Ford Motor Company DEF 14A 2008
Documents found in this filing:
Proxy Statement Pursuant to Section 14(a) of the Securities
Ford Motor Company
(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):
Ford Motor Company
Important Notice Regarding the Availability of Proxy
Materials for the Shareholder Meeting
to Be Held on May 8, 2008
Notice of 2008
Annual Meeting of Shareholders
and Proxy Statement
One American Road
Dearborn, Michigan 48126-2798
April 4, 2008
Our 2008 annual meeting of shareholders will be held at the Hotel du Pont, 11th and Market Streets, Wilmington, Delaware, on Thursday, May 8, 2008. The annual meeting will begin promptly at 8:30 a.m., Eastern Time. If you plan to attend the meeting, please see the instructions on page 4.
Please read these materials so that youll know what we plan to do at the meeting. Also, please either sign and return the accompanying proxy card in the postage-paid envelope or instruct us by telephone or via the Internet as to how you would like your shares voted. This way, your shares will be voted as you direct even if you cant attend the meeting. Instructions on how to vote your shares by telephone or via the Internet are on the proxy card enclosed with this proxy statement.
William Clay Ford, Jr.
Chairman of the Board
Whether or not you plan to attend the meeting, please provide your proxy by calling the toll-free telephone number, using the Internet, or filling in, signing, dating, and promptly mailing the accompanying proxy card in the enclosed envelope.
Peter J. Sherry, Jr.
April 4, 2008
Annual Incentive Compensation Plan or Incentive Bonus Plan means Fords Annual Incentive Compensation Plan.
Class B Stock means Fords Class B Stock.
Deferred Compensation Plan means Fords Deferred Compensation Plan.
Dividend Equivalent means cash or shares of common stock (or common stock units) equal in value to dividends paid on shares of common stock.
Final Award means shares of common stock, Restricted Stock Units, and/or cash awarded by the Compensation Committee under a Performance Stock Right, Stock Right, or Performance Unit.
Ford or we or Company means Ford Motor Company.
Long-Term Incentive Plan means Fords 1990, 1998, or 2008 Long-Term Incentive Plan.
Named Executives means the executives named in the Summary Compensation Table on p. 50.
NYSE means the New York Stock Exchange, Inc.
Performance Stock Right or Stock Right or Performance Unit means, under the Long-Term Incentive Plan, an award of the right to earn up to a certain number of shares of common stock, Restricted Stock Units, or cash, or a combination of cash and shares of common stock or Restricted Stock Units, based on performance against specified goals established by the Compensation Committee.
Restricted Stock Equivalent or Restricted Stock Unit means, under the Long-Term Incentive Plan and/or the Restricted Stock Plan for Non-Employee Directors, the right to receive a share of common stock, or cash equivalent to the value of a share of common stock, when the restriction period ends, as determined by the Compensation Committee.
SEC means the United States Securities and Exchange Commission.
Senior Convertible Notes means the Ford Motor Company 4.25% Senior Convertible Notes due 2036.
Trust Preferred Securities means the Ford Motor Company Capital Trust II 6.50% Cumulative Convertible Trust Preferred Securities.
1998 Plan means Fords 1998 Long-Term Incentive Plan.
2008 Plan means Fords 2008 Long-Term Incentive Plan.
Ford Motor Company
The Board of Directors is soliciting proxies to be used at the annual meeting of shareholders to be held on Thursday, May 8, 2008, beginning at 8:30 a.m., Eastern Time, at the Hotel du Pont, 11th and Market Streets, Wilmington, Delaware. This proxy statement and the enclosed form of proxy are being made available to shareholders beginning April 4, 2008.
QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING
A proxy is another person that you legally designate to vote your stock. If you designate someone as your proxy in a written document, that document also is called a proxy or a proxy card.
It is a document that SEC regulations require that we give to you when we ask you to sign a proxy card to vote your stock at the annual meeting.
At our annual meeting, shareholders will act upon the matters outlined in the notice of meeting, including the election of directors, ratification of the selection of the Companys independent registered public accounting firm, approval of the Annual Incentive Compensation Plan and the 2008 Plan, and consideration of seven shareholder proposals, if presented at the meeting. Also, management will report on the state of the Company and respond to questions from shareholders.
The record date for the annual meeting is March 11, 2008. The record date is established by the Board of Directors as required by Delaware law. Holders of common stock and holders of Class B Stock at the close of business on the record date are entitled to receive notice of the meeting and to vote at the meeting and any adjournments or postponements of the meeting.
Holders of common stock and holders of Class B Stock at the close of business on the record date may vote at the meeting. Holders of Trust Preferred Securities and Senior Convertible Notes cannot vote at this meeting.
On March 11, 2008, 2,128,848,727 shares of common stock and 70,852,076 shares of Class B Stock were outstanding and, thus, are eligible to be voted.
Holders of common stock and holders of Class B Stock will vote together without regard to class on the matters to be voted upon at the meeting. Holders of common stock have 60% of the general voting power. Holders of Class B Stock have the remaining 40% of the general voting power.
Each outstanding share of common stock will be entitled to one vote on each matter to be voted upon.
The number of votes for each share of Class B Stock is calculated each year in accordance with the Companys Restated Certificate of Incorporation. At this years meeting, each outstanding share of Class B Stock will be entitled to 20.031 votes on each matter to be voted upon.
If your shares are registered directly in your name with Computershare Trust Company, N.A., the Companys stock transfer agent, you are considered the shareholder of record with respect to those shares.
If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of these shares, and your shares are held in street name.
If you are a shareholder of record, you can give a proxy to be voted at the meeting:
The telephone and Internet voting procedures have been set up for your convenience and have been designed to authenticate your identity, to allow you to give voting instructions, and to confirm that those instructions have been recorded properly. If you are a shareholder of record and you would like to vote by telephone or by using the Internet, please refer to the specific instructions set forth on the enclosed proxy card. If you wish to vote using a paper format and you return your signed proxy to us before the annual meeting, we will vote your shares as you direct.
If you are a company employee or retiree participating in either of the Companys Savings and Stock Investment Plan for Salaried Employees or Tax-Efficient Savings Plan for Hourly Employees, then you may be receiving this material because of shares held for you in those plans. In that case, you may use a proxy card to instruct the plan trustee how to vote those shares. The trustee will vote the shares in accordance with your instructions and the terms of the plan. If you hold shares in any of these plans, the trustee may vote the shares held for you even if you do not direct the trustee how to vote. In these cases, the trustee will vote any shares for which the trustee does not receive instructions in the same proportion as the trustee votes the shares for which the trustee does receive instructions.
If you hold your shares in street name, you must vote your shares in the manner prescribed by your broker or nominee. Your broker or nominee has enclosed or provided a voting instruction card for you to use in directing the broker or nominee how to vote your shares.
The votes of all shareholders will be held in confidence from directors, officers and employees of the Company except: (a) as necessary to meet applicable legal requirements and to assert or defend claims for or against the Company; (b) in case of a contested proxy solicitation; (c) if a shareholder makes a written comment on the proxy card or otherwise communicates his or her vote to management; or (d) to allow the independent inspectors of election to certify the results of the vote. We will also continue, as we have for many years, to retain an independent tabulator to receive and tabulate the proxies and independent inspectors of election to certify the results.
Yes. If you are a shareholder of record, you may vote your shares at the meeting by completing a ballot at the meeting.
However, if you are a street name holder, you may vote your shares in person only if you obtain a signed proxy from your broker or nominee giving you the right to vote the shares.
Even if you currently plan to attend the meeting, we recommend that you also submit your proxy as described above so that your vote will be counted if you later decide not to attend the meeting.
In the election of directors, you may vote for all nominees, or you may vote against one or more nominees. The proposal related to the election of directors is described in this proxy statement beginning at p. 5.
For each of the other proposals, you may vote for the proposal, against the proposal, or abstain from voting on the proposal. These proposals are described in this proxy statement beginning at p. 70.
Proposals 1, 2, 3, and 4 will be presented at the meeting by management, and the rest are expected to be presented by shareholders.
The Board of Directors recommends a vote FOR all of the nominees for director (Proposal 1), FOR ratifying the selection of PricewaterhouseCoopers LLP as the Companys independent registered public accounting firm for 2008 (Proposal 2), FOR approving the terms of the Annual Incentive Compensation Plan (Proposal 3), FOR approving the 2008 Plan (Proposal 4), and AGAINST the shareholder proposals (Proposals 5 through 11).
If you do not specify on your proxy card (or when giving your proxy by telephone or over the Internet) how you want to vote your shares, we will vote them FOR all of the nominees for director (Proposal 1), FOR ratifying the selection of PricewaterhouseCoopers LLP as the Companys independent registered public accounting firm for 2008 (Proposal 2), FOR approving the terms of the Annual Incentive Compensation Plan (Proposal 3), FOR approving the 2008 Plan (Proposal 4), and AGAINST the shareholder proposals (Proposals 5 through 11).
Yes. You can revoke your proxy at any time before it is exercised in any of three ways:
A majority of the votes that could be cast by shareholders who are either present in person or represented by proxy at the meeting is required to elect the nominees for director and to approve each proposal. The votes are computed for each share as described on p. 2.
The total number of votes that could be cast at the meeting is the number of votes actually cast plus the number of abstentions. Abstentions are counted as shares present at the meeting for purposes of determining whether a quorum exists and have the effect of a vote against any matter as to which they are specified.
Proxies submitted by brokers that do not indicate a vote for some or all of the proposals because they dont have discretionary voting authority and havent received instructions as to how to vote on those proposals (so-called broker non-votes) are not considered shares present and will not affect the outcome of the vote.
If you are a shareholder of record and you plan to attend the annual meeting, please let us know by indicating in the appropriate place when you return your proxy. Please tear off the top portion of your proxy card where indicated and bring it with you to the meeting. This portion of the card will serve as your ticket and will admit you and one guest.
If you are a street name shareholder, tell your broker or nominee that youre planning to attend the meeting and would like a legal proxy. Then simply bring that form to the meeting and well give you a ticket at the door that will admit you and one guest. If you cant get a legal proxy in time, we can still give you a ticket at the door if you bring a copy of your brokerage account statement showing that you owned Ford stock as of the record date, March 11, 2008.
Each shareholder and guest will be asked to present valid government-issued picture identification, such as a drivers license or passport, before being admitted to the meeting. Cameras (including cell phones with built-in cameras), recording devices, and other electronic devices will not be permitted at the meeting and attendees will be subject to security inspections. We encourage you to leave any such items at home. We will not be responsible for any items checked at the door.
We do not know of any other matters to be presented or acted upon at the meeting. Under our By-Laws, no business besides that stated in the meeting notice may be transacted at any meeting of shareholders. If any other matter is presented at the meeting on which a vote may properly be taken, the shares represented by proxies will be voted in accordance with the judgment of the person or persons voting those shares.
Thirteen directors will be elected at this years annual meeting. Each director will serve until the next annual meeting or until he or she is succeeded by another qualified director who has been elected.
William Clay Ford, who had been a member of the Board of Directors since 1948, retired from the Board effective May 12, 2005. As with previous years, the Board of Directors has again requested that Mr. Ford serve as Director Emeritus so that the Board can continue to avail itself of his wisdom, judgment and experience, and Mr. Ford has agreed to so serve. Mr. Ford is entitled to attend Board and committee meetings and participate in discussion of matters that come before the Board or its committees, although he is not entitled to vote upon any such matters and no longer receives compensation as a non-employee Board member.
We will vote your shares as you specify when providing your proxy. If you do not specify how you want your shares voted when you provide your proxy, we will vote them for the election of all of the nominees listed below. If unforeseen circumstances (such as death or disability) make it necessary for the Board of Directors to substitute another person for any of the nominees, we will vote your shares for that other person.
Each of the nominees for director is now a member of the Board of Directors, which met eleven times during 2008. Each of the nominees for director attended at least 75% of the combined Board of Director and committee meetings held during the periods served by such nominee in 2007, except for John R. H. Bond who missed certain meetings due to unforeseen circumstances. The nominees provided the following information about themselves as of February 1, 2008.
The Audit Committee is composed of five directors, all of whom meet the independence standards contained in the NYSE Listed Company rules, SEC rules and Fords Corporate Governance Principles, and operates under a written charter adopted by the Board of Directors. A copy of the Audit Committee Charter may be found on the Companys website, www.ford.com. The Audit Committee selects, subject to shareholder ratification, the Companys independent registered public accounting firm.
Ford management is responsible for the Companys internal controls and the financial reporting process. The independent registered public accounting firm, PricewaterhouseCoopers LLP (PricewaterhouseCoopers), is responsible for performing an independent audit of the Companys consolidated financial statements and issuing an opinion on the conformity of those audited financial statements with United States generally accepted accounting principles and on the effectiveness of the Companys internal control over financial reporting, and managements assessment of the internal control over financial reporting. The Audit Committee monitors the Companys financial reporting process and reports to the Board of Directors on its findings.
PricewaterhouseCoopers served as the Companys independent registered public accounting firm in 2007 and 2006. The Company paid PricewaterhouseCoopers $39.0 million and $41.6 million for audit services for the years ended December 31, 2007 and 2006, respectively. Audit services consisted of the audit of the financial statements included in the Companys Annual Report on Form 10-K, reviews of the financial statements included in the Companys Quarterly Reports on Form 10-Q, attestation of the effectiveness of the Companys internal controls over financial reporting, preparation of statutory audit reports, and providing comfort letters in connection with Ford and Ford Motor Credit Company funding transactions.
The Company paid PricewaterhouseCoopers $13.3 million and $4.2 million for audit-related services for the years ended December 31, 2007 and 2006, respectively. Audit-related services included due diligence for mergers, acquisitions and divestitures, employee benefit plan audits, attestation services, internal control reviews and assistance with interpretation of accounting standards.
The Company paid PricewaterhouseCoopers $5.5 million and $6.6 million for tax services for the years ended December 31, 2007 and 2006, respectively. The types of tax services provided included assistance with tax compliance and the preparation of tax returns, tax consultation, planning and implementation services, assistance in connection with tax audits, tax advice related to mergers, acquisitions and divestitures, and tax return preparation services provided to international service employees (ISEs) to minimize the cost to the Company of these assignments. In 2005, the Company began the transition to a new service provider for tax return preparation services to ISEs. Of the fees paid for tax services, the Company paid 60% and 64% for tax compliance and the preparation of Company tax returns in 2007 and 2006, respectively.
The Company did not engage PricewaterhouseCoopers for any other services for the years ended December 31, 2007 and 2006.
The Company paid PricewaterhouseCoopers a total of $57.8 and $52.4 million in fees for the years ended December 31, 2007 and 2006, respectively.
During the last year, the Audit Committee met and held discussions with management and PricewaterhouseCoopers. The Audit Committee reviewed and discussed with Ford management and PricewaterhouseCoopers the audited financial statements and the assessment of the adequacy and effectiveness of internal controls over financial reporting, contained in the Companys Annual Report on Form 10-K for the year ended December 31, 2007. The Audit Committee also discussed with PricewaterhouseCoopers the matters required to be discussed by Statement on Auditing Standards Nos. 61 and 90 (Communications with Audit Committees) as well as by SEC regulations.
PricewaterhouseCoopers submitted to the Audit Committee the written disclosures and the letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees). The Audit Committee discussed with PricewaterhouseCoopers such firms independence.
Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Companys Annual Report on Form 10-K for the year ended December 31, 2007, filed with the SEC.
The Audit Committee also considered whether the provision of other non-audit services by PricewaterhouseCoopers to the Company is compatible with maintaining the independence of PricewaterhouseCoopers and concluded that the independence of PricewaterhouseCoopers is not compromised by the provision of such services.
Annually, the Audit Committee pre-approves categories of services to be performed (rather than individual engagements) by PricewaterhouseCoopers. As part of this approval, an amount is established for each category of services (Audit, Audit-Related, and Tax Services). In the event the pre-approved amounts prove to be insufficient, a request for incremental funding will be submitted to the Audit Committee for approval during the next regularly scheduled meeting. In addition, all new engagements greater than $250,000 will be presented in advance to the Audit Committee for approval. A regular report will be prepared for each regular Audit Committee meeting outlining actual fees and expenses paid or committed against approved fees.
Stephen G. Butler (Chair)
Kimberly A. Casiano
Irvine O. Hockaday, Jr.
Gerald L. Shaheen
Ford has operated under sound corporate governance practices for many years. We believe it is important to disclose to you a summary of our major corporate governance practices. Some of these practices have been in place for many years. Others have been adopted in response to regulatory and legislative changes. We will continue to assess and refine our corporate governance practices and share them with you.
The Nominating and Governance Committee is composed of nine directors, all of whom are considered independent under the NYSE Listed Company rules and Fords Corporate Governance Principles. The Committee operates under a written charter adopted by the Board of Directors. A copy of the charter may be found on Fords website at www.ford.com.
The Nominating and Governance Committee recommends to the Board the nominees for all directorships to be filled by the Board or by you. The Committee also reviews and makes recommendations to the Board on matters such as the size and composition of the Board in order to ensure the Board has the requisite expertise and its membership consists of persons with sufficiently diverse and independent backgrounds. Between annual shareholder meetings, the Board may elect directors to vacant Board positions to serve until the next annual meeting.
The Board proposes to you a slate of nominees for election to the Board at the annual meeting. You may propose nominees (other than self-nominations) for consideration by the Committee by submitting the names, qualifications and other supporting information to: Secretary, Ford Motor Company, One American Road, Dearborn, MI 48126. Properly submitted recommendations must be received no later than December 5, 2008 to be considered by the Committee for inclusion in the following years nominations for election to the Board. Your properly submitted candidates are evaluated in the same manner as those candidates recommended by other sources. All candidates are considered in light of the needs of the Board with due consideration given to the qualifications described below.
Because Ford is a large and complex company, the Committee considers several qualifications when considering candidates for the Board. Among the most important qualities directors should possess are the highest personal and professional ethical standards, integrity, and values. They should be committed to representing the long-term interests of all of the shareholders. Directors must also have practical wisdom and mature judgment. Directors must be objective and inquisitive. Ford recognizes the value of diversity and we endeavor to have a diverse Board, with experience in business, government, education and technology, and in areas that are relevant to the Companys global activities. Directors must be willing to devote sufficient time to carrying out their duties and responsibilities effectively, and should be committed to serve on the Board for an extended period of time. Directors should also be prepared to offer their resignation in the event of any significant change in their personal circumstances that could affect the discharge of their responsibilities as directors of the Company, including a change in their principal job responsibilities.
The Charter of the Committee provides that the Committee conducts all necessary and appropriate inquiries into the backgrounds and qualifications of possible candidates as directors. It has the sole authority to retain and terminate any search firm to be used to assist it in identifying and evaluating candidates to serve as directors of the Company.
The Committee identifies candidates through a variety of means, including search firms, recommendations from members of the Committee and the Board, including the Executive Chairman and the President and CEO, and
suggestions from Company management. Upon the recommendation of the Committee, Gerald L. Shaheen was elected to the Board of Directors on July 11, 2007. Mr. Shaheen was proposed to the Committee by Irving O. Hockaday, Jr., our presiding independent director, and was selected from among several names submitted by directors, including the Chairman and the President and CEO. Mr. Shaheen was interviewed by the Chair of the Committee, certain other Committee members, the Chairman and the President and CEO prior to his election. The Company on behalf of the Committee has paid fees to third-party firms to assist the Committee in the identification and evaluation of potential Board members.
A majority of the directors must be independent directors under the NYSE Listed Company rules. The NYSE rules provide that no director can qualify as independent unless the Board affirmatively determines that the director has no material relationship with the listed company. The Board has adopted the following standards in determining whether or not a director has a material relationship with the Company and these standards are contained in Fords Corporate Governance Principles and may be found at the Companys website, www.ford.com.
Based on these independence standards and all of the relevant facts and circumstances, the Board determined that none of the following directors had any material relationship with the Company and, thus, are independent: Stephen G. Butler, Kimberly A. Casiano, Irvine O. Hockaday, Jr., Richard A. Manoogian, Ellen R. Marram, Homer A. Neal, Jorma Ollila, Gerald L. Shaheen, and John L. Thornton.
With respect to the independent directors listed above, the Board considered the following relevant facts and circumstances in making the independence determinations:
From time to time during the past three years, Ford purchased goods and services from, or financing arrangements were provided by, various companies with which certain directors were or are affiliated either as members of such companies boards of directors or, in the case of Ms. Casiano, as an officer. In addition to Ms. Casiano, these directors included Mr. Hockaday, Mr. Manoogian, Ms. Marram, Mr. Ollila, and Mr. Shaheen. The Company also made donations to certain institutions with which certain directors are affiliated. These included Dr. Neal and Ms. Casiano. Additionally, a company with which Mr. Manoogian is affiliated purchased products from Ford. None of the relationships described above were material under the independence standards contained in our Corporate Governance Principles.
In addition, Richard A. Manoogian is a member of the Board of Trustees of The Henry Ford and a member of the Board of Directors of Detroit Renaissance. The Company and its affiliates contributed to The Henry Ford amounts more than the greater of $1 million or two percent of The Henry Fords total annual discretionary receipts during its three most recently completed fiscal years. Likewise, the Company and its affiliates contributed to Detroit Renaissance more than the greater of $1 million or two percent of Detroit Renaissances total discretionary receipts during its three most recently completed fiscal years. It was further noted that in February 2008, Ford, with the approval of the Board, decided to invest up to $10 million over the next two to four years in the Detroit Renaissances Venture Capital Fund I. Other large companies in Southeastern Michigan have also made monetary commitments to the fund in order to support local venture capital firms in Southeast Michigan. Pursuant to the Companys Corporate Governance Principles, the independent directors listed above (excluding Mr. Manoogian), considering all of the relevant facts and circumstances, determined that the Companys contributions to The Henry Ford and Detroit Renaissance and Mr. Manoogians presence on those Boards did not constitute a material relationship between Ford and Mr. Manoogian. Consequently, these independent directors determined Mr. Manoogian to be independent. With respect to The Henry Ford, the directors gave due consideration to the composition of the Board of Trustees of The Henry Ford, which includes Edsel B. Ford II, William Clay Ford and William Clay Ford, Jr., and the Companys history of support for The Henry Ford, which predated Mr. Manoogians service. Likewise, with respect to Detroit Renaissance, the directors gave due consideration to the composition of the Board of Directors of Detroit Renaissance, which includes William Clay Ford, Jr., and Mr. James Vella, President of the Ford Fund, as well as Detroit Renaissances mission to promote the economic development of Southeastern Michigan, and the Companys history of contributions to Detroit Renaissance and to the development of Southeastern Michigan. In both cases, the directors determined that the Company was not unduly influenced to make contributions to The Henry Ford or Detroit Renaissance because of Mr. Manoogians presence on those boards, nor was Mr. Manoogian unduly influenced by the contributions made by the Company to The Henry Ford and Detroit Renaissance.
The Nominating and Governance Committee developed and recommended to the Board a set of corporate governance principles, which the Board adopted. Fords Corporate Governance Principles may be found on its website at www.ford.com. These principles include: a limitation on the number of boards on which a director may
serve, qualifications for directors (including a director retirement age and a requirement that directors be prepared to resign from the Board in the event of any significant change in their personal circumstances that could affect the discharge of their responsibilities), director orientation, continuing education and a requirement that the Board and each of its Committees perform an annual self-evaluation. Shareholders may obtain a printed copy of the Companys Corporate Governance Principles by writing to our Shareholder Relations Department, Ford Motor Company, One American Road, Suite 1026, Dearborn, Michigan 48126-2798.
Business transactions between Ford and its officers or directors, including companies in which a director or officer (or an immediate family member) has a substantial ownership interest or a company where such director or officer (or an immediate family member) serves as an executive officer (related party transactions), are not prohibited. In fact, certain related party transactions can be beneficial to the Company and its shareholders.
It is important, however, to ensure that any related party transactions are beneficial to the Company. Accordingly, any related party transaction, regardless of amount, is submitted to the Nominating and Governance Committee in advance for review and approval. All existing related party transactions are reviewed at least annually by the Nominating and Governance Committee. The Office of the General Counsel reviews all such related party transactions, existing or proposed, prior to submission to the Nominating and Governance Committee, and our General Counsel opines on the appropriateness of each related party transaction. The Nominating and Governance Committee may, at its discretion, consult with outside legal counsel.
Any director or officer with an interest in a related party transaction is expected to recuse himself or herself from any consideration of the matter.
The Nominating and Governance Committees approval of a related party transaction may encompass a series of subsequent transactions contemplated by the original approval, i.e., transactions contemplated by an ongoing business relationship occurring over a period of time. Examples include transactions in the normal course between the Company and a dealership owned by a director or an executive officer (or an immediate family member thereof), transactions in the normal course between the Company and financial institutions with which a director or officer may be associated, and the ongoing issuances of purchase orders or releases against a blanket purchase order made in the normal course by the Company to a business with which a director or officer may be associated. In such instances, any such approval shall require that the Company make all decisions with respect to such ongoing business relationship in accordance with existing policies and procedures applicable to non-related party transactions (e.g., Company purchasing policies governing awards of business to suppliers, etc.).
In all cases, a director or officer with an interest in a related party transaction may not attempt to influence Company personnel in making any decision with respect to the transaction.
The Company has published on its website (www.ford.com) the charter of each of the Audit, Compensation, Environmental and Public Policy, Finance, and Nominating and Governance Committees of the Board, as well as its Code of Conduct Handbook, which applies to all officers and employees, a code of ethics for directors, and a code of ethics for the Companys chief executive officer as well as senior financial and accounting personnel. Any waiver of, or amendments to, the codes of ethics for directors or executive officers, including the chief executive officer, the chief financial officer and the principal accounting officer, may be approved only by the Nominating and Governance Committee and any such waivers or amendments will be disclosed promptly by the Company by posting such waivers or amendments to its website. The Committee also reviews managements monitoring of compliance with the Companys Code of Conduct. Printed copies of each of the committee charters and the codes of ethics referred to above are also available by writing to our Shareholder Relations Department, Ford Motor Company, One American Road, Suite 1026, Dearborn, Michigan 48126-2798.
Non-employee directors ordinarily meet in executive session without management present at regularly scheduled Board meetings and may meet at other times at the discretion of the presiding independent director or at the request of any non-employee director. Currently, Irvine O. Hockaday, Jr., is the presiding independent director for the executive sessions of non-management directors. Additionally, all of the independent directors meet periodically (but not less than annually) without management or non-independent directors present.
The Charter of the Audit Committee provides that a member of the Audit Committee generally may not serve on the audit committee of more than two other public companies. The Board has designated Stephen G. Butler as an Audit Committee financial expert. Mr. Butler meets the independence standards for audit committee members under the NYSE Listed Company and SEC rules. The lead partner of the Companys independent registered public accounting firm is rotated at least every five years.
The Compensation Committee establishes and reviews our overall executive compensation philosophy and strategy and oversees our various executive compensation programs. The Committee is responsible for evaluating the performance of and determining the compensation for our Executive Chairman, the President and CEO, and other executive officers, and approving the compensation structure for senior management, including officers. The Committee is composed of three directors who are considered independent under the NYSE Listed Company rules and our Corporate Governance Principles. The Committees membership is determined by our Board of Directors. The Committee operates under a written charter adopted by our Board of Directors. The Committee annually reviews the charter. A copy of the charter may be found on our website at www.ford.com.
The Committee makes decisions regarding the compensation of our officers that are Vice Presidents and above, including the Named Executives. The Committee has delegated authority, within prescribed share limits, to a Long-Term Incentive Compensation Award Committee (comprised of William Clay Ford, Jr., Alan Mulally, and Donat R. Leclair) to approve grants of options, Performance Stock Rights, Restricted Stock Equivalents and other stock-based awards and to the Annual Incentive Compensation Award Committee to determine bonuses, for other employees.
The Board of Directors makes decisions relating to non-employee director compensation. Any proposed changes are reviewed in advance and recommended to the Board by the Nominating and Governance Committee.
The Committee considers recommendations from Mr. Ford, Mr. Mulally, and the Group Vice President Corporate Human Resources and Labor Affairs in developing compensation plans and evaluating performance of other executive officers. The Committees consultant also provides advice and analysis on the structure and level of executive compensation. Final decisions on any major element of compensation, however, as well as total compensation for other executive officers, are made by the Compensation Committee.
In 2007, the Committee engaged Semler Brossy Consulting Group, LLC, an independent compensation consulting firm, to advise the Committee on executive compensation and benefits matters. Semler Brossy is retained directly by the Committee and it has the sole authority to review and approve of the budget of the independent consultant. Semler Brossy does not advise our management and receives no other compensation from us. The same Semler Brossy principal attended all ten of the Committee meetings in 2007. In addition, the Committee relied on survey data provided by Towers Perrin, an outside consultant. See How We Determine Compensation in the Compensation Discussion and Analysis on pp. 30-31. Towers Perrin does not assist the Compensation Committee in determining or recommending compensation of executive officers. Towers Perrin is retained by Ford management, not the Committee.
The Committee met ten times during 2007. Committee meetings typically occur prior to the meetings of the full Board of Directors. Bonus target grants, bonus awards, stock option grants, Performance Unit grants, final stock awards, and Final Awards of Restricted Stock Units typically are decided at the February or March Committee meeting (see Compensation Discussion and Analysis Equity-Based Compensation D. Timing of Awards on p. 42). Officer salaries are reviewed in December each year.
See the Compensation Discussion and Analysis on pp. 29-48 for more detail on the factors considered by the Committee in making executive compensation decisions.
The Committee reviews our talent and executive development program with senior management. These reviews are conducted periodically and focus on executive development and succession planning throughout the organization, at the Vice President level and above.
Our policy, approved by the Compensation Committee, to limit outside board participation by our officers, is shown below:
Only independent directors serve on the Audit, Compensation and Nominating and Governance Committees, in accordance with the independence standards of the NYSE Listed Company rules and the Companys Corporate Governance Principles. The Board, and each committee of the Board, has the authority to engage independent consultants and advisors at the Companys expense.
The Board has established a process by which you may send communications to the Board. You may send communications to our Directors, including any concerns regarding Fords accounting, internal controls, auditing, or other matters, to the following address: Board of Directors, Ford Motor Company, P.O. Box 685, Dearborn, MI 48126-0685 U.S.A. You may submit your concern anonymously or confidentially. You may also indicate whether you are a shareholder, customer, supplier, or other interested party. Communications relating to the Companys accounting, internal controls, or auditing matters will be relayed to the Audit Committee. Other communications will be relayed to the Nominating and Governance Committee. Communications will be referred to other areas of the Company for handling as appropriate under the facts and circumstances outlined in the communications. Ford will acknowledge receipt of all communications sent to the address above that disclose a return address. You may also find a description of the manner in which you can send communications to the Board on the Companys website (www.ford.com).
All members of the Board are expected to attend the annual meeting, unless unusual circumstances would prevent such attendance. Last year, all twelve of the nominated directors attended the annual meeting.
Management Stock Ownership
The following table shows how much Ford stock each director, nominee, and Named Executive beneficially owned as of February 1, 2008. No director, nominee or executive officer, including Named Executives, beneficially owned more than 0.31% of Fords total outstanding common stock. Directors and executive officers as a group, including the Named Executives, beneficially owned 0.61% of Ford common stock as of February 1, 2008. These persons held options exercisable on or within 60 days after February 1, 2008 to buy, and/or beneficially owned as of February 1, 2008 Trust Preferred Securities convertible into, 16,852,038 shares of Ford common stock.
(1)Amounts shown include restricted shares of common stock issued under the Restricted Stock Plan for Non-Employee Directors, as follows: 1,399 shares each for Kimberly A. Casiano, Edsel B. Ford II, Irvine O. Hockaday, Jr., and Ellen R. Marram.
For executive officers, included in the amounts for All Directors and Executive Officers as a group are Restricted Stock Equivalents issued under the 1998 Plan as long-term incentive grants in 2007 and prior years for retention and other incentive purposes.
Also, amounts shown include restricted shares of common stock issued under the 1998 Plan as follows: 62,043 shares for Edsel B. Ford II as payment for his services pursuant to a consulting agreement with the Company (see p. 25). In addition, amounts shown include Restricted Stock Equivalents issued under the 1998 Plan as follows: 17,035 equivalents each for Donat R. Leclair and Mark Fields, 12,776 equivalents for Lewis W. K. Booth, and 11,924 equivalents for Michael E. Bannister as final awards paid in March 2007 for a 2006 performance-based Restricted Stock Equivalent opportunity.
(2)In addition to the stock ownership shown in the table above: Edsel B. Ford II has disclaimed beneficial ownership of 89,601 shares of common stock and 48,806 shares of Class B Stock that are either held directly by his immediate family, in trusts for children of his in which he is the trustee, by charitable funds which he controls or by members of his immediate family in custodial or conservatorship accounts for the benefit of other members of his immediate family. William Clay Ford, Jr., has disclaimed beneficial ownership of 26,927 shares of common stock and 65,352 shares of Class B Stock that are either held directly by members of his immediate family, in a trust for a child of his in which he is the trustee or by members of his immediate family in custodial accounts for the benefit of other members of his immediate family. Present directors and executive officers as a group have disclaimed beneficial ownership of a total of 116,528 shares of common stock and 114,158 shares of Class B Stock.
Also, on February 1, 2008 (or within 60 days after that date), the Named Executives and directors listed below have rights to acquire shares of common stock through the exercise of stock options under Fords stock option plans and/or through conversion of Trust Preferred Securities, as follows:
The amounts of common stock shown above for Mr. Manoogian are a result of his ownership of Trust Preferred Securities, which are convertible into Ford common stock. In Mr. Manoogians case, he is deemed to be the beneficial owner of certain Trust Preferred Securities as a result of his being a trustee of a charitable foundation that owns the Trust Preferred Securities. Additionally, Mr. Manoogian pledged as security 200,000 shares of common stock held in a trust of which he is a trustee.
(3)Pursuant to SEC filings, the Company was notified that as of December 31, 2007, the following entities had more than a 5% ownership interest of Ford common stock, or owned securities convertible into more than 5% ownership of Ford common stock, or owned a combination of Ford common stock and securities convertible into Ford common stock that could result in more than 5% ownership of Ford common stock: Brandes Investment Partners, L.P., 11988 El Camino Road, Suite 500, San Diego, California 92130, and certain of its affiliates, owned 157,059,286 shares of common stock (7.7%); Capital Research Global Investors, 333 South Hope Street, Los Angeles, California 90071, and certain affiliates, owned 121,553,050 shares of common stock (5.8%) (77,537,050 of such shares are the result of ownership of securities convertible into Ford common stock); Bank of America Corporation, 100 North Tryon Street, Floor 25, Bank of America Corporate Center, Charlotte, North Carolina 28255, and certain affiliates, owned 885,465,508 shares of common stock (43.27%), including 270,913,632 shares deemed owned by United States Trust Company, N.A., by virtue of its status as investment manager under Fords 401(k) plans; and Wellington Management Company, LLP, 75 State Street, Boston, Massachusetts 02109, owned 161,214,419 shares of common stock (7.7%).
(4)In general, these are common stock units credited under a deferred compensation plan and payable in cash. For Alan Mulally, included are 400,000 Restricted Stock Units payable in cash that were granted to him under the 1998 Plan in connection with his appointment as President and CEO of Ford.
(5)As of February 1, 2008, the following persons owned more than 5% of the outstanding Class B Stock: Lynn F. Alandt, c/o Ford Estates, Dearborn, Michigan, beneficially owned 9,008,045 shares (12.71%) and William Clay Ford, c/o Ford Estates, Dearborn, Michigan, beneficially owned 10,284,997 shares (14.52%). In addition to the above, George A. Straitor, c/o Ford Estates, Dearborn, Michigan controlled 8,322,147 shares (11.75%) as trustee of various trusts. Mr. Straitor disclaims beneficial ownership of these shares.
Of the outstanding Class B Stock, 52,016,831 shares are held in a voting trust of which Edsel B. Ford II, William Clay Ford, and William Clay Ford, Jr. are among the trustees. The trust requires the trustees to vote the shares as directed by a plurality of the shares in the trust. Edsel B. Ford II is a nephew and William Clay Ford, Jr. is the son of William Clay Ford.
Impact Resulting From Spin-off of Associates First Capital Corporation and Visteon Corporation and Implementation of the Value Enhancement Plan
The value of the Companys common stock changed as a result of:
To account for these changes in value, the following items held by officers or directors of the Company as of April 9, 1998, June 28, 2000 and August 2, 2000, respectively, were adjusted in each case to ensure that the aggregate value of the item before and after each of these events would be approximately equal: common stock units, deferred contingent credits, Performance Stock Rights, Restricted Stock Equivalents, and stock options. (References in this proxy statement to any of these items that were issued before August 2, 2000 are to the adjusted amounts.)
Based on Company records and other information, Ford believes that all SEC filing requirements applicable to its directors and executive officers were complied with for 2007 and prior years, except that, due to a clerical oversight by the Company, William Clay Ford, Jr., had one late report of one transaction related to Trust Preferred Securities.
(1)Standard Compensation Arrangements
Fees. On July 13, 2006, the Board of Directors voluntarily reduced Board fees payable to non-employee directors by half. Accordingly, the following fees were paid to non-employee directors during 2007:
Deferred Compensation Plan. Under this plan, 60% of a directors annual Board membership fee must be deferred in common stock units. Directors also can choose to have the payment of all or some of the remainder of their fees deferred in the form of cash and/or common stock units. Each common stock unit is equal in value to a share of common stock and is ultimately paid in cash. These common stock units generate Dividend Equivalents in the form of additional common stock units (if dividends are paid on common stock). These units are credited to the directors accounts on the date common stock cash dividends are paid. Any fees deferred in cash are held in the general funds of the Company. Interest on fees deferred in cash is credited semi-annually to the directors accounts at the then-current U.S. Treasury Bill rate plus 0.75%. In general, deferred amounts are not paid until after the director retires from the Board. The amounts are then paid, at the directors option, either in a lump sum or in annual installments over a period of up to ten years.
Restricted Stock Plan. Effective July 1, 2004, Ford amended the Restricted Stock Plan for Non-Employee Directors providing for its termination, except with respect to outstanding grants of restricted stock and stock equivalents. Each non-employee director who had served for six months received 3,496 shares of common stock subject to restrictions on sale. In general, the restrictions expire for 20% of the shares each year following the year of the grant. No new grants of restricted stock will be made under the plan.
Insurance. Ford provides non-employee directors with $200,000 of life insurance and $500,000 of accidental death or dismemberment coverage. The life insurance coverage continues after the director retires from the Board if the director is at least 55 years old and has served for at least five years. A director who retires from the Board after age 70 or, after age 55 with Board approval, and who has served for at least five years, may elect to have the life
insurance reduced to $100,000 and receive $15,000 a year for life. The accidental death or dismemberment coverage may, at the directors expense, be supplemented up to an additional $500,000 and ends when the director retires from the Board.
Evaluation Vehicle Program. We provide non-employee directors with the use of up to two Company vehicles free of charge. Directors are expected to provide evaluations of the vehicles to the Company.
(2)William Clay Ford, Jr., our Chairman of the Board, is not shown in the table above because he is employed as Executive Chairman of Ford and does not receive non-employee director compensation. Additionally, Mr. Ford is not identified as a Named Executive in the Summary Compensation Table on p. 50 because he did not meet the definition of a Named Executive under SEC rules.
(3)As indicated in footnote 1, under Deferred Compensation Plan, non-employee directors are required to defer at least 60% of their annual Board membership fee. The following summarizes director deferrals for 2007: Messrs. Bond, Butler, and Manoogian, Ms. Casiano, Ms. Marram, Edsel B. Ford II, and Dr. Neal: $60,000 each; Messrs. Ollila, and Thornton: $100,000 each; Mr. Hockaday: $82,500; and Mr. Shaheen: $30,000.
(4)The amount shown for Edsel B. Ford II reflects the expense recognized pursuant to FAS 123R due to grants of restricted shares of common stock awarded under the 1998 Plan pursuant to a January 1999 consulting agreement between the Company and Mr. Ford. The amount shown also reflects the grant date fair value calculated pursuant to FAS 123R of these awards. Under the agreement, the consulting fee is $125,000 per calendar quarter, payable in restricted shares of common stock. The restrictions on the shares lapse one year from the date of grant and are subject to the conditions of the 1998 Plan. Mr. Ford is available for consultation, representation, and other duties under the agreement. Additionally, the Company provides facilities (including office space), an administrative assistant, and security arrangements. This agreement will continue until either party ends it with 30 days notice.
Stock awards outstanding at December 31, 2007, for each of the directors listed above consisted of restricted shares of common stock issued under the Restricted Stock Plan for Non-Employee Directors, as follows: 1,399 shares each for Ms. Casiano, Edsel B. Ford II, Mr. Hockaday, and Ms. Marram.
(5)The following table summarizes the amounts shown in column (d).
All Other Compensation in 2007
(i)The amount shown for Mr. Bond reflects fees paid pursuant to a consulting agreement with the Company dated September 13, 2006. Under the agreement, Mr. Bond serves as a consultant and senior advisor to the Executive Chairman, working on financial and other matters. The consulting fee is $25,000 per day for actual days worked, payable in arrears. Total fees will not exceed $262,500 for any twelve month period, unless specifically agreed to by the Company and Mr. Bond. Either party may terminate the agreement at any time. During the term of the agreement, Ford will reimburse Mr. Bond for customary and reasonable business-related expenses, travel and lodging, consistent with Company policies. While the agreement is in effect, the Company will provide Mr. Bond with an office and other incidental support in connection with the services to be provided under the agreement.
The amount shown for Dr. Neal reflects fees paid as a member of the board of managers of Ford Global Technologies, LLC, a wholly-owned entity that manages the Companys intellectual property. As a non-employee director of such board, Dr. Neal receives the customary fees paid to non-employee directors. Currently, the fees are: Annual Fee: $10,000, Attendance Fee: $1,000 per meeting. Dr. Neal attended both meetings of the board of managers of Ford Global Technologies, LLC, during 2007.
(ii)All amounts shown in this column reflect the cost of evaluation vehicles provided to Directors (see footnote (1) above) and the actual cost incurred for birthday and Holiday gifts. We calculate the aggregate incremental costs of providing the evaluation vehicles by estimating the lease fee of a comparable vehicle under our Management Lease Program. The lease fee under that program takes into account the cost of using the vehicle, maintenance, license, title and registration fees, and insurance.
(iii)The amounts in this column reflect the cost of providing Accidental Death and Dismemberment insurance discussed in footnote (1) above.
Since January 1993, Ford has had a consulting agreement with William Clay Ford. Under this agreement, Mr. Ford is available for consultation, representation, and other duties. For these services, Ford pays him $100,000 per year and provides facilities (including office space), an administrative assistant, and security arrangements. This agreement will continue until either party ends it with 30 days notice.
In February 2002, Ford entered into a Stadium Naming and License Agreement with The Detroit Lions, Inc., pursuant to which we acquired for $50 million, paid by us in 2002, the naming rights to a new domed stadium located in downtown Detroit at which the Lions began playing their home games during the 2002 National Football League season. We named the stadium Ford Field. The term of the naming rights agreement is 25 years, which commenced with the 2002 National Football League season. Benefits to Ford under the naming rights agreement include exclusive exterior entrance signage and predominant interior promotional signage. In June 2005, the naming rights agreement was amended to provide for expanded Ford exposure on and around the exterior of the stadium, including the rooftop, in exchange for approximately $6.65 million to be paid in varying installments over the next ten years, of which $564,933 was paid during 2007. Beginning in 2005, the Company also agreed to provide to the Lions, at no cost, eight new model year Ford, Lincoln or Mercury brand vehicles manufactured by Ford in North America for use by the management and staff of Ford Field and the Lions and to replace such vehicles in each second successive year, for the remainder of the naming rights agreement. The cost of providing the vehicles during 2007 was $141,030. William Clay Ford is the majority owner of the Lions. In addition, William Clay Ford, Jr., is one of five minority owners and is a director and officer of the Lions.
Ford held its national dealer meetings the week of June 9 through June 16, 2007 at Ford Field. Ford contracted with an independent third-party event planner to arrange the leasing of Ford Field from the Detroit Lions, Inc. The cost of leasing Ford Field and for the provision of related services that was paid to the Detroit Lions was $1,902,714.
Paul Alandt, Lynn F. Alandts husband, owns a Ford-franchised dealership and a Lincoln-Mercury-franchised dealership. In 2007, the dealerships paid Ford about $70.2 million for products and services in the ordinary course of business. In turn, Ford paid the dealerships about $13.0 million for services in the ordinary course of business. Also in 2007, Ford Motor Credit Company LLC, a wholly-owned entity of Ford, provided about $96.4 million of financing to the dealerships and paid $404,958 to them in the ordinary course of business. The dealerships paid Ford Credit about $91.7 million in the ordinary course of business. Additionally, in 2007 Ford Credit purchased retail installment sales contracts and Red Carpet Leases from the dealerships in amounts of about $6.9 million and $49.2 million, respectively.
Mr. Alandt also owns a Volvo franchised dealership. Volvo Cars is a wholly-owned entity of Ford. During 2007 the dealership paid Volvo Cars about $10.5 million for products and services in the ordinary course of business. In turn, Volvo Cars paid the dealership about $1.96 million for services in the ordinary course of business. Also in 2007, Ford Credit provided about $14.5 million of financing to the dealership and paid $12,915 to it in the ordinary course of business. The dealership paid Ford Credit about $14.2 million in the ordinary course of business. Additionally, in 2007 Ford Credit purchased retail installment sales contracts and retail leases from the dealership in amounts of about $270,000 and $3.1 million, respectively.
Edsel B. Ford II owns Pentastar Aviation, Inc., an aircraft charter, management, maintenance, and catering company. During 2007, the Company paid Pentastar, or its affiliates, $296,880 for services provided to the Company in the ordinary course of business.
In March 2001, Marketing Associates, LLC, an entity in which Edsel B. Ford II has a majority interest, acquired all of the assets of the Marketing Associates Division of Lason Systems, Inc. Before the acquisition, the Marketing Associates Division of Lason Systems, Inc. provided various marketing and related services to the Company and this continued following the acquisition. In 2007, the Company paid Marketing Associates, LLC approximately $22.4 million for marketing and related services provided in the ordinary course of business.
Pursuant to SEC filings, the Company was notified that as of December 31, 2007, Brandes Investment Partners, L.P., 11988 El Camino Road, Suite 500, San Diego, California 92130, and certain of its affiliates (Brandes) owned approximately 7.7% of the common stock of the Company. During 2007, the Company paid Brandes approximately $9.6 million in the ordinary course of business.
Pursuant to SEC filings, the Company was notified that as of December 31, 2007, Capital Research Global Investors, 333 South Hope Street, Los Angeles, California 90071, and certain affiliates (Capital Research), owned approximately 5.8% of common stock (77,537,050 of such shares are the result of ownership of securities convertible into common stock). During 2007, the Company paid Capital Research approximately $14.1 million in the ordinary course of business.
Pursuant to SEC filings, the Company was notified that as of December 31, 2007, Bank of America Corporation, 100 North Tryon, Floor 25, Bank of America Corporate Center, Charlotte, North Carolina 28255, and certain affiliates, owned approximately 43.27% of common stock (which includes shares deemed to be owned by virtue of United States Trust Companys status as investment manager under Fords 401(k) plans). During 2007, the Company paid Bank of America and certain of its affiliates approximately $2.8 million in the ordinary course of business.
Pursuant to SEC filings, the Company was notified that as of December 31, 2007. Wellington Management Company, LLP, 75 State Street, Boston, Massachusetts 02109, owned approximately 7.7% of the Companys common stock. During 2007, the Company paid Wellington Management Company approximately $4.2 million in the ordinary course of business.
Compensation Discussion and Analysis (CD&A)
The compensation of our executive officers for 2007 was intended to focus executive performance on achieving important business objectives. Our 2007 performance against metrics for our performance-based programs indicates that we made significant progress in our objective of returning to automotive profitability by 2009, which we refer to as our turnaround plan in this analysis. Our executives, including the Named Executives, demonstrated exemplary leadership in driving our 2007 performance. The following brief discussion of our compensation philosophy and objectives provides you with the framework within which compensation programs were developed. The discussion of the Companys compensation objectives and business strategy provides you with background of those areas that were determined to be important in moving the Company forward in its goal of achieving automotive profitability in 2009.
Our Compensation Committee has adopted the following Philosophy Statement with respect to all salaried employees:
Compensation and benefits programs are an important part of the Companys employment relationship, which also includes challenging and rewarding work, growth and career development opportunities, and being part of a leading company with a diverse workforce and great products. Ford is a global company with consistent compensation and benefits practices that are affordable to the business.
Pay for performance is fundamental to our compensation philosophy. We reward individuals for performance and contributions to business success. Our compensation and benefits package in total will be competitive with leading companies in each country.
In addition, the Committee has approved the following Strategy Statement:
Compensation will be used to attract, retain, and motivate employees and to reward the achievement of business results through the delivery of competitive pay and incentive programs. Benefits provide employees with income security and protection from catastrophic loss. The Company will develop benefit programs that meet these objectives while minimizing its long-term liabilities.
The Philosophy and Strategy Statements are reviewed by the Committee on a regular basis. In 2006, the Committee amended the Strategy Statement to include retention of employees as an objective to emphasize the importance of this goal as we execute our turnaround plan. There were no changes to the Philosophy and Strategy Statements in 2007.
Consistent with the statements above, our compensation programs are designed to:
As noted above, one of the primary objectives of our compensation program is to drive executive behavior to accomplish key strategic goals. The Compensation Committee, in consultation with the Executive Chairman, the President and Chief Executive Officer, and the Group Vice President Human Resources and Labor Affairs,
determined that emphasizing certain metrics in performance-based incentive plans would best assist in our turnaround efforts.
Our President and Chief Executive Officer, Alan Mulally, announced the following four strategic priorities for our business:
1. Aggressively restructure our business to operate profitably at current demand and changing model mix.
2. Accelerate the development of new products our customers want and value.
3. Finance our plan and improve our balance sheet.
4. Work together effectively as one team.
Given these priorities and our financial performance in 2006, the Committee decided to emphasize global and business unit profitability, as well as total Automotive operating-related cash flow and cost performance metrics in our incentive plans for 2007. These metrics support the goals of aggressively restructuring our business to operate profitably, as well as financing our plan and improving our balance sheet. Additionally, similar to 2006, the Committee again emphasized quality and market share metrics in our incentive programs. These metrics support our goals of accelerating the development and introduction of new products our customers want and value. As discussed in greater detail below, performance in these critical areas in large part drove the compensation decisions for Named Executives for 2007. For more detail on these metrics and how they were used in our incentive programs refer to Annual Compensation B. Incentive Bonuses on pp. 34-37 and Equity-Based Compensation A. Annual Performance Unit and Stock Option Grants and C. Senior Executive Retention Program on pp. 39-42.
With the above objectives and strategy in mind, the Compensation Committee determines compensation for our executives. Among the tools the Committee uses are competitive surveys and internal pay equity and equity-value accumulation analyses, as well as recommendations from the Executive Chairman, the President and CEO, the Committees consultant, and our Human Resources department.
In December 2007, the Committee reviewed a report presented by Towers Perrin, an outside consulting firm, on Fords compensation programs for executives. Using compensation data for 2006, the report discussed how our executive compensation program compared with those of peer companies on base salary, bonus, long-term incentives, benefits, and total compensation. Towers Perrin develops data using a survey of several leading companies that we have historically used as comparator companies, adding stability and reliability to the survey data over time. In addition to General Motors and DaimlerChrysler the survey also included 19 leading companies in other industries:
These companies were selected because, like Ford, they are generally Fortune 100 manufacturing companies with significant revenue (generally over $15 billion) and with global operations employing a large number of individuals in manufacturing, product engineering, and sales. Although many of these companies had more successful years than Ford and its competitors in 2006 and 2007, we believe the comparator group provides a good basis for assessment of our compensation programs. The market for executive talent is broad; to narrow the survey group to automotive-related companies would be to ignore the fact that executives often move between industries. In addition, compensation data for many other automotive manufacturers is not readily available.
While the Committee uses the survey as a reference point, it is not, and was not in 2007, the determining factor in executive compensation decisions. The survey group data is used primarily to ensure that our executive compensation program as a whole is competitive when the Company achieves targeted performance levels. We generally seek to provide total compensation opportunities, which includes salary, annual bonus and long-term incentives, at or around the survey groups median total compensation. We do not establish rigid targets for total compensation, or any individual element of our executive compensation program, to the survey group. Rather, consistent with our compensation objectives discussed above, we incorporate flexibility into our compensation programs and in the executive assessment process to respond to, and adjust for, changes in the business environment and individual accomplishments, performance, and circumstances.
The 2007 survey results indicated that the 2006 total compensation for our Named Executives as a group was about 33% below the median. In general, 2007 cash compensation for the Named Executives was above the median of the survey group and equity-based compensation was significantly below the median. An analysis of how each element of compensation listed below compared to the survey data for 2007, as well as how the factors described above, including the competitive survey data review, affected Named Executive compensation decisions during 2007, is included in the discussion of each element below.
Each year, the Committee reviews all components of compensation, both recent historical and prospective, of our executive officers, including the Named Executives. This review includes data on salary, annual bonuses, and equity-based awards, as well as data on perquisites and other benefits, and is prepared by the Companys Human Resources department. The Committee also takes into account relative pay considerations within the officer group and data covering individual performance. In general, this analysis did not result in any significant differences in awarding of compensation among Named Executives during 2007, other than that discussed under Annual Compensation A. Salaries on p. 33.
The Committee also considers analyses of the accumulation of the value of outstanding equity grants. For instance, the Committee reviewed the value of equity-based awards at certain price levels of Ford stock. This review also included data on the increase in shareholder value at these stock price levels. This allows the Committee to assess the reasonableness of equity-based awards in comparison to potential increases in the Companys market capitalization.
The Committee considers recommendations from Mr. Ford, Mr. Mulally, and the Group Vice President Corporate Human Resources and Labor Affairs, in developing compensation plans and evaluating performance of other executive officers. The Committees consultant also provides advice and analyses on the structure and level of executive compensation (see Compensation Committee Operations on pp. 19-20). As noted in the Executive Summary above, Mr. Mulally established our corporate priorities and, subsequently, our incentive plan metrics were developed in consultation with our Human Resources and Finance departments to support these priorities. In addition, these metrics and related targets were developed from our 2007 plan. Final decisions on any major element of compensation, however, as well as total compensation for executive officers, are made by the Compensation Committee.
The Named Executives based on 2007 compensation are:
The table below lists the elements of our total compensation program and why we provide these elements:
Each compensation element is supported by the objectives and strategy discussed in the Executive Summary on pp. 29-30. In addition, the Compensation Committee awards cash, stock options, restricted or unrestricted stock, and/or Restricted Stock Units to key executives when it deems it appropriate for promotion, retention, recognition, or incentive purposes. The special awards made during 2007, discussed in more detail below, were performance-based.
To achieve our objectives and to support our business strategy, compensation paid to our executives is structured to ensure that there is an appropriate balance among the various forms of compensation. The charts below shows the various balances we achieved compared to the balances achieved by the survey group:
As the charts indicate, cash compensation makes up a higher percentage of our Named Executives compensation than that of the comparator groups median. Furthermore, equity-based compensation makes up a lower percentage of our Named Executives compensation than that of the comparator group. We believe this is reasonable and not unexpected given that we are in the midst of our turnaround plan.
The Committee attempts to strike appropriate balances by analyzing the competitive market for executive talent, our business results and forecasts, and our key strategic goals for the year. Given that we are in the midst of a turnaround designed to return our North American Automotive Operations to profitability by 2009, for 2007, the Committee emphasized the accomplishment of short-term goals to keep us on track to achieve that objective. Our equity-based programs, however, were also designed with restriction periods in order to continue to focus executive behavior on our longer-term interests and align their interests with yours (see Equity-Based Compensation on pp. 39-42.
Annual compensation for our executives includes salary and incentive bonus, if earned, paid in cash.
Salaries are an essential component of a compensation package that helps attract, retain, and motivate performance. When considering increases to base salaries in 2007, the Compensation Committee took into account generally the following factors:
The Compensation Committee reviews salaries of the Named Executives annually and at the time of a promotion or other major change in responsibilities. As part of our objective to control costs, we did not increase salaries for any of the Named Executives in 2006. In 2007, however, the Company made significant progress in improved profitability and in meeting quality, cash flow, and cost targets. Given this progress, the Compensation Committee granted the following Named Executives salary increases in December 2007 (the percentage increase appears in parentheses): Donat R. Leclair (4.8%), Mark Fields (3.9%), and Lewis W. K. Booth (23.3%). In addition, Michael E. Bannister received a salary increase (28.5%) in October 2007.
Messrs. Booths and Bannisters relatively larger increases resulted from the timing of their last salary increases, internal pay equity considerations and, in the case of Mr. Bannister, in connection with his promotion to an Executive Vice President of Ford. The adjustments bring Mr. Booths and Mr. Bannisters annual salaries more in line with those of Mr. Leclair and Mr. Fields. Mr. Mulally joined Ford in September 2006 and did not receive a salary increase during 2007.
Throughout 2007 the salaries for the Named Executives were above the median of the survey group. We believe that paying base salaries at the high end of the competitive survey is appropriate to retain executives throughout the business cycle because total compensation may be much lower than competitive levels (see How We Determine Compensation A. Competitive Survey on pp. 30-31). The relative salary level is also explained by the fact that Ford is in general larger and more complex than many of the companies in the group. With respect to Mr. Mulally, his salary resulted from negotiations that brought him to Ford as its President and Chief Executive Officer from his previous senior position at Boeing.
In 2007, for Named Executives whose primary responsibilities involved a particular business unit, the Committee set a bonus formula that was based on metrics that took into account Company and relevant business unit performance as follows:
The Committee determined that this structure best took into account Company as well as individual performance for those executives responsible for our individual business units.
Those Named Executives whose duties are of a global nature were placed in the Corporate business unit. For these executives, the performance metrics used for 2007 were the following:
For each of the business units, we chose these metrics because they supported our key 2007 objectives identified as top priorities for the year and necessary for our turnaround plan (see Executive Summary on pp. 29-30). The bonus formula has a sliding scale, based on various levels of achievement for each metric. If certain performance levels are not met for all metrics, the payout would be zero.
The Named Executives who participated in the Incentive Bonus Plan and their respective business unit are as follows:
Under the Incentive Bonus Plan, the Committee sets target awards for each Named Executive based on the individuals level of responsibility and the maximum Company performance level. In 2007, the Committee also considered competitive compensation data, pay equity considerations among the Named Executives, and the target amounts set for 2006, as well as the need for flexibility to motivate and reward exceptional performance while maximizing the deductibility of any amounts earned by the Named Executives by following the shareholder approved terms of the Plan.
The 2007 target award for Mr. Mulally was 1.75 times base salary pursuant to the terms of his hiring contract. In light of Mr. Mulallys target, the target awards for Messrs. Leclair, Fields, Booth, and Bannister were generally based
on internal equity pay considerations (see Grants of Plan-Based Awards in 2007 Table on p. 53). These target amounts, if fully paid, would be above the median (27%) of the survey group for Mr. Mulally and at the median for the other Named Executives. The target amounts were the maximum that could be paid if the Company exceeded its performance goals and reached the maximum performance level under the Plan. The maximum targets were chosen to comply with Section 162(m) of the Internal Revenue Code of 1986, as amended (Code), and allow us to deduct for income tax purposes awards made to Named Executives under the Plan. The Committee may reduce, but not increase, awards for Named Executives from the formula amount under the Plan. For Named Executives, awards could have ranged between 0% and 100% of the maximum target award, depending on actual performance achieved. Since the target awards were the maximum that could be paid out if performance goals were exceeded, the performance results for any particular metric used in calculating a final award was based on a scale whereby a maximum performance result of 150% or 200% of the target for a particular metric could be achieved (see chart below).
The following are excluded in the Total Automotive Operating-Related Cash Flow for Incentive Bonus Plan purposes:
Typically, each metric would have had a maximum potential performance result of 200%. In the Committees view, however, a 200% maximum potential performance result was not appropriate for the Profit Before Taxes and Total Automotive Operating-Related Cash Flow metrics as both were planned to be negative.
For the business units in which Named Executives participated, the following table shows the performance metrics and weightings, the target for each metric, and performance results against targets for each metric. The Committee reviewed Fords performance during 2007 against the targets. Based on this performance, the Committee approved the calculations of the percentage of each of the six performance goals achieved for each business unit. The results show that we surpassed the targets for every metric, except the Market Share metric. This performance shows that we made significant progress in 2007 toward our goal of returning to total Automotive profitability by 2009. This
demonstrates that Mr. Mulallys strategy of one Ford team focusing on one plan is taking hold and progressing our turnaround plan.
2007 Incentive Bonus Targets and Performance Results
(at 100% Target Level)
The table below shows the total performance results for each business unit in which a Named Executive participated. Based on the performance against each metrics targets within the relevant business unit shown above, the Committee calculated the percent of the total target award earned for that business unit.
The Committee decided to set aside up to $271.5 million for the payment of bonuses to approximately 5,200 management participants under the plan, which is equal to the formula amount based on performance results. All Named Executives who received a bonus for 2007 received awards that were equal to the formula amount. See column (g) of the Summary Compensation Table and footnote 3 on pp. 50-51. Because actual performance exceeded targets for all metrics, except the market share metric, and, for PAG, the quality metric, the Committee decided to award participating Named Executives awards equal to the formula amount under the plan.
Our results relative to the Incentive Bonus Plan goals above represented significant progress during 2007 towards our objective of achieving automotive profitability by 2009. This progress required extraordinary performance by the Named Executives. The Committee reviewed each of the Named Executives contributions to our improved 2007 results and decided to grant additional, discretionary bonuses to the Named Executives in recognition of their exemplary leadership (see column (d) of the Summary Compensation Table on p. 50). These bonuses were paid outside of the Incentive Bonus Plan and, therefore, are subject to the deduction limits of Section 162(m) (see Tax and Other Considerations A. Internal Revenue Code § 162(m) on pp. 47-48).
From an enterprise-wide perspective, the Committee recognized the following factors:
With respect to Mr. Mulally, the Committee noted his additional, extraordinary performance in the following areas:
In light of the performance outlined above, and our performance against the Incentive Bonus Plan, the Committee determined Mr. Mulally should be awarded a significant bonus to recognize his leadership in achieving our improved results and as an incentive for continued exceptional performance.
The Committee also recognized exceptional performance of Messrs. Leclair, Fields, Booth, and Bannister. In particular, the Committee noted their individual and collective performance results in the following areas during 2007:
Each of the Named Executives performance supported the four priorities established by Mr. Mulally (see Executive Summary on p. 30). In consideration of the Named Executives leadership in achieving our 2007 results, the Committee determined that an award of additional bonuses was appropriate in order to recognize their outstanding performance.
Our equity-based incentive awards are tied to our performance and the future value of our common stock. These awards are intended to focus executive behavior on our longer-term interests, because todays business decisions affect Ford over a number of years. For 2007, our equity-based compensation consisted of new grants of Performance Units and stock options, payouts from past Performance Stock Rights grants, and retention grants to certain Named Executives, as explained in more detail below.
As discussed above, the competitive survey indicates that equity-based compensation for the Named Executives is below the median of the comparator group. For Mr. Mulally, the survey showed that his total equity-based compensation was 12% below the median of the survey group (-20% for stock options and -5% for other equity-based awards). For the other Named Executives, the survey showed that total equity-based compensation was 34% below the median of the comparator group (-22% for stock options and -43% for other equity-based awards). This was anticipated because of our desire to reduce the expense of our executive compensation programs.
For 2006, our equity-based incentive compensation program had three basic elements: stock options, Performance Stock Rights, and performance-based Restricted Stock Equivalents. In 2007, the Committee refined our equity-based incentive program for executive officers, including the Named Executives, by deciding to grant only two types of equity-based compensation: stock options and Performance Units (see Grants of Plan-Based Awards in 2007 Table and related footnotes on pp. 53-55). The Committee decided that eliminating new grants of Performance Stock Rights removed a level of complexity from the annual equity grant process. The Committee allocated the value of the discontinued Performance Stock Right grant equally among options and Performance Units. Because the Committee desired to place equal weight on the two types of equity-based compensation granted in 2007, the Committee awarded 50% of the value of each executives annual equity award in stock options and 50% in Performance Units.
In general, the total value of these grants in 2007 was determined based on the following considerations:
The stock options vest over three years, have a ten-year term, and function as our longest-term incentive. The Committee believes this focuses executive behavior and decision making on our long-term interests and aligns the interests of our executives with those of our shareholders. The Performance Units are awarded based on a one-year performance period, but are paid out in service-based Restricted Stock Units, which add an additional two-year retention element. In granting the Performance Units, the Committee chose a one-year performance period in order to focus executive behavior on achieving key short-term business objectives, similar to the Incentive Bonus Plan. The two-year restriction period, however, adds an intermediate element that serves to retain executives and focus their behavior beyond the initial one-year performance period. In addition, because executive decisions regarding product development, marketing, sales, etc., can affect our performance over several years, the Committee believes that it is important to structure equity-based awards so that executives will focus on the long-term consequences of their decisions. This also further aligns executive interests with your interests as shareholders.
For the 2007 Performance Unit grants, the Committee selected metrics, weightings, and targets identical to those under the 2007 Incentive Bonus Plan (see 2007 Incentive Bonus Targets and Performance Results Table on p. 36).
The Committee chose identical metrics and targets to support our compensation objectives and key priorities (see Executive Summary B. Compensation Objectives and Business Strategy on pp. 29-30).
The target awards for 2007 Performance Unit grants for Messrs. Mulally, Leclair, Fields, Booth, and Bannister are shown in column (h) of the Grants of Plan-Based Awards Table in 2007 on p. 53. These amounts represent the maximum award opportunity. Payouts could range from 0% to 100% of the target award depending on performance. The Committee could decrease, but not increase, an award for Named Executives. Each of the participating Named Executives was placed in the same business unit as they had been placed under the Incentive Bonus Plan.
The table below shows the performance results for each metric for each business unit and the total performance results against the metrics for 2007. The Committee reviewed Fords performance during 2007 against the goals. Based on this performance, the Committee determined the percentage of each of the six performance goals achieved and the percent of the target award earned for each business unit in which a Named Executive participated.
2007 Performance Unit Performance Results
(% of Target Achieved)
In its discretion and based on our exemplary performance during 2007, as discussed under the Incentive Bonuses on pp. 34-37, the Committee determined not to reduce payouts and awarded Restricted Stock Units based on the percentage earned for each business unit indicated in the far right hand column of the above table.
B. Performance Stock Rights
In 2005, the Committee granted Performance Stock Rights to each of our Named Executives, other than Mr. Mulally, as well as certain other top executives. These Performance Stock Rights covered the performance period 2005-2007 and paid Dividend Equivalents in cash (if we paid dividends on our common stock) based on 100% of the targeted payout. The target payouts were primarily determined by considering executives job responsibilities at the time of the grant and their expected future contributions. Final Awards of common stock could range from 0% to 150% of the targeted payout. The targets for the participating Named Executives are shown below:
In 2005, the Committee decided that the metrics and weightings shown below supported Fords business strategy at that time of improving market share, customer satisfaction, and cost efficiency, as well as focusing on shareholder returns. While these objectives continue to be important, the Committee has shifted emphasis to other goals (see
Executive Summary on pp. 29-30). The following table shows the metrics, weightings, target goals, and the performance results.
2005-2007 Performance Stock Rights
(Target Goals and Performance Results)
*The High-Time-in-Service and Launch metrics are derived from Global Quality Research System surveys conducted by an independent third-party. The High-Time-in-Service survey measures customer satisfaction after vehicles have been in service for three years. The Launch survey measures customer satisfaction after the vehicle has been in service for three months. The Things-Gone-Wrong metric is measured on a per 1,000 vehicle basis by asking customers to check boxes where they feel there has been a thing gone wrong with the vehicle.
Based on this performance, the formula produced awards of 45% of the shares covered by the Performance Stock Rights for Messrs. Leclair, Fields, Booth, and Bannister. The 2007 Final Awards of common stock relating to Performance Stock Rights for the 2005-2007 performance period were paid out in March 2008. The Committee in its discretion determined not to reduce the payouts because the formula inherently took into account the level of performance achieved.
In response to Mr. Mulallys strategic priority of working together effectively as one team working toward one goal, the Committee decided to settle an equity incentive program initiated for certain executives in March 2006. The consideration for settling the program was a cash payment made to participants based on actual and expected achievement of certain goals during the 2006-2008 performance period. Payments made to Messrs. Leclair, Fields, and Booth are shown in column (g) of the Summary Compensation Table on p. 50 for 2006 compensation and further explained in footnote 3 on p. 51.
To continue to provide a powerful retention element and incentive to work together effectively as one team to accomplish key initiatives, the Committee decided to grant to certain senior executives, including certain of the Named Executives, additional stock options as well as Performance Units in March 2007. The award opportunity for each participant was valued at eight times base salary and reinforces the importance of accomplishing our key strategic goals. In addition, the Committee believes an opportunity of this size will serve as a strong retention
incentive for key executives that have been identified as critical in implementing our turnaround plan and drive to profitability in 2009. The retention of key executives who are tasked with leading our drive to profitability in 2009 is extremely important. During 2007, a number of automotive executives moved among competitors. In order to provide stability and ensure consistent leadership, the Committee believed it was in our best interest to retain executives identified as critical to accomplishing our objectives.
We reduced the award opportunity for Messrs. Leclair, Fields, and Booth by the amount of their cash payout for the settled program referred to above. Mr. Bannister also participated in this new award opportunity. The value of the net amount of the award opportunity was delivered 50% in stock options and 50% in Performance Units, consistent with the mix of the annual equity grant. See the Grants of Plan-Based Awards in 2007 Table on page 53 and footnotes 2 and 4 for a description of the terms and conditions of these awards.
For the performance against the 2007 target goals, refer to the 2007 Performance Unit Performance Results Table on p. 40. The Committee in its discretion determined not to reduce payouts and awarded restricted stock units based on the percentage earned for each business unit indicated in the far right hand column of the above referenced table.
Annual grants of equity awards are typically determined at a February Compensation Committee meeting. At that time, data for previous performance periods are available to determine the amount of the Final Awards. The Committee also decides the effective date of the annual equity-based grants of options and Performance Units. Due to administrative complexity relating to valuation and notification, on February 27, 2008, the Committee approved the annual 2008 equity-based Final Awards and grants with an effective date of March 5, 2008. A similar practice was also followed for the 2007 annual equity-based Final Awards and grants. The release of earnings information for the prior fiscal year is sufficiently in advance of the annual grant date for the public to be aware of the information.
The Committee does not time equity grant dates to affect the value of compensation either positively or negatively. Executive officers did not play a role in the selection of the grant dates. Special grants, whether approved by the Compensation Committee for officers or the Long-Term Incentive Compensation Award Committee for non-officers, are effective either on a specified future date (e.g., a date that coincides with a promotion or hiring date, or quarterly grant date), or the date of approval. In the case of an approval by written consent, the grant date cannot be earlier than the date when the Committee member approvals have been obtained. See Corporate Governance Compensation Committee Operations at pp. 19-20 for more information on the Long-Term Incentive Compensation Award Committee.
Under the 1998 Long-Term Incentive Plan, the terms of which were approved by you, the exercise price of options is the average of the high and low trading prices of our common stock traded on the NYSE on the effective date of the grant. For exercise prices of the 2007 option grants, see column (l) of the Grants of Plan-Based Awards in 2007 Table on p. 53.
Proposal 4 on pp. 72-79 is our proposal requesting your approval of the 2008 Long-Term Incentive Plan (the 2008 Plan). If approved, the exercise price of options under the 2008 Plan will be the closing price on the date of grant. The Committee decided to use the closing price as the fair market value for option grants to reduce complexity and because it is more in line with SEC disclosure requirements.
In 1994, the Compensation Committee created stock ownership goals for executives at or above the Vice President level to further align the interests of the executives with those of shareholders. The following table shows the officer level and respective ownership goal.
Executives have five years from taking their position to achieve their goal.
We review progress toward achievement of the ownership goals periodically. All forms of stock ownership including directly and indirectly owned shares of common stock, final awards of stock equivalents or restricted stock units, and units that are based on common stock count toward the goal. As of December 31, 2007, all of the Named Executives are still within the five year period to achieve their goals.
We are asking you to approve the terms of our Incentive Bonus Plan, formally known as the Annual Incentive Compensation Plan. Proposal 3 explains the material terms of the Incentive Bonus Plan and the plan text is attached as Appendix I to this Proxy Statement. We have not made any material changes to the Incentive Bonus Plan since we last requested your approval of its terms at the 2003 Annual Meeting of Shareholders. The minor changes we have made are indicated in Appendix I. Most of the changes relate to making the Incentive Bonus Plan compliant with Code Section 409A.
We are also requesting your approval of the Incentive Bonus Plan in order to continue to avoid the deduction limits of Code Section 162(m). That section requires that you approve the terms of the Annual Incentive Plan every five years in order for certain performance-based compensation paid to the Chief Executive Officer and the three most highly compensated executive officers (other than the Chief Financial Officer) who appear in the Summary Compensation Table of our proxy statements. See Tax and Other Considerations A. Internal Revenue Code § 162(m) on pp. 47-48 for more details.
The Board approved the submission of the Incentive Bonus Plan for your approval as proposed at its February 13, 2008 meeting. The Committee believes that the Incentive Bonus Plan provides flexibility to structure our annual bonus program to achieve many objectives. The plans list of performance criteria continues to allow the Committee to craft incentive plans that support our key strategic initiatives. It allows us to change performance criteria and goals from one performance period to another in order to meet the changing competitive environment.
Please refer to Proposal 3 on pp. 70-72 for a more detailed explanation of the material terms of the Incentive Bonus Plan.
The 1998 Plan expires on May 1, 2008. We are, therefore, also requesting your approval of our 2008 Plan. Proposal 4 explains the material terms of the 2008 Plan and the plan text is attached as Appendix II to this Proxy Statement. The Board approved the 2008 Plan at its February 13, 2008 meeting and the plan became effective on March 1,
2008. Grants made under the 2008 Plan, if any, are subject to your approval of the plan. As of the date of this Proxy Statement, no grants have been made under the 2008 Plan.
We are requesting your approval in order to comply with NYSE requirements to obtain shareholder approval of equity compensation plans. Additionally, in order to avoid the deduction limits imposed by Code Section 162(m), shareholder approval is required of the material terms of the 2008 Plan.
The 2008 Plan is identical in many respects to the 1998 Plan which it replaces. The Committee decided to retain many of the material terms of the 1998 Plan in the 2008 Plan because of the flexibility those terms provide the Committee in structuring compensation programs. For instance, the number of shares available for plan awards in any year is based on a formula. In general, the formula for shares available in a given year is 2% of the shares outstanding at the end of the previous year adjusted pursuant to the plan. The 2% formula is explained in detail in Proposal 4 on p. 73. Due to the current competitive environment for automotive executives, the Committee decided that it needs maximum flexibility in structuring equity-based compensation programs in order to retain, attract, and motivate executives.
The Committee also decided to change some aspects of the 2008 Plan from the 1998 Plan. The table below briefly explains the more significant changes and the reasons the changes are appropriate.
Please refer to Proposal 4 on pp. 72-79 for a more detailed explanation of the material terms of the 2008 Plan.
In general, we believe that the retirement plans described below serve several worthwhile business purposes, including attracting and retaining top leadership talent. In addition, they provide income security to long serving executives, and provide flexibility to us in transferring executives among our operations. We believe these programs to be reasonable and appropriate in light of competitive practices and our executives total compensation program. The competitive survey showed that the Pre-2004 Plans discussed below are competitive with the median retirement plans of the comparator group. The Post-January 1, 2004 Plans, however, are significantly under competitive when compared to the surveys comparator group. As explained below, we adopted the Ford Retirement Plan for employees hired or re-hired by Ford on or after January 1, 2004, in order to reduce balance sheet volatility. For additional information, see the Pension Benefits in 2007 Table on p. 59 and Potential Payments Upon Termination or Change of Control on pp. 62-68.
Our General Retirement Plan (GRP) provides a tax-qualified benefit for each year of non-contributory participation by employees in the United States hired before January 1, 2004, and added benefits for those who make contributions. We also have two other non-qualified retirement plans for certain employees: the Supplemental Executive Retirement Plan (SERP) that provides a benefit calculated on a percentage of Final Average Pay (.2%-.9% depending on executive position) and service, and the Benefit Equalization Plan (GRP-BEP). Under the GRP-BEP, eligible employees receive benefits substantially equal to those they could have received under the GRP but were not able to because of Code limitations. Each of the Named Executives, except Mr. Mulally, is eligible for benefits under the GRP, SERP, and GRP-BEP.
Certain eligible executives who separate from employment after age 55 (age 52 if retiring under our Select Retirement Plan (SRP)) and prior to age 65 may be eligible for monthly benefits under our Executive Separation Allowance Plan (ESAP) that provides a percentage of salary, based on age and service, at time of separation until age 65. The SRP is a voluntary retirement program offered from time-to-time for select U.S. management employees. In 2006, at the Committees request, Semler Brossy Consulting Group, LLC and the Company jointly conducted a review of the SRP as a severance vehicle. The review compared present values of the SRP benefit with traditional severance packages, examined potential changes, and considered benefits to the Company and to executives. The Committee reviewed the report and concluded that the SRP should remain in its current form to facilitate the reduction in work force then being undertaken by the Company and to provide flexibility to accommodate any future reductions.
Benefits under SERP, SRP, ESAP, and GRP-BEP are not funded. In addition, in accordance with Code Section 409A, benefits that accrued or vested on or after January 1, 2005 under these plans may not be paid to certain key executives until at least six months following their separation from employment.
Ford has a different tax qualified retirement plan, the Ford Retirement Plan (FRP), for salaried employees hired or rehired on or after January 1, 2004 in the U.S. As mentioned above, the FRP was adopted in order to provide us with more predictable retirement benefit costs and reduced financial statement volatility. These goals are achieved through a stable contribution schedule and the transfer of financial and demographic risks from us to plan participants while still providing employees with the opportunity for adequate income in retirement. Employees who participate in this plan, including Mr. Mulally, are not eligible to participate in the GRP (with respect to future service), GRP-BEP, SERP, or ESAP.
Under our Deferred Compensation Plan, certain salaried employees may defer up to 50% of base salary and up to 100% of awards under the Incentive Bonus Plan and certain other awards. This unfunded plan provides the opportunity to save for the future while postponing payment of income taxes on the deferred compensation.
In December 2006, the Committee approved amendments to our Deferred Compensation Plan that allowed any participating active employee to change the method and/or timing to receive a distribution under the plan in accordance with existing governmental guidance under Code Section 409A. Such election had to be made on or before December 31, 2006. In addition, the amendments provide that on and after December 1, 2006, all deferrals under the plan are subject to Code Section 409A. The Committee recognized that certain key employees who left the Company expressed concern regarding access to their DCP funds as a factor in their decision to leave. Other key employees still with us also expressed this concern. The Committee recognized that retaining key employees, especially during our turn around plan, is a crucial goal and wanted to minimize employee concerns over their Deferred Compensation Plan accounts. The Committee determined that the potential cash outflow was containable within the business plan period. For more information on the Deferred Compensation Plan, including
the Named Executives who made the election referred to above, see the Nonqualified Deferred Compensation in 2007 Table and related footnotes on pp. 61-62.
We provided certain perquisites and other benefits to senior management in 2007, the most significant of which are summarized below. The Committee periodically reviews our policies on officer perquisites.
Company Aircraft: During 2007, Mr. Mulally was required to use our aircraft for all business and personal air travel for security reasons. The family and guests of Mr. Mulally were allowed to accompany him on our aircraft. In addition, in order to ease the burden of Mr. Mulally moving to Southeast Michigan and away from his family in Seattle, Washington, the Compensation Committee clarified that his arrangement covers travel by his wife, children, and guests on Company aircraft for personal reasons without him at Company expense, at his request. Except for the Executive Chairman, no other executive is permitted to use our aircraft for personal reasons. In addition, for retention purposes the Company pays the costs, including first class commercial airfare, for personal travel for Mr. Fields to and from his home in Florida. The Company continues to provide tax relief as a result of the imputed income associated with Mr. Fields arrangement. We believe the cost to the Company in providing this relief is significantly outweighed by the security and retention benefits we receive.
The incremental cost for personal use of Company aircraft, including our valuation methodology for such use, is included in column (i) of the Summary Compensation Table on p. 50 and footnote 5 on pp. 51-52.
Evaluation Vehicle Program: We maintain a program that provides our officers with the use of two Company vehicles free of charge. This program requires officers to provide written evaluations on a variety of our vehicles, providing important feedback on the design and quality of our products. Most officers must rotate their vehicle choices among our different vehicle brands based on a pre-determined schedule. Those officers whose responsibilities are focused on a particular vehicle brand are required to drive vehicles related to that brand. For the Named Executives, such cost, including related fuel, is included in column (i) of the Summary Compensation Table on p. 50.
Other Services: For certain executive officers, including the Named Executives, we provide a home security evaluation and security system. The cost of the evaluation and system is included in column (i) of the Summary Compensation Table on p. 50. We also provide an allowance to senior managers for financial counseling services and estate planning. We pay for approximately 75% of the cost of this service up to $7,500 and it is reflected in column (i) of the Summary Compensation Table on p. 50. The safety and security (personal and financial) of our executives is critically important. We believe the benefits of providing these programs outweigh the relatively minor costs associated with them.
Effective September 1, 2006, we entered into an agreement with Mr. Mulally relating to his hiring as President and Chief Executive Officer. The terms of the agreement were developed to assist us in recruiting, retaining, and providing incentives for Mr. Mulally to lead the Company through its turnaround plan. We understood that significant compensation was needed to entice Mr. Mulally, a career Boeing executive, to leave the security of his former employer in order to work for a company in the midst of a multi-year turnaround plan.
Mr. Mulallys base salary is $2,000,000 per year. Mr. Mulally also received a hiring bonus and a bonus as an offset for forfeited performance and stock option awards at his former employer (see column (d) of the Summary Compensation Table and footnote 1 on p. 50). We believe these terms were necessary, competitive, and appropriate to attract an executive of Mr. Mulallys talent and experience to lead our turnaround efforts.
We granted Mr. Mulally 3,000,000 ten-year stock options and 1,000,000 five-year performance-based stock options upon his hire in 2006 (see columns (c) and (d) of the Outstanding Equity Awards at 2007 Fiscal Year-End Table on
p. 55 and footnotes 1 and 2 on pp. 56-57 for terms of these option grants). The Committee believed these awards align Mr. Mulallys interests with your interests as shareholders and provide appropriate incentives to work toward achieving stock price appreciation.
We also granted Mr. Mulally 600,000 service-based Restricted Stock Units (see column (g) and footnote 3 of the Outstanding Equity Awards at 2007 Fiscal Year-End Table on pp. 55-57 for grant details and the Option Exercises and Stock Vested in 2007 Table and related footnotes on p. 58).
Further, we agreed that Mr. Mulally would receive the following 2007 incentive compensation:
*In February 2007, after reviewing the Companys 2006 Company performance results and Mr. Mulallys leadership role in progressing our turnaround efforts, the Compensation Committee decided that his March 2007 stock option grant value would be $6,000,000. (See Grants of Plan-Based Awards in 2007 Table on p. 53 and footnote 4 on p. 54.)
These arrangements are competitive and appropriately tied to Company and stock performance. They provide a powerful incentive to achieve our objectives and reward exceptional performance. In connection with these arrangements, Mr. Mulally signed a non-compete agreement under which he agreed not to directly or indirectly work for or associate with any business that competes with Ford for two years after his voluntary termination.
If we terminate Mr. Mulallys employment for reasons other than for cause during the first five years of his employment or if there is a change in control of the Company during the first five years of his employment and he terminates his employment for good reason, he will receive certain payments and benefits. See Potential Payments Upon Termination or Change in Control Alan Mulally on pp. 63-65. If Mr. Mulally leaves us pursuant to these arrangements, he may not work for a competitor for five years after the date of his termination. Mr. Mulally will not be entitled to any severance payment if he is terminated for cause. The Committee believes these termination provisions are reasonable. The sunset provision of five years is an appropriate length of time to compensate Mr. Mulally to leave his prior position and assume a leadership role with a company in the midst of a turnaround. The non-compete clause also protects the Company from competitive harm should Mr. Mulally separate from Ford under these conditions. In addition, under a change in control scenario, Mr. Mulally must terminate his employment for good reason in order to receive the termination benefits.
Mr. Mulally also was granted the option to live in temporary housing in Southeast Michigan for the first two years of employment at Company expense. The cost of this benefit is included in column (i) of the Summary Compensation Table on p. 50. He is eligible for relocation assistance pursuant to our relocation program when he relocates his household.
Code Section 162(m) generally disallows Federal tax deductions for compensation in excess of $1 million paid to the Chief Executive Officer and the next three highest paid officers (other than the Chief Financial Officer) whose compensation is required to be reported in the Summary Compensation Table of the proxy statement (Covered Executives). Certain performance-based compensation is not subject to this deduction limitation. In our case, this exemption applies to certain awards under the Incentive Bonus Plan, the 1998 Plan, the 1990 Long-Term Incentive Plan, and, if you approve Proposal 4, the 2008 Plan. Specifically, 2007 awards of stock options, cash compensation paid to Covered Executives under the Incentive Bonus Plan, and Final Awards related to Performance Units and Performance Stock Rights were not subject to the deduction limit.
In contrast, service-based Restricted Stock Equivalents and restricted stock awards awarded to Covered Executives in prior years are subject to the deduction limit. Thus, the Restricted Stock Equivalents awarded to Covered Executives in 2007 for 2006 performance are subject to the deduction limit. Additionally, the cash settlement payments made under the Special 2006-2008 Senior Executive Retention Incentive Arrangement to certain Covered Executives were subject to the deduction limit. (See Equity-Based Compensation C. Senior Executive Retention Program on pp. 41-42.) Also, the grant of 600,000 service-based Restricted Stock Units to Mr. Mulally in 2006 was subject to the deduction limit (see President and CEO Compensation on pp. 46-47). Finally, since the salaries of certain Covered Executives exceed $1 million (see Summary Compensation Table on p. 50), we cannot deduct the portion of their salaries in excess of $1 million, as well as the cost of their perquisites.
Generally, we strive to maximize the tax deductibility of our compensation arrangements. For example, the IRS recently issued guidance concerning the deductibility of performance-based compensation that may be payable without regard to the achievement of performance goals upon voluntary retirement or termination without cause or for good reason. The Committee is presently reviewing this guidance to determine the impact, if any, on the deductibility of any Covered Executives compensation. In the highly competitive market for talent, however, we believe the Committee needs flexibility in designing compensation that will attract and retain talented executives and provide special incentives to promote various corporate objectives. The Committee, therefore, retains discretion to award compensation that is not fully tax deductible.
Code Section 409A provides that amounts deferred under nonqualified deferred compensation plans are includible in an employees income when vested, unless certain requirements are met. If these requirements are not met, employees are also subject to an additional income tax and interest. All of our supplemental retirement plans, severance arrangements, and other nonqualified deferred compensation plans presently meet, or will be amended to meet, these requirements. As a result, employees will be taxed when the deferred compensation is actually paid to them. We will be entitled to a tax deduction at that time.
Code Section 280G disallows a companys tax deduction for excess parachute payments. Additionally, Code Section 4999 imposes a 20% excise tax on any person who receives excess parachute payments. Presently, only Mr. Mulally is entitled to payments upon termination of his employment following a change in control of the Company, which may qualify as excess parachute payments. Accordingly, our tax deduction for any such excess parachute payments would be disallowed under Code Section 280G. Not all of the payments to which Mr. Mulally may become entitled would be excess parachute payments. None of the other Named Executives is entitled to such payments.
We account for stock-based awards based on their grant date fair value, as determined under FAS 123R. The compensation cost of these awards is recognized over the award vesting period. If the award is subject to a performance condition, however, the cost will vary based on our estimate of the number of shares (or equivalents or rights) that will ultimately vest. For additional information, see footnote 2 to the Summary Compensation Table on pp. 50-51.
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis (CD&A) with management. Based on this review and discussion, the Committee recommended to the Board of Directors that the CD&A be included in this Proxy Statement and incorporated by reference into our annual report on Form 10-K.
Richard A. Manoogian (Chair)
Ellen R. Marram
John L. Thornton
The Compensation Committee is comprised of Richard A. Manoogian, Ellen R. Marram, and John L. Thornton, none of whom is an employee or a current or former officer of the Company.
The table below shows the before-tax compensation for 2007 for Alan Mulally, who served as President and CEO during 2007, Donat R. Leclair, who served as Executive Vice President and Chief Financial Officer, and the three most highly compensated executive officers at the end of 2007.
SUMMARY COMPENSATION TABLE
(1)The amounts shown for 2007 reflect bonus awards for 2007 performance (see Compensation Discussion and Analysis Annual Compensation C. Incremental Performance Bonuses on pp. 37-38). Mr. Mulallys bonus for 2006 relates to his hiring as President and CEO and included $11 million to offset forfeited awards at his prior employer (see Compensation Discussion and Analysis President and CEO Compensation pp. 46-47). Mr. Bannisters bonus in 2006 relates to a retention payment.
(2)The amounts shown in columns (e) and (f) reflect the dollar amounts of compensation cost for equity-based compensation recognized for each of the Named Executives for financial statement reporting purposes for the years ended December 31, 2006 and 2007 in accordance with FAS 123R. Because some of the equity awards have vesting conditions, their costs are recognized over multiple years. Consequently, the amounts shown reflect the 2006 and 2007 FAS 123R cost of such awards made during 2007 and prior years. For Mr. Mulally, the amount includes the FAS 123R cost recognized in 2006 for a $5 million stock option grant that he received in March 2007 as part of his 2007 option grant, as required under his accession arrangement (see Compensation Discussion and Analysis President and CEO Compensation pp. 46-47). The assumptions used for the 2007 calculations can be found at footnote 17 to our audited financial statements in Fords Annual Report on Form 10-K for the year ended December 31, 2007. The assumptions for the 2006 calculations can be found at footnote 16 to our audited financial statements in Fords Annual Report on Form 10-K for the year ended December 31, 2006. Pursuant to SEC rules, we disregarded the estimate of forfeitures related to service-based vesting conditions. For Named Executives who were
retirement eligible at the time of the awards (Messrs. Leclair , Booth, and Bannister), the total grant date fair values of awards are recognized in our financial statements in the year of the grant. These amounts reflect the Companys accounting for these awards and do not correspond to the actual value that may be recognized by the Named Executives.
(3)The amounts shown in column (g) reflect awards earned by certain Named Executives under the Incentive Bonus Plan for 2006 and 2007 (see Compensation Discussion and Analysis Annual Compensation B. Incentive Bonuses pp. 34-37). For 2006, in addition to the amounts awarded under the Incentive Bonus Plan, amounts shown include awards earned by the Named Executives listed below as a cash settlement of the 2006-2008 Senior Executive Retention Program (2006-2008 Retention Program) (see Compensation Discussion and Analysis Equity-Based Compensation C. Senior Executive Retention Program on pp. 41-42). For the Named Executives who received such awards, the amounts shown for 2006 consist of the following:
(4)The amounts shown reflect the increase in the actuarial present value of accrued pension benefits under various Company plans. For 2007, the accrued pension benefits are measured from December 31, 2006 to December 31, 2007 and for 2006 the accrued pension benefits are measured from December 31, 2005 to December 31, 2006. See the Pension Benefits in 2007 Table on p. 59 for additional information, including the present value assumptions used in these calculations. No Named Executive received preferential or above-market earnings on deferred compensation.
(5)The following table summarizes the amounts shown in Column (i) for 2007.
All Other Compensation in 2007
(i)For a description of perquisites relating to personal use of company aircraft, our evaluation vehicle program, and security and other services for Named Executives, see Compensation Discussion and Analysis Perquisites and Other Benefits on p. 46. Other perquisites and personal benefits whose incremental cost is included in the amounts shown (unless indicated) consist of the following: personal use of Company phone cards and cell phones, personal use of car and driver service, personal use of Company season tickets to athletic events,* personal use of Company club memberships,* annual executive health exams, fuel and car washes related to the evaluation vehicles, and relocation expenses.
* Indicates no incremental cost to the Company because these benefits are primarily for business use and when the executive uses such benefit for personal use, the executive pays for any costs other than season ticket and/or annual club membership costs.
Amounts for Messrs. Mulally, Fields, and Booth include the incremental costs to the Company for providing certain perquisites and other benefits during 2007. For Mr. Mulally the amount shown includes $752,203 for personal use of Company aircraft and $109,543 for relocation costs and temporary housing. For Mr. Fields the amount shown includes $29,107 as the actual cost of first class commercial airfare for personal travel to and from his home in Florida. For Mr. Booth, the amount shown includes $199,762 for costs associated with his international service assignment, including: home leave travel; temporary housing; lodging and meals during relocation; and housing allowance and $31,258 for his use of Company evaluation vehicles.
For 2007, we valued the incremental cost of the personal use of our aircraft using a method that takes into account: (a) the variable cost per flight hour, including supplies and catering, aircraft fuel and oil expenses, maintenance, parts and external labor, engine insurance expenses, and flight crew travel expenses; (b) landing/parking/hangar storage expenses; (c) any customs, foreign permit, and similar fees; and (d) positioning flight costs. We calculate the aggregate incremental cost of relocation and temporary housing expenses as the actual cost incurred to provide these benefits. We calculate the aggregate incremental cost of providing the evaluation vehicles by estimating the lease fee for a comparable vehicle under our Management Lease Program. The lease fee under that program takes into account the cost of using the vehicle, maintenance, license, title and registration fees, and insurance.
(ii)Amounts shown reflect the dollar value of premiums provided by the Company for employees to purchase life insurance. In general, the Company provides employees with enough flex dollars under its flexible benefits menu to purchase life insurance equal in amount to 11/2 times an employees salary. An employee must purchase life insurance in an amount at least equal to 1/2 their salary with Company provided flex dollars. Employees may purchase additional life insurance and these premiums are payroll deducted with no additional Company contributions or cost.
(iii)The amounts shown consist of Company matching contributions to the Named Executives accounts under the Companys 401(k) plan. In addition to the matching contributions to his 401(k) account, for Mr. Mulally the amount shown reflects contributions made to his Ford Retirement Plan account (see Compensation Discussion and Analysis Retirement Plans on pp. 44-45).
(iv)The amount shown for Mr. Mulally relates to Company contributions to a nonqualified benefit equalization plan related to the Ford Retirement Plan (see Nonqualified Deferred Compensation in 2007 Table and footnotes 1 and 2 on pp. 61-62). The amount shown for Mr. Booth relates to various payments related to his international service assignment, such as cost-of-living adjustments, language instructions and other payments associated with his international service. These benefits are generally available to any level of employee who is on an international assignment.
Grants of Plan-Based Awards in 2007