Goodyear Tire & Rubber Company DEF 14A 2012
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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:
THE GOODYEAR TIRE & RUBBER COMPANY
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
2012 Annual Meeting of Shareholders
The Goodyear Tire & Rubber Company
1144 East Market Street
Akron, Ohio 44316-0001
YOUR VOTE IS IMPORTANT
Please vote. Most shareholders may vote by internet or telephone as well as by mail.
Please refer to your proxy card or page 66 of the Proxy Statement for information on how to vote by
internet or telephone. If you choose to vote by mail, please complete, date and sign your proxy card and
promptly return it in the enclosed envelope.
March 12, 2012
You are cordially invited to attend Goodyears 2012 Annual Meeting of Shareholders, which will be held at the Goodyear Theater, 1201 East Market Street, Akron, Ohio, at 9:00 a.m., Akron Time, on Tuesday, April 17, 2012. During the meeting, we will discuss each item of business described in the Notice of Annual Meeting of Shareholders and Proxy Statement, and give a report on matters of current interest to our shareholders.
This booklet includes the Notice of Annual Meeting as well as the Proxy Statement, which provides information about Goodyear and describes the business we will conduct at the meeting.
We hope you will be able to attend the meeting. Whether or not you plan to attend, it is important that you vote via the internet, by telephone or by completing, dating, signing and promptly returning your proxy card. This will ensure that your shares will be represented at the meeting. If you attend and decide to vote in person, you may revoke your proxy. Remember, your vote is important!
TABLE OF CONTENTS
THE GOODYEAR TIRE & RUBBER COMPANY
TO BE HELD ON APRIL 17, 2012
To the Shareholders:
The 2012 Annual Meeting of Shareholders of The Goodyear Tire & Rubber Company, an Ohio corporation, will be held at the Goodyear Theater (at Goodyears principal offices), 1201 East Market Street, Akron, Ohio, on Tuesday, April 17, 2012 at 9:00 a.m., Akron Time, for the following purposes:
The Board of Directors fixed the close of business on February 22, 2012 as the record date for determining shareholders entitled to notice of, and to vote at, the 2012 Annual Meeting. Only holders of record of Goodyear common stock at the close of business on February 22, 2012 will be entitled to vote at the 2012 Annual Meeting and adjournments, if any, thereof.
March 12, 2012
Please complete, date and sign your Proxy and return it promptly in the
enclosed envelope, or vote via the internet or by telephone.
The Goodyear Tire & Rubber Company
This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of The Goodyear Tire & Rubber Company, an Ohio corporation (Goodyear, Company, we, our or us), to be voted at the annual meeting of shareholders to be held April 17, 2012 (the Annual Meeting), and at any adjournments thereof, for the purposes set forth in the accompanying notice.
Goodyears executive offices are located at 1144 East Market Street, Akron, Ohio 44316-0001. Our telephone number is 330-796-2121.
Our Annual Report to Shareholders for the year ended December 31, 2011 is enclosed with this Proxy Statement. The Annual Report is not considered part of the proxy solicitation materials. The approximate date on which this Proxy Statement and the related materials are first being sent to shareholders is March 12, 2012.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be Held on April 17, 2012:
The Proxy Statement, Proxy Card and Annual Report to Shareholders for the year ended December 31, 2011 are available at www.proxyvote.com.
Shares Voting. Holders of shares of the common stock, without par value, of Goodyear (the Common Stock) at the close of business on February 22, 2012 (the record date) are entitled to notice of, and to vote the shares of Common Stock they hold on the record date at, the Annual Meeting. As of the close of business on the record date, there were 244,707,542 shares of Common Stock outstanding and entitled to vote at the Annual Meeting. Each share of Common Stock is entitled to one vote.
Adjourned Meeting. The holders of a majority of shares represented at the meeting, whether or not a quorum is present, may adjourn the meeting. If the time and place of the adjourned meeting is announced at the time adjournment is taken, no other notice need be given.
Vote Required. In accordance with Goodyears Articles of Incorporation, a director nominee must receive, in an uncontested election of directors for which cumulative voting is not in effect, a greater number of votes cast for his or her election than against his or her election. Under Ohio law, an incumbent director who is not re-elected will continue in office as a holdover director until his or her successor is elected by a subsequent shareholder vote, or his or her earlier resignation, removal from office or death. In order to address holdover terms for any incumbent directors who fail to be re-elected under our majority vote standard, our Corporate Governance Guidelines provide that if a director nominee does not receive a majority affirmative vote, he or she will promptly offer his or her resignation as a director to the Board of Directors. Within 90 days, the Board will decide, after taking into account the recommendation of the Governance Committee (in each case excluding the nominee(s) in question), whether to accept the resignation. The Governance Committee and the Board may consider any relevant factors in deciding whether to accept a directors resignation. The Boards explanation of its decision shall be promptly disclosed in a filing with the Securities and Exchange Commission.
The affirmative vote of at least a majority of the shares of Common Stock outstanding on the record date is required for a management or shareholder proposal, other than an advisory vote, to be adopted at the Annual Meeting. When considering the results of advisory votes, the Board of Directors intends to consider only those votes actually cast at the Annual Meeting.
Abstentions and broker non-votes, which occur when your broker does not have discretionary voting authority on a matter and you do not provide voting instructions, have the same effect as votes against any proposal voted upon by shareholders but have no effect on the election of directors or advisory votes.
Voting Shares Held in Street Name. If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in street name, and these proxy materials are being forwarded to you by your broker, bank or nominee who is considered the shareholder of record with respect to those shares. As the beneficial owner, you have the right to direct your broker, bank or nominee on how to vote and are also invited to attend the Annual Meeting. Your broker, bank or nominee has enclosed a voting instruction card for you to use in directing the broker, bank or nominee regarding how to vote your shares. If you do not return the voting instruction card, the broker or other nominee will determine if it has the discretionary authority to vote on the particular matter. Under applicable New York Stock Exchange rules, brokers have the discretion to vote only on any matters deemed by the New York Stock Exchange to be routine, such as the ratification of the selection of an accounting firm (Proxy Item 3). The election of directors (Proxy Item 1) and the executive compensation advisory vote (Proxy Item 2) are not considered to be routine matters, and your broker will not have discretion to vote on those matters unless you specifically instruct your broker to do so by returning your signed voting instruction card. If you do not provide voting instructions to your broker, your shares will not be voted for any director nominee or on any matter on which your broker does not have discretionary authority (resulting in a broker non-vote). Broker non-votes will have the same effect as a vote against a proposal, but will have no effect on the election of directors or advisory votes.
Cumulative Voting for Directors. In the voting for directors, you have the right to vote cumulatively for the candidates nominated. Under the Ohio General Corporation Law, all of the shares of Common Stock may be voted cumulatively in the election of directors if any shareholder gives written notice to our President, a Vice President or the Secretary not less than 48 hours before the time set for the Annual Meeting, and an announcement of the notice is made at the beginning of the Annual Meeting by the Chairman or the Secretary or by or on behalf of the shareholder giving such notice. If cumulative voting is in effect, you may (a) give one candidate the number of votes equal to ten times the number of shares of Common Stock you are entitled to vote, or (b) distribute your votes among the ten candidates as desired.
Voting of Proxy. Messrs. David L. Bialosky, Darren R. Wells and Bertram Bell have been designated as proxies to vote shares of Common Stock in accordance with your instructions. You may give your instructions using the accompanying proxy card, via the internet or by telephone.
Your shares will be voted for the ten nominees identified at pages 8 through 14, unless your instructions are to vote against any one or more of the nominees or to vote cumulatively for one or more of the nominees for election. The proxies may cumulatively vote your shares if they consider it appropriate, except to the extent you expressly withhold authority to cumulate votes as to a nominee.
Your Board of Directors anticipates that all of the nominees named will be available for election. In the event an unexpected vacancy occurs, your proxy may be voted for the election of a new nominee designated by the Board of Directors.
Proxies received and not revoked prior to the Annual Meeting will be voted in favor of the advisory resolution regarding the compensation of our named executive officers (Proxy Item 2) and the proposal of the Board of Directors to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2012 (Proxy Item 3), unless your instructions are otherwise.
Revocability of Proxy. You may revoke or revise your proxy (whether given by mail, via the internet or by telephone) by the delivery of a later proxy or by giving notice to Goodyear in writing or in open meeting. Your proxy revocation or revision will not affect any vote previously taken. If you hold your shares in street name please refer to the information forwarded by your broker, bank or nominee who is considered the shareholder of record for procedures on revoking or changing your voting instructions.
Confidentiality. Your vote will be confidential except (a) as may be required by law, (b) as may be necessary for Goodyear to assert or defend claims, (c) in the case of a contested election of director(s), or (d) at your express request.
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
Goodyear is committed to having sound corporate governance principles. Having such principles is essential to running Goodyears business efficiently and to maintaining Goodyears integrity in the marketplace. Goodyears Corporate Governance Guidelines, Business Conduct Manual, Board of Directors and Executive Officers Conflict of Interest Policy and charters for each of the Audit, Compensation, Corporate Responsibility and Compliance, Finance, and Governance Committees are available at http://www.goodyear.com/investor/investor governance.html. Please note, however, that information contained on the website is not incorporated by reference in this Proxy Statement or considered to be a part of this document. A copy of the committee charters and corporate governance policies may also be obtained upon request to the Goodyear Investor Relations Department.
The Board has determined that eight of the ten director nominees (Mmes. Peterson and Streeter and Messrs. Conaty, Firestone, Geissler, Hellman, McCollough and Weidemeyer) are independent within the meaning of Goodyears independence standards, which are based on the criteria established by the New York Stock Exchange and are included as Annex I to Goodyears Corporate Governance Guidelines. Messrs. Boland, ONeal and Sullivan, who are not standing for re-election at the Annual Meeting, are also independent. Mr. Kramer, our Chairman of the Board, Chief Executive Officer and President, is not considered independent. In addition, in light of his relationship with the United Steelworkers (the USW), Mr. Wessel is not considered independent. Further, the Board expects that Mr. Wessel will recuse himself from discussions and deliberations regarding Goodyears relationship with the USW. The Board also determined that the nature and size of the ordinary course commercial relationships between Goodyear and Xerox Corporation, which were less than one-tenth of one percent (0.1%) of Xeroxs consolidated gross revenues in each of the last three completed fiscal years, did not impair the independence of Mr. Firestone.
Board Structure and Committee Composition
As of the date of this Proxy Statement, Goodyears Board has thirteen directors, each elected annually, and the following five committees: (1) Audit, (2) Compensation, (3) Corporate Responsibility and Compliance, (4) Finance, and (5) Governance. The current membership and the function of each of the committees are described below. Each of the committees operates under a written charter adopted by the Board. During 2011, the Board held seven meetings. Each director attended at least 75% of all Board and applicable Committee meetings. Directors are expected to attend annual meetings of Goodyears shareholders. All of the directors attended the last annual meeting of shareholders, except for Mr. Wessel whose attendance was excused due to an unavoidable conflict with another business meeting. As described on Goodyears website at http://www.goodyear.com/investor/investor_contact_brd.html, shareholders may communicate with the Board or any of the directors (including the Lead Director or the non-management directors as a group) by sending correspondence to the Office of the Secretary, The Goodyear Tire & Rubber Company, 1144 East Market Street, Akron, Ohio 44316-0001. All communications will be compiled by the Secretary and submitted to the Board or the individual directors on a periodic basis.
The members of the Audit Committee are Mr. Boland, Mr. Firestone, Mr. Geissler and Mr. Hellman (Chairman). The Board has determined that each member of the Audit Committee is independent within the meaning of Goodyears independence standards and applicable Securities and Exchange Commission rules and regulations, and each of Mr. Boland and Mr. Hellman is an audit committee financial expert. The Board has determined that Mr. Bolands service on four public company audit committees does not impair his ability to effectively serve on Goodyears Audit Committee. The Committee met six times in 2011.
The Audit Committee assists the Board in fulfilling its responsibilities for oversight of the integrity of Goodyears financial statements, Goodyears compliance with legal and regulatory requirements related to financial reporting, the independent registered public accounting firms qualifications and independence, and the performance of Goodyears internal auditors and independent registered public accounting firm. Among other things, the Audit Committee prepares the Audit Committee report for inclusion in the annual proxy statement; annually reviews the Audit Committee charter and the Committees performance; appoints, evaluates and determines the compensation of Goodyears independent registered public accounting firm; reviews and approves the scope of the annual audit plan; reviews and pre-approves all auditing services and permitted non-audit services (and related fees) to be performed by the independent registered public accounting firm; oversees investigations into complaints concerning financial matters; and reviews policies and guidelines with respect to risk assessment and risk management, including Goodyears major financial risk exposures. The Audit Committee works closely with management as well as Goodyears independent registered public accounting firm. The Audit Committee has the authority to obtain advice and assistance from, and receive appropriate funding from Goodyear for, outside legal, accounting or other advisors as the Audit Committee deems necessary to carry out its duties. The report of the Audit Committee is on page 64 of this Proxy Statement.
The members of the Compensation Committee are Mr. Conaty, Mr. McCollough, Mr. ONeal, Mr. Sullivan and Mr. Weidemeyer (Chairman), and effective February 28, 2012, Ms. Streeter (who was a member of the Audit Committee prior to that date). The Board has determined that each member of the Compensation Committee is independent within the meaning of Goodyears independence standards. The Committee met six times in 2011.
The Board of Directors has delegated to the Compensation Committee primary responsibility for establishing and administering Goodyears compensation programs for executive officers and other key personnel. The Compensation Committee oversees Goodyears compensation and benefit plans and policies for directors, executive officers and other key personnel, administers its stock plans (including reviewing and recommending equity grants to executive officers and other key personnel), and reviews and approves annually all compensation decisions relating to executive officers, including the Chief Executive Officer (CEO). The Compensation Committee also prepares a report on executive compensation for inclusion in the annual proxy statement and reviews and discusses the Compensation Discussion and Analysis with management and recommends its inclusion in the annual proxy statement. The report of the Compensation Committee is on page 38 of this Proxy Statement.
In performing its duties, the Compensation Committee meets periodically with the CEO to review compensation policies and specific levels of compensation paid to executive officers and other key personnel, and reports and makes recommendations to the Board regarding executive compensation policies and programs. The Compensation Committee informs the non-management directors of the Board of its decisions regarding compensation for the CEO and other significant decisions related to the administration of its duties. The Compensation Committee also will consider the results of shareholder advisory votes on executive compensation matters and the changes, if any, to Goodyears executive compensation policies, practices and plans that may be warranted as a result of any such vote and reviews an annual risk assessment of Goodyears executive compensation policies, practices and plans as part of its role in overseeing managements identification and management of, and planning for, compensation-related risks. Under its charter, the Compensation Committee may delegate its authority to one or more of its members as appropriate.
The Compensation Committee has the authority to retain and terminate outside advisors, including independent compensation consultants, to assist it in evaluating actual and proposed compensation for executive officers. The Compensation Committee also has the authority to approve any such consultants fees and the other terms of such retention. The Compensation Committee solicits advice from its independent compensation consultant, Frederic W. Cook & Co., Inc., on executive compensation matters relating to the CEO and other executive officers. This advice has consisted primarily of assistance with benchmarking compensation for senior executives and directors, assistance in the design of the cash and equity-based variable incentive plans, assistance in structuring the CEO
compensation program, and advice on current and evolving market practices for specific components of compensation, such as incentive awards, severance and change-in-control protection policies, non-qualified benefit plans and perquisites.
Committee on Corporate Responsibility and Compliance
The members of the Committee on Corporate Responsibility and Compliance are Mr. Geissler, Mrs. Peterson (Chairperson) and Mr. Wessel. The Committee met three times in 2011.
The Committee on Corporate Responsibility and Compliance reviews Goodyears legal compliance programs as well as its business conduct policies and practices and its policies and practices regarding its relationships with shareholders, employees, customers, governmental agencies and the general public. The Committee also monitors Goodyears objectives, policies and programs with respect to environmental sustainability, workplace health and safety, diversity and product quality. The Committee may also recommend appropriate new policies to the Board of Directors.
The members of the Finance Committee are Mr. Firestone (Chairman), Mr. Hellman, Mr. ONeal, Mr. Sullivan and Mr. Weidemeyer. The Committee met four times in 2011.
The Finance Committee consults with management and makes recommendations to the Board of Directors regarding Goodyears capital structure, dividend policy, tax strategies, compliance with terms in financing arrangements, risk management strategies, banking arrangements and lines of credit, and pension plan funding. The Finance Committee also reviews and consults with management regarding policies with respect to interest rate and foreign exchange risk, liquidity management, counterparty risk, derivative usage, credit ratings, and investor relations activities.
The members of the Governance Committee are Mr. Boland, Mr. Conaty, Mr. McCollough (Chairman), Mrs. Peterson and Ms. Streeter. The Board has determined that each member of the Governance Committee is independent within the meaning of Goodyears independence standards. The Committee met five times in 2011.
The Governance Committee identifies, evaluates and recommends to the Board of Directors candidates for election to the Board. The Committee also develops and recommends appropriate corporate governance guidelines, recommends policies and standards for evaluating the overall effectiveness of the Board of Directors in the governance of Goodyear and undertakes such other activities as may be delegated to it from time to time by the Board of Directors.
Board Leadership Structure
Mr. Kramer serves as our Chairman of the Board, Chief Executive Officer and President. The Board also has a Lead Director who is responsible for coordinating the activities of the non-management directors and leading executive sessions of the non-management directors, which are generally held in conjunction with each regularly scheduled Board meeting. Additional duties of our Lead Director are set forth in Annex II to our Corporate Governance Guidelines. Mr. McCollough currently serves as our Lead Director.
The Board believes that the current Board leadership structure is the most appropriate for the Company and its shareholders at this time. Mr. Kramer has held positions of increasing responsibility at Goodyear for the past twelve years, including Chief Financial Officer and President, North American Tire, and has extensive knowledge of the Company and the tire industry, which is valuable to the Board in his role as Chairman. In addition, the Board has an independent Lead Director to ensure that the independent and non-management members of the Board maintain proper oversight of management. The Board has no policy that requires the combination or separation of the Chairman and CEO roles, and may reconsider our leadership structure from time to time based on considerations at that time.
Boards Role in Risk Oversight
Management continually monitors the material risks facing the Company, including competitive, financial (accounting, liquidity and tax), legal, operational, regulatory and strategic risks. The Board as a whole has responsibility for oversight of managements identification and management of, and planning for, those risks. Reviews of certain areas are conducted by relevant Board Committees that report their deliberations to the Board.
The Board and its Committees oversee risks associated with their principal areas of focus, as summarized below. The Board and its Committees exercise their risk oversight function by carefully evaluating the reports they receive from management and by making inquiries of management with respect to areas of particular interest to the Board. Board oversight of risk is enhanced by the fact that the Lead Director and Chairman attend virtually all Committee meetings and that Committee reports are provided to the full Board following each Committee meeting. We believe that our leadership structure also enhances the Boards risk oversight function since our Lead Director regularly discusses the material risks facing the Company with management. The Chairman is also expected to report candidly to his fellow directors on his assessment of the material risks we face, based upon the information he receives as part of his management responsibilities. Both the Lead Director and the Chairman are well-equipped to lead Board discussions on risk issues.
Consideration of Director Nominees
The policy of the Governance Committee is to consider properly submitted shareholder nominations of candidates for membership on the Board as described below under Identifying and Evaluating Nominees for Director. In evaluating such nominations, the Governance Committee seeks to address the criteria described below under Director Selection Guidelines.
Any shareholder desiring to submit a proposed candidate for consideration by the Governance Committee should send the name of such proposed candidate, together with biographical data and background information concerning the candidate, to the Office of the Secretary, The Goodyear Tire & Rubber Company, 1144 East Market Street, Akron, Ohio 44316-0001.
Director Selection Guidelines
The Board of Directors has approved guidelines for selecting directors as part of our Corporate Governance Guidelines. Criteria considered in the selection of directors include:
In order to provide a diversity of perspectives in Board deliberations, the nominating process should also attempt to ensure that the Board as a whole reflects diverse business experience, substantive expertise, skills and background, as well as diversity in personal characteristics, such as age, gender and ethnicity. A persons ability to satisfy Goodyears independence standards and those of the New York Stock Exchange may also be evaluated.
Identifying and Evaluating Nominees for Director
The Governance Committee is responsible for identifying, screening and recommending persons for nomination to the Board. The Governance Committee considers candidates for Board membership suggested by its members and other Board members, as well as management and shareholders. On occasion, the Committee may also retain third-party executive search firms to identify candidates. In addition, under our prior master labor agreement with the USW, the USW had the right to nominate a candidate for consideration for membership on the Board. Mr. Wessel, who became a director in December 2005, was identified and recommended by the USW.
Once a prospective nominee has been identified, the Committee makes an initial determination as to whether to conduct a full evaluation of the candidate. This initial determination is based on whatever information is provided to the Committee with the recommendation of the prospective candidate, as well as the Committees own knowledge of the prospective candidate, which may be supplemented by inquiries to the person making the recommendation or others. The preliminary determination is based primarily on the need for additional Board members and the likelihood that the prospective nominee can satisfy the director selection guidelines described above. If the Committee determines, in consultation with the Chairman of the Board and other Board members as appropriate, that additional consideration is warranted, it may request a third-party search firm to gather additional information about the prospective nominees background and experience and to report its findings to the Committee. The Committee then evaluates the prospective nominee against the standards and qualifications set out in Goodyears director selection guidelines. The Committee also considers such other relevant factors as it deems appropriate, including the balance of management and independent directors and the evaluations of other prospective nominees. As described above under Director Selection Guidelines, diversity is among the many factors that the Committee considers in evaluating prospective nominees. We consider the members of our Board to have a diverse set of business and personal experiences, backgrounds and expertise, and to be diverse in terms of age, gender and ethnicity.
In connection with this evaluation, the Committee determines whether to interview the prospective nominee, and if warranted, one or more members of the Committee, and others as appropriate, interview prospective nominees in person or by telephone. After completing this evaluation and interview, the Committee makes a recommendation to the full Board as to the persons who should be elected to the Board, and the Board makes its decision after considering the recommendation and report of the Committee.
(Item 1 on your Proxy)
The Board of Directors has selected the following ten nominees recommended by the Governance Committee for election to the Board of Directors. The directors will hold office from their election until the next Annual Meeting of Shareholders, or until their successors are elected and qualified. If any of these nominees for director becomes unavailable, the persons named in the proxy intend to vote for any alternate designated by the current Board of Directors.
WILLIAM J. CONATY
Current Principal Occupation: President of Conaty Consulting LLC and Advisory Partner of Clayton, Dubilier & Rice, LLC
Goodyear Director Since: August 1, 2011
Current Goodyear Committee Assignments:
Description of Business Experience:
Mr. Conaty served as Senior Vice President of Corporate Human Resources for General Electric Company from 1993 to 2007. He joined General Electric in 1967 and in his 40-year career, moved through a progression of leadership roles in the companys transportation, aerospace and aircraft engines businesses. Following his retirement from General Electric, he formed Conaty Consulting LLC and joined Clayton, Dubilier & Rice as an advisory partner. He also serves on the advisory board of Cornell Universitys Center for Advanced Human Resource Studies and is a trustee of Bryant University and Dartmouth-Hitchcock Hospital.
Mr. Conaty has extensive human resources, executive compensation and executive management experience from his long and successful tenure at General Electric. His skills in coaching and developing leaders and teams are an asset to both the Board of Directors and Goodyear, particularly with respect to talent development, succession planning, labor relations and executive compensation matters.
Other Public Company Directorships Held Since January 1, 2007:
JAMES A. FIRESTONE
Current Principal Occupation: Executive Vice President and President, Corporate Operations of Xerox Corporation
Goodyear Director Since: December 3, 2007
Current Goodyear Committee Assignments:
Description of Business Experience:
Mr. Firestone is an Executive Vice President of Xerox Corporation and has been President, Corporate Operations since September 2008. Mr. Firestone was President of Xerox North America from October 2004 to September 2008. He has also served as head of Xeroxs channels group and as chief strategy officer. Before joining Xerox in 1998, Mr. Firestone worked for IBM Corporation as general manager of the Consumer Division and for Ameritech Corporation as president of Consumer Services. He began his business career in 1978 with American Express, where during his 15-year tenure he ultimately rose to President, Travelers Cheques.
Mr. Firestone has extensive executive management experience in positions of increasing responsibility, including most recently as a senior executive officer of Xerox Corporation, which is of similar size and global complexity as Goodyear. He also has over 16 years of profit and loss management responsibility, as well as over 10 years of international business experience while working in Japan for American Express. These experiences provide him with unique and valuable insights as a director of Goodyear, particularly with respect to operations and finance matters.
Other Public Company Directorships Held Since January 1, 2007:
Current Principal Occupation: Vice Chairman, Global Operations of The Procter & Gamble Company
Goodyear Director Since: February 21, 2011
Current Goodyear Committee Assignments:
Description of Business Experience:
Mr. Geissler has been Vice Chairman, Global Operations of The Procter & Gamble Company since August 2007 and was Group President, Central & Eastern Europe, Middle East and Africa from July 2004 to July 2007. He joined Procter & Gamble in 1979 and has held positions of increasing responsibility in various brand and general management and operations roles in Europe, the Middle East, Central Asia, Japan, Africa and the United States. He is also a member of the Supervisory Board and Audit Committee of the International Management Development School in Lausanne, Switzerland, a leading global institution for senior management education.
Mr. Geissler, a native of Germany, has deep executive management experience, including as a senior executive officer of Procter & Gamble, where he currently oversees Procter & Gambles extensive worldwide business operations. He has significant international business experience and profit and loss management responsibility. These experiences provide him with valuable insights as a director of Goodyear, particularly with respect to consumer marketing and international, operations and finance matters.
Other Public Company Directorships Held Since January 1, 2007:
PETER S. HELLMAN
Current Principal Occupation: Retired. Formerly President and Chief Financial and Administrative Officer of Nordson Corporation
Goodyear Director Since: October 5, 2010
Current Goodyear Committee Assignments:
Description of Business Experience:
Mr. Hellman retired from Nordson Corporation, a designer, manufacturer and marketer of industrial equipment, in 2008 after a career of over 20 years with large, multinational companies in both financial and operating executive positions. Mr. Hellman was President and Chief Financial and Administrative Officer of Nordson Corporation from 2004 to January 2008 and Executive Vice President and Chief Financial and Administrative Officer from 2000 to 2004. Prior to joining Nordson in 2000, Mr. Hellman was with TRW Inc. for 10 years and held various positions, including as President and Chief Operating Officer and as Chief Financial Officer. Mr. Hellman also serves on the boards of several nonprofit organizations.
Mr. Hellman has significant financial reporting expertise due to his service as a Chief Financial Officer at both Nordson and TRW, providing him with the necessary skills to be Chairman of our Audit Committee, where he also qualifies as an audit committee financial expert. He also has extensive operational experience at both companies. In addition, Mr. Hellman has served on public company boards for over 17 years. Through his board and management experience, Mr. Hellman also has significant experience with corporate governance practices and legal and regulatory compliance issues. Mr. Hellmans financial and operating experience, business leadership skills and board experience enable him to provide valuable contributions as a Goodyear director.
Other Public Company Directorships Held Since January 1, 2007:
RICHARD J. KRAMER
Current Principal Occupation: Chairman of the Board, Chief Executive Officer and President of Goodyear
Goodyear Director Since: February 22, 2010
Description of Business Experience:
Mr. Kramer joined Goodyear in March 2000 as Vice President Corporate Finance, serving in that capacity as Goodyears principal accounting officer until August 2002, when he was elected Vice President, Finance North American Tire. In August 2003, he was named Senior Vice President, Strategic Planning and Restructuring, and in June 2004 was elected Executive Vice President and Chief Financial Officer. Mr. Kramer was elected President, North American Tire in March 2007 and continued to serve as Chief Financial Officer until August 2007. In June 2009, Mr. Kramer was elected Chief Operating Officer and continued to serve as President, North American Tire until February 16, 2010. He was elected Chief Executive Officer and President effective April 13, 2010 and Chairman effective October 1, 2010. Prior to joining Goodyear, Mr. Kramer was with PricewaterhouseCoopers LLP for 13 years, including two years as a partner.
Mr. Kramer has been an executive officer of Goodyear for 12 years. Mr. Kramer has held several key positions at Goodyear and has had a critical role in creating our strategy and strengthening our leadership teams as Chief Executive Officer and previously as Chief Financial Officer and as President, North American Tire. Mr. Kramers deep knowledge of Goodyear, global markets, manufacturing, finance and accounting provides our Board with valuable perspectives that are necessary to advance Goodyears business and the interests of our shareholders.
Mr. Kramer does not serve on any Board committees.
Other Public Company Directorships Held Since January 1, 2007:
W. ALAN McCOLLOUGH
Current Principal Occupation: Retired. Formerly Chairman and Chief Executive Officer of Circuit City Stores Inc.
Goodyear Director Since: April 10, 2007
Current Goodyear Board Assignments:
Current Goodyear Committee Assignments:
Description of Business Experience:
Mr. McCollough joined Circuit City Stores Inc., a consumer electronics retailer, in 1987 as general manager of corporate operations, and was named assistant vice president in 1989, president of central operations in 1991, and
senior vice president of merchandising in 1994. He served as President and Chief Operating Officer from 1997 to 2000 and as President and Chief Executive Officer from 2000 to 2002. Mr. McCollough was elected Chairman, President and Chief Executive Officer of Circuit City in 2002 and served in those capacities until 2005. He remained Chief Executive Officer until February 2006 and Chairman until his retirement in June 2006. Mr. McCollough also serves as a trustee of the Joslin Diabetes Center, a nonprofit organization.
Mr. McCollough has extensive senior executive management experience, particularly in operations and consumer merchandising and marketing. His experience as Chairman and Chief Executive Officer of Circuit City provides him with the necessary skills to be Lead Director. Mr. McColloughs past service as Chairman of Circuit City, as well as his current service on other public company boards of directors, provides us with important perspectives on corporate governance matters.
Other Public Company Directorships Held Since January 1, 2007:
SHIRLEY D. PETERSON
Current Principal Occupation: Retired. Formerly a partner in the law firm of Steptoe & Johnson LLP
Goodyear Director Since: April 13, 2004
Current Goodyear Committee Assignments:
Description of Business Experience:
Mrs. Peterson was President of Hood College, a liberal arts college in Frederick, Maryland, from 1995 to 2000. From 1989 to 1993 she served in the U.S. Government, first appointed by President George H.W. Bush as Assistant Attorney General in the Tax Division of the Department of Justice, then as Commissioner of the Internal Revenue Service. She was also a partner in the law firm of Steptoe & Johnson LLP where she served a total of 22 years from 1969 to 1989 and from 1993 to 1994. Mrs. Peterson was a Trustee of Bryn Mawr College from 1994 to 2007 and is currently a Trustee Emerita.
Mrs. Petersons legal, financial and executive management experience from both the public and private sectors provides Goodyear with important perspectives on accounting, tax and regulatory issues, and corporate governance matters. She serves, and has served, on several public company boards, including diverse committee assignments. Her public company board experience, particularly her service on several governance and audit committees, provides us with valuable perspectives on the policies and practices of other public companies, including several in the manufacturing sector.
Other Public Company Directorships Held Since January 1, 2007:
STEPHANIE A. STREETER
Current Principal Occupation: Chief Executive Officer of Libbey Inc.
Goodyear Director Since: October 7, 2008
Current Goodyear Committee Assignments:
Description of Business Experience:
Ms. Streeter joined Libbey Inc., a producer of glass tableware products, as Chief Executive Officer on August 1, 2011. Previously, Ms. Streeter was with Banta Corporation, a provider of printing and supply chain management services, serving as President and Chief Operating Officer beginning in January 2001, and was elected Chief Executive Officer in 2002 and Chairman in 2004. She served as Chairman, President and Chief Executive Officer of Banta until its acquisition by R.R. Donnelley & Sons in 2007. Ms. Streeter also spent 14 years with Avery Dennison Corporation in a variety of product and business management positions, including as Group Vice President of Worldwide Office Products from 1996 to 2000. Ms. Streeter was a member of the board of directors of the United States Olympic Committee from 2004 to 2009, where she also served as Acting Chief Executive Officer from March 2009 to March 2010. She also serves on the board of Catalyst, a nonprofit organization.
Ms. Streeter has extensive senior executive management experience. Her experiences as Chief Executive Officer of Libbey, as Chairman, President and Chief Executive Officer of Banta and at Avery Dennison provided Ms. Streeter with an understanding of the operations and performance of public companies. Ms. Streeters service on several public company and nonprofit boards of directors also provide us with important insights on practices across a variety of industries.
Other Public Company Directorships Held Since January 1, 2007:
THOMAS H. WEIDEMEYER
Current Principal Occupation: Retired. Formerly Senior Vice President and Chief Operating Officer of United Parcel Service, Inc.
Goodyear Director Since: December 9, 2004
Current Goodyear Committee Assignments:
Description of Business Experience:
Mr. Weidemeyer served as Senior Vice President and Chief Operating Officer of United Parcel Service, Inc., a transportation and logistics company, from January 2001, and as President and Chief Operating Officer of UPS Airlines from July 1994, until his retirement in February 2004. Mr. Weidemeyer became Manager of the Americas
International Operation of UPS in 1989, and in that capacity directed the development of the UPS delivery network throughout Central and South America. In 1990, he became Vice President and Airline Manager of UPS Airlines and in 1994 was elected its President and Chief Operating Officer. Mr. Weidemeyer was a director of United Parcel Service from 1998 to 2003.
Mr. Weidemeyer has 38 years of management and executive leadership experience. His logistics, finance and international management experience provides us with valuable insights on our supply chain and financial management practices, as well as our overall business. His service on other boards of directors also provides us with perspectives on issues facing companies in different industries.
Other Public Company Directorships Held Since January 1, 2007:
MICHAEL R. WESSEL
Current Principal Occupation: President of The Wessel Group Incorporated
Goodyear Director Since: December 6, 2005
Current Goodyear Committee Assignments:
Description of Business Experience:
Mr. Wessel has served as President of The Wessel Group Incorporated, a government and political affairs consulting firm, since May 2006. Prior to founding The Wessel Group, he served as Senior Vice President of the Downey McGrath Group, a government affairs consulting firm, from March 1999 to December 2005 and as Executive Vice President from January 2006 to April 2006.
Mr. Wessel is an attorney with over 30 years of experience as an economic and international trade policy advisor in Washington, D.C. Mr. Wessel has acted as an advisor to Congressman Richard Gephardt, both in the U.S. House of Representatives and to his presidential campaigns in 1987-88 and 2003-04, to the Clinton/Gore Transition Office in 1992 and 1993, and to Senator John Kerrys presidential campaign in 2004. Mr. Wessel also serves as a Commissioner on the U.S.-China Economic and Security Review Commission, a position he has held since April 2001.
Mr. Wessels extensive experience with public policy matters and his government service, including as an advisor to former Majority Leader Gephardt and as an appointee on government commissions, provides us with valuable perspectives on public policy matters impacting trade, international economic affairs and other matters of importance to Goodyear.
Other Public Company Directorships Held Since January 1, 2007:
Mr. James C. Boland and Mr. G. Craig Sullivan were not nominated for re-election to the Board of Directors due to the retirement age provisions of Goodyears Corporate Governance Guidelines. Messrs. Boland and Sullivan will be retiring from the Board at the Annual Meeting after nine years and six years, respectively, of distinguished service. Mr. Rodney ONeal will not stand for re-election to the Board of Directors after eight years of service due to his responsibilities at Delphi Automotive PLC. Goodyear and the Board of Directors are deeply grateful for their leadership and guidance during their tenure on the Board.
Your Board of Directors unanimously recommends that shareholders vote FOR each of the nominees for director named in this Proxy Statement (Proxy Item 1).
BENEFICIAL OWNERSHIP OF COMMON STOCK
The persons identified in the table below have reported that they beneficially owned at December 31, 2011 more than 5% of the outstanding shares of the Common Stock as follows:
In addition, The Northern Trust Company, 50 South LaSalle Street, Chicago, Illinois 60603, has indicated that at the record date it held 8,535,761 shares, or approximately 3.5% of the outstanding shares, of Common Stock as the trustee of various employee savings plans sponsored by Goodyear and certain subsidiaries.
On February 22, 2012, each director and nominee, each person named in the Summary Compensation Table on page 39, and all directors and executive officers as a group, beneficially owned the number of shares of Common Stock set forth in the table below.
Compensation Discussion and Analysis
During 2011, we continued to face an uncertain business environment as the economic recovery in developed markets was impacted by uncertainty surrounding sovereign debt issues in Europe and the United States and continued high levels of unemployment. We also continued to face a number of substantial challenges, such as record high raw material costs, rising energy costs, wage inflation in emerging markets, and increased pressure from our under-funded pension obligations primarily due to the artificially low interest rate environment currently maintained by the Federal Reserve in an effort to spark economic recovery.
We acted to address the uncertain economic environment and the challenges described above by implementing the following strategic initiatives aimed at permitting us to emerge stronger in the future:
In spite of the macroeconomic and industry-specific challenges we faced, we produced record net sales and segment operating income in 2011 on essentially flat unit volumes. During 2011, improved price and product mix of nearly $2.4 billion more than offset the impact on segment operating income of unprecedented raw material cost increases of nearly $2.0 billion, exclusive of approximately $177 million of raw material cost savings included in our cost savings plan. In 2011, raw material cost increased approximately 30% compared to 2010 and was nearly 2.5 times our previous largest annual increase. Price and product mix also drove a 17% improvement in revenue per tire, excluding the impact of foreign currency translation, in 2011 compared to 2010, reflecting our continued focus on driving improved price and product mix through innovative product offerings in targeted market segments.
In 2011, we realized approximately $281 million of cost savings, bringing the total cost savings for 2010 and 2011 to approximately $748 million, remaining on track to achieve our $1.0 billion goal over three years by the end of 2012. We also recovered approximately $195 million of under-absorbed fixed overhead costs in 2011 compared to 2010, and had the following key achievements:
The factors described above resulted in the delivery of $343 million in net income in 2011 versus a prior year net loss of $216 million, and our Common Stock increased in value by nearly 20% in 2011, outpacing the S&P 500 Index which was flat year-over-year. The table below summarizes some key financial highlights and the year-over-year improvements compared to 2010:
As a result of our strong operating performance described above, the performance targets under our annual incentive plan were exceeded and payouts were made ranging from 131% to 150% of target for our named executive officers. In addition, the performance targets for the 2011 performance periods under our 2009-2011, 2010-2012 and 2011-2013 long-term awards were exceeded and payouts were approved for the applicable periods, subject to continued service, at 150% of target for our named executive officers.
In response to current executive compensation trends and after considering the results of our 2011 say-on-pay vote, the Compensation Committee also:
The discussion that follows elaborates on the Compensation Committees compensation philosophy, compensation decision-making process, the elements of our compensation program, and the specifics of grants made and payouts approved in 2011 to our named executive officers in light of the challenging and uncertain economic environment.
The key objectives of our executive compensation program are to:
In support of these objectives, we provide executive compensation and benefits that are market-competitive in which a large portion of the total opportunity is variable and tied to our performance and changes in shareholder value over a multi-year period. The key components of compensation provided to our executive officers and how each supports our compensation objectives are presented in the following table:
Compensation Philosophy and Key Principles
The following core principles form the foundation of the compensation program for our executives, including the Chairman, Chief Executive Officer and President (CEO) and the other executive officers named in the Summary Compensation Table (together with the CEO, the named executive officers):
First, compensation programs should motivate our executives to take actions that are aligned with our short- and long-term strategic objectives, and appropriately balance risk versus potential reward.
Second, as executives move to a greater level of responsibility, the percentage of their pay based on performance should increase to ensure the highest level of accountability to shareholders.
Third, performance pay should offer an opportunity for above average compensation when our performance exceeds our goals balanced by the risk of below average compensation when it does not.
Fourth, the percentage of total compensation paid in the form of equity should also increase as executives have increasing responsibility for corporate performance, thereby more closely aligning their interests with those of our shareholders.
In implementing our executive compensation program according to the principles described above, we take into account our challenging financial position, which is driven in part by under-funded legacy pension obligations that do not reflect the cost of our ongoing business operations.
We generally target base salaries for our named executive officers below median market rates, as required by our master labor agreement with the United Steelworkers (the USW Agreement), and we target performance-based and equity compensation at rates that, on average, are either at the median market rate or somewhat above such rate. The actual positioning of target compensation relative to the median varies based on each executives experience and skill set, and generally results in executives who are new in their role being placed lower in the range and those with more experience being placed higher in the range. We emphasize variable compensation because it minimizes fixed expense associated with salary and enables annual cash compensation and total compensation to fluctuate directly with performance against operating goals and changes in share price, thereby ensuring that overall costs are aligned with performance and that executives receive a leveraged and attractive compensation opportunity that varies based on results. This approach also provides an opportunity for actual compensation to exceed targeted market rates through superior performance. Conversely, executives may earn less
than target for performance that does not meet our goals or due to declines in our stock price, and as a result, when our stock price declines and/or specific operating objectives are not attained, realized compensation may fall into the lower quartile relative to market rates.
Consistent with the above philosophy, the Compensation Committee believes that base salary should comprise approximately 20% of primary compensation, which we define to include salary, annual cash incentive and long-term compensation. The remaining portion of the primary compensation opportunity is a mix of annual cash incentive, stock options, performance shares and long-term cash-based incentive awards. The design and mix of our variable compensation has evolved over the past several years to balance cost, share dilution and attraction and retention objectives in support of the core principles described above. The market value of our Common Stock, which continued to experience significant volatility during 2011, and the availability of shares under our equity compensation plans constrain our ability to use stock-based compensation to deliver a specified level of targeted compensation opportunity.
Our Board of Directors has delegated to the Compensation Committee of the Board primary responsibility for establishing and administering our compensation programs for executive officers and other key personnel. The Compensation Committee oversees our compensation and benefit plans and policies, administers our stock plans (including reviewing and recommending equity grants to executive officers), and reviews and approves annually all compensation decisions relating to executive officers, including those for the CEO and the other named executive officers.
In performing its duties, the Compensation Committee meets periodically with the CEO to review compensation policies and specific levels of compensation paid to executive officers and other key personnel, and reports and makes recommendations to the Board regarding executive compensation policies and programs. In addition, the CEO annually makes recommendations to the Compensation Committee regarding salary adjustments and the setting of annual incentive targets and awards and long-term compensation targets and awards for executive officers other than himself, including the other named executive officers. In determining the compensation of a named executive officer, the Compensation Committee considers individual performance, our performance and relative shareholder return, the compensation of officers with similar responsibilities at comparable companies, the awards given to the named executive officer in past years, the relationship between the compensation to be received by the officer and the compensation to be received by the other named executive officers (which we refer to as internal pay equity), including comparing the relationship to that found at comparable companies, and such other factors that the Committee deems relevant that are discussed elsewhere in this Compensation Discussion and Analysis.
On an ongoing basis, the Compensation Committee reviews our executive compensation practices to determine whether they meet, and are consistent with, the key objectives of our compensation program. The Compensation Committee generally adheres to the guidelines and philosophy described above under Compensation Philosophy and Key Principles. However, significant changes in our business or the markets in general, may cause the Compensation Committee to deviate from these guidelines if deemed appropriate. This allows the Compensation Committee to motivate our executives and other key personnel to attain appropriate short-term and long-term performance goals and to manage the Company for sustained long-term growth, serve the best interests of the Company and our shareholders, and attract and retain talented executives.
The Compensation Committee considered the economic and tire industry environment when it established our executive compensation program in February 2011. The performance targets for the 2011 performance period under our variable incentive plans would be achieved, at the target performance level, if we successfully executed our operating plan for 2011, which reflected the challenging and uncertain economic and industry environment. The targets the Compensation Committee established were considered aggressive targets, the achievement of which would mean we had successfully met the significant challenges posed by the continuing uneven economic
conditions, were a stronger competitor and were poised for future growth. However, in light of the lower overall performance targets relative to pre-recessionary periods that were established for the 2011 awards under our variable incentive plans, the Compensation Committee provided that the maximum award would continue to be 150% of target, rather than 200% of target as was the case before 2009. In order to further align our long-term incentive plans with shareholder interests, awards made under those plans in 2011 were subject to an increase or decrease of up to 20% based on our total shareholder return versus the S&P 500 over the three-year period ending on December 31, 2013.
Role of Compensation Consultant
The Compensation Committee has the authority to retain and terminate outside advisors, including compensation consultants, to assist it in evaluating actual and proposed compensation for our executive officers. During 2011, the Compensation Committee retained Frederic W. Cook & Co., Inc., as its independent compensation consultant, to provide advice and assistance on executive compensation matters, including the 2011 compensation decisions that are discussed elsewhere in this Compensation Discussion and Analysis. As part of its engagement, Frederic W. Cook & Co. reviewed our executive compensation peer group and conducted a competitive analysis of compensation for the named executive officers as well as our operational and stock price performance relative to the peer group. Frederic W. Cook & Co. also assisted the Committee with a variety of other issues, including setting CEO compensation, compensation issues related to leadership succession activities, and the design and establishment of performance goals under our variable incentive plans. In addition, Frederic W. Cook & Co. reviewed and provided recommendations regarding our non-management director compensation program and made a presentation to the full Board on trends and regulatory developments in executive compensation. A representative of Frederic W. Cook & Co. regularly attends Compensation Committee meetings. Frederic W. Cook & Co. works with Goodyear management only under the direction of the Compensation Committee and does not provide any other advice or consulting services to the Company.
Benchmarking of Primary Compensation
As noted above, the Compensation Committee generally targets primary compensation levels for named executive officers at or slightly above median market rates. For these purposes, the Compensation Committee has determined market rates by considering two sources:
For 2011 compensation decisions, the peer group noted above consisted of:
This peer group was selected because the companies, as a whole, represent organizations of comparable size and complexity that we compete with for executive talent. The peer group includes companies in similar industries with comparable business models and global reach, but does not include other companies in the tire industry because no other U.S.-based tire company is similar in size and complexity to us and non-U.S.-based tire companies do not publish comparable compensation information.
In August 2011, the Compensation Committee comprehensively reviewed the composition of the peer group using the following criteria: (1) size, including revenues, market capitalization and enterprise value; (2) global manufacturing focus; (3) industry focus, particularly companies in the automotive industry; (4) consumer branded product companies; (5) companies with which we compete for executive talent; and (6) number of employees. As a result of that review, the Compensation Committee removed Emerson Electric, Textron and United Technologies from our 2012 peer group and added Cummins, Ingersoll-Rand, Parker-Hannifin and Stanley Black & Decker. The Compensation Committee may continue to make changes in the peer group from time to time based on the criteria described above or other relevant factors.
Data with respect to comparable elements of primary compensation is compiled for the peer group of companies described above from available sources, including, in most cases, the most recently available annual proxy statements and other SEC filings that address executive compensation matters.
Elements of Compensation
We target base salaries below median market rates, as required by the USW Agreement, and place correspondingly greater emphasis on performance-based incentive and equity compensation. Salary guidelines for each named executive officers position are based primarily on market data that we derive through our benchmarking practices, as described above. We also develop salary guidelines from compensation surveys based on revenues of the surveyed companies. In addition to data derived from these surveys, the Compensation Committee reviews general surveys prepared by national human resources consulting firms indicating past, present and annual increases to salaries for executive positions. The Compensation Committee also considers the CEOs recommendations (other than with respect to his base salary), which are based in substantial part on the guidelines described above as well as on certain subjective factors, including the CEOs evaluation of the performance of each named executive officer against corporate, operating unit and individual objectives established at the start of each year, their current and future responsibilities, our recent financial performance, retention considerations, internal pay equity, and general economic and competitive conditions.
2011 Base Salary Decisions
Using the methodologies described above for setting salary guidelines, we compared total compensation levels for our named executive officers and our other executive officers against market compensation data provided by Frederic W. Cook & Co. We concluded that the base salaries of our named executive officers were, in the aggregate, below the market median, consistent with the USW Agreement.
In 2011, the overall increase in base salaries for all executive officers, excluding the CEO and executive officers who received significant promotions, was 3.8%. Base salary increases were determined in February 2011. Messrs. Wells, de Bok, Ruocco and Bialosky received increases of 4.9%, 2.8%, 3.4% and 4.0%, respectively. Mr. Kramer, our CEO, did not receive a base salary increase in 2011. Salaries of the named executive officers in 2011 were an average of 15% lower than the median indicated by the salary guidelines described above. Salaries in 2011 averaged approximately 20% of primary compensation paid to the named executive officers.
Annual Cash Incentives Under the Management Incentive Plan
The Management Incentive Plan, which was approved by our shareholders in 2008, provides annual cash-based incentives for all of the named executive officers and is designed to comply with the performance-based
compensation requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended (the Code). Incentive payments to our named executive officers under the Management Incentive Plan are intended to be fully deductible for federal income tax purposes.
Under the Management Incentive Plan, each participant is eligible to receive a maximum performance award equal to a percentage of the Companys EBIT for the year. EBIT, as defined in the Management Incentive Plan, means the Companys net sales, less cost of goods sold, and selling, administrative and general expenses, as reported in the Companys consolidated statement of operations for the year, prior to accrual of any amounts for payment under the Management Incentive Plan, adjusted to eliminate the effects of charges for restructurings, discontinued operations, extraordinary items, other unusual or non-recurring items, and the cumulative effect of tax or accounting changes, each as defined by generally accepted accounting principles or identified in the Companys consolidated financial statements, notes to the consolidated financial statements or managements discussion and analysis of financial condition and results of operations.
Specifically, the CEO is eligible to receive a performance award equal to 0.75% of EBIT and the other named executive officers are each eligible to receive a performance award equal to 0.50% of EBIT. The actual performance award granted to a participant is determined by the Compensation Committee, which retains the discretionary authority to reduce or eliminate (but not increase) a performance award based on its consideration of, among other things, corporate and/or business unit performance against achievement of financial or non-financial goals, economic and relative performance considerations, and assessments of individual performance, which we refer to as the MIP performance objectives.
The MIP performance objectives are designed to emphasize important short-term operating and tactical objectives that directly drive the creation of shareholder value and provide appropriate balance with the metrics used in our long-term incentives. An individuals target incentive level for the award, taking into account the MIP performance objectives, is set annually at rates somewhat above median market levels so that when combined with the below median base salaries required by the USW Agreement, we provide an overall annual compensation opportunity slightly above median market levels. Each MIP performance objective has a target level as well as a threshold and maximum level, which are determined based on the perceived difficulty of the established targets and actual results for those measures in prior years.
Awards are generally paid in cash. However, named executive officers may elect to defer all or a portion of their award in the form of cash or stock units. If deferred in the form of stock units, we will match 20% of the deferred amount with additional stock units that will vest in one year subject to the executives continued employment. Any stock units are converted to shares of Common Stock and paid to the participant in January of the fourth year following the end of the plan year under which the award was earned. See Executive Deferred Compensation Plan below.
2011 Annual Incentive Payouts
For 2011, our EBIT, prior to accrual of any amounts for payment under the Management Incentive Plan, was $1,251 million. As a result, Mr. Kramer was eligible to receive a maximum performance award equal to $9,382,500, and the other named executive officers were each eligible to receive a maximum performance award equal to $6,255,000.
In 2011, the MIP performance objectives under the Management Incentive Plan were as follows:
The Compensation Committee used Corporate EBIT and Operating Unit EBIT to measure our results of operations and operating cash flow to measure our liquidity, which enables us to provide funding for investments in future growth.
In 2011, the Compensation Committee established the following operating drivers that were consistent with our annual operating plan and are tied to the achievement of important strategic objectives that drive the success of our business:
The Compensation Committee established the MIP performance objectives in February 2011, taking into account the economic environment that is discussed above under the heading Overview. The Compensation Committee provided greater focus on the achievement of our profitability measures by increasing the relative weight of Corporate or Operating Unit EBIT to 40% (from 30% in 2010) and decreasing the relative weight of the operating drivers described above to 20% (from 30% in 2010). Consistent with past practices, the Compensation Committee also excluded accelerated depreciation expense related to plant closures from the Corporate EBIT target. Overall, the Compensation Committee believed the MIP performance objectives reflected a significant stretch for the Company given the financial and operating challenges presented by the uncertain economic environment.
In February 2012, the Compensation Committee reviewed actual results for 2011 with respect to achievement of the company-wide and operating unit MIP performance objectives.
For overall company results (the performance of which is relevant for determining Mr. Kramers, Mr. Wells, Mr. Ruoccos and Mr. Bialoskys incentive payments), target Corporate EBIT was $800 million and actual Corporate EBIT was $1,251 million, or 56% above target, and target operating cash flow was $(600) million and actual operating cash flow was $(216) million, or 64% above target. The Compensation Committee determined that a negative operating cash flow target was appropriate given our planned capital expenditures of $1.1 billion to $1.2 billion, which enable us to take advantage of future growth opportunities, anticipated increases in working capital due primarily to higher raw material costs and the need to build inventory levels to support customer service levels, and anticipated global pension contributions of $250 million to $300 million.
The Europe, Middle East and Africa Tire (EMEA) unit (the performance of which is relevant for determining Mr. de Boks incentive payment) exceeded its Operating Unit EBIT target by 63% and exceeded its operating cash flow threshold by 49%, but fell short of its target.
The Compensation Committee also considered our achievement of the operating drivers, including the degree of difficulty in achieving our goals under those drivers given the economic environment during 2011 and other qualitative supporting factors, such as our underlying operating performance. The Committee then assessed whether our performance against the operating drivers was below, at or above target, taking into consideration the qualitative factors described in the preceding sentence. The Committee determined that we met or exceeded three of the four operating drivers but fell short of our cost savings goal. In reaching that conclusion, the Committee considered, among other things, the following achievements by Goodyear and the contributions of each operating unit to those achievements:
Since the Corporate EBIT or Operating Unit EBIT, as the case may be, and overall company operating cash flow targets were exceeded, and EMEAs operating cash flow threshold was exceeded, the Committee determined that the operating driver performance should mirror the calculated performance using the financial performance measures. In reaching this decision, the Committee considered whether the performance under the financial performance measures and the operating drivers were appropriately aligned, and concluded that they were.
The Compensation Committee then reviewed its assessment of the CEOs performance during 2011 and the CEOs assessment of each of the other named executive officers performance during 2011, and their respective contributions to our results. In particular, the Compensation Committee considered the CEOs contributions to the achievement of:
The CEO and the Compensation Committee also considered the contributions of the other named executive officers in furthering the Companys strategic initiatives described in the preceding bullet points.
In light of our Corporate EBIT or Operating Unit EBIT, as the case may be, operating cash flow and operating driver performance and the other considerations described above, the Compensation Committee limited the awards for Messrs. Kramer, Wells, Ruocco and Bialosky to payouts of 150% and for Mr. de Bok to a payout of 131% of their respective target amounts under the 2011 MIP performance objectives.
The table below presents information regarding the potential and actual awards for our named executive officers under the Management Incentive Plan:
Long-term incentives are delivered through grants of stock options and performance shares under our 2008 Performance Plan, a shareholder-approved equity compensation plan, and long-term cash-based incentive awards under our Executive Performance Plan. Long-term performance-based compensation is generally designed to represent approximately 65% of the primary compensation of named executive officers, assuming target performance levels. This is consistent with our emphasis on long-term compensation, which better ties the executives compensation to long-term operational success and shareholder value creation. The mix of long-term compensation between stock option grants, performance share grants and cash-based long-term incentives was based, in part, on the market value of our Common Stock, the number of shares available for grant under the 2008 Performance Plan, and considerations relating to managing the dilutive effect of share-based awards. These factors impact our ability to use stock-based compensation to deliver a specified level of targeted compensation opportunity. As a result, the Compensation Committee believes that a cash-based plan, in combination with our stock-based awards, is necessary to provide competitive performance and retention incentives. In order to further align our long-term incentive plans with shareholder interests, awards made under those plans are now subject to an increase or decrease of up to 20% based on our total shareholder return versus the S&P 500 over the three-year period of those awards.
The amount and terms of grants to named executive officers under the 2008 Performance Plan and the Executive Performance Plan are based on criteria established by the Compensation Committee and include responsibility level, base salary level, current Common Stock market price, officer performance, recent Goodyear performance, internal pay equity, and, with respect to the 2008 Performance Plan, the number of shares available under the plan.
Cash-Based Awards Under the Executive Performance Plan
The Executive Performance Plan provides long-term incentive compensation opportunities in order to motivate key personnel to achieve our long-term business objectives and to attract, retain and reward key personnel.
2011 Grants Under the Executive Performance Plan
The Compensation Committee granted Executive Performance Plan units in February 2011 that have the following characteristics:
The number of target units awarded annually to each named executive officer is based on a number of considerations, including market data about competitive long-term compensation, share availability under our equity compensation plans and the CEOs recommendations (other than with respect to his own award), which are based on the CEOs evaluation of the performance of each named executive officer, our recent performance, internal pay equity, retention considerations, and general economic and competitive conditions.
The performance criteria for the 2011 performance period for the 2011-2013 awards were, consistent with our strategic plan, based 50% on net income and 50% on total cash flow, net of debt. The same performance criteria were used for the 2011 performance period for the 2009-2011 and 2010-2012 awards. Results were based on our consolidated performance, with no award tied to business unit performance. In this manner, the plan balances performance measures used under the Management Incentive Plan and reinforces the need for teamwork among executives. Net income was used as a measure to focus on improvement in profitability. Cash flow focused on our efforts to manage the cash requirements associated with our business, including our debt and pension obligations, and our efforts to improve our capital structure and provide funding for investments in future growth. Adjusting for net debt provides incentive to reduce our obligations, including our debt and pension obligations. The amount of debt that is netted out is equal to the change in our total debt and our cash and cash equivalents, as adjusted for our pension contributions. The Compensation Committee decided to continue to provide for the annual establishment of performance goals for the 2011-2013 awards, subject to a total shareholder return modifier over that three-year period, under the Executive Performance Plan due to the continuing uncertain economic environment and corresponding difficulty in setting multi-year goals. The Compensation Committee set the performance targets for the 2011 performance period taking into account the economic environment that existed in 2011 and that is discussed in more detail above under the heading Overview. The Compensation Committee also emphasized the balance between liquidity and profitability by equally weighting net income and cash flow, net of debt. The performance targets for the 2011 performance period would be achieved at the target performance level if we successfully executed our operating plan for 2011.
The value of the units granted for the 2011-2013 awards (assuming payout at $100 per unit) represents approximately 60% of the value of total long-term compensation awarded to the named executive officers in 2011. Included in the 2011-2013 awards were grants of 38,284; 12,500; 13,250; 7,300; and 8,713 units to Messrs. Kramer, Wells, de Bok, Ruocco and Bialosky, respectively.
See Performance for the 2011 Performance Period Under the Executive Performance Plan and With Respect to Performance Shares at page 31 for further information on our achievement of the performance targets.
We provide performance shares to our executive officers in order to more closely align executive compensation to the performance of our Common Stock. We believe that performance shares, like the cash-based Executive Performance Plan, drive operational performance while also driving shareholder value creation, thereby better aligning the interests of our executives with those of our shareholders.
2011 Performance Share Grants
The Compensation Committee granted performance shares under the 2008 Performance Plan in February 2011 that have the following terms:
The number of performance shares awarded annually to each named executive officer, measured by the percentage of total long-term compensation represented by such shares, is based on a number of considerations, including market data for comparable long-term incentive compensation and the CEOs recommendations (other than with respect to his own award), which are based in part on certain subjective factors, including the CEOs evaluation of the performance of each named executive officer, our recent performance, share availability under our equity compensation plans, internal pay equity, retention considerations, and general economic and competitive conditions.
The performance criteria for the 2011 performance period for the 2011-2013 awards were based 50% on net income and 50% on total cash flow, net of debt, as described above under Cash-Based Awards Under the Executive Performance Plan in order to align managements efforts to achieve our goals under our long-term incentive compensation plans. The Compensation Committee decided to continue to provide for a one-year performance period and a three-year vesting period, subject to a total shareholder return modifier over that three-year period, for awards of performance shares due to the continuing uncertain economic environment and corresponding difficulty in setting multi-year goals. The value of the performance shares granted for the 2011-2013 awards represents approximately 10% of the value of total long-term compensation awarded to the named executive officers in 2011. In 2011, target grants of 43,853; 11,682; 12,580; 8,360; and 9,132 performance shares for the 2011-2013 period were made to Messrs. Kramer, Wells, de Bok, Ruocco and Bialosky, respectively, having the terms described above.
Performance for the 2011 Performance Period Under the Executive Performance Plan and With Respect to Performance Shares
The table below shows the performance goals and corresponding earn out percentages for awards granted for the 2011 performance period. The goals for total cash flow, net of debt, reflected planned capital investments of $1.1 billion to $1.2 billion, an increase in working capital due primarily to higher raw material costs and the need to build inventory levels to support customer service levels, and anticipated global pension contributions of $250 million to $300 million.
The Executive Performance Plan and the 2008 Performance Plan permit the Committee to make adjustments to actual company results for the performance measures for extraordinary items and other relevant factors. Over the one-year performance period, actual company results were adjusted to exclude restructuring charges. The table below shows actual adjusted results with respect to the performance measures during the 2011 performance period.
During the 2011 performance period, we faced a number of challenges and took action to meet those challenges, as discussed above under the heading Overview. As a result, we exceeded our maximum total cash flow, net of debt target for the 2011 performance period due to our efforts to manage cash flow during the performance period,
particularly with respect to working capital, and exceeded our maximum net income target for the 2011 performance period primarily due to price and product mix improvements, cost saving actions and other strategic initiatives we implemented in response to global economic conditions.
Executive Performance Plan
Based on the results during the 2011 performance period, the Compensation Committee approved earnings on the Executive Performance Plan awards for such period in an amount equal to 150% of the target amount per unit. The payout of these amounts is contingent upon the named executive officers continued service through December 31, 2011 (for 2009-2011 awards), December 31, 2012 (for 2010-2012 awards) and December 31, 2013 (for 2011-2013 awards), except in the case of certain events, such as retirement, death, disability or severance following a change-in-control.
The table below shows amounts earned for each of the named executive officers in respect of their grants under the Executive Performance Plan for the 2011 performance period with respect to their 2009-2011 awards:
The table below shows amounts earned for each of the named executive officers in respect of their grants under the Executive Performance Plan for the 2011 performance period with respect to their 2010-2012 awards:
The table below shows amounts earned for each of the named executive officers in respect of their grants under the Executive Performance Plan for the 2011 performance period with respect to their 2011-2013 awards:
For further information on the tax deductibility of awards under the Executive Performance Plan, see Tax Deductibility of Pay at page 37.
Based on the results during the 2011 performance period, the Compensation Committee approved earnings with respect to performance share awards for such period in an amount equal to 150% of the target number of performance shares.
The table below shows the earnings for each of the named executive officers in respect of their 2011-2013 grants of performance shares for the 2011 performance period:
Payout of 2009 2011 Long-Term Awards
The Compensation Committee also approved the distribution of shares of Common Stock for previously earned performance shares and the payout of amounts earned under the Executive Performance Plan to the named executive officers, in each case, with respect to the 2009-2011 awards.
The Compensation Committee annually grants stock options to named executive officers and other key employees to link our executives compensation to results earned by shareholders and to build executive stock ownership. Stock options constitute an important element of our long-term incentive compensation program. Because options result in gains only in the event that the stock price appreciates, they serve to align the interests of management with shareholders.
2011 Stock Option Grants
Stock options granted under the 2008 Performance Plan in 2011 have the following terms:
All options granted to named executive officers during 2011 were non-qualified stock options. The portion of long-term incentive compensation provided in the form of stock option grants each year is determined based on the number of available options under the 2008 Performance Plan, as well as market data on long term-compensation. We use a Black-Scholes valuation model to determine the number of stock options needed to provide the desired value consistent with overall median market compensation.
In 2011, grants of 264,833; 70,405; 75,586; 50,480; and 56,439 stock options were made to Messrs. Kramer, Wells, de Bok, Ruocco and Bialosky, respectively, having the terms described above. The value of these stock option grants represents approximately 30% of the value of total long-term compensation awarded to the named executive officers in 2011.
Restricted Stock Awards
The Compensation Committee occasionally grants shares of restricted stock or restricted stock units to named executive officers and other key employees, typically to replace similar stock-based awards or other benefits at a prior employer, to recognize extraordinary effort or for retention purposes. Restricted stock links executives to the results earned by shareholders and builds executive stock ownership.
In December 2011, the Compensation Committee granted 55,000 restricted stock units to each of Messrs. Wells and de Bok and 40,000 restricted stock units to Mr. Ruocco. The restricted stock units will vest and convert into shares of Common Stock three years from the date of grant (in December 2014). The Compensation Committee made these grants in consideration of Mr. Wells, Mr. de Boks and Mr. Ruoccos significant contributions to Goodyear and importance to Goodyear in the future.
We provide our named executive officers with retirement benefits under both tax-qualified and non-qualified retirement plans. The tax-qualified plan benefits are pursuant to a defined benefit pension plan, the Goodyear Salaried Pension Plan (the Salaried Plan), and a defined contribution plan, the Goodyear Employee Savings Plan for Salaried Employees (the Savings Plan). The non-qualified plan benefits are pursuant to an unfunded defined benefit plan, the Goodyear Supplementary Pension Plan (the Supplementary Plan).
The Salaried Plan is designed to provide tax-qualified pension benefits for U.S.-based salaried employees hired prior to January 1, 2005. The Savings Plan is designed to provide an opportunity for U.S.-based salaried employees to save for retirement on a tax-deferred basis. Messrs. Kramer and Wells participate in the Salaried Plan along with other Goodyear employees. Effective December 31, 2008, the Salaried Plan accrued benefit was frozen. Since that date tax-qualified benefit accruals for Messrs. Kramer and Wells and other Goodyear salaried employees who participate in the Salaried Plan are provided by Company contributions under the retirement contributions feature of the Savings Plan. Salaried employees hired after December 31, 2004, including Messrs. Ruocco and Bialosky, also participate in the retirement contributions feature of the Savings Plan. Participants in the Savings Plan, including all of the named executive officers other than Mr. de Bok, are currently eligible to receive Company matching contributions in addition to the retirement contributions described above.
Mr. de Bok does not participate in the Salaried Plan or the Savings Plan, instead he participates in Goodyears Netherlands Pension Plan and in government-sponsored (but Company-funded) pension plans in The Netherlands and Belgium.
The Supplementary Plan provides additional pension benefits to executive officers and certain other key individuals identified by the Compensation Committee. All of the named executive officers participate in the Supplementary Plan. The Supplementary Plan provides pension benefits to participants who retire with at least 30 years of service, retire after age 55 with at least ten years of service or retire after age 65 with at least five years of service. However, benefits payable under the Supplementary Plan are offset by the amount of any benefits payable under the Salaried Plan, the retirement contributions feature of the Savings Plan, applicable non-U.S. pension plans, and certain prior employer pension plans. The Committee believes supplemental executive retirement plans such as the Supplementary Plan are an important part of executive compensation and are utilized by most large companies, many of which compete with the Company for executive talent. Retirement benefits, including those provided through a supplemental executive retirement plan, are a critical component of an executives overall compensation program and are essential to attracting, motivating and retaining talented executives with a history of leadership and to providing retirement replacement income. Retirement benefits are an important factor in an executives decision to accept or reject a new position.
We also maintain a non-qualified unfunded defined benefit Excess Benefit Plan that pays an additional pension benefit over that paid from the Salaried Plan if a participant does not meet the eligibility requirements of the Supplementary Plan. None of the named executive officers are currently eligible to receive a benefit under the
Supplementary Plan because they have not met the age and service requirements discussed in the prior paragraph, and Messrs. de Bok, Ruocco and Bialosky are not eligible to participate in the defined benefit Excess Benefit Plan. The additional benefit under the defined benefit Excess Benefit Plan is equal to the amount a participant would have received from the Salaried Plan but does not because of the limitations imposed by the Code on pension benefits under qualified plans. This plan is provided to allow the extension of benefits from the qualified plan to individuals whose compensation exceeds the Code limitations for qualified plans. Like the qualified plans, effective December 31, 2008 accruals were frozen under the defined benefit Excess Benefit Plan. For employees hired after December 31, 2004, and for all employees as of December 31, 2008, who do not meet the eligibility requirements of the Supplementary Plan, there is a corresponding non-qualified defined contribution Excess Benefit Plan that mirrors the retirement contributions feature of the Savings Plan. Mr. de Bok is not eligible to participate in the defined contribution Excess Benefit Plan.
For more information regarding the terms of these plans and the named executive officers accrued benefits under these plans, see the table captioned Pension Benefits and the accompanying narrative at page 46.
Severance and Change-in-Control Benefits
We provide for the payment of severance benefits to our named executive officers upon certain types of terminations of employment. The Goodyear Continuity Plan for Salaried Employees (the Continuity Plan) provides certain severance benefits to our employees and employees of our subsidiaries who participate in the Executive Performance Plan, Management Incentive Plan, Performance Recognition Plan or Savings Plan.
The Continuity Plan is designed to attract, retain and motivate employees, provide for stability and continuity in the event of an actual or threatened change-in-control, and ensure that our employees are able to devote their full time and attention to the Companys operations in the event of an actual or threatened change-in-control.
The Continuity Plan and the related change-in-control triggers (commonly referred to as double triggers) are described in more detail under the heading Potential Payments Upon Termination or Change-in-Control at page 49, and generally provide for the payment of severance benefits if employment is terminated under certain circumstances during certain periods before or within two years following a change-in-control of the Company. The change-in-control triggers in our 2008 Performance Plan are substantially similar to those in the Continuity Plan. We selected the specific change-in-control triggers used in the Continuity Plan, such as the acquisition of 20% or more of Goodyears Common Stock, a significant change in the composition of the Board of Directors or the acquisition of actual control of Goodyear, based upon our review of market practices, including provisions included in similar agreements of other public companies, and statutory provisions, such as the Ohio Control Share Acquisition Law, that could also be triggered in the event of a change-in-control. Based upon that review, we determined that the terms and conditions of the Continuity Plan, including the specific change-in-control triggers and excise tax gross-up provisions, were consistent with market practices and are a necessary component of a competitive compensation program. We also believe that the Continuity Plan is in the best interests of the Company and our shareholders because it ensures that we will have the continued commitment of our employees in the event of an actual or threatened change-in-control.
The Compensation Committee decided that employees who are hired or promoted and, as a result of that hiring or promotion, would become eligible to receive excise tax gross-ups for the first time on or after February 22, 2010 will not receive any such gross-ups. In addition, executive officers hired or promoted into certain executive positions named in the Continuity Plan on or after February 22, 2010 (including Mr. Kramer, who became CEO on April 13, 2010) will no longer receive severance benefits if they terminate their employment without good reason during the thirteenth month following a change-in-control.
The Goodyear Tire & Rubber Company Executive Severance Plan (the Severance Plan) provides severance benefits to each of the named executive officers (other than Mr. de Bok) and certain key employees if their employment is terminated by us other than for Cause (as defined in the Severance Plan), death or disability, and other than in connection with a change-in-control.
The Compensation Committee believes that our severance benefits are a necessary component of a competitive compensation program and that those severance benefits are not significantly different from the severance benefits typically in place at other companies.
For additional information regarding the terms of the Continuity Plan and the Severance Plan and benefits payable under those plans, see Potential Payments Upon Termination or Change-in-Control at page 49.
We provide certain executive officers, including our named executive officers, with limited personal benefits and perquisites, as described below and in footnote 5 to the Summary Compensation Table at page 41. The Compensation Committee has reviewed and approved the perquisites described below. While the Compensation Committee does not consider these perquisites to be a significant component of executive compensation, it recognizes that such perquisites are an important factor in protecting our executive officers and in enabling them to focus on our business with minimal disruption. We do not provide any tax reimbursements to our executive officers for any of the perquisites we provide them.
Home Security Systems. We pay for the cost of home security systems for a limited number of executive officers in order to enhance their safety and protect our investment in them. We cover the cost of installation, monitoring and maintenance for these systems.
Use of Company Aircraft. In limited circumstances, executive officers are permitted to use our company aircraft for personal travel. In these circumstances, the executive is also required to reimburse us for a portion of the cost of such use in an amount determined using the Standard Industry Fare Level.
Tire Program. We offer our executive officers and Board members the opportunity to receive up to two sets of tires per year at our expense, including the cost of tires, mounting, balancing and disposal fees.
Financial Planning and Tax Preparation Services. We offer financial assistance to our executive officers to help them cover the cost of financial planning and tax preparation services. In providing this benefit, we seek to alleviate our executives concern regarding personal financial planning so that they may devote their full attention to our business. The maximum annual cost to the Company under this program is $9,000 per officer.
Club Memberships. We pay the annual dues for a corporate club membership that is available to Mr. Kramer. None of the other named executive officers utilize this corporate club membership. The membership is intended to be used primarily for business purposes, although members may use the club for personal purposes so long as they pay all incremental costs, other than the annual dues, related to that personal use.
Annual Physical Exams. We strongly encourage our executive officers to have an annual comprehensive physical examination which we pay for in order to enhance their physical well-being and protect our investment in them.
Executive Deferred Compensation Plan
The Goodyear Executive Deferred Compensation Plan (the Deferred Compensation Plan) is a non-qualified deferred compensation plan that provides named executive officers and other highly compensated employees the opportunity to defer various forms of compensation. The plan provides several deferral period options. During 2011, no named executive officers made deferrals under the Deferred Compensation Plan. For participants, this offers an additional means to save for retirement on a tax-deferred basis. There is no premium or guaranteed return associated with the deferral.
For additional information regarding the terms of the deferred compensation plan and participant balances, see Nonqualified Deferred Compensation at page 48.
Payments to Expatriate Employees. Where warranted, we provide tax equalization payments, housing allowances, and other similar benefits to employees, including Mr. de Bok, living outside of their home country to compensate them for the additional costs of those assignments.
Tax Deductibility of Pay
Section 162(m) of the Code provides that compensation paid to a public companys chief executive officer and its three other highest paid executive officers at the end of the year (other than its chief financial officer) in excess of $1 million is not deductible unless certain requirements have been satisfied. The Compensation Committee believes that awards under the Management Incentive Plan and the 2008 Performance Plan qualify for full deductibility under Section 162(m).
Although compensation paid under the Executive Performance Plan is performance-based, it does not qualify for the deductibility exception for performance-based compensation since that Plan has not been approved by our shareholders. Therefore, payments under the Executive Performance Plan are subject to the Section 162(m) limitation on deductibility. Because of our significant U.S. deferred tax assets from prior periods, the limitation on deductibility has no impact on our financial position. In reviewing and considering payouts or earnings under the Executive Performance Plan, the Compensation Committee considered not only the impact of the lost tax deductions, but also the significant U.S. deferred tax assets available to us from prior periods, as well as the benefits realized by us and our shareholders from the successful efforts of our senior management team. In balancing these considerations, the Compensation Committee concluded that it would be appropriate to approve payouts in respect of the 2009-2011 grants and earnings for the 2011 performance period in respect of the 2010-2012 and 2011-2013 grants.
To better link the interests of management and our stockholders, the Compensation Committee revised our stockholding guidelines for executive officers effective August 1, 2011. These guidelines specify a number of shares that our executive officers are expected to accumulate and hold based on a multiple of annual base salary of two times for elected Vice Presidents, three times for Senior Vice Presidents, Executive Vice Presidents and the Presidents of our operating units, and five times for the CEO. Therefore, the stockholding requirement for Mr. Kramer is five times his annual base salary and for Messrs. Wells, de Bok, Ruocco and Bialosky is three times their annual base salary. All shares of Common Stock owned outright by executive officers (or their spouses) and held by them in the Goodyear stock fund of the Savings Plan, and 60% of the shares of restricted stock, restricted stock units and earned (but unvested) performance shares awarded to executive officers and share equivalent units held in our deferred compensation plan, are counted as ownership in assessing compliance with the guidelines. Unexercised stock options and unearned performance shares are not counted toward compliance with the guidelines. The stock price used in assessing compliance with the guidelines as of May 1st of each year will be the average closing stock price for the prior 60-day period. As a result of the adoption of the revised stockholding guidelines, the stockholding requirement for each of our named executive officers increased significantly.
The stockholding guidelines also include stock retention provisions. If an executive officer has met their stockholding requirement, they are required to retain 25% of the net shares received from any exercised options or any vested shares of Common Stock for at least one year from the date of exercise or vesting and may only sell or otherwise dispose of shares to the extent they will still meet their stockholding requirement following that sale or disposition. If an executive officer has not met their stockholding requirement, they are required to retain all of the net shares received from any exercised options or any vested shares of Common Stock, and may not sell or otherwise dispose of shares, until they have met their stockholding requirement unless they demonstrate a need to sell shares due to a financial hardship. Net shares are the shares remaining after payment of the exercise price and/or withholding taxes.
Messrs. de Bok and Ruocco have met their stockholding requirement, and Messrs. Kramer, Wells and Bialosky are making progress towards satisfying their stockholding requirement.
Insider Trading Policy
We have adopted, as part of our insider trading policy, prohibitions on the short sale of our Common Stock and other securities and the issuance, purchase or sale of, or trading or dealing in, puts, calls or other options or rights relating to our Common Stock and other securities. These provisions prohibit our directors, executive officers and employees from hedging the risk of their ownership of our Common Stock. We also prohibit our directors, executive officers and employees from holding our Common Stock and other securities in a margin account or otherwise pledging them as collateral for a loan.
Recovery of Compensation
If the Compensation Committee determines that an executive officer has engaged in conduct detrimental to the Company, the Compensation Committee may take a range of actions to remedy this conduct, prevent its recurrence and impose appropriate discipline. Discipline would vary depending on the facts and circumstances, and may include (1) termination of employment, (2) cancelling or reducing any outstanding compensatory grants or awards, (3) initiating an action for breach of fiduciary duty or fraud which could include recovery of any unjustly obtained incentive compensation, and (4) requiring reimbursement of compensation or other payments in accordance with provisions of the Sarbanes-Oxley Act of 2002, our claw-back policy described below or the terms of the relevant compensation plan. These remedies would be in addition to, and not in lieu of, any actions imposed by law enforcement agencies, regulators or other authorities.
Effective for 2012 awards, the Compensation Committee adopted a claw-back policy that effectively contractually extends the claw-back provisions of the Sarbanes-Oxley Act of 2002 that apply to our Chief Executive Officer and Chief Financial Officer to the Presidents of each of our strategic business units and all of our Senior Vice Presidents. If we are required to prepare an accounting restatement due to our material noncompliance with any financial reporting requirement as a result of misconduct, the claw-back policy would permit the Compensation Committee to require reimbursement of (1) any incentive compensation received from us during the one-year period following the publication of misstated financial statements and (2) any profits realized from the sale of our securities during that one-year period. We will make any necessary revisions to our claw-back policy once implementing rules pursuant to Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 are adopted by the Securities and Exchange Commission and the New York Stock Exchange.
In addition, under our Executive Performance Plan and equity compensation plans, the Compensation Committee may require a plan participant who engages in competition with us within 18 months after their termination of employment to return or forfeit the realized value of all awards under those plans during such period of time that the Compensation Committee determines. Our Severance Plan also provides for the recovery or forfeiture of severance payments if a person receiving payments pursuant to the plan violates certain confidentiality, non-disparagement, non-solicitation and non-competition covenants.
COMPENSATION COMMITTEE REPORT
We have reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on our review and discussion with management, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference in Goodyears Annual Report on Form 10-K for the year ended December 31, 2011.
The Compensation Committee
Thomas H. Weidemeyer, Chairman
William J. Conaty
W. Alan McCollough
G. Craig Sullivan
Summary Compensation Table
The table below sets forth information regarding the compensation of the CEO, the Chief Financial Officer of Goodyear (the CFO), and the persons who were, at December 31, 2011, the other three most highly compensated executive officers of Goodyear (collectively, the named executive officers) for services in all capacities to Goodyear and its subsidiaries during 2009, 2010 and 2011.
The following table provides further information on the amounts payable, or earned but not yet payable, under the Management Incentive Plan (MIP) and the Executive Performance Plan (EPP) for performance periods ending on December 31, 2011:
No nonqualified deferred compensation earnings are required to be reported because the Deferred Compensation Plan does not provide for above-market or preferential earnings as defined in applicable Securities and Exchange Commission rules and regulations.
Grants of Plan-Based Awards
The following table summarizes grants of plan-based awards made to the named executive officers during 2011.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information about outstanding equity awards held by the named executive officers as of December 31, 2011.
During the restriction period for shares of restricted stock, the recipient is not entitled to delivery of the shares, restrictions are placed on the transferability of the shares, and all or a portion of the shares will be forfeited if the recipient terminates employment for reasons other than as approved by the Compensation Committee. Upon expiration of the restriction period, the appropriate number of shares of Common Stock will be delivered to the grantee free of all restrictions. During the restriction period for shares of restricted stock, the grantee shall be entitled to vote restricted shares and, unless the Compensation Committee otherwise provides, to receive dividends, if any. Restricted stock units do not have any voting rights and, unless the Compensation Committee otherwise provides, are entitled to receive dividends, if any. Earned, but unvested, performance share units do not have any voting rights and are not entitled to receive dividend equivalents. For additional information regarding the terms of the performance share units, see Compensation Discussion and Analysis Elements of Compensation Long-Term Compensation Performance Shares 2011 Performance Share Grants at page 30.
Option Exercises and Stock Vested
The following table sets forth certain information regarding option exercises by, and the vesting of stock awards for, the named executive officers during 2011.
Defined Contribution Plan Benefits
The Savings Plan is a tax-qualified defined contribution plan that permits eligible employees, including all of the named executive officers (other than Mr. de Bok), to contribute 1% to 50% of their compensation to their Savings
Plan account, subject to an annual contribution ceiling ($16,500 in 2011). Savings Plan participants who are age 50 or older and contributing at the maximum plan limits or at the annual contribution ceiling are entitled to make catch-up contributions annually up to a specified amount ($5,500 in 2011). Participants in the Savings Plan are eligible to receive Company matching contributions in addition to the retirement contributions described below under Pension Benefits. Savings Plan participants are also eligible to make after-tax contributions subject to limits imposed by the Code. Contributions are invested, at the direction of the participant, in any one or more of the fifteen available funds and/or in mutual funds under a self-directed account.
Goodyears Salaried Pension Plan is a defined benefit plan qualified under the Code in which U.S.-based salaried employees hired before January 1, 2005 participate, including Messrs. Kramer and Wells. Accruals in the Salaried Plan were frozen effective December 31, 2008. The Salaried Plan was designed to provide tax-qualified pension benefits for most Goodyear salaried employees. The Salaried Plan contains formulas based on age and service. These formulas are multiplied by five-year average compensation below and above a breakpoint ($51,000 in 2008, the year the Salaried Plan was frozen), with the result representing a lump sum benefit under the plan. Compensation is held to the qualified plan limit under the Code, which was $230,000 for 2008. A portion of the benefit may be paid by employee contributions. Effective December 31, 2007, all active participants in the Salaried Plan became vested and are entitled to a benefit upon any termination of employment. Benefits are available on a five-year certain and continuous annuity basis at age 65, by converting the lump sum to an annuity. Annuity benefits payable to a participant who retires prior to age 65 are subject to a reduction for each month retirement precedes age 65. Benefits under the Salaried Plan are funded by an irrevocable tax-exempt trust.
Participation in the Salaried Plan was frozen effective December 31, 2004. Subsequent hires, including Messrs. Ruocco and Bialosky, participate in the retirement contributions feature of the Savings Plan. Under the Savings Plan, each participant receives an allocation each pay period equal to a percentage of compensation, with compensation held to the qualified plan limit under the Code. Effective January 1, 2009, Salaried Plan participants, including Messrs. Kramer and Wells, also began receiving allocations under the retirement contributions feature of the Savings Plan.
Non-U.S.-based employees, such as Mr. de Bok, participate in neither the Salaried Plan nor the Savings Plan; instead Mr. de Bok participates in Goodyears Netherlands Pension Plan and in government-sponsored (but Company-funded) pension plans in The Netherlands and Belgium.
Goodyear also maintains the Supplementary Plan, a non-qualified, unfunded plan which provides additional retirement benefits to our executive officers and certain other key employees, including all of the named executive officers. The Supplementary Plan provides pension benefits to participants who retire with at least 30 years of service, retire after age 55 with at least ten years of service or retire after age 65 with at least five years of service. The formula for an annuity benefit is based on a percentage determined using credited service (22% with 10 years, 38% with 20 years, 48% with 30 years and 54% with 40 years) times five-year average compensation above the breakpoint ($53,400 in 2011), with compensation inclusive of base salary and annual incentive payments. The five-year average compensation uses the highest five calendar years, not necessarily consecutive, out of the last ten years. Benefits are offset for the Salaried Plan, the retirement contributions feature of the Savings Plan, applicable non-U.S. benefits and certain prior employer benefits. Under the Supplementary Plan, benefits payable to a participant who retires prior to age 62 are subject to a reduction of 0.4% for each month retirement precedes age 62. Participants may elect a lump sum payment of benefits under the Supplementary Plan for benefits accrued and vested prior to January 1, 2005, subject to the approval of Goodyears ERISA Appeals Committee. For benefits accrued or vested on or after January 1, 2005, payment will be made in a lump sum. Benefits vested on or after January 1, 2005 cannot be distributed prior to six months after separation of service. The Supplementary Plan benefits for all named executive officers are not yet vested.
We also maintain a non-qualified unfunded defined benefit Excess Benefit Plan that pays an additional pension benefit over that paid from the Salaried Plan if a participant does not meet the eligibility requirements of the
Supplementary Plan. The additional benefit is equal to the amount a participant would have received from the Salaried Plan but does not because of the limitations imposed by the Code on pension benefits under qualified plans. This plan is provided to allow the extension of benefits from the qualified plan to individuals whose income exceeds the Code guidelines for qualified plans. Distribution of amounts earned and vested prior to January 1, 2005, will be paid out in the same manner as the Salaried Plan unless otherwise elected by the participant at least 12 months prior to termination or severance. Distributions for amounts earned or vested on or after January 1, 2005, will be paid out in a lump sum. For participants considered to be among the top 50 wage earners of the Company, benefits vested on or after January 1, 2005 are paid out six months after termination of service. For employees hired after December 31, 2004, and for all employees as of December 31, 2008, there is a corresponding defined contribution Excess Benefit Plan that mirrors the retirement contributions feature of the Savings Plan. Like the qualified plans, effective December 31, 2008 accruals were frozen under the defined benefit Excess Benefit Plan and all affected participants began receiving defined contribution allocations under the defined contribution Excess Benefit Plan.
The Pension Benefits table below shows for the named executive officers the number of years of credited service, present value of accumulated benefit and payments during the last fiscal year, for each defined benefit plan.
The Present Value of Accumulated Benefit is the lump-sum value as of December 31, 2011 of the expected pension benefit payable at age 62 that was earned as of December 31, 2011. That is, the benefit reflects service and compensation only through 2011, not projected for future years. The benefit payment at age 62 is assumed to be the lump sum form. The present value is measured using the same assumptions used for financial reporting purposes (and which are set forth following the Pension Benefits Table), with the exception of the commencement age. The commencement age is assumed to be 62 because that is the age at which the Supplementary Plan benefit is payable with no reduction for early retirement.
Generally, a participants years of credited service under the Supplementary Plan are based on the years an employee participates in the Salaried Plan. However, in certain cases, credit for service prior to participation in the Salaried Plan is granted. Such cases include service with a predecessor employer. Mr. Kramer received 13.6 additional years of credited service in connection with his hiring by Goodyear in respect of service with a prior employer. The benefits paid to Mr. Kramer under the Supplementary Plan will be reduced by amounts he is entitled to receive under the pension plan maintained by his prior employer. Due to this service grant, the present value of accumulated benefit in the Pension Benefits table is $2,382,264 higher for Mr. Kramer. Messrs. Wells, de Bok, Ruocco and Bialosky did not receive any additional years of credited service.
Mr. Kramer is eligible for immediate commencement of the benefit from the Salaried Plan as of December 31, 2011, and will be eligible to receive a benefit from the Supplementary Plan if he remains employed by us until 2016. Mr. Wells is eligible for immediate commencement of the benefit from the Salaried Plan as of December 31, 2011, and will be eligible to receive a benefit from the Supplementary Plan if he remains employed by us until 2020. Messrs. de Bok, Ruocco and Bialosky will be eligible to receive a benefit from the Supplementary Plan if they remain employed by us until 2017, 2018 and 2019, respectively.
For Mr. de Bok, the Pension Benefits table shows the benefits payable under the Supplementary Plan and Goodyears Netherlands Pension Plan. The Netherlands Pension Plan provides an annuity benefit based on career average earnings. This benefit is an offset to the Supplementary Plan benefit. The present value of the Netherlands Pension Plan benefit is determined based on the assumptions used for financial reporting of the Netherlands Pension Plan as of December 31, 2011 (and which are set forth following the Pension Benefits Table), with the exception that the commencement age is taken to be 62. The Supplementary Plan value is based on the U.S. financial reporting assumptions, as discussed above. Mr. de Bok is currently vested in his benefit from the Netherlands Pension Plan but is not yet eligible to commence the benefit. In addition to the offset for the Netherlands Pension Plan, the Supplementary Plan present value also will be offset for the value of Company contributions to the governmental plans in Belgium and The Netherlands.
The amounts set forth in the table above are based on the following assumptions:
Nonqualified Deferred Compensation
The Goodyear Executive Deferred Compensation Plan is a non-qualified deferred compensation plan that provides named executive officers and certain other highly compensated employees the opportunity to defer their base salary and annual incentive payments. Deferred amounts may be invested in one of five investment alternatives or, with respect to annual incentive payments, Goodyear stock units. Four of these investment alternatives are funds managed by The Northern Trust Company, and currently include a money market fund, a bond fund, an equity index fund and a balanced fund. The average interest rate payable with respect to funds invested in the Northern Trust money market fund was 0.01% for the year ended December 31, 2011. The fifth investment vehicle is a growth fund managed by American Century Investments. Investment elections among the five investment alternatives may be changed daily. Deferrals of annual incentive payments into Goodyear stock units will result in a 20% premium paid in stock units that will vest in one year. There is no guaranteed return
associated with any deferral. Distribution of deferred amounts may begin after separation of service or in a selected number of years ranging from one to 20. Payment of deferred amounts will be in a lump sum or up to 15 annual installments, as elected at the time of deferral. Redeferral is allowed only if elected one year prior to the scheduled payout and the new deferral does not commence for at least five years after the originally scheduled date of distribution. Any stock units are converted to shares of Common Stock and distributed to the participant in January of the fourth year following the end of the plan year under which the award was earned.
The Deferred Compensation Plan is unfunded. The following table sets forth certain information regarding nonqualified deferred compensation of the named executive officers.
Potential Payments Upon Termination or Change-in-Control
We provide for the payment of severance and certain other benefits to our named executive officers upon certain types of terminations of employment, as described below.
The Continuity Plan provides severance benefits to certain of our salaried employees, including our named executive officers, if their employment is terminated under certain circumstances during certain periods before or within two years following a change-in-control of the Company.
The Continuity Plan divides our salaried employees into three groups: Tier 1, Tier 2 and Tier 3. Tier 1 generally includes all of our elected officers, including the named executive officers, and other employees who participate in our Executive Performance Plan; Tier 2 generally includes all salaried employees who participate in our annual incentive plan other than Tier 1 employees; and Tier 3 generally includes all other full-time salaried employees who participate in our Savings Plan. The Continuity Plan provides the following benefits to salaried employees in each tier:
It is our expectation that should a change-in-control transaction occur, many of our employees would retain their jobs and continue to be employed by the surviving company and, therefore, would not be entitled to benefits under the Continuity Plan.
As used in the Continuity Plan:
Cause means (1) the continued failure by an eligible employee to substantially perform the employees duties with the Company (other than any such failure resulting from the employees incapacity due to physical or mental illness), (2) the engaging by the employee in conduct which is demonstrably injurious to the Company, monetarily or otherwise, (3) the employee committing any felony or any crime involving fraud, breach of trust or misappropriation or (4) any breach or violation of any agreement relating to the employees employment with the Company where the Company, in its discretion, determines that such breach or violation materially and adversely affects the Company.
A Change in Control shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:
Good Reason means the occurrence, without the affected eligible employees written consent, of any of the following:
Hostile Change in Control means a Change in Control that a majority of the Incumbent Board has not determined to be in the best interests of the Company and its shareholders.
A Potential Change in Control shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:
The description above is meant only to be a summary of the provisions of the Continuity Plan. The Continuity Plan was filed as Exhibit 10.17 to our Annual Report on Form 10-K for the year ended December 31, 2008, filed with the Securities and Exchange Commission on February 18, 2009.
The Severance Plan provides severance benefits to certain key employees, including our named executive officers, if their employment is terminated by the Company and its affiliates other than for Cause, death or disability, and other than in connection with a change-in-control. Cause generally means (i) the continued failure to substantially perform the participants duties with the Company or its affiliates, (ii) engaging in conduct which is demonstrably injurious to the Company or its affiliates, (iii) the commission of any felony or any crime involving fraud, breach of trust or misappropriation or (iv) any breach or violation of any agreement relating to the participants employment that materially and adversely affects the Company or its affiliates.
Plan participants will generally receive: (i) earned but unpaid base salary and annual incentive compensation and accrued paid vacation, sick leave, sabbatical, holiday and other paid time off; (ii) a pro-rated annual incentive payment based on actual performance for the entire fiscal year in an amount not to exceed the participants target annual incentive; (iii) a cash severance payment equal to the sum of the participants base salary and target annual incentive at the time of severance multiplied by the participants severance multiple, which is established by the
Compensation Committee and currently ranges from 1.0x to 2.0x; (iv) continued health care coverage for a number of years equal to the participants severance multiple; and (v) outplacement services in an amount not to exceed $25,000. To be eligible to receive the benefits described in clauses (ii) through (v) above, the participant must execute a release and agree, among other things, not to compete with the Company or solicit its employees for a number of years equal to the participants severance multiple.
Messrs. Kramer, Wells, Ruocco and Bialosky are participants in the Severance Plan. Mr. Kramers severance multiple is 2.0x and Messrs. Wells, Ruoccos and Bialoskys severance multiple is 1.5x. Mr. de Bok is not a participant in the Severance Plan.
The Severance Plan became effective on June 8, 2010 and will continue in effect for three years, and thereafter will automatically renew for additional one-year periods unless the Company provides notice, at least 90 days prior to the end of the initial or extended term, of its intent not to renew the Severance Plan.
The description above is meant only to be a summary of the provisions of the Severance Plan. The Severance Plan was filed as Exhibit 10.1 to our Current Report on Form 8-K that was filed with the Securities and Exchange Commission on June 11, 2010.
Quantification of Termination Benefits
The tables below show amounts that would be payable to each of the named executive officers, as of December 31, 2011, upon the termination of their employment in the circumstances indicated in each column of the tables. The amounts shown are calculated on the assumption that the triggering event occurred on December 31, 2011. Other assumptions used to determine such amounts are described below.
Management Incentive Plan. The amounts shown in the tables for annual cash incentive under the Management Incentive Plan are the amounts earned under Management Incentive Plan awards for the year ended December 31, 2011. Such amounts are payable at the normal time that payouts are made for 2011 awards under the Management Incentive Plan. The Termination for Cause scenario assumes no payout because the plan gives the Compensation Committee discretion to eliminate or reduce performance awards prior to payment.
Severance Payments. The amounts shown in the column captioned Termination Without Cause are calculated in accordance with the terms of the Severance Plan (other than for Mr. de Bok, who is not a participant in the Severance Plan). (See Severance Plan above.) The amounts shown in the column captioned Involuntary Termination Within Two Years of Change in Control are calculated in accordance with the terms of the Continuity Plan. (See Continuity Plan above.)
Performance Shares. The amounts shown in the tables for outstanding performance share awards are attributable solely to equity (calculated based on a per share price of $14.17, the closing market price of our Common Stock on December 30, 2011). In the event of termination for cause, it is assumed the Compensation Committee would exercise its discretion to cancel any outstanding awards.
Executive Performance Plan. The amounts shown in the tables for cash payouts under the Executive Performance Plan are the amounts earned and payable under the 2009-2011 Executive Performance Plan awards and, in addition, the amounts shown in the column captioned Involuntary Termination Within Two Years of Change in Control include the amounts earned, but not yet payable, under the 2010-2012 and 2011-2013 Executive Performance Plan awards. Under the Executive Performance Plan, an employee whose employment is terminated due to the employees death, disability, retirement, layoff or leave of absence is entitled to a prorated payout for any uncompleted performance periods. Amounts are payable at the normal time that payouts are made for outstanding grants under the Executive Performance Plan. The Termination for Cause scenario assumes no payout because the Executive Performance Plan gives the Compensation Committee discretion to eliminate or reduce performance awards prior to payment.
Stock Options. Our equity compensation plans provide that unexercised stock options terminate automatically if the optionee ceases to be an employee of Goodyear or one of its subsidiaries for any reason, except that (a) upon retirement or disability of the optionee more than six months after the grant date, the stock option will become immediately exercisable and remain exercisable until the earlier of five years or its expiration date, (b) in the event of the death of the optionee more than six months after the grant date, each stock option will become immediately exercisable and remain exercisable until the earlier of three years after the date of death of the optionee or its expiration date, and (c) for options granted on or after June 8, 2010, in the event of the termination of the optionees employment other than for cause, each vested stock option will remain exercisable for 90 days following the date of termination of their employment. For these purposes, resignations, terminations without cause, and involuntary terminations upon a change in control are treated like a retirement if the employee is eligible for retirement as of the date of termination. However, none of our named executive officers were eligible for retirement on December 31, 2011. In the event of a termination for cause, it is assumed that the Compensation Committee would exercise its discretion to cancel any outstanding unvested stock options.
Retirement Benefits. The tables below show the additional retirement benefits that would be payable to the named executive officer if the named executive officers employment was terminated on December 31, 2011, and that named executive officer was vested in the benefit as of that date. The Involuntary Termination Within Two Years of Change in Control column shows the amounts payable with two additional years of credited service under the Supplementary Plan, as provided in the Continuity Plan. Mr. Kramer and Mr. Wells are not yet vested in a Supplementary Plan benefit and would instead receive benefits from the defined benefit and defined contribution Excess Benefit Plans. Mr. Ruocco and Mr. Bialosky are not yet vested in a Supplementary Plan benefit, are not eligible to participate in the defined benefit Excess Benefit Plan or the Salaried Plan, and would instead receive benefits from the defined contribution Excess Benefit Plan. The Supplementary Plan amounts shown in the Pension Benefits Table are the present values at December 31, 2011 of benefits that would be payable in lump sum form at age 62 (or age at December 31, 2011, if older than 62). The amounts, if any, shown in the tables below for the Supplementary Plan and the Excess Benefit Plans are the additional amounts that would be payable, together with the amounts shown in the Pension Benefits Table, in lump sum form six months after termination of employment at December 31, 2011. The Salaried Plan values shown in the Pension Benefits Table are the present values at December 31, 2011 of benefits that would be payable in lump sum form at age 62 (or age at December 31, 2011, if older than 62). The amounts, if any, shown in the tables below for Mr. Kramer and Mr. Wells under the Salaried Plan are the additional amounts that would be payable immediately, together with the amounts shown in the Pension Benefits Table, in lump sum form after termination of employment at December 31, 2011. Mr. de Bok is not yet vested in a Supplementary Plan benefit and is not eligible to participate in the Excess Benefit Plans or the Salaried Plan. For Mr. de Bok, the Pension Benefits Table shows the present value of the accrued benefit under the Netherlands Pension Plan. The same value would be provided from the Netherlands Pension Plan after termination of employment at December 31, 2011.
Other Benefits. The amounts shown for other benefits for each scenario include the payment of accrued vacation. In addition, the amounts shown in the column captioned Termination Without Cause include reimbursement of COBRA payments and payments for outplacement services (capped at $25,000), and the amounts shown in the column captioned Involuntary Termination Within Two Years of Change in Control include reimbursement of COBRA payments, payments for outplacement services (capped at $25,000), payments for life insurance coverage, and reimbursement for legal fees, if any (assumed to be $0 for purposes of the tables below).
Richard J. Kramer (Chairman of the Board, Chief Executive Officer and President)