitation costs. If you attend the meeting, you may vote in person, even if you have previously submitted a proxy. You may revoke your proxy at any time before the vote is taken by delivering to the Corporate Secretary a written revocation or a proxy with a later date or by voting your shares in person at the meeting, in which case your prior proxy will be disregarded. Please see the instructions under “Questions and Answers About the Annual Meeting — How can I vote my shares before the annual meeting?”

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be Held on May 1, 2009. The 2009 Proxy Statement and Annual Report to Stockholders are available at http://www.templeinland.com/proxy.htm.

Table of Contents

 

1300 South MoPac Expressway, 3rd Floor
Austin, Texas 78746

 

PROXY STATEMENT

FOR ANNUAL MEETING OF STOCKHOLDERS

 

Our board of directors seeks your proxy for use in voting at our 2009 annual meeting of stockholders to be held on Friday, May 1, 2009, and at any later meeting if the annual meeting is adjourned or postponed. This proxy statement and proxy card were mailed beginning on March 23, 2009 to all holders of our common stock entitled to vote at the annual meeting.

 

We have enclosed with this proxy statement our 2008 Annual Report to Stockholders, which includes audited financial statements. The Annual Report does not constitute any part of the material for the solicitation of proxies.

 

Holders of Temple-Inland common stock as of the close of business on the record date, March 6, 2009, may vote at the 2009 annual meeting, either in person or by proxy. As of the close of business on March 6, 2009, there were 106,503,626 shares of common stock issued and outstanding and entitled to vote at the annual meeting. The common stock is the only authorized voting security of the company, and each share of common stock is entitled to one vote on each matter properly brought before the annual meeting.

 

At the annual meeting, stockholders will be asked to vote on the following proposals:

 

Proposal No. 1:  To elect four (4) directors to our board of directors. These four directors will serve as directors until their terms expire or, if later, until replacement directors are elected who meet all necessary qualifications.

 

Proposal No. 2:  To ratify the Audit Committee’s appointment of Ernst & Young LLP as our independent registered public accounting firm for the year 2009.

 

If your shares are registered directly in your name with our transfer agent, Computershare Trust Company, N.A., you are considered the “stockholder of record” with respect to those shares. This proxy statement and the enclosed proxy card and 2008 Annual Report to Stockholders have been sent directly to you.

 

If your shares are held in a stock brokerage account or by a bank or other nominee, those shares are held in “street name” and you are considered the “beneficial owner” of the shares. The proxy statement, 2008 Annual Report to Stockholders and other materials have been forwarded to you by your broker, bank or other nominee, who is the stockholder of record. You will receive separate instructions from your broker, bank or other holder of record describing how to vote your shares.

 

If you hold shares in your own name as a stockholder of record, you can cast your vote before the annual meeting by authorizing the individuals named on the enclosed proxy card to serve as your proxy to vote your shares at the annual meeting in the manner you indicate. You may do so by completing, signing and dating the

enclosed proxy card and returning it in the enclosed postage-paid envelope. The telephone and internet voting instructions serve the same purpose as the proxy card. When your proxy card or telephone or internet vote specifies a choice with respect to a voting matter, the named individuals on the proxy card will vote your shares as you have specified. Submitting a proxy or voting through the telephone or the internet will not affect your right to attend the annual meeting and vote in person.

 

If you are a beneficial owner of shares held in street name, your broker, bank or other nominee will provide you with materials and instructions for voting your shares. The availability of telephonic or internet voting will depend on the bank’s or broker’s voting process. Please check with your bank or broker and follow the voting procedures your bank or broker provides to vote your shares.

 

If your shares are held in your own name as a stockholder of record and you return your signed proxy card but do not specify a voting choice on your proxy card, your shares will be voted as follows:

 

 

New York Stock Exchange (“NYSE”) rules applicable to broker-dealers grant your broker discretionary authority to vote your shares without receiving your instructions on certain matters, which include the election of directors and the ratification of the appointment of the independent registered public accounting firm. However, your broker does not have discretionary authority to vote your shares for certain other types of matters.

 

Yes. If you hold shares in your own name as a stockholder of record, you are invited to attend the annual meeting and cast your vote at the meeting by properly completing and submitting a ballot at the meeting. If you are the beneficial owner of shares held in the name of your broker, bank or other nominee, you are invited to attend the meeting in person, but in order to vote at the meeting you must first obtain a legal proxy from your broker, bank or other nominee giving you the right to vote those shares and submit that proxy along with a properly completed ballot at the meeting. Please check with your broker or other nominee and follow the procedures they require.

 

If you hold shares in your own name as a stockholder of record, you may change your vote or revoke your proxy at any time before voting begins by:

 

 

We must receive your notice of revocation or later-dated proxy at or prior to voting at the annual meeting for it to be effective. It should be delivered to:

Temple-Inland Inc.
1300 South MoPac Expressway, 3rd Floor
Austin, Texas 78746
Attention: Leslie K. O’Neal, Corporate Secretary

 

Alternatively, you may hand deliver a written revocation notice, or a later-dated proxy, to the Corporate Secretary at the annual meeting before the voting begins.

 

If you are the beneficial owner of your shares held in street name, please check with your bank or broker and follow the procedures your bank or broker provides if you wish to change your vote.

 

The presence at the annual meeting, in person or by proxy, of the holders of 53,251,814 shares (a majority of the number of shares of common stock issued and outstanding and entitled to vote as of the record date) is required to constitute a quorum to transact business at the annual meeting. Proxies marked “abstain” and broker “non-votes” (each of which are explained below) will be counted in determining the presence of a quorum.

 

If the shares present in person or represented by proxy at the annual meeting are not sufficient to constitute a quorum, the stockholders by a vote of the holders of a majority of the votes entitled to be cast by the stockholders, present in person or by proxy (which may be voted by the proxyholders at the meeting), may, without further notice to any stockholder (unless a new record date is set or the adjournment is for more than 30 days), adjourn the meeting to a different time and place to permit further solicitations of proxies sufficient to constitute a quorum. At any such adjourned meeting at which a quorum may be present, any business may be transacted that might have been transacted at the meeting as originally called.

 

An abstention occurs when a stockholder sends in a proxy with explicit instructions to decline to vote regarding a particular proposal. An abstention with respect to a proposal will not be counted as a vote “cast” for or against the proposal. Consequently, an abstention with respect to any of the proposals scheduled for a vote at the annual meeting will not affect the outcome of the vote, as explained below in “What are the voting requirements to elect directors and approve the proposals described in the proxy statement?”

 

Broker “non-votes” are shares held by brokers or nominees for which voting instructions have not been received from the beneficial owners or the persons entitled to vote those shares and the broker or nominee does not have discretionary voting power under rules applicable to broker-dealers so the broker is unable to vote those uninstructed shares. We believe that brokers and nominees have discretionary voting power to vote shares with respect to all of the proposals to be voted on at the annual meeting. A broker “non-vote” with respect to a proposal will not be counted as a vote “cast” for or against the proposal.

 

The affirmative vote of a majority of the votes cast by the stockholders present in person or represented by proxy is required for the election of each director nominee named in Proposal No. 1. This means that the votes cast “for” that nominee must exceed the votes cast “against” that nominee. Any shares not voted (whether by abstention or otherwise) will not be counted as votes cast and will have no effect on the outcome of the vote. In accordance with our Corporate Governance Guidelines, each incumbent nominee will submit, prior to the annual meeting, an irrevocable resignation contingent on the nominee failing to receive the required vote for election and the board accepting the resignation. For more information on the operation of

our majority voting standard, see “Election of Directors.” Stockholders may not cumulate votes in the election of directors.

 

The affirmative vote of a majority of the votes cast by stockholders entitled to vote at the annual meeting is required for the ratification of the appointment of our independent registered public accounting firm in Proposal No. 2. Any shares not voted (whether by abstention or otherwise) will not be counted as votes cast and will have no effect on the outcome of the vote.

 

We are soliciting your proxy for the annual meeting and will pay all the costs of the proxy solicitation process. We have retained D.F. King & Co., Inc., a professional proxy solicitation firm, to assist in the solicitation of proxies. D.F. King’s employees and our directors, officers and employees may solicit the return of proxies by personal contact, mail, electronic mail, facsimile, telephone or the internet. We may also issue press releases asking for your vote or post letters or notices to you on our website, www.templeinland.com. Our directors, officers and employees will not receive additional compensation, but will be reimbursed for out-of-pocket expenses. D.F. King will be reimbursed for its expenses in soliciting proxies and, in addition, will receive a proxy solicitation fee not to exceed $15,000. D.F. King expects that approximately 20 of its employees will assist in the solicitation. We will reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding solicitation materials to the beneficial owners of our common stock.

 

Representatives of our transfer agent, Computershare, will tabulate the votes and act as inspectors of election to certify the results.

 

The name, address and stock ownership of each person or group of persons known by us to own beneficially more than five percent (5%) of the outstanding shares of our common stock as of March 6, 2009 follows.

 

 

 

 

The following table sets forth information regarding the beneficial ownership of our common stock as of March 6, 2009 by:

 

 

We determined beneficial ownership as reported in the table in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended (which we will refer to in this Proxy Statement as the Exchange Act). Unless otherwise indicated, beneficial ownership includes both sole voting and sole dispositive power. Even though SEC rules require reporting of all the shares listed in the table, the directors and executive officers do not claim beneficial ownership of all of these shares. For example, a director or executive officer might not claim ownership of shares owned by a relative. Unless otherwise indicated, the table does not include any shares that may be held by pension and profit-sharing plans of the corporations or endowment funds of educational and charitable institutions for which various directors and officers serve as directors or trustees.

 

 

 

 

 

 

 

 

 

 

 

We have not identified any person who failed to file on a timely basis reports required by Section 16(a) of the Exchange Act during the most recent fiscal year or prior fiscal years. For this purpose, we only reviewed Forms 3, 4, and 5, amendments to these forms, and written representations supplied to us in lieu of Form 5 under the SEC’s Section 16 rules for the most recent fiscal year.

 

Our By-laws specify that the board of directors will establish by vote how many directors will serve on the board. The By-laws also provide that the directors will be divided into three classes, which will as nearly as possible be equal in size. The board of directors has set the number of directors at eleven, with two classes of four directors each, and one class of three directors.

 

Pursuant to our By-laws, a director nominee is elected if the number of votes cast “for” the nominee exceeds the number of votes cast “against” the nominee. In contested elections (that is, those in which the number of nominees exceeds the number of directors to be elected), the voting standard will be a plurality of votes cast, which means that the individuals who receive the largest number of votes cast are elected as directors up to the maximum number of directors to be chosen at the meeting.

 

In the event that a director does not receive the requisite majority of votes cast “for” his or her election, that director is required by our resignation policy to resign (please see the director resignation policy set forth in the Corporate Governance Guidelines available on our website at www.templeinland.com). Therefore, prior to each annual meeting of stockholders, director nominees will submit an irrevocable resignation contingent on the nominee failing to receive the required vote for election and the board accepting the resignation. If a nominee fails to receive the required vote for election, the Nominating and Governance Committee will make a recommendation to the board on whether to accept or reject the resignation. The board will act on the committee’s recommendation and publicly disclose its decision and the rationale behind it within 90 days from the date of the certification of the election results. The director whose resignation is under consideration will not participate in the committee’s or board’s decision. If a resignation is not accepted by the board, the director will continue to serve. If the failure of a nominee to be elected at the annual meeting results in a vacancy on the board, that vacancy can be filled by action of the board. The policy also provides that the board shall nominate for election or re-election as directors only candidates who agree to tender irrevocable resignations consistent with the policy, and the board shall fill director vacancies and new directorships only with candidates who agree to tender the same form of resignation tendered by other directors.

 

Unless you specify otherwise on your proxy, the persons named in such proxy intend to vote for the election of the nominees listed below to serve as directors.

 

Except as noted otherwise, directors will serve for a term of three years, or until their replacements are duly elected and meet all requirements. All nominees are presently serving as directors. After review of their qualifications, the Nominating and Governance Committee recommended them as nominees to the full board, and the full board subsequently voted unanimously to recommend them to the stockholders as nominees. We did not pay a fee to any third party to identify or evaluate or to assist in identifying or evaluating potential nominees.

 

Each of the nominees has consented to being named in the proxy statement and to serve if elected. If any nominee becomes unavailable to serve, however, the persons named in the enclosed form of proxy intend to vote the shares represented by the proxy for the election of such other person or persons as may be nominated or designated by management, unless they are directed by the proxy to do otherwise.

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF MS. CARR AND MESSRS. SMITH, TEMPLE III AND WALKER AS DIRECTORS OF TEMPLE-INLAND.

 

The following information is provided with respect to directors who will continue to serve as directors until the expiration of their terms.

 

Directors to Serve Until the 2010 Annual Meeting of Stockholders

 

 

 

Our Nominating and Governance Committee selects nominees on the basis of recognized achievements and their ability to bring various skills and experience to the deliberations of the board, as described in more detail in the Corporate Governance Guidelines available on our website at www.templeinland.com. Non-employee director nominees must be independent as defined in the listing standards of the NYSE. Nominees must not have a prohibited conflict of interest with our business or ownership. Priority will be given to individuals with outstanding business experience and who currently serve or have served as the chief executive officer of a company.

 

Our Nominating and Governance Committee considers director candidates recommended by the directors. After reviewing a potential director’s qualifications, a suitable candidate will be invited to meet with the CEO, Lead Director, Chair of the Nominating and Governance Committee, and full board to determine further interest.

 

Our Nominating and Governance Committee will consider director candidates recommended by stockholders who are entitled to vote for the election of directors at the stockholders’ meeting and comply with the procedures described below. A director candidate recommendation must include the following information:

 

 

We may require a stockholder-recommended candidate to furnish such other information as may reasonably be required by us to determine the eligibility of the proposed nominee to serve as a director.

 

For a candidate to be considered by the Nominating and Governance Committee as a nominee for election at the next annual meeting of stockholders, the stockholder’s recommendation must be received by the Corporate Secretary not less than 120 days before the anniversary date of the Company’s most recent annual meeting of stockholders.

 

In addition, our By-laws permit stockholders to nominate directors. For information regarding the deadlines and procedures for director nominations by stockholders, please see “Date for Receipt of Stockholder Proposals and Nominations”.

 

The board of directors has determined that the following directors meet its independence standards: Donald M. Carlton, Cassandra C. Carr, E. Linn Draper, Jr., Larry R. Faulkner, Jeffrey M. Heller, W. Allen Reed, Richard M. Smith, Arthur Temple III and R.A. Walker. Messrs. Simons and Maley do not meet the independence standards because they are our employees. The board’s independence standards are described in our Corporate Governance Guidelines on our website at www.templeinland.com. The board defines independence as meeting the requirements to be considered independent directors as defined under the current rules of the NYSE. The board has established the following additional guidelines to assist it in determining director independence:

 

 

There were no material transactions or relationships between us and any director during 2008. In making its determination that our non-employee directors are independent, the board considered:

 

 

The board felt that none of these transactions affected any director’s independence because they do not have a direct or indirect material interest in these transactions and the transactions do not exceed the greater of $1 million or 2% of either company’s consolidated gross revenues.

 

There is no family relationship between any of our nominees, continuing directors and executive officers.

 

We maintain a written policy enumerating procedures for the review, approval or ratification, or rejection of any related party transaction. A related party, for purposes of our policy, means:

 

 

Under the related party transaction policy, any transaction, arrangement or relationship between us and a related party must be reviewed by the Nominating and Governance Committee, except that the following transactions, arrangements or relationships are pre-approved under the policy:

 

 

 

There are no transactions required to be reported above since the beginning of our fiscal year where the related party policies and procedures did not require review, approval or ratification or where the policies and procedures were not followed.

 

All of our directors, officers and employees are required to abide by our Standards of Business Conduct and Ethics. This code covers all areas of professional conduct, including conflicts of interest, unfair or unethical use of corporate opportunities, protection of confidential information, compliance with all applicable laws and regulations, and oversight and compliance. Our Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Chief Governance Officer, Director of Investor Relations, Principal Accounting Officer and Corporate Controller are also required to abide by the Code of Ethics for Senior Financial Officers. These ethics codes form the foundation of a comprehensive program of compliance with our corporate policies and procedures to ensure that our business is conducted ethically and in strict adherence to all laws and regulations applicable to us. Our directors, officers and employees are not to tolerate violations of the standards set out in our ethics codes, and are responsible for reporting any violation, including situations or matters that may be considered to be unethical or a conflict of interest under the ethics codes.

 

The full texts of the Standards of Business Conduct and Ethics and Code of Ethics for Senior Financial Officers are available under the “Investor Relations — Corporate Governance” section of our website at www.templeinland.com or in print upon request to Temple-Inland Inc., 1300 South MoPac Expressway, 3rd Floor, Austin, Texas 78746, Attention: Corporate Secretary. Any future amendments to either of these codes, and any waiver of the Code of Ethics for Senior Financial Officers and of certain provisions of the Standards of Business Conduct and Ethics for directors or executive officers will be disclosed on our website promptly following the amendment or waiver.

 

The board performs a number of its functions through committees. All members and chairs of our Audit Committee, Management Development and Executive Compensation Committee, and Nominating and Governance Committee are independent directors under the current rules of the NYSE. Each committee’s charter expressly provides that the committee has the sole discretion to retain, compensate, and terminate its advisors. Current copies of the charters of our Audit Committee, Management Development and Executive Compensation Committee, and Nominating and Governance Committee are available on our website at www.templeinland.com. We will also provide printed copies of any of these documents to any stockholder upon request.

 

Information about these committees follows:

 

The Audit Committee assists the board in its oversight of:

 

 

The Audit Committee has the sole authority to retain, compensate, and terminate the independent registered public accounting firm. The board has determined that there is at least one Audit Committee financial expert serving on the Audit Committee, Mr. Heller, who is an independent director. In addition, the board has determined that all members of the Audit Committee are financially literate and independent as defined in the NYSE corporate governance standards. The members of the Audit Committee are Mr. Heller (Chairman), Dr. Carlton, Ms. Carr, Dr. Faulkner, Mr. Reed, Mr. Smith, Mr. Temple III, and Mr. Walker. The Audit Committee met nine times in 2008.

 

The Management Development and Executive Compensation Committee (“Compensation Committee”) is responsible for:

 

 

The Vice President & Corporate Secretary and Chief Executive Officer recommend executive compensation amounts and programs to the Compensation Committee. Hewitt Associates LLC, a compensation consultant, is engaged by the Compensation Committee to provide market data regarding executive compensation and advice about proposed compensation programs and amounts. The Compensation Committee obtains specific data from Hewitt on an annual basis and at other times upon request. The Compensation Committee also invites a Hewitt representative to attend meetings of the committee from time to time. The Compensation Committee meets with the Hewitt representative in executive session periodically. Once the full board approves any compensation recommendations of the Compensation Committee, administration of the compensation programs is delegated to the Vice President & Corporate Secretary.

 

The members of the Compensation Committee are Dr. Draper (Chairman), Ms. Carr, Mr. Heller and Mr. Smith. The board has determined all of these directors are independent as defined in the NYSE corporate governance standards. The Compensation Committee met five times in 2008.

 

There are no Compensation Committee interlocks among the members of the board and no member of the Compensation Committee has a transaction reported under Certain Relationships and Related Transactions.

 

The Nominating and Governance Committee is responsible for:

 

 

 

The Vice President & Corporate Secretary and Chief Executive Officer recommend director compensation amounts and programs to the Nominating and Governance Committee. Hewitt is engaged by the Nominating and Governance Committee to provide market data regarding director compensation and advice about proposed director compensation programs and amounts. The Nominating and Governance Committee obtains specific data from Hewitt on an annual basis and at other times upon request. The Nominating and Governance Committee also invites a Hewitt representative to attend meetings of the committee from time to time. The Nominating and Governance Committee meets with the Hewitt representative in executive session periodically. Once the full board approves any director compensation recommendations of the Nominating and Governance Committee, administration of the compensation programs is delegated to the Vice President & Corporate Secretary.

 

The members of the Nominating and Governance Committee are Dr. Carlton (Chairman), Dr. Faulkner, Mr. Reed, Mr. Temple III, and Mr. Walker. The board has determined all of these directors are independent as defined in the NYSE corporate governance standards. The Nominating and Governance Committee met six times in 2008.

 

The Executive Committee may exercise all the authority of the board in the management of our business except:

 

 

The members of the Executive Committee are the Chairman of the Board, who serves as Chairman of the Executive Committee (Mr. Simons), the Lead Director (Dr. Draper) and the Chairman of each standing committee of the board: Dr. Carlton, Dr. Draper and Mr. Heller. The Executive Committee did not meet in 2008.

 

During 2008, the board of directors met six (6) times. Each director attended at least 75% of the aggregate of the total number of meetings of the board of directors and the total number of meetings held by all committees of the board on which he or she served. Health permitting, all board members are expected to attend our annual meeting of stockholders. In 2008, all Board members attended the annual meeting of stockholders, except Mr. Reed. The Board holds regularly scheduled executive sessions of the board with only non-management directors present. A session with only independent directors was held in conjunction with each of the four (4) regularly scheduled board meetings in 2008. The lead director, Dr. Draper, presided over the non-management executive sessions.

 

Stockholders and other interested parties may communicate with non-management directors by forwarding their written comments to an independent third party that has agreed to forward the comments to Dr. Draper,

our lead director, with a copy to our General Counsel. The independent third party is The Network and such comments may be sent to:

 

The Network
333 Research Court
Norcross, GA 30092
Attention: Call Center — Temple-Inland

 

Alternatively, interested parties may send an email to The Network at www.tnwinc.com/webreport.

 

Any changes in the lead director or the independent third party for purposes of communicating with the lead director after publication of this proxy statement will be posted on our website at www.templeinland.com.

 

Our director compensation program is designed to recognize the time commitment and preparations required for directors to fulfill their responsibilities. Our program also aligns director compensation with stockholder returns. Alignment with stockholders is emphasized through stock ownership requirements, an annual phantom stock grant, and the ability to receive phantom shares in lieu of fees.

 

 

Directors receive a grant of 20,000 options at the time of their initial election to the board. Options are granted at fair market value on the grant date, which is the date of the board meeting at which the director is elected. The option vests in three installments: 8,000 shares on the first anniversary, 8,000 shares on the second anniversary, and 4,000 shares on the third anniversary of the date of election. The option term is ten years. We do not have any program, plan or practice to time option grants to our directors in coordination with the release of material non-public information. We do not set the grant date of stock option grants to new directors in coordination with the release of material non-public information. We do not time our release of material non-public information for the purpose of affecting the value of director compensation.

 

Directors are required to hold Temple-Inland stock valued at five times their annual retainer fee under the board’s stock ownership guidelines within five years of their election to the board. This stock ownership policy is contained in our Corporate Governance Guidelines, which are available on our website at www.templeinland.com. Shares of stock owned by the directors and their immediate family members count toward this requirement. Phantom shares also count toward this requirement.

 

Directors may participate in a fee deferral plan that encourages stock ownership by granting a match of 133% in the form of phantom stock units on amounts deferred until retirement. The number of phantom stock units is determined by dividing the deferred amount by the fair market value of Temple-Inland’s stock on the date deferred. Dividend equivalents are credited on the phantom stock equal to the amount of dividends Temple-Inland pays on its common stock. Dividend equivalents are paid to the directors in cash. At retirement, the director will receive stock for fees deferred through 2005 and cash for fees deferred beginning in 2006 in payment of the phantom stock units. Cash payments will be based on the fair market value of the stock on the payment date. Fair market value in all cases is equal to the closing price of Temple-Inland stock on the NYSE on the applicable date. The director does not get any payment until retirement. Payment may be taken in a lump sum or in up to fifteen annual installments. If a director chooses cash payment on a current basis instead of deferring their fees, they do not receive a match. Directors may retire at any time, but must retire by the annual meeting following their 72nd birthday.

 

There is no retirement plan for directors except for a plan that was discontinued in 2000. Under that plan, the following directors will receive at retirement $35,000 per year for the following number of years as a retirement benefit: Mr. Reed — 1 year and Mr. Temple III — 17 years. Mr. L. Temple, who retired from the board in 2008, will receive $35,000 per year for 10 years. Retirement benefits will be paid to the surviving spouse if the director does not live to receive the full payment, and terminate if the spouse does not live to receive the remaining payment. This plan was discontinued in 2000 and no additional accruals are made under this plan.

 

Both the directors’ fee deferral plan and the frozen directors’ retirement plan contain provisions for accelerating payment in the event the director’s service terminates due to a change in control, along with a gross-up provision in the event the director is required to pay excise tax on the accelerated payment.

 

Directors are eligible for the Foundation’s matching gifts program, which matched donations made by employees and directors in 2008 3-for-1 for the first $1,000; 2-for-1 for the next $1,000; and 1-for-1 for the next $1,000, for total possible matching donations of up to $6,000 per person. The Foundation also made a $50,000 donation in 2008 to a charity or educational institution chosen by each of its retiring directors: Beschloss, Hackett and L. Temple.

 

Directors are covered under our business travel accident insurance policy for $100,000 while traveling on our business. Directors are also covered under our director and officer liability insurance policies for claims alleged in connection with their service as a director. We have entered into indemnification agreements with each of our directors agreeing to indemnify them to the fullest extent permitted by law for claims alleged in connection with their service as a director.

 

All of our directors have elected to defer their fees until retirement. Messrs. Simons and Maley receive no compensation for their services as director other than their employee pay. We have computed the value of fees earned by our directors in the following chart using SEC rules. These rules require us to calculate the value of the phantom shares acquired through deferral of fees and match using the stock price in the year the fees are earned. However, directors do not receive any payment of the deferred fees or match until they retire. At retirement, a director receives actual shares of common stock and cash equal in value to the phantom stock shares held in his or her account. The value of the shares and cash to be paid at the time the director retires may be different than the value of phantom shares awarded at the time the fee is earned. The table below shows the FAS expense/credit as required under SEC rules. See footnote 3 for a table showing fees earned.

 

 

 

 

 

 

 

 

 

At fiscal year end 2008, the directors held the following aggregate number of phantom shares in the Fee Deferral Plan: Afsaneh M. Beschloss — 0, Donald M. Carlton — 61,377, Cassandra C. Carr — 48,493, E. Linn Draper, Jr. — 56,904, Larry R. Faulkner — 42,604, James T. Hackett — 0, Jeffrey M. Heller — 64,611, W. Allen Reed — 69,313, Richard M. Smith — 36,621, Arthur Temple III — 63,476, Larry E. Temple — 0 and R.A. Walker — 2,276. Ms. Beschloss and Messrs. Hackett and L. Temple retired May 2, 2008, and received the following amounts:

 

 

 

At fiscal year end 2008, the directors held the following aggregate number of stock options: Afsaneh M. Beschloss — 20,000, Donald M. Carlton — 20,000 , Cassandra C. Carr — 20,000 , E. Linn Draper, Jr. — 20,000 , Larry R. Faulkner — 20,000 , James T. Hackett — 24,000 , Jeffrey M. Heller — 20,000 , W. Allen Reed — 13,000 , Richard M. Smith — 20,000 , Arthur Temple III — 22,000 , Larry E. Temple — 0, R. A. Walker — 20,000. Expiration dates for these options range from 2009 through 2018. Until 2003 directors could take options with 15-year terms in lieu of their annual retainer fee, which is why some directors have more than 20,000 options outstanding. To see option exercise prices, vesting dates, and terms for each director’s options, you may look at his or her latest Form 4 under Investor Relations, SEC Filings, on our website at www.templeinland.com.

 

 

 

EXECUTIVE COMPENSATION

 

2008 was a transitional year for us, following the spin-offs of our real estate and financial services businesses and sale of our timberlands at the end of 2007. At the time of our annual February 2008 stock awards, we had not yet evaluated the impact of all of these changes on our compensation structure and we felt that retention of our executives was our primary consideration. We therefore issued a mix of options and time-vested restricted stock units while we re-evaluated our performance criteria and peer group for performance stock units. Our RSUs contained a threshold 1% ROI performance criteria to preserve our tax deduction under Code Section 162(m).

 

We spent a considerable amount of time this year evaluating our compensation programs in light of the change in our structure and the consolidation within our industry. This resulted in:

 

 

We have performed a risk assessment of our compensation programs. Our programs are transparent, administered with good governance, and do not encourage our named executive officers to take unnecessary and excessive risks that threaten the value of our Company.

 

Our executive compensation philosophy is that a significant part of our executives’ compensation is tied to our performance as measured by:

 

 

We are focused on maximizing ROI because we fundamentally believe there is direct correlation between ROI and stockholder value. We will look for opportunities to profitably grow our business because we can create additional value for stockholders through disciplined growth focused on ROI. Accomplishing these objectives creates value for our stockholders.

 

In 2008, our Compensation Committee approved a new peer group for use as a benchmark to determine our relative ROI ranking for purposes of performance units granted in 2009 and subsequent years. Our old peer group consisted of: AbitibiBowater Inc.; Caraustar Industries Inc.; Domtar Corp.; International Paper Company; MeadWestvaco Corporation; Packaging Corp. of America; Smurfit Stone Container Corporation; and Weyerhaeuser. The new peer group consists of the following companies: AbitibiBowater Inc.; Appleton Papers Inc.; Boise Inc.; Canfor Corporation; Caraustar Industries Inc.; Cascades Inc.; Catalyst Paper; Domtar Corporation; Glatfelter; Graphic Packaging Holding Co.; International Paper Company; MeadWestvaco Corporation; Mercer International Inc.; Neenah Paper Corp.; Newark Group, Inc.; NewPage Corp.; Packaging Corporation of America; Rock-Tenn Co.; Smurfit-Stone Container Corporation; Verso Paper Corp.; Wausau Paper Corporation; and West Fraser Timber Co. Ltd. We will periodically adjust the peer group to reflect mergers, consolidations, and similar restructurings.

 

Our compensation program is designed to attract and retain our executives, and reward them for maximizing ROI and profitably growing our business. It is also designed to be transparent, easy to explain and easy to understand.

 

The elements of our compensation program and their purposes are:

 

 

Salaries are paid in cash to attract or retain executives. Health and welfare benefits are standard in our industry and also serve to attract or retain executives. In our industry, it is standard to provide change in control agreements and they are necessary to attract and retain talent in our ever-consolidating industry. Change in control agreements help ensure that our executives continue to work in the best interest of our stockholders and help alleviate concerns during any potential change in control situations that might otherwise lead our executives to work somewhere else.

 

Incentive cash bonuses are considered on an annual basis and reward short-term performance based on consolidated ROI for corporate executives or segment ROI for segment executives. Long-term incentives reward long-term performance and align our executives’ interests with stockholders by encouraging stock ownership. Both cash bonuses and long-term stock awards are designed to align the executives’ interests with our business strategy and motivate performance to maximize ROI. Stock awards also help retain executives because they contain forfeiture provisions if the executive terminates employment other than for retirement,

death, disability, or change in control. Retirement benefits help to retain executives and reward long-term service. Retirement benefits also reward performance because our formulas include both base salary and annual incentive bonus in calculating average pay for pension purposes.

 

Generally speaking, each element of compensation is evaluated independently to determine whether it is competitive within our industry, or within the market as a whole.

 

Once a year, the Compensation Committee views a tally sheet that shows all elements of pay for each named executive officer. The entire board is also furnished with tally sheets for the named executive officers, and makes all decisions concerning the CEO’s pay.

 

Although the Compensation Committee has not established specific preset allocation formulas to determine the proportion of each type of pay in relation to other types of pay, it generally tries to maintain a balance between the different types of pay:

 

 

Year to year, the exact allocation may vary, but the overall mix is strongly weighted to pay for performance in accordance with our philosophy. For Mr. Simons, approximately 75% of his 2008 compensation was performance related:

 

 

To ensure that our compensation remains competitive, the Compensation Committee from time to time reviews information from independent surveys of comparative companies. Because the market for executive talent extends beyond any particular industry, the survey data includes both companies in our industry as well as companies outside our industry. For example, in 2008 the group of comparative companies included Ball Corp., Bowater Inc., Carauster Industries Inc., Graphic Packaging Corp., International Paper Company, Lafarge North America, Martin Marietta Materials, MeadWestvaco Corp., OfficeMax Inc., Owens Corning, Packaging Corp of America, Pactiv Corp., PPG Industries Inc., Rayonier Inc., Rohm and Haas Co., Smurfit-Stone Container Corp., Sonoco Products Co., Trinity Industries, USG Corp., Vulcan Materials Co., Weyerhaeuser Co. Hewitt has reviewed the peer group in light of the changes in our structure and industry, and will be using a new group of comparative companies beginning in 2009: AbitibiBowater Inc., Appleton Papers Inc., Ball Corporation, Boise Inc., Domtar Corp, Georgia Pacific Corporation, Glatfelter P H Co, Graphic Packaging

Holding Co, International Paper Company, Martin Marietta Materials, Inc., MeadWestvaco Corp, Mercer International Inc., Neenah Paper Inc, Owens Corning, Packaging Corp of America, Pactiv Corporation, PPG Industries, Inc., Rock-Tenn Co, Smurfit Stone Container Corp, Sonoco Products Company, Trinity Industries, USG Corporation, Verso Paper Holdings LLC. Our performance peer group and Hewitt’s comparative group overlap but are not identical due to practical considerations related to the availability of financial data versus compensation data. At the request of the Compensation Committee, Hewitt uses data from these companies to establish the relationship between revenues and compensation from which a market value of pay can be calculated for a specific revenue size, using a statistical technique known as regression analysis. Surveys indicate base salaries for most of our named executive officers were generally at or above the mid-ranges of the applicable comparative companies.

 

Salaries are reviewed annually and are paid in cash. Our named executive officers did not receive a salary increase in 2008, except for Mr. Norton who received an increase of $25,000. Our named executive officers will not receive a salary increase in 2009. In making its salary decisions, the Compensation Committee emphasizes the executive’s experience, responsibilities, and performance, along with relative rank to other executives for internal pay equity. No specific formula is applied to determine the weight of each factor. The Compensation Committee has historically followed a policy of using annual bonus awards rather than base salary to reward outstanding performance.

 

Annual incentive bonuses are paid in cash based on overall ROI for corporate executives and segment ROI (adjusted downward for overhead) for segment executives under a stockholder-approved plan. The plan also allows the Compensation Committee to factor in pre-established performance objectives focused on lowering cost and profitable growth. For Section 162(m) purposes, a potential maximum bonus of 250% of target is payable under the plan for positive ROI. The Compensation Committee retains the discretion to reduce the size of any bonus.

 

The level of ROI performance necessary for paying the threshold, target and maximum levels is set by the Compensation Committee annually and is not subject to adjustment by management. The following schedule was used by the Compensation Committee in making its ROI component payment determinations for 2008:

 

 

The Compensation Committee may also pay up to 100% of the target bonus amount for satisfactory achievement of objectives focused on lowering cost, profitable growth, or promoting a high performance culture focused on our values set forth on our Vision/Mission/Values statement.

 

The total annual incentive bonus for any executive will not exceed 250% of the executive’s target bonus. For the CEO and President, target is 125% of base salary. For all other executives, target is 100% of base salary.

 

In 2008, Temple-Inland had an ROI of 4.5% and therefore Messrs. Simons, Maley, and Levy received a 50% of target bonus under the ROI component of the program. The Corrugated Packaging segment had ROI of 9%, and Mr. Norton received a bonus of 100% of target. Building Products had ROI of 0% and Mr. Sweeny did not receive a bonus under the ROI component.

 

In addition, we profitably grew the company in 2008 and lowered costs significantly. Specifically, we acquired the remaining 50% interest in Premier Boxboard Limited, successfully integrated the mill into our system, and realized synergies above our target from improving the mill’s productivity and reducing costs. We also completed the majority of our box plant transformation in 2008, focused on lowering costs and improving asset utilization. As a result, box converting costs were down compared with prior year despite unprecedented cost inflation and one-time transformational implementation costs. In Building Products, we significantly lowered our cost structure through 22% headcount reduction and exiting the hardboard siding business. For

Temple-Inland, we reduced our S, G & A/Total Cost to 6.9% and reduced our general and administrative expenses not included in segments by 24% in 2008 compared with 2007. Based on these achievements, the Compensation Committee granted an additional award of 40% of target to Mr. Maley and an award of 56% of target to Mr. Sweeny. Annual incentive bonuses are shown in the Non-equity Incentive Plan Compensation column in the Summary Compensation Table.

 

Historically, our long-term incentive awards have included:

 

 

The Compensation Committee considers previous grants, tenure, and relative responsibilities of the executive in determining size of awards. In the case of a new key executive, or an executive assuming new responsibilities, an initial grant may be made above usual annual targeted levels. A dollar value is established for the stock awards in consultation with Hewitt after reviewing competitive market data for similar executives at other companies inside and outside the paper and forest products industries. This dollar value may be at or above the mid-range of what other companies may offer in any given year.

 

For the 2008 long-term incentive awards, the Compensation Committee suspended the use of PSUs as we completed our 2007 transformation plan and while we were evaluating a new peer group. The Compensation Committee provided the same dollar value of awards in 2008 as we granted in 2007, splitting the PSU value equally between options and RSUs as a retention measure. The RSUs contain minimum 1% ROI criteria to meet IRS Section 162(m) requirements. Options offer a built-in performance feature through stock price appreciation. Performance stock units will be resumed in 2009 using ROI rank relative to the new peer group as the performance criteria.

 

What are the material terms of the stock awards?

 

The stock awards have the following terms:

 

 

Our long-term incentive plan provides for equitable adjustment in the event of stock splits or other equity restructurings. Awardees generally receive the same adjustment stockholders receive.

 

Yes. Our Compensation Committee has approved and the board has ratified the payment of dividends on RSUs and PSUs equivalent to dividends paid on our common stock to further align interest with stockholders and provide a retention device. Dividends are only paid on the PSUs if the underlying awards are earned.

 

Yes. To further align executives’ financial interests with those of our stockholders, the Compensation committee adopted minimum stock ownership guidelines:

 

 

Shares owned by the executive and their immediate family members count toward the ownership guidelines. Shares held in the 401(k) plan and RSUs also count toward the total. Options do not count until they are exercised. Executives have five years from hiring or pay increases to meet the guidelines. The recent decline in stock prices due to the economic slowdown has affected the value of shares owned, but based on the current holdings of the Named Executive Officers we anticipate that all such officers will achieve their stock ownership goal within the five-year time frame.

 

Yes. Our executive officers are required to hold 100% of the net shares acquired through the exercise of options until they meet our ownership guidelines. The Compensation Committee maintains discretion to reduce or eliminate future long-term incentive awards for an executive who is not making adequate progress toward meeting the stock ownership guidelines or does not retain the required level of net shares acquired through the exercise of options.

 

No. Gains from exercising stock options, the vested value of RSUs and PSUs, and dividends on RSUs and PSUs are not considered in setting other benefits such as life insurance, disability benefits, or retirement benefits.

 

The following table sets forth information as of the end of 2008 related to compensation plans under which our shares may be issued:

 

 

 

 

Yes. Executive officers may defer all or part of their bonus under our phantom stock arrangement. There is no above-market or preferential earnings on deferred compensation. None of the named executive officers deferred their 2008 bonus.

 

Yes. Our named executive officers receive the same tax-qualified retirement benefits as other salaried employees. The Compensation Committee and the board had multiple discussions over a period of several years about whether to continue our defined benefit retirement plan or to change to a defined contribution plan. Following a review of paper industry trade association data and data provided by our actuary, and extensive analysis by our human resources, finance and accounting departments, the board in 2007 approved a continuation of our defined benefit retirement plan with a simpler formula for new hires. In addition, early retirement subsidies were reduced and other cost saving measures were adopted for newly hired employees effective January 1, 2008. We believe a defined benefit plan offers a competitive advantage in recruiting new executives and is no more costly than a defined contribution plan. Executive officers and other employees hired prior to January 1, 2008 receive the better of the old or the new formula. Only salary and bonus are taken into account for retirement formula purposes.

 

Yes. The Internal Revenue Code limits the amount of compensation that can be used in calculations under a tax-qualified defined benefit retirement plan. In 2008, this limit was $230,000. As a result, any retirement benefits that cannot be paid under our tax-qualified defined benefit plan due to these limitations are paid under a SERP, which is not a tax-qualified plan.

The SERP also provides unreduced retirement at age 60 with 15 years of service for certain designated executives, including Mr. Simons, Mr. Maley, and Mr. Levy. Under this plan, the designated executive’s retirement benefits from all retirement plans will be at least equal to 50% of the executive’s final average compensation for the highest five years out of the last ten years of employment. Benefits are reduced for early retirement, which may be taken at age 55 with 15 years of service, by 5% for each year prior to age 60. Benefits are paid in a lump sum amount. The lump sum is calculated based on the 30-year Treasury rate set in November of the year prior to retirement.

 

The SERP is unfunded and contains a provision for acceleration of payment in the event of a change in control. The SERP is a valuable incentive to attract executives. It is also a valuable retention tool for existing executives who must meet service criteria to qualify for the plan.

 

Yes. An employee may retire at age 55 or later if the employee has five years of service, but benefits are reduced for each year before age 62 by factors ranging from 3% to 6% based on years of service under the tax qualified plan and regular SERP. Under the 50% of pay SERP, designated executives (including Mr. Simons, Mr. Maley, and Mr. Levy) may retire at age 55 if they have 15 years of service but benefits are reduced for each year before age 60. The table below lists the executives who are eligible for early retirement and the estimated payment assuming each retired on January 1, 2009:

 

 

No. Extra years of credited service are granted only under our change in control agreements and our CEO employment agreement but not for any other reason.

 

Yes. We offer 401(k) plans to all of our salaried and non-union hourly employees. For each dollar that an employee contributes to his or her 401(k) savings account, we contribute a match of $1 up to 3% of the employee’s compensation. For each $1 that an employee contributes of his or her next 3% of pay, we contribute 50 cents. The match vests after 2 years of employment.

 

Yes. We offer the same health and welfare benefits to all salaried employees. These benefits include medical benefits, dental benefits, vision benefits, life insurance, salary continuation for short-term disability, long-term disability insurance, accidental death and dismemberment insurance, dependent care spending account, health care spending account, health savings account, and other similar benefits. Because these benefits are offered to a broad class of employees, the cost is not required by SEC rules to be included in the Summary Compensation Table. The named executive officers generally pay more for their medical benefits than other employees who receive less compensation. Executives and other salaried employees may participate in a post-retirement health plan that provides access to health coverage. We pay a one-time contribution equal to $600 per year of service up to 2004 under a frozen plan for this coverage. Once the employee exhausts this contribution, he or she must pay the full cost for coverage.

 

Except for Mr. Simons, none of our other named executive officers has an employment agreement. We entered into the agreement with Mr. Simons in 2007 upon his election as CEO, after careful study and review of Hewitt data concerning terms applicable to CEOs in the general marketplace. The term of Mr. Simons’ agreement is three years, but it is automatically extended by one year on the first anniversary of the effective

date and each anniversary thereafter unless notice of nonrenewal is given at least one year in advance of such anniversary date. During the term of the agreement, Mr. Simons will receive a base salary which may not be reduced below its level at the time the agreement was initially entered into ($780,000) or any increase subsequently granted. He will be eligible for a performance-based annual cash bonus, employee benefits, equity (long-term incentive plan) grants, and other perquisites. Other perquisites consist of use of the Temple-Inland aircraft (subject to imputation of income under IRS regulations) and umbrella insurance, all on terms substantially no less favorable than in effect prior to the effective date of the agreement. The performance-based annual cash bonus program is entirely within the discretion of the Compensation Committee, except that it shall be substantially no less favorable than the bonus program in effect prior to the effective date of the agreement. Occasionally we sign a letter agreement with a new executive upon hiring, but generally they do not cover more than the first year’s pay and bonus.

 

No. We do not have a plan or policy to provide severance benefits to executives whose employment terminates. Generally speaking, severance is a matter that is individually negotiated with the executive and the amount depends on the circumstances of his or her departure. The CEO is the only executive who has an employment agreement with pre-established severance benefits, other than the change in control agreements discussed below. In return for the post-employment benefits, the CEO agreed not to compete with our company for two years after his departure.

 

If an executive leaves under circumstances that call into question whether any compensation amounts paid to him or her were validly earned, we would pursue any legal rights we deemed appropriate under the circumstances.

 

Yes. All of the named executive officers hold change in control agreements. During a potential change in control, we do not want executives leaving to pursue other employment out of concern for the security of their jobs. As a retention incentive, we offer change in control agreements that provide severance benefits to executives whose employment terminates as a result of a change in control. These agreements contain a double “trigger,” meaning that additional severance is payable only if an executive’s employment is terminated within two years following a change in control event. Termination of employment is deemed to occur if the executive terminates employment for a “good reason” such as a substantial reduction in the executive’s base salary or failure to provide benefits substantially similar to the material benefits enjoyed by the executive immediately prior to the change in control. We evaluated these agreements and found them to be competitive in their terms compared to our paper industry peers. Vesting of long-term incentive compensation is accelerated when there is a change in control event in some cases with and in some cases without termination of the executive depending on the nature of the event. In some cases, the event itself triggers the vesting to allow executives to exercise and vote their shares. In our opinion, these agreements are necessary to ensure attraction and retention of executives in our industry, which is experiencing a great deal of consolidation. In 2008, our Compensation Committee made minor modifications to our legacy change in control agreements for all of our executives, including our NEOs, to comply with Code Section 409A. The legacy agreements do contain gross up provisions. If an executive loses his or her job following a change in control event that meets certain IRS criteria, the executive must pay an additional 20% excise tax simply for collecting the pay that is due. The gross up makes the executive whole by paying the 20% tax amount. It does not pay the executive’s normal income taxes. In 2008, our Compensation Committee adopted a new form of change in control agreement effective November 7, 2008 for any new hire that does not include a gross up provision.

What are our governance practices regarding compensation?

 

Our governance practices divide responsibility for compensation oversight into three levels:

 

 

Our Compensation Committee establishes and administers compensation programs and philosophies. Our Vice President & Corporate Secretary and CEO work closely with the Compensation Committee and recommend executive compensation amounts, except that the CEO does not participate in discussions regarding his own compensation. These executives consult with the other executive officers about compensation amounts for executives and other employees who report to them. The Compensation Committee has final approval of all compensation amounts or formulas applicable to benefit plans in which executive officers participate.

 

The Compensation Committee establishes and approves bonus programs for non-executive employees and approves the aggregate amount of bonus pools for each business segment. Each executive officer recommends individual bonus amounts for employees under his or her direction, and the executive officer in charge of the applicable business segment approves the individual amounts.

 

The Compensation Committee approves all stock award recipients and the amount of each award. No executive is involved in setting the exercise price of the awards.

 

The Compensation Committee has delegated to the CEO the responsibility for approving health and welfare programs for all employees. Executive officers participate in the same health and welfare programs as other salaried employees. Our benefit programs require executives who earn more to pay more for their benefits.

The Compensation Committee has also delegated to certain of our executive officers the responsibility to maintain the tax qualification status of the retirement and 401(k) plans, to approve retirement and 401(k) plan provisions and formulas applicable to employees who are not executive officers, and to oversee the administration of all of the plans.

 

In addition, an investment committee, whose members are executive officers, oversees the investment of retirement plan assets and 401(k) plan fund choices. The investment committee reports annually to the board.

 

Our policy for setting the timing of stock option grants does not allow executives to have any role in choosing the price of their options or other stock awards. We do not “back date,” “spring load” or reprice options or other stock awards. Our general practice is to make annual grants each year at the February board meeting. The Compensation Committee approves awards, including the specific number of shares granted to specific individuals, which are ratified by the full board and valued at the closing price of our common stock on the NYSE on the grant date. On occasion, newly hired high-level employees may be granted awards by the Compensation Committee in connection with the start of their employment other than at the February board meeting. Any such grants are ratified by the full board and are priced at the closing price of our common stock on the NYSE on the date of the board meeting at which the award is approved. We do not have any program, plan or practice to time option grants or other stock awards in coordination with the release of material non-public information nor do we time the release of material non-public information for the purpose of affecting the value of executive compensation.

 

The independent members of the board complete an evaluation of the CEO each year, which is compiled confidentially by Hewitt and provided to the Compensation Committee. Factors evaluated include ROI, profitable growing, lowering costs and other financial and non-financial performance measures and objectives, including leadership, ethics, strategic planning, financial results, succession planning, human resources/EEO, communications, external relations, and board relations.

 

The Compensation Committee and independent board members determine CEO pay with assistance from Hewitt. The Compensation Committee discusses CEO pay in executive session and reports its recommendations to the independent members of the board. The independent members of the board approve all actions related to the CEO’s compensation.

 

Yes. The Compensation Committee currently uses Hewitt as its compensation consultant. Hewitt provides annual market and other specific information on executive pay and also attends Compensation Committee meetings on request of the committee. The Compensation Committee periodically meets in executive session with Hewitt. Hewitt also serves as consultant to the Nominating and Governance Committee on director compensation.

 

The Compensation Committee annually assesses the independence of its consultant. With the Compensation Committee’s approval, management retains Hewitt to prepare the change in control calculations for disclosure in the proxy statement and to model the number of shares to be requested for new stock plans. From time to time with the Compensation Committee’s approval, Hewitt occasionally performs other limited assignments for human resources regarding non-executive employees on a non-exclusive basis along with other compensation consultants. In 2008, Hewitt did not perform any human resources assignments.

 

Yes. Tally sheets for each of the named executive officers are reviewed by the Compensation Committee for compensation each year. These tally sheets list the executive’s salary, proposed bonus and stock awards,

and the 401(k) matching contribution, retirement, health and welfare benefits. In addition, the Compensation Committee reviews a wealth accumulation chart for the CEO.

 

Our policy is to obtain the maximum possible tax deduction for compensation paid to executive officers, but we may forego all or some portion of a deduction to conform to our compensation goals and objectives. Except for amounts that are not material, all compensation paid in 2008 should qualify for a deduction under Section 162(m) of the Internal Revenue Code.

 

For accounting purposes, salaries, bonuses, the fair value of stock-based compensation and other benefits are charged to expense as earned. For tax purposes, salaries, bonuses and other benefits are taken as a tax deduction when paid to the executive or contributed to a tax-qualified retirement plan subject to the Section 162(m) limitation described above. For tax purposes, stock-based compensation awards are generally taken as a tax deduction when the award is vested or exercised by the executive.

 

The following table summarizes all compensation earned in 2006, 2007 and 2008 by our CEO, our Chief Financial Officer, and the three other most highly compensated executive officers who were serving as executive officers at year-end 2008.