DUPONT E I DE NEMOURS & CO DEF 14A 2007
Documents found in this filing:
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant þ
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Check the appropriate box:
E. I. du Pont de Nemours and Company
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(Name of Person(s) Filing Proxy Statement, if other than Registrant)
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March 19, 2007
You are invited to attend the Companys 2007 Annual Meeting on Wednesday, April 25, 2007, at 10:30 a.m. local time in the DuPont Theatre, DuPont Building, Wilmington, Delaware.
The enclosed Notice of Annual Meeting and Proxy Statement provide information about the governance of our Company and describe the various matters to be acted upon during the meeting. In addition, there will be a report on the state of the Companys business and an opportunity for you to express your views on subjects related to the Companys operations.
To make it easier for you to vote your shares, you have the choice of voting over the Internet, by telephone, or by completing and returning the enclosed proxy card. The proxy card describes your voting options in more detail.
If you are a registered stockholder or if you hold DuPont Common Stock through a Company savings plan, your admission ticket for the Annual Meeting is included on your proxy card. If you hold shares in a brokerage account, please refer to page 1 of the Proxy Statement for information on how to attend the meeting. If you need special assistance, please contact the DuPont Stockholder Relations Office at 302-774-3034.
In 2006, DuPont remained focused on our three growth strategies: putting our science to work, going where the growth is, and capitalizing on the power of One DuPont. The Annual Meeting gives us an opportunity to review our progress. We appreciate your ownership of DuPont, and I hope you will be able to join us on April 25.
C. O. Holliday, Jr.
E. I. du Pont de Nemours and Company
March 19, 2007
To the Holders of Common Stock of
E. I. du Pont de Nemours and Company
NOTICE OF ANNUAL MEETING
The Annual Meeting of Stockholders of E. I. DU PONT DE NEMOURS AND COMPANY will be held on Wednesday, April 25, 2007, at 10:30 a.m. local time, in the DuPont Theatre in the DuPont Building, 1007 Market Street, Wilmington, Delaware. The meeting will be held to consider and act upon the election of directors, the ratification of the Companys independent registered public accounting firm, a management proposal on the Companys Equity and Incentive Plan, stockholder proposals described in the Proxy Statement and such other business as may properly come before the meeting.
Holders of record of DuPont Common Stock at the close of business on March 2, 2007, are entitled to vote at the meeting.
This notice and the accompanying proxy materials are sent to you by order of the Board of Directors.
Mary E. Bowler
Registered stockholders and holders of shares in the Companys U.S. employee benefit plans may request their proxy materials electronically in 2008 by visiting www.computershare.com/us/ecomms. Stockholders with brokerage accounts can determine if their brokers offer electronic delivery by visiting www.icsdelivery.com.
2007 ANNUAL MEETING OF STOCKHOLDERS
The enclosed proxy materials are being sent at the request of the Board of Directors of
E. I. du Pont de Nemours and Company to encourage you to vote your shares at the Annual Meeting of Stockholders to be held April 25, 2007. This Proxy Statement contains information on matters that will be presented at the meeting and is provided to assist you in voting your shares.
The Companys 2006 Annual Report on Form 10-K, containing managements discussion and analysis of financial condition and results of operations of the Company and the audited financial statements, and this Proxy Statement were distributed together beginning March 19, 2007.
All holders of record of DuPont Common Stock as of the close of business on March 2, 2007 (the record date) are entitled to vote at the meeting. Each share of stock is entitled to one vote. As of the record date, 924,596,782 shares of DuPont Common Stock were outstanding. A majority of the shares voted in person or by proxy is required for the approval of each of the proposals described in this Proxy Statement. Abstentions and broker non-votes are not counted in the vote. At least a majority of the holders of shares of DuPont Common Stock as of the record date must be present either in person or by proxy at the meeting in order for a quorum to be present.
Even if you plan to attend the meeting you are encouraged to vote by proxy. You may vote by proxy in one of the following ways:
When you vote by proxy, your shares will be voted according to your instructions. If you sign your proxy card but do not specify how you want your shares to be voted, they will be voted as the Board of Directors recommends. You can change or revoke your proxy by Internet, telephone or mail at any time before the polls close at the Annual Meeting.
If you are a stockholder of record or if you hold stock through one of the savings plans listed below, your admission ticket is attached to your proxy card. You will need to bring your admission ticket, along with picture identification, to the meeting. If you own shares in street name, please bring your most recent brokerage statement, along with picture identification, to the meeting. The Company will use your brokerage statement to verify your ownership of DuPont Common Stock and admit you to the meeting.
Please note that cameras, sound or video recording equipment, or other similar equipment, electronic devices, large bags or packages will not be permitted in the DuPont Theatre.
If you participate in one of the following plans, your voting instruction card will include the shares you hold in the plan:
DuPont 401(k) and Profit Sharing Plan for:
DuPont Holographics, Inc.,
DuPont Display Solutions, Inc.,
DuPont Displays, Inc.,
Inpaco Corporation, and
DuPont Powder Coatings USA Profit Sharing Plan
DuPont Retirement Savings Plan
DuPont Savings and Investment Plan
Pioneer Hi-Bred International, Inc. Savings Plan
Solae Savings Investment Plan
Thrift Plan for Employees of Sentinel Transportation, LLC
The plan trustees will vote according to the instructions received on your proxy. If proxies for shares in savings plans are not received by Internet, telephone or mail, those shares will be voted by the trustees as directed by the plan sponsor or by an independent fiduciary selected by the plan sponsor.
At each annual meeting stockholders are asked to elect directors to serve on the Board of Directors and to ratify the appointment of the Companys independent registered public accounting firm for the year. Other proposals may be submitted by the Board of Directors or stockholders to be included in the proxy statement. To be considered for inclusion in the 2008 Annual Meeting Proxy Statement, stockholder proposals must be received by the Company no later than November 17, 2007.
For any proposal that is not submitted for inclusion in next years proxy statement, but is instead sought to be considered as timely and presented directly at the 2008 Annual Meeting, Securities and Exchange Commission rules permit management to vote proxies in its discretion if the Company: (1) receives notice of the proposal before the close of business on January 31, 2008 and advises stockholders in the 2008 Annual Meeting Proxy Statement about the nature of the matter and how management intends to vote on such matter; or (2) does not receive notice of the proposal prior to the close of business on January 31, 2008.
The Corporate Governance Committee recommends nominees to the Board of Directors for election as directors at each annual meeting. The Committee will consider nominations submitted by stockholders of record and received by the Secretary of the Company by the first Monday in December. Nominations must include a statement by the nominee indicating a willingness to serve if elected and disclosing principal occupations or employment for the past five years.
The Proxy Committee is composed of directors of the Company who vote as instructed the shares of DuPont Common Stock for which they receive proxies. Proxies also confer upon the Proxy Committee discretionary authority to vote the shares on any matter which was not known to the Board of Directors a reasonable time before solicitation of proxies, but which is properly presented for action at the meeting.
The Company will pay all costs relating to the solicitation of proxies. Innisfree M&A Incorporated has been retained to assist in soliciting proxies at a cost of $10,000 plus reasonable expenses. Proxies may be solicited by officers, directors and employees of the Company personally, by mail, or by telephone or other electronic
means. The Company will also reimburse brokers, custodians, nominees and fiduciaries for reasonable expenses in forwarding proxy materials to beneficial owners of DuPont Common Stock.
As a matter of policy, proxies, ballots and voting tabulations that identify individual stockholders are held confidential by the Company. Such documents are available for examination only by the independent tabulation agents, the independent inspectors of election and certain employees associated with tabulation of the vote. The identity of the vote of any stockholder is not disclosed except as may be necessary to meet legal requirements.
Strong corporate governance is an integral part of the Companys core values, supporting the Companys sustainable growth mission. DuPont is committed to having sound corporate governance principles and practices. Please visit the Companys website at www.dupont.com, under the Investor Center caption, for the Boards Corporate Governance Guidelines, the Board-approved Charters for the Audit, Compensation and Corporate Governance Committees and related information. These Guidelines and Charters may also be obtained free of charge by writing to the Corporate Secretary.
The following chart shows the current committee membership and the number of meetings that each committee held in 2006.
C = Chair
*Not standing for election
Directors fulfill their responsibilities not only by attending Board and committee meetings but also through communication with the Chairman and Chief Executive Officer and other members of management relative to matters of mutual interest and concern to the Company.
In 2006, eight meetings of the Board were held. Each director attended at least 86% of the aggregate number of meetings of the Board and the committees of the Board on which the director served. Attendance at these meetings averaged 96% among all directors in 2006.
As provided in the Boards Corporate Governance Guidelines, directors are expected to attend the Companys Annual Meeting of Stockholders. All directors, except Alain J.P. Belda, attended the 2006 Annual Meeting.
The Board of Directors has adopted written policies and procedures relating to the approval or ratification of Related Person Transactions. Under the policies and procedures, the Corporate Governance Committee (Committee) (or its Chair, under some circumstances) reviews the relevant facts of all proposed Related
Person Transactions and either approves or disapproves of the entry into the Related Person Transaction, by taking into account, among other factors it deems appropriate:
No director may participate in any discussion or approval of a Related Person Transaction for which he or she or any of his or her immediate family members is the Related Person. Related Person Transactions are approved or ratified only if they are determined to be in the best interests of DuPont and its stockholders.
If a Related Person Transaction that has not been previously approved or previously ratified is discovered, the Related Person Transaction will be presented to the Committee for ratification. If such Related Person Transaction is not ratified by the Committee, then the Company shall either ensure all appropriate disclosures regarding the transaction are made or, if appropriate, take all reasonable actions to attempt to terminate the Companys participation in such transaction.
Under the Companys policies and procedures, a Related Person Transaction is generally any financial transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness) or any series of similar transactions, arrangements or relationships in which DuPont was, is or will be a participant and the aggregate amount involved exceeds $120,000 in any fiscal year, and in which any Related Person had, has or will have a direct or indirect material interest. A Related Person is generally any person who is, or at any time since the beginning of DuPonts last fiscal year was, (i) a director or executive officer of DuPont or a nominee to become a director of DuPont; (ii) any person who is known to be the beneficial owner of more than 5% of any class of DuPonts outstanding Common Stock; or (iii) any immediate family member of any of the foregoing persons.
As discussed above, the Corporate Governance Committee is charged with reviewing issues involving independence and all Related Person Transactions. DuPont and its subsidiaries purchase products and services from and/or sell products and services to companies of which certain of the directors of DuPont are executive officers. The Corporate Governance Committee and the Board have reviewed such transactions and relationships and do not consider the amounts involved in such transactions material. Such purchases from and sales to each company involve less than either $1 million or 2% of the consolidated gross revenues of each of the purchaser and the seller and all such transactions are in the ordinary course of business. Some such transactions are continuing, and it is anticipated that similar transactions will occur from time to time. The spouse of Ms. Kullman, an executive officer, is Marketing Director-Innovation at DuPont and received total compensation in 2006 valued at $312,000, which is commensurate with that of his peers.
Stockholders and other parties interested in communicating directly with the Board, presiding director or other outside director may do so by writing in care of the Corporate Secretary. The Boards independent directors have approved procedures for handling correspondence received by the Company and addressed to the Board, presiding director or other outside director. Concerns relating to accounting, internal controls or auditing matters are immediately brought to the attention of the Companys internal audit function and handled in accordance with procedures established by the Audit Committee with respect to such matters, which include an anonymous toll-free hotline (1-800-476-3016) and a website through which to report issues (https://reportanissue.com/dupont/welcome).
The Board has adopted a Code of Business Conduct and Ethics for Directors with provisions specifically applicable to directors. In addition, the Company has a long-standing Business Ethics Policy and Business Conduct Guide applicable to all employees of the Company, including executive officers. The Business Ethics
Policy, Business Conduct Guide and Code of Business Conduct and Ethics for Directors are available on the Companys website (www.dupont.com). Copies of these documents may also be obtained free of charge by writing to the Corporate Secretary.
The Office of the Chief Executive (OCE) has responsibility for the overall direction and operations of all the businesses of the Company and broad corporate responsibility in such areas as corporate financial performance, environmental leadership and safety, development of global talent, research and development and global effectiveness. All seven members are executive officers.
The Audit Committee of the Board of Directors (the Committee) assists the Board in fulfilling its oversight responsibilities with respect to the external reporting process and the adequacy of the Companys internal controls. Specific responsibilities of the Committee are set forth in the Audit Committee Charter adopted by the Board and last amended and restated effective February 1, 2004. The Charter is available on the Companys website (www.dupont.com).
The Committee is comprised of four directors, all of whom meet the standards of independence adopted by the New York Stock Exchange and the Securities and Exchange Commission. Subject to stockholder ratification, the Committee appoints the Companys independent registered public accounting firm. The Committee approves in advance all services to be performed by the Companys independent registered public accounting firm in accordance with the Committees Policy on Pre-approval of Services Performed by the Independent Registered Public Accounting Firm. A summary of the Policy is attached to this Proxy Statement at Appendix A.
Management is responsible for the Companys financial statements and reporting process, for establishing and maintaining an adequate system of internal control over financial reporting, and for assessing the effectiveness of the Companys internal control over financial reporting. PricewaterhouseCoopers LLP (PwC), the Companys independent registered public accounting firm, is responsible for auditing the Companys consolidated financial statements, for attesting to Managements Report on Internal Control over Financial Reporting, and for assessing the effectiveness of internal control over financial reporting. The Committee has reviewed and discussed the Companys 2006 Annual Report on Form 10-K, including the audited consolidated financial statements of the Company and Managements Report on Internal Control over Financial Reporting, for the year ended December 31, 2006 with management and with representatives of PwC.
The Committee has also discussed with PwC matters required to be discussed by Statement on Auditing Standards No. 61 (Communications with Audit Committees), as amended. The Committee has received from PwC the written disclosures required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and has discussed with PwC its independence.
The Committee has considered whether the provision to the Company by PwC of limited nonaudit services is compatible with maintaining the independence of PwC. The Committee has satisfied itself as to the independence of PwC.
Based on the Committees review of the audited consolidated financial statements of the Company, and on the Committees discussions with management of the Company and with PwC, the Committee recommended to the Board of Directors that the audited consolidated financial statements be included in the Companys Annual Report on Form 10-K for the year ended December 31, 2006.
Lois D. Juliber, Chair
Curtis J. Crawford
John T. Dillon
Nonemployee directors receive compensation for Board service which is designed to fairly compensate directors for their Board responsibilities and align their interests with the long-term interests of stockholders. An employee director receives no additional compensation for Board service.
The Compensation Committee, which consists solely of independent directors, has the primary responsibility to review and consider any revisions to directors compensation. The process for setting director pay is guided by the following principles:
With the assistance of Mercer Human Resource Consulting (Mercer or the Consultant), the compensation consultant retained by the Compensation Committee, the Committee closely monitors trends in director compensation in the marketplace.
The compensation program for nonemployee directors for 2006 and 2007 is described in detail in the chart set forth below:
The Company does not pay meeting fees, but it does pay for or reimburses directors for reasonable travel expenses related to attending Board, Committee, educational, and Company business meetings. Spouses are invited occasionally to accompany directors to Board-related events. In such situations, the Company pays or reimburses travel expenses for spouses. These travel expenses are imputed as income to the directors and are grossed up to cover taxes. In 2005, the Company held a Board of Directors meeting in Asia to which spouses of directors were invited. Amounts representing imputed income and associated tax gross-up amounts in connection with this trip were paid in 2006 and ranged from $0 to $27,585 per director. Details are reflected in the following Directors Compensation table:
Stock ownership guidelines require each nonemployee director to hold DuPont Common Stock equal to a multiple of two times the annual retainer. Directors have up to five years from date of election to achieve the required ownership. As of the end of 2006, seven of ten directors met or exceeded the ownership requirements. The three remaining directors have several more years to achieve the guideline level.
Under the DuPont Stock Accumulation and Deferred Compensation Plan for Directors, a director may defer all or part of the Board and Committee fees in cash or stock units until a specified year, until retirement as a director, or until death. Interest accrues on deferred cash payments and dividend equivalents accrue on deferred stock units. This deferred compensation is an unsecured obligation of the Company.
The Companys retirement income plan for nonemployee directors was discontinued in 1998. Nonemployee directors who began their service on the Board before the plans elimination continue to be eligible to receive benefits under the plan. Annual benefits payable under the plan equal one-half of the annual Board retainer (exclusive of any Committee compensation and stock, restricted stock units or option grants) in effect at the directors retirement. Benefits are payable for the lesser of life or ten years.
The Directors Charitable Gift Plan was established in 1993. After the death of a director, the Company will donate five consecutive annual installments of up to $200,000 each to tax-exempt educational institutions or charitable organizations recommended by the director and approved by the Company.
A director is fully vested in the Plan after five years of service as a director or upon death or disability. The Plan is unfunded; the Company does not purchase insurance policies to satisfy its obligations under the Plan. The directors do not receive any personal financial or tax benefit from this program because any charitable, tax-deductible donations accrue solely to the benefit of the Company. Employee directors may participate in the Plan if they pay their allocable cost.
The Company also maintains $300,000 accidental death and disability insurance on nonemployee directors.
The 11 nominees for election as directors are identified on pages 15 through 17. All nominees are now members of the Board of Directors with the exception of Robert A. Brown and Bertrand P. Collomb. Two current directors, Alain J.P. Belda and Charles M. Vest, are not standing for election.
The Board has determined that, except for C. O. Holliday, Jr., the Chairman and CEO, each of the nominees is independent within the independence requirements of the NYSE listing standards and in accordance with the Guidelines for Determining the Independence of DuPont Directors set forth in the Boards Corporate Governance Guidelines. See pages 3-5.
The Board knows of no reason why any nominee would be unable to serve as a director. If any nominee should for any reason become unable to serve, the shares represented by all valid proxies will be voted for the election of such other person as the Board of Directors may designate following recommendation by the Corporate Governance Committee, or the Board may reduce the number of directors to eliminate the vacancy.
The following material contains information concerning the nominees, including their recent employment, other directorships, and age as of the 2007 Annual Meeting.
Ownership of Company Stock
Set forth below is certain information, as of December 31, 2006, concerning beneficial owners known to DuPont of more than five percent of DuPonts outstanding Common Stock:
(1) Based solely on a Schedule 13G filed with the Securities and Exchange Commission on February 12, 2007 by Capital Research and Management Company and certain of its affiliates (Capital Research). Capital Research reported that it possessed sole voting power over 12,758,000 shares and sole dispositive power over 54,343,000 shares. Capital Research also reported that it did not possess shared voting or shared dispositive power over any shares beneficially owned.
The following table includes shares in DuPont beneficially owned by each director and nominee, by each executive officer named in the Summary Compensation Table on page 32 and by all directors and executive officers as a group as of December 31, 2006. Also included are shares of DuPont Common Stock granted in 2007 under the Variable Compensation Plan.
Under rules of the Securities and Exchange Commission, beneficial ownership includes shares for which the individual, directly or indirectly, has or shares voting or investment power, whether or not the shares are held for the individuals benefit.
Directors and executive officers are required to file reports of ownership and changes in ownership of DuPont Common Stock with the Securities and Exchange Commission and the New York Stock Exchange. In 2006, one report for S. J. Mobley covering one transaction was filed late because of an administrative error.
No member of the Compensation Committee was at any time during 2006 an officer or employee of DuPont or any of the Companys subsidiaries nor was any such person a former officer of DuPont or any of the Companys subsidiaries. In addition, no Compensation Committee member is an executive officer of another entity at which one of the Companys executive officers serves on the board of directors.
The Compensation Committee of the Board of Directors has reviewed the Compensation Discussion and Analysis (CD&A) section included in this Proxy Statement.
The Compensation Committee has also reviewed and discussed the CD&A with management.
Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the CD&A be included in the Companys Annual Report on Form 10-K for the year ended December 31, 2006 and this Proxy Statement.
The members of the Compensation Committee of the Board of Directors have provided this report:
John T. Dillon, Chair
Alain J.P. Belda
Richard H. Brown
Curtis J. Crawford
Eleuthère I. du Pont
Compensation Discussion and Analysis (CD&A)
The Company believes its ability to recruit, reward and retain senior executives is influenced by the quality of its compensation and benefit programs. The following principles guide the design and administration of DuPonts compensation programs:
An important aspect of the Compensation Committees (the Committee) annual work relates to the determination of compensation for Company executives, including the Chief Executive Officer (CEO). The Committee has retained Mercer Human Resource Consulting (Mercer or the Consultant) as a third party advisor to provide independent advice, research, and evaluation related to executive compensation. In this capacity, Mercer reports directly to the Committee and meets regularly with the Committee Chair and Committee without management present.
To assure that executive compensation is market competitive, the Company benchmarks against a select group of peer companies (Peer Group) as well as against compensation survey information that represents industrial companies in the ten billion dollar and above revenue category (Survey Information).
The Peer Group includes the following companies: Alcoa, BASF, Dow Chemical, Eastman Kodak, Ford, General Electric, Hewlett-Packard, Minnesota Mining and Manufacturing, Monsanto, Motorola, PPG Industries, Rohm & Haas and United Technologies.
In 2005, the Committee retained Mercer to conduct a detailed analysis of all elements of executive compensation. Compensation data was collected for the Peer Group as well as from compensation surveys. The analysis in aggregate confirmed that the Companys compensation practices support its compensation philosophy of enhancing stockholder value through programs that attract, motivate and retain key executives. Overall, executive target total cash compensation is comparable to the market median.
The analysis also included a pay-for-performance review comparing DuPonts performance to the Peer Group, based on four financial metrics: revenue growth, earnings per share growth, return on invested capital, and total stockholder return. Based on these four measures, DuPont compensation for the officers included in the Summary Compensation Table on page 32 (the Named Executive Officers) is aligned with Company performance.
In addition to reviewing external compensation practices and alignment of pay-for-performance, the Committee reviews all components (including perquisites) of the current and historic compensation of the CEO and other Named Executive Officers. The Committee uses tally sheets to analyze the current target opportunity and the consequences of decisions made by the Committee in the past. Future compensation actions are made within the context of this detailed analysis.
During the Companys 13-year practice of monitoring CEO target total cash compensation against the second level executive, CEO pay multiples have remained stable. As part of the Committees annual review of executive compensation programs and processes, the Committee reviewed the practice. The Committee assessed whether the existing program and multiples continue to be valid given the current challenges facing the Company and the current leadership team, as well as the organization structure and culture.
To create stronger program parameters, the Committee revised the practice to expand the comparison group from the second level executive to include all active Named Executive Officers, and to apply a pay equity multiple of two to three times total cash compensation, to reflect the broader target compensation levels of this expanded group.
In addition, given the significant role long-term incentives play in CEO pay, the Committee specifically monitors long-term incentives and has established a pay equity multiple of three to four times total direct compensation, which includes long-term equity awards. It is the Companys intent to be generally competitive with market long-term incentive levels over time, as well as to preserve this internal relationship.
A historic review of the internal relationship between the CEO and the new, expanded comparison group of all active Named Executive Officers shows a year-over-year stable relationship between the CEO and the Named Executive Officers total cash compensation as well as total direct compensation.
The Company will strive for consistency of both multiples over the long term, with the understanding that the Committee may need latitude to address any potential concerns. This flexibility to respond to specific situations may have a short-term impact on the multiples.
DuPont is focused on accomplishing its mission of sustainable growth, which the Company has defined as increasing stockholder and societal value while decreasing environmental footprint throughout the value chains in which the Company operates. DuPont strives to accomplish growth and innovation within its core values, which include: safety and health, environmental stewardship, highest ethical behavior, and respect for people. The Companys executive compensation programs are designed to attract, motivate, reward and retain the high quality executives necessary for the leadership of the Company and accomplishment of its strategy.
DuPonts executive compensation programs support the business strategy by providing incentives to executives to grow the business, increase earnings, improve return on investments, and grow stockholder value, all in a manner consistent with its values. In addition to aligning executives interests with those of the stockholders, DuPont recognizes the individual and team performance of each executive in meeting the business objectives of the Company.
The Committee is responsible for approving executive compensation policies and programs to support the Companys corporate objectives and stockholder interests.
Components of the Executive Compensation Program
The executive compensation components are structured to support DuPonts philosophy and core principles. The Company believes a performance-oriented program that maintains internal equity and cost effectiveness while providing competitive compensation allows the Company to attract and retain superior executive talent.
DuPonts executive compensation program consists of the following components: base salary; annual variable compensation; long-term incentive awards consisting of stock options, performance-based and time-vested restricted stock units; benefits; and limited perquisites.
Base salaries serve as the foundation of the compensation program. The majority of other executive compensation elements, including annual incentives, long-term incentives, and retirement benefits are driven from base salary or the midpoint of the salary structure.
To determine base salary levels and salary increases, the Committees consultant collects competitive market data for the Peer Group and information presented in industry compensation surveys. Management reviews the market data and develops recommended salary increases based on individual responsibilities, experience and performance, as well as position relative to the competitive market and relative to internal peers. The Committee reviews managements recommendations and approves any compensation change for each Named Executive Officer.
The Committee reviews the market data provided by Mercer and, in executive session without management present, develops a recommended salary increase for the CEO, based on performance, competitiveness and internal equity. Final compensation actions for the CEO are approved by the independent Board members.
Consistent with the Companys policy for all employees, base salaries are compared to the median of the Peer Group and against the Survey Information.
Annual Variable Compensation
The Variable Compensation (VC) plan is designed to align participants with the annual objectives and goals of the Company and with the interests of the stockholders. The VC program provides approximately 6,400 DuPont employees, including executive officers, with total annual compensation that is closely linked to DuPonts financial and operational performance for the year. Typically, 25% of variable compensation is paid in DuPont Common Stock, and senior executives have the choice of receiving up to 100% in stock. This provision increases executive stock ownership and further aligns executives with stockholder interests.
Management recommends variable compensation targets for each participating level of responsibility within the Company, based on Mercers evaluation of variable compensation levels at the median of the Peer Group as well as the Survey Information. The Committee reviews and approves incentive targets for all participants. In addition, at the beginning of each performance year, the incentive target for the CEO is reviewed by the Committee and approved by the independent Board members based on competitive market data and DuPonts philosophy to set targets comparable to the market median. At the conclusion of each performance period, the CEOs incentive award is reviewed by the Compensation Committee and approved by the independent Board members.
Over the past several years the formula to calculate variable compensation awards has been:
[(Corporate Performance x 50%) + (Business Unit Performance x 50%)] x Individual Performance x VC Target
In developing the performance measures and weightings, the Committee has determined that internal measurements of performance which are not calculated in accordance with Generally Accepted Accounting Principles in the United States (Non-GAAP measures) are valuable in determining performance of individual businesses. Accordingly, the measures of earnings per share, return on invested capital and business unit after-tax income that are used for calculation of variable compensation exclude significant items as defined by the Company for internal reporting. The Company believes that these measures are appropriate for the variable compensation calculation as they provide a more realistic view of operating performance of the individual business units of the Company.
At the beginning of each fiscal year the Committee approves the performance measures and weightings assigned to each measure:
In addition to the employees contribution to the Company results, a factor in determining individual performance is a qualitative assessment of performance on the Companys core values: safety and health; environmental stewardship; highest ethical behavior; and respect for people.
These performance measures were selected to drive sustainable, profitable growth and return on investment in the business markets in which the Company competes.
DuPonts values are a critical part of the Companys history and future. DuPont expects executives to meet business objectives in a manner that is consistent with the Companys values.
For Named Executive Officers, the final performance determination for 2006 was as follows:
Under the plan previously approved by stockholders, total annual corporate VC is limited to 20% of consolidated net income before significant items after deducting six percent of net capital employed. Each year the Committee reviews operating results, excluding all significant items, in determining the overall limit on variable compensation. This ensures that the amount available for variable compensation fluctuates in relation to the Companys operating results. Over the past ten years, the Committee has approved payments on average of 47% of the maximum available. The final 2006 VC payout pool of $153 million was 33% of this maximum available amount.
The Company also provides long-term and at risk incentive compensation under the Stock Performance Plan to accomplish the following objectives:
Increase stockholder value
Incorporate key metrics that drive stockholder value
Competitive market practice
Motivate higher levels of performance
To ensure consistency and increased understanding of the long-term incentive grant process, the Company developed a framework/methodology, which guides long-term incentive award determination. The guidelines were developed in 2005 for the 2006 grant cycle and are intended to be in place for 2007 and 2008. Target levels are established as a number of shares by salary level. The stock price used to develop the number of shares is based on a long-term average, with the price rounded to the nearest whole dollar.
Equity Grant Practices
All grants must be approved by the full Board or the appropriate Board Committee. Individual awards to executive officers are recommended by the CEO and approved by the Compensation Committee. Awards to the CEO are recommended by the Compensation Committee and approved by the independent Board members. Since 1998, annual grants to all employees including executives have been made at a pre-established Compensation Committee meeting in early February. This allows sufficient time for the market to absorb announcement of annual earnings, which is typically made during the fourth week of January. The Company does not time its equity grants in coordination with the release of material nonpublic information. The grant price historically has been the average of the high and low prices on the date of grant. In 2007, the Board of Directors amended the Stock Performance Plan to change the exercise price for stock options to the closing price on the date of grant.
Any occasional special grants to employees who are not executive officers are approved by the Special Stock Performance Committee (consisting of the Chairman of the Board and the Chair of the Compensation Committee), to which the Board of Directors has delegated the authority to approve special equity awards. Grants are effective on the date of Special Stock Performance Committee approval.
Equity Vehicle Mix
Different long-term incentive vehicles satisfy different objectives, and in combination, the Committee believes, create an equally balanced portfolio of long-term incentives, consisting of one-third each of stock options, performance-based restricted stock units (PSUs) and time-vested restricted stock units (RSUs).
The Company has a long history of stock option grants (since 1957) and continues to appreciate the leveraged incentive of stock options to drive share value and provide direct alignment with stockholders. With the increased accounting cost under SFAS No. 123(R), a program that consists entirely of stock options may
not balance the expense of options with the perceived and incentive value to employees. Additionally, stock options alone do not address all of the long-term incentive objectives outlined above.
In 2004 (with further revisions in 2006), the Company redesigned the long-term incentive plan and began augmenting long-term incentive opportunity with other vehicles to create a more balanced program that reinforces specific business objectives, addresses business circumstances, talent needs and philosophical considerations, and supports DuPonts culture. The following table summarizes the performance drivers, mix and objectives for the Companys long-term incentive components:
Long-Term Incentive Mix
About 2,200 employees, including executive officers, key global leaders, and middle management, received long-term incentive awards in 2006.
The Committee establishes long-term incentive (LTI) targets for each participating level within the Company, based on an evaluation of long-term incentive levels for the Peer Group and overall Survey Information practices. Long-term incentive awards for DuPont are targeted to be near the median long-term incentive opportunity granted by the group of companies surveyed.
An analysis of LTI target levels conducted with the assistance of Mercer in 2006 confirmed overall DuPonts LTI levels are within the competitive market range.
Given the potential volatility of long-term incentive compensation levels externally, the Company closely monitors the competitive market for target LTI levels and also for eligibility and participation levels. Recommended changes to the Companys target levels are deliberate and thoughtful. The intent is to be generally competitive with market levels over time, but not to attempt to match the market every year.
Consistent with an overall compensation philosophy to attract, motivate, reward and retain high quality executives, special awards of stock options, time-vested restricted stock units and/or performance-based restricted stock units may be made to key senior management employees from time to time. For executive officers, these awards are approved by the Compensation Committee, or, in the case of the CEO, by the independent members of the Board of Directors.
Stock options are typically granted annually and individual grants can range from 0% to 200% of the target for each level of responsibility. This range reflects employees future potential to create value for the Company and individual performance, including achievement of critical operating tasks in such areas as organizational capacity and strategic positioning. Annual nonqualified stock option grants are made at market price on the date of grant, vest in one-third increments over three years, and carry a term of six years, which the Company believes creates a strong performance and retention incentive.
Beginning with grants made in 2003, the Company has expensed stock options. The Company has never repriced stock options and has no intent to reprice options in the future.
A reload feature is available for options granted from 1997 through 2003 to facilitate stock ownership by management. Effective with options granted in 2004, option grants do not include a reload feature and the Company does not intend to add this feature in the future.
Performance-Based Restricted Stock Units (PSUs)
The PSU program ensures both stockholder alignment and focus on business priorities, by clearly communicating what is most important in driving business performance and ultimately creating stockholder value. The Company believes a PSU program focusing on revenue growth and ROIC creates specific alignment with objectives for balanced growth, profitability and capital management. Given the longer-term nature of DuPonts goals and the limitations inherent in setting targets into the future, the Company measures results against the Peer Group (as defined on page 20).
Annual PSU awards are limited to DuPont corporate officers, including the Named Executive Officers, who drive the development and execution of business strategy. One-third of the overall LTI award is delivered in PSUs.
A target number of units is awarded at the beginning of a three-year performance cycle. All executives at a particular level will receive the target amount. The Company does not differentiate the target award based on individual performance.
At the conclusion of the performance cycle, payouts can range from 0% to 200% of the target grant based on pre-established, performance-based corporate objectives in both revenue growth and ROIC versus the Peer Group over the three-year performance period. Potential payout scenarios are presented in the table below.
In the fourth quarter of 2006, the Company adopted SFAS No. 158 Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of Financial Accounting Standards Board (FASB) Statements No. 87, 88, 106, and 132(R), which affected the Companys ability to measure ROIC (as defined by the Company) on a relative basis as compared to the Peer Group.
In addressing the impact of these accounting changes, the Companys primary objective was to stay true to the original goals of the PSU program yet eliminate the impact of an accounting change that has no relation to pay and performance. For the outstanding PSU programs, the Committee approved a change to an absolute ROIC target starting with the performance year 2007, rather than the ROIC target relative to the Peer Group. No changes have been made to the way the Company measures revenue growth.
The 2004 2006 performance cycle ended with year-end 2006. DuPonts performance against the Peer Group was at the 46th percentile for Revenue Growth and at the 46th percentile for ROIC. The combination of the Companys performance relative to the Peer Group performance resulted in a payout factor of 90% of target, which is applied equally to all PSU holders.
Pursuant to the program design, the 2005 and 2006 PSU programs are based on revenue growth and ROIC relative to the Peer Group. The 2005 and 2006 performance cycles will end on December 31, 2007 and 2008, respectively. See discussions above regarding changes in accounting related to the metrics and ROIC performance goals.
Awards made under the 2007 PSU program will be measured against revenue growth relative to the Peer Group as well as an absolute ROIC target for each year in the performance period.
Time-Vested Restricted Stock Units (RSUs)
Time-vested restricted stock units (RSUs) offer a retentive feature to the Companys LTI program that satisfies an important program objective by providing continuity through business cycles as well as smoothing payout volatility. RSUs also provide further alignment with stockholders through increased ownership levels.
RSUs typically are granted annually. Individual grants generally range from 0% to 200% of the target for each level of responsibility to reflect employees future potential and individual performance, including achievement of critical operating tasks in such areas as organizational capacity and strategic positioning. RSUs generally vest over a three-year period.
The Companys global benefit philosophy for employees, including the Named Executive Officers and other executive officers, is to provide a package of benefits consistent with local practices and competitive within individual markets.
The Companys executive officers participate in the same health and welfare programs on the same terms and conditions as other employees. In the U.S., this offering consists of the standard range of medical, dental and vacation benefits, as well as life insurance and disability coverage.
Executive officers also participate in Company retirement programs on the same terms and conditions as other employees. Executive officers in the U.S. participate in the DuPont Pension and Retirement Plan (DPRP) and the Savings and Investment Plan (SIP). The DPRP is a tax-qualified defined benefit plan under which benefits are based primarily on an employees years of service and final average pay. The SIP is a tax-qualified defined contribution plan that includes a 401(k) feature.
In addition to the DPRP, the Company offers a Pension Restoration Plan. The Pension Restoration Plan is a nonqualified pension plan that restores those benefits that cannot be paid by the DPRP as a result of Internal Revenue Code (IRC) limits applicable to tax-qualified pension plans. The program applies to all employees who exceed the IRC limits. Pension benefits in excess of these limits are paid from the Companys operating cash flows.
In addition to the SIP, the Company offers a nonqualified Salary Deferral and Savings Restoration Plan. The purpose of the plan is to provide eligible employees the opportunity to defer salary and receive a Company match on compensation that is ineligible to be considered in calculating benefits under the SIP due to IRC limits on compensation. All employees who are impacted by the IRC limits are eligible. A Company match is credited in an equivalent amount to what would have been provided under the tax-qualified savings plan absent IRC limits.
In August 2006, the Company announced major changes to the U.S. retirement programs. Effective January 1, 2008, eligible employees (including executives) as of December 31, 2006, will participate in an enhanced savings plan and will continue to accrue benefits in the pension plans, at one-third of the current rate and without continued growth of the Company-paid post-retirement survivor benefit.
As a matter of business philosophy, DuPont provides very limited perquisites or personal benefits to senior executive officers (including the CEO). All employees in the Stock Performance Plan (approximately 2,200 employees) are provided financial education services such as seminars which are focused on assisting employees to achieve the highest value from Company compensation and benefits programs. In addition, personal financial counseling (excluding tax counseling) is provided to senior leaders.
The Company aircraft are dedicated primarily to senior management support and are intended for business travel only. An exception is provided to the Chairman and CEO, who is required, under the Companys personal security policy, to use Company aircraft for all air travel needs, including non-business air travel. Costs associated with non-business travel are treated as personal benefits for Mr. Holliday and are disclosed as such in the All Other Compensation column in the Summary Compensation Table on page 32.
The Companys policy with regard to corporate aircraft usage is reviewed regularly to assure that it continues to be appropriate.
DuPont generally does not enter into employment agreements (including severance agreements) with executives. The Companys Career Transition Financial Assistance Plan currently provides termination benefits equal to one months pay for each two years of service, with a maximum of 12 months pay. For purposes of the Plan, pay equals base salary plus last actual variable compensation. The program applies to substantially all U.S. parent company employees terminated for lack of work, including executives. On occasion, the Company may negotiate individual arrangements for senior executives and has entered into agreements with R. R. Goodmanson and G. M. Pfeiffer. For details of those agreements, see Employment Agreements on page 47.
DuPont does not currently have Change in Control Arrangements in place. As part of the overall review of compensation policies and programs, this subject is periodically reviewed against market place practices and business strategy.
The federal tax laws impose requirements in order for compensation payable to the CEO and certain executive officers to be fully deductible. The Company believes it has taken appropriate actions to maximize its income tax deduction.
Section 162(m) of the IRC (the Code) generally precludes a public corporation from taking a deduction for compensation in excess of $1 million for its CEO or any of its four other highest-paid executive officers, unless certain specific and detailed criteria are satisfied.
Annually, the Company reviews all compensation programs and payments to determine the tax impact on the Company as well as on the executive officers. In addition, the Company reviews the impact of its programs against other considerations, such as accounting impact, stockholder alignment, market competitiveness, effectiveness and perceived value to employees. Because many different factors influence a well-rounded, comprehensive executive compensation program, some compensation may not be deductible under Section 162(m) of the Code.
The Company will continue to monitor developments and assess alternatives for preserving the deductibility of compensation payments and benefits to the extent reasonably practicable, consistent with its compensation policies and as determined to be in the best interests of DuPont and its stockholders.
In order to allow annual and long-term incentive payments to be fully deductible under Section 162(m) of the Code, DuPont is seeking stockholder approval of the Equity and Incentive Plan at the 2007 Annual Meeting of Stockholders. See the discussion beginning on page 49 of this Proxy Statement for information on this plan.
The Company believes senior leadership should have a significant equity position in the Company. Stock ownership guidelines are in place to align executive officers and other senior leaders with the interests of stockholders and to encourage a longer-term focus in managing the Company. The guidelines specify a number of shares (as a multiple of base pay) executive officers must accumulate and hold within three years of the date of achieving the various executive levels. Specific requirements are set forth below:
An annual review is conducted to assess compliance with the guidelines. The CEO and other Named Executive Officers exceed the ownership guidelines.
DuPont stock may be held in various forms to achieve the applicable ownership guidelines. These forms include: shares owned outright, shares held in the Savings and Investments Plan, shares held in the Salary Deferral and Savings Restoration Plan, deferred variable compensation shares, restricted stock units, and deferred restricted stock units. Unexercised stock options, including vested options, as well as unvested performance-based restricted stock units are not included in determining whether an executive has achieved the ownership levels set forth above.
All options and restricted stock units are granted under the Companys Stock Performance Plan, previously approved by stockholders. The Plan provides that a grantee forfeits rights under stock options, stock appreciation rights or restricted stock grants if the Compensation Committee determines, after a hearing, that the grantee willfully has engaged in any activity harmful to the interest of the Company.
At the 2007 Annual Meeting of Stockholders, the Company will seek approval of a new Equity and Incentive Plan (EIP) described in detail beginning on page 49 of this Proxy Statement. The EIP contains a clawback provision under which (1) a grantee forfeits the right to receive future awards under the EIP, and (2) the Company may demand repayment of awards if the grantee engages in misconduct.
The evaluation of the CEO is one of the fundamental duties of the Board of Directors. At DuPont, the evaluation process is led by the Compensation Committee. Following a self-assessment by Mr. Holliday against his pre-established criteria for the year, as well as on multi-year objectives, the independent Board members review the CEOs performance in executive sessions.
Preliminary discussions are held in October and December, with final discussions in January and February, resulting in compensation decisions recommended by the Compensation Committee and approved by the independent Board members.
In addition to assessing performance, the Committee considers the competitive compensation of CEOs of the Peer Group and pay equity multiples when determining CEO pay recommendations.
In reaching its recommendation on Mr. Hollidays 2007 base pay, 2006 variable compensation and 2007 long-term incentive grants, the Committee evaluated Mr. Holliday based on the Companys overall financial
and operational performance for 2006, progress on long-term strategic objectives, and against the Companys core values. Specifically, the Committee considered the following factors:
Based on this careful evaluation and in recognition of Mr. Hollidays strong leadership in strategically positioning the Company for future growth and success, the independent members of the Board of Directors approved the following compensation actions:
1. Base Pay
For 2006, the Board approved a 3% increase in salary to $1,293,000. This increase was consistent with the salary adjustments for the Company and placed Mr. Hollidays base pay at about the expected 2005 median pay for the Peer Group chief executive officers.
For 2007, the Board approved a 2% increase in salary to $1,320,000. This increase places CEO base salary near the median of the Peer Group.
2. Variable Compensation
Mr. Hollidays variable compensation grant for 2006 was $2,103,000. The computation of Mr. Hollidays variable compensation grant was consistent with the formula for other corporate employees, reflecting the 107% final performance factor based on corporate and business unit financial results. In addition, the Committee recommended an Individual Performance Factor (IPF) of 110% to reflect Mr. Hollidays contribution to strong Company performance.
3. Long-term Incentives
In 2006, Mr. Holliday received 300,000 stock options, 58,000 time-vested restricted stock units and 58,000 performance-based restricted stock units.
After careful review of the market data, the Committee approved a 2007 long-term incentive award, delivered in an equal mix in value of 228,000 stock options, 42,500 time-vested restricted stock units and 42,500 performance-based restricted stock units.
This action places CEO total direct compensation near the median of the Peer Group.
Overall, the CEO compensation actions result in a 2007 compensation package that is targeted to be competitive with the median of the Peer Group and also within the established Pay Equity Multiple ranges.
In addition, the program creates appropriate focus on stockholder value creation and on operational and Company performance.
Compensation of Executive Officers
The following table summarizes the compensation of the Named Executive Officers for the fiscal year ending December 31, 2006. The Named Executive Officers are the Companys Chief Executive Officer, Chief Financial Officer, and three other most highly compensated executive officers ranked by their total compensation in the table below (reduced by the amount of change in pension value and nonqualified deferred earnings). In addition, one officer (G. M. Pfeiffer), who retired from the Company in 2006, is included because he served as Chief Financial Officer through June 16, 2006.
2006 GRANTS OF PLAN-BASED AWARDS
The following table provides information on variable compensation, stock options, time-vested restricted stock units and performance-based restricted stock units granted in 2006 to each of the Companys Named Executive Officers. The accounting expense taken on these awards is reflected in the Summary Compensation Table on page 32.
OUTSTANDING EQUITY AWARDS
The following table shows the number of shares covered by exercisable and unexercisable options and unvested and, as applicable, unearned RSUs and PSUs held by the Companys Named Executive Officers at December 31, 2006.