COCA-COLA ENTERPRISES, INC. DEF 14A 2012
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant ý
Filed by a Party other than the Registrant ¨
Check the appropriate box:
COCA-COLA ENTERPRISES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
2500 Windy Ridge Parkway
Atlanta, Georgia 30339
March 5, 2012
Dear Fellow Shareowner:
You are cordially invited to attend the annual meeting of shareowners of Coca-Cola Enterprises, Inc., to be held at 8:30 a.m., Eastern Daylight Time, on Tuesday, April 24, 2012, at the Cobb Energy Performing Arts Centre, 2800 Cobb Galleria Parkway, Atlanta, Georgia.
This booklet includes the formal notice of the meeting as well as the proxy statement. The proxy statement gives you information about the formal items of business to be voted on at the meeting and other information relevant to your voting decisions.
We are providing our shareowners access to the proxy materials and our 2011 annual report over the internet. This allows us to provide you with the annual meeting information you need in a fast and efficient manner, while reducing the environmental impact of our annual meeting. On or about March 15, 2012, we will mail to shareowners a Notice of Internet Availability of Proxy Materials containing instructions on how to access our proxy statement and 2011 annual report online and how to vote online. If you receive such a Notice by mail, you will not receive a printed copy of the materials unless you specifically request one. However, the Notice contains instructions on how to request to receive printed copies of these materials and a proxy card by mail.
Your vote is very important to us. Regardless of the number of shares you own, please vote. You can vote your shares by internet, toll-free telephone call, or, if you request that the proxy materials be mailed to you, by completing, signing and returning the proxy card enclosed with those materials. Please see page 1 of the proxy statement for more detailed information about your voting options.
NOTICE OF 2012 ANNUAL MEETING OF SHAREOWNERS
2500 Windy Ridge Parkway
Atlanta, Georgia 30339
FOR ANNUAL MEETING OF SHAREOWNERS
to be held at 8:30 a.m., Eastern Daylight Time, on Tuesday, April 24, 2012,
at the Cobb Energy Performing Arts Centre, 2800 Cobb Galleria Parkway, Atlanta, Georgia
We are furnishing this proxy statement to our shareowners in connection with the solicitation of proxies by our board of directors for the 2012 annual meeting of shareowners to be held on April 24, 2012, and any adjournment or postponement of the meeting. Our 2011 annual report accompanies this proxy statement.
This proxy statement and the 2011 annual report are first being made available on our website at www.cokecce.com or mailed to shareowners who have requested paper copies on or about March 15, 2012. Other information on our website does not constitute part of this proxy statement.
This proxy statement contains important information for you to consider when deciding how to vote. Please read this information carefully.
VOTING AND THE MEETING
What is the purpose of this meeting?
This is the annual meeting of the company’s shareowners. At the meeting, we will be voting upon:
Our board of directors strongly encourages you to exercise your right to vote on these matters. Your vote is important. Voting early through the internet, by telephone or by a proxy or voting instruction card helps ensure that we receive a quorum of shares necessary to hold the meeting.
How do the directors of the company recommend that I vote?
The board of directors unanimously recommends that you vote:
PROPOSAL 1: FOR the election of Jan Bennink, John F. Brock, Calvin Darden, L. Phillip Humann, Orrin H. Ingram II, Thomas H. Johnson, Suzanne B. Labarge, Véronique Morali, Garry Watts, Curtis R. Welling, and Phoebe A. Wood as directors of the company for terms expiring in 2013;
PROPOSAL 2: FOR the approval of our executive officers' compensation;
PROPOSAL 3: FOR the approval of the performance measures under the 2010 Incentive Award Plan to preserve tax deductibility of certain awards under the plan; and
PROPOSAL 4: FOR the ratification of the Audit Committee’s selection of Ernst & Young LLP as our independent registered public accounting firm for 2012.
What is a proxy?
Our board of directors is asking for your proxy, which is a legal designation of another person to vote the shares you own. We have designated two officers of the company, John R. Parker and William T. Plybon to vote your shares at the meeting in the way you instruct and, with regard to any other business that may properly come before the meeting, as they think best.
Who may vote?
Common stock shareowners of Coca-Cola Enterprises, Inc. whose shares are recorded directly in their names in our stock register (“shareowners of record”) at the close of business on February 27, 2012, may vote their shares on the matters to be acted upon at the meeting. Shareowners who hold shares of our common stock in “street name,” that is, through an account with a bank, broker, or other holder of record, as of such date may direct the holder of record how to vote their shares at the meeting by following the instructions for this purpose that the street name holders will receive from the holder of record.
A list of shareowners entitled to vote at the meeting will be available for examination at our principal executive offices located at 2500 Windy Ridge Parkway, Atlanta, Georgia 30339, for a period of at least 10 days prior to the meeting and during the meeting. The stock transfer books will not be closed between the record date and the date of the meeting.
How do I vote?
If you meet the above qualification, you may vote in one of the following four ways:
By the internet
Go to www.proxyvote.com 24 hours a day, 7 days a week, and follow the instructions. You will need the 12-digit control number that is included in the Notice of Internet Availability of Proxy Materials, proxy card or voting instructions form that is sent to you. The internet voting system allows you to confirm that the system has properly recorded your votes. This method of voting will be available up until 11:59 p.m. EDT, on April 23, 2012.
On a touch-tone telephone, call toll-free 1-800-690-6903, 24 hours a day, 7 days a week, and follow the instructions. You will need the 12-digit control number that is included in the Notice of Internet Availability of Proxy Materials, proxy card or voting instructions form that is sent to you. As with internet voting, you will be able to confirm that the system has properly recorded your votes. This method of voting will be available up until 11:59 p.m. EDT, on April 23, 2012.
If you are a shareowner of record and you elect to receive your proxy materials by mail, you can vote by marking, dating and signing your proxy card exactly as your name appears on the card and returning it by mail in the postage-paid envelope that will be provided to you. If you hold your shares in street name and you elect to receive your proxy materials by mail, you can vote by completing and mailing the voting instruction form that will be provided by your bank, broker or other holder of record. You should mail the proxy card or voting instruction form in plenty of time to allow delivery prior to the meeting. Do not mail the proxy card or voting instruction form if you are voting over the internet or by telephone.
At the annual meeting
Whether you are a shareowner of record or a street name holder, you may vote your shares at the annual meeting if you attend in person. See “What do I need to bring with me in order to attend the annual meeting?” below.
Even if you plan to attend the annual meeting, we encourage you to vote over the internet or by telephone prior to the meeting. It is fast and convenient, and it saves us significant postage and processing costs. In addition, your vote is recorded immediately, and there is no risk that postal delays will cause your vote to arrive late and therefore not be counted.
Why haven’t I received a printed copy of the proxy materials and 2011 annual report?
On or about March 15, 2012, we will mail a Notice of Internet Availability of Proxy Materials to our shareowners who have not previously requested the receipt of paper proxy materials advising them that they can access this proxy statement, the 2011 annual report and voting instructions over the internet at www.proxyvote.com. You may then access these materials and vote your shares over the internet or by telephone. The notice contains a 12-digit control number that you will need to vote your shares over the internet or by telephone. Please keep the notice for your reference through the meeting date.
Alternatively, you may request that a printed copy of the proxy materials be mailed to you. If you want to receive a paper copy of the proxy materials, you may request one over the internet at www.proxyvote.com, by calling toll-free 1-800-579-1639, or by sending an email to email@example.com. There is no charge to you for requesting a copy. Please make your request for a copy on or before April 10, 2012, to facilitate timely delivery. If you previously elected to receive our proxy materials electronically, we will continue to send these materials to you by e-mail unless you change your election.
What does it mean if I receive more than one Notice of Internet Availability of Proxy Materials?
This means that your shares are registered differently and are held in more than one account. To ensure that all shares are voted, please either vote each account over the internet or by telephone, or sign and return by mail all proxy cards or voting instruction forms. If you are a shareowner of record, we encourage you to register all of your shares in the same name and address by contacting the Shareholder Services Department at our transfer agent, Computershare, P.O. Box 358015, Pittsburgh, PA 15252-8015, or by phone at 1-800-418-4CCE (4223). If you hold your shares in street name, you should contact your bank or broker and request consolidation.
How do I revoke my proxy?
You may revoke your proxy before it is voted at the meeting by:
Attendance at the meeting will not revoke a proxy unless the shareowner actually votes in person at the meeting.
How will a quorum be determined?
The holders of a majority of shares of our common stock outstanding on February 27, 2012, the record date, must be
present at the meeting, either in person or by proxy, to constitute a quorum. A quorum is necessary before any business may be conducted at the meeting. If a quorum is not present at the meeting, the meeting may be adjourned from time to time until a quorum is present.
As of the record date, 300,324,790 shares of our common stock were outstanding and entitled to vote. Each share has one vote. The Notice of Internet Availability of Proxy Materials that is sent to you, or the proxy card or voting instruction form that is included in the proxy materials mailed to you if you have requested delivery by mail, will show the number of shares that you are entitled to vote.
If you submit a proxy, your shares will be counted to determine whether we have a quorum even if you withhold authority to vote, abstain or fail to provide voting instructions on any of the proposals listed on the proxy card. If your shares are held in street name, these shares also will be counted for purposes of determining the presence or absence of a quorum for the transaction of business to the extent such nominee exercises its discretion to vote your uninstructed shares on certain matters at the annual meeting.
“Withhold authority” is a shareowner’s instruction to withhold authority to cast a vote “for” the election of one or more director nominees. An “abstention” represents an affirmative choice to decline to vote on a proposal other than the election of directors.
What is a ‘broker non-vote?’”
The New York Stock Exchange (“NYSE”) has rules that govern banks, brokers and others who have record ownership of company stock held in brokerage and other accounts for their clients who beneficially own the shares. Under these rules, banks, brokers and other such holders who do not receive voting instructions from their clients have the discretion to vote uninstructed shares on certain matters (“discretionary matters”), but they do not have discretion to vote uninstructed shares as to certain other matters (“non-discretionary matters”). A broker may return a proxy card on behalf of a beneficial owner from whom the broker has not received voting instructions that casts a vote with regard to discretionary matters but expressly states that the broker is not voting as to non-discretionary matters. The broker’s inability to vote with respect to the non-discretionary matters with respect to which the broker has not received voting instructions from the beneficial owner is referred to as a “broker non-vote.”
What are the voting requirements that apply to the proposals discussed in this proxy statement?
A “plurality” means, with regard to the election of directors, that the eleven nominees for director receiving the greatest number of “for” votes from our shares entitled to vote will be elected.
A “majority” means that a proposal receives a number of “for” votes that is a majority of the shares of common stock present in person or represented by proxy and entitled to vote at the meeting.
“Discretionary voting” occurs when a bank, broker, or other holder of record does not receive voting instructions from the beneficial owner and votes those shares in its discretion on any proposal as to which the rules of the NYSE permit such bank, broker, or other holder of record to vote. As noted above, when banks, brokers, and other holders of record are not permitted under the NYSE rules to vote the beneficial owner’s shares without instruction from the beneficial owner, the affected shares are referred to as “broker non-votes.”
Although the advisory votes on Proposal 2 are non-binding, as provided by law, our board will review the results of the votes and, consistent with our record of shareowner engagement, will take the results into account in making future determinations concerning our executive officers' compensation.
What is the effect of withhold authority votes, abstentions, and broker non-votes?
Shares subject to instructions to withhold authority to vote on the election of directors will not be voted. This will have no effect on the election of directors because, under plurality voting rules, the eleven director nominees receiving the highest number of “for” votes will be elected.
Under Delaware law (under which the company is incorporated), abstentions are counted as shares present and entitled to vote at the meeting. Therefore, abstentions will have the same effect as a vote “against” the advisory vote on our executive officers' compensation, the approval of the performance measures under the 2010 Incentive Award Plan to preserve tax deductibility of certain awards under the plan, as well as the ratification of the selection of our registered independent public accounting firm.
As a result of a change in NYSE rules related to discretionary voting and broker non-votes, banks, brokers, and other such record holders are no longer permitted to vote the uninstructed shares of their customers on a discretionary basis in the election of directors or on executive compensation related matters. Because broker non-votes are not considered under Delaware law to be entitled to vote at the meeting, they will have no effect on the outcome of the vote on the election of directors, the advisory vote on our executive officers' compensation or the proposal requesting approval of the performance measures under our current 2010 Incentive Award plan in order to preserve the tax deductibility of certain awards under the plan. As a result, if you hold your shares in street name and you do not instruct your bank, broker, or other such holder how to vote your shares on these matters, no votes will be cast on your behalf on these proposals. Therefore, it is critical that you indicate your vote on these proposals if you want your vote to be counted.
How are shares for which I am the shareowner of record voted if I give no specific instruction?
We must vote your shares as you have instructed. If there is a matter on which you, as a shareowner of record, have given no specific instruction but have authorized us generally to vote the shares, they will be voted as follows: “for” each of the nominees for director listed in this proxy statement, “for” the approval of the advisory vote on the company’s executive officers' compensation, "for" approval of the performance measures under the 2010 Incentive Award plan, and “for” the ratification of the Audit Committee’s selection of Ernst & Young LLP as our independent registered public accounting firm for 2012. This authorization would exist, for example, if a shareowner of record merely signs, dates and returns the proxy card but does not indicate how the shares are to be voted on one or more proposals.
What if other matters come up at the meeting?
The company is not aware, as of the date of this proxy statement, of any other matters to be voted on at the meeting. If any other matters are properly brought before the meeting for a vote, all shares represented at the meeting will be voted in our discretion on such matters (other than shares that are voted by the holder in person at the meeting).
Are votes confidential? Who counts the votes?
We will hold the votes of all shareowners in confidence from directors, officers, and employees except:
We have retained Broadridge Financial Solutions, Inc. as our independent agent to receive and tabulate the votes. Additionally, representatives of Broadridge will serve as inspectors of election to determine the existence of a quorum and the validity of proxies and ballots, to certify the voting results and to perform any other acts required under Delaware law.
What do I need to bring with me in order to attend the annual meeting?
If you are a shareowner of record, you will need to bring with you to the meeting either the Notice of Internet Availability of Proxy Materials or any proxy card that is sent to you. Otherwise, you will be admitted only upon other verification of record ownership at the admission counter.
If you own shares held in street name, bring with you to the meeting either the Notice of Internet Availability of Proxy Materials or any voting instruction form that is sent to you, or your most recent brokerage statement or a letter from your bank, broker, or other record holder indicating that you beneficially owned shares of our common stock on February 27, 2012. We can use that to verify your beneficial ownership of common stock and admit you to the meeting. If you intend to vote at the
meeting, you also will need to bring to the meeting a legal proxy from your bank, broker, or other holder of record that authorizes you to vote the shares that the record holder holds for you in its name.
Additionally, all persons will need to bring a valid government-issued photo ID to gain admission to the meeting.
Please note that, for safety and security reasons, cellular telephones, cameras, sound or video recording equipment, other electronic devices, and large bags, briefcases, and packages will not be allowed in the meeting room.
How is the meeting conducted?
We intend to conduct the meeting in an orderly and timely manner. Rules of conduct for shareowners who wish to address the meeting will be distributed at the meeting. We cannot assure that every shareowner who wishes to speak on an item of business will have the opportunity to do so. The chair of the meeting may rely upon the rules of conduct, applicable law, and his best judgment regarding disruptions or disorderly conduct to ensure that the meeting is conducted in an orderly manner.
After the meeting is over, the shareowners will be given the opportunity to ask questions of our executives and directors present at the meeting.
Who is paying the costs of the proxy and proxy solicitation?
We are paying the cost related to the preparation, printing, and distribution of all of the proxy materials. Some of our directors, officers, or employees may also solicit shareowners by mail, email, facsimile, telephone, or personal contact. None of these individual solicitors will receive additional or special compensation for doing this. Additionally, we reimburse banks, brokers, fiduciaries, and custodians for their costs in forwarding proxy materials and obtaining voting instructions from their customers.
I share an address with another shareowner, and we received only one paper copy of the proxy materials and annual report. How may I obtain an additional copy of these materials?
The rules of the Securities and Exchange Commission (“SEC”) permit us, under certain circumstances, to send a single set of the Notice of Internet Availability of Proxy Materials, proxy materials, and annual reports to any household at which two or more shareowners reside. This procedure, known as householding, reduces the volume of duplicate information you receive and helps to reduce our expenses.
In order to take advantage of this opportunity, we have delivered only one Notice of Internet Availability of Proxy Materials to shareowners who share an address unless we received contrary instructions from the affected shareowners prior to the mailing date. We will mail a separate copy of any of these documents, if requested. Requests for separate copies of any of these documents, either now or in the future, as well as requests for single copies in the future by shareowners who share an address and are currently receiving multiple copies, can be made by shareowners of record by contacting our corporate secretary at Coca-Cola Enterprises, Inc., 2500 Windy Ridge Parkway, Atlanta, Georgia 30339. Such requests by street name holders should be made through their bank, broker, or other holder of record.
Where and when will I be able to find the voting results?
You can find the official results of voting at the meeting in our Current Report on Form 8-K to be filed within four days after the annual meeting and available on the Securities and Exchange Commission's website (www.sec.gov) or on our website (www.cokecce.com). If the official results are not available at that time, we will provide preliminary voting results in the Form 8-K and will provide the final results in an amendment to the Form 8-K as soon as they become available.
The following table shows the number of shares of our common stock beneficially owned by each person known to us as having beneficial ownership of more than five percent of our common stock. The number of shares owned and percent of class is as of December 31, 2011, unless otherwise noted.
1 Based on Schedule 13G/A dated February 13, 2012, filed by BlackRock, Inc. based on common stock held on December 31, 2011.
2 Based on Schedule 13G dated February 9, 2012, filed by State Street Financial Center based on common stock held on December 31, 2011. (15,709,628 is shared dispositive and voting power).
3 Based on Schedule 13G/A dated February 10, 2012, filed by The Vanguard Group, Inc. based on common stock held on December 31, 2011. (18,007,479 sole dispositive power; 441,991 shared dispositive and sole voting power).
4 Based on Schedule 13G dated February 24, 2012, filed by Summerfield K. Johnston, Jr. based on common stock held on February 24, 2012. (11,013,603 sole dispositive and sole voting power; 6,569,800 shared dispositive and shared voting power).
GOVERNANCE OF THE COMPANY
Board of Directors
The board of directors provides oversight, strategic direction, and counsel to management regarding the business, affairs, and long-term interests of the company and our shareowners. The board’s responsibilities include:
The board and its committees meet throughout the year on a set schedule, hold special meetings, and act by written consent from time to time as appropriate. The board has adopted corporate governance guidelines that establish general guiding principles of corporate governance to assist the board in performing its duties. The board’s Governance and Nominating Committee is responsible for reviewing the guidelines periodically and suggesting revisions to the board as appropriate.
Board Leadership Structure
In addition to having strong and effective corporate governance guidelines, we believe that our current leadership structure of having a combined chairman and CEO; a substantial majority of independent, experienced, and nonmanagement directors; a presiding director with specified responsibilities on behalf of the independent directors and nonmanagement directors; and key board committees comprised entirely of independent directors is the most appropriate for our company and its shareowners at this time.
Chairman and Chief Executive Officer
The board of directors does not have a formal policy with respect to whether the CEO should also serve as chairman of the board. The board makes this decision based on its evaluation of the circumstances in existence and the specific needs of the company, and the board, at any time it is considering either or both roles. When making this decision, the board considers factors such as:
The board of directors periodically reviews its leadership structure to ensure that it remains the optimal structure for our company and our shareowners.
Mr. Brock has served as chairman of the board and CEO of the company and its predecessor entity, Coca-Cola Enterprises Inc. ("Legacy CCE"), since 2008. As chairman, Mr. Brock sets the strategic policies for the board (with input from the presiding director, as discussed further below), presides over the board’s meetings, and communicates the board’s strategic findings and guidance to management. In his position as CEO, he has primary responsibility for the day-to-day operations of the company and provides leadership on the company’s key strategic objectives. This structure has proven to be an effective one for governing the company, and the board believes this approach has enhanced efficiency in the board’s and management’s
decision-making processes. The board believes that, especially in view of the size, complexity, and international scope of the company, the combination of these two roles provides more consistent communication and coordination throughout the organization and better oversight of risk. Combining these roles also results in a more effective and efficient implementation of corporate strategy and is important in unifying the company’s strategy. For example, it was very helpful for Mr. Brock to be able to provide both active consultation with the board and close supervision of our management team during Legacy CCE's 2010 merger and separation transaction with The Coca-Cola Company (the "Transaction").
Moreover, the board believes that its governance practices provide adequate safeguards against any potential risks that might be associated with having a combined chairman and CEO. Specifically:
The board instituted the presiding director position to provide an additional measure of balance, ensure the board’s independence, and enhance its ability to fulfill its management oversight responsibilities. As noted previously, the independent directors elect a presiding director annually from among the independent directors. L. Phillip Humann currently serves as the presiding director. The presiding director:
The listing requirements of the NYSE require that a majority of the members of a listed company’s board of directors be independent. The question of independence is to be determined by the board with respect to every director, in accordance with the rules of the NYSE. Based upon the NYSE rules, our board has affirmatively determined that a majority of its current members are “independent,” as defined below.
The NYSE rules also require that certain of our committees be composed entirely of independent directors. Our committees covered by this requirement are the Audit Committee, the Governance and Nominating Committee, and the Human Resources and Compensation Committee. Our board has determined that all current members of these three committees meet the independence and other requirements of the NYSE rules; accordingly, all are independent and otherwise qualified to serve under the NYSE rules.
NYSE Rules Regarding Independence
The NYSE rules specify certain relationships that preclude a finding of independence, to which our board has added certain consulting services and other relationships. If a director does not fall within one of those categories of relationships, then the board must determine that no other material relationship exists that would lead to a finding of nonindependence. The NYSE rules allow boards to adopt broad categories of relationships that would not be material, and our board has done so in
Section 3 of its Board of Directors Guidelines on Significant Corporate Governance Issues, which is available on our website at www.cokecce.com under “Corporate Governance,” then “Board of Directors Guidelines.” The guidelines also are available in printed form without charge to any shareowner requesting them. Any such request must be directed to: Corporate Secretary, Coca-Cola Enterprises, Inc., 2500 Windy Ridge Parkway, Atlanta, Georgia 30339.
The independence guidelines are:
A.A Director will not be considered “independent” if:
As used in the guidelines, the “Look Back Period” means the period specified in the applicable NYSE corporate governance standards (generally, the last three years), and a director’s “immediate family” member would include the director’s spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and sisters-in-law, and anyone (other than domestic employees) who shares the director’s home.
Determinations of Independence
The board has determined that eleven of its twelve current members and ten of its eleven nominees are independent and meet the standards set by the NYSE and our guidelines. In making this determination, our board first applied its guidelines, then affirmatively determined, with respect to each director and nominee, that he or she did not otherwise have a material relationship with the company. The directors determined to be independent are:
L. Phillip Humann
Orrin H. Ingram II
Donna A. James
Thomas H. Johnson
Suzanne B. Labarge
Curtis R. Welling
Phoebe A. Wood
In making its independence determinations, the board considered the fact that Mr. Darden, Mr. Humann, Mr. Welling, Ms. Labarge, and Ms. Morali are, or within the past three years have been, directors or officers of, or consultants to, corporations with which we or Legacy CCE has conducted business in the ordinary course. With regard to Mr. Darden, the board considered the fact that he is a director of Target Corporation, which was a customer of Legacy CCE. The board considered the fact that Mr. Humann was in 2009 a consultant to SunTrust Banks, Inc., with which we do, and Legacy CCE did, business. The board considered the fact that Mr. Welling is an officer of Americares Foundation, a charity to which we and Mr. Brock made contributions during the year. The board considered that Ms. Labarge is a director of Deutsche Bank AG and XL Group plc, with which we do business. The board also considered that Ms. Morali is a director of, and an employee of an affiliate of, Fitch, Inc., which provided certain ratings services to Legacy CCE and continues to provide such services to us.
The board believes that all transactions with these companies were on arm’s-length terms that were reasonable and competitive, and that Mr. Darden, Mr. Humann, Mr.Welling, Ms. Labarge, and Ms. Morali did not personally benefit from, or have a direct or indirect material interest in, such transactions. Accordingly, the board concluded that these relationships are not material and have no effect on the independence of those five directors. Because of the company’s extensive operations, transactions and director relationships of this nature are expected to take place in the ordinary course of business in the future.
Communications with the Presiding Director, the Board, and Its Committees
Any interested party may communicate with the presiding director of the board, any of its committees, the nonmanagement directors, or one or more of the individual members of the board by directing correspondence to such group or persons in care of the corporate secretary at Coca-Cola Enterprises, Inc., 2500 Windy Ridge Parkway, Atlanta, Georgia 30339.
Our Audit Committee has also established a confidential and anonymous ethics and compliance hotline that can be used to report, among other things, concerns about questionable accounting or auditing matters. Reports can be made by calling 1-877-627-8685.
Policy Regarding Board Attendance at Shareowner Meetings
Eleven of our twelve members of the board of directors attended the 2011 annual meeting of shareowners. We encourage attendance by members of the board and senior executives so that shareowners will have the opportunity to meet and question a representative group of our directors and senior executives.
Board of Directors Guidelines on Significant Corporate Governance Issues
As mentioned, our board has adopted Board of Directors Guidelines on Significant Corporate Governance Issues. These guidelines are available on our website, www.cokecce.com, under “Corporate Governance,” then “Board of Directors Guidelines” and are available in printed form without charge to any shareowner requesting them. Any such request must be directed to: Corporate Secretary, Coca-Cola Enterprises, Inc., 2500 Windy Ridge Parkway, Atlanta, Georgia 30339.
Code of Business Conduct
We have a Code of Business Conduct that covers the members of our board of directors, as well as our officers and employees, and satisfies the requirements for a “code of ethics” within the meaning of SEC rules. This group includes, without limitation, our chief executive officer, chief financial officer, and chief accounting officer.
A copy of the code is posted on our website, www.cokecce.com, under “Corporate Governance.” The code is available in
print to any person without charge, upon request sent to: Corporate Secretary at Coca-Cola Enterprises, Inc., 2500 Windy Ridge Parkway, Atlanta, Georgia 30339.
If we amend or grant any waivers under the code that are applicable to our chief executive officer, our chief financial officer, or our chief accounting officer and that relate to any element of the SEC’s definition of a code of ethics, which we do not anticipate doing, we will promptly post that amendment or waiver on our website, www.cokecce.com, under “Corporate Governance.”
Board of Directors Oversight of Risk
While risk management is primarily the responsibility of the company’s management team, the board of directors is responsible for the overall supervision of the company’s risk management activities. The board’s oversight of the material risks faced by our company—including matters such as credit and liquidity risks, the impact of our compensation policies on corporate risk-taking by our executives, and risk-focused auditing strategies—occurs at both the full board level and at the committee level.
The board’s Audit Committee has oversight responsibility not only for financial reporting with respect to the company’s major financial exposures and the steps management has taken to monitor and control such exposures, but also for the effectiveness of management’s enterprise risk management process that monitors and manages key business risks facing the company. The Audit Committee also oversees the delegation of specific risk areas among the various other board committees, consistent with the committees’ charters and responsibilities.
As a part of its oversight of enterprise risk management, the Audit Committee works directly with the company’s compliance and risk function. Charged with responsibility for supervision of enterprise risk and compliance processes, the company’s chief compliance and risk officer reports to and receives direction from the Audit Committee at each committee meeting, and also communicates directly with the committee and its chair from time-to-time regarding compliance and enterprise risk issues. At least annually, the full board also receives reports regarding compliance and risk matters.
Management also provides regular updates throughout the year to the respective committees regarding the management of the risks they oversee, and each of these committees reports on risk to the full board at each regular meeting of the board. At least once every year, the Audit Committee reviews the allocation of risk responsibility among the board’s committees and implements any changes that it deems appropriate.
In addition to the reports from the committees, the board receives presentations throughout the year from various functions and business unit leaders that include discussion of significant risks as necessary. At each board meeting, the chairman and CEO addresses, in a director-only session, matters of particular importance or concern, including any significant areas of risk that require board attention. Additionally, through dedicated sessions focusing entirely on corporate strategy, the full board reviews in detail the company’s short- and long-term strategies, including consideration of significant risks facing the company and their potential impact.
We believe that our approach to risk oversight, as described above, optimizes our ability to assess inter-relationships among the various risks, make informed cost-benefit decisions, and approach emerging risks in a proactive manner for the company. We also believe that our risk structure complements our current board leadership structure, as it allows our independent directors, through the five fully independent board committees and otherwise, to exercise effective oversight of the actions of management, led by Mr. Brock as chairman and CEO, in identifying risks and implementing effective risk management policies and controls.
For 2011, all outside directors (directors who are not company employees) were paid the following compensation:
Committee (this retainer is $10,000 if the director is not also chair of the Governance and Nominating Committee).
We pay the cash portion of the annual retainer in equal quarterly installments. The cash retainer for a director who has a partial month of service (due to joining or leaving the board during the month) is calculated in whole months, provided he or she has served at least 10 days during the partial month. Otherwise, one-third of the month’s retainer is payable.
The equity portion of the annual retainer is provided in the form of phantom stock units credited under our Deferred Compensation Plan for Nonemployee Directors (the “Directors Plan”). Specifically, phantom stock units are credited to each director’s account under the Directors Plan on the first day of each calendar quarter, with the number of phantom stock units determined by dividing the $30,000 target value by the closing price of the company’s stock on the last trading day of the previous quarter.
Our directors are also eligible to defer all or a portion of their cash retainers under the Directors’ Plan on a voluntary basis. Any voluntary deferrals are treated as invested in our common stock. All amounts credited under the Directors Plan, whether as the equity portion of the director’s annual retainer or through voluntary deferrals, are only payable after the director leaves the board.
We reimburse the outside directors for reasonable expenses of attending board and committee meetings and for expenses associated with director training and development. From time to time, a director’s spouse may accompany the director to certain business functions, and tax laws may require the incremental costs associated with the spouse's attendance to be imputed to the director as income. On occasion, a director's spouse may accompany a director when he or she travels on our corporate aircraft for board-related business; in such instances, the value of the spouse’s travel is imputed as income to the director (determined under the U.S. Department of Transportation’s standard industry fare level). The company does not reimburse directors for taxes on any imputed income related to their spouses travel or attendance at company events.
Directors who are our employees do not receive any compensation for their service on the board, but are entitled to reimbursement of certain expenses incurred in connection with such service.
Our Board of Directors Guidelines on Significant Corporate Governance Issues (“Director Guidelines”) provide that a new director should, within five years of joining the board, own stock of our company equal to at least four times the annual cash compensation paid to board members. A director’s phantom stock units under the Directors Plan, shares owned by the director or an immediate family member, and in-the-money stock options are credited toward this ownership objective. Additionally, our Director Guidelines prohibit directors from engaging in puts, calls, equity swaps or other derivative securities to hedge or offset any decreases in market value of shares of company stock they own directly or indirectly.
The table below summarizes the compensation paid by the company to our outside directors for the fiscal year ended December 31, 2011. Compensation paid to John F. Brock, the company’s chairman and CEO, is not included in this table because Mr. Brock is an employee and therefore receives no additional compensation for his service as a director.
(1) Amounts shown include annual retainer, committee chair and committee member retainers and, for Mr. Humann, a presiding director retainer, earned by our directors during 2011. The amounts shown include any amounts voluntarily deferred under the Directors Plan.
(2) Amounts shown reflect aggregate grant date fair value of phantom stock units credited under the Directors Plan on a quarterly basis during 2011 and computed in accordance with FASB ASC Topic 718. On the first day of each calendar quarter, phantom stock units were credited to the director's account, with
the actual number of phantom stock units determined by dividing $30,000 by the closing trading price of a share of the company's common stock on the last trading day of the preceding calendar quarter, as reported in the NYSE Composite Transactions listing. Specifically, the trading prices used to determine the number of phantom stock units credited for the 2011 quarterly awards were $25.03, $27.30, $29.18, and $24.88, respectively. The trading prices used to determine the fair value of the phantom stock units as of the quarterly grant date (first day of each calendar quarter) were $25.46, $27.57, $29.81, and $23.61, respectively. The aggregate number of phantom stock units credited to each outside director's account under the Directors Plan is described in the footnotes to the Security Ownership of Directors and Officers table, which begins on page 24.
(3) As of December 31, 2011, Messrs. Darden and Humann and Ms. James held 23,339, 34,279 and 12,399 stock options, respectively. These options were granted by Legacy CCE and converted to CCE options in a manner that maintained their same intrinsic value immediately before and after the close of the transaction with The Coca-Cola Company that occurred on October 2, 2010.
(4) Amounts shown reflect the Company's contribution to the director's designated charity under our matching gifts program.
How Members of the Board of Directors Are Selected
Composition of the Board
Our board is authorized to have a minimum of three and a maximum of 15 members. The company’s bylaws require that directors serve one-year terms and stand for election at each annual meeting of shareowners.
Consistent with our Board of Directors Guidelines on Significant Corporate Governance Issues, the Governance and Nominating Committee of our board reviews at least annually the appropriate skills and characteristics of our board members in the context of the then-current make-up of the board. This review includes consideration of factors such as diversity, experience, business or academic background, and other criteria that the committee and the board find to be relevant.
In particular, the board and the committee believe that sound governance of our complex, international company in an increasingly complex international marketplace requires a wide range of viewpoints. As a result, the board and the committee believe that the board should be comprised of a well-balanced group of individuals with diverse backgrounds, educations, experiences, skills, ages, genders, races, national origins and viewpoints that contribute to board heterogeneity. Although the board does not have a formal policy regarding board diversity, the board believes that having such diversity among its members enhances the board’s ability to make fully informed, comprehensive decisions and demonstrates leadership with respect to the company’s initiatives to recruit and retain the best employees, including women and minorities.
The composition of our current board of directors demonstrates the board’s commitment to diversity in a number of areas. Our board is comprised of women and men of differing backgrounds, educations, business and other experiences, skills, ages, races, national origins and viewpoints.
The board’s diversity objective is implemented and monitored and its effectiveness is assessed through the Governance and Nominating Committee’s annual or more frequent review of the composition of our board and through the annual board and committee self-evaluation process, which in each case includes a determination of whether the board would be enhanced by the addition of one or more directors. If so, the committee, with input from our chairman of the board, considers potential nominees to the board, with a goal of enhancing the diversity and balance of skills, background, experience, and viewpoints represented on the board.
Although we generally seek diversity in the ages of our directors, our bylaws disqualify anyone who has reached the age of 70 from being nominated or re-nominated for election by shareowners as director, provided that a person who has not attained the age of 71 shall be eligible to fill a vacancy caused by the retirement, removal, or resignation of a director if that person does not stand for election upon the expiration of the term of the director whose office became vacant.
The Governance and Nominating Committee will consider director candidates proposed to it by shareowners at any time, using the same criteria described above. See “Communications with the Presiding Director, the Board, and Its Committees” above. The proponent must submit evidence that he, she, or it is a shareowner of Coca-Cola Enterprises, Inc. together with a statement of the proposed nominee’s qualifications to be a director. A shareowner who wishes to formally nominate a candidate must follow the procedures described in Section 12 of Article II of our bylaws.
If the Governance and Nominating Committee determines that adding a new director is advisable, it may consider potential nominees from various sources, including management, directors, shareowners, and other third parties, including, if the committee deems necessary or appropriate, a search firm retained to assist in a formal search. There is no difference in the manner in which the committee evaluates proposed nominees based upon whether the proposed nominee is recommended by a shareowner. The committee will evaluate the candidates based on the needs of the board at the time and will report its recommendations to the whole board. The board will make the ultimate selection of the nominee and, if it chooses a nominee, either appoint the nominee to fill a vacancy or newly created directorship on the board or direct that the nominee stand for election at the next annual meeting of the shareowners.
ELECTION OF DIRECTORS
The board of directors, based on the recommendations of the Governance and Nominating Committee, has nominated Jan Bennink, John F. Brock, Calvin Darden, L. Phillip Humann, Orrin H. Ingram II, Thomas H. Johnson, Suzanne B. Labarge, Véronique Morali, Garry Watts, Curtis R. Welling, and Phoebe A. Wood for election as directors at the annual meeting.
If all eleven of the nominees are elected, each of the nominees will hold office for a one-year term ending at the annual meeting of shareowners in 2013, or upon his or her earlier retirement, resignation, removal, or death. Each of the nominees has consented to serve if elected. If, before the annual meeting, any of them becomes unable to serve, or chooses not to serve, the board may nominate a substitute. If that happens, the persons named as proxies on the proxy card will vote for the substitute. Alternatively, the board may either let the vacancy stay unfilled until an appropriate candidate is identified, or reduce the size of the board to eliminate the unfilled seat.
Biographical information about each of the nominees is provided beginning on page 15 of this proxy statement. A description of the procedures and considerations applicable to the nomination of persons for election as directors is contained in “GOVERNANCE OF THE COMPANY — How Members of the Board of Directors Are Selected.”
Recommendation of the Board of Directors
Our board of directors unanimously recommends that you vote FOR the election of Jan Bennink, John F. Brock, Calvin Darden, L. Phillip Humann, Orrin H. Ingram II, Thomas H. Johnson, Suzanne B. Labarge, Véronique Morali, Garry Watts, Curtis R. Welling, and Phoebe A. Wood as directors for terms expiring at the 2013 annual meeting of shareowners and until their respective successors are elected and qualified.
Nominees for Election
Set forth below is information regarding those persons who are being nominated for election as directors by the shareowners at the 2012 annual meeting. As the information that follows indicates, each nominee brings strong and unique experience, qualifications, attributes, and skills to the board. This provides the board, collectively, with competence, experience, and perspective in a variety of areas, including corporate governance and board service; executive management; the beverage and other consumer goods industries, particularly in Western Europe; finance, investments, and accounting; manufacturing and distribution; international business; and the Coca-Cola bottling system.
Nominees for Election to Terms Expiring 2013
Committees of the Board
The board has seven standing committees: Audit, Corporate Responsibility and Sustainability, Executive, Finance, Franchise Relationship, Governance and Nominating, and Human Resources and Compensation. Each committee has a charter that is posted on our website, www.cokecce.com, under “Corporate Governance,” then “Board of Directors.” Our corporate secretary will furnish a printed copy of any charter upon the request of any shareowner.
The directors serving on each committee are appointed by the board. These appointments are made at least annually, for terms expiring at the next annual meeting of shareowners.
The following table lists the members of each of the standing committees as of the date of this proxy statement:
During 2011, the board met five times and acted by written consent one time, and the committees met as indicated below:
Each director attended at least 80% of the aggregate number of board and committee meetings that were held during 2011 while he or she was a member of the board or the committee.
The functions of each committee and any special qualifications for membership are described below.
Audit Committee—Assists the board in fulfilling its oversight responsibilities relating to the quality and integrity of our annual and interim consolidated financial statements and financial reporting process, the adequacy and effectiveness of internal controls over financial reporting and disclosure, current and emerging business issues, the internal audit function, the annual independent audit of our financial statements and financial reporting controls, ethics programs, legal compliance, enterprise risk, and other matters the board deems appropriate.
The Audit Committee administers the company’s related person transaction policy, which is in writing and which was adopted by the board. Under this policy, the Audit Committee must examine any transactions between the company and a “related person” to be sure that the transaction in question is either in the best interests of the company and its shareowners or is not inconsistent with those interests. With respect to the Audit Committee's responsibilities, “related persons” are (i) directors and executive officers of the company, (ii) beneficial owners of more than 5% of any class of the company’s equity securities,
(iii) immediate family members of the foregoing, and (iv) firms in which any of the foregoing are employed or have a greater than 5% beneficial interest. The thresholds for the application of this policy are transactions in which the amount exceeds $120,000, except for certain pre-approved transactions that do not affect the determination of director independence.
All members must be independent and must meet additional NYSE qualifications applicable to Audit Committee members. The board has determined that each member meets all of those qualifications.
The board has determined that Ms. Labarge, Mr. Watts and Ms. Wood, in addition to being “independent,” are also “audit committee financial experts” as defined in the SEC’s rules. Biographical information for each is found in “ELECTION OF DIRECTORS —Nominees for Election.”
For additional information about the Audit Committee’s oversight of the risks faced by the company, see “GOVERNANCE OF THE COMPANY —Board of Directors Oversight of Risk.”
Corporate Responsibility and Sustainability Committee—Reviews our policies and practices relating to significant public issues of concern to shareowners, the company generally, employees, communities served by us, and the general public with specific oversight of corporate responsibility and sustainability, legislative and regulatory issues, and diversity management programs.
Executive Committee—Exercises powers of the board of directors between meetings, except for amending the bylaws or approving or recommending to shareowners any action or matter that under the Delaware General Corporation Law requires shareowner approval.
Finance Committee—Reviews the annual budget and business plan and the company’s performance against those plans, dividend policy, capital structure, and capital expenditures in excess of $5 million (with the authority to approve any expenditure less than $15 million), and also evaluates returns on capital expenditures.
Franchise Relationship Committee—Reviews, considers, and negotiates on behalf of the company any proposed merger or consolidation between us and The Coca-Cola Company, any purchase of an equity interest in The Coca-Cola Company, any purchase by The Coca-Cola Company of an equity interest in the company, any purchase by the company from The Coca-Cola Company of goods and services other than in the ordinary course of business, any transaction involving the acquisition or disposition by the company of franchise rights or territories, any other transaction between the company and The Coca-Cola Company or any other franchisor, not in the ordinary course of business, having an aggregate value exceeding $10 million, and any other transactions between the company and The Coca-Cola Company or any other franchisor that may be referred to the committee by the board.
While the The Coca-Cola Company is not a "related party" under applicable rules of the Securities and Exchange Commission, our related person transaction policy provides for review by the committee of the transactions described above due to the significance of the franchise relationship with The Coca-Cola Company. This committee must be composed entirely of directors who (i) are not, and for the past five years have not been, an officer, director, or employee of The Coca-Cola Company or one of its affiliates, (ii) do not own more than 1% of The Coca-Cola Company’s outstanding shares, and (iii) do not own any equity in an entity (except as permitted by (ii)) that is a party to the transaction being considered by the committee. Each member meets these qualifications.
Governance and Nominating Committee—Reviews and recommends corporate governance policies and issues in consultation with the CEO; evaluates and recommends candidates to succeed the CEO; recommends to the board of directors candidates for election to the board; reviews matters relating to potential director conflicts of interest and directors’ fees and retainers; and also considers candidates for election to the board submitted by shareowners.
The process by which the committee considers nominees to the board is described in “GOVERNANCE OF THE COMPANY—How Members of the Board of Directors Are Selected.”
Each member of this committee must be independent, and the board has determined that each member meets that qualification.
Human Resources and Compensation Committee—Establishes the company’s philosophy and goals related to our executive compensation program; coordinates evaluation of the performance of the CEO by the independent directors; approves the compensation of the CEO and other senior officers; recommends to the board of directors the adoption, termination and significant amendment of, and oversees the administration of, equity-based plans, incentive plans, and other employee benefit plans designed to provide compensation primarily for senior officers; oversees talent development and succession planning for senior officer positions (other than the position of CEO).
The committee also reviews at least annually the employee retirement programs and approves amendments to the programs. The committee may delegate responsibilities related to our retirement plans to the Global Retirement Programs Committee, a committee made up of senior management and retirement plan professionals who are responsible for the administration and investment of the assets of our company-sponsored retirement plans.
The board of directors has delegated to the Equity Award Committee, the sole member of which is our CEO, limited authority to make equity grants or modify outstanding equity awards. The Equity Award Committee cannot take any of these actions with respect to awards to senior officers of the company.
Compensation Committee Interlocks and Insider Participation
During 2011, Ms. Morali and Messrs. Humann, Ingram, Johnson, and Welling served on the company’s Human Resources and Compensation Committees. None of them has been at any time an officer or employee of the company, each was determined to be an independent director, and, none of them has had any related person transactions that require disclosure under the SEC’s proxy rules. Further, as required by the SEC’s proxy rules, we have confirmed that no executive officer of the company has served on the board of directors or compensation committee of any other entity that has, or had during any time during 2011, an executive officer who served as a member of our board of directors or our Human Resources and Compensation Committee.
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS
The following table shows the number of shares of our common stock beneficially owned by:
Unless otherwise noted, amounts are as of February 27, 2012.
* Less than one percent.
(1) The share totals include Mr. Bennink’s stock unit account balance in our directors’ deferred compensation plan that will be paid in 6,999 shares of our common stock upon distribution from the plan and that could be acquired within 60 days from the date of this table.
(2) The share totals include, for Mr. Brock, options to acquire 3,521,338 shares of our common stock that are now exercisable or that could become exercisable within 60 days from the date of this table.
(3) The share totals include Mr. Darden’s stock unit account balance in our directors’ deferred compensation plan that will be paid in 58,880 shares of our common stock upon distribution from the plan and that could be acquired within 60 days from the date of this table, and 23,339 shares of our common stock that may be acquired upon exercise of outstanding stock options that are now exercisable.
(4) The share totals include, for Mr. Douglas, options to acquire 612,102 shares of our common stock that are now exercisable or that will become exercisable within 60 days from the date of this table.
(5) The share totals include Mr. Humann’s stock unit account balance in our directors’ deferred compensation plan that will be paid in 143,070 shares of our common stock upon distribution from the plan and that could be acquired within 60 days from the date of this table, and 34,279 shares of our common stock that may be acquired upon the exercise of outstanding stock options that are now exercisable.
(6) The share totals include Mr. Ingram’s stock unit account balance in our directors’ deferred compensation plan that will be paid in 43,734 shares of our common stock upon distribution from the plan and that could be acquired within 60 days from the date of this table.
(7) The share totals include Ms. James’s stock unit account balance in our directors’ deferred compensation plan that will be paid in 45,761 shares of our common stock upon distribution from the plan and that could be acquired within 60 days from the date of this table, and 12,399 shares of our common stock that may be acquired upon the exercise of outstanding stock options that are now exercisable.
(8) The share totals include Mr. Johnson’s stock unit account balance in our directors’ deferred compensation plan that will be paid in 34,110 shares of our common stock upon distribution from the plan and that could be acquired within 60 days from the date of this table, and 16,500 shares of our common stock held in a margin account owned jointly with his wife.
(9) The share totals include Ms. Labarge’s stock unit account balance in our directors’ deferred compensation plan that will be paid in 44,401 shares of our common stock upon distribution from the plan and that could be acquired within 60 days from the date of this table, and 2,000 shares of our common stock held indirectly by 1323786 Ontario, Inc., her solely owned company.
(10) The share totals include Ms. Morali’s stock unit account balance in our directors’ deferred compensation plan that will be paid in 10,744 shares of our common stock upon distribution from the plan and that could be acquired within 60 days from the date of this table.
(11) The share totals include, for Mr. Parker, options to acquire 358,943 shares of our common stock that are now exercisable or that could become exercisable within 60 days from the date of this table.
(12) The share totals include, for Mr. Patricot, options to acquire 191,456 shares of our common stock that are now exercisable or that will become exercisable within 60 days from the date of this table.
(13) The share totals include, for Ms. Patterson, options to acquire 8,466 shares of our common stock that are now exercisable or that could become exercisable within 60 days from the date of this table.
(14) The share total for Mr. Watts, stock unit account balance in our directors’ deferred compensation plan that will be paid in 5,751 shares of our common stock upon distribution from the plan and that could be acquired within 60 days from the date of this table.
(15) The share total includes Mr. Welling’s stock account balance of 10,000 shares of our common stock held in a margin account, and one fifth of his stock unit account balance in our directors’ deferred compensation plan that will be paid in 10,164 shares of our common stock upon distribution from the plan and that could be acquired within 60 days from the date of this table.
(16) The share totals include Ms. Wood’s stock unit account balance in our directors’ deferred compensation plan that will be paid in 17,784 shares of our common stock upon distribution from the plan and that could be acquired within 60 days from the date of this table.
(17) The share totals include options to acquire 4,762,322, shares of our common stock that are now exercisable or that will become exercisable within 60 days from the date of this table, and 421,398 stock units representing shares of our common stock credited to accounts under our directors’ deferred compensation plan that could be acquired within 60 days from the date of this table.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Summerfield K. Johnston, Jr. is a more than 5% shareowner of the company. During 2011 we were parties to dry lease agreements with companies owned by Mr. Johnston (the “Johnston Companies”), which leases provide for the shared use of private aircraft at an hourly rate per flight based upon industry standard rates for the make and model of the aircraft. Additionally, the Johnston Companies lease hanger space in our Atlanta, Georgia aviation facility. In 2011, the company paid the Johnston Companies $129,076, and these companies paid us $108,900, in connection with these lease agreements.
In October 2011, these same parties formed a jointly-owned entity, Enterprises Aviation, LLC, to provide management and support services in connection with the operation of the aircraft subject to the dry leases. The company owns a 90% interest in Enterprises Aviation, and the Johnston Companies collectively own a 10% interest. In 2011, the company and the Johnston Companies paid Aviation Enterprises, LLC annual management services fees of approximately $525,000 and $86,000, respectively.
These arrangements enable us to defray a portion of the fixed costs associated with maintaining our aircraft facility and systems.
Compensation Discussion and Analysis
This Compensation Discussion and Analysis (“CD&A”) describes the principles, objectives, and features of our executive compensation program, which is generally applicable to each of our senior officers. However, this CD&A focuses primarily on the program as applied to our CEO and the other executive officers included in the Summary Compensation Table, whom we refer to collectively in this proxy statement as the “Named Executive Officers.” For 2011, our Named Executive Officers were:
Context for CCE's Executive Compensation Program
CCE became an independent public company on October 2, 2010, upon its separation from our predecessor parent company, Coca-Cola Enterprises Inc. (which we refer to as "Legacy CCE"). This separation occurred in connection with a merger in which Legacy CCE's North American business became a subsidiary of The Coca-Cola Company ("TCCC") and CCE acquired TCCC's bottling operations in Norway and Sweden. We refer to our separation and its related transactions as the "Transaction."
Certain decisions made by Legacy CCE in connection with the anticipated merger continue to be relevant to our executive compensation program. For example, Legacy CCE entered into limited-term employment agreements with its CEO and other U.S.-based senior officers that became effective between CCE and these officers upon the completion of the Transaction. The board of directors of Legacy CCE believed that preserving these officers' then-current compensation opportunities through 2013, as well as providing other retention incentives, was the best means of ensuring the recruitment of a successful senior management team to lead the new company. These agreements are discussed and are described in detail beginning on page 33. Additionally, our Human Resources and Compensation Committee (the "Compensation Committee" or "Committee") determined that it was appropriate to continue many of the principles and practices of Legacy CCE's executive compensation program in order to support a smooth transition following the Transaction and the successful launch of a newly configured business focused on establishing a long-term growth strategy.
Additionally, 2011 was CCE's was first full fiscal year. Therefore, for purposes of setting certain of our 2011 growth objectives against our 2010 performance, we established pro forma business results for 2010 based on the full-year performance of our Legacy CCE European territories, with a fourth quarter performance that included the newly acquired operations in Norway and Sweden, as well as normalized costs of our corporate headquarters. These 2010 pro forma results, three of which are noted in the next section, were reported externally and adopted by the Compensation Committee for purposes of measuring performance under certain 2011 incentive programs.
In this CD&A we refer to our pro forma comparable revenues, operating income and earnings per share ("EPS") for 2010 and 2011, which are non-GAAP financial measures. Appendix A to this proxy statement contains a reconciliation of these non-GAAP measures to our audited U.S. GAAP financial statements for these two years, as presented in our 2011 10-K filed on February 10, 2012.
Highlights of our 2011 Business Performance
The company's primary mission is to create sustained growth and increase value for our shareowners. We believe the achievement of this goal can be accomplished by the consistent delivery of several business objectives. These objectives and our 2011 pro forma performance against those objectives, as well as other significant accomplishments, are highlighted below.
Additionally, we believe that several other achievements contributed to our strong 2011 business results and favorably position us for future successes. These include:
Highlights of Our 2011 Executive Compensation Program's Pay-for-Performance Alignment
Our Compensation Committee has established an executive compensation program that ensures the interests of the company's senior leaders are appropriately aligned with those of its shareowners by rewarding performance that meets and exceeds business and individual goals. Key pay-for-performance features of our 2011 compensation program include:
Executive Compensation Program Objectives
The objectives of the company's executive compensation program are as follows:
programs should carry the risk of no payouts when the company's performance or the officer's individual performance does not meet pre-established goals and should provide the opportunity to receive additional pay when those goals are surpassed.
Executive Compensation Process
Role of the Compensation Committee
The Compensation Committee establishes our executive compensation philosophy, reviews and approves the company's executive compensation policies, plan designs, and the compensation of our senior officers, including our Named Executive Officers' compensation. The Committee considers various factors in making compensation determinations, including the officer's responsibilities and performance, the effectiveness of our programs in supporting the company's short-term and long-term goals, and the company's overall financial performances. Additionally, the Compensation Committee coordinates the full board's annual review of the CEO's performance and considers the board's assessment in its compensation decisions related to the CEO.
To assist in carrying out its responsibilities, the Compensation Committee periodically receives reports and recommendations from management and from a third-party compensation consultant that it selects and retains, as discussed below. Additionally, the Committee considered the outcome of the company's first advisory shareowner vote on our executive officers' compensation in making 2011 compensation decisions. Specifically, at the annual meeting of our shareowners held on April 26, 2011, approximately 94% of the shareowners who voted on the “say-on-pay” proposal approved the compensation of our Named Executive Officers. The Committee believes that this shareowner vote indicates strong support for our executive compensation program.
Role of Compensation Consultants
External consultants provide guidance to management and the Committee on compensation trends and program designs, bring expertise and provide an objective perspective to the process for developing proposals and evaluating our pay practices. In 2011, CCE's management engaged compensation consultants from Towers Watson (“Towers”), as well as Mercer Human Resources Consulting (“Mercer”). Specifically, Towers provided market data for the comparator group for reviewing senior officers' pay and provided market data that reflected, as appropriate, any differences between our officers' responsibilities and the survey's job descriptions to which they were compared. Mercer provided management with information on plan design and competitive practices related to equity award plans.
During 2011, Meridian Compensation Partners ("Meridian") served as the Committee's independent consultant. In addition to providing the Committee with its perspective on current trends and other developments in executive compensation, Meridian reviewed and advised the Committee on market data provided by Towers and Mercer, proposals regarding the compensation of our senior officers and compensation plan designs, including long-term incentive program design practices, generally, and within the consumer goods industry. Meridian consultants attended the majority of the Committee's meetings in person or by telephone, and corresponded with the Committee's chair and other members from time to time on specific agenda items and other ad-hoc requests. Meridian did not provide any other services to the company or its management during 2011.
Role of Management
Our CEO and senior vice president of human resources are responsible for providing recommendations to the Committee on various aspects of our executive compensation program and the senior officers' compensation, other than their own compensation. Such recommendations include, for example, the design of our annual cash incentive and equity programs, as well as business goals and performance targets under these programs.
Our CEO and senior vice president of human resources also lead a systematic approach for evaluating the performance of our senior officers, including the Named Executive Officers. The process begins by establishing specific leadership team and individual performance goals at the beginning of the year. The CEO reviews the individual objectives with the Committee and considers its input before the goals are finalized. These officers' input and recommendations are an important part of the Committee's decision-making process because they have direct knowledge of both our business objectives and each officer's contributions to the attainment of those objectives.
Finally, to assist the Committee in evaluating each senior officer's overall compensation, each year the Committee reviews tally sheets prepared by management. Tally sheets detail a senior officer's total direct and indirect compensation and assist the Committee in understanding how its compensation decisions may affect the officer's total compensation for a particular year and in future years. Tally sheets also ensure the Committee clearly understands the level of contingent liabilities that could be incurred by the company upon an executive's termination of employment under a variety of scenarios.
2011 Executive Compensation Program
To address its objective of providing competitive pay, the Compensation Committee adopted a philosophy of targeting both annual cash compensation and total direct compensation for its senior officers at the median of a comparator group comprised of general industry companies based on revenues. “Total direct compensation” is comprised of base salary, plus the target level annual incentive and target annual equity award value. Use of comparator group market data is only the starting point for any compensation decisions, as the Committee may decide to position an individual executive's target compensation opportunity above or below the median to reflect that executive's past experience, future potential and individual performance.
Consistent with Legacy CCE's approach of defining its comparator group using companies with revenues between 50% and 200% of its revenues, the Committee determined that it was appropriate to continue review our senior officers' 2011 compensation using market data based on Legacy CCE's structure and revenues. This decision was based primarily on the fact that each of the U.S.-based Named Executive Officers' employment agreements provides for target total direct compensation that was set by reference to Legacy CCE's 2010 comparator group. However, the Committee also believes that this level of compensation continues to be appropriate for our Named Executive Officers given their experience, their proven track record in delivering strong business results and the importance of their expertise and leadership in developing and executing the company's long-term business strategy.
Therefore, for 2011, the Committee considered market data comprised from 173 companies in the 2010 Towers Watson General Industry Executive Compensation Database with annual revenues from $10 to $40 billion, which companies are listed in Appendix B to this proxy statement. The median revenue for this group was approximately $15 billion. For 2011, the total direct compensation for our CEO was 7% above the median for CEOs within this comparator group. For the other Named Executive Officers, total direct compensation was within a range of 8% below to 14% above the median for their respective positions. Our Named Executive Officers receive fixed pay in the form of base salary and employee benefits, and variable pay in the form of an annual cash incentive and long-term incentive equity awards. The individual elements of compensation that make up each Named Executive Officer's total direct compensation are discussed below, as are these officers' employment agreements.
Base salary is intended to provide our senior officers with a competitive level of fixed compensation. For 2011, the Compensation Committee determined that the base salaries provided to Messrs. Brock, Douglas and Parker continued to be appropriate and did not provide any adjustments for 2011. With respect to Mr. Patricot, the Committee approved a 6.6% increase to Mr. Patricot's base salary in recognition of his successful leadership of our commercial and supply chain organizations and the expansion of his responsibilities with the new territories of Norway and Sweden. The Committee also awarded Ms. Patterson a 5.0% merit increase in recognition of her strong performance during 2010. These base salary increases were effective April 1, 2011.
The Named Executive's base salaries for 2011, as compared to 2010, were as follows:
*Mr. Patricot's base salary is paid in euros, but his 2010 and 2011 salaries are described above in dollars, based on the December 31, 2011, currency exchange rate of 1.295.
Annual Cash Incentive Awards
The Executive Management Incentive Plan (“MIP”) provides an opportunity for our senior officers to earn additional cash compensation based on the achievement of financial and individual performance goals for a given year. The financial performance goal for the 2011 MIP was based on the operating income budget under the company's annual business plan, which our board considers a key financial measure.
2011 MIP Award Opportunities
Each officer's MIP target award is expressed as a percentage of the actual base salary he or she earns over the fiscal year. For 2011, those target award percentages remained the same as in 2010 for all the Named Executive Officers, as provided for in the U.S.-based officers' employment agreements and as the Committee determined was appropriate for Mr. Patricot. The Named Executive Award 2011 MIP target award levels were as follows:
2011 MIP Performance Goals
The 2011 MIP business performance goal set by the Compensation Committee was the company's operating income, which is defined as our operating profits before interest and taxes, as adjusted for specified non-recurring items. Operating income (“OI”) is a key metric used by management, the Board, and the company's shareowners to evaluate CCE's overall financial performance, and we believe OI goals appropriately focus our senior officers on maximizing profitable revenue growth and minimizing operating expense.
For 2011, the Committee set the target OI performance goal at 100% of the OI required to attain our annual business plan, which was $975 million and represented a 7.5% increase over the prior year's pro forma OI. Under the 2011 MIP, attainment of the target OI goal would result in an award opportunity of 100% of the senior officer's target MIP award. The Committee also set a minimum level of OI performance required to be met in 2011 for any annual incentive award to be paid and a maximum OI level, above which the award payment is capped, subject to the Committee's discretionary increase of up to 30%, as discussed below, even if performance above that level was attained.
The 2011 minimum, target, and maximum performance and the corresponding award levels for OI were:
For purposes of calculating business results under the 2011 MIP, OI is determined in accordance with generally accepted accounting principles and then adjusted for various predetermined and/or nonrecurring or unusual items. These predetermined adjustments are primarily related to restructuring charges, the financial impact of certain commodity hedges, the effect of acquisitions and dispositions, the external costs and expenses associated with the completion of such transactions, and currency exchange rate fluctuations.
The annual incentive award an officer earns for business performance is also subject to adjustment by the Compensation Committee based on its evaluation of the officer's performance against his or her individual goals for the year. The adjustment can range from eliminating the award to providing up to a 30% increase. The officers' individual goals vary from year to year, but in 2011 included delivering financial results under our annual business plan, efficiency and effectiveness initiatives related to the management of operating expenses, people leadership objectives, and successful delivery of our corporate responsibility and sustainability (“CRS”) initiatives.
2011 MIP Results and Award Determinations
As described above, the award determination under the MIP is a two-step process. First, the business results are determined, and then the Committee determines whether the award levels should be adjusted based on the officer's performance
against his or her individual goals.
2011 Operating Income Results. We achieved 102% of our target OI goal under the 2011 MIP. Our OI performance versus our 2011 annual business plan was positively impacted by sustained excellence in sales and marketplace execution and management of operating expense through our “ownership cost management” initiatives. It is significant that these above-target results were achieved despite challenging economic and regulatory conditions.
Based on these OI results, the amount each senior officer could earn under the MIP, before the application of any individual performance adjustments, was 114% of his or her target award. Therefore, for our Named Executive Officers, the MIP awards based solely on business results before any adjustment for individual performance were as follows:
2011 Individual Performance Adjustments. Mr. Brock advised the Committee that each of the other executive officers had demonstrated strong individual performance within their respective roles to deliver strong business results during 2011, as well as their contributions toward significant achievements in our people and CRS objectives, as highlighted on page 27. Based on Mr. Brock's recommendations, and in recognition of their contributions to the company's business results and/or performance against his or her individual performance objectives, the Committee increased the MIP awards of each Named Executive Officer by 10% (i.e., multiplied the business-based award amount by 10%).
The Committee considered the board's assessment of Mr. Brock's leadership of the company, as well as his performance against his 2011 individual objectives, and also approved a 10% increase to his MIP award.
The 2011 MIP payouts to each Named Executive Officer are set forth in the Summary Compensation Table on page 37.
Long-Term Incentive Equity Awards
LTI awards represent the majority of each senior officer's annual direct compensation, providing an opportunity for increased compensation based on delivering business results that increase the value of our stock over time. Our LTI awards are designed to focus our leadership on taking actions that lead to the company's sustainable growth and to align their long-term interests with those of our shareowners.
For 2011, the CCE Compensation Committee approved the LTI awards granted on November 3, 2011. The target LTI values are reflected in the terms of the respective employment agreements for the U.S.-based Named Executive Officers and are the same target LTI values provided to these officers in 2010 and 2009. The Committee increased Mr. Patricot's LTI value in 2011 to recognize his successful leadership of our commercial and supply chain organizations during 2010 and 2011.
Of the target LTI grant values, 60% was delivered in the form of performance share units (“PSUs”) and the remaining 40% in stock options. The use of these two forms of equity is consistent with competitive market practice and the Committee believes these two forms, and their relative proportions, provides for the delivery of a targeted total LTI value that utilizes the company's share reserves efficiently.
The 2011 annual target LTI values, for our Named Executive Officers, as well as the allocation between PSUs and stock options, were as follows:
Although each Named Executive Officer's target LTI values are reported in the Summary Compensation Table on page 37 as 2011 compensation, for both these forms of equity, the compensation each officer actually receives, if any, is dependent on the satisfaction of vesting conditions and the future value of the company's stock.
2011 Stock Options
Stock options provide senior officers the opportunity to purchase shares of our stock at a price equal to the market price on the day of grant. After the options vest, officers can exercise this purchase right anytime during the term of the option. The 2011 options granted to Mr. Patricot will vest ratably over three years, and any vested options will remain exercisable for up to a ten-year term as long as he remains employed by the company. Reflecting the terms of their employment agreements, the U.S.-based Named Executive Officers' options will vest ratably over two years and will remain exercisable for the options' ten-year term.
2011 Performance Share Unit Awards
PSU awards provide our senior officers the opportunity to receive shares of our stock, and a cash payment equal to hypothetical dividends on such shares, only if both a performance objective and a continued-service requirement are met. Because vested PSU awards are paid out in shares of company stock after the performance-vesting requirements are satisfied, the ultimate value of any award earned by an officer is dependent on both the business results against the performance objective set by the Committee and on the trading price of the company's stock at the conclusion of the service-vesting period or, if later, the time the shares are delivered.
For the 2011 PSU awards, the service-vesting period for Mr. Patricot is 42 months from the grant date. Reflecting the terms of their employment agreements, the service-vesting period for the U.S.-based Named Executive Officers is 26 months. The payment date for the 2011 PSUs that are earned based on the performance objective described below will be 42 months after the grant date for all the Named Executive Officers.
The performance objective set by the Committee for the 2011 PSU awards is the annual growth rate in our earnings per share (“EPS”) for the 2012 fiscal year over 2011 EPS. For purposes of the PSU awards, our actual EPS is adjusted for various predetermined and/or nonrecurring or unusual items, uses a defined tax rate, excludes currency fluctuations, and limits the beneficial effects of the Company's share repurchase program. To reinforce the long-term incentive nature of these awards, any value realized from the 2011 PSU awards will depend on both the number of shares that are actually earned based on 2012 EPS results and the performance of our stock between the grant date and the payment date.
EPS was retained as the performance goal for the 2011 awards because we continue to believe that, over time, EPS results are the primary driver of our stock price, an important indicator of our profitability, and an accurate indicator of long-term company performance. In setting the specific EPS goals, the Committee considered several factors, including our 2012 business plan, as approved by the board of directors, the current operating costs specific to our business, recent and projected EPS performance for the company and for other leading consumer goods companies and broadly across the market. Based on these factors, the Committee decided that it was appropriate to set the same level of performance goals related to 2012 EPS growth to ensure that the 2011 award's performance-vesting conditions were sufficiently challenging and consistent with our 2012 business plan.
Based on a 2011 EPS of $2.18 (which was certified by the Committee in February 2012), the minimum, target, and maximum EPS performance goals, and the corresponding award levels set by the Compensation Committee for the 2011 PSU awards, are:
2010 PSU Awards' Performance Results
A portion of our Named Executive Officers' 2010 LTI award was granted as PSU awards on November 4, 2010. The 2010 PSU awards have generally the same terms as the 2011 PSUs described above, including an annual adjusted EPS growth rate performance target for 2011 of 10%. For purposes of the 2010 PSU awards, the Committee adopted a baseline EPS of $1.78, which was based on a pro forma determination of the company's 2010 EPS.
In February 2012, the Committee certified that the 2011 adjusted EPS (as required under the 2010 PSU awards) was $2.01,
representing a 13.1% increase over the baseline EPS. Under the 2010 PSU awards, the 2011 EPS results were determined without regard to the differences in our foreign currency rates and effective tax rates in 2010 and 2011, which is why the performance under these awards is not identical to the 2011 EPS results described on page 27 or to the baseline EPS the Committee established for the 2011 PSU award.
Under the 2010 PSU awards, this level of performance resulted in each Named Executive Officer earning 177% of his or her target 2010 PSU award. The service-vesting condition for the 2010 PSU awards will be met, for Mr. Patricot, on April 30, 2014, and, for the U.S.-based Named Executive Officers, on December 31, 2013. The payment date for all the Named Executive Officers' earned and vested PSUs will be April 30, 2014. The number of PSUs earned under this award is described in the “Outstanding Equity Awards at Fiscal Year-End” table on page 41.
Conversion of Legacy CCE Equity Awards
Under the Transaction agreement, equity awards held by former Legacy CCE employees that became employed by CCE on or before the Transaction's completion were converted to CCE awards, with the number of shares underlying the awards converted in accordance with the terms of the Transaction agreement. Specifically, any shares of unvested restricted stock were converted on a one-for-one basis, plus the $10 per share merger consideration paid to all shareowners. Stock options, restricted stock units, and performance stock units were converted based on a conversion ratio equal to the ratio of the trading price of Legacy CCE's stock on the day before the Transaction's closing compared to that same price less $10. Exercise prices of stock options were adjusted accordingly. The conversion methodology was intended to maintain each award's same intrinsic value immediately before and after the Transaction. A description of the converted Legacy CCE equity awards held by our Named Executive Officers at the end of 2011, and any remaining service conditions to vesting, are included in the Outstanding Equity Awards at Fiscal Year-End table that begins on page 41.
Named Executive Officers Employment Agreements
U.S.-Based Named Executive Officers' Agreements
Legacy CCE's board and compensation committee believed that securing Mr. Brock's commitment to become the chief executive officer of CCE through 2013, as well as that of the other members of his executive leadership team, was critical to ensuring the stability of a new public company, establishing its long-term strategy, and implementing a disciplined succession planning process. To accomplish this objective, Legacy CCE determined that entering into employment agreements was the best way to address the board's interest in ensuring at least a three-year commitment from these officers to lead a newly configured and European-based business and in obtaining noncompetition and other restrictive covenants that will apply following their termination of employment.
The employment agreements include a cash retention incentive for each officer, which requires the officer to continue employment with CCE through December 31, 2013 to receive the incentive payment. The Committee believes that this retention arrangement will provide a strong incentive for the officers to remain with the company during a critical period, as well as providing the opportunity to earn substantially the same amounts by completing his or her employment term as he or she could have received by declining employment with CCE and receiving severance pay from Legacy CCE.
The provisions of the U.S.-based Named Executive Officers' employment agreements, other than those related to base salary and annual incentive awards (which were discussed above), are summarized below.
Employment Term. The initial term of the agreements commenced upon the officers' transfer of employment to International CCE on September 28, 2010, and continues through December 31, 2013. Following the initial term of the agreements, CCE and the Named Executive Officers may extend the term of the agreements or negotiate other employment terms. The point at which any of these officers' employment will actually terminate has not been determined.
Terms of Annual LTI Awards. The agreements provide for annual LTI awards in 2010 through 2012 at least equal to the values described on page 31. The agreements provided that the LTI may be delivered in the form of stock options, stock units, or other forms, as the Committee determines appropriate. Options will vest ratably over the first two anniversaries of the grant date through 2013. The performance stock units will vest based on continued service through the end of the agreement term and will include performance-vesting requirements to be established when the awards are granted. The service-vesting conditions for any other equity the Committee may grant to the officers during the term of the agreement also will be based on continued service through 2013.
Terms of Inaugural Restricted Stock Unit Award. The agreements also provide for a one-time, inaugural restricted stock unit (“RSU”) award, the value and terms of which were described in our 2011 proxy statement and which are reflected in the table that begins on page 42.
Retention Incentive. Each Named Executive Officers' employment agreement provides for a retention incentive in the form of a lump-sum cash payment in a specified amount, plus interest, payable in July 2014, provided the officer remains employed through December 31, 2013. The amount of the retention incentives are as follows:
Other Benefits. The Named Executive Officers are entitled to the same benefit plans and programs as are offered to our other U.S.-based employees.
Payments Upon Involuntary Termination of Employment Without Cause or Voluntary Termination of Employment for Good Reason. If a Named Executive Officer's employment is involuntarily terminated by CCE without cause, or the officer voluntarily terminates employment for good reason, he or she will become entitled to the following payments and benefits:
For this purpose, “good reason” includes a material decrease in pay or bonus opportunity, material diminution of authority or responsibility, or a relocation of more than 50 miles; and “cause” is defined as (a) gross misconduct by the executive that is materially detrimental to the company, (b) acts of personal dishonesty or fraud by the executive toward the company, or (c) the executive’s conviction of a felony.
If the officer's involuntary termination without cause or voluntary termination for good reason occurs within two years following a change in control, he or she will be entitled to full vesting of all equity awards, rather than pro rata vesting and the requirement that actual performance measures must be satisfied.
Payments upon Disability or Death. In the event of a Named Executive Officer's disability or death during the term of the agreement, the Named Executive Officer (or his or her beneficiary) would receive the following:
Restrictive Covenants. The agreements subject the Named Executive Officers to a number of obligations. The Named Executive Officers will be required to execute a release of claims before receiving any severance pay. In addition, the officer cannot compete with CCE by becoming employed by certain “direct competitors” for a period of 12 to 24 months, depending on the number of months of severance to which he or she is entitled. During this same period, the Named Executive Officer cannot solicit CCE's customers on behalf of any non-alcoholic beverage business and cannot hire away CCE employees.
“Clawback” Provision. A Named Executive Officer will be required to repay any severance pay and certain gains from equity awards in the event that two-thirds of the CCE Board of Directors determines (i) within two years of the officer's termination of employment, that he could have been terminated for cause, (ii) that he or she has violated the agreement's noncompetion or nonsolicitation covenants, or (iii) that he or she engaged in fraud or ethical misconduct that resulted in or
directly contributed to the restatement of CCE's financial results. A Named Executive Officer also may be required to repay incentive compensation if the item (iii) is applicable.
Mr. Patricot's Employment Agreement
Mr. Patricot's employment continues to be governed by his 2009 employment agreement with Legacy CCE's United Kingdom subsidiary, which became a subsidiary of CCE in connection with the Transaction.
Mr. Patricot, a French citizen, is based in the United Kingdom. To mitigate costs associated with maintaining dual residences, increased tax reporting obligations, and maintaining prior levels of retirement savings opportunities, Mr. Patricot's employment agreement provides for the following benefits:
In the event of Mr. Patricot's involuntary termination without cause, Mr. Patricot would be entitled to a payment equal to two times his base salary and target bonus at the time of such termination, subject to restrictive covenants under his employment agreement, including a six month non-competition period and a 12-month non-solicitation period.
Executive Benefit Programs
Our senior officers participate in our company-sponsored benefit programs on generally the same basis as other salaried employees in the country in which they are based. These benefits are designed to provide protection against the financial hardship that can result from illness, disability, or death, and to provide retirement income. In addition to these broad-based benefit programs, our Named Executive Officers are eligible to participate in the following executive-level benefit programs.
The U.S.-based Named Executive Officers participate in a tax-qualified defined contribution plan to which the company contributes 7% of each employee's compensation, up to Internal Revenue Code (“IRC”) limits. To the extent that the full 7% cannot be contributed to the qualified plan due to IRC limits, contributions are made to our nonqualified defined contribution plan, but only taking into consideration compensation up to $500,000. Therefore, the maximum amount of combined contributions to these plans that any employee may receive during a calendar year is $35,000. These executive officers are also permitted to elect to defer up to 70% of their base salary and annual incentives under the nonqualified defined contribution plan.
Mr. Patricot, who is a French citizen and participates in the French social security program, does not participate in any retirement plans sponsored by the company or its subsidiaries.
Executive Welfare Plan Benefits
All U.S.-based employees are covered under a long-term disability program that provides a monthly disability benefit of up to 60% of the employee's salary, up to $10,000 a month. Our U.S.-based executives, including the Named Executive Officers, are also provided a monthly disability benefit of an additional 10% of his or her base salary, up to a maximum additional benefit of $5,000 a month. Also, these Named Executive Officers, as well as other members of management, are eligible to participate in an executive physical program that provides enhanced diagnostic screenings and services.
Other Benefits or Perquisites
In 2011, we provided limited other perquisites to our other senior officers, including the Named Executive Officers. Offered to all U.S.-based employees, our Named Executive Officers are eligible to participate in our charitable matching gifts program that makes a matching company donation to qualifying tax-exempt educational, arts and cultural organizations. Additionally, our executive leadership team sponsors incentive award programs that include travel and entertainment for participants and their spouses. While we consider these programs to be business-related, certain of their costs may be imputed to the participants as income under tax regulations. When this is the case, the company does not reimburse the executives for the taxes on income related to their own participation. However, because the Committee believes that the attendance of the executives' spouses serves a valid business purpose in 2011, it approved reimbursements for taxes associated with income attributable to a spouse's attendance, as approved by the CEO. (At his request, this tax reimbursement opportunity was not made available to Mr. Brock.) The amount of such tax reimbursements and the value of any other perquisites (if a requisite
value is met) are included in the All Other Compensation column of the Summary Compensation Table on page 37.
As described above on page 35, Mr. Patricot receives additional benefits and perquisites under his employment agreement. Provision of a company car and related allowances are a customary form of compensation within the European market, and the other contractual benefits were provided to address and mitigate the increased costs associated with Mr. Patricot becoming ineligible for participation in Legacy CCE's international assignment program when he assumed the leadership of its European business unit in 2008.
Additionally, the company operates aircraft that are used by our senior officers and other members of senior management to conduct company business. For personal security reasons, Mr. Brock is required by the board to use the company aircraft for all air travel, both business and personal. Other senior officers make limited use of the company aircraft for personal travel with the permission of the CEO. When officers, including Mr. Brock, use the company aircraft for personal reasons, the value of that use is reported as income, and they are responsible for the applicable taxes on that income. Effective with respect to 2011 and thereafter, the Committee has adopted a policy that provides that the CEO and senior officers will reimburse the company for the incremental costs associated with certain types of personal travel. When an officer reimburses the company such costs, income for the personal use of the aircraft is generally not imputed to the officer for tax purposes.
Other Policies and Considerations
Compensation Risk Considerations
With respect to any Committee decision regarding senior officers' performance-based compensation opportunities, the Committee takes into consideration whether such opportunities would encourage the officers to take excessive or unreasonable business risks to realize the compensation at issue. Although a significant portion of our executive compensation opportunities are performance-based, the Committee does not believe that our executive compensation program encourages excessive risk-taking. Rather, the Committee has constructed the program to align the majority of each executive officer's compensation opportunities with the performance of the company's stock over longer periods of time (e.g., stock options with a ten-year term and PSU awards that are not payable for 42 months after grant).
The goals established under both the annual and long-term incentive programs by the Committee are directly related to the annual and strategic long-term business plans that are reviewed and approved by the full board. These plans and the progress against them are reviewed by the full board throughout the year. Directors are provided with detailed operational input and financial results, receiving a monthly report from senior management for those months in which there is no board meeting. Further, the board and the Committee hold executive sessions at each meeting and have open access to senior management or members of their teams throughout the year to discuss any business issues. Through all of these mechanisms the board and Committee have detailed visibility of the financial performance and contributing aspects of the company's performance to ensure that there have been no excessive or inappropriate risks taken to achieve results.
Stock Ownership Policy
Our stock ownership policy requires that each senior officer acquire and maintain significant levels of company stock, generally within five years of becoming subject to the policy. The ownership levels are determined as a multiple of the senior officer's base salary: five times for the CEO, three times for an executive vice president, two times for a senior vice president and one time for a corporate vice president. An officer's current ownership level, which is reviewed annually, is determined by including shares owned by the officer or an immediate family member, 60% of the value of shares underlying in-the money options, and all performance stock units or restricted stock units for which the performance conditions to vesting have been met. As of December 31, 2011, each of the Named Executive Officers had met his or her respective stock ownership levels.
Our stock ownership policy also prohibits any executive from engaging in hedging strategies using puts, calls, or other derivative securities based on the value of the company's stock.
Equity Award Grant Policy
The Compensation Committee is solely responsible for making or modifying equity awards to our senior officers. The board has delegated authority to the CEO to make and modify equity awards to employees other than senior officers, subject to certain limits and procedural controls.
Our equity grant policy requires the exercise price for stock option grants to be at least equal to the closing market price on the grant date. The “grant date” is defined as the date on which both final approval of a grant has occurred and all of the elements of the grant are known. Our policy also sets forth the procedural and control requirements for granting annual, new hire, and promotional equity awards, and these requirements are rigorously followed.
Tax and Accounting Considerations
The Compensation Committee and management consider the accounting and tax effects of various compensation elements when designing our annual incentive and equity compensation plans and making other compensation decisions. Although we design our plans and programs to be tax-efficient and to minimize compensation expense, these considerations are secondary to meeting the overall objectives of the executive compensation program.
IRC Section 162(m)
One of the significant tax considerations is IRC Section 162(m) of the Internal Revenue Code, which limits the tax deduction available for compensation over $1 million paid to a public company's CEO and to each of the three other most highly compensated executive officers (other than the CFO) unless such compensation is “performance-based.” To the extent consistent with our executive compensation program and the officers' employment agreements, we have designed our executive compensation program to be performance-based and also to comply with requirements for tax deductibility where feasible.
Following the Transaction, transition rules under Section 162(m) permitted the company to make certain performance-based awards under the 2010 Incentive Award Plan that qualified as “performance based.” However, unless the material terms of the performance measures under the 2010 Incentive Award Plan are approved by shareowners at our 2012 annual meeting, compensation paid to Section 162(m)-covered officers under the current and future incentive programs may not be deductible to the company. Therefore, we are requesting that shareowners approve the performance measures described on page 51 in order to allow us to make performance-based awards. The approval of these performance measures will not increase the number of shares available for awards or the cost of the plan, but it will increase the tax efficiencies associated with the payment of certain awards made under this plan.
Summary Compensation Table
All amounts shown are in U.S. dollars.
(1) CCE became a public company on October 2, 2010, and we paid the compensation for our Named Executive Officers’ for the period of October 2, 2010, through December 31, 2010. However, we have included compensation provided to these officers by Legacy CCE for the period of January 1, 2010 through October 1, 2010, in order to give a complete description of the compensation they received in 2010. Also, we have included Legacy CCE compensation information for 2009, except that the table does not include compensation information for Ms. Patterson because she was not a Named Executive Officer of Legacy CCE for that year. We have not, however, included 2009 and 2010 information regarding accruals under Legacy CCE's defined benefit pension plans because the officers no longer participate in those plans, and, as of December 2010, we do not maintain any defined benefit plans.
(2) Mr. Patricot’s salary has been converted to U.S. dollars from euros based on the average of the daily exchange rates for 2011, which was 1.392. The 2010 and 2009 amounts were based on exchange rates of 1.328 and 1.395, respectively.
(3) Amounts shown reflect the aggregate fair value of the 2011 performance share unit (“PSU”) awards as of their grant date calculated in accordance with ASC Topic 718, excluding the effect of estimated forfeitures. The values were calculated by multiplying the closing price of the company’s stock on the grant date by, the number of shares if actual performance during the applicable performance period is consistent with the probable performance determined as of the grant date, which was 100% of target award for 2011.
For the 2011 PSU awards, the value at the grant date, assuming the highest level of performance (200% of the target) and the closing share price on that date ($26.10), are as follows:
Dividend equivalents provided for under the 2011 PSU awards were taken into account in determining the fair value of the underlying awards. No assumptions were made regarding the nontransferability for the awards. The valuation assumptions used for determining the amounts discussed in this footnote are provided in Note 11 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.
(4) Amounts shown reflect the aggregate fair value of 2011 stock option awards as of their grant date calculated in accordance with ASC Topic 718. The values were calculated using the Black-Scholes valuation model. The valuation assumptions used for determining the amounts discussed in this footnote are provided in Note 11 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.
(5) Amounts shown reflect the Named Executive Officers’ total annual incentive earned during 2011 under the Executive Management Incentive Plan (“MIP”). These amounts were approved by the Human Resources and Compensation Committee at its February 6, 2012, meeting and will be paid in March 2012. Mr. Patricot’s non-equity incentive plan compensation has been converted to U.S. dollars from euros based on the daily exchange rate of 1.315, which was the rate on February 6, 2012, the date on which the Human Resources and Compensation Committee approved Mr. Patricot’s MIP award payment. Amounts shown are not reduced to reflect deferrals, if any, to qualified or nonqualified deferred compensation plans.
(6) Amounts shown as “All Other Compensation” reflect, for each Named Executive Officer, the sum of (i) the incremental cost to the company of all perquisites and other personal benefits, (ii) the amount of any tax reimbursements or gross-up payments, and (iii) the amounts contributed by the company to a defined contribution plan maintained by the company.
(a) This table outlines those perquisites and other personal benefits required by SEC rules to be separately described and/or quantified. A dash indicates that the Named Executive Officer received this type of perquisite or personal benefit but the amount is not required to be disclosed in this footnote under SEC rules.
(b) Amounts shown reflect the incremental cost of personal use of company aircraft by Mr. Brock during 2011. These amounts were calculated based on the variable operating costs to the company for each flight hour attributed to personal use (as well as any flight hours attributable to empty pick-up or return flights), including fuel costs; labor, parts, and maintenance costs; landing and parking fees; on-board catering costs; and crew expenses during layovers. These per-hour costs were determined by using industry-standard cost-estimating guides, which are updated semi-annually. Because company aircraft are used primarily for business purposes, the amounts provided exclude fixed costs, such as pilot salaries and training and overhead costs associated with our aircraft hangar.
(c) Under Mr. Patricot’s employment agreement, the company covers the cost of tax return preparation assistance to Mr. Patricot. The exchange rate used to convert the amount included for this payment from British pounds sterling to U.S. dollars was 1.605, the average daily exchange rate during 2011. Under Ms. Patterson’s employment agreement, the company provides an annual allowance that may be, but is not required to be, used for legal and financial planning assistance.
(d) No contributions were made to a company-sponsored savings plans on Mr. Patricot’s behalf during 2011; however, pursuant to his employment agreement, he received a direct payment equal to the amount the company would have contributed to its French profit sharing plans in 2011 on his behalf had he been eligible to participate in such plans. The exchange rate used to convert this payment from euros to U.S. dollars was 1.439, the exchange rate on the date the payment was made.
(e) Amount reflects payments of a mobility allowance to Mr. Patricot related to his localization in Great Britain. This amount was paid pursuant to the terms of Mr. Patricot’s employment agreement. The exchange rate used to convert this payment from euros to U.S. dollars was 1.392, the average daily exchange rate for 2011. The amount shown also reflects the incremental cost to the company for Mr. Patricot’s participation in a recognition/reward travel program sponsored by the executive leadership team. The exchange rate used to convert these costs from euros to U.S. dollars was 1.295, the exchange rate as of December 31, 2011.
(f) Mr. Patricot receives the same auto allowance offered to all executives who are based in Great Britain. The exchange rate used to convert the amount included for this allowance from euros to U.S. dollars was 1.392, the average daily exchange rate in 2011.
(g) "Other” category includes items the company-paid costs for the U.S.-based officer’s participation in the executive physical program and premiums related to supplemental long-term disability coverage, as well as the company’s matching gifts under its charitable gifts program.
As noted above, “All Other Compensation” also includes the amounts contributed by the company to defined contribution plans and the amount of any company-paid taxes, which, for 2011, was as follows:
(a) Amounts shown for U.S.-based Named Executive Officers reflect company contributions made and/or credited on their behalf under our 401(k) plan and nonqualified supplemental savings plan. For each of these officers, amounts include the company's "look-back" matching contributions related to their participation in the nonqualified plan during 2010, which amounts were credited in 2011 in accordance with the terms of the plan.
(b) Amount shown reflects a tax gross-up payment to Mr. Patricot, which is related to the 2011 payment the company made to him in lieu of participation in a company-sponsored defined contribution plan, which is a term of his employment agreement. The exchange rate used to convert this payment to U.S. dollars from euros was 1.439, the rate on the date the payment was made.
Grants of Plan-Based Awards
The following table summarizes the annual incentive and equity awards granted to the Named Executive Officers during 2011. The following paragraphs describe the general terms of these awards; however, the provisions of these awards that apply upon a grantee’s termination of employment under various scenarios are summarized in the “Potential Payments upon Termination or Change in Control” section beginning on page 44.
Incentive Compensation. The company provided an annual cash incentive opportunity to executives under the 2011 Executive Management Incentive Plan (“MIP”). A description of the MIP’s design, relevant performance targets and actual performance is provided in the CD&A beginning on page 26.
Annual Stock Option Awards. On November 3, 2011, the Named Executive Officers were awarded stock options with an exercise price of $26.10. For Mr. Patricot, these options vest in one-third increments on November 3, 2012, 2013, and 2014. For the U.S.-based Named Executive Officers, these options vest in one-half increments on November 3, 2012 and 2013. The U.S.-based Named Executive Officers’ vested options may be exercised for ten years after the date of grant. Mr. Patricot’s vested options may be exercised for ten years after the date of grant, assuming continued employment.
Annual Performance Share Unit Awards. On November 3, 2011, the Named Executive Officers were awarded PSUs, which entitle them to shares of company stock (and a cash payment representing hypothetical dividends) if the award’s vesting conditions are satisfied. A description of the 2011 PSU design and relevant performance targets are provided in the CD&A beginning on page 32.
GRANTS OF PLAN-BASED AWARDS