Hormel Foods DEF 14A 2007
HORMEL FOODS CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders:
The Annual Meeting of Stockholders of Hormel Foods Corporation, a Delaware corporation, will be held in the Richard L. Knowlton Auditorium of the Austin High School, 300 NW 4th Street, Austin, Minnesota, on Tuesday, January 29, 2008, at 8:00 p.m. Central standard time. The items of business are:
1. Elect a board of 13 directors for the ensuing year;
2. Ratify the appointment by the Audit Committee of the Board of Directors of Ernst & Young LLP as independent registered public accounting firm for the fiscal year ending October 26, 2008;
3. Approve the Hormel Foods Corporation Operators Share Incentive Compensation Plan to enable certain compensation paid under the Plan to continue to qualify as deductible performance-based compensation under Section 162(m) of the Internal Revenue Code; and
4. Such other matters as may properly come before the meeting.
The Board of Directors has fixed December 3, 2007, at the close of business, as the record date for the determination of stockholders entitled to notice of, and to vote at, the meeting.
TABLE OF CONTENTS
HORMEL FOODS CORPORATION
The enclosed proxy is solicited by the Board of Directors of Hormel Foods Corporation (the Company) for use at the Annual Meeting of Stockholders to be held on January 29, 2008. This proxy statement and form of proxy are first being mailed to stockholders on or about December 19, 2007.
Voting Securities - The Company had 135,514,238 shares of common stock outstanding as of December 3, 2007. Each share of stock is entitled to one vote. There is no cumulative voting. The Company has no other class of shares outstanding. Only stockholders of record at the close of business as of December 3, 2007 are entitled to vote at the meeting.
Voting Your Proxy - Whether or not you plan to attend the meeting, we encourage you to grant a proxy to vote your shares. Follow the instructions on your proxy card or electronic delivery notice to cast your vote via the Internet or telephone. To vote by mail, complete your proxy card with your vote, signature and date, and return it in the envelope provided.
If you submit a proxy without giving specific voting instructions, your shares will be voted in accordance with the Board of Directors recommendations as follows:
Election to the Board of the 13 director nominees named in this proxy statement;
Ratification of the appointment of Ernst & Young LLP as independent registered public accounting firm for the next fiscal year; and
Approval of the Hormel Foods Corporation Operators Share Incentive Compensation Plan to enable certain compensation paid under the Plan to continue to qualify as deductible performance-based compensation under Section 162(m) of the Internal Revenue Code.
The persons appointed as proxies will vote in their discretion on other matters as may properly come before the meeting and which the Company did not know of prior to November 1, 2007.
Revoking Your Proxy - You may revoke your proxy at any time before it is exercised by contacting the Corporate Secretary.
Expenses - The expenses of soliciting proxies will be paid by the Company. Proxies may be solicited at Company expense personally, or by mail, telephone or electronic communication, by directors, officers and other employees. Such persons will not receive additional compensation. The Company will reimburse banks, brokerage firms and other nominees for their reasonable out-of-pocket expenses incurred in sending proxy materials to beneficial owners. Your cooperation in promptly granting a proxy to vote your shares will help to avoid additional expense.
Quorum - A majority of the outstanding shares will constitute a quorum at the meeting. If a stockholder holds shares in street name and does not provide voting instructions to the holder of the account regarding non-discretionary matters, such shares are considered broker nonvotes. Street name means the shares are held in a stock brokerage account or by a bank, trust or other institution. Broker nonvotes and abstentions are counted for purposes of determining the presence of a quorum for the transaction of business. Shares represented by abstentions are counted in the same manner as shares submitted with a withheld or no vote in tabulating the votes cast. Shares represented by broker nonvotes are not considered entitled to vote and thus are not counted for purposes of determining whether a proposal has been approved. Under current New York Stock Exchange (NYSE) rules, uninstructed brokers would have discretionary voting power for the election of directors (Item #1), for ratification of Ernst & Young LLP as independent registered public accounting firm (Item #2), and for approval of the Hormel Foods Corporation Operators Share Incentive Compensation Plan (Item #3).
The following persons will be admitted to the Annual Meeting of Stockholders to be held on January 29, 2008:
Stockholders of record at the close of business on December 3, 2007, and their immediate family members;
Individuals holding written proxies executed by stockholders of record at the close of business on December 3, 2007;
Stockholders who provide a letter or account statement from their broker, bank or other nominee showing that they owned stock held in the name of the broker, bank or other nominee at the close of business on December 3, 2007, and their immediate family members;
Stockholders by virtue of stock held in the Companys Employee Stock Purchase Plan;
Other individuals with the approval of the Corporate Secretary; and
One authorized representative of stockholders that are corporations or other entities. Additional authorized representatives may be admitted with the approval of the Corporate Secretary.
The Chairman will preside over the Annual Meeting of Stockholders pursuant to the Bylaws and by action of the Board of Directors. The Chairman has broad authority to ensure the orderly conduct of the meeting. This includes discretion to recognize stockholders or proxies who wish to speak, and to determine the extent of discussion on each item of business. Rules governing the conduct of the meeting will be available at the meeting along with the agenda. The Chairman may also rely on applicable law regarding disorderly conduct to ensure that the meeting is conducted in a manner that is fair to all stockholders.
The Board of Directors recommends a vote FOR each of the 13 director nominees listed below. The persons named as proxies will vote FOR the election of these 13 nominees to hold office as directors until the next Annual Meeting of Stockholders and until their successors are elected and qualify, unless stockholders specify otherwise. If any of such nominees become unavailable for any reason, it is intended that the proxies will vote for the election of such substitute persons as may be designated by the Board of Directors. Directors are elected by a plurality of the votes cast. The 13 candidates receiving the highest number of votes will be elected.
No family relationship exists between any of the director nominees or executive officers of the Company.
The Board of Directors has adopted Corporate Governance Guidelines which include the following:
At all times a substantial majority of the Board will be independent, as that term is defined in relevant law and the NYSE listing standards;
Directors who (1) retire or change their principal employment, (2) reach retirement age of 72, or (3) take action that creates a conflict of interest with the Company, must submit a letter of resignation from the Board. The Board may accept or reject a letter of resignation. It is the Boards general policy that directors will not stand for reelection after reaching age 72;
The Board and Board committees will conduct annual self-evaluations;
Directors participate in an annual strategic planning retreat, which provides directors a detailed overview of the Companys strategic business plans and an opportunity to access senior management of the Company;
All non-management directors will meet in executive session at least quarterly;
The Compensation Committee will evaluate the Chief Executive Officers performance annually. This evaluation is based in part on a self-evaluation by the Chief Executive Officer that is reviewed by all the nonemployee directors. The annual evaluation will take into account the Chief Executive Officers performance measured against established goals. After the process has been completed, the Compensation Committee will set the Chief Executive Officers compensation;
Directors will have full access to officers and employees of the Company; and
The Board and each committee have the power to hire independent legal, financial or other advisers, without consulting or obtaining the approval of any officer of the Company.
The Companys Corporate Governance Guidelines may be found on the Companys Web site at www.hormelfoods.com under Investors - Corporate Governance. A copy of the Corporate Governance Guidelines is available in print free of charge to any stockholder who requests it.
The Company has adopted a Code of Ethical Business Conduct that covers its directors, officers and employees. This Code of Ethical Business Conduct may be found on the Companys Web site at www.hormelfoods.com under Investors - Corporate Governance. A copy of the Code of Ethical Business Conduct is available in print free of charge to any stockholder who requests it.
The Companys officers and directors are subject to stock ownership guidelines. Officers are expected to hold Company stock equivalent to 2.5 to 5 times their annual base salary, depending on position. Directors are expected to hold Company stock equivalent to 4 times their annual retainer. The value of shares individually owned, held in Company benefit plans, and deferred in the Companys deferred compensation plans are counted toward the guidelines. Individual ownership of shares is determined under Section 16 of the Securities Exchange Act of 1934, as amended.
The guidelines were adopted effective January 1, 2005. All officers and directors have an initial five year phase-in period to comply with the guidelines. Newly elected officers and directors have five years from their election to comply with the guidelines. Officers promoted to a level requiring higher stock ownership under the guidelines have five years to achieve compliance.
The Companys Corporate Governance Guidelines require that a substantial majority of the Companys directors be independent. The NYSE listing standards require that a majority of the Companys directors be independent and that the Audit, Compensation and Governance Committees be comprised entirely of independent directors. The Board of Directors has adopted standards to assist it in making the annual determination of each directors independence status. These Director
Independence Standards are consistent with the NYSE listing standards. The Director Independence Standards are posted on the Companys Web site at www.hormelfoods.com under Investor - Corporate Governance. A director will be considered independent if he or she meets the requirements of the standards and the independence criteria in the NYSE listing standards.
The Board of Directors has affirmatively determined that the following directors have no direct or indirect material relationship with the Company and satisfy the requirements to be considered independent:
The Board also has determined that each of the Companys Audit, Compensation, Contingency and Governance Committees is composed solely of independent directors. In making the independence determinations, the Board of Directors reviewed all of the directors relationships with the Company. This review is based primarily on a review of the responses of the directors to questions regarding employment, business, family, compensation and other relationships with the Company and its management. In making the independence determination for Mr. Pearson, the Board considered the relationship arising out of the transactions in the ordinary course of business between the Company and Hy-Vee, Inc., a customer of the Company. The board determined that this relationship was not material.
Board of Directors and Committees - The Board of Directors conducts its business through meetings of the Board and its committees. The Board of Directors held six regularly scheduled meetings and one special meeting during the last fiscal year. Each director attended at least 88% of the total meetings during the fiscal year of the Board and Board committees on which he or she served, with one exception. Susan I. Marvin attended 67% of the total meetings of the Board and Board committees on which she served. Ms. Marvin missed two Board meetings and related committee meetings to attend funerals. The Chair of the Governance Committee presides at executive sessions of the nonmanagement directors.
The Board of Directors has established the following Board committees: Audit, Compensation, Governance, Pension Investment and Contingency. The table below provides membership through October 1, 2007 for each of the Committees and meeting information for fiscal 2007.
* Committee Chair
The table below provides membership for each of the Committees effective October 1, 2007.
* Committee Chair
Each of the Audit, Compensation and Governance Committees has adopted and operates under a written charter. These charters may be found on the Companys Web site at www.hormelfoods.com under Investors - Corporate Governance. Copies of these charters are available in print free of charge to any stockholder who requests them.
Audit Committee - Each member of the Audit Committee is financially literate as determined by the Board. The Board also determined that E. Peter Gillette, Jr. and John L. Morrison each is an audit committee financial expert, as defined by the rules of the Securities and Exchange Commission (SEC). Mr. Gillette retired from the Board on October 1, 2007. The duties of the Audit Committee include the following:
Select and evaluate the performance of the independent registered public accounting firm;
Discuss with the internal auditors and independent registered public accounting firm the overall scope and plans for their respective audits;
Ensure that the independent registered public accounting firm is accountable to the Committee and that the firm has no relationship with management or the Company that would impede their independence;
Review and discuss with management and the external auditors the quarterly and annual financial statements of the Company;
Establish procedures for the handling of complaints received by the Company regarding accounting, internal controls or auditing matters, including the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters;
Provide an open avenue of communication between the internal auditors, the external auditors, Company management and the Board of Directors;
Understand the Companys key areas of risk and assess the steps management takes to manage such risk; and
Oversee the Companys Code of Ethical Business Conduct, including assessment of the steps management takes to assure the Companys compliance with all applicable laws and regulations and corporate policies.
Compensation Committee - The duties of the Compensation Committee include the following:
Establish compensation arrangements for all officers of the Company;
Engage a compensation consultant to review the Companys compensation programs;
Make recommendations to the Board regarding incentive compensation and equity-based compensation plans, and administer such plans; and
Make recommendations to the Board regarding compensation to be paid to the Companys directors.
Governance Committee - The duties of the Governance Committee include the following:
Establish criteria for new directors and evaluate potential candidates;
Make recommendations to the Board regarding the composition of Board committees;
Review the Companys executive succession plans;
Periodically assess the Companys adherence to its Corporate Governance Guidelines;
Evaluate objectives and policies regarding the Companys management of its human resources; and
Oversee the annual evaluation of the Board and the Chief Executive Officer.
The Governance Committee recommends new director nominees to the Board. The Committee determines the selection criteria of director nominees based upon the Companys needs at the time nominees are considered. In evaluating director candidates, the Committee will consider a candidates:
Broad-based experience at the policy-making level in business, government, education or the public interest;
Ability to qualify as an independent director; and
Ability and willingness to devote time and energy to effectively carry out all Board responsibilities.
Identifying and Evaluating Nominees for Director - The Governance Committee is responsible for establishing procedures to identify and review the qualifications of all nominees for Board membership. The Committee considers nominations of director candidates made by current directors, an independent search firm, senior management, and the Companys stockholders. In 2007, the independent search firm SpencerStuart was paid a fee to assist the Committee in identifying and evaluating potential director nominees. The Governance Committee applies the same criteria for consideration of stockholder nominees as it does to nominees proposed by other sources.
Stockholders wishing to make a recommendation may do so by contacting the Governance Committee, c/o Corporate Secretary, Brian D. Johnson, at 1 Hormel Place, Austin, Minnesota 55912. Stockholders should send:
1. Name of the candidate and a brief biographical sketch and resume;
2. Contact information for the candidate and a document evidencing the candidates willingness to serve as a director if elected; and
3. A signed statement as to the submitting stockholders current status as a stockholder and the number of shares currently held.
The Governance Committees procedures include making a preliminary assessment of each proposed nominee. Such assessment is based upon the resume and biographical information, an indication of the individuals willingness to serve, and business experience and leadership skills. This information is evaluated against the criteria set forth above and the Companys specific needs at that time. Based upon a preliminary assessment of the candidate(s), those who appear best suited to meet the Companys needs may be invited to participate in interviews, which are used to further evaluate candidates.
On the basis of information learned during this process, the Governance Committee determines which nominee(s) to recommend to the Board to submit for election at the next Annual Meeting of Stockholders. The Board selects new Board nominees based on its assessment and consideration of various factors. These factors include the current Board profile, the long-term interests of stockholders and the needs of the Company, and the goal of creating an appropriate balance of knowledge, experience and diversity on the Board. No candidate meeting the criteria for director nomination was submitted by a stockholder for the 2008 Annual Meeting of Stockholders.
Contingency Committee - The Contingency Committee considers the matters the Board refers to the Contingency Committee. Such matters would require the deliberation and decision of disinterested and independent directors.
Pension Investment Committee - The Pension Investment Committee establishes investment policies for the Companys defined benefit pension plans. The Committee also periodically reviews investments for consistency with those policies.
The Company encourages, but does not require, its Board members to attend the Annual Meeting of Stockholders. Last year all but one of the Companys directors attended the Annual Meeting of Stockholders.
Interested parties may communicate with the Board of Directors by sending a letter directed to the Board of Directors, nonemployee directors or specified individual directors, and addressed to: Corporate Secretary, Brian D. Johnson, 1 Hormel Place, Austin, Minnesota 55912. All communications, whether signed or anonymous, will be directed to the Chair of one of the Committees based on the subject matter of the communication, or to the nonemployee directors or the specified directors, if so addressed.
The Company provides the following elements of compensation to nonemployee directors:
Annual retainer of $40,000, with half paid on February 1 and the other half paid on August 1;
Additional retainer of $5,000 per year for chairperson of the Compensation, Governance, Pension Investment and Contingency Committees, with half paid on February 1 and the other half paid on August 1;
Additional retainer of $8,000 per year for chairperson of the Audit Committee, with half paid on February 1 and the other half paid on August 1;
Meeting fee of $1,500 for attendance at each regular Board meeting, with $4,500 for attendance at three-day annual strategic planning retreat and Board meeting;
Meeting fee of $500 for attendance by telephone at a special Board meeting;
Meeting fee of $1,000 for attendance in person at each committee meeting;
Meeting fee of $500 for attendance by telephone at each committee meeting;
An award of 2,500 restricted shares of stock on February 1; and
A grant of 4,000 stock options on February 1, with an exercise price equal to the fair market value of one share of the Companys common stock based on the NYSE closing price of the stock at the end of that day ($37.92 on February 1, 2007).
On October 1, 2007, the Compensation Committee approved a grant to each of the two newly nominated directors, Mr. Crews and Mr. Pearson, of a prorated award of restricted shares of stock and stock options. This grant consisted of 866 restricted shares of stock and 1,385 stock options. These stock options have an exercise price equal to the fair market value of one share of the Companys common stock based on the NYSE closing price of the stock on October 1, 2007 ($35.89).
Directors may defer all or a portion of retainer and meeting fees under the Companys Nonemployee Director Deferred Stock Plan. Deferred fees times 105% are credited to stock units under the plan. The stock units have the same value as Company common stock and receive dividend equivalents. Stock units become payable in shares of Company common stock following termination of service as a director.
The award of restricted shares and grant of stock options were made pursuant to the terms of the stockholder-approved 2000 Stock Incentive Plan. Each nonemployee director and the Company entered into a Restricted Stock Award Agreement and a Stock Option Agreement in forms previously filed with the SEC. The restricted shares are subject to a five-year restricted period. However, the restricted shares vest immediately upon death, disability, or retirement from the Board, subject to a minimum one-year restricted period. Directors receive declared dividends on the restricted shares prior to vesting. The options have a ten-year term and are exercisable six months after the date of grant.
Directors who are employees of the Company receive $100 for each Board meeting they attend. This meeting fee has remained unchanged since 1934. Compensation of employee directors is included in the Summary Compensation Table on page 26. The Summary Compensation Table also includes Mr. McCoys compensation for his service as a director following his retirement as an employee effective December 31, 2006.
The Compensation Committee makes recommendations to the Board of Directors regarding compensation to be paid to the Companys directors. The Committee uses a compensation consultant, Pearl Meyer & Partners, to provide nonemployee
director compensation advice each year. The consultant analyzes each element of director compensation and total director compensation for the same peer group of companies which is used to evaluate executive compensation. See How Annual Compensation Decisions are Made on page 24 for a list of these peer companies. The Committee reviews the consultants report of competitive director compensation and determines whether to recommend to the Board a change in the Companys nonemployee director compensation. If such a change is recommended by the Committee, the full Board would then determine whether to approve the change.
The fiscal 2007 compensation of our nonemployee directors is shown in the following table.
DIRECTOR COMPENSATION FOR FISCAL 2007
The Audit Committee oversees the Companys financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal controls. The Committee has the sole authority to appoint or replace the Companys independent registered public accounting firm. The independent registered public accounting firm reports directly to the Audit Committee.
The Audit Committee has reviewed and discussed the Companys fiscal year 2007 audited financial statements with management and with Ernst & Young LLP, the Companys independent registered public accounting firm. The Audit Committee also has discussed with Ernst & Young LLP the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees), as amended.
The Audit Committee also has received from Ernst & Young LLP the written disclosures and the letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and has discussed with Ernst & Young LLP their independence from the Company.
Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the fiscal year 2007 audited financial statements be included in the Companys Annual Report on Form 10-K for the year ended October 28, 2007, for filing with the SEC.
The following table shows aggregate fees billed to the Company for fiscal years ended October 28, 2007 and October 29, 2006 by Ernst & Young LLP, our independent registered public accounting firm.
Audit Fees - Audit fees are for audit of the Companys financial statements for fiscal years 2007 and 2006. Audit fees also include reviews of the financial statements included in the Companys quarterly reports on Form 10-Q.
Audit-Related Fees - Audit-related fees are for services related to the performance of the audit. These services include benefit plan audits, due diligence related to acquisitions, and consultations concerning financial accounting and reporting standards.
Tax Fees - Tax fees are for services related to tax compliance, tax advice and tax planning.
The Audit Committee has adopted policies and procedures requiring preapproval of audit and nonaudit services provided to the Company by the independent registered public accounting firm. The Committee preapproved all of the services performed by Ernst & Young LLP during fiscal years 2007 and 2006. The Audit Committee approves all audit and nonaudit fees in advance at each quarterly meeting.
The Audit Committee of the Board of Directors appointed Ernst & Young LLP as the independent registered public accounting firm to audit the consolidated financial statements of the Company and its subsidiaries for the fiscal year ending October 26, 2008. Ernst & Young LLP has served as the Companys public auditors since 1931.
At the Annual Meeting, stockholders will be asked to ratify the appointment of Ernst & Young LLP as the Companys independent registered public accounting firm for the fiscal year ending October 26, 2008. Stockholder approval of this appointment is not required. The Board is requesting ratification in order to obtain the views of the Companys stockholders. If the appointment is not ratified, the Audit Committee will reconsider its selection. Representatives of the firm are expected to be present at the meeting, will be afforded an opportunity to make a statement, and will be available to respond to appropriate questions.
Ratification of this appointment will require the affirmative vote of the majority of the shares of common stock represented in person or by proxy at the meeting. The Board of Directors recommends a vote FOR ratification of the appointment of Ernst & Young LLP. Properly dated and signed proxies will be so voted unless stockholders specify otherwise.
The Board of Directors is asking for stockholder approval of the Hormel Foods Corporation Operators Share Incentive Compensation Plan (the Operators Share Plan). Since 1932, the Company has used the Operators Share Plan to provide a group of management employees an annual cash incentive based on net earnings per share of common stock. Material features of the Operators Share Plan are described briefly below. The full text of the Operators Share Plan is included in this proxy statement as Appendix A.
Subject to stockholder approval, the Operators Share Plan will be effective as of October 29, 2007. The Company is seeking stockholder approval of the Operators Share Plan to enable certain compensation paid under the Operators Share Plan to continue to qualify as deductible performance-based compensation under Section 162(m) of the Internal Revenue Code.
The stockholders have previously approved the Operators Share Plan, with the last approval being at the 2003 Annual Meeting. That approval was intended to enable certain compensation paid under the Operators Share Plan to qualify as
deductible performance-based compensation under Section 162(m). Internal Revenue Service regulations require stockholder approval every five years of the material terms of the performance goals of certain plans. This requirement applies to the Operators Share Plan because the Compensation Committee has discretion to establish the performance goals.
Stockholders are thus being asked to approve the material terms of the performance goals included in the Operators Share Plan. For purposes of Section 162(m), the material terms of the performance goals include:
· The employees eligible to receive compensation under the plan;
· A description of the business criteria on which the performance goal is based; and
· The maximum amount of compensation that can be paid to an employee under the performance goal.
Each of these aspects of the Operators Share Plan is described below.
The Compensation Committee and the full Board of Directors have approved some modifications of the Operators Share Plan. Stockholders are being asked to approve these modifications of the Operators Share Plan. These modifications all relate to the economic value-added (EVA) portion of Operators Shares awards, described below, and include:
· The maximum percentage of a participants Operators Shares award that may be subject to achievement of EVA goals is increased from 33% to 50%;
· The Committee may award up to a 20% goal setting premium to participants when the Company as a whole or a specific business unit, as applicable, plans and achieves a specified improvement in profit over the previous fiscal year, and meets or exceeds the established EVA goal;
· The EVA multiplier that is applied to a portion of the Operator Shares will now be subject to a maximum of 3.0 times net earnings per share (no maximum previously applied); and
· The procedural steps for determining the EVA portion of an Operators Share award have been restated to better describe the steps used by the Committee. This restatement of procedures will have no effect on award amounts.
The Operators Share Plan is administered by the Compensation Committee. Management employees selected by the Committee participate in the Operators Share Plan. Participants are awarded the right to receive cash compensation equal to the net earnings per share of the Company for a fiscal year multiplied by a number designated by the Committee. These rights are referred to as Operators Shares. The number by which the net earnings per share will be multiplied is referred to as the number of Operators Shares. The Committee may delegate to the Chief Executive Officer the authority to award Operators Shares to management employees other than executive officers.
No participant may be granted a total award under the Operators Share Plan of more than two million Operators Shares.
There are currently approximately 110 management employees participating in the Operators Share Plan. This number includes the named executive officers (NEOs) listed in the Summary Compensation Table. Compensation listed under Non-Equity Plan Incentive Compensation for the NEOs in the Summary Compensation Table on page 26 was paid pursuant to the Operators Share Plan.
Operators Share Plan participants are paid the amount of dividends declared on the Companys common stock multiplied by the number of Operators Shares held (Dividend Equivalents). Such Dividend Equivalents are paid at the same time the dividend is paid to stockholders.
Each participant receives a payment after fiscal year end which is equal to the number of Operators Shares held multiplied by the Companys net earnings per share, minus Dividend Equivalents paid during the year. The Committee may modify this payment based on achievement of annual Company wide or business unit based EVA goals. EVA is calculated to determine
the economic profit earned by the relevant business unit, by measuring net operating profit after taxes minus a charge for use of capital.
The percentage of the Operators Shares subject to the EVA component ranges from 25% to 50%. EVA is compared to the EVA target established at the beginning of the year to determine an EVA multiplier. The EVA multiplier is applied to a portion of the Operators Shares. Under this process, a participant may receive less than what he or she would have otherwise received under the Operators Share Plan if EVA goals are not met. If the EVA goals are exceeded, the participant will receive more than what he or she would have otherwise received under the Operators Share Plan.
The Committee has also added a goal setting premium, up to 20%, to the EVA-based portion of the Operators Share Plan. That premium rewards participants when the Company as a whole or a specific business unit, as applicable, plans and achieves a specified improvement in profit over the previous fiscal year, and meets or exceeds the established EVA goal.
See Operators Share Incentive Compensation Plan on page 18 for more information on why Operators Shares are used in the Companys executive compensation programs, and how the Operators Share Plan works.
The Companys Board of Directors may amend or terminate the Operators Share Plan at any time. The Compensation Committee may correct any defect or inconsistency in the Operators Share Plan in order to put the Operators Share Plan into effect. The Operators Share Plan has no fixed termination date.
Internal Revenue Code Section 162(m) generally limits to $1 million the amount that the Company may deduct in any year for compensation paid to a covered employee. The Companys Chief Executive Officer and the four most highly compensated executive officers other than the CEO are considered a covered employee. However, performance-based compensation is not subject to the $1 million deduction limit. To qualify as performance-based compensation, the following requirements must be satisfied:
· Payments must be computed on the basis of an objective, performance-based compensation standard determined by a committee consisting solely of two or more outside directors;
· The material terms under which the compensation is to be paid, including the business criteria upon which the performance goals are based and a limit on the maximum number of Operators Shares that may be awarded to any participant, are approved by a majority of the stockholders; and
· The committee certifies that the applicable performance goals were satisfied before payment of any performance-based compensation is made.
The Companys Compensation Committee is intended to consist solely of outside directors as defined under Section 162(m). Except for the payment of Dividend Equivalents, the Operators Share Plan is intended to comply with the requirements of Section 162(m) with respect to performance-based compensation.
Vote Required; Board Recommendation
The affirmative vote of the majority of the shares of common stock represented in person or by proxy at the meeting is required for approval of the Operators Share Plan under Section 162(m) of the Code. The Board of Directors recommends a vote FOR approval of the Operators Share Plan. Properly dated and signed proxies will be so voted unless stockholders specify otherwise.
Information regarding the Companys equity compensation plans as of October 28, 2007, is shown below:
Information as to the persons or groups known by the Company to be beneficial owners of more than five percent of the Companys common stock, as of December 3, 2007, is shown below:
Information as to beneficial ownership of the Companys common stock by directors, nominees, executive officers of the Company named in the Summary Compensation Table on page 26, and all directors and executive officers of the Company as a group as of December 3, 2007, is shown below:
* Less than one percent
The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis that follows this report. Based on this review and discussion, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into the Companys Annual Report on Form 10-K for the year ended October 28, 2007.
The Compensation Committee of the Board of Directors establishes and administers the compensation and benefit programs for executive officers. The Compensation Committee consists exclusively of nonemployee, independent directors. The Committee uses a compensation consultant, Pearl Meyer & Partners, to provide compensation advice independent of Company executives. The Committee and their consultant work with senior management to implement and monitor the programs the Committee approves.
The Companys executive compensation programs are designed to achieve two primary goals:
· Attract and retain highly qualified executive officers; and
· Incentify the behavior of executive officers to create stockholder value.
These two goals are achieved by providing a competitive total compensation program that offers competitive fixed pay (i.e., base salary and benefits) along with variable, performance-based pay designed to reward performance.
Total compensation for executive officers is leveraged heavily toward incentive compensation rather than base salary. Incentive compensation is comprised of both short-term and long-term incentives. An appropriate balance of short-term and long-term incentives assures executive officers are properly balancing the need for consistent annual performance with the need for improved performance over a multi-year timeline. This compensation balance provides both significant risk and opportunity for reward based on Company performance.
The Companys philosophy is to target total compensation for the management team at the 75th percentile of the market data commensurate with length of service and performance. The management team includes the named executive officers (NEOs) listed in the Summary Compensation Table. We believe the performance levels required to realize this target compensation level position the Companys performance in the top quartile of its peers. This should in turn deliver above market returns to our stockholders. The Committee believes that this strategy has allowed the Company to attract and retain a skilled, experienced management team that has delivered strong, consistent financial and stock price performance.
Executive officer compensation consists of five parts:
· Base Salary;
· Operators Share Incentive Compensation Plan;
· Stock Incentive Plan;
· Long-Term Incentive Plan; and
· Benefits and Perquisites.
Base salary levels are the fixed portion of the executive compensation package. Base salary levels typically represent less than 50% of an executive officers total compensation. Salary levels are based on a combination of factors. These factors include competitive pay levels, the executives experience and tenure, the executives responsibilities, the executives performance and the Companys overall annual budget for merit increases. In keeping with the Companys desire for a performance-oriented pay program, base salaries are generally below competitive median levels.
Why Operators Shares?
The Operators Share Incentive Compensation Plan (the Operators Share Plan) is a short-term incentive. The basic concept of the Operators Share Plan structure has been in place since 1932. The Operators Share Plan currently includes approximately 110 employees.
This annual cash incentive plan rewards employee participants for Company financial performance, as measured by earnings per share (EPS). The concept behind this incentive plan is that as the EPS of the Company rises over time, so too the executives compensation rises. Improved earnings per share, over time, results in an increase in the stock price, which improves stockholder value.
In addition to generating consistent earnings, the Committee also wants to ensure that senior management is focused on:
· Sound capital management decisions;
· Business unit specific results; and
· Achieving planned financial results.
The Company thus includes Economic Value Added (EVA) compensation as a component of the EPS-based Operators Shares calculation. EVA is a measure that recognizes the productive use of capital assets and therefore rewards wise, responsible decision-making regarding capital investments. Capital investments include accounts receivable, inventory, new plants and equipment, and acquisitions.
The EVA component for the Operators Shares can be either Company or business unit based, depending upon the responsibility of the participant. The Committee establishes EVA targets for the Company and each business unit at the beginning of the fiscal year, based on the Companys approved fiscal year financial plan. The components of the financial plan that determine EVA are used in establishing the EVA target.
To determine EVA results, operating income per the Companys audited financial statements is first adjusted for items which include:
· Minority interest and/or equity in earnings adjustments to convert these items from a financial basis to an EVA basis;
· Interest or other income that is included for EVA;
· Inventory valuation adjustments that are excluded from EVA;
· A charge on the capital employed in various business units; and
· A charge for taxes.
The resulting EVA is then further adjusted for specific excluded items, including non-recurring transactions, to calculate final EVA. Final EVA is then compared to the established EVA target. The difference between the final EVA and the target is put through a calculation that uses an interval to determine the EVA multiplier. An interval is established by the Committee for the Company and each business unit at the beginning of the fiscal year. The Committee has determined the interval should be set at a level where the resulting EVA multiplier is expected to be within a range of 0 to 2.0 based on actual results.
The EVA multiplier is applied to a portion of the Operators Shares. The EVA multiplier can be as low as 0, and had no cap in fiscal 2007. Going forward, the multiplier will have a cap of 3.0. The percentage of the Operators Shares subject to the EVA component ranges from 25% at the lowest participant level up to 33% for others, including the CEO. Going forward, this highest level will be 50%, including for the CEO. The Committee also added a 10% goal setting premium to the EVA-based portion of the Operators Share Plan. That premium rewards participants when the Company as a whole or a specific business unit, as applicable, plans and achieves at least a 10% improvement in profit over the previous fiscal year, and meets or exceeds the established EVA goal.
The Compensation Committee believes that the primary measure of Company EPS appropriately focuses all participants on overall Company performance. The secondary EVA measure further holds senior management accountable for their capital investment decisions. The goal setting premium encourages aggressive goal setting and accomplishment of these aggressive goals.
How the Plan Works
Upon initial eligibility for plan participation, an employee receives a grant of Operators Shares. Operators Shares are phantom units, not actual shares of stock or the right to receive the value of stock. Operators Shares represent the right to receive cash compensation under the Operators Share Plan.
Grants of Operators Shares to executive officers are determined by the Compensation Committee. Grants of Operators Shares to management employees other than executive officers are determined by the Chief Executive Officer. Operators Shares are awarded at
a level that results in total compensation targeted at the 75th percentile of the market data commensurate with length of service and performance.
During the year, participants receive dividend equivalents. These are cash payments equal to declared dividends multiplied by the number of Operators Shares held. The sum of these cash payments made during the year is deducted from the final Operators Shares payment at year end.
Following the end of each fiscal year, the Company calculates each participants Operators Share Plan award. This is a three part calculation:
1. The non-EVA adjusted portion of the Operators Shares award is calculated first. This is done by multiplying the Companys annual EPS by the number of Operators Shares identified for that participant to be treated as non-EVA adjusted. This currently is 67-75% of the Operators Shares based on the participants position.
2. The EVA adjusted portion of the Operators Shares award is then calculated. This is done by multiplying the Companys annual EPS by the number of Operators Shares identified for that participant to be treated as EVA adjusted. This currently is 25-33% of the Operators Shares based on the participants position. This result is further multiplied by the EVA multiplier, described above.
3. If the participant qualified for the Company or business unit profit goal setting premium, it is calculated as well. This is done by multiplying the participants EVA adjusted number of Operators Shares by the EPS times 10%.
The sum of these three parts is the total Operators Shares award for the year. This award is decreased by the total amount of dividend equivalents paid during the year to determine the final Operators Shares payment.
For example - CEO Operators Share Plan award calculation for fiscal 2007:
· Mr. Ettingers number of Operators Shares is 850,000
· The earnings per share was $2.17
· His Operators Shares subject to the EVA adjustment is 33%
· His EVA multiplier is .87
As another example Operators Share Plan award calculation for an NEO achieving the 10% goal setting premium for fiscal 2007:
· Mr. Rays number of Operators Shares is 590,000
· The earnings per share was $2.17
· His Operators Shares subject to the EVA adjustment is 33%
· His EVA multiplier is 1.07
The fiscal 2007 EVA
multiplier and goal setting premium varied for the NEOs, based upon the total
Company results or their
SEC rules provide that the Company does not have to disclose EVA targets and EVA results if doing so would result in competitive harm to the Company. Current and historical EVA targets and EVA results are maintained by the Company as confidential and proprietary information. The Committee believes disclosure of such information would result in competitive harm to the Company. Such harm would be caused by factors including the following:
· EVA targets and EVA results are financial measures determined at a business unit level, which is a type of competitively sensitive information that the Company does not publicly disclose;
· EVA targets reflect detailed planned results, which is a type of competitively sensitive information that the Company does not publicly disclose; and
· EVA targets and EVA results are a non-traditional financial metric and their disclosure may cause confusion.
The EVA adjusted portion of an executives Operators Shares bonus is more difficult to achieve than the remainder of the Operators Shares bonus because of the additional variables involved. These variables include the EVA target and interval established by the Committee and the need to manage capital investment decisions and actual EVA results. The goal setting premium applies only when meeting aggressive goals and is thus more difficult to attain than more typical performance.
Historically, the EVA multiplier has ranged from zero for some executives to approximately 2.0 for others. On average, executives have achieved an EVA multiplier of approximately 1.0. The Committee expects that on average executives will continue to achieve an EVA multiplier of approximately 1.0. Achievement of a 1.0 or higher EVA multiplier indicates that the EVA target has been met or exceeded.
The Compensation Committee reviews the Operators Shares holdings of each executive officer on an annual basis as part of its assessment of total compensation levels. For this review, Operators Shares are valued based on the target EPS established at the beginning of the fiscal year. As appropriate, the Compensation Committee periodically awards additional Operators Shares to maintain a competitive, performance-oriented compensation package. In combination with base salary, Operators Shares award levels are targeted to deliver total annual compensation between median and top quartile levels relative to market pay levels, taking into consideration length of service and performance.
The Hormel Foods Corporation 2000 Stock Incentive Plan is administered by the Compensation Committee and is considered long-term compensation. The Plan allows the Committee to grant different types of equity awards, including stock options, restricted stock and other stock-based awards. In general, the Committee uses stock options as the primary form of annual equity award. The Committee favors stock options because the option structure focuses executives on continued stock price improvement. Stock option grants typically vest equally over a four year period and have a term of ten years. This extended vesting period and term encourage executives to weigh how business decisions made in the near-term affect the Companys long-term stock price performance.
The Compensation Committee also has built a safeguard into administration of the plan. Stock options are granted annually effective as of the first Tuesday of December. This practice ensures that options grant dates cannot be manipulated for a more favorable strike price. Options are always granted at the market price of the Company stock at the date of grant. Options thus provide compensation to the optionee only to the extent the market price of the stock increases between the date of grant and the date the option is exercised. Options are intended to provide long-term compensation tied specifically to increases in the price of the Companys stock, thereby aligning the financial interests of executives and stockholders.
The Companys officers are expected to hold Company stock equivalent to 2.5 to 5 times their annual base salary, depending on position. See Stock Ownership Guidelines on page 5 for more information on the Companys stock ownership guidelines.
How Awards are Determined
During 2007, 151 members of senior management received a stock option grant. The Compensation Committee determines, with the assistance of its outside consultant, the amount of options to be granted to executive officers, including the CEO. The Chief Executive Officer adds his input and recommendations regarding grants to executives (other than himself) and other
eligible employees. The Committee reviews such recommendations and determines all final option grants to all eligible employees.
Options are generally awarded based on the influence an employees position is considered by the Compensation Committee to have on stockholder value. The number of options awarded may vary up or down from prior year awards based on the level of an individual executive officers contribution to the Company in a particular year, determined in part on the recommendation of the Chief Executive Officer. The Compensation Committees determination of option grants in fiscal year 2007 and in past years took into consideration a number of factors. These factors include past grants to the individual, total compensation level (relative to other executives and relative to market data), contributions to the Company during the last completed fiscal year, potential for contributions in the future, and as a component of total compensation targeted at the 75th percentile of the market data.
Why a Long-Term Incentive Plan?
Company executive officers are eligible to participate in the Hormel Foods Corporation 2005 Long-Term Incentive Plan (LTIP). This Plan is designed to provide a small group of key employees selected by the Compensation Committee with an incentive to maximize stockholder value. This Plan provides an additional incentive opportunity based on the Companys long-term Total Shareholder Return performance compared to its peers. The Committee feels that the relative performance nature of the LTIP balances the absolute performance of the stock options, and recognizes the cyclicality of the business. In other words, if the Company underperforms in a very strong market, the options may be valuable, but the LTIP will be worthless. Conversely, if the Company outperforms its peers in a very weak market, the options may be worthless, but the LTIP would generate a reward.
How the LTIP Works
Total Shareholder Return measures the increase in stock price, assuming reinvested dividends. Each participant, including the NEOs, is given a target dollar award opportunity for the three-year performance period. There are a total of 33 participants in the current LTIP. In selecting participants, and the amount of cash incentive which can be earned by each participant, the Compensation Committee considers various factors. These factors include the nature of the services rendered by the employee, his or her present and potential contributions to the success of the Company, and as a component of total compensation targeted at the 75th percentile of the market data.
The current three-year LTIP performance cycle began October 31, 2005 and will end October 26, 2008. If the Companys actual Total Shareholder Return for the three-year period is at the 50th percentile of the peer group, then participants will earn the target award. If the Companys actual Total Shareholder Return ranks highest among the peers, then the award payout will equal three times the target opportunity. No award will be paid unless actual Total Shareholder Return is above the 25th percentile of the peers. The Compensation Committee retains discretion to reduce the amount of any award payout. The peer group consists of 34 publicly traded companies in the food industry, listed below.
LTIP Peer Companies
During the current three-year LTIP performance cycle, new officers may be elected or officers participating in the current LTIP may be promoted. In these cases, the Compensation Committee may grant shadow awards. While shadow awards are not made under the LTIP, they are similar to LTIP awards. Shadow award target opportunities and actual awards are calculated in the same manner as LTIP awards. As such, shadow awards have the practical effect of either adding a new officer to the current three-year LTIP performance cycle on a pro-rata basis or increasing a promoted officers opportunity under the current three-year LTIP performance cycle commensurate with their new position. Two NEOS received shadow awards in fiscal 2007 upon their promotion. These awards are included in the Grants of Plan-Based Awards for Fiscal 2007 table on page 28.
The Company maintains noncontributory defined benefit pension plans covering substantially all salaried employees. Pension benefits for salaried employees are based upon the employees highest five years of compensation (as described below) of the last 10 calendar years of service and the employees length of service.
The Salaried Employees Pension Plan provides an annual pension benefit based on the base benefit and supplemental benefit. The base benefit is .95% of the average annual compensation multiplied by the years of benefit service, limited to 40 years, at retirement. The supplemental benefit is .65% of average annual compensation less covered compensation multiplied by the years of benefit service, limited to 35 years. Average annual compensation is the average of the highest five years of compensation of the last ten completed calendar years at retirement. For this purpose, annual compensation consists of base salary and Operators Share Plan payments. Covered compensation is derived from a published table based on year of birth that averages the maximum social security wage bases during the participants working life.
The earliest retirement age is 55 years, after completion of 15 years of service. The base benefit is discounted ½% for every month retirement occurs before age 62. However, an employee may retire with 30 years of service after attaining age 60 and avoid the discount on the base benefit. The supplemental benefit is multiplied by an adjustment factor which increases from .48 at age 55 to 1.00 at age 65.
Why have a SERP?
The Supplemental Executive Retirement Plan (SERP) provides an annual pension benefit to a select group of management, including all NEOs, based on the same pension formula as the Salaried Employees Pension Plan. The SERP bases the benefit on compensation that is not allowable in the Salaried Employees Pension Plan. Such compensation includes amounts over the qualified plan compensation limit, currently $225,000, restricted stock awards, and deferrals to nonqualified deferred income plans. Rather than adding a different measure of value, the SERP merely restores the value executives lose under the Pension Plan (described above) due to government limitations.
In 2007, the SERP was modified to discontinue lump sum payouts and reinstate the early retirement discount and benefit service limits for members of the Executive Committee. Mr. Ray and Mr. McCoy were grandfathered in these provisions. The Compensation Committee granted Mr. McCoy 20-6/12 years of eligibility service in the SERP for service in the food industry prior to his employment by the Company. This service, however, was not used to calculate benefit payment.
Why have a NQDCP?
In the same way that the SERP eliminates the government-imposed limitations on the Pension Plan, the nonqualified deferred compensation plan (NQDCP) eliminates the government-imposed limitations on the Companys 401(k) plan. The Companys NQDCP, the Executive Deferred Income Plan, permits eligible employees, including all NEOs, to annually defer certain compensation. This compensation includes base salary, Operators Shares dividend equivalents and year-end payments, long-term incentive plan payments and any restricted stock unit awards. The Company may make discretionary contributions to the participants deferral accounts.
Deferrals of cash compensation are credited with deemed investment gains and losses. Similar to a 401(k) plan, the participant may choose from a number of investments, none of which provide above-market interest rates. Any stock deferrals are automatically credited to a stock unit account whose return reflects the return on the Companys common stock. Payments under the plan are made on the date(s) selected by each participant in accordance with the terms of the plan or on such other
date(s) as specified in the plan. Payments relating to deferrals of cash compensation are paid in cash, and payments relating to stock deferrals are paid in shares of Company common stock that are authorized for issuance under the Companys 2000 Stock Incentive Plan.
Mr. Ray also participates in a frozen nonqualified deferred income plan. This plan allows him to defer $1,000 each year and receive earnings on his deferrals on a pre-determined interest rate.
In connection with the plan, the Company has created a grantor trust, commonly known as a rabbi trust. The Company funds this trust as deemed necessary. The assets of the trust will be used to pay benefits under the plan, but the assets of the trust are subject to the claims of general creditors of the Company.
The Committee believes that the SERP and the NQDCP together provide a competitive retirement package for executives that is consistent with the retirement benefits provided to all Company employees.
Why have a SIPE?
The Survivor Income Plan for Executives (SIPE) is provided in addition to the life insurance plan which is available to all salaried employees. As with the qualified pension plans, there are limits on the levels of insurance provided under the broad-based plan. The Company offers the SIPE to provide a death benefit commensurate with the income levels of the participants. The SIPE is available to a designated group of management employees, including all NEOs.
The SIPE pays a benefit to the employees spouse or dependent child of 60% of average salary (based on a five-year average) for up to 20 years if the eligible employee died while actively employed. If the payment is made to a beneficiary instead of a spouse or dependent child, the maximum duration is five years (for participants joining the SIPE in 2000 or after) or 20 years (for participants joining the SIPE prior to 2000). If the eligible employee died after retirement, payment to the spouse or dependent child is 1% per year of service up to 40% of average salary for 15 years. If the payment is made to a beneficiary, not to a spouse or dependent child, the maximum duration is five years (for participants joining the SIPE in 2000 or after) or ten years (for participants joining the SIPE prior to 2000).
The Company provides limited perquisites to its executive officers. The Company maintains two corporate aircraft, but executive use of the aircraft is strictly limited to business purposes. In the past, executives were reimbursed for personal financial planning expenditures, up to a set dollar amount. Beginning in fiscal 2008, the Company discontinued this financial planning perquisite.
The Company maintains a condominium in Vail, Colorado. The condominium is made available to 132 members of senior management as a vacation destination. The taxable value, according to IRS regulations, of the use of this property is charged as taxable income to the employee. The Company provides cars to executive officers. Due to business travel needs, the Company has chosen to provide a Company car in lieu of paying mileage for the use of a personal vehicle. The annual taxable value, according to IRS regulations, of the vehicle is charged as taxable income to the employee.
The Company provides a designated group of managers, including executive officers, an annual medical physical. Assuring these key managers are in good health minimizes the chance business operations will be interrupted due to an unexpected health condition.
The Committee reviews and approves recommendations for pay changes for the CEO, each of his 12 direct reports and a group of 16 additional executive officers who hold key positions within the Company. Each year, the Committee asks its outside consultant to update the competitive analysis for each of these positions.
For the NEOs, the consultant develops market consensus data using both a peer group of companies similar to the Company in size and industry (listed below) and a combination of several compensation surveys. The use of peer group data (1) provides the Committee with more specific information regarding market practices than is available from surveys and (2) allows the
Committee to compare the Companys relative pay positioning in relation to the Companys relative performance positioning to ensure a proper pay-for-performance alignment. The use of survey data (1) provides information based on specific position responsibilities rather than pay level and (2) provides pay information for positions that fall below the NEOs. The consultant works with the Companys Vice President - Human Resources to ensure a proper understanding of the roles, responsibilities and revenue scope of each position reviewed.
Hormel Foods Pay and Performance Peer Group
The companies in this Pay and Performance Peer Group are different than the LTIP Peer Companies because the purpose of each list is different. The Pay and Performance Peer Group consists of food companies which are more similar in size to the Company. This makes them a better match to use for compensation comparison purposes. The LTIP Peer Companies are a broader group of food companies which are publicly traded, allowing for determination of total shareholder return. Since total shareholder return is not dependent on company size, a broader group of companies can be included. This broader group assures there will be a sufficient number of comparison companies at the end of the three-year LTIP performance cycle if some of the companies are eliminated by acquisition, bankruptcy, etc.
Upon completing the competitive analysis, the consultant provides the Committee with a report of the relative pay and performance findings. Based on the results of this analysis, the Committee discusses strategic goals for the program and establishes broad parameters for annual pay decisions, including desired changes in overall pay mix. The consultant then works with the CEO and the Committee Chair to develop an initial set of recommendations for annual pay decisions, consistent with the guidelines established by the Committee. The consultant presents preliminary recommendations to the CEO and Chair based on each executives market positioning and relative internal positioning. The CEO and Chair then modify those recommendations based on their assessment of each individuals performance and contribution. The initial results are then submitted to the Committee for review and discussion. Based on the Committee discussion, modifications are made to the initial recommendations, as appropriate, and the Committee approves the final recommendations at a subsequent meeting. The CEO does not participate in the Committees process for establishing the CEOs compensation.
For fiscal year 2007, the Committee approved salary increases, changes to Operators Shares grants, and stock option grants for the NEOs and other key executives. Both Mr. Ettinger and Ms. Feragen have been recently promoted to their positions as CEO and CFO, respectively. When a current employee is promoted, it is the Committees practice to make meaningful increases to compensation levels over a two-to-four year period to reflect the new position and responsibilities. Accordingly, both Mr. Ettinger and Ms. Feragen received significant increases to all elements of their compensation for fiscal 2007. Notwithstanding these increases, the target total compensation opportunities for both Mr. Ettinger and Ms. Feragen are below competitive median levels. The Committee considers this positioning appropriate in light of their position tenure, and would look to improve their competitive positioning over time, as warranted by experience and performance in their respective roles.
The other three NEOs, Messrs. Ray, Bross and Fielding, are experienced in their positions. As such annual increases in their target total compensation opportunities were more modest. The target total compensation opportunities for each of these three more-tenured executives is consistent with the Companys stated 75th percentile philosophy. The Committee considers this positioning appropriate in light of the significant experience, expertise and proven track record of these three individuals.
Compensation decisions for our executive officers are made with full consideration of the tax implications, including deductibility under Internal Revenue Code Section 162(m). Section 162(m) limits the deductibility of compensation paid to certain executive officers in excess of $1 million annually, but excludes performance-based compensation from this limit.
Our stockholders have approved the Companys Operators Share Plan, LTIP and 2000 Stock Incentive Plan for the purpose of qualifying those plans as performance-based compensation under Section 162(m). The Committee believes that compensation paid pursuant to these plans will be deductible, except for dividend equivalents paid under the Operators Share Plan. Such dividends may not be deductible in full for any NEO in a given year. In this Proxy Statement, we are asking that stockholders approve the Companys Operators Share Plan to enable certain compensation paid under the Plan to continue to qualify as deductible performance-based compensation under Section 162(m).
The following tables and narrative disclosure should be read in conjunction with the Compensation Discussion and Analysis, which presents the objectives of our executive compensation and benefit programs. The table below presents compensation for fiscal year 2007 for individuals who served as Chief Executive Officer and Chief Financial Officer and for each of the other three most highly compensated executive officers who were serving as executive officers at the end of fiscal 2007.