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BEAM INC DEF 14A 2011
Definitive Proxy Statement
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.     )

 

Filed by the Registrant x   Filed by a Party other than the Registrant ¨

Check the appropriate box:

 

¨  Preliminary Proxy Statement

 

¨  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

x  Definitive Proxy Statement

 

¨  Definitive Additional Materials

 

¨  Soliciting Material Pursuant to §240.14a-12

 

 

Fortune Brands, Inc.

 

(Name of Registrant as Specified In Its Charter)

 

 

  

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

x  No fee required.

 

¨  Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

 

  (1)  Title of each class of securities to which transaction applies:

  

 

  (2)  Aggregate number of securities to which transaction applies:

  

 

  (3)  Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

  

 

  (4)  Proposed maximum aggregate value of transaction:

  

 

  (5)  Total fee paid:

  

 

 

¨  Fee paid previously with preliminary materials.

 

¨  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

  (1)  Amount Previously Paid:

  

 

  (2)  Form, Schedule or Registration Statement No.:

  

 

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  (4)  Date Filed:

  

 

 


Table of Contents

LOGO

 

               520 Lake Cook Road, Deerfield, Illinois 60015

 

NOTICE OF ANNUAL MEETING

AND PROXY STATEMENT

 

March 7, 2011

 

Dear Fellow Stockholders:

 

We are pleased to invite the stockholders of Fortune Brands, Inc. (“Fortune Brands” or the “Company”) to attend the Annual Meeting of Stockholders to be held on Tuesday, April 26, 2011 at 1:30 p.m. (CDT) at The Hilton Northbrook, 2855 N. Milwaukee Avenue, Northbrook, Illinois. We will consider the following matters:

 

Item 1:       The election of the six director nominees identified in this Proxy Statement
for a one-year term expiring at the 2012 Annual Meeting (see pages 5 to 10
of the Proxy Statement);

Item 2:    

  The ratification of the appointment by the Company’s Audit Committee of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2011 (see page 55 of the Proxy Statement);

Item 3:    

  An advisory vote on the frequency of voting on the compensation of the Company’s named executive officers (see pages 55 to 56);

Item 4:    

  An advisory vote on the compensation paid to the Company’s named executive officers (see pages 56 to 57);

Item 5:    

  The approval of an amendment to the Company’s Restated Certificate of Incorporation to allow stockholders to call special meetings (see page 58);

Item 6:    

  The approval of the Fortune Brands, Inc. 2011 Long-Term Incentive Plan (see pages 59 to 66 of the Proxy Statement); and

 

such other business as may properly come before the meeting.

 

Stockholders of record at the close of business on February 25, 2011, the record date for the meeting, are entitled to vote at the Annual Meeting.

 

YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SUBMIT YOUR PROXY OR VOTING INSTRUCTIONS AS SOON AS POSSIBLE. You may submit your proxy (1) by mail using a traditional proxy card, (2) by telephone at 1-800-690-6903, or (3) through the Internet at www.proxyvote.com.

 

PLEASE CONFIRM YOUR PREFERENCE FOR ELECTRONIC DELIVERY OF FUTURE ANNUAL MEETING MATERIALS. You can expedite delivery of your annual meeting materials and avoid costly mailings by confirming in advance your preferred method of delivery. For further information on how to take advantage of this cost-saving service, please refer to the accompanying proxy card.

 

This Proxy Statement and accompanying proxy are being distributed on or about March 11, 2011.

 

LOGO       LOGO
Bruce A. Carbonari     Mark A. Roche

Chairman of the Board and Chief

Executive Officer

   

Senior Vice President, General Counsel

and Secretary

 

Important Notice Regarding the Availability of Proxy Materials

for the Annual Meeting of Stockholders to be Held On Tuesday, April 26, 2011.

 

The Notice of Annual Meeting, Proxy Statement and the Annual Report on Form 10-K for the fiscal year ended December 31, 2010 are available at www.proxyvote.com


Table of Contents

TABLE OF CONTENTS

 

FREQUENTLY ASKED QUESTIONS

     1   

ITEM  1 – ELECTION OF DIRECTORS

     5   

CORPORATE GOVERNANCE

     10   

Corporate Governance Principles

     10   

Director Independence

     10   

Policies with Respect to Transactions with Related Persons

     11   

Certain Relationships and Related Transactions

     11   

Director Nomination Process

     11   

Communication with the Board

     12   

Board Leadership Structure

     12   

Lead Director

     13   

Executive Sessions

     13   

Meeting Attendance

     13   

Risk Management

     13   

Compensation Risks

     14   

Board Committees

     15   

Audit Committee

     15   

Compensation and Stock Option Committee

     16   

Compensation Committee Procedures

     17   

Compensation Committee Consultant

     17   

Compensation Committee Interlocks and Insider Participation

     18   

Corporate Responsibility Committee

     19   

Executive Committee

     19   

Nominating and Corporate Governance Committee

     19   

Other Corporate Governance Resources

     20   

DIRECTOR COMPENSATION

  

2010 Director Compensation Table

     20   

Summary of Director Compensation

     21   

Stock Ownership of Board Members

     22   

COMPENSATION AND STOCK OPTION COMMITTEE MATTERS

  

Compensation Discussion and Analysis

     23   

Compensation and Stock Option Committee Report

     36   

EXECUTIVE COMPENSATION

  

2010 Compensation

     37   

2010 Summary Compensation Table

     37   

2010 Grants of Plan-Based Awards

     40   

Outstanding Equity Awards at 2010 Fiscal Year-End

     42   

2010 Option Exercises and Stock Vested

     43   

Retirement and Post-Retirement Benefits

     44   

2010 Nonqualified Deferred Compensation

     46   

Potential Payments Upon Termination or Change in Control

     48   

EQUITY COMPENSATION PLAN INFORMATION

     53   

AUDIT COMMITTEE MATTERS

  

Report of the Audit Committee

     53   

Fees of Independent Registered Public Accounting Firm

     54   

Approval of Audit and Non-Audit Services

     54   
ITEM  2 – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM      55   
ITEM  3 – ADVISORY VOTE ON THE FREQUENCY OF VOTING ON THE COMPENSATION OF THE COMPANYS NAMED EXECUTIVE OFFICERS      55   
ITEM  4 – ADVISORY VOTE ON THE COMPENSATION PAID TO THE COMPANYS NAMED EXECUTIVE OFFICERS      56   
ITEM  5 – APPROVAL OF AN AMENDMENT TO THE COMPANYS RESTATED CERTIFICATE OF INCORPORATION      58   
ITEM  6 – APPROVAL OF THE FORTUNE BRANDS, INC. 2011 LONG-TERM INCENTIVE PLAN      59   

SECURITIES OWNERSHIP OF MANAGEMENT, DIRECTORS AND CERTAIN OTHER PERSONS

  

Certain Information Regarding to Security Holdings

     67   

Section 16(a) Beneficial Ownership Reporting Compliance

     68   

SUBMISSION OF STOCKHOLDER PROPOSALS AND NOMINATIONS

     69   

MISCELLANEOUS MATTERS

     69   

APPENDIX A

     A-1   

APPENDIX B

     B-1   

APPENDIX C

     C-1   


Table of Contents

FREQUENTLY ASKED QUESTIONS

 

Why am I receiving these materials?

 

The Company has made these materials available to you on the Internet or has delivered printed versions of these materials to you by mail in connection with the solicitation of proxies on behalf of the Board of Directors for use at our Annual Meeting of Stockholders on April 26, 2011. This Proxy Statement describes the matters on which you, as a stockholder, are entitled to vote. It also gives you information on these matters so that you can make an informed decision.

 

Why did I receive a one-page Notice in the mail regarding the Internet availability of proxy materials this year instead of printed proxy materials?

 

As a cost savings measure, the Securities and Exchange Commission (“SEC”) permits companies to furnish proxy materials to stockholders by providing access to these documents over the Internet instead of mailing a printed copy. Accordingly, we mailed a Notice of Internet Availability of Proxy Materials (the “Notice”) to selected stockholders. These stockholders have the ability to access, view and print the proxy materials on a website referred to in the Notice and request a printed set of proxy materials.

 

Can I get electronic access to the proxy materials if I received printed materials?

 

Even if you received a printed copy of our proxy materials, you may choose to receive future proxy materials by email. Choosing to receive your future proxy materials by email will lower our costs of delivery and will reduce the environmental impact of our Annual Meeting. If you choose to receive our future proxy materials by email, you will receive an email next year with instructions containing a link to view those proxy materials and a link to the proxy voting site. Your election to receive proxy materials by email will remain in effect until you terminate it or for so long as the email address provided by you is valid.

 

What items will be voted on at the Annual Meeting?

 

Stockholders will vote on the following items at the Annual Meeting, if each is properly presented at the meeting:

 

   

the election of directors;

 

   

the ratification of the appointment of our independent registered public accounting firm;

 

   

the approval of the frequency of voting on the compensation of the Company’s named executive officers;

 

   

the approval of the compensation paid to the Company’s named executive officers;

 

   

the approval of an amendment to the Company’s Restated Certificate of Incorporation;

 

   

the approval of the Fortune Brands, Inc. 2011 Long-Term Incentive Plan; and

 

   

such other business as may properly come before the Annual Meeting.

 

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In addition, management will respond to questions from stockholders.

 

What are the Board’s voting recommendations?

 

The Board’s recommendation is set forth together with the description of each Item in this Proxy Statement. In summary, the Board recommends a vote FOR:

 

   

the election of directors;

 

   

the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2011;

 

   

holding an annual vote on the compensation of the Company’s named executive officers;

 

   

the approval of the compensation paid to the Company’s named executive officers;

 

   

the approval of an amendment to our Restated Certificate of Incorporation to allow stockholders to call special meetings; and

 

   

the approval of the Fortune Brands, Inc. 2011 Long-Term Incentive Plan.

 

Who is entitled to vote?

 

Only stockholders who owned the Company’s common stock or $2.67 Convertible Preferred Stock of record at the close of business on February 25, 2011 are entitled to vote. Each holder of common stock is entitled to one vote per share. Each holder of $2.67 Convertible Preferred Stock is entitled to three-tenths (0.3) of one vote per share. The common stock and $2.67 Convertible Preferred Stock are voted together as a single class. There were 153,646,394 shares of common stock and 160,164 shares of $2.67 Convertible Preferred Stock outstanding on February 25, 2011.

 

What is the difference between being a record holder and a beneficial owner of shares held in street name?

 

A record holder holds shares directly in his or her own name with the Company’s transfer agent. Shares held in “street name” refer to shares that are held in the name of a bank or broker on a person’s behalf. The majority of stockholders hold their shares in street name. For such shares, the bank or broker is considered the shareholder of record for purposes of voting at the Annual Meeting. As a beneficial owner, you have the right to direct that organization on how to vote the shares held in your account.

 

How do I vote?

 

If you received a Notice in the mail, you can either vote by Internet (www.proxyvote.com) or in person at the Annual Meeting. Record holders that received a copy of this Proxy Statement and accompanying proxy card in the mail can vote by filling out the proxy card and returning it in the postage paid return envelope. Record holders that receive these materials in the mail may also vote in person at the Annual Meeting of Stockholders, by telephone (800-690-6903) or by Internet (www.proxyvote.com). Voting instructions are provided on both the Notice of Internet Availability and the proxy card.

 

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If you hold shares in street name, you must vote by giving instructions to your bank or broker. You should follow the voting instructions on the form that you receive from your bank or broker. The availability of telephone and Internet voting will depend on your bank’s or broker’s voting process.

 

How will my proxy be voted?

 

Your proxy card, when properly signed and returned to us, or processed by telephone or via the Internet, and not revoked, will be voted in accordance with your instructions. We are not aware of any other matter that may be properly presented other than those described above. If any other matter is properly presented, the persons named in the enclosed proxy card will have discretion to vote in their best judgment.

 

If you hold shares in street name, your bank or broker is permitted to use its own discretion and vote your shares on certain routine matters (such as Items 2 and 5) if you have not provided voting instructions. Your bank or broker is not permitted to use discretion and vote your shares on non-routine matters (such as Items 1, 3, 4 and 6). Therefore, we urge you to give voting instructions to your broker on all six voting items. Shares that are not permitted to be voted by your broker with respect to any matter are called “broker non-votes.” Broker non-votes are not considered votes for or against, or entitled to vote with respect to, a proposal and will have no direct impact on any proposal.

 

What if I don’t mark the boxes on my proxy?

 

Unless you give other instructions on your proxy card, or unless you give other instructions when you cast your vote by telephone or the Internet, the persons named as proxies will vote in accordance with the recommendations of the Board of Directors.

 

How many votes are needed to approve an item?

 

The nominees for director, in non-contested elections, must receive a majority of the votes cast at the meeting, in person or by proxy, to be elected. Under the Company’s majority vote by-law provision relating to the election of directors, if the number of votes cast “for” a director nominee does not exceed the number of votes cast “against” the director nominee, then the director must tender his or her resignation from the Board promptly after the certification of the stockholder vote. The Board will decide within 90 days of that certification, through a process managed by the Nominating and Corporate Governance Committee and excluding the nominee in question, whether to accept the resignation. The Board’s explanation of its decision will be promptly disclosed in a filing with the SEC. A proxy card marked to abstain authority for the election of one or more directors will not be voted with respect to the director or directors indicated.

 

The affirmative vote of shares representing a majority in voting power of the common stock and $2.67 Convertible Preferred Stock, voting together as a single class, present in person or represented by proxy at the meeting and entitled to vote is necessary for approval of Items 2, 4 and 6. The affirmative vote of a majority of the voting power of the Company’s outstanding common stock and $2.67 Convertible Preferred Stock, voting together as a single class, is required for approval of Item 5. Proxy cards marked as abstentions on Items 2, 4, 5 and 6 will not be voted and will have the effect of a negative vote. With respect to Item 3, stockholders may vote in favor of holding the vote on named executive officer compensation every year, every two years or every three years, and they may also choose to abstain. The Board will take the voting

 

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results on such proposal into account in determining whether to hold the advisory vote on executive compensation every year, every two years or every three years. Abstentions will have no effect on the outcome of Item 3.

 

Please note that brokers are not, in the absence of voting instructions from you, permitted to vote your shares on Items 1 (the election of directors), 3 (the frequency of the vote on executive compensation), 4 (the advisory vote on executive compensation), and 6 (approval of the Long-Term Incentive Plan). Therefore, it is important that you follow the voting instructions on the form that you receive from your broker.

 

Can I go to the Annual Meeting if I vote by proxy?

 

Yes. Attending the meeting does not revoke your proxy.

 

How can I revoke my proxy?

 

You may revoke your proxy at any time before it is actually voted by giving written notice to the Secretary of the Company or by delivering a later dated proxy.

 

Do I have dissenters’ rights?

 

Under Delaware law, dissenters’ rights are not available to holders of common stock and $2.67 Convertible Preferred Stock in connection with the Items to be acted upon at the Annual Meeting.

 

Will my vote be public?

 

As a matter of policy, stockholder proxies, ballots and tabulations that identify individual stockholders are not publicly disclosed, but are available to the independent Inspector of Election, the proxy solicitation firm and certain employees of the Company.

 

What constitutes a quorum?

 

The presence at the meeting, in person or by proxy, of the holders of a majority in voting power of the outstanding shares of common stock and $2.67 Convertible Preferred Stock entitled to vote will constitute a quorum. Proxies received but marked as abstentions or broker non-votes will be included in the calculation of the number of shares considered to be present at the meeting.

 

What if I am a participant in the Fortune Brands Retirement Savings Plan or the Fortune Brands Hourly Employee Retirement Savings Plan?

 

We are mailing this Proxy Statement and a proxy card to participants in the Fortune Brands Retirement Savings Plan and the Fortune Brands Hourly Employee Retirement Savings Plan (collectively, the “Savings Plans”) who invest in the Fortune Brands Stock Fund under the Savings Plans. The Trustee, as record holder of Fortune Brands’ common stock held in the Savings Plans, will vote whole shares attributable to your interest in the Fortune Brands Stock Fund in accordance with your directions given on the proxy card, by telephone or the Internet. If you invest in the Fortune Brands Stock Fund under the Savings Plans and you sign and return the enclosed proxy card, we will forward it to the Trustee of the Savings Plans. The proxy card will serve as instructions to the Trustee to vote the whole shares attributable to your interest in the manner you indicate on the card.

 

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Item 1

 

ELECTION OF DIRECTORS

 

The Board of Directors (the “Board”) consists of 10 members and is currently divided into two classes. Each term expires in successive years, with the term of the Class I directors expiring at the 2011 Annual Meeting and the term of the Class II directors expiring at the 2012 Annual Meeting. All directors will be elected annually beginning with the 2012 Annual Meeting of Stockholders. The Board proposes that the six nominees described below, each of whom is currently serving as a Class I director, be re-elected to Class I for a new term of one year expiring at the 2012 Annual Meeting of Stockholders and until their successors are duly elected and qualified. All nominees and all current Class II directors were elected by the stockholders. Proxies cannot be voted for more than the number of nominees proposed for re-election.

 

Each of the nominees has consented to be named as a nominee and to serve as director if elected. If any of them should become unavailable to serve as a director (which is not now expected), the Board may designate a substitute nominee. In that case, the persons named as proxies will vote for the substitute nominee designated by the Board.

 

The names of the nominees and the current Class II directors, along with their present positions, their principal occupations and directorships held with other public corporations during the past five years, their ages and the year first elected as a director of the Company, are set forth below.

 

Summary of Qualification of Directors

 

The Board believes that it is necessary for each of the Company’s directors to possess many qualities and skills. When searching for new candidates, the Nominating and Corporate Governance Committee (the “Nominating Committee”) considers the evolving needs of the Board and searches for candidates that fill any current or anticipated future gap. The Board also believes that all directors must possess a considerable amount of business management experience (such as experience as a chief executive or chief financial officer) and educational experience. The Nominating Committee first considers a candidate’s management experience and then considers issues of judgment, background, stature, conflicts of interest, integrity, ethics and commitment to the goal of maximizing stockholder value when considering director candidates. The Nominating Committee also focuses on issues of diversity, such as diversity of gender, race and national origin, education, professional experience and differences in viewpoints and skills. The Nominating Committee does not have a formal policy with respect to diversity; however, the Board and the Nominating Committee believe that it is essential that the Board members represent diverse viewpoints. In considering candidates for the Board, the Nominating Committee considers the entirety of each candidate’s credentials in the context of these standards. With respect to the nomination of continuing directors for re-election, the individual’s contributions to the Board are also considered.

 

The process undertaken by the Nominating Committee in recommending qualified director candidates is described below under Corporate Governance – Director Nomination Process (see pages 11 and 12 of this Proxy Statement). The Board believes that there are

 

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certain general requirements which are mandatory for service on the Company’s Board of Directors, while there are other skills and experiences that should be represented on the Board as a whole but not necessarily by each individual Director.

 

General requirements for all directors:

 

   

Extensive executive leadership experience

   

Excellent business judgment

   

High level of integrity and ethics

   

Original thinking

   

Strong commitment to the Company’s goal of maximizing stockholder value

 

Experiences, qualifications, and backgrounds to be represented on the Board as a whole:

 

   

Financial and/or accounting expertise

   

Consumer products expertise

   

Diversity of background

   

Knowledge of international markets

   

Prior Chief Executive Officer/Chief Operating Officer/Chief Financial Officer experience

   

Recent Chief Executive Officer/Chief Operating Officer/Chief Financial Officer experience

   

Extensive board experience

 

Certain individual qualifications and experiences of our directors that contribute to the Board’s effectiveness as a whole are described in the following paragraphs.

 

Name

  

Present positions and offices

with the Company, principal

occupations during the past five years

and other directorships

   Age      Year
first
elected
director
 
NOMINEES FOR DIRECTOR - CLASS I DIRECTORS – TERM EXPIRING 2012   

LOGO

 

Richard A. Goldstein

   Retired since May 2006; Chairman and Chief Executive Officer of International Flavors & Fragrances Inc. from June 2000 until May 2006. Currently also a director of The Interpublic Group of Companies, Inc. and Fiduciary Trust Company International. Formerly a director of International Flavors & Fragrances Inc.      69         2006   
Mr. Goldstein’s background as a lawyer, and his 30 year background in consumer packaged goods as Chief Executive Officer of a supplier to consumer goods companies, provides a unique perspective to the Board.     

 

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Name

  

Present positions and offices

with the Company, principal

occupations during the past five years

and other directorships

   Age      Year
first
elected
director
 

LOGO

 

Pierre E. Leroy

   Retired since February 2005; President, Worldwide Construction & Forestry Division and Global Parts Division of Deere & Company from December 2003 until February 2005. Currently also a director of Capital One Financial Corporation and RSC Holdings, Inc. Formerly a director of ACCO Brands Corporation and Nuveen Investments, Inc.      62         2003   
Mr. Leroy served as Chief Financial Officer, as well as President, Worldwide Construction & Forestry Division and Global Parts Division of John Deere, which provides the Board with a perspective of someone familiar with all facets of a global enterprise, including direct responsibility for financial and accounting issues.      

LOGO

 

A.D. David Mackay

   Retired since January 2011; President and Chief Executive Officer of Kellogg Company from December 2006 until December 2010; President and Chief Operating Officer of Kellogg Company from September 2003 to December 2006. Formerly a director of Kellogg Company.      55         2006   
Mr. Mackay served as Chief Executive Officer of one of the world’s premier packaged goods companies, bringing to our Board the perspective of a leader who faced the same set of external economic, social and governance issues that face our Company.     

LOGO

 

Anne M. Tatlock

   Retired since December 2006; Chairman of the Board and Chief Executive Officer of Fiduciary Trust Company International from June 2000 to December 2006. Vice Chairman of Franklin Resources, Inc. from April 2001 to January 2007. Currently also a director of Franklin Resources, Inc., Merck & Co., Inc., Merck Sharp & Dohme Corp. and Fiduciary Trust Company International.      71         1996   
Mrs. Tatlock has extensive knowledge of the capital markets and accounting issues from her experience as Chief Executive Officer of Fiduciary Trust, and is invaluable to our Board’s discussions of the Company’s capital and liquidity needs.     

 

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Name

  

Present positions and offices

with the Company, principal

occupations during the past five years

and other directorships

   Age      Year
first
elected
director
 

LOGO

 

Norman H. Wesley

   Retired since October 2008; Chairman of the Board of Fortune Brands, Inc. from January 2008 through September 2008; Chairman of the Board and Chief Executive Officer of Fortune Brands, Inc. from December 1999 through January 2008. Currently also a director of ACCO Brands Corporation and Acuity Brands, Inc. Formerly a director of R.R. Donnelley & Sons Company and Pactiv Corporation.      61         1999   
Mr. Wesley’s experience as Chief Executive Officer of Fortune Brands gives him unique insights into the Company’s challenges, opportunities and operations.    

LOGO

 

Peter M. Wilson

   Retired since March 2004; Chairman of Gallaher Group Plc, a UK based company, from May 1997 through March 2004. Currently also a director of Kesa Electricals plc. Formerly a director of Powergen plc and Somerfield plc.      69         1994   
In addition to a career of 45 years in marketing consumer goods, Mr. Wilson’s experience as Chief Executive Officer of a UK-based, international consumer goods company provides the board with a global perspective.     

 

The Board of Directors recommends that you vote FOR the election of each nominee.

 

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Name

  

Present positions and offices

with the Company, principal

occupations during the past five years

and other directorships

   Age      Year
first
elected
director
 
CLASS II DIRECTORS – TERM EXPIRING 2012   

LOGO

 

Bruce A. Carbonari

   Chairman of the Board and Chief Executive Officer of Fortune Brands, Inc. since October 2008; President and Chief Executive Officer of Fortune Brands, Inc. from January 2008 to September 2008; President and Chief Operating Officer of Fortune Brands, Inc. from January 2007 to December 2007; Chairman and Chief Executive Officer of Fortune Brands Home & Hardware LLC from August 2005 to December 2006 and President and Chief Executive Officer of Fortune Brands Home & Hardware LLC prior thereto. Currently also a director of RPM International, Inc.      55         2007   
Mr. Carbonari’s day-to-day leadership as Chief Executive Officer of Fortune Brands provides him with intimate knowledge of our operations.    

LOGO

 

Ann F. Hackett

   Founder and President of Horizon Consulting Group, LLC since 1996. Currently also a director of Capital One Financial Corporation. Formerly a director of Woodhead Industries, Inc.      57         2007   
Mrs. Hackett founded a company that provides strategic, organizational and human resource consulting services to boards of directors and senior management teams. She brings to the Board entrepreneurial experience and expertise in strategy and human resources.      

LOGO

 

David M. Thomas

   Retired since March 2006; Executive Chairman of the Board of IMS Health Incorporated from January 2005 through March 2006; Chairman of the Board and Chief Executive Officer of IMS Health Incorporated. Currently also a director of The Interpublic Group of Companies, Inc. and a member of the Fidelity Funds Board of Trustees. Formerly a director of IMS Health Incorporated and The Trizetto Group, Inc.      61         2000   
Mr. Thomas’s experience as a Chief Executive Officer and management experience at premier global technology companies helps the Board address the challenges the Company faces due to rapid changes in IT capabilities and communications and global distribution strategies.      

 

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Name

  

Present positions and offices

with the Company, principal

occupations during the past five years

and other directorships

   Age      Year
first
elected
director
 

LOGO

 

Ronald V. Waters, III

   Retired since May 2010; President and Chief Executive Officer of LoJack Corporation from January 2009 through May 2010; President and Chief Operating Officer from February 2007 until December 2008; Chief Operating Officer of Wm. Wrigley Jr. Company from December 2003 through May 2006. Currently also a director of HNI Corporation. Formerly a director of Sabre Holdings Corporation and LoJack Corporation.      59         2008   
Mr. Waters combines experience in two key areas of interest to Fortune Brands, consumer products and security, and as a former Chief Executive Officer at a premier technology company.     

 

CORPORATE GOVERNANCE

 

Corporate Governance Principles

 

The Board has adopted Corporate Governance Principles, which are available at www.fortunebrands.com/about/policies.cfm. The Principles describe our corporate governance practices and address corporate governance issues such as Board composition and responsibilities, compensation of directors and executive succession planning.

 

Director Independence

 

The Company’s Corporate Governance Principles provide that a majority of the members of the Board, and each member of the Audit, Compensation and Stock Option and Nominating and Corporate Governance Committees, must meet certain criteria for independence. Based on the New York Stock Exchange independence requirements, the Corporate Governance Principles set forth certain guidelines to assist the Board in its determination of director independence.

 

Based on the New York Stock Exchange Listed Company Manual and the Company’s Corporate Governance Principles, Messrs. Goldstein, Leroy, Mackay, Thomas, Waters and Wilson, Mrs. Hackett and Mrs. Tatlock were affirmatively determined by the Board to be independent. Due to Mr. Wesley’s prior employment with the Company, he is not considered independent. When determining each director’s independence, the Board considered charitable contributions made by the Company to organizations with which each director is affiliated. All such charitable relationships were deemed immaterial.

 

Also, none of the non-employee directors has any relationship with the Company other than being a director and stockholder, or any transaction or arrangement that interferes with such director’s independence, except for Mr. Wesley by virtue of his prior employment with the Company.

 

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Policies with Respect to Transactions with Related Persons

 

The Nominating Committee and the Board have adopted a Code of Business Conduct and Ethics which sets forth various policies and procedures intended to promote the ethical behavior of all of the Company’s employees, officers and directors. The Code of Business Conduct and Ethics describes the Company’s policy on conflicts of interest. The Board has also established a Compliance Committee which is responsible for monitoring compliance with the Code of Conduct. The Compliance Committee periodically reports on the Company’s compliance efforts to the Audit Committee and to the Board.

 

The Board has also established a Conflicts of Interest Committee which distributes a Conflicts of Interest Policy to all of the Company’s employees, officers and directors. The Conflicts of Interest Policy describes the types of relationships that may constitute a conflict of interest with the Company. All employees, officers and directors are required to periodically complete a questionnaire about potential conflicts of interest and certify compliance with the Company’s policy. The Conflicts of Interest Committee reviews potential conflicts of interest and reports its findings to the Audit Committee.

 

The executive officers and the Board are also required to complete a questionnaire on an annual basis which requires them to disclose any related person transactions and potential conflicts of interest. The General Counsel reviews the responses to the questionnaires and, if a transaction is reported by a director or executive officer, the questionnaire is submitted to the Chairperson of the Audit Committee for review. If necessary, the Audit Committee will determine whether the relationship is material and will have any effect on the director’s independence. After making such determination, the Audit Committee will report its recommendation on whether the transaction should be approved or ratified by the entire Board.

 

Certain Relationships and Related Transactions

 

During 2010, the Company did not participate in any transactions in which any of its directors, executive officers, any immediate family member of a director or executive officer or any beneficial owner of more than 5% of the Company’s common stock had a direct or indirect material interest.

 

Director Nomination Process

 

The Nominating Committee is responsible for, among other things, screening potential director candidates and recommending qualified candidates to the Board for nomination.

 

When identifying and evaluating candidates, the Nominating Committee first determines whether there are any evolving needs of the Board that require an expert in a particular field. The Nominating Committee may retain a third-party search firm to assist the Committee in locating qualified candidates that meet the needs of the Board at that time. A search firm provides information on a number of candidates, which the Nominating Committee will discuss. The Nominating Committee chair and some or all of the members of the Nominating Committee, as well as the Lead Director (see page 13 of this Proxy Statement for description of the Lead Director’s duties) and the Chief Executive Officer, will interview potential candidates that the Nominating Committee deems appropriate. If the Nominating Committee determines that a potential candidate meets the needs of the Board and has the appropriate qualifications, it will recommend the nomination of the candidate to the Board.

 

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It is the Nominating Committee’s policy to consider director candidates recommended by stockholders, if such recommendations are properly submitted to the Company. Stockholders wishing to recommend persons for consideration by the Nominating Committee as nominees for election to the Board can do so by writing to the Secretary of Fortune Brands, Inc. at 520 Lake Cook Road, Deerfield, Illinois 60015. Recommendations must include the proposed nominee’s name, biographical data and qualifications, as well as a written statement from the proposed nominee consenting to be named and, if nominated and elected, to serve as a director. Recommendations must also follow the Company’s procedures for nomination of directors by stockholders (see page 69 of this Proxy Statement) as provided in our Restated Certificate of Incorporation and By-laws. The Nominating Committee will consider the candidate and the candidate’s qualifications in the same manner in which it evaluates nominees identified by the Nominating Committee. The Nominating Committee may contact the stockholder making the nomination to discuss the qualifications of the candidate and the stockholder’s reasons for making the nomination. The Nominating Committee may then interview the candidate if it deems the candidate to be appropriate. The Nominating Committee may use the services of a third-party search firm to provide additional information about the candidate prior to making a recommendation to the Board.

 

The Nominating Committee’s nomination process is designed to ensure that the Nominating Committee fulfills its responsibility to recommend candidates that are properly qualified to serve the Company for the benefit of all of its stockholders, consistent with the standards established by the Nominating Committee under the Company’s Corporate Governance Principles.

 

Communication with the Board

 

The Board and management encourage communication from the Company’s stockholders. Stockholders who wish to communicate with the Company’s management should direct their communication to the Chairman of the Board and Chief Executive Officer or the Secretary, 520 Lake Cook Road, Deerfield, Illinois 60015. Stockholders, or other interested parties, who wish to communicate with the non-management directors or any individual director should direct their communication c/o the Secretary at the address above. The Secretary will forward communications intended for the Board to the Lead Director, or, if intended for an individual director, to that director. If multiple communications are received on a similar topic, the Secretary may, in his discretion, forward only representative correspondence. Any communications that are abusive, in bad taste or present safety or security concerns may be handled differently.

 

Board Leadership Structure

 

The Board believes that the Company’s Chief Executive Officer is best situated to serve as Chairman of the Company because he is the director most familiar with the Company’s business and industry, and most capable of effectively identifying strategic priorities and leading the discussion and execution of strategy. Independent directors and management have different perspectives and roles in strategy development. The Company’s independent directors bring experience, oversight and expertise from outside the Company and industry, while the Chief Executive Officer brings company-specific experience and expertise. The Board believes that the combined role of Chairman and Chief Executive Officer promotes strategy development and execution, and facilitates information flow between management and the Board, which are essential to effective governance.

 

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One of the key responsibilities of the Board is to develop strategic direction and hold management accountable for the execution of strategy once it is developed. The Board believes the combined role of Chairman and Chief Executive Officer, together with an independent Lead Director having the duties described below, is in the best interest of stockholders because it provides the appropriate balance between strategy development and independent oversight of management.

 

Lead Director

 

Mr. Thomas, an independent director who serves as Chairman of the Audit Committee, was selected by the Board to serve as the Lead Director for all meetings of the non-management directors held in executive session. The Lead Director has the responsibility of presiding at all executive sessions of the Board, consulting with the Chairman and Chief Executive Officer on Board and committee meeting agendas, acting as a liaison between management and the non-management directors, including maintaining frequent contact with the Chairman and Chief Executive and advising him or her on the efficiency of the board meetings, facilitating teamwork and communication between the non-management directors and management, as well as additional responsibilities that are more fully described in the Company’s Corporate Governance Principles. In addition, the Company’s Lead Director facilitates the Board’s annual performance assessment of the Chief Executive Officer.

 

Executive Sessions

 

Pursuant to the Company’s Corporate Governance Principles, non-management directors of the Board are required to meet on a regularly scheduled basis without the presence of management. The Lead Director chairs these sessions.

 

Meeting Attendance

 

Last year there were seven meetings of the Board. Each director attended at least 75% of the total meetings of the Board and committees of the Board of which the director was a member. In addition to participation at Board and committee meetings, our directors regularly engage throughout the year in personal meetings and other communications, including considerable telephone contact with the Chairman and Chief Executive Officer, the Lead Director and others regarding matters of interest and concern to the Company.

 

The Company does not have a formal policy requiring members of the Board to attend the Annual Meeting, although all directors are strongly encouraged to attend. Nine of the ten directors were present at the 2010 Annual Meeting of Stockholders.

 

Risk Management

 

The responsibility for the day-to-day management of risks lies with the Company’s management team; however, the Board of Directors has an active role, as a whole and also at the committee level, in overseeing the strategy and process for managing the Company’s risks. The Board regularly reviews information regarding the Company’s business strategy, leadership development, resource allocation, succession planning, credit, liquidity and operations, as well as the risks associated with each. The Company’s overall risk management program consists of periodic management discussions analyzing and mitigating risks, as well as an annual review of risks associated with each of the Company’s three operating businesses and quarterly updates to the Audit Committee.

 

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Annually, management identifies external, strategic, operational, financial and compliance risks, assesses the impact of these risks and determines how to mitigate such risks. The Audit Committee manages the Company’s risk management program and reviews the results of the annual assessment. Management also provides the Audit Committee with quarterly updates on the Company’s risks, changes and/or emerging risks. In addition, the Audit Committee oversees management of the Company’s financial risks. The Company’s Compensation and Stock Option Committee is responsible for overseeing the management of risks relating to the compensation paid to the Company’s executives and the Company’s executive compensation plans and programs. During 2010, the Compensation Committee’s newly engaged consultant, Meridian Compensation Partners, LLP conducted an assessment of the risks associated with the Company’s compensation practices and programs. For more information about that assessment see “Compensation Risks” below. The Nominating and Corporate Governance Committee manages risks associated with the independence of the Board of Directors, potential conflicts of interest and the Company’s corporate governance structure. The Corporate Responsibility Committee oversees management of risks associated with environmental, health and safety, diversity, philanthropy, global citizenship and sustainability. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board of Directors is regularly informed through committee reports about such risks. The Board’s assignment of responsibility for the oversight of specific risks to its committees enables the entire Board, under the leadership of the combined Chairman and Chief Executive Officer and the Lead Director, to better monitor the risks of the Company and more effectively develop strategic direction, taking into account the various risks facing the Company, including the magnitude of management of such risks.

 

Compensation Risks

 

We believe that risks arising from our compensation policies and practices for our employees are not reasonably likely to have a material adverse effect on the Company. In addition, the Compensation Committee believes that the mix and design of the elements of executive compensation do not encourage management to assume excessive risks. The Compensation Committee, with assistance from its independent compensation consultant, extensively reviewed the elements of executive compensation to determine whether any portion of executive compensation encouraged excessive risk taking and concluded:

 

   

significant weighting towards long-term incentive compensation discourages short-term risk taking;

 

   

rolling three-year performance targets discourage short-term risk taking;

 

   

incentive awards are capped by the Compensation Committee to discourage excessive risk taking;

 

   

equity ownership guidelines discourage excessive risk taking; and

 

   

as a consumer products business, the Company does not face the same level of risks associated with compensation for employees at financial services firms (traders and transactions involving instruments with a high degree of risk) or technology companies (rapidly changing markets).

 

Furthermore, as described in our Compensation Discussion and Analysis, compensation decisions include subjective considerations, which restrain the influence of formulae or objective factors on excessive risk taking.

 

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Board Committees

 

The Board has established an Executive Committee, an Audit Committee, a Compensation and Stock Option Committee, a Nominating and Corporate Governance Committee and a Corporate Responsibility Committee. The Audit, Compensation and Stock Option, and Nominating and Corporate Governance Committees are composed entirely of independent directors, as defined under the New York Stock Exchange Listed Company Manual and the Company’s Corporate Governance Principles. The charters of each committee are available on the Company’s website at www.fortunebrands.com/about/board.cfm.

 

A list of current Committee memberships may be found on the Company’s website at www.fortunebrands.com/about/board.cfm. The Committee memberships as of the date of this Proxy Statement are set forth below:

 

Name

   Audit    Compensation
and Stock
Option
   Corporate
Responsibility
   Executive    Nominating
and
Corporate
Governance

Bruce A. Carbonari

            C   

Richard A. Goldstein

      X          C

Ann F. Hackett

      X          X

C. Clarkson Hine*

         X      

Pierre E. Leroy

   X    X         

A. D. David Mackay

   X             X

Anne M. Tatlock

      C    X    X   

David M. Thomas

   C          X    X

Ronald V. Waters, III

   X       X      

Norman H. Wesley

         X    X   

Peter M. Wilson

      X    C    X   

 

*

Mr. Hine serves as Vice President – Corporate Communications and Public Affairs of the Company. He is not a director of the Company.

   An “X” indicates membership on the committee.
   A “C” indicates that the director serves as the chair of the committee.

 

Audit Committee

 

The Audit Committee held six meetings in 2010. The Audit Committee also held three teleconferences to review and discuss earnings announcements. The Audit Committee’s primary functions are to:

 

   

Select, retain, evaluate and terminate when appropriate, a firm of independent auditors to audit our financial statements and approve the scope of the firm’s audit;

 

   

Review reports and recommendations of our independent auditors;

 

   

Review the scope of all internal audits and related reports and recommendations;

 

   

Pre-approve all audit and non-audit services provided by our independent registered public accountants;

 

   

Monitor the integrity of the Company’s financial statements;

 

   

Monitor compliance with financial reporting requirements;

 

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Monitor the independence and performance of our independent auditors, including the lead partner, and the performance of our internal auditors;

 

   

Discuss the Company’s financial statements and its quarterly and annual reports to be filed with the SEC and the adequacy of the Company’s internal controls and procedures with management and the independent auditors;

 

   

Discuss the Company’s press releases relating to earnings with management;

 

   

Review the Company’s policies regarding risk assessment and risk management;

 

   

Review the Company’s compliance programs;

 

   

Review and approve related person transactions and conflicts of interest involving directors, executive officers and first-tier (segment level) operating company chief executive officers;

 

   

Establish procedures for receiving and responding to concerns regarding accounting and auditing matters; and

 

   

Review and approve a report (to be included in the Proxy Statement) disclosing whether the Committee has recommended to the Board that the audited financial statements be included in the Company’s Form 10-K.

 

Each member of the Audit Committee, as of the date of this Proxy Statement (Messrs. Leroy, Mackay, Thomas and Waters), is financially literate, has accounting or financial management expertise and is an audit committee financial expert as defined in Item 407(d)(5)(ii) and (iii) of Regulation S-K under the Securities Exchange Act of 1934 (the “Exchange Act”). Each Audit Committee member has also been determined by our Board to be independent as such term is defined in Rule 10A-3 under the Exchange Act, the New York Stock Exchange Listed Company Manual and the Company’s Corporate Governance Principles.

 

Compensation and Stock Option Committee

 

The Compensation and Stock Option Committee (the “Compensation Committee”) held six meetings in 2010. The Compensation Committee’s primary functions are to:

 

   

Approve the Company’s executive pay philosophy;

 

   

Administer our Long-Term Incentive Plans and grant stock options, performance awards, restricted stock units and other stock-based awards under the Long-Term Incentive Plans;

 

   

Review and approve compensation and goals for the Chief Executive Officer and evaluate his or her performance, in consultation with the Company’s non-employee directors;

 

   

Set compensation (including incentive compensation) for our officers who hold the office of Vice President or a more senior office and for the chief executive officers of our operating subsidiaries;

 

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Retain any compensation consultants to assist in the evaluation of executive compensation and benefits;

 

   

Assess and, if necessary, attempt to mitigate risks associated with the Company’s compensation plans;

 

   

Oversee management’s administration of supplemental retirement and other benefit arrangements;

 

   

Approve compensation agreements and severance agreements for executive officers;

 

   

Approve any compensation clawback provisions;

 

   

Oversee and monitor management’s administration of perquisites provided to executives;

 

   

Review and approve the Compensation Discussion & Analysis and Compensation Committee Report to be included in the Proxy Statement; and

 

   

Review and evaluate any shareholder votes relating to a proposal that seeks approval of the Company’s executive compensation.

 

Compensation Committee Procedures

 

The Compensation Committee directs management to prepare financial data used by the Compensation Committee in determining executive compensation. In addition, members of the Company’s human resources department assist in the preparation of executive compensation tally sheets and historical information on compensation paid to executives. The Compensation Committee is presented with recommendations from management and from the Committee’s independent compensation consultant as to the level and type of compensation to provide to officers who hold the office of Vice President or a more senior office and for the chief executives of our operating companies. Members of the Company’s legal department provide the Compensation Committee with general advice on laws applicable to executive compensation and the directors’ fiduciary duties in setting compensation.

 

The Chief Executive Officer attends meetings of the Compensation Committee. The Chief Executive Officer’s feedback about each officer’s performance is essential in the Compensation Committee’s determination of the officer’s salary and target incentive compensation determinations. See pages 23 through 36 of this Proxy Statement for more information about how the Compensation Committee determines the executive officers’ compensation.

 

Compensation Committee Consultant

 

The Compensation Committee is empowered to engage the services of an outside compensation consultant without the involvement of Company management. At the start of 2010, Hewitt served as the Compensation Committee’s outside compensation consultant, a role Hewitt had filled since January 2000. Hewitt was retained by, and reported directly to, the Compensation Committee during its engagement as

 

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compensation consultant. As outside compensation consultant, Hewitt provided the following services and information to the Compensation Committee:

 

   

Made recommendations regarding executive compensation (including the amount and form of compensation) consistent with the Company’s business needs, pay philosophy, market trends and latest legal and regulatory considerations;

 

   

Provided market data (including compiling the Survey Group and related performance data) as background for decisions regarding Chief Executive Officer and senior management compensation;

 

   

Advised the Compensation Committee as to best practices for structuring executive pay arrangements; and

 

   

Attended meetings as requested and summarized alternatives for compensation arrangements that may have been considered in formulating final recommendations, as well as the consultant’s rationale for supporting or opposing management’s proposals.

 

For its services to the Compensation Committee, Hewitt was paid approximately $45,000 in 2010.

 

In addition to its services for the Compensation Committee, Hewitt was retained directly by management to provide various human resources-related services for the Company. These services included: pension administration, actuarial and record keeping services; and health and welfare plan consulting and administration services. Hewitt has provided these services directly to the Company for many years. The Compensation Committee did not separately review management’s decision to engage Hewitt to provide these services. For services provided directly to the Company, Hewitt was paid approximately $2.75 million in 2010. The Compensation Committee considered the services provided to the Company by Hewitt and concluded that there was not a conflict that would impact the independence of Hewitt’s advice to the Compensation Committee.

 

However, in 2010, the Compensation Committee decided to engage a new outside compensation consultant with no business ties to the Company. The Compensation Committee interviewed compensation consultants and ultimately engaged Meridian Compensation Partners, LLC (“Meridian”) as its new outside compensation consultant. Since its engagement, Meridian has provided similar services to the Compensation Committee as were previously provided by Hewitt. Meridian does not provide any other services to the Company or to management directly. Meridian is prohibited from providing any services to the Company, although it may accept other engagements from the Board or any Board committees.

 

Compensation Committee Interlocks and Insider Participation

 

No person who served as a member of our Board’s Compensation Committee during the last fiscal year (that is, Messrs. Goldstein, Leroy and Wilson, Mrs. Hackett and Mrs. Tatlock) has (i) served as one of our officers or employees; or (ii) any relationship requiring disclosure under Item 404 of the SEC’s Regulation S-K. None of our executive officers serve as a member of the board of directors or as a member of a compensation committee of any other company that has an executive officer serving as a member of our Company’s Board or our Company’s Compensation Committee.

 

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Corporate Responsibility Committee

 

The Corporate Responsibility Committee held four meetings in 2010. The Corporate Responsibility Committee’s primary functions are to review and recommend to the Board policies on the Company’s responsibilities to its employees and the community. The Committee meets periodically with the Company’s and its operating companies’ personnel to review and discuss each business’ programs and policies and performance in the areas of:

 

   

Employee health and safety;

 

   

Diversity and equal employment opportunity;

 

   

Philanthropic activities;

 

   

Sustainability and the effect of Company operations on the environment; and

 

   

Global citizenship.

 

Executive Committee

 

The Executive Committee did not meet in 2010. The Executive Committee has all the authority of the full Board, except for specific powers that are required by law to be exercised by the full Board. The Executive Committee may not amend the Certificate of Incorporation, adopt an agreement of merger, recommend actions for stockholder approval, amend the by-laws, elect, appoint or remove an officer or director, amend or repeal any resolutions of the Board, fix the Board’s compensation, and unless expressly authorized by the Board, declare a dividend, authorize the issuance of stock or adopt a certificate of ownership and merger.

 

Nominating and Corporate Governance Committee

 

The Nominating and Corporate Governance Committee (the “Nominating Committee”) met five times in 2010. The Nominating Committee’s primary functions are to:

 

   

Identify, recruit and screen potential director nominees and recommend such nominees for election as members of the Board;

 

   

Review criteria and policies relating to director independence, service and tenure;

 

   

Recommend directors for membership on the Audit, Compensation and Stock Option, Corporate Responsibility and Nominating and Corporate Governance Committees, including their Chairpersons;

 

   

Recommend directors, secretaries and employees for membership on other committees established by the Board;

 

   

Recommend compensation arrangements (including the level and composition of such compensation) for non-employee directors;

 

   

Develop and recommend a set of corporate governance principles designed to foster an effective corporate governance environment;

 

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Administer non-employee director equity compensation plans;

 

   

Review the charters of Board committees; and

 

   

Manage the performance review process of the Board, its committees and the Chief Executive Officer.

 

Other Corporate Governance Resources

 

The charters of each committee, the Company’s Corporate Governance Principles, the Company’s Code of Business Conduct and Ethics and the Company’s Code of Ethics for the CEO and Senior Financial Officers are available on the Company’s website (www.fortunebrands.com/about/policies.cfm).

 

2010 Director Compensation

 

Name*(a)

  Fees
Earned
or Paid in
Cash
($)(c)
    Stock
Awards
($)(1)(d)
    Option
Awards
($)(2)(e)
    Non-Equity
Incentive

Plan
Compensation
($)(f)
    Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)(3)
    All Other
Compensation
($)(4)(5)(g)
    Total
($)
 

Richard A. Goldstein

    100,000        113,043        n/a        n/a        n/a        6,872        219,915   

Ann F. Hackett

    85,000        113,043        n/a        n/a        n/a        621        198,664   

Pierre E. Leroy

    92,500        113,043        n/a        n/a        n/a        6,033        211,576   

A.D. David Mackay

    87,500        113,043        n/a        n/a        n/a        370        200,913   

Anne M. Tatlock

    100,000        113,043        n/a        n/a        0        2,660        215,703   

David M. Thomas

    122,500        113,043        n/a        n/a        n/a        6,033        241,576   

Ronald V. Waters, III

    87,500        113,043        n/a        n/a        n/a        5,621        206,164   

Norman H. Wesley

    80,000        113,043        n/a        n/a        n/a        5,057        198,100   

Peter M. Wilson

    100,000        113,043        n/a        n/a        n/a        1,872        214,915   

 

*

Although Mr. Carbonari serves as a member of the Board, he does not receive any additional compensation for such service.

 

(1) The amounts in this column represent the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. The grant date fair value was $53.83 per share. See “Certain Information Regarding Security Holdings” on pages 67 and 68 of this Proxy Statement for the number of shares of stock held by each current director as of March 1, 2011.

 

   Mrs. Hackett elected to defer receipt of these shares until the January following the calendar year in which she no longer serves as a director of the Company.

 

(2) 6,778 stock options for Mr. Leroy; 10,496 stock options for Mrs. Tatlock; 10,496 stock options for Mr. Thomas; and 10,496 for Mr.Wilson. The aggregate number of outstanding stock options held by current and retired non-employee directors under the Non-Employee Director Stock Plans was 85,498 as of December 31, 2010. Also, Mr. Wesley had 938,237 stock options outstanding under the Company’s Long-Term Incentive Plans as of December 31, 2011. See “Certain Information Regarding Security Holdings” on pages 67 and 68 of this Proxy Statement for the number of stock options held by each current director as of March 1, 2011.

 

(3) Under the retirement program for non-employee directors, directors elected prior to 1997 will receive an annual retirement benefit equal to the director’s fee at the time of retirement multiplied by the director’s years of service up to 1997, the year in which the accrual of years of service under the Plan was frozen. The retirement benefit is payable beginning in the year in which the director retires or attains age 65, whichever occurs later. Only Mrs. Tatlock is eligible to receive this benefit.

 

(4) Directors traveling on Company business are covered by our business travel accident insurance policy which generally covers all Company employees and directors. We also pay the cost of group life insurance coverage for non-employee directors.

 

(5) All directors are covered under our matching gift program. Under this program, the Company makes a 100% match of gifts totaling up to $5,000 annually by the director to an eligible charitable institution.

 

   Under our charitable award program, the Company will make contributions of up to $500,000 to a charitable, educational or other qualified organization designated by each eligible non-employee director elected prior to December 9, 2003, the date on which the program was frozen. The contributions are made to the designated organization(s) on behalf of the director after the death of the director. Only Messrs. Leroy and Thomas and Mrs. Tatlock are eligible to participate in this program.

 

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Summary of Director Compensation

 

The annual fee for services as a non-employee director of the Company was $80,000 during 2010. In addition, members of the Audit Committee (Messrs. Leroy, Mackay, Thomas and Waters) and the Compensation and Stock Option Committee (Messrs. Goldstein, Leroy, Wilson and Mrs. Hackett and Tatlock) received an additional $7,500 for their service on these Committees. In 2010, this fee was pro-rated for the Compensation and Stock Option Committee members as the fee was initiated on May 1, 2010. Also during 2010, the chairperson of each of the Audit, Compensation and Stock Option, Corporate Responsibility and Nominating and Corporate Governance Committees received an additional fee of $15,000 for such service (Messrs. Goldstein, Thomas and Wilson and Mrs. Tatlock). Mr. Thomas received an additional $20,000 for his service as Lead Director.

 

Each non-employee director receives an annual stock grant that is based on a set dollar value. The number of shares granted is determined by dividing the closing price of the Company’s common stock on the grant date into the annual dollar value, rounded to the nearest 100 shares. In April 2010, the Nominating Committee set the dollar value at $115,000 and each non-employee director received 2,100 shares of our common stock under the 2010 Non-Employee Director Stock Plan (Mrs. Hackett deferred receipt of these shares until the January following the calendar year in which she no longer serves as a director of the Company).

 

2002 Non-Employee Director Stock Option Plan. The 2002 Non-Employee Director Stock Option Plan expired on December 31, 2006. Stock options have not been granted to non-employee directors since 2005; however, some of the non-employee directors continue to hold outstanding stock options granted under this Plan (see “Certain Information Regarding Security Holdings” on pages 67 and 68 of this Proxy Statement ). Under the terms of the Plan and prior to its expiration, each non-employee director who was first elected to the Board after April 30, 1997 was eligible to receive an annual grant of nonqualified stock options to purchase shares of our common stock under our stockholder-approved 2002 Non-Employee Director Stock Option Plan. The terms of the options granted under this plan are:

 

  (i) the option price per share is not less than fair market value at the time the option was granted;

 

  (ii) the option does not become exercisable until the holder has been a director for at least one year after the date of grant (except in the case of death or a change in control of the Company) and may generally be exercised for ten years from the date of grant;

 

  (iii) if the holder ceases to be a director by reason of death, disability or retirement after five or more years of service, the option will continue to be exercisable until the expiration date set forth in the option agreement, provided that an option may be exercised within one year from the date of death even though beyond the expiration date;

 

  (iv) if the holder ceases to be a director for any other reason, the option shall terminate and cease to be exercisable 30 days after cessation of service, except in the event of a change in control of the Company; and

 

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  (v) each option has a limited right that, in the event of a change in control of the Company, is exercised automatically unless the Nominating Committee determines that the limited right is exercisable at some other time. This limited right entitles the holder of the option to receive cash equal to the number of shares subject to the option multiplied by the difference between the exercise price per share and the greater of:

 

  (a) the highest price per share paid for shares of our common stock acquired in the change in control; and

 

  (b) the highest market value of shares of our common stock during the 60-day period beginning on the date of the change in control.

 

The option will be canceled to the extent of the exercise of the limited right.

 

Stock Ownership of Board Members

 

In order to more directly align the Board’s interests with those of stockholders, the Company expects directors to establish and maintain a significant level of stock ownership. Stock ownership guidelines have been established for directors. The guideline for directors is three times their annual fee. The guidelines allow directors five years from the date of the director’s election to the Board to meet the guidelines. All of the directors satisfy the guidelines. For information on the beneficial ownership of securities of the Company by directors and executive officers see “Certain Information Regarding Security Holdings” on pages 67 and 68.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

The Compensation Discussion and Analysis (“CD&A”) section of this Proxy Statement explains the type and amount of compensation provided to the Company’s “named executive officers” (“NEOs”) in 2010, as well as the principles and processes that the Board’s Compensation and Stock Option Committee (“Compensation Committee”) follows in determining such compensation. The NEOs consist of the Company’s Chief Executive Officer, Chief Financial Officer and the three other most highly paid executive officers as of December 31, 2010.

 

The CD&A is divided into four sections.

 

   

The first section of the CD&A provides an Executive Summary.

 

   

The second section presents an overview of the Company’s compensation philosophy and policies that influence the type and amount of compensation used to compensate NEOs.

 

   

The third section explains the role of the Compensation Committee and the procedures employed by the Compensation Committee in determining compensation.

 

   

The final section of the CD&A explains each type of compensation element provided to the NEOs.

 

Executive Summary

 

In 2010, Fortune Brands achieved its operational, financial and strategic objectives. The Company’s three businesses emerged from the severe economic downturn in very strong competitive positions and outperformed their respective industries. Fortune Brands returned to strong growth in sales and even stronger growth in earnings. In addition, management and the Board established, in principle, a plan designed to maximize long-term value for shareholders with the contemplated separation of the three business units in 2011.

 

Fortune Brands has long believed in a pay-for-performance approach to compensation. The Company’s financial results are a starting point for how the Compensation Committee decides to compensate the Chief Executive Officer and other NEOs.

 

   

Net sales increased 7% reflecting broad-based growth across all three businesses.

 

   

Diluted earnings per share increased 98% to $3.16, reflecting strong operating performance, favorable foreign exchange and a net gain due to a tax-related item.

 

   

Excluding charges and gains, diluted earnings per share were $2.81, up 16%, reflecting the success of our strategic initiatives across all three businesses. Diluted earnings per share excluding charges and gains represents net income on a per share basis excluding restructuring and

 

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other charges, gains and/or losses on the sale of brands and related assets, income tax-related credits and business separation costs.

 

   

Total shareholder return, including dividends, was 41%.

 

The Committee recognized that the Company’s 2010 results were a reflection of management’s aggressive actions during the downturn and at the front end of the economic recovery to position the company to best compete now and in the future. Over the course of the downturn, management prepared for recovery by focusing on consumers, cost, and cash. Accordingly, we strengthened the position of our brands in the marketplace, improved our cost structures and the productivity of our supply chains, and enhanced our financial strength and flexibility. We went on offense at the front end of the recovery, making targeted investments in 2010 that helped us build profitable market share with successful new product innovations, brand-building programs, new business wins and strong growth in key international markets. The spirits business increased its strategic investment and gained momentum in key markets, delivered a record year of innovation and enhanced its organizational structure to help drive sustainable long-term growth. The home and security business significantly outperformed the home products market, won substantial new business, launched successful new products and leveraged its lean and flexible supply chains to drive very strong profit growth. The golf business strengthened its global leadership position with sustained new product innovations and successful international growth initiatives.

 

The Company’s results and operating strength contributed to the 2010 decision to proceed with a separation of the three business units in 2011 to maximize long-term value for shareholders. This decision was the result of a lengthy, rigorous and thorough review of various options to best serve the interests of shareholders and was accelerated by the fact that the businesses emerged from the downturn in stronger positions than even we had anticipated. The reaction of shareholders and the financial markets was very favorable and contributed to the total shareholder return achieved in 2010.

 

Pay for Performance in 2010

 

The Compensation Committee and the Company strive to create a pay for performance culture. The Compensation Committee’s and the Company’s compensation actions for 2010 reflected the Company’s strong financial results, as detailed below.

 

   

On average, over three-fourths of each NEO’s 2010 compensation depended on business results and individual performance.

 

   

All NEOs participate in the Company’s Annual Executive Incentive Compensation Plan (“Annual Plan”) which rewards performance that meets or exceeds earnings per share (“EPS”) targets. NEOs were paid at 162.1% of target for 2010.

 

   

In 2010, the Compensation Committee awarded the NEOs an equal mix of stock options, performance share awards and restricted stock units, which more directly aligns management’s interests with those of the Company’s stockholders.

 

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Key Compensation Initiatives for 2010

 

During 2010, the Company made certain changes to elements of the compensation program so as to better align our executive compensation structure with current market practices. The Compensation Committee:

 

   

Codified a set of guiding principles designed to enhance an already strong pay for performance culture;

 

   

Undertook a comprehensive review of its practices, policies and effectiveness of the Company’s executive compensation program including an assessment of risk in the program;

 

   

Hired a new independent compensation consultant;

 

   

Revised its benchmarking guidelines to focus on the 50th percentile of compensation within the Company’s peer group, instead of targeting NEO compensation to fall between the 50th and 75th percentiles.

 

   

Reverted to its normal practice of setting one annual goal for the Company’s Annual Plan at the beginning of the year;

 

   

Instituted a new “clawback” policy;

 

   

Raised the stock ownership guidelines for the Chief Executive Officer and Senior Vice Presidents and first-tier Subsidiary Chief Executive Officers; and

 

   

Removed five of the largest companies used for benchmarking compensation.

 

Summary of Long Standing Compensation Practices

 

The Compensation Committee is committed to maintaining the Company’s excellent compensation practices. The following long standing practices remained in effect in 2010:

 

   

Strong pay for performance culture;

   

Extremely limited executive perquisites offered;

   

Change in control agreements governed by double trigger arrangements; and

   

Use of an independent executive compensation consultant.

 

Compensation Philosophy and Policies

 

Objectives and Principles

 

The Compensation Committee has the following objectives for its executive compensation program:

 

   

Create and reinforce a pay for performance culture at the Company;

 

   

Attract, retain and motivate superior executive talent by providing competitive levels of salary and total compensation;

 

   

Provide incentive compensation that promotes desired behavior without encouraging excessive risk; and

 

   

Align the interest of management with those of the Company’s stockholders.

 

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In support of these objectives, the Compensation Committee formalized the following guiding principles for setting and awarding executive compensation:

 

   

The compensation program should pay for performance. Exceptional performance should result in increased compensation; missing performance goals should result in reduced incentive pay. Pages 31-34 of this Proxy Statement illustrate the connection between Company performance and compensation levels in the discussion of each incentive compensation component.

 

   

Compensation should be competitive with those organizations for which we compete for top talent. However, compensation standards should not rigidly follow any formula or target; rather, discretion should be employed to ensure that the Company maintains a highly qualified and strong leadership team. The process used for comparing the Company’s compensation program with those of our peers is described on pages 27 and 28 of this Proxy Statement.

 

   

Incentive compensation should help drive business strategy. The compensation program should encourage both the desired results and the right behaviors. It should help drive business strategy and strike a balance between short-term and long-term performance. See pages 31 through 35 of this Proxy Statement for a discussion of the goals associated with the Company’s various performance-based awards.

 

   

To better align the interests of management with the interests of stockholders, a significant portion of executive compensation should be equity based, and stock ownership guidelines should be followed to better ensure a focus on long-term, sustainable growth. See page 30 of this Proxy Statement for a discussion of the percentage of NEO compensation that is paid in some form of equity or performance awards. In addition, stock ownership guidelines are discussed on page 27.

 

   

Perquisites and other benefits for executives should be limited in nature and scope.

 

   

A compensation committee consisting entirely of independent Board members will thoroughly and comprehensively review total compensation and each element of compensation for executives at least annually. See pages 16-18 of this Proxy Statement for a discussion of the Compensation Committee structure and processes.

 

Pay for Performance

 

The Compensation Committee believes that the majority of an NEO’s compensation should be dependent upon Company performance. Exceptional performance should result in increased compensation; missing performance goals should reduce the amount of incentive compensation that is paid. The Compensation Committee has consistently adhered to the Company’s pay for performance philosophy. For example, as the recent economic downturn negatively affected Company performance, so has it negatively impacted incentive compensation levels within the Company. No bonuses were paid to NEOs for the 2008 year based upon Company performance. Furthermore, as a result of Company performance, performance shares for the 2006-2008, 2007-2009 and 2008-2010 performance periods did not pay out. These results have caused

 

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compensation realized by NEOs to go down significantly over the last three years, further illustrating the Company’s commitment to the pay for performance philosophy. See the “W-2 Compensation” Table on page 39 of this Proxy Statement for more information about the NEO compensation paid in 2008, 2009 and 2010.

 

Clawback Policy

 

In 2010, the Compensation Committee instituted a new “clawback” policy with respect to incentive compensation. The clawback policy mitigates the risks associated with the Company’s compensation policies, because certain executive employees will be required to repay compensation in the circumstances identified in the policy. The clawback policy gives the Board the discretion to seek recoupment of the incentive based compensation paid or granted to certain executive officers in the event of a material restatement of the Company’s financial statements (other than to comply with changes in applicable accounting principles). The Compensation Committee will reevaluate and, if necessary, revise the Company’s clawback policy to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act once the rules implementing the clawback requirements have been finalized by the SEC.

 

Prohibition on Hedging Risk of Owning Company Stock

 

To more directly align management’s interests with stockholders’ interests and concurrently limit excessive risk-taking by management, the Company has a formal policy prohibiting any director, officer (Vice President and above) or chief executive officer of a first-tier subsidiary from hedging the risk of owning Fortune Brands’ stock or from trading in derivatives of the Company’s stock.

 

Stock Ownership Guidelines

 

To further align management’s interests with those of stockholders, the Company expects executives and directors to establish and maintain a significant level of stock ownership. In 2010, the Compensation Committee raised the stock ownership guidelines for the Chief Executive Officer, Senior Vice Presidents and Chief Executive Officers of each of the Company’s operating subsidiaries. The new guidelines are:

 

Officer Level

   2010 Requirement      2009 Requirement  

Chairman and Chief Executive Officer

     5 times salary         4 times salary   

Senior Vice Presidents and First-Tier Subsidiary Chief Executive Officers

     3 times salary         2 times salary   

Vice Presidents

     1 times salary         1 times salary   

 

The guidelines allow executives five years from the date of hire or promotion, as applicable, to satisfy the guidelines. In 2010, the Compensation Committee determined that all five NEOs satisfied the guidelines, four of whom met the applicable multiple of salary and one who had not held his current position for five years.

 

Benchmarking

 

The Compensation Committee reviews the competitiveness of the Company’s executive compensation program by comparison to market practices. For this purpose, the Compensation Committee uses a comparison group of consumer products companies

 

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(the “Survey Group”). Hewitt Associates, Inc. (“Hewitt”), the Compensation Committee’s outside compensation consultant at the time, recommended the companies to be included in the Survey Group. After careful consideration, the Compensation Committee approved the composition of the Survey Group.

 

In 2010, the Survey Group consisted of 19 consumer products companies with median 2009 revenue of $7.7 billion compared to the Company’s 2009 total revenue of $6.7 billion. For 2010, the Company eliminated five companies (3M, Anheuser-Busch, Emerson Electric, Kraft Foods and Unilever NV) that were in the 2009 Survey Group. The companies in the 2010 Survey Group are either primary competitors of the Company or are premier consumer products companies of similar size and scale, including global operations. In either case, we believe that we compete with these companies for executive talent. The 2010 Survey Group consists of:

 

Alberto-Culver Company

  

Masco Corporation.

Brunswick Corporation

  

Molson Coors Brewing Company

Campbell Soup Company

  

Newell Rubbermaid Inc.

Colgate-Palmolive Company

  

Nike, Inc.

Diageo plc

  

S.C. Johnson & Sons, Inc.

General Mills, Inc.

  

Sara Lee Corporation

Hershey Foods Company

  

The Sherwin Williams Company

Illinois Tool Works

  

Stanley Black & Decker Corporation

Kellogg Company

  

Whirlpool Corporation

Kohler Co

  

 

Generally, the Compensation Committee benchmarks the Company’s executive compensation program against the Survey Group. At the beginning of 2010, the Compensation Committee generally targeted base salaries and total direct compensation for NEOs to fall between the 50th and 75th percentiles of the Survey Group. Later in the year, the Compensation Committee revised its target to be the 50th percentile of the Survey Group for 2011 compensation. The Compensation Committee uses this benchmark as a guideline, not a rigid requirement. The Compensation Committee may determine with respect to one or more individuals, including an NEO, that it is appropriate to deviate from a benchmark with respect to a particular compensation element or total compensation. The factors that go into a decision to deviate from a specific benchmark may include market competition for a particular position, an individual’s possession of a unique skill or knowledge set, proven leadership capabilities, or amount of experience with the Company in their current role.

 

For 2010, Mr. Carbonari’s target and actual total compensation were both below the 50th percentile of the Survey Group. The average target and actual total 2010 compensation for the NEOs as a group fell between the 50th and 75th percentiles.

 

Role of the Compensation and Stock Option Committee

 

Compensation Committee’s Purpose and Duties

 

The purpose of the Compensation Committee is to discharge the responsibilities of the Company’s Board of Directors relating to the compensation of the Company’s NEOs, officers who hold the office of Vice President or above, and the chief executive officers of each of our operating subsidiaries. The Compensation Committee ensures that the NEOs and other members of management are compensated in a manner that is consistent with

 

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competitive practices, individual and Company performance and applicable legal requirements. The Compensation Committee is also responsible for developing the compensation principles and philosophy discussed above.

 

Compensation Committee’s Use of an Outside Consultant

 

The Compensation Committee directly retains a nationally recognized firm, Meridian Compensation Partners, LLC (“Meridian”), as its outside compensation consultant, to provide advice and recommendations on the amount and form of executive compensation. During 2010, the Compensation Committee used Hewitt Associates as its compensation consultant until it engaged Meridian. The consultants regularly met with the Compensation Committee and were included during executive sessions without the presence of management. In 2010, the outside consultants attended five out of six Compensation Committee meetings. Meridian is prohibited from providing any services to the Company or management, although it may accept engagements from other committees of the Board. Please see “Corporate Governance – Board Committees – Compensation and Stock Option Committee – Compensation Committee Consultant” for further information regarding the Compensation Committee’s use of Hewitt Associates and Meridian.

 

Process for Determining NEO Compensation

 

The process for determining the Chief Executive Officer’s compensation is different than the process for the other NEOs. At the beginning of each year, the Board discusses the Chief Executive Officer’s performance goals in a variety of areas such as the Company’s financial results (including specific performance goals used in our incentive plans), performance against direct competitors in our markets, operational and portfolio strategy, balance sheet flexibility, stock performance, succession planning, diversity and corporate governance. The entire Board (absent the Chief Executive Officer) assesses the Chief Executive Officer’s performance. The Chairwoman of the Compensation Committee and the Lead Director of the Board then meet with the Chief Executive Officer to provide him with the Board’s assessment of his performance. The Compensation Committee next analyzes the competitive benchmarking data supplied by its outside compensation consultant in conjunction with the Board’s assessment of the Chief Executive Officer’s performance and then sets his total compensation. (See pages 27 and 28 of this Proxy Statement for information regarding such competitive data.) The Compensation Committee then discusses its actions with respect to setting the Chief Executive Officer’s compensation with the Board, in Executive Session.

 

For NEOs other than the Chief Executive Officer, the Chief Executive Officer reviews each NEO’s performance with the Compensation Committee, where he recommends compensation levels for the NEOs other than himself. The Chief Executive Officer’s recommendations take into account benchmarking data and may include subjective individual considerations based upon his day-to-day interactions with each NEO, such as individual job performance, incumbent experience, retention concerns, and an executive’s ability to impact future results for the Company. The Compensation Committee will combine this information with objective factors, such as the Company’s performance and benchmarking data, and the Compensation Committee will also use their own knowledge and experience in working with each NEO when setting compensation levels.

 

When setting compensation levels, the Compensation Committee utilizes tally sheets containing the information shown in the tables on pages 37, 42, 44 and 48 of this

 

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Proxy Statement for each NEO including the Chief Executive Officer, to assist it in analyzing the NEO’s total compensation and various individual elements of their compensation, as well as potential accumulated wealth under the Company’s equity programs. This analysis also includes a review of potential compensation payable in connection with a separation of employment under various separation scenarios. The tally sheets provide context for the Compensation Committee in the determination of the elements and total compensation paid to each NEO.

 

Elements of the Executive Compensation Program

 

The Company provides a number of types of compensation to the NEOs, some of which are fixed and some of which are variable and dependent upon Company performance. The mix of elements allows the Company to achieve all of the Compensation Committee’s objectives for the executive compensation program, from retention of the management team to the alignment of management’s interest with those of the Company’s stockholders.

 

In 2010, 84% of compensation awarded to the Chief Executive Officer was variable and performance based, while on average, 72% of total compensation awarded to the other NEOs was performance-based. The high percentage of performance-based compensation reinforces the Company’s emphasis on paying for performance.

 

Base Salary

 

The Compensation Committee reviews base salary levels for the NEOs annually. The Compensation Committee considers competitive market data but also considers other factors, such as exceptional individual performance, retention concerns or tenure with the Company.

 

All of the NEOs received base salary increases in 2010. Historically, the Compensation Committee has awarded base salary increases every year. However, in response to the global economic downturn’s effect on Company performance, none of the NEOs received base salary increases in 2009. In late 2009 and early 2010, the Company’s performance began showing improvement. In light of the Company’s improving performance and in recognition that no salary increases had been made since 2008, the Compensation Committee awarded salary increases in 2010, as follows:

 

Named Executive Officer

   2010 Base
Salary
     2009 Base
Salary
     % Increase  

Bruce A. Carbonari

   $ 1,133,000       $ 1,100,000         3

Chairman of the Board and CEO

        

Craig P. Omtvedt

   $ 649,000       $ 630,300         3

Senior Vice President and CFO

        

Mark A. Roche

   $ 538,000       $ 522,700         3

Senior Vice President, General Counsel and Secretary

        

Patrick J. Koley

   $ 416,000       $ 400,000         4

Senior Vice President – Strategy & Corporate Development

        

Mark Hausberg

   $ 376,000       $ 365,000         3

Senior Vice President – Finance and Treasurer

        

 

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Annual Incentive Bonuses

 

The Compensation Committee believes that an annual cash incentive bonus helps achieve the objectives of the Company’s executive compensation program by aligning a significant portion of NEOs’ cash compensation with performance results. Annual incentive bonuses motivate executives to achieve short-term financial and operating results. In addition, the annual bonus opportunity contributes to the competitiveness of cash compensation levels.

 

The Company’s Annual Plan rewards Company performance that meets or exceeds EPS targets set by the Compensation Committee at the beginning of each performance period. To determine annual bonus amounts, the Compensation Committee first sets a target level of bonus as a percentage of salary for each of the NEOs. The more responsibility and the greater the scope of an executive’s position, the higher the target bonus percentage was set. Unless the Compensation Committee exercises its discretion to adjust annual bonus amounts, bonuses are determined based solely on the Company’s achievement of the EPS target; there are no other Company goals and no individual goals under the Annual Plan.

 

Target levels were set in the following amounts for NEOs in 2010:

 

Named Executive Officer

   Bonus Target as
% of Base Salary
 

Bruce A. Carbonari

     130

Chairman of the Board and CEO

  

Craig P. Omtvedt

     75

Senior Vice President and CFO

  

Mark A. Roche

     60

Senior Vice President, General Counsel and Secretary

  

Patrick J. Koley

     60

Senior Vice President – Strategy & Corporate Development

  

Mark Hausberg

     50

Senior Vice President – Finance and Treasurer

  

 

For 2010, the Compensation Committee set an EPS target under the Annual Plan of $2.43, with a maximum payout if EPS equaled or exceeded $3.09 for the full year. Actual bonus payments can range from 0-200% of the target amount, based on the Company’s actual EPS. The Company’s actual EPS for 2010 was $2.84, resulting in a payout at 162.1% of target. The EPS result was a 21% increase over actual 2009 EPS results. The Compensation Committee believes that the EPS target for 2010 was rigorous and set sufficiently high to motivate our NEOs to perform at superior levels.

 

Long-Term Performance Incentives: Stock Options, Performance Share Awards and Restricted Stock Units

 

Overview. The Company designed its Long Term Incentive Plan (“LTIP”), which was approved by stockholders in 2007, to ensure that incentive compensation supports the long-term profitability of the Company and the performance of the Company’s common stock. (A new LTIP is being presented for a stockholder vote this year and is described in this Proxy Statement on pages 59 through 66.) The Company can use the LTIP to provide a variety of types of awards, each intended to meet a specific objective and reward specified results.

 

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In 2010, the Company awarded an equal mix of three types of long-term incentives under the LTIP:

 

   

stock options;

   

performance share awards; and

   

restricted stock units (“RSUs”).

 

The Compensation Committee believes this mix of incentives appropriately aligns management’s interests with those of stockholders and is consistent with market comparables as represented by the Survey Group.

 

The Compensation Committee determines the size of long-term incentive grants primarily based on competitive long-term incentive market data for the Survey Group, although individual considerations may influence the size of the grant, as described on page 28 above.

 

Stock Options. The Compensation Committee granted stock options to the NEOs in February 2010. The options were granted in consideration of present and anticipated performance as well as past accomplishments of the NEOs. It was the Compensation Committee’s intent for the stock options to offer NEOs significant long-term incentives to motivate performance and to focus managerial efforts on enhancing shareholder value.

 

The number of stock options granted to each of the NEOs in 2010 is listed in the table on page 40 of this Proxy Statement.

 

Performance Share Awards. The performance shares awarded in 2010 are earned based on achievement of average return on invested capital (ROIC) and cumulative EPS targets. The Compensation Committee used these two performance measures because it believes they drive long-term stockholder value creation, one capturing growth (EPS) and the other capturing returns (ROIC). ROIC and EPS targets were derived from analyzing and setting operating goals for each of the Company’s operating segments, and then calculating overall targets for the Company.

 

Historically, and as was the case with the 2008-2010 performance period, performance shares had a single, three-year goal attached to them. Although the Compensation Committee believes that setting a three-year goal is important for driving long-term efforts, the recent period of economic turmoil made long-term goal setting difficult. As a result, the Compensation Committee shifted from its historical practice on a temporary basis and, in 2009 and 2010, decided to use annual goals in the award of performance shares. Awards will continue to be paid out after three years, assuming each annual goal in the thee-year performance period is met.

 

Accordingly, performance share awards granted for the 2009-2011 and the 2010-2012 performance periods each have three annual performance targets approved by the Compensation Committee at the beginning of each year of the three-year performance period. No performance shares will be paid unless at least the minimum established goals are achieved for each year. The number of performance shares granted to each of the NEOs for the 2010-2012 performance period is listed in the table on page 40 of this Proxy Statement.

 

NEOs who receive performance awards will also earn cash dividend equivalents equal to the cash dividends that would have been paid on the number of performance shares actually paid out after the end of the three-year performance period, as though the recipient owned the shares during the performance period. Dividend equivalents are not paid until the performance period has ended and only on shares actually earned.

 

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The following matrix shows the percentage of the target number of shares that will be paid to an NEO for a given level of Company performance during the 2010-2012 performance period:

 

            % of Performance Shares Earned  
     Maximum         75         125         150   

Diluted

Cumulative EPS

  

 

 

 

Target

 

  

    

50

 

  

    

100

 

  

    

125

 

  

     Minimum         0         50         75   
        Minimum         Target         Maximum   
       

 

Average

Annual ROIC

  

  

 

The Company’s practice of setting rigorous targets for performance share awards is evidenced in the following table, which discloses minimum, target and maximum goals for the 2008-2010 performance period, the first two years of the 2009-2011 performance period and the first year of the 2010-2012 performance period:

 

Performance Period

  

Metric

   Minimum      Target      Maximum  

2008-2010

  

Diluted Cumulative Earnings Per Share

   $ 14.53       $ 15.83       $ 17.10   
  

Average Return on Invested Capital

     8.9%         9.7%         10.2%   

2009-2011

           

2009

  

Diluted Earnings Per Share

   $ 0.83       $ 2.32       $ 2.61   
  

Average Return on Invested Capital

     2.8%         5.2%         5.7%   

2010

  

Diluted Earnings Per Share

   $ 1.68       $ 2.43       $ 3.09   
  

Average Return on Invested Capital

     4.4%         5.6%         6.7%   

2010-2012

           

2010

  

Diluted Earnings Per Share

   $ 1.68       $ 2.43       $ 3.09   
  

Average Return on Invested Capital

     4.4%         5.6%         6.7%   

 

The difference in targets between the 2008-2010 and the 2009-2011 periods reflects the drastically changed market conditions from 2007 to 2009. In the 2008-2010 period, the Company’s actual diluted cumulative EPS was $10.75 and average ROIC was 7.2%, resulting in no payout to NEOs for this period.

 

Under the 2009-2011 and 2010-2012 performance share awards, the 2010 target goal for EPS was $2.43, and the target goal for ROIC was 5.6%. The Company’s actual 2010 adjusted EPS was $2.85 and average ROIC was 6.5%. The 2011 EPS and ROIC goals set by the Compensation Committee for the third year of the 2009-2011

 

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performance period and the second year of the 2010-2012 performance are rigorous and set sufficiently high to require superior performance at both the target and maximum payout levels. Payouts for the 2009-2011 and 2010-2012 performance periods will not be determined or made until early 2012 and 2013, respectively.

 

In July 2009, the Compensation Committee granted an 18-month performance share award to the NEOs. The target value of the 18-month performance share award is 75% of the target value for the 2008-2010 performance share award, and no payout above 100% of target is possible. Despite the fact that the 2008-2010 goals were no longer viewed as attainable, the Compensation Committee made the 18-month award because it felt it was crucial to retain top talent and motivate them to make gains in market share. The following chart summarizes the performance goals and associated payout for the 18-month performance share award:

 

     Cumulative Diluted EPS Achieved
During 18-Month Period
   Award
Percentage Paid
 

Minimum payout

   $2.35      65

Target payout

   $2.70      100

Maximum payout

   $3.15      100

 

The cumulative diluted EPS for the 18-month performance period was $4.17, resulting in an average payout of 100%. The number of performance shares granted to each of the NEOs for the 18-month July 2009-December 2010 performance period is listed in Footnote 4 on page 43 of this Proxy.

 

The Compensation Committee utilizes diluted EPS growth for both the annual bonus plan and performance share awards. For performance share awards, the Compensation Committee utilizes average ROIC as an additional performance metric. The Compensation Committee has evaluated the use of other performance metrics for these awards and determined that the use of diluted EPS, versus other performance metrics, is the most comprehensive measure for driving growth of the Company in the near term, making it the most ideal performance metric for the annual bonus plan. The Compensation Committee also determined that the combined use of diluted EPS and ROIC are the most comprehensive factors for driving sustainable growth and returns longer term.

 

Restricted Stock Units. RSUs are primarily time vested awards that provide executives with an opportunity to earn shares of Company common stock. Each RSU is equal to one share of Company common stock that will be paid when the RSU vests. The Compensation Committee believes that RSUs provide greater balance and stability for the Company’s long-term incentives. Additionally, RSUs provide a form of long-term compensation that aids retention, encourages long-term value creation and aligns management’s financial interests with those of stockholders.

 

The Compensation Committee approved the award of RSUs to the NEOs at its February 2010 meeting. The RSUs vest three years after grant, subject to continued employment and achievement of an EPS goal of $1.00 cumulatively over the three-year performance period. Because the RSU awards included an EPS goal, the Company expects to meet tax deductibility requirements under Section 162(m) of the Internal Revenue Code. The award is otherwise intended to align management’s interests with those of stockholders and to serve as a retention device.

 

The number of RSUs granted to each of the NEOs in 2010 is listed in the table on page 40 of this Proxy Statement.

 

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July 2009 Award to Mr. Carbonari. In July 2009, the Compensation Committee granted Mr. Carbonari a $2 million award to be earned ratably over a two-year period, half to be paid in stock and half to be paid in cash. Payment of the award is subject to continued employment, achievement of a six-month EPS target from July to December 2009 of $.75 and achievement of performance goals set by the Compensation Committee. The Compensation Committee retained the discretion to pay less than the full amount of the award or nothing. At its July 2010 meeting, since Mr. Carbonari remained employed by the Company and the six-month EPS goal was achieved, the Compensation Committee considered Mr. Carbonari’s total performance in the areas of market share, total shareholder return and operational goals associated with the award. The Compensation Committee determined that Mr. Carbonari achieved multiple accomplishments, including: several of the Company’s primary businesses outperforming competitors during the same period; assuring the smooth transitions of new CEOs for two of the Company’s primary businesses; and overseeing the realignment of various individual businesses. As a result, the Compensation Committee recommended that the full amount of the first half of the award be paid to Mr. Carbonari. Payment was made to Mr. Carbonari on August 2, 2010 with 50% paid in Company stock and 50% in cash. In determining whether the second half of the award will be paid to Mr. Carbonari in 2011, if he remains employed with the Company, the Compensation Committee will consider Mr. Carbonari’s performance in the following areas: operational and portfolio strategy, balance sheet flexibility, stock performance, succession planning, diversity and corporate governance.

 

Health and Related Benefits. The Company’s health and related benefits include medical, dental, life, disability, accidental death and dismemberment and travel accident coverage. All health and related benefits provided to executive officers are offered through broad-based plans applicable to all employees.

 

Retirement Benefits. The Company believes that it is necessary to provide retirement benefits to recruit and retain executives. The Company provides retirement benefits to executives through a combination of a tax-qualified defined benefit plan, a tax-qualified defined contribution plan and a nonqualified defined benefit and defined contribution plan. Employees, including executives, hired after January 1, 2008 are not eligible to participate in the Company’s defined benefit plan and receive benefits only under the defined contribution plan. The amount of benefits provided by each retirement plan and the pension formulae applicable to the NEOs are described in more detail on pages 44 through 46 of this Proxy Statement.

 

Severance and Change in Control Agreements. The Company has severance and change in control agreements with each of its NEOs. The agreements generally provide for severance benefits in the event of involuntary termination of employment or termination by the executive for “good reason.” No payments are made if employment is terminated due to death, disability or cause. Executives will receive enhanced benefits if a termination of employment follows a change in control of the Company. The change in control agreements are “double trigger” (both a change in control and involuntary termination of employment or termination by the executive for “good reason” must occur to receive payment). In addition, the Company maintains a retention agreement with Mr. Carbonari. The Company believes these agreements are necessary to ensure the continuity of management and to allow executives to focus on serving the Company in a change of control situation without the distraction of concern for their employment. These agreements, including Mr. Carbonari’s retention agreement, are described in more detail on pages 48 through 52 of this Proxy Statement.

 

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Perquisites. The Company permits use of Company aircraft by certain NEOs. In 2010, use of the Company aircraft was provided to Messrs. Carbonari and Omtvedt, who reimburse the Company for such use.

 

Tax Treatment. The Company generally receives a tax deduction for payments to executives under its annual and long-term incentive plans. Section 162(m) of the Internal Revenue Code limits the income tax deduction that the Company may take for compensation paid to the Chief Executive Officer and the other named executive officers, other than the Chief Financial Officer. The limit is $1 million per executive per year. However, performance-based compensation is excluded from the calculation under Section 162(m). The Compensation Committee believes that the annual incentive bonus, stock options, performance share awards and restricted stock unit awards will be fully deductible by the Company when paid or settled.

 

Compensation and Stock Option Committee Report

 

The Compensation and Stock Option Committee (the “Compensation Committee”) has reviewed and discussed the Compensation Discussion and Analysis with management and, based on the review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 and the Company’s Proxy Statement.

 

Compensation and Stock Option Committee

 

Anne M. Tatlock, Chairwoman

Richard A. Goldstein

Ann F. Hackett

Pierre E. Leroy

Peter M. Wilson

 

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2010 COMPENSATION

 

The Summary Compensation Table below sets forth accounting values for both fixed and variable elements of compensation for the NEOs, including unvested and/or unpaid stock awards and unexercised stock options. For example, performance share awards that have been granted to each of the NEOs during 2010 are presented in the Stock Awards column of the table below based on the awards’ grant date fair value as determined under applicable accounting rules. The grant date fair value of these awards is based on the Company’s estimate of the number of performance shares which are likely to be earned by each NEO. Similarly, stock options granted to each of the NEOs during 2010 are presented in the Option Awards column of the table below based on these awards’ grant date fair value as determined under applicable accounting rules. However, the amount each NEO will actually realize from these equity awards may differ materially from the amounts shown in the table below and the related footnotes (in certain circumstances, the NEOs may realize no value under these awards). Investors should note that equity compensation awards granted or paid to the NEOs are reported in several different tables in this Proxy Statement.

 

2010 SUMMARY COMPENSATION TABLE

 

Name and Principal

Position

  Year     Salary ($)     Bonus
($)(1)
    Stock
Awards
($)(2)
    Option
Awards
($)(3)
    Non-Equity
Incentive Plan
Compensation
($)(4)
    Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)(5)(6)
    All Other
Compen-
sation
($)(7)
    Total
($)
 
    A     B     C     D     E     F     G     H     I  

Bruce A. Carbonari(8)

    2010        1,127,500        0        4,203,943        1,572,244        2,387,571        1,655,542        291,740        11,238,540   

Chairman of the Board and CEO

    2009        1,100,000        0        7,040,703        1,465,298        2,529,440        432,468        167,995        12,735,904   
    2008        1,100,000        0        2,797,794        3,947,353        0        458,021        422,541        8,725,709   

Craig P. Omtvedt

    2010        645,883        0        1,545,432        578,595        789,022        491,992        187,454        4,238,378   

Senior Vice President and CFO

    2009        630,300        0        2,371,063        576,387        597,524        320,033        163,116        4,658,423   
    2008        630,300        0        2,485,350        701,091        0        215,414        209,132        4,241,287   

Mark A. Roche

    2010        535,450        0        1,021,089        381,218        523,259        605,586        125,381        3,191,983   

Senior Vice President, General Counsel and Secretary

    2009        522,700        0        1,560,052        378,490        396,416        301,828        97,323        3,256,809   
    2008        522,700        0        1,640,331        462,649        0        166,029        112,505        2,904,214   

Patrick J. Koley(8)

    2010        413,333        0        519,744        192,865        404,602        0        71,966        1,602,510   

Senior Vice President –

Strategy & Corporate Development

    2009        357,692        100,000        983,778        190,327        303,360        0        180,089        2,115,246   

Mark Hausberg

    2010        374,167        0        381,759        143,239        304,748        262,271        88,433        1,554,616   

Senior Vice

President – Finance and Treasurer

    2009        365,000        0        665,368        140,582        230,680        144,640        72,541        1,618,811   
    2008        365,000        0        667,494        169,045        0        118,793        91,154        1,411,486   

 

(1) For 2009, this column includes a $100,000 sign on bonus paid to Mr. Koley.

 

(2) Stock Awards: The amounts listed in column D for 2010 reflect the most probable outcome award grant date fair value calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation – Stock Compensation (“FASB ASC Topic 718”) for performance shares and RSUs. For assumptions used in determining these values, see footnote 12 to the consolidated financial statements contained in the Company’s Form 10-K for the year(s) ended December 31, 2010 (2009 and 2008). The maximum award value with respect to the 2010 grants, if paid, would be:

 

Name

   2010  

Bruce A. Carbonari

   $ 5,342,319   

Craig P. Omtvedt

   $ 1,963,987   

Mark A. Roche

   $ 1,297,059   

Patrick J. Koley

   $ 660,028   

Mark Hausberg

   $ 485,247   

 

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(3) Option Awards: The amounts listed in column E reflect the full grant date fair values calculated in accordance with FASB ASC Topic 718. For assumptions used in determining these values, see footnote 12 to the consolidated financial statements contained in the Company’s Form 10-K for the year(s) ended December 31, 2010 (2009 and 2008).

 

(4) Non-Equity Incentive Plan: Column F lists amounts earned under the Annual Executive Incentive Compensation Plan. Refer to the Compensation Discussion and Analysis on page 31 of this Proxy Statement for more details on this plan. See also footnote 8.

 

(5) Increase in Actuarial Value of Defined Benefit Pension: Column G includes an estimate of the increases in actuarial value of certain NEOs’ tax qualified and non-qualified defined benefit pension plan benefits. The normal retirement benefit is unreduced at age 60 for Messrs. Omtvedt, Roche and Hausberg, and unreduced at age 62 for Mr. Carbonari. For 2008 and 2009, Columns G and I have been recalculated for Mr. Roche to reflect that he has an unreduced benefit commencing after 30 years of service. The narrative and footnotes following the Pension Benefits table on page 44 provide additional detail about the Company’s pension plans.

 

(6) Employee Grantor Trusts: The NEOs are not currently covered under the Company’s tax-qualified defined benefit plan. As a replacement, pension benefits for Messrs. Carbonari, Omtvedt, Roche and Hausberg are provided under the Fortune Brands Supplemental Plan (the “Supplemental Plan”) on a non-qualified basis. Employee grantor trust arrangements fund these benefits. The employee grantor trust arrangements are described in greater detail on page 46 of this Proxy Statement. Mr. Koley is not eligible for defined benefit plan benefits under either the Company’s tax-qualified plan or the Supplemental Plan.

 

   In 2010, contributions were made to employee grantor trusts (net of tax withholding) in the following amounts: $44,307 for Mr. Carbonari, $44,570 for Mr. Omtvedt, $30,725 for Mr. Roche, and $41,795 for Mr. Hausberg. These executives were reimbursed for taxes on earnings of the trust related to pension benefits in the following amounts: $39,592 for Mr. Carbonari, $59,021 for Mr. Omtvedt, $35,827 for Mr. Roche, and $26,045 for Mr. Hausberg. Contributions are not listed in column H because they were made to fund supplemental retirement benefits that are disclosed in the Pension Benefits table on page 44 and the narrative that follows it. However, the reimbursements for taxes on the contributions are included in Column H.

 

(7) Perquisites and All Other Compensation: In 2010, limited use of the Company aircraft was provided to Messrs. Carbonari and Omtvedt, who reimbursed the Company for their hours of personal flight time.

 

   The aggregate incremental cost of perquisites is generally the cost of such items to the Company. Although Messrs. Carbonari and Omtvedt used Company aircraft for personal use in 2010, 2009 and 2008, they reimbursed the Company for their number of hours of personal flight time. The difference between the Company’s aggregate incremental cost of personal aircraft usage and the amount paid by the executive is due in part to the incremental cost to reposition Company aircraft; this difference is included in column H. Specifically, for 2010, the Company’s cost of personal aircraft usage not reimbursed by executives is $11,733 for Mr. Carbonari and $816 for Mr. Omtvedt. The calculation of incremental cost of personal aircraft usage is based on variable cost to the Company, including fuel costs, crew expenses, landing fees and other miscellaneous variable costs.

 

   Defined Contribution Benefits, Nonqualified Plan Earnings and Tax Reimbursements: The amount in column H also includes: (a) Company contributions to the tax-qualified defined contribution plan of the Company, (b) profit-sharing contributions under the Supplemental Plan, and (c) tax reimbursements with respect to defined contribution benefits. We describe these benefits below.

 

  (a) Defined Contribution Plan Contributions. Company contributions for 2010 to the Company’s tax-qualified defined contribution plan were $24,123 for each of Messrs. Carbonari, Omtvedt, Roche and Hausberg and $29,023 for Mr. Koley.

 

  (b) Supplemental Plan. The Supplemental Plan credits certain executives with amounts that would have been contributed to their profit sharing accounts under the tax qualified defined contribution plan but for the limitations on contributions imposed by the Internal Revenue Code. Profit sharing credits earned under the Supplemental Plan for 2010 were: $180,896 for Mr. Carbonari; $74,881 for Mr. Omtvedt; $51,515 for Mr. Roche; $35,377 for Mr. Koley; and $26,989 for Mr. Hausberg. These amounts were credited to executives’ accounts in early 2011. For all NEOs except Messrs. Carbonari and Koley, to meet the Company’s obligations to provide these profit sharing benefits under the Supplemental Plan, the Company partially funded these benefits through employee grantor trusts described on page 46 of this Proxy Statement. The Company funds only the amount sufficient to provide the expected after-tax profit sharing benefit.

 

  (c)

Tax Reimbursements. The defined contribution credits to the Supplemental Plan are subject to Medicare tax. In 2010, the Company reimbursed the NEOs for Medicare taxes in the amount of: $4,332 for Mr. Carbonari, $1,793 for Mr. Omtvedt, $1,234 for Mr. Roche, $771 for Mr. Koley and $646 for Mr. Hausberg. In addition, for those executives with employee grantor trusts described on page 46 of this Proxy Statement, the

 

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Company reimbursed the executive for taxes on earnings of the trust in the amount of $12,312 for Mr. Omtvedt, $4,215 for Mr. Roche, and $2,804 for Mr. Hausberg. Executives receive only the after-tax defined contribution benefit from these trusts.

 

   Long-Term Disability Reimbursement: Column H includes amounts that the Company reimburses for the cost of premiums for long-term disability insurance coverage. This reimbursement is provided to all employees and is not an executive benefit. The reimbursement is taxable to the employee. The amount of long-term disability reimbursement in 2010 was $1,033 for each NEO.

 

   Premiums for Life Insurance: The amounts set forth in column H include the dollar value of all insurance premiums paid by the Company in 2008, 2009 and 2010. For 2010, these amounts were: $30,032 for Mr. Carbonari; $13,475 for Mr. Omtvedt; $7,451 for Mr. Roche; $5,762 for Mr. Koley; and $6,792 for Mr. Hausberg.

 

(8) For 2009, Columns D, F and I have been recalculated for Mr. Carbonari to reflect a $2 million grant made to him in July 2009, half of which was to be paid in Company stock and half to be paid in cash upon the attainment of certain goals in each of August 2010 and August 2011. The entire $1 million stock portion of the award is reflected in column D for 2009 and the entire $1 million cash portion of the award is reflected in column F for 2009. Half of the award was paid to Mr. Carbonari in August 2010.

 

   Also for 2009, Columns D and I have been recalculated for Mr. Koley due to a computation error.

 

TAXABLE COMPENSATION REPORTED

 

The following supplemental table shows the amount of compensation reported for federal tax purposes for each of the NEOs for each of the indicated tax years. These amounts reflect the amounts reported for each individual in Box 1 of their respective Forms W-2 for each reporting year. We are providing this supplemental table to highlight the difference between compensation reported under the SEC rules and compensation amounts realized and reported as taxable income on Form W-2.

 

Name

   Year      W-2 Box 1
Compensation
     Total Compensation
Reported in Summary
Compensation Table
 

Bruce A. Carbonari

     2010       $ 3,784,189       $ 11,238,540   
     2009       $ 1,268,264       $ 12,735,904   
     2008       $ 2,888,900       $ 8,725,709   

Craig P. Omtvedt

     2010       $ 1,712,812       $ 4,238,378   
     2009       $ 765,489       $ 4,658,423   
     2008       $ 2,393,212       $ 4,241,287   

Mark A. Roche

     2010       $ 3,144,016       $ 3,191,983   
     2009       $ 675,632       $ 3,256,809   
     2008       $ 1,954,854       $ 2,904,214   

Patrick J. Koley

     2010       $ 909,828       $ 1,602,510   
     2009       $ 547,803       $ 2,115,246   
     2008         n/a         n/a   

Mark Hausberg

     2010       $ 1,703,251       $ 1,554,616   
     2009       $ 508,451       $ 1,618,811   
     2008       $ 936,983       $ 1,411,486   

 

Amounts reported in Box 1 of the Form W-2 for each of the NEOs, as listed above, include, among other items: (1) total cash wages and bonuses paid to the NEOs for the taxable year, less amounts deferred under tax-qualified 401(k) plans; (2) the value of Company-paid life insurance in excess of $50,000 and any taxable pension accruals provided to the NEOs; (3) the value of any performance share awards, restricted stock awards or restricted stock units that were paid out or became vested during the taxable year; (4) the gain recognized upon the exercise of stock option awards exercised during the taxable year; and (5) annual contributions to their respective grantor trusts (except for Mr. Koley, who does not have a grantor trust).

 

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Amounts reported in Box 1 of the Forms W-2 for the NEOs, as listed above, do not include any value for: (1) unvested performance share awards, restricted stock awards or restricted stock unit awards; or (2) outstanding but unexercised stock option awards. These items are contingent and may never materialize; however, in accordance with the SEC rules, values for these items are included in the Summary Compensation Table on page 37 in the year of grant, as well as in the tables below on pages 42 and 43.

 

2010 GRANTS OF PLAN-BASED AWARDS

 

Name and

Grant Date

  Estimated Future Payouts Under
Non-Equity Incentive Plan Awards
    Estimated Future Payouts
Under Equity Incentive Plan
Awards
    All Other
Stock
Awards:
Number
of Shares
of Stock
or Units
(#)
    All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
    Exercise
or Base
Price of
Option
Awards
($/Sh)
    Grant
Date
Value of
Stock and
Option
Awards
($)(1)
 
  Threshold
($)
    Target
($)
    Maximum
($)
    Threshold
(#)
    Target
(#)
    Maximum
(#)
         

Bruce A. Carbonari

                   

2/22/2010(2)

    0        1,472,900        2,945,800                 

2/22/2010(3)

            49,500        74,250              2,276,753   

2/22/2010(4)

            41,900        41,900              1,927,191   

2/22/2010(5)

                  139,400      $ 43.67        1,572,244   

Craig P. Omtvedt

                   

2/22/2010(2)

    0        486,750        973,500                 

2/22/2010(3)

            18,200        27,300              837,109   

2/22/2010(4)

            15,400        15,400              708,323   

2/22/2010(5)

                  51,300      $ 43.67        578,595   

Mark A. Roche

                   

2/22/2010(2)

    0        322,800        645,600                 

2/22/2010(3)

            12,000        18,000              551,940   

2/22/2010(4)

            10,200        10,200              469,149   

2/22/2010(5)

                  33,800      $ 43.67        381,218   

Patrick J. Koley

                   

2/22/2010(2)

    0        249,600        499,200                 

2/22/2010(3)

            6,100        9,150              280,570   

2/22/2010(4)

            5,200        5,200              239,174   

2/22/2010(5)

                  17,100      $ 43.67        192,865   

Mark Hausberg

                   

2/22/2010(2)

    0        188,000        376,000                 

2/22/2010(3)

            4,500        6,750              206,978   

2/22/2010(4)

            3,800        3,800              174,781   

2/22/2010(5)

                  12,700      $ 43.67        143,239   

 

(1) The grant date fair value of stock option awards is based on the Black-Scholes value of $11.28 for the February 22, 2010 grant. The grant date fair value of performance share awards is determined based on the probable outcome of such performance conditions as of the grant date. The grant date fair value of restricted stock units is determined based upon $43.715, the mean price of the Company stock on the grant date (February 22, 2010). Grant date fair values are computed in accordance with FASB ASC Topic 718. For assumptions used in determining these values, see footnote 12 to the consolidated financial statements contained in the Company’s Form 10-K for the year(s) ended December 31, 2010 (2009 and 2008).

 

(2) The numbers in this row reflect the range of potential payments under the Annual Executive Incentive Plan.

 

(3) The numbers in this row reflect the range of potential payouts for performance shares that were awarded for the 2010-2012 performance cycle. The maximum value assuming achievement of performance goals at the maximum performance level is: $3,415,129 for Mr. Carbonari, $1,255,664 for Mr. Omtvedt, $827,910 for Mr. Roche, $420,854 for Mr. Koley and $310,466 for Mr. Hausberg.

 

(4) The numbers in this row reflect the number of restricted stock units that were awarded and will vest and become payable after 3 years, subject to continued employment and the achievement of an EPS goals of $1.00 cumulatively over the three-year performance period.

 

(5) This row reflects stock options granted in 2010.

 

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Non-Equity Incentive Plan

 

The Annual Plan is a cash-based, pay for performance annual incentive plan. Under the Annual Plan, participants are eligible to receive a bonus if the performance goal established for the year is met or exceeded, unless employment ends prior to the end of the year for reasons other than death, disability or retirement, in which case no bonus will be paid. If employment ends as a result of death, disability or retirement, a participant will be paid a prorated annual bonus if and when bonuses are otherwise paid to participants. Messrs. Carbonari, Omtvedt, Roche and Hausberg currently are eligible to retire under the Supplemental Plan. Accordingly, these executives will remain eligible for an annual bonus, prorated for their service during the year, even if they voluntarily terminate employment before the end of the year.

 

Long-Term Equity Incentive Plan

 

The LTIP allows the Company to award executives a variety of forms of equity compensation using the Company’s common stock. In 2010, the Company awarded an equal mix of stock options, performance share awards and restricted stock units. See pages 49 and 50 of this Proxy Statement for a description of the treatment of equity awards upon termination of employment.

 

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OUTSTANDING EQUITY AWARDS AT 2010 FISCAL YEAR-END

 

    Option Awards     Stock Awards  

Name

  Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
(1)
    Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
(2)
    Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
    Option
Exercise
Price
($)
    Option
Expiration
Date
    Number
of
Shares
or Units
of
Stock
That
Have
Not
Vested
(#)

(3)
    Market
Value of
Shares or
Units of
Stock

That
Have Not
Vested

($)
(3)
    Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#)

(4)
    Equity
Incentive
Plan

Awards:
Market or
Payout

Value of
Unearned
Shares,

Units or
Other
Rights That
Have Not
Vested ($)
(5)
 

Bruce A. Carbonari

    0        139,400        0      $ 43.67        2/22/2017        0      $ 0        208,100      $ 13,041,668   
    45,167        90,333        $ 42.98        9/30/2016           
    133,335        66,665        $ 57.01        9/29/2015           
    0        200,000        $ 66.79        2/25/2015           
    154,200        0        $ 80.95        9/24/2014           
    120,000        0        $ 74.39        9/26/2013           
    108,000        0        $ 82.16        9/27/2012           
    124,983        0        $ 68.89        9/28/2014           
    103,133        0        $ 54.75        9/29/2013           
    34,274        0        $ 46.78        9/23/2012           

Craig P. Omtvedt

    0        51,300        0      $ 43.67        2/22/2017        13,000      $ 828,620        79,400      $ 4,976,332   
    17,767        35,533        $ 42.98        9/30/2016           
    52,535        26,265        $ 57.01        9/29/2015           
    60,600        0        $ 80.95        9/24/2014           
    85,000        0        $ 74.39        9/26/2013           
    85,000        0        $ 82.16        9/27/2012           
    99,711        0        $ 68.89        9/28/2014           
    97,885        0        $ 54.75        9/29/2013           

Mark A. Roche

    0        33,800        0      $ 43.67        2/22/2017        8,600      $ 548,164        52,300      $ 3,277,844   
    11,667        23,333        $ 42.98        9/30/2016           
    34,668        17,332        $ 57.01        9/29/2015           
    40,000        0        $ 80.95        9/24/2014           
    54,000        0        $ 74.39        9/26/2013           
    54,000        0        $ 82.16        9/27/2012           
    62,975        0        $ 68.89        9/28/2014           
    62,975        0        $ 54.75        9/29/2013           
    62,975        0        $ 46.78        9/23/2012           

Patrick J. Koley

    0        17,100        0      $ 43.67        2/22/2017        9,866      $ 609,423        27,000      $ 1,692,235   
    5,867        11,733        $ 42.98        9/30/2016           

Mark Hausberg

    0        12,700        0      $ 43.67        2/22/2017        3,400      $ 216,716        21,000      $ 1,041,198   
    4,334        8,666        $ 42.98        9/30/2016           
    12,668        6,332        $ 57.01        9/29/2015           
    17,100        0        $ 80.95        9/24/2014           
    25,000        0        $ 74.39        9/26/2013           
    25,000        0        $ 82.16        9/27/2012           
    29,388        0        $ 68.89        9/28/2014           
    29,388        0        $ 54.75        9/29/2013           
    31,487        0        $ 46.78        9/23/2012           
    17,487        0        $ 30.54        9/24/2011           

 

(1) Each outstanding stock option granted that is currently vested and exercisable is listed in this column. These stock option grants vested ratably on the first three anniversaries of the grant date, except for Mr. Carbonari’s February 2008 grant which vests one-third on each of the third, fourth and fifth anniversaries of the grant date.

 

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(2) Each outstanding stock option that is not yet vested and exercisable is listed in this column. The chart below reflects the vesting schedule for each outstanding stock option grant awarded to Messrs. Carbonari, Omtvedt, Roche, Koley and Hausberg (assuming continued employment):

 

    Options Vesting in 2011
(dates refer to grant date)
    Total
Number

of
Options
Vesting
in 2011
    Options Vesting in
2012
(dates refer to
grant date)
    Total
Number

of
Options
Vesting
in 2012
    Options Vesting in
2013

(dates refer to
grant dates)
    Total
Number

of
Options
Vesting
in 2013
 
    02/25/08     09/29/08     09/30/09     2/22/10       02/25/08     09/30/09     02/22/10       2/25/08     2/22/10    

Bruce A. Carbonari

    66,666        66,665        45,167        46,467        224,965        66,666        45,166        46,467        158,299        66,668        46,466        113,134   

Craig P. Omtvedt

    0        26,265        17,767        17,101        61,133        0        17,766        17,100        34,866        0        17,099        17,099   

Mark A. Roche

    0        17,332        11,667        11,267        40,266        0        11,666        11,267        22,933        0        11,266        11,266   

Patrick J. Koley

    0        0        5,867        5,701        11,568        0        5,866        5,700        11,566        0        5,699        5,699   

Mark Hausberg

    0        6,332        4,333        4,234        14,899        0        4,333        4,233        8,566        0        4,233        4,233   

 

As of December 31, 2010, the numbers in this column (see chart on page 42) had not yet vested. The corresponding market values are based on the closing price of $60.25 of the Company’s stock on December 31, 2010.

 

(3) For Messrs. Omtvedt, Roche and Hausberg, the numbers in this column show the remaining unvested RSUs (as of December 31, 2010) from the February 2008 grant. These RSUs vested and became payable in January 2011. Only Mr. Omtvedt was paid at the time the RSUs vested since he is not subject to Section 162(m) of the Internal Revenue Code. The payment of the vested RSUs to Messrs. Roche and Hausberg is deferred until such time as they are tax-deductible by the Company under Section 162(m) of the Internal Revenue Code.

 

For Mr. Koley, the numbers in this column show the remaining unvested RSUs (as of December 31, 2010) from his February 2009 grant. This award vests and becomes payable in three equal annual installments. Two-thirds of this award vested and was paid to Mr. Koley in February 2010 and 2011. As of February 1, 2011, Mr. Koley has 4,933 unvested RSUs.

 

(4) This column (see chart on page 42) lists the target number of outstanding performance share awards and unvested restricted stock units (RSUs) as of December 31, 2010. For the 2010-2012 performance period, the following performance share awards were outstanding: 49,500 shares for Mr. Carbonari, 18,200 shares for Mr. Omtvedt, 12,000 shares for Mr. Roche, 6,100 shares for Mr. Koley and 4,500 shares for Mr. Hausberg. For the 2009-2011 performance period, the following performance share awards were outstanding: 63,200 shares for Mr. Carbonari, 24,800 shares for Mr. Omtvedt, 16,300 shares for Mr. Roche, 8,500 shares for Mr. Koley and 6,900 shares for Mr. Hausberg. The Compensation Discussion and Analysis on pages 23 to 36 and the narrative following the table titled “Grants of Plan-Based Awards” on pages 40 and 41 provide additional detail on performance share awards. In addition to the shares reported in this table, in early 2011, performance awards were granted for the 2011-2013 performance period. Performance share awards for the 2008-2010 period (which expired without payment) are disclosed in the “Option Exercises and Stock Vested” table immediately below.

 

Reported in this column are RSUs granted to Messrs. Carbonari, Omtvedt, Roche, Koley and Hausberg in 2009 of 53,500, 21,000, 13,800, 7,200 and 5,900 RSUs, respectively (which will vest on January 31, 2012) and in 2010, of 41,900, 15,400, 10,200, 5,200 and 3,800 RSUs, respectively (which will vest on January 31, 2013).

 

(5) This column reflects the value of the performance share awards (at grant date target number) and restricted stock units (using the December 31, 2010 closing price of the Company’s common stock of $60.25).

 

2010 OPTION EXERCISES AND STOCK VESTED

 

      Option Awards      Stock Awards  

Name

   Number of Shares
Acquired on
Exercise (#)(1)
     Value
Realized Upon
Exercise ($)(2)
     Number of Shares
Acquired on
Vesting (#)(3)(4)
     Value
Realized on
Vesting ($)(3)(4)
 

Bruce A. Carbonari

     0       $ 0         67,906       $ 4,045,748   

Craig P. Omtvedt

     0       $ 0         28,800       $ 1,690,005   

Mark A. Roche

     66,911       $ 2,116,021         19,000       $ 917,648   

Patrick J. Koley

     0       $ 0         4,934       $ 211,866   

Mark Hausberg

     38,088       $ 1,010,221         8,000       $ 393,278   

 

(1) This column reflects stock options exercised during 2010.

 

(2) This column reflects the difference between the market value of the shares on the date of exercise and the exercise price of the stock options. In March 2010, Mr. Hausberg exercised stock options and subsequently sold the shares (24,088). In December 2010, Mr. Hausberg exercised stock options and subsequently sold the shares (14,000). In September 2010, Mr. Roche exercised stock options and subsequently sold the shares (3,936). In December 2010, Mr. Roche exercised stock options and subsequently sold the shares (62,975).

 

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(3) This column reflects the 18-month performance shares awarded in July, 2009, for the July 2009-December 2010 performance period. No performance shares for the three-year 2008-2010 performance period are included since based on actual performance of the Company during that period, no performance share awards were earned. This column also includes 11,106 shares of Fortune Brands common stock issued to Mr. Carbonari on August 2, 2010 for the first half payment of his July 2009 award. No other stock awards vested in 2010.

 

(4) The number of shares acquired on vesting include 4,300 RSUs for Mr. Roche and 1,700 RSUs for Mr. Hausberg, which vested but were not paid out. Because Messrs. Roche and Hausberg are each subject to Section 162(m) of the Internal Revenue Code, they will not receive payment of these awards until the time that the Company can deduct the cost.

 

RETIREMENT AND POST-RETIREMENT BENEFITS

2010 PENSION BENEFITS

 

Name

  

Plan Name

   Number
of Years
Credited
Service
(#)(1)
     Present
Value of
Accumulated
Benefit ($)
(4)(5)(6)(7)
     Payments
During
Last
Fiscal
Year(8)
 

Bruce A. Carbonari

   Fortune Brands Supplemental Plan      30.0000       $ 5,241,382         0   
   Moen Incorporated Retirement Income Plan(2)      26.0000       $ 557,956         0   

Craig P. Omtvedt

   Fortune Brands Pension Plan      6.2500       $ 196,242         0   
   Fortune Brands Supplemental Plan      21.2500       $ 4,593,653         0   

Mark A. Roche

   Fortune Brands Pension Plan      7.4167       $ 227,404         0   
   Fortune Brands Supplemental Plan(3)      29.5000       $ 3,839,396         0   

Patrick J. Koley

   Fortune Brands Pension Plan      n/a         n/a         0   
   Fortune Brands Supplemental Plan      n/a         n/a         0   

Mark Hausberg

   Fortune Brands Pension Plan      2.9167       $ 81,396         0   
   Fortune Brands Supplemental Plan      17.9167       $ 2,478,958         0   

 

(1) None of the NEOs are currently accruing additional benefits under the Company’s tax-qualified defined benefit plan. With respect to the Fortune Brands Pension Plan (the tax-qualified defined benefit plan)(the “Pension Plan”), this column reflects service credited, if any, prior to January 1, 1996 (the date as of which the executives were excluded from further benefit accruals) and not their actual years of service with the Company. Mr. Koley is not eligible for a defined benefit pension because he was hired after this plan was closed to new employees.

 

(2) Mr. Carbonari accrued benefits under the Moen Incorporated Retirement Income Plan and Moen Incorporated Supplemental Retirement Income Plan prior to transferring to the Company in January 2007. Liability for the benefit he earned under the Moen Incorporated Supplemental Retirement Income Plan was transferred to the Supplemental Plan and is included in the benefit amount listed for that plan.

 

(3) Mr. Roche, who joined the Company in 1988, has a special retirement arrangement which credits him with service since 1981 in order to recognize that he devoted full time service to our legal affairs from 1981 through 1988 while employed by an outside law firm. The benefit augmentation that results from this additional service credit is equal to $35,148 per year beginning at normal retirement age.

 

(4) The amounts listed are based on the executives’ compensation and service as of December 31, 2010.

 

(5) The earliest age at which an unreduced pension is paid is generally 62 under the Pension Plan. However, a grandfathered provision allowing an unreduced pension at age 60, or earlier if the executive has 30 years of service, applies to a number of participants including Messrs. Omtvedt, Roche and Hausberg. Mr. Roche is currently eligible for early retirement under the plan with a reduced pension.

 

(6) The benefit amounts listed reflect the present value of the annual benefit payable in the form of a single life annuity where payments continue for the life of the executive but cease upon his death. The Pension Plan, the Supplemental Plan and the Moen Incorporated Retirement Income Plan allow participants to elect a reduced annuity in the joint and survivor form, which provides payments over the life of the participant and a named beneficiary. Elections of payment form are made at the time of retirement.

 

(7) The present value of accumulated plan benefits is calculated based on the following assumptions used to calculate the plan’s accumulated benefit obligation in accordance with FASB ASC Topic 715; a 5.75% discount rate, a 4.25% lump sum interest rate and the RP-2000 mortality table projected to 2018. The normal retirement benefit is unreduced at age 60 for Messrs. Omtvedt, Roche and Hausberg, and unreduced at age 62 for Mr. Carbonari.

 

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(8) The Pension Plan, the Supplemental Plan and the Moen Incorporated Retirement Income Plan do not allow in-service distributions. Accordingly, no payments were made to the NEOs under the plans. No other withdrawals were made in 2010. As disclosed in footnote 6 to the Summary Compensation Table on page 38 of this Proxy Statement, the pension benefits of Messrs. Carbonari, Omtvedt, Roche and Hausberg are funded by contributions to employee grantor trusts which are taxable to these executives in the year of the contribution. Contributions to these trusts were made in 2010.

 

The Pension Plan is a tax-qualified defined benefit plan. In 2008, the Pension Plan was closed to newly hired employees, and the formula for accruing pension benefits was changed.

 

   

For service on and after January 1, 2008, pension benefits grow under the following formula: 1% of compensation multiplied by years of benefit service on and after January 1, 2008.

 

   

For service prior to 2008, a normal retirement benefit is determined under the following formula: (a) 1.75% of compensation multiplied by years of benefit service up to 15 years of service, plus (b) 1% of compensation multiplied by years of benefit service in excess of 15 years of service.

 

Total service taken into account under the Pension Plan is capped at 35 years. In addition, participants will not receive less than a protected benefit that was “grandfathered” as of December 31, 2001 when the Company previously changed the pension plan formula. Generally, all employees hired prior to January 1, 2008 are eligible for the plan, except for certain executives who have employee grantor trusts described below. The estimated retirement benefits in the preceding table include any offset for Social Security benefits. The compensation used to calculate retirement benefits generally includes the categories of “Salary” and “Non-Equity Incentive Plan Compensation” from the Summary Compensation Table shown above on page 37, averaged over the five highest consecutive years.

 

The Moen Incorporated Retirement Income Plan is a tax-qualified defined benefit plan. The formula for determining monthly pension benefits is (a) 1.05% of compensation multiplied by years of benefit service up to 30 years, plus (b) 0.40% of compensation in excess of covered compensation multiplied by years of benefit service up to 30 years, plus (c) 1.00% of compensation multiplied by years of benefit service in excess of 30 years.

 

The Supplemental Plan pays the difference between the benefits payable under our tax-qualified defined benefit plan (the Pension Plan and, for Mr. Carbonari, the Moen Incorporated Retirement Income Plan) and the amount that would have been paid if the Internal Revenue Code did not limit the amount of compensation taken into account under, or benefits that may be paid from, a tax-qualified defined benefit plan. In addition, the Supplemental Plan provides the full pension benefit earned in years in which an executive is ineligible for the tax-qualified defined benefit plan. In calculating benefits, no credit is given for service in excess of 35 years. Through December 31, 2007, the Supplemental Plan also provided that certain senior officers of the Company (those who were Vice Presidents or more senior officers prior to 1999) receive an annual benefit equal to 52 1/2% of average compensation during the five highest-paid consecutive years of employment. Since 1999, the Compensation Committee has not approved this enhanced benefit for any additional executives. Messrs. Omtvedt, Roche and Hausberg are entitled to this retirement benefit. This retirement benefit is reduced by 1 1/2% of such average compensation for each year between the officer’s retirement and attainment of

 

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age 65, unless he has completed 35 years of service. This benefit is also reduced by 1/2% of such average compensation for each year of service on and after January 1, 2008, since beginning on January 1, 2008, these executives will earn additional pension benefits at the same rate that applies to all employees in the Company’s tax-qualified pension plan (1% of compensation per year of service). The Supplemental Plan benefit is reduced by benefits under the Pension Plan and the retirement plans of our subsidiaries or any prior employer, including an executive’s prior employers who are unrelated to the Company.

 

Payments of early retirement annual benefits under the Fortune Brands plans are calculated assuming a reduction of 6% per year prior to age 62 (unreduced at age 62) for Mr. Carbonari and 7% per year prior to age 60 (unreduced at age 60) for Messrs. Omtvedt, Roche and Hausberg. Mr. Carbonari’s pension reduction is calculated differently than the other NEOs because the other officers were grandfathered under a plan provision applicable to certain employees who were employed as of December 31, 2001. Mr. Carbonari was employed by one of the Company’s subsidiaries until January 1, 2007. Mr. Carbonari’s annual early retirement benefit under the Moen Incorporated Retirement Income Plan is calculated assuming a 6% reduction per year from age 60 to 62 and a 4% reduction per year prior to age 60 (the benefit is unreduced at age 62). Mr. Koley does not participate in any Company defined benefit plan.

 

The pension benefits earned by the NEOs under the Supplemental Plan cannot be secured in a manner similar to the tax-qualified pension benefits earned by other Company employees. To provide for the security of these non-qualified benefits, the Company, prior to 1999, established “grantor trusts” for a limited number of executives, of whom four are NEOs. These trusts were approved by stockholders. The Company has not established any new grantor trusts since 1999 and no longer provides them to new executives. However, to retain current executives, the Company continues its past practice of contributing annually to the remaining grantor trusts. All of the NEOs with grantor trusts are eligible for retirement. As a result, the grantor trust program will be phased out in coming years.

 

The Company has carefully considered whether to continue funding the limited number of employee grantor trusts in existence. As part of its analysis, the Company took into account the fact that most of the executives with grantor trusts are nearing retirement and the grantor trust program will naturally be phased out in coming years. Accordingly, while the Company will continue to look for viable alternatives to the grantor trust program, for the present time it has decided to continue funding the previously established trusts.

 

2010 NONQUALIFIED DEFERRED COMPENSATION

 

Name

   Executive
Contributions
in Last FY ($)
     Registrant
Contributions
in Last FY
($)(1)(2)
     Aggregate
Earnings
in Last FY
($)(1)(3)
     Aggregate
Withdrawals/
Distributions
($)
     Aggregate
Balance
at Last
FYE ($)
 

Bruce A. Carbonari

     0         180,896         47,664         0         878,975   

Craig P. Omtvedt

     0         74,881         52,774         0         658,006   

Mark A. Roche

     0         51,515         76,161         0         624,014   

Patrick J. Koley

     0         35,377         378         0         8,830   

Mark Hausberg

     0         26,989         33,832         0         345,155   

 

(1) Amounts listed in the Registrant Contributions column were reported as compensation in the last fiscal year in the “All Other Compensation” column of the Summary Compensation Table. No amounts listed in the Aggregate Earnings column were reported in the “All Other Compensation” column of the Summary Compensation Table.

 

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(2) As disclosed on pages 37, 38 and 44 of this Proxy Statement, the supplemental nonqualified profit sharing benefits of Messrs. Omtvedt, Roche and Hausberg are funded by contributions to employee grantor trusts which are taxable to these executives in the year of contribution. Contributions to these trusts were made in 2010.

 

(3) Earnings are credited to the accounts of executives based on the Citigroup U.S. Broad Investment Grade Bond Index (for Messrs. Carbonari and Koley). For those executives with employee grantor trusts for supplemental nonqualified profit sharing contributions (Messrs. Omtvedt, Roche and Hausberg), earnings are credited based on the election of the executive among the following: Fidelity Blue Chip Growth Fund, Fidelity Equity Income Fund, Fidelity International Discovery Fund, MFS New Discovery Fund, Northern Trust Institutional Funds Diversified Asset Portfolio, PIMCO Total Return Fund, Vanguard 500 Index Fund, Fidelity Value Fund and the Spartan Total Market Index Fund. Mr. Carbonari’s Supplemental Home & Hardware Deferred Compensation Plan earnings are credited based on the average yield of Moody’s Aaa Industrial Bonds during the first five business days in November.

 

The Company’s nonqualified deferred compensation plan is a supplemental plan that pays the difference between the profit sharing contribution provided under the tax-qualified defined contribution plan and the contribution that would have been made if the Internal Revenue Code did not limit the compensation that may be taken into account under tax-qualified retirement plans. The contribution amount in 2008, 2009 and 2010 was equal to 6% of adjusted compensation, which generally includes salary and annual bonus. Compensation is adjusted by multiplying amounts in excess of the Social Security taxable wage base ($106,800 in 2010) by 1.25. This profit sharing formula applies uniformly to all eligible employees and is not enhanced for executives. Nonqualified profit-sharing benefits are paid in a lump sum upon termination of an executive’s employment.

 

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POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL(1)

 

Compensation Program

  Voluntary     Involuntary     Death     Disability     Retirement     Involuntary
Termination

(or for
Good
Reason)
After
Change in
Control
 
  For
Good
Reason
    Other
Than
for
Good
Reason
    For
Cause
    Without
Cause
         

Cash Severance

               

Carbonari

    8,082,444        0        0        8,082,444        0        0        0        8,055,503   

Omtvedt

    2,377,541        0        0        2,377,541        0        0        0        3,554,424   

Roche

    1,811,501        0        0        1,811,501        0        0        0        2,708,194   

Koley

    1,051,536        0        0        1,051,536        0        0        0        1,402,048   

Hausberg

    1,194,246        0        0        1,194,246        0        0        0        1,785,398   

Health & Related Benefits(2)(3)

               

Carbonari

    124,250        0        0        124,250        2,605,900        80,000/yr        0        124,250   

Omtvedt

    42,484        0        0        42,484        1,135,750        80,000/yr        0        63,726   

Roche

    30,401        0        0        30,401        860,800        80,000/yr        0        45,602   

Koley

    26,158        0        0        26,158        665,600        80,000/yr        0        34,876   

Hausberg

    29,118        0        0        29,118        564,000        80,000/yr        0        43,677   

Options(4)

               

Carbonari

    0        0        0        0        0        0        n/a        2,311,252   

Omtvedt

    0        0        0        0        0        0        0        850,554   

Roche

    0        0        0        0        0        0        0        560,404   

Koley

    0        0        0        0        0        0          486,147   

Hausberg

    0        0        0        0        0        0        0        210,566   

Performance Shares(5)

               

Carbonari

    0        0        0        0        0        0        0        6,131,130   

Omtvedt

    0        0        0        0        0        0        0        2,383,495   

Roche

      0        0        0        0        0        0        1,568,139   

Koley

    0        0        0        0        0        0        0        475,500   

Hausberg

    0        0        0        0        0        0        0        650,889   

Restricted Stock Units

               

Carbonari

    0        0        0        0        0        0        0        3,064,153   

Omtvedt

    0        0        0        0        0        0        0        1,974,595   

Roche

    0        0        0        0        0        0        0        1,600,264   

Koley

    0        0        0        0        0        0        0        922,122   

Hausberg

    0        0        0        0        0        0        0        632,376   

Excise Tax Gross-up

               

Carbonari

    n/a        n/a        n/a        n/a        n/a        n/a        n/a        n/a   

Omtvedt

    n/a        n/a        n/a        n/a        n/a        n/a        n/a        n/a   

Roche

    n/a        n/a        n/a        n/a        n/a        n/a        n/a        n/a   

Koley

    n/a        n/a        n/a        n/a        n/a        n/a        n/a        n/a   

Hausberg

    n/a        n/a        n/a        n/a        n/a        n/a        n/a        n/a   

Pension Enhancement(6)

               

Carbonari

    8,163,551        0        0        8,163,551        0        0        0        8,163,551   

Omtvedt

    382,846        0        0        382,846        0        0        0        721,233   

Roche

    2,064,311        0        0        2,064,311        0        0        0        2,285,480   

Koley

    n/a        0        0        n/a        0        0        0        n/a   

Hausberg

    203,115        0        0        203,115        0        0        0        304,641   

Total Potential Payments Upon Termination or Change in Control

               

Carbonari

    16,370,245        0        0        16,370,245        2,605,900        80,000        0        27,849,839   

Omtvedt

    2,802,871        0        0        2,802,871        1,135,750        80,000        0        9,548,027   

Roche

    3,906,213        0        0        3,906,213        860,800        80,000        0        8,768,083   

Koley

    1,077,693        0        0        1,077,693        665,600        80,000        0        3,320,693   

Hausberg

    1,426,479        0        0        1,426,479        564,000        80,000        0        3,627,547   

 

(1) This table assumes the specified termination events occurred on December 31, 2010. It uses the Company’s closing share price on the last day of its 2010 fiscal year to calculate the value of the equity awards that would vest or be settled in connection with a termination event or a change in control. The closing price of Company stock on December 31, 2010 was $60.25.

 

(2) The Health and Related Benefits listed under the “Death” column reflect the incremental value of life insurance benefits above the benefit level applicable to all employees generally.

 

(3) The Health and Related Benefits listed under the “Disability” column reflect the amount of the annual disability benefit that exceeds the benefit payable under the plan generally available to all employees.

 

(4) In all cases except following a change in control there is no incremental option value above the value applicable to all employees with options. In the event of a change in control, the values listed reflect the value of unvested options that would vest.

 

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(5) Amounts listed for performance shares assume a payment of the “target” number of shares (including applicable dividend equivalents). In all cases, except following a change in control, actual payments are based on actual Company performance and could be more or less (or zero) than the amount listed above.

 

(6) The pension enhancement amounts were calculated based on the following assumptions used to calculate the plan’s accumulated benefit obligation in accordance with FASB ASC Topic 715; a 5.75% discount rate and the RP-2000 mortality table projected to 2018. The Supplemental Plan portion uses a 2.83% lump sum interest rate which is the six month average of 10-year U.S. Treasury rates as of December 31, 2010.

 

A number of Company employee benefit and incentive plans provide for payment or vesting of benefits upon termination of employment of any participant, including the NEOs. If terminated on December 31, 2010, the NEOs would receive benefits and payments under these plans in addition to the amounts described in the table above.

 

LTIP Awards. The following table shows the treatment of LTIP awards following a termination of employment, depending upon the reason for such termination. Messrs. Carbonari, Omtvedt, Roche and Hausberg currently are eligible to retire under the Supplemental Plan. Accordingly, a voluntary termination of employment by any of these executives will be considered a retirement, and the more favorable retirement provisions described below will apply.

 

AWARD

 

REASON FOR TERMINATION

 

Voluntary
Termination

 

Death

 

Disability or
Retirement

Stock Options

  Vested options expire three months after the termination date, or, if sooner, on the regularly- scheduled expiration date.  

Vested options granted after 2005 expire at the end of the three- year period following death or, if sooner, on the regularly-scheduled expiration date, provided that options may be exercised for at least one year following death even if this extends past the regularly-scheduled expiration date.

Vested options granted before 2005 expire on the regularly-scheduled expiration date.

  Options granted from September 2005 to September 2008 expire three years after employment terminates, or on the regularly- scheduled expiration date, if earlier. Other options expire on their regularly-scheduled expiration date. The executive must have been employed for one year following grant to receive this treatment.

 

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AWARD

 

REASON FOR TERMINATION

 

Voluntary
Termination

 

Death

 

Disability or
Retirement

Performance Shares

  Outstanding performance shares are forfeited.   Subject to attainment of the performance goals, the executive’s beneficiary or estate receives a full payment at the time performance shares are paid out to active employees.   Subject to attainment of the performance goals, the executive receives a full payment at the time performance shares are paid out to active employees.

RSUs

  Outstanding RSUs are forfeited.   Full vesting at termination.   Full vesting at termination.

 

The following chart explains the treatment of LTIP awards in the event of a change of control:

 

AWARD

  

TREATMENT UPON CHANGE OF CONTROL

Stock Options

   All stock options become fully vested.

Performance Shares

   In the event of termination of employment (as described below) following a change in control, performance shares are paid out on the date employment terminates. The number of performance shares paid equals the target number of shares, prorated for the portion of the performance period that elapsed prior to termination of employment. This treatment applies if the executive’s employment is involuntarily terminated without just cause or if the executive terminates employment because either he, in good faith, believes that he can no longer carry out his duties or his compensation is significantly diminished.

RSUs

   In the event of termination of employment (for the reasons described above with respect to performance shares) following a change in control, all outstanding RSUs vest and are paid out on the date employment terminates.

 

Retirement Benefits. Upon termination of employment, participants in the Company’s defined contribution plans (both tax-qualified and nonqualified) may receive a distribution of their account balances. The Nonqualified Deferred Compensation table on page 46 of this Proxy Statement lists each executive officer’s balance under the nonqualified defined contribution plan as of the last fiscal year end. The Company’s tax-qualified defined benefit plan and Supplemental Plan both provide pension benefits upon retirement (as defined in the plans). Messrs. Carbonari, Omtvedt, Roche and Hausberg are all retirement-eligible under the Supplemental Plan and are eligible to receive nonqualified pension benefits upon termination of employment. The Pension Benefits table on page 44 of this Proxy Statement and the narrative and footnotes that follow it provide additional detail on the amount and terms of these pension benefits.

 

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Health and Related Benefits. In addition to the dollar values in the table above for health and related benefit continuation pursuant to severance and change in control agreements, the NEOs will receive health and related benefits pursuant to the Company’s benefit plans applicable to employees generally. Because they are currently retirement-eligible, the NEOs (except Mr. Koley) are eligible for retiree medical coverage (until Medicare eligible) upon any termination of employment within the next four years. The retiree medical coverage program was closed to new hires in 1999, and Mr. Koley will not be eligible to receive retiree medical coverage.

 

Change in Control Agreements. In 2007, the Company entered into new agreements with Messrs. Carbonari, Omtvedt, Roche and Hausberg to provide each of them with benefits if they are terminated following a change in control of the Company. These agreements replaced similar agreements that had been in place for many years. However, the new agreements incorporated changes due to new tax regulations governing deferred compensation. The new agreements also reflect modifications to certain provisions to make the agreements more favorable to the Company and shareholders. A similar agreement was entered into with Mr. Koley when he began employment in 2009.

 

Each agreement states that if, subsequent to a change in control, (1) the Company terminates the executive’s employment for a reason other than disability or cause, or (2) the executive decides to terminate his employment for good reason, the executive will receive:

 

  (i) 2.99 times his base salary, 2.99 times the amount of his target annual incentive compensation award and 2.99 times the annual defined contribution plan allocation for the year prior to year in which the termination of employment occurs (and the supplemental profit sharing allocation under the Supplemental Plan) (Mr. Koley’s multiplier is 2 times his base salary instead of 2.99);

 

  (ii) three additional years of service and earnings credit under our retirement plans and agreements (Mr. Koley’s multiplier is 2 times his base salary instead of 3); and

 

  (iii) three additional years of coverage under our life, health, accident, disability and other employee plans (Mr. Koley’s multiplier is 2 instead of 3).

 

Payments under these agreements are generally made in a lump sum immediately following termination. For executives hired prior to 2008, if the special excise tax under Section 280G of the Internal Revenue Code applies, and the executive’s payments are not required under the agreement to be reduced to a level that will not trigger the excise tax, the Company will restore amounts lost by the executive officer due to the excise tax (Mr. Koley is not eligible for this restoration). If payments to the executive due to a change in control do not exceed the threshold dollar amount that triggers the excise tax by more than a specified amount, payments to the executive are reduced in order to avoid application of the excise tax. The Company has not provided these benefits to individuals who have become executives since 2008. The Company has established a “rabbi” trust with a bank for the purpose of making payments under the agreements. This trust currently is not funded. Any amounts payable under these change in control agreements are reduced by amounts payable under the severance agreements referred to below.

 

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