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International Flavors & Fragrances DEF 14A 2007

SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.     )

Filed by the Registrant [X]
Filed by a Party other than the Registrant [    ]

Check the appropriate box:

[    ]  Preliminary Proxy Statement
[    ]  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[X]  Definitive Proxy Statement
[    ]  Definitive Additional Materials
[    ]  Soliciting Material under Rule 14a-12

International Flavors & Fragrances Inc.

(Name of Registrant as Specified In Its Charter)

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

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[    ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

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International Flavors & Fragrances Inc.

521 West 57th Street
New York, NY 10019

Dear Shareholder:

I am pleased to invite you to attend the 2007 Annual Meeting of Shareholders of International Flavors & Fragrances Inc. to be held on Tuesday, May 8, 2007 at 10:00 A.M. Eastern Time at our offices at 521 West 57th Street, New York, New York 10019. (Attendees are requested to enter at 533 West 57th Street.) Details regarding the business to be conducted are described in the accompanying Notice of Annual Meeting and Proxy Statement. Also enclosed are a proxy card and a return envelope for you to vote.

Your vote is very important to us. Whether or not you plan to attend the meeting, I hope that you will vote as soon as possible. You may vote over the Internet, by telephone or by completing, signing and mailing the enclosed proxy card(s).

Sincerely,

Robert M. Amen
Chairman and Chief Executive Officer

March 23, 2007




2007 ANNUAL MEETING OF SHAREHOLDERS
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT

TABLE OF CONTENTS


NOTICE OF ANNUAL MEETING OF SHAREHOLDERS 4
QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING 6
CORPORATE GOVERNANCE 11
Corporate Governance Guidelines 11
Board and Committee Memberships 11
Audit Committee 11
Compensation Committee 12
Processes and Procedures Regarding Compensation 12
Nominating & Governance Committee 13
Lead Director 13
Independence of Directors and Committee Members and Related Person Matters 13
Board and Committee Meetings 14
Shareholder Communications 14
Director Candidates 15
Code of Business Conduct and Ethics 15
DIRECTORS’ COMPENSATION 16
Share Ownership Guidelines 18
Director Compensation Table 18
SECURITIES OWNERSHIP OF MANAGEMENT, DIRECTORS AND CERTAIN OTHER PERSONS 20
Beneficial Ownership Table 20
Section 16(a) Beneficial Ownership Reporting Compliance 21
Shareholder Proposals 21
PROPOSALS REQUIRING YOUR VOTE 22
Item 1—Election of Directors 22
Information about Nominees 22
Item 2—Ratification of Independent Registered Public Accounting Firm 25
Principal Accountant Fees and Services 25
Audit Committee Pre-Approval Policies and Procedures 25
Audit Committee Report 26
Item 3—Reapproval of the Business Criteria Used For Setting Performance Goals Under the 2000 Stock Award and Incentive Plan 27
EXECUTIVE COMPENSATION 36
Compensation Discussion & Analysis 36
Compensation Committee Report 50
Compensation Committee Interlocks and Insider Participation 51
Summary Compensation Table 51
All Other Compensation 54

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Grants of Plan-Based Awards 56
Equity Compensation Plans 59
Outstanding Equity Awards at Fiscal Year-End 60
Option Exercises and Stock Vested 63
Pension Benefits 66
Non-Qualified Deferred Compensation 67
Termination of Employment and Change of Control Arrangements 68
OTHER MATTERS 75

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INTERNATIONAL FLAVORS & FRAGRANCES INC.
521 West 57th Street
New York, NY 10019

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

TIME: 10:00 A.M. Eastern Time on Tuesday, May 8, 2007
PLACE: International Flavors & Fragrances Inc.
521 West 57th Street
New York, NY 10019
(Attendees are requested to enter at 533 West 57th Street.)
ITEMS OF BUSINESS: 1. To elect nine members of the Board of Directors, each for a one-year term.
2. To ratify the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2007.
3. To reapprove the business criteria used for setting performance goals under the 2000 Stock Award and Incentive Plan
4. To consider such other business as may properly be brought before the 2007 Annual Meeting and any adjournment or postponement.
RECORD DATE: You are entitled to vote at the 2007 Annual Meeting if you were a shareholder of record at the close of business on March 15, 2007.
ANNUAL MEETING ADMISSION: Admission to the meeting will be by ticket only. If you are a shareholder of record and plan to attend, please check the box on the enclosed proxy card. If your shares are not registered in your own name and you plan to attend, please request a ticket by writing to the Office of the Secretary, International Flavors & Fragrances Inc., 521 West 57th Street, New York, New York 10019. Evidence of your ownership, which you can obtain from your bank or broker, must accompany your letter.
PROXY VOTING: It is important that your shares be represented and voted at the meeting. You may vote your shares by voting in person at the meeting, by completing and returning your proxy card or by voting on the Internet or by telephone. See details under the heading ‘‘How do I vote?’’

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INSPECTION OF LIST OF SHAREHOLDERS OF RECORD: A list of the shareholders of record as of March 15, 2007 will be available for inspection at the 2007 Annual Meeting.
By Order of the Board of Directors,
Dennis M. Meany
Senior Vice President, General Counsel
and Secretary

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QUESTIONS AND ANSWERS
ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING

Why am I receiving these proxy materials?

We are providing these proxy materials in connection with the solicitation by the Board of Directors of International Flavors & Fragrances Inc., a New York corporation (‘‘IFF,’’ the ‘‘Company,’’ ‘‘we,’’ ‘‘us’’ or ‘‘our’’), of proxies to be used at our 2007 Annual Meeting of Shareholders and at any adjournment or postponement. Shareholders are invited to attend the 2007 Annual Meeting, which will take place at 10:00 a.m. on Tuesday, May 8, 2007, and are requested to vote on the proposals described in this Proxy Statement.

The Notice of Annual Meeting, Proxy Statement, form of proxy and voting instructions, together with our 2006 Annual Report, are being mailed to shareholders starting on or around March 23, 2007.

What information is contained in these materials?

The information included in this Proxy Statement relates to proposals you will vote on at the 2007 Annual Meeting, the voting process, the compensation of directors and our most highly paid executive officers in 2006 and certain other information.

Why did I receive more than one set of proxy materials?

You may receive multiple sets of proxy materials if you hold your shares of IFF’s common stock in multiple accounts (such as through a brokerage account and an employee benefit plan). If you are a participant in the Company’s Retirement Investment Fund Plan (401(k)) and have common stock in a plan account, the proxy also serves as voting instructions for the plan trustee. You should vote your shares as described in each proxy or instruction card you receive.

If you are a shareholder of record, you may contact the Office of the Secretary, International Flavors & Fragrances Inc., 521 West 57th Street, New York, New York 10019 (telephone: (212) 765-5500) if you are currently receiving multiple copies of the Annual Report and Proxy Statement and want to request delivery of a single copy in the future. If your shares are held in ‘‘street name’’ and you want to increase or decrease the number of copies of the Annual Report and Proxy Statement delivered to your household in the future, you should contact your broker, bank or other custodian who holds the shares on your behalf.

What is the difference between a ‘‘shareholder of record’’ and a ‘‘street name’’ holder?

If your shares are registered directly in your name with IFF’s transfer agent, American Stock Transfer & Trust Company (‘‘AST’’), you are considered a ‘‘shareholder of record’’ or a ‘‘registered shareholder’’ of those shares. In this case, your proxy materials have been sent to you directly by IFF.

If your shares are held in a stock brokerage account or by a bank, trust or other nominee or custodian, including shares you may own as a participant in the Company’s Retirement Investment Fund Plan (401(k)), you are considered the ‘‘beneficial owner’’ of those shares, which are held in ‘‘street name.’’ These proxy materials have been forwarded to you by your broker, bank, trustee or other holder who is considered the shareholder of record of those shares. As the beneficial owner, you have the right to direct your broker, bank, trustee or other holder of record as to how to vote your shares by using the instruction card included in the mailing or by following their instructions for voting by telephone or on the Internet.

Who is entitled to vote at the 2007 Annual Meeting?

IFF’s Board of Directors has established March 15, 2007 as the record date for the 2007 Annual Meeting of Shareholders. Only shareholders of record at the close of business on the record date are entitled to receive this notice and to vote at the 2007 Annual Meeting. At the close of business on March 15, 2007, there were 89,201,987 outstanding shares of IFF’s common stock. Each share of common stock is entitled to one vote on each matter properly brought before the 2007 Annual Meeting.

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What will I vote on?

There are three proposals scheduled to be voted on at the 2007 Annual Meeting

•  the election of nine members of the Board of Directors, each to hold office for a one-year term until the Annual Meeting in 2008;
•  the ratification of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2007; and
•  the reapproval of the business criteria used for setting performance goals under the 2000 Stock Award and Incentive Plan.

How many votes must be present to hold the 2007 Annual Meeting?

A ‘‘quorum’’ is necessary to hold the 2007 Annual Meeting. A quorum is established if the holders of a majority of the votes entitled to be cast by shareholders are present at the meeting, either in person or by proxy. Abstentions and broker non-votes are counted as present for purposes of determining a quorum, but are not counted for purposes of determining the approval of the proposals to be acted upon. Shares of common stock represented by executed proxies received by the Company will be counted for purposes of establishing a quorum at the meeting, regardless of how or whether such shares are voted on any specific proposal.

What are the voting recommendations of IFF’s Board of Directors?

IFF’s Board of Directors recommends that you vote your shares as follows:

•  ‘‘FOR’’ the election of each of the nine nominees to the Board;
•  ‘‘FOR’’ the ratification of the selection of PricewaterhouseCoopers LLP as IFF’s independent registered public accounting firm for 2007; and
•  ‘‘FOR’’ the reapproval of the business criteria used for setting performance goals under the 2000 Stock Award and Incentive Plan.

How do I vote?

You may vote in several different ways:

In person at the 2007 Annual Meeting

You may vote in person at the 2007 Annual Meeting. You may also be represented by another person at the meeting by executing a proxy properly designating that person. If you are the beneficial owner of shares held in ‘‘street name,’’ you must obtain a legal proxy from your broker, bank or other holder of record and present it to the inspectors of election with your ballot to be able to vote at the meeting.

By mail

You may vote by completing, signing, dating and returning the enclosed proxy card(s) in the postage-paid envelope we have provided.

By telephone

You may vote by calling one of the telephone numbers on your proxy card. Please have your proxy card handy when you call and use any touch-tone phone to transmit your voting instructions.

By Internet

You may vote by using the Internet, www.proxyvote.com, to submit your voting instructions. You should have your proxy card handy when you go online. If you vote on the Internet, you may also request electronic delivery of future proxy materials.

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Telephone and Internet voting for shareholders of record will be available until 11:59 PM Eastern Time on May 7, 2007. The availability of telephone and Internet voting for beneficial owners of shares held in ‘‘street name’’ will depend on your broker, bank or other holder of record. We recommend that you follow the voting instructions on the materials you receive. A mailed proxy must be received by May 7, 2007 in order to be voted at the Annual Meeting.

If you vote by telephone or by Internet, you do not have to return your proxy card or voting instruction card. However, even if you plan to attend the 2007 Annual Meeting, we recommend that you vote your shares in advance so that your vote will be counted if you later decide not to attend the meeting.

How can I change my vote?

If you are a shareholder of record, you may revoke your proxy before it is exercised by:

•  Sending a written notice to the Office of the Secretary, International Flavors & Fragrances Inc., 521 West 57th Street, New York, New York 10019 stating that your proxy is revoked. The notice must be received prior to the 2007 Annual Meeting;
•  Signing and dating a new, later-dated proxy card and sending it to the Office of the Secretary so that it is received prior to the 2007 Annual Meeting;
•  Voting by telephone or using the Internet after the date of your proxy card and before the 2007 Annual Meeting; or
•  Attending the 2007 Annual Meeting and voting in person by ballot. Your attendance at the 2007 Annual Meeting in person will not cause your previously granted proxy to be revoked unless you specifically so request or you vote by ballot at the meeting.

If you are a beneficial owner of shares held in ‘‘street name’’, you may submit new proxy voting instructions by contacting your bank, broker or other holder of record.

How are votes counted?

In the election of the directors, your vote may be cast ‘‘FOR’’ all of the nominees or your vote may be ‘‘WITHHELD’’ with respect to one or more of the nominees. For the other proposals, your vote may be cast ‘‘FOR’’, ‘‘AGAINST’’ or you may ‘‘ABSTAIN’’.

Under New York law, abstentions and broker non-votes, if any, will not be counted as votes cast, and therefore will have no effect on the outcome of the matters to be voted on at the 2007 Annual Meeting.

All executed proxies will be voted in accordance with the voting instructions contained in those proxies. If you are a shareholder of record and you return your signed proxy card but do not indicate your voting preferences, the persons named in the proxy card will vote your shares represented by that proxy in accordance with the recommendation of our Board of Directors as described on page 7 under the heading ‘‘What are the voting recommendations of IFF’s Board of Directors?’’

Who will count the votes?

A representative from AST, IFF’s transfer agent, will tabulate the votes and serve as the Company’s inspector of election at the 2007 Annual Meeting.

What is an abstention?

An ‘‘abstention’’ is a properly signed proxy card which is marked ‘‘abstain’’ as to a particular matter.

What is a broker non-vote?

A ‘‘broker non-vote’’ occurs when a brokerage firm or other nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have authority to vote on that particular proposal without receiving voting instructions from the beneficial owner. Under New York

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Stock Exchange (‘‘NYSE’’) rules, certain proposals, such as the election of directors (Item 1 in this Proxy Statement) and the ratification of the selection of an independent registered public accounting firm (Item 2 in this Proxy Statement), are considered ‘‘routine’’ matters, and brokers generally may vote on behalf of beneficial owners who have not furnished voting instructions, subject to the rules of the NYSE concerning transmission of proxy materials to beneficial owners, and subject to any proxy voting policies and procedures of those brokerage firms. For ‘‘non-routine’’ proposals, brokers may not vote on the proposals unless they have received voting instructions from the beneficial owner, and to the extent that they have not received voting instructions, brokers report such number of shares as ‘‘non-votes’’.

How many votes are needed to approve the proposals?

A plurality of the votes cast is required for the election of directors. Pursuant to the law of the State of New York, IFF’s state of incorporation, only votes cast ‘‘FOR’’ the election of directors will be counted in determining whether a nominee for director has been elected. However, in January 2007, our Board of Directors revised our Corporate Governance Guidelines to provide that in an uncontested election, any nominee for director who receives a greater number of votes ‘‘WITHHELD’’ from his or her election than votes ‘‘FOR’’ such election must promptly offer his or her resignation. A description of the process that will be followed under our Corporate Governance Guidelines if such an event occurs is located in this Proxy Statement under the heading ‘‘Proposals Requiring Your Vote—Item 1—Election of Directors’’.

The affirmative vote of a majority of the votes cast is required to ratify the selection of PricewaterhouseCoopers LLP (PwC) as the Company’s independent registered public accounting firm for 2007—and to reapprove the business criteria used for setting performance goals under the 2000 Stock Award and Incentive Plan.

Where can I find the voting results of the 2007 Annual Meeting?

IFF will announce preliminary voting results at the 2007 Annual Meeting and publish final results in our Quarterly Report on Form 10-Q for the 2007 second quarter.

Do I need an admission ticket to attend the 2007 Annual Meeting?

You will need an admission ticket or proof that you own IFF shares to enter the 2007 Annual Meeting. If you are a shareholder of record and plan to attend, please check the box on your proxy card to note that you will be attending the meeting. If you hold your shares in street name and plan to attend the meeting, you must bring evidence of your ownership of IFF stock, such as your bank or brokerage account statement, to be admitted. You may also request a ticket by writing to the Office of the Secretary, International Flavors & Fragrances Inc., at the address noted above. Evidence of your ownership, which you can obtain from your bank or broker, must accompany your letter. You must also present a form of personal photo identification in order to be admitted to the meeting.

How do I obtain a separate set of proxy materials if I share an address with other shareholders?

When more than one shareholder of record of IFF’s common stock shares the same address, we may deliver only one Annual Report and one Proxy Statement to that address unless we have received contrary instructions from one or more of those shareholders. Similarly, brokers and other nominees holding shares of IFF’s common stock in ‘‘street name’’ for more than one beneficial owner with the same address may deliver only one Annual Report and one Proxy Statement to that address if they have received consent from those beneficial owners. We will deliver promptly upon written or oral request a separate copy of the Annual Report and Proxy Statement to any shareholder, including a beneficial owner of shares held in ‘‘street name,’’ at a shared address to which a single copy of either of those documents was delivered. To receive additional copies of the Annual Report and Proxy Statement, or if you are a shareholder of record and would like to receive separate materials for future annual meetings, you may call or write the Office of the Secretary, International Flavors & Fragrances Inc., 521 West 57th Street,

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New York, New York 10019 (telephone: 212-765-5500). If you are a beneficial owner of shares held in ‘‘street name’’ and would like to receive separate materials, you may contact your bank, broker or other holder of record.

Who pays for the cost of this proxy solicitation?

IFF will pay the entire cost of soliciting proxies. In addition to solicitation by mail, proxies may be solicited on the Company’s behalf by directors, officers or employees in person, by telephone, by facsimile or by electronic mail. The Company has retained Georgeson Inc. to assist in proxy solicitation for a fee of $6,000 plus expenses. The Company will reimburse banks, brokers and other custodians, nominees and fiduciaries for their costs in sending proxy materials to the beneficial owners of the Company’s common stock.

Can I access the Notice of Annual Meeting, Proxy Statement and 2006 Annual Report on the Internet?

A copy of the Notice of Annual Meeting, Proxy Statement and 2006 Annual Report are available through the Investor Relations link on IFF’s website, www.iff.com. No other information contained on the website is incorporated by reference in or considered to be a part of this document.

How can I obtain a copy of IFF’s Annual Report on Form 10-K for the year ended December 31, 2006?

IFF will on a request in writing provide without charge to each person from whom proxies are being solicited for the 2007 Annual Meeting a copy of our Annual Report on Form 10-K for the year ended December 31, 2006 including the financial statements and any schedules, required to be filed with the Securities and Exchange Commission, excluding exhibits. We may impose a reasonable fee for providing the exhibits to the Form 10-K. Requests should be made to Office of the Secretary, International Flavors & Fragrances Inc., 521 West 57th Street, New York, N.Y. 10019. IFF’s Annual Report on Form 10-K is also available free of charge through the Investor Relations link on our website, www.iff.com.

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CORPORATE GOVERNANCE

Corporate Governance Guidelines

Our Board of Directors has responsibility for overseeing the management of the Company. The Board has adopted Corporate Governance Guidelines which summarize the practices the Board will follow with respect to Board membership and selection, responsibilities of directors, Board meetings, evaluation of the Chief Executive Officer (‘‘CEO’’), succession planning, Board committees and director compensation. In January 2007 the Nominating and Governance Committee and the Board reviewed and revised the Corporate Governance Guidelines. A copy of the Company’s Corporate Governance Guidelines is available through the Investor Relations link on the Company’s website, www.iff.com, and is available in print to any shareholder who requests it.

Board and Committee Memberships

Our Board has an Audit Committee, a Compensation Committee and a Nominating and Governance Committee, each of which operates under a written charter adopted by the Board. Each committee reviews its charter at least annually and recommends charter changes to the Board as appropriate. In December 2006, each of the Audit Committee and the Compensation Committee reviewed and revised its charter. In January 2007, the Nominating and Governance Committee reviewed and revised its charter. The revised charter of each committee was subsequently approved by the Board. Under the charter of each committee, the committee annually reviews the committee’s own performance. A current copy of each of the Audit Committee, Compensation Committee and Nominating and Governance Committee charters is available through the Investor Relations link on the Company’s website, www.iff.com. Each of these documents is also available in print to any shareholder who requests it.

In January 2007, the Board approved new members of the Board committees effective March 1, 2007. The table below provides current membership for each of the Board committees.


Name Audit Compensation Nominating &
Governance
Lead Director
Margaret Hayes Adame X      
Robert M. Amen        
Günter Blobel     X     
J. Michael Cook   X (Chairman)    
Peter A. Georgescu     X (Chairman)  
Alexandra A. Herzan   X       
Henry W. Howell, Jr. X (Chairman)      
Arthur C. Martinez X      X    X
Burton M. Tansky   X       
X = Committee member

Audit Committee

Our Audit Committee oversees and reviews the Company’s financial reporting process and the integrity of the Company’s financial statements and financial reporting practices, the Company’s internal control environment, systems and performance, the audit process of the Company’s independent accountant and the qualifications, independence and performance of the independent accountant, the process and performance of the Company’s internal audit function and the procedures for monitoring compliance with laws and regulations and with the Company’s Code of Business Conduct and Ethics.

Our Board has determined that each of Mr. Howell and Mr. Martinez is an ‘‘audit committee financial expert’’ under applicable rules of the SEC and has accounting or related financial management expertise as required by applicable NYSE rules. The Board has also determined that all members of the Audit

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Committee meet the financial literacy standards of the NYSE. None of our Audit Committee members currently serves on the audit committee of more than three public companies. The Audit Committee has established, together with members of the Company’s management, a hiring policy for employees or former employees of the Company’s independent accountant, consistent with the requirements of the NYSE. Under procedures adopted by the Audit Committee, the Audit Committee also reviews and pre-approves all audit and non-audit services performed by the Company’s independent accountant.

Compensation Committee

Our Compensation Committee is responsible for establishing executive officer compensation, for making recommendations to the full Board concerning director compensation and for overseeing the compensation and benefit programs for other employees.

Processes and Procedures Regarding Compensation

Role of the Compensation Committee

Under our Compensation Committee’s charter, the Compensation Committee has responsibility to assist the Board in ensuring that long term and short term compensation provide performance incentives to management, and that compensation plans are appropriate and competitive and reflect the goals and performance of management and the Company. As discussed in more detail under the heading Compensation Discussion & Analysis beginning at page 36, the Compensation Committee considers, as appropriate and as contemplated by Company policies, plans and programs, Company-wide performance against applicable annual and long-term performance goals pre-established by the Compensation Committee. If the Compensation Committee deems it appropriate, it may delegate any of its responsibilities to one or more Compensation Committee members or subcommittees.

The Compensation Committee works with the Board, the Nominating and Governance Committee and the Company’s senior management. The Compensation Committee establishes an annual schedule for matters to be considered by the Compensation Committee, including approval of our senior executives’ performance objectives and compensation actions. Recommendations from the Nominating and Governance Committee concerning the compensation and benefits of non-employee directors are reviewed and considered by the Compensation Committee before the Compensation Committee makes recommendations to the Board. The Compensation Committee also reviews and adopts, and where necessary or appropriate, recommends for Board and/or shareholder approval, our compensation and benefits policies, plans and programs and amendments thereto, taking into account economic and business conditions, and comparative/competitive compensation and benefit performance levels. Eligible employees and the type, amount and timing of compensation and benefits under our compensation and benefits policies, plans and programs also are determined by the Compensation Committee. The Compensation Committee retains independent compensation consultants to assist in evaluating senior executive and non-employee director compensation. The Compensation Committee’s compensation consultant for 2006 was W.T. Haigh & Company.

Role of Compensation Consultants

As discussed in more detail in this Proxy Statement under the heading Compensation Discussion & Analysis—Role of Outside Advisors, the Compensation Committee directly engaged W.T. Haigh & Company as their independent expert compensation consultant to conduct a ‘‘benchmarking’’ survey in 2005. The Compensation Committee also directly engaged W.T. Haigh & Company for recommendations on executive and non-employee director compensation in 2005 and 2006. Our CEO and our Senior Vice President, Human Resources work with the Compensation Committee and the Committee’s compensation consultant. Management also retains its own outside compensation consultants. In 2006, management retained Steven Hall & Partners for advisory services in connection with executive compensation matters, including the Company’s post-employment benefits, and Buck Consultants for actuarial work, plan structure and similar services for the Company’s retirement plans. Our Nominating and Governance Committee reviews and considers the compensation and benefits of non-employee directors, and with the assistance of W.T. Haigh & Company, recommends changes that it deems appropriate to the Compensation Committee.

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Role of Management

Our Compensation Committee relies on management for legal, tax, compliance, finance, human resource recommendations, data and analysis for the design and administration of the Company’s compensation, benefits and perquisite programs for our senior executives. The Compensation Committee combines this information with the recommendations and information from its independent compensation consultants.

Our CEO, Senior Vice President, Human Resources, Senior Vice President, General Counsel and Secretary and Vice President and Deputy General Counsel generally attend Compensation Committee meetings. Our CEO does not participate in making compensation decisions or setting performance goals for his own compensation. CEO performance and compensation are discussed in executive session, with advice and participation from an independent compensation consultant where and as requested by the Committee. Our CEO and Senior Vice President, Human Resources, actively participate in the performance and compensation discussions for our senior executives, including making recommendations to the Compensation Committee as to the amount and form of compensation, without the presence of any other members of senior management. Our CEO and Senior Vice President, Human Resources discuss the appropriate form and amount of non-employee director compensation with the Nominating and Governance Committee for consideration in preparing that Committee’s recommendation to the Compensation Committee.

Nominating & Governance Committee

Our Nominating and Governance Committee monitors Board composition and director qualification requirements, identifies qualified individuals to serve on the Board, recommends to the Board a slate of nominees for election by the shareholders at the annual meeting of shareholders, reviews potential Board candidates, reviews management succession plans and monitors corporate governance issues.

Lead Director

The role of our Lead Director includes (i) presiding over meetings of non-employee directors and providing prompt feedback regarding those meetings to the Chairman and CEO, (ii) providing suggestions for Board meeting agendas, with the involvement of our Chairman and CEO and input from other directors, (iii) assuring that the Board and the Chairman and CEO understand each other’s views on all critical matters, (iv) monitoring significant issues occurring between Board meetings and assuring Board involvement when appropriate, (v) serving as a sounding board for our Chairman and CEO and (vi) ensuring, in consultation with our Chairman and CEO, the adequate and timely exchange of information and supporting data between the Company’s management and the Board.

During most of 2006, Mr. Martinez served as Lead Director. From May 9, 2006 to June 30, 2006, when Mr. Amen was appointed Chairman and CEO, Mr. Martinez served as Interim Chairman and CEO. During that time, Mr. Howell served as Interim Lead Director. In 2006, Mr. Martinez, both while serving as Lead Director and while serving as Interim Chairman and CEO, chaired an ad hoc committee of the Board in connection with the search for a CEO.

Independence of Directors and Committee Members and Related Person Matters

The Board has affirmatively determined that each of Mmes. Adame and Herzan, Dr. Blobel and Messrs. Cook, Georgescu, Howell, Martinez and Tansky has no material relationship with the Company affecting his or her independence as a director and that each is ‘‘independent’’ within the meaning of the Board’s independence standards, which are the same categorical independence standards as established by the New York Stock Exchange (‘‘NYSE’’) in Section 303A.02 of the NYSE Listed Company Manual. In making each of these independence determinations, the Board considered and broadly assessed, from the standpoint of materiality and independence, all of the information provided by each director in response to detailed inquiries concerning his or her independence and any direct or indirect business, family, employment, transactional or other relationship or affiliation of such director with the Company. No significant relationships or transactions were disclosed in connection with the current independence

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consideration and determinations. The Board has also determined that each member of the Audit Committee, Compensation Committee and Nominating and Governance Committee is independent under these independence standards and, with respect to each member of the Audit Committee, is also independent under the independence criteria required by the SEC for audit committee members and with respect to each member of the Compensation Committee, is an ‘‘outside director’’ pursuant to the criteria established by the Internal Revenue Service and is a ‘‘non-employee director’’ pursuant to criteria established by the SEC.

The Board has also determined the absence of any ‘‘related person transaction’’ since the beginning of 2006 involving any director, director nominee or executive officer of the Company, any known 5% shareholder of the Company or any immediate family member of any of the foregoing persons (together ‘‘related persons’’). A ‘‘related person transaction’’ generally means a transaction involving more than $120,000 in which the Company is a participant and in which a related person has a direct or indirect material interest under SEC rules.

In January 2007, the Board of Directors adopted a written policy for the review and the approval or ratification of any related person transaction. This policy is available through the Investor Relations link on the Company’s website, www.iff.com. The policy defines ‘‘related person’’ and ‘‘related person transaction’’ in a detailed manner. Under the policy, a related person transaction requires the approval or ratification of the Nominating and Governance Committee. The Audit Committee will be consulted if accounting issues are involved in the transaction. Under the policy, a related person transaction will only be approved or ratified if the Nominating and Governance Committee determines that it is being entered into in good faith and on fair and reasonable terms which are in the interest of the Company and its shareholders. No related person is to participate in the review of a transaction in which he or she may have an interest. In addition, except for non-discretionary contributions made pursuant to the Company’s matching contributions program, a charitable contribution by the Company to an organization in which a related person is known to be an officer, director or trustee will be subject to approval or ratification under the policy by the Nominating and Governance Committee. No transactions were required to have been reviewed and considered under this policy since its adoption.

Board and Committee Meetings

Our Board of Directors held eight meetings during 2006. The Audit Committee held eight meetings, the Compensation Committee held nine meetings and the Nominating and Governance Committee held five meetings during 2006. Each of our directors attended at least 75% of the total meetings of the Board and Committees on which he or she served during 2006. All of our directors who were serving on the day of last year’s Annual Meeting attended that meeting. Under our Corporate Governance Guidelines, unless there are mitigating circumstances, such as medical, family or business emergencies, Board members should endeavor to participate (either in person or by telephone) in all Board meetings and all Committee meetings of which the director is a member and to attend the Company’s annual meeting of shareholders. The non-management directors of the Company meet in executive session, without the presence of any corporate officer or member of management, in conjunction with regular meetings of the Board. During 2006, the non-management directors met in executive session as part of every Board meeting.

Shareholder Communications

Shareholders and other parties interested in communicating directly with the Lead Director, with the non-management directors as a group or with all directors as a group, may do so by writing to the Lead Director or the Non-Management Directors or the Board of Directors, in each case, c/o Secretary, International Flavors & Fragrances Inc., 521 West 57th Street, New York, New York 10019. The Nominating and Governance Committee has approved a process for handling letters received by the Company and addressed to the Lead Director, the non-management members of the Board or the entire Board. Under that process, the Secretary of the Company forwards to the Lead Director all correspondence received, without opening or screening.

14




Director Candidates

Our Nominating and Governance Committee has established a policy regarding the consideration of director candidates, including candidates recommended by shareholders. The Nominating and Governance Committee, together with other Board members, will from time to time as appropriate identify the need for new Board members. Proposed director candidates who would satisfy the criteria described below and who otherwise qualify for membership on the Board are identified by the Nominating and Governance Committee. In identifying candidates, the Nominating and Governance Committee seeks input and participation from other Board members and other appropriate sources so that all points of view can be considered and that the best possible candidates can be identified. The Nominating and Governance Committee may also engage a search firm to assist it in identifying potential candidates.

Members of the Nominating and Governance Committee and other Board members, as appropriate, will interview selected director candidates, evaluate the director candidates and determine which candidates are to be recommended by the Nominating and Governance Committee to the Board.

Under the Company’s policy regarding director candidates, if a shareholder wishes to submit a director candidate for consideration by the Nominating and Governance Committee, the shareholder must submit that recommendation to the Nominating and Governance Committee, c/o the Secretary of the Company, in writing, not less than 120 days nor more than 150 days prior to the anniversary date of the prior year’s annual meeting. The request must be accompanied by the same information concerning the director candidate and nominating shareholder as described in Section 3(a) of the Company’s By-laws for shareholder nominations for director to be presented at an annual shareholders meeting. The Nominating and Governance Committee may also request any additional background or other information from any director candidate or recommending shareholder as it may deem appropriate.

Board candidates are considered based on various criteria which may change over time and as the composition of the Board changes. At a minimum, our Nominating and Governance Committee considers the following factors as part of its review of all director candidates and in recommending potential director candidates to the Board:

•  Judgment, character, expertise, skills and knowledge useful to the oversight of the Company’s business;
•  Diversity of viewpoints, backgrounds, experiences and other demographics;
•  Business or other relevant experience; and
•  The extent to which the interplay of the candidate’s expertise, skills, knowledge and experience with that of other Board members will build a Board that is effective, collegial and responsive to the needs of the Company and to the requirements and standards of the NYSE and the SEC.

Code of Business Conduct and Ethics

We have adopted a Code of Business Conduct and Ethics (the ‘‘Code’’) that applies to our chief executive officer, principal financial officer, principal accounting officer and to all other Company directors, officers and employees. A copy of the Code is available through the Investor Relations link on our website, www.iff.com. The Code is also available in print to any shareholder who requests it. Only the Board of Directors or the Audit Committee of the Board may grant a waiver from any provision of the Code in favor of a director or executive officer, and any such waiver will be publicly disclosed. The Company will disclose substantive amendments to and any waivers from the Code granted to the Company’s chief executive officer, principal financial officer or principal accounting officer, as well as any other executive officer or director, on the Company’s website, www.iff.com.

15




DIRECTORS’ COMPENSATION

During 2006, compensation to our non-employee directors consisted of the following elements, which were approved by our Board with the assistance of independent compensation consultants:

Annual Cash Compensation

•  Each non-employee director receives an annual cash retainer of $50,000.
•  The Chairperson of the Audit Committee receives an annual cash retainer of $15,000. The Chairpersons of the Compensation Committee and Nominating and Governance Committee each receive an annual cash retainer of $7,500.
•  Each non-employee director receives a cash fee of $2,000 for each meeting of the Board attended. Each member of the Audit Committee receives a cash fee of $1,500 for each meeting of the Audit Committee attended. Members of the Compensation Committee and Nominating and Governance Committee each receive a cash fee of $1,500 for each meeting of the respective Committee attended.
•  Effective as of May 9, 2006, the Lead Director receives an additional annual cash fee of $25,000. Previously this fee was $7,500.

Annual Equity Compensation

•  In October of each year, each non-employee director receives an annual grant of 1,000 shares of our Common Stock from a pool of shares our Board authorized in September 2000. Each non-employee director is required to defer his or her annual stock grant until he or she ceases to serve as a director.
•  On the date of each annual meeting of shareholders, each non-employee director receives an annual grant of 750 Restricted Stock Units (RSUs) under our 2000 Stock Award and Incentive Plan. These RSUs vest on the third anniversary of the date of grant, except that (a) if a non-employee director terminates service due to death or disability, vesting of RSUs will be accelerated and (b) the RSUs continue to vest if the director retires from service after age 62.

Participation in Company Deferred Compensation Plan

•  Non-employee Directors are eligible to participate in our Deferred Compensation Plan (DCP). A non-employee Director may defer all or a portion of his or her cash compensation, as well as any RSUs, subject to any changes necessitated by recent changes in the tax law. Earnings on any deferrals into the interest bearing account of the DCP were not above market and thus are not included in the Director Compensation Table below. Additional details regarding our DCP are located in this Proxy Statement under the heading Non-Qualified Deferred Compensation at page 67. Non-employee directors are not entitled to matching contributions or the 25% premium on deferrals into our common stock fund described in that section.

Other Benefits

•  We reimburse our non-employee directors for travel and lodging expenses incurred in connection with their attendance at Board and Committee meetings and our shareholder meetings.
•  Each current and former director, including former employee directors, who began service as a director before May 14, 2003 is eligible to participate in our Director Charitable Contribution Program (DCCP). Under the DCCP, directors are paired together and the Company purchases $2,000,000 joint life insurance policies on the lives of each paired set of participating directors. The Company is the owner and sole beneficiary of the policies. After a covered director dies, the Company will donate $500,000 to one or more qualifying charitable organizations designated by the deceased director, and The IFF Foundation will donate an additional $500,000 in charitable contributions. Assuming no changes to current Federal tax laws relating to charitable contributions, and if certain other assumptions are met, the Company expects to be reimbursed for all of the premium costs paid by the Company and the after-tax cost of the Company’s anticipated charitable contributions pursuant to this program. Although individual directors

16




  derive no financial benefit from the DCCP since all tax deductions relating to the contributions accrue solely to the Company, the premiums the Company paid under this program are included in the All Other Compensation column of the 2006 Director Compensation Table at page 18. Directors first elected on or after May 14, 2003 do not participate in the DCCP.
•  All current directors, including those who participate in our DCCP, are eligible to participate in our Matching Gift Program. Under this Program, The IFF Foundation matches, on a dollar for dollar basis, contributions to qualifying charitable organizations up to a maximum of $10,000 per year.

At its meeting held on March 6, 2007, our Board, with the assistance of independent compensation consultants, approved changes in the compensation to be paid to our non-employee directors, effective as of the date of our 2007 Annual Meeting, as follows:

•  Non-employee directors will no longer receive cash fees for each Board or Committee meeting attended.
•  Non-employee directors will no longer receive the annual grant of 1,000 shares of our Common Stock or the annual grant of 750 RSUs that they currently receive.
•  Each non-employee director will receive an annual cash retainer of $175,000. Of this amount, $75,000 will be paid in cash in November of each year, which represents an increase from the $50,000 cash retainer each currently receives, and $100,000 will be paid in RSUs issued under our 2000 Stock Award and Incentive Plan. The RSUs will be granted on the date of each annual meeting of shareholders and will cliff vest on the third anniversary of the grant date. The number of RSUs to be issued will be based on the closing market price of the Company’s common stock on the grant date. Once the RSUs vest, each non-employee director will be required to defer all of the vested RSUs under our Deferred Compensation Plan until he or she separates from service on our Board of Directors. Given that RSUs will be deferred until each director’s separation from service and each director’s stock ownership will increase during his or her term of service, the minimum share ownership requirements that currently apply to directors will be eliminated.
•  The Chairperson of the Audit Committee will continue to receive an annual cash retainer of $15,000. The Chairpersons of the Compensation Committee and Nominating and Governance Committee will each receive an annual cash retainer of $10,000, an increase from the $7,500 each currently receives.
•  The Lead Director will receive an annual cash fee of $15,000, a decrease from the $25,000 he currently receives.
•  Non-employee directors will continue to be eligible to participate in our Deferred Compensation Plan.

The purpose of the changes is to simplify the structure of compensation for non-employee directors and to increase the longer term stock ownership by the non-employee directors. Directors who are employees of the Company do not receive any additional compensation for their service as a director.

17




Share Ownership Guidelines

The Board has established minimum ownership requirements for all non-employee directors with respect to the Company’s common stock. Each director is currently required to own shares whose market value equals seven times the director’s annual retainer, which the director must acquire during his or her first five years of Board tenure (or within five years after the requirements were established or the director’s annual retainer is revised). The 1,000 share annual stock grant is credited toward this obligation. The minimum share ownership requirements that currently apply to directors will be eliminated effective as of the 2007 Annual Meeting since each non-employee director will then be required to hold vested RSUs until he or she separates from service on the Company’s Board of Directors.

The following table details the compensation paid to or earned by our non-employee directors for the year ended December 31, 2006.

2006 DIRECTOR COMPENSATION


Name(1) Fees Earned or
Paid in Cash ($)(2)
Stock
Awards
($)(3)(4)
Option
Awards
($)(3)(5)
All Other
Compensation
($)(6)
Total ($)
(a) (b) (c) (d) (g) (h)
Margaret Hayes Adame $ 85,500
$ 75,943
$ 17,031
$ 9,026
$ 187,500
Gunter Blobel $ 64,000
$ 75,943
$ 17,031
$ 78,190
$ 235,164
J. Michael Cook $ 100,500
$ 75,943
$ 17,031
$ 54,646
$ 248,120
Peter A. Georgescu $ 94,500
$ 75,943
$ 17,031
$ 16,701
$ 204,175
Alexandra A. Herzan $ 81,000
$ 54,762
$ 17,031
$ 6,000
$ 158,793
Henry W. Howell, Jr. (7) $ 88,181
$ 75,943
$ 0
$ 10,000
$ 174,124
Burton M. Tansky $ 84,000
$ 75,943
$ 14,095
$ 0
$ 174,038
(1) Compensation paid to our director Arthur C. Martinez, for his service as a non-employee director of the Company during 2006, and as our Interim Chairman and CEO from May 9, 2006 until June 30, 2006, is included in the Summary Compensation Table at page 51 and is not included in this table.
(2) The amounts in this column include the following amounts deferred in 2006 under our Deferred Compensation Plan: Mr. Georgescu—$94,500; Mr. Howell—$88,181.
(3) The amounts in the Stock Awards and Option Awards columns represent the dollar amount recognized for financial statement reporting purposes for the year ended December 31, 2006, in accordance with FAS 123(R) and thus may include amounts from awards granted in and prior to 2006. Although the number of RSU or option awards granted is the same for each serving director each year, the amounts in these columns may differ due to FAS 123(R) expense requirements. For example, as Mrs. Herzan has not reached retirement age, the amount included in the Stock Awards column is less for her than the amount included for other directors. Details on and assumptions used in calculating the cost of RSUs and options may be found in Note 12 to the Company’s audited financial statements for the year ended December 31, 2006 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 23, 2007.
(4) Each director received a grant on May 9, 2006 of 750 RSUs under our 2000 Stock Award and Incentive Plan with a grant date fair value of $27,000 per grant and a grant on October 2, 2006 of 1,000 shares of common stock that are required to be deferred, with a grant date fair value of $39,650 per grant, each computed in accordance with FAS 123(R). None of our Directors forfeited any RSUs or shares of deferred stock during 2006.
On December 31, 2006, our directors held the following number of RSUs and shares of deferred common stock (including additional share units credited as a result of reinvestment of dividend equivalents): Mrs. Adame: 1,500 RSUs and 7,435 deferred stock shares, Dr. Blobel: 1,500 RSUs and 4,121 deferred stock shares, Mr. Cook: 1,500 RSUs and 7,153 deferred stock shares, Mr. Georgescu: 1,500 RSUs and 13,691 deferred stock shares, Mrs. Herzan: 1,500 RSUs and 4,121 deferred stock shares, Mr. Howell: 1,500 RSUs and 6,178 deferred stock shares, Mr. Tansky: 1,500 RSUs and 6,127

18




deferred stock shares. The number of RSUs Mr. Martinez held on December 31, 2006 is set forth in the Outstanding Equity Awards at Fiscal Year-End table at page 61; he also held 7,153 deferred stock shares on that date. All of the deferred stock shares are included for each director in the Beneficial Ownership Table at page 20.
(5) During 2006, 3,000 options granted to Mrs. Adame expired. There were no other forfeitures of options by our directors during 2006. On December 31, 2006, our directors held the following number of outstanding options: Mrs. Adame: 24,000 options, Dr. Blobel: 6,000 options, Mr. Cook: 12,000 options, Mr. Georgescu: 18,000 options, Mrs. Herzan: 6,000 options, Mr. Howell: 0 options, and Mr. Tansky: 3,000 options. The number of options Mr. Martinez held on December 31, 2006 is set forth in the Outstanding Equity Awards at Fiscal Year-End table at page 61. We did not grant any options to our directors in 2006.
(6) Under the Company’s Director Charitable Contribution Program, the Company paid the following amount in premiums, which are included in this column: $9,026 for Mrs. Adame, $78,190 for Dr. Blobel, $49,646 for Mr. Cook and $16,701 for Mr. Georgescu. These amounts represent the proportionate amount assigned for each director’s paired life insurance policy under the DCCP, which may differ for each director based on insurance underwriting factors. The amount the Company paid under the Director Charitable Contribution Program for Richard A. Goldstein, our former Chairman and CEO, is reflected in the All Other Compensation column of the Summary Compensation Table at page 51. Additional details regarding this program may be found in this Proxy Statement under ‘‘Directors Compensation—Other Benefits’’ at page 16.
In addition during 2006, the Company made matching charitable contributions under the Company’s Matching Gift Program for director charitable contributions in the following amounts, which are also included in this column: Mr. Cook—$5,000, Mrs. Herzan—$6,000 and Mr. Howell—$10,000.
(7) Mr. Howell served as our Lead Director and the Chairman of our Nominating and Governance Committee from May 9, 2006 until June 30, 2006.

19




SECURITIES OWNERSHIP OF MANAGEMENT, DIRECTORS
AND CERTAIN OTHER PERSONS

Beneficial Ownership Table

Directors and Executive Officers

The following table provides information regarding the beneficial ownership of our common stock as of February 19, 2007 by (i) each director and nominee for director, (ii) the persons named in the Summary Compensation Table and (iii) by all directors and executive officers as a group.


  Shares of
Common Stock
Beneficially
Owned (1)
Rights to Acquire
Beneficial
Ownership of
Shares of
Common Stock (2)
Percent of Class
Margaret Hayes Adame 10,435
23,000
(3)
Robert M. Amen 35,517
0
(3)
Günter Blobel 12,871
5,000
(3)
J. Michael Cook 9,153
11,000
(3)
James H. Dunsdon 62,854
7,000
(3)
Peter A. Georgescu 21,321
17,000
(3)
Richard A. Goldstein 201,626
(4)
140,000
(3)
Alexandra A. Herzan 809,942
(5)
5,000
(3)
Henry W. Howell, Jr. 7,308
0
(3)
Arthur C. Martinez 10,153
11,000
(3)
Dennis M. Meany 25,007
19,000
(3)
Nicolas Mirzayantz 25,808
74,500
(3)
Burton M. Tansky 6,127
2,000
(3)
Douglas J. Wetmore 70,959
20,000
(3)
All Directors and Executive Officers as a Group (18 persons) 1,351,927
479,167
2.03
%

Certain Other Owners

The following table provides information regarding the beneficial ownership by each person or group known to hold more than 5% of the outstanding shares of our common stock as of February 19, 2007 based on a review of SEC filings.


  Number of Shares and Nature of Beneficial Ownership
Name and Address of Beneficial Owner Sole
Voting Power
Shared
Voting Power
Sole
Investment
Power
Shared
Investment
Power
Percent
of Class
T. Rowe Price Associates, Inc. (6)
100 E. Pratt Street
Baltimore, MD 21202
1,458,070
0
6,244,054
0
6.96
%
Janus Capital Group (7)
151 Detroit Street
Denver, CO 80206
0
4,849,703
0
4,849,703
5.40
%
Pauline H. Van Dyke III (8)
111 East Kilbourn Avenue
19th Floor
Milwaukee, WI 53202
129,426
5,010,175
129,426
5,010,175
5.73
%
William D.Van Dyke III (8)
111 East Kilbourn Avenue
19th Floor
Milwaukee, WI 53202
6,957
5,010,175
17,957
5,010,175
5.59
%

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(1) This column includes share unit balances held in the IFF Stock Fund under our Deferred Compensation Plan credited to participants’ accounts (where applicable) and, for executive officers may include certain premium share units held under that plan as well as unvested shares of Purchased Restricted Stock. Share units held in the IFF Stock Fund are subject to vesting and may be forfeitable if the participant’s employment is terminated.
(2) The shares listed in this column are those which the named person has (or will have within 60 days after February 19, 2007) the right to acquire by the exercise of stock options or vesting of RSUs granted by the Company.
(3) Less than 1%.
(4) Based on a Form 4 filed with the SEC on May 5, 2006 and other information available to the Company. As reported in such Form 4, this number of shares includes 173,772 shares beneficially owned by Mr. Goldstein’s wife as to which Mr. Goldstein disclaims beneficial ownership. The number of shares also includes 14,180 shares that were issued to Mr. Goldstein from our Deferred Compensation Plan upon his retirement. The Company is not aware of whether Mr. Goldstein or his wife have disposed of any such shares or acquired any additional shares after May 5, 2006, other than 200,000 shares under his Performance Incentive Award, which were forfeited, and the 14,180 shares issued out of the Deferred Compensation Plan.
(5) Mrs. Herzan is a director of the van Ameringen Foundation, Inc., which owns 274,673 shares, President and a director of the Lily Auchincloss Foundation, which owns 11,000 shares, a trustee and a beneficiary of a trust which holds 519,581 shares, and a trustee and a beneficiary of a trust which owns 567 shares, all of which shares are included in Mrs. Herzan’s ownership. Mrs. Herzan disclaims beneficial ownership of the shares owned by the van Ameringen Foundation, Inc. and the Lily Auchincloss Foundation.
(6) As reported in Schedule 13G/A dated as of February 14, 2007.
(7) As reported in Schedule 13G dated as of February 14, 2007.
(8) As reported in Schedule 13G/A dated as of February 14, 2006. The Company believes that Mr. and Mrs. William Van Dyke, III share voting and investment power with respect to 5,010,175 shares and that a portion of such shares is owned beneficially by a trust of which Mr. and Mrs. William D. Van Dyke, III and J. P. Morgan Chase are co-trustees.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers to file reports of their initial holdings of IFF common stock and any subsequent transactions in Company shares to the SEC and to provide the Company with copies of all such filings. The Company must report any failures to file by the required dates. Based on a review of our 2006 records we believe that our directors and officers who were subject to Section 16 met all applicable filing requirements, except a Form 4 reporting a grant of RSUs to Nicolas Mirzayantz was not timely filed due to an internal administrative oversight, but has since been filed.

Shareholders Proposals

In order for a shareholder proposal to be considered for inclusion in IFF’s proxy statement, notice of meeting and form of proxy for next year’s annual meeting of shareholders, the Secretary of the Company must receive the written proposal no later than November 24, 2007. Under Section 3 of the Company’s By-laws, in order for a shareholder to submit a proposal or to nominate any director at an annual meeting of shareholders, the shareholder must give written notice to the Secretary of the Company not less than 60 days nor more than 90 days prior to the anniversary date of this year’s annual meeting of shareholders. The notice must also meet all other requirements contained in the Company’s By-laws, including the requirement to contain specified information about the proposed business of the candidate and the shareholder making the proposal. If the next annual meeting is scheduled on a date that is not within 30 days before or after the anniversary date of this year’s annual meeting, the Secretary of the Company must receive the notice given by the shareholder not later than the close of business on the tenth day following the day on which the notice of the date of next year’s annual meeting is mailed or public disclosure of the date of next year’s annual meeting is made, whichever occurs first.

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PROPOSALS REQUIRING YOUR VOTE

ITEM 1—ELECTION OF DIRECTORS

Information about Nominees

Our Board of Directors currently has nine members. Each of these Board members is standing for re-election, to hold office until the next annual meeting of shareholders. A plurality of votes cast is required for the election of directors.

Pursuant to the law of the State of New York, IFF’s state of incorporation, only votes cast ‘‘FOR’’ the election of directors will be counted in determining whether a nominee for director has been elected. However, our Corporate Governance Guidelines provide that in an uncontested election, any nominee for director who receives a greater number of votes ‘‘WITHHELD’’ from his or her election than votes ‘‘FOR’’ such election must promptly offer his or her resignation. The Nominating and Governance Committee of our Board of Directors will consider the resignation offer and make a recommendation to the Board. The Nominating and Governance Committee and the independent directors on the Board will evaluate and determine whether to accept or reject the resignation based on the relevant facts and circumstances. Any director who so tenders a resignation will not participate in the deliberations of the Nominating and Governance Committee or of the independent directors. The Board of Directors will promptly disclose its decision and the basis for that decision in a filing with the Securities and Exchange Commission.

Each nominee elected as a director will continue in office until his or her successor has been elected and qualified, or until his or her earlier death, resignation or retirement. We expect each nominee for election as a director to be able to serve if elected. If any nominee is not able to serve (which is not anticipated), proxies will be voted in favor of the remainder of those nominated and may be voted for substitute nominees, unless the Board chooses to reduce the number of Directors serving on the Board.

The principal occupation and certain other information about the nominees are set forth on the following pages.

IFF’s Board of Directors recommends a vote FOR the election of these nominees as Directors.

22




INFORMATION ABOUT NOMINEES


  Name Age Principal Occupation During
Last Five Years and
Other Directorships Held
Year First
Became
Director
  Robert M. Amen 57
Chairman and Chief Executive Officer of the Company since July 2006; President (from 2003 until 2006) and Executive Vice President (prior thereto), International Paper Company, a paper and packaging company 2006
  Margaret Hayes Adame 67
President, Fashion Group International, an international trade organization; Director, Movado Group, Inc. 1993
  Günter Blobel 70
Professor, Howard Hughes Medical Institute at The Rockefeller University, a research medical institution; Director, Nestle S.A. 2000
  J. Michael Cook 64
Chairman and Chief Executive Officer Emeritus, Deloitte & Touche LLP, an accounting firm; Director, Comcast Corporation, Eli Lilly and Company 2000
  Peter A. Georgescu 68
Chairman and Chief Executive Officer Emeritus, Young & Rubicam Inc., an advertising agency; Director, Levi Strauss & Co., EMI Group PLC 1999

23





  Name Age Principal Occupation During
Last Five Years and
Other Directorships Held
Year First
Became
Director
  Alexandra A. Herzan 47
President and Director, Lily Auchincloss Foundation, Inc., a charitable foundation 2003
  Henry W. Howell, Jr. 65
Managing Director (until 2000),
J.P. Morgan & Co., Inc., a financial services firm
2004
  Arthur C. Martinez 67
Interim Chairman and Chief Executive Officer of the Company from May 9, 2006 until June 30, 2006; Chairman and Chief Executive Officer Emeritus, Sears, Roebuck and Co., a retailer; Director, PepsiCo, Inc., Liz Claiborne, Inc., IAC/InterActiveCorp; Chairman of the Supervisory Board, ABN AMRO Holding, N.V. 2000
  Burton M. Tansky 69
President and Chief Executive Officer since May 2001 and President and Chief Operating Officer prior thereto, The Neiman Marcus Group, Inc., a retailer; Director, The Neiman
Marcus Group, Inc.
2003

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ITEM 2—RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee has selected PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2007, and the Board of Directors has directed that our management submit that selection for ratification by our shareholders at the 2007 Annual Meeting. Although ratification is not required by our By-laws or otherwise, we are submitting the selection of PricewaterhouseCoopers LLP to our shareholders for ratification as a matter of good corporate governance. If shareholders fail to ratify the selection, the Audit Committee will reconsider whether or not to continue to retain that firm.

Representatives of PricewaterhouseCoopers LLP are expected to attend the 2007 Annual Meeting, where they will be available to respond to questions and, if they desire, to make a statement.

IFF’s Board of Directors recommends a vote FOR the ratification of the Audit Committee’s selection of PricewaterhouseCoopers LLP as the Company’s Independent Registered Public Accounting Firm for 2007.

Principal Accountant Fees and Services

The following table provides detail about fees for professional services rendered by PricewaterhouseCoopers LLP for the years ended December 31, 2006 and December 31, 2005.


  2006 2005
Audit Fees (1) 3,753,800
$ 3,533,700
Audit-Related Fees (2) 162,000
$ 155,800
Tax Fees (3) 1,922,600
$ 2,366,700
All Other Fees (4) 14,100
$ 32,500
Total 5,852,500
$ 6,088,700
(1) Audit Fees were for professional services rendered for audits of the Company’s consolidated financial statements and statutory and subsidiary audits, consents and review of reports filed with the SEC. Audit Fees also included the fees associated with an annual audit of the Company’s internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002, integrated with the audit of the Company’s annual financial statements.
(2) Audit-Related Fees were for assurance and related services for employee benefit plan audits, attestation services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards.
(3) Tax Fees were for services related to tax compliance, including the preparation of tax returns and claims for refund, and tax planning and tax advice, including assistance with and representation in tax audits and appeals, tax services for employee benefit plans and expatriate tax compliance services.
(4) All Other Fees were for software licenses and other professional services.

Audit Committee Pre-Approval Policies and Procedures

The Audit Committee’s policy is to pre-approve all audit and non-audit services, including audit services, audit-related services, tax services and other permitted non-audit services, to be provided by the independent registered public accounting firm to the Company. In accordance with the policy, the Audit Committee regularly reviews and receives updates on specific services provided by the independent registered public accounting firm, and the Company’s management may present additional services for approval.

All services rendered by PricewaterhouseCoopers LLP to the Company are permissible under applicable laws and regulations. During 2006, all services performed by PricewaterhouseCoopers LLP were approved in advance by the Audit Committee in accordance with the pre-approval policy.

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AUDIT COMMITTEE REPORT

The Audit Committee (‘‘we’’, ‘‘us’’ or the ‘‘Committee’’) oversees the Company’s 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 control over financial reporting and disclosure controls designed to ensure compliance with accounting standards and applicable laws and regulations.

The Company’s independent auditors, PricewaterhouseCoopers LLP (‘‘PwC’’), report directly to us. We have sole authority to appoint, oversee, evaluate and discharge the independent auditors and to approve the fees paid by the Company for their services. PwC annually performs an independent audit of the consolidated financial statements and expresses an opinion on the conformity of those financial statements with U.S. generally accepted accounting principles and the effectiveness of the Company’s internal control over financial reporting. PwC also conducts quarterly reviews of the Company’s financial statements.

We review with PwC the scope of its services, the results of its audits and reviews, its evaluation of the Company’s internal control over financial reporting, and the overall quality of the Company’s financial reporting. We meet regularly with PwC, and separately with the Company’s Internal Audit Coordinator, without management present. We also meet regularly with management without PwC present, and we discuss management’s evaluation of PwC’s performance.

For 2006, we have reviewed and discussed the Company’s audited financial statements with management and PwC. We have reviewed and discussed with management its process for preparing its report on its assessment of the Company’s internal control over financial reporting, and at regular intervals we received updates on the status of this process and actions taken by management to respond to issues and deficiencies identified. We discussed with PwC its audit of internal control over financial reporting and its attestation report on management’s assessment of the effectiveness of internal control over financial reporting. We discussed with PwC and the Company’s Internal Audit Coordinator the overall scope and plans for their respective audits.

We have reviewed with PwC its judgments about the quality of the Company’s accounting principles as applied in the Company’s financial reporting and other matters as are required to be discussed with us under generally accepted auditing standards of the Public Company Accounting Oversight Board (United States), including those described in Statement of Auditing Standards (SAS) No. 61 (Communication with Audit Committees), as amended. We also received from PwC and discussed with PWC its written disclosures and the letter regarding its independence from management and the Company as required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees). We concluded that PwC’s independence was not compromised by the non-audit services provided by PwC, the majority of which consisted of routine tax services.

In reliance on the reviews and discussions referred to above, we recommended to the Board (and the Board subsequently approved our recommendation) that the audited financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 2006 for filing with the SEC. We also evaluated and selected PwC as the Company’s independent auditors for 2007, which the shareholders will be asked to ratify at the 2007 Annual Meeting of Shareholders.

Audit Committee

J. Michael Cook
(Chairman and member until March 1, 2007)
Henry W. Howell, Jr.
(Chairman since March 1, 2007)
Margaret Hayes Adame
Arthur C. Martinez

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ITEM 3—REAPPROVAL OF THE BUSINESS CRITERIA USED FOR SETTING PERFORMANCE GOALS UNDER THE 2000 STOCK AWARD AND INCENTIVE PLAN

Introduction

At the 2007 Annual Meeting, we will ask shareholders to reapprove the business criteria that may be used in setting performance goals for certain performance-based awards under our 2000 Stock Award and Incentive Plan, as amended and restated (the ‘‘2000 Plan’’). IFF shareholders originally approved the 2000 Plan in 2000, and approved an amendment and restatement of the 2000 Plan in 2002.

We are seeking reapproval of the 2000 Plan’s business criteria used in setting performance goals so that IFF can continue to claim tax deductions for compensation resulting from performance-based awards, without these deductions being limited by Section 162(m) of the Internal Revenue Code (the ‘‘Code’’). Section 162(m) limits our ability to claim tax deductions for compensation to our most senior executive officers in excess of $1 million per year, unless the compensation is paid based on achievement of performance goals that are set using shareholder-approved business criteria.

Reapproval by shareholders of the 2000 Plan’s business criteria for performance goals will not increase the number of shares available for options and equity awards, and will not raise any other limitation on the amount of awards that may be granted under the 2000 Plan.

Business Criteria Used in Setting Performance Goals Under the 2000 Plan

The 2000 Plan authorizes the grant of performance-based awards. The Board and the Compensation Committee (the ‘‘Committee’’) intend that these awards be fully tax deductible by IFF. Performance awards include cash-denominated awards, including annual incentive awards, and awards that will result in the delivery of IFF shares if specified performance goals have been achieved.

Performance-based awards require satisfaction of pre-established performance goals, consisting of one or more business criteria and a targeted performance level with respect to such criteria, as a condition to the awards being granted or becoming exercisable or settleable. Performance may be measured over a period of any length specified by the Committee. Under the 2000 Plan, if a performance-based award is intended to qualify under Code Section 162(m), the business criteria used by the Committee in establishing performance goals must be selected from among the following:

•  net sales
•  earnings from operations
•  earnings before or after taxes or earnings before or after interest, depreciation, amortization, or extraordinary or special items
•  net income or net income per common share (basic or diluted)
•  return on assets (gross or net), return on investment, return on capital, or return on equity
•  cash flow, free cash flow, cash flow return on investment (discounted or otherwise), net cash provided by operations, or cash flow in excess of cost of capital
•  economic value created
•  operating margin or profit margin
•  stock price or total shareholder return
•  dividend payout as a percentage of net income
•  strategic business criteria, consisting of one or more objectives based on meeting specified market penetration, geographic business expansion goals, cost targets, customer satisfaction, employee satisfaction, management of employment practices and employee benefits, supervision of litigation and information technology, and goals relating to acquisitions or divestitures of subsidiaries, affiliates or joint ventures.

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The Committee retains discretion to set the level of performance for a given business criteria that will result in the earning of a specified amount of cash or shares under a performance award. These goals may be set with fixed, quantitative targets, targets relative to our past performance, or targets compared to the performance of other companies, such as a published or special index or a group of companies selected by the Committee for comparison. In setting a performance goal, the Committee may specify that these performance measures will be determined before payment of bonuses, capital charges, non-recurring or extraordinary income or expense, or other financial and general and administrative expenses for the performance period.

Reason for Shareholder Approval of this Proposal

Code Section 162(m) limits the deductions a publicly held company can claim for compensation in excess of $1 million in a given year paid to the CEO and the four other most highly compensated executive officers serving on the last day of the fiscal year (generally referred to as the ‘‘named executive officers’’). ‘‘Performance-based’’ compensation that meets certain requirements is not counted against the $1 million deductibility cap, and therefore remains fully deductible. Shareholder approval of business criteria used in setting performance goals permits qualification of performance awards for full tax deductibility for a period of five years under Section 162(m).

Under Code Section 162(m) and IRS regulations, IFF shareholders must reapprove the business criteria used in setting performance goals in order that performance awards authorized after our 2007 Annual Meeting and using these business criteria will qualify for tax deductibility without limitation. However, the 2000 Plan authorizes certain awards that can qualify as performance-based compensation under Code Section 162(m) without the need for the performance goals to be reapproved by shareholders. These include stock options and stock appreciation rights that provide compensation based on increases in the market price of IFF stock from the date of grant, and annual incentive awards based on a defined ‘‘annual incentive pool’’ based on pretax consolidated earnings, discussed in more detail below. The prior approval of the terms of these awards under the 2000 Plan meets the requirements of Section 162(m), so such awards will remain authorized under the 2000 Plan without regard to the outcome of the vote on the current proposal.

Vote Required for Approval

Reapproval of the business criteria used for performance goals under the 2000 Plan will require the affirmative vote of a majority of the votes cast at the Annual Meeting by the holders of shares entitled to vote on the matter. The Board considers reapproval of such business criteria, to preserve our ability to fully claim tax deductions, to be in the best interests of IFF and our shareholders, and therefore recommends that the shareholders vote to approve this proposal at the 2007 Annual Meeting.

Description of the 2000 Plan

The following is a brief description of the material features of the 2000 Plan. This description, including information summarized above, is qualified in its entirety by reference to the 2000 Plan, which was filed electronically with the Securities and Exchange Commission as an appendix to this Proxy Statement, but is not included in the printed version of this Proxy Statement. A copy of the 2000 Plan is available from the Office of the Secretary, International Flavors & Fragrances Inc., 521 West 57th Street, New York, N.Y. 10019.

Purpose of the 2000 Plan.    In the view of the Board and Committee, the 2000 Plan helps IFF:

•  Attract, retain, motivate and reward officers, employees, directors, consultants and advisors to IFF and its subsidiaries and affiliates.
•  Strengthen our capability to develop, maintain and direct a competent management team.
•  Provide equitable and competitive compensation opportunities.
•  Recognize individual contributions and reward achievement of our goals.
•  Promote creation of long-term value for shareholders by closely aligning the interests of participants with the interests of shareholders.

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The Board and the Committee believe that awards linked to common stock and awards with terms tied to our performance can provide incentives for the achievement of important performance objectives and promote the long-term success of IFF.

Overview of 2000 Plan Awards.    The 2000 Plan authorizes a broad range of awards, including:

•  stock options
•  stock appreciation rights (‘‘SARs’’)
•  restricted stock, a grant of actual shares subject to a risk of forfeiture and restrictions on transfer
•  deferred stock, a contractual commitment to deliver shares at a future date, which may or may not be subject to a risk of forfeiture (forfeitable deferred stock is sometimes called ‘‘restricted stock units’’)
•  other awards based on common stock
•  dividend equivalents
•  performance shares or other stock-based performance awards (these include deferred stock or restricted stock awards that may be earned by achieving specific performance objectives)
•  cash-based performance awards tied to achievement of specific performance objectives, including annual incentive awards
•  shares issuable in lieu of rights to cash compensation.

Restriction on Repricing and Loans.    The 2000 Plan includes a restriction providing that, without shareholder approval, we will not amend or replace options or SARs previously granted under the Plan in a transaction that constitutes a ‘‘repricing.’’ For this purpose, a ‘‘repricing’’ is defined as amending the terms of an option or SAR after it is granted to lower its exercise price, any other action that is treated as a repricing under generally accepted accounting principles, or canceling an option at a time when its strike price is equal to or greater than the fair market value of the underlying stock in exchange for another option, SAR, restricted stock, other equity, or cash or other property unless the cancellation and exchange occurs in connection with a merger, acquisition, spin-off or other similar corporate transaction. Adjustments to the exercise price or number of shares subject to an option or SAR to reflect the effects of a stock split or other extraordinary corporate transaction will not constitute a ‘‘repricing.’’

The 2000 Plan does not authorize loans to participants.

Shares Available under the 2000 Plan.    As stated above, this proposal would not change the number of shares available for awards under the 2000 Plan.

As of February 28, 2007, 6,086,798 shares are reserved and available for delivery to participants under the 2000 Plan, which includes 3,677,788 shares subject to outstanding options, restricted stock, and other types of equity awards. Shares that remained available under the 1997 Employee Stock Option Plan at March 12, 2002, and shares that thereafter are recaptured from outstanding awards under that plan are or will be included in shares available under the 2000 Plan. Shares used for awards that we assume in an acquisition do not count against the shares reserved under the 2000 Plan.

The 2000 Plan limits the number of shares that may be delivered in connection with awards other than options and SARs (for example, as restricted stock) to a maximum of 30% of the shares reserved under the 2000 Plan.

Only the number of shares actually delivered to participants in connection with an award after all restrictions have lapsed are counted against the number of shares reserved under the 2000 Plan. Thus, shares remain available for new awards if an award expires or is forfeited, canceled or settled in cash, if shares are withheld or separately surrendered to pay the exercise price of an option or to satisfy tax withholding obligations relating to an award, if fewer shares are delivered upon exercise of an SAR than the number of shares covered by the SAR, or if shares that had been issued as restricted stock are forfeited. These same counting rules apply to outstanding options under the 1997 Employee Stock Option Plan, so that shares may be recaptured from such awards. Shares delivered under the 2000 Plan may be either newly issued or treasury shares.

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Information on the total number of shares available under our existing equity compensation plans and unissued shares deliverable under outstanding awards as of the end of the last fiscal year is presented below under ‘‘Equity Compensation Plans.’’ Based on our equity award plans in effect and outstanding awards at February 28, 2007, the total number of shares subject to outstanding awards and available for future awards under the 2000 Plan and other continuing equity compensation plans is as follows:


Shares subject to outstanding awards 4,546,053
Shares available for future equity awards (Note: this proposal does not add shares to any plan) 3,101,431
Total shares 7,647,484
Percentage of outstanding shares* 8.5
%*
Outstanding shares (the denominator in this calculation) includes all Common Stock outstanding at February 28, 2007 and does not include issuance of unissued shares reserved for outstanding or future awards under the existing equity compensation plans.

On February 28, 2007, the last reported sale price of IFF’s Common Stock in composite transactions for New York Stock Exchange-listed securities was $46.80 per share.

Per-Person Award Limitations.    The 2000 Plan includes a limitation on the amount of awards that may be granted to any one participant in a given year in order to qualify awards as ‘‘performance-based’’ compensation not subject to the limitation on deductibility under Code Section 162(m). Under this annual per-person limitation, no participant may in any year be granted share-denominated awards under the 2000 Plan relating to more than his or her ‘‘Annual Limit.’’ The Annual Limit equals two million shares plus the amount of the participant’s unused Annual Limit relating to share-based awards as of the close of the previous year, subject to adjustment for splits and other extraordinary corporate events. In the case of cash-denominated awards, the 2000 Plan limits the annual incentive award that may be earned by a participant in a given year based on the annual incentive pool to a maximum of 50% of pool, and limits other types of performance awards that may be earned by a participant to the participant’s defined Annual Limit, which for this purpose equals $6 million plus the amount of the participant’s unused cash Annual Limit as of the close of the previous year. The per-person limit for cash-denominated performance awards does not operate to limit the amount of share-based awards, and vice versa. These limits apply only to awards under the 2000 Plan, and do not limit our ability to enter into compensation arrangements outside of the 2000 Plan.

Adjustments.    Adjustments to the number and kind of shares subject to the share limitations and specified in the share-based Annual Limit are authorized in the event of a large, special and non-recurring dividend or distribution, recapitalization, stock split, stock dividend, reorganization, business combination, or other similar corporate transaction, equity restructuring as defined under applicable accounting rules, or other similar event affecting the common stock. We are also obligated to adjust outstanding awards upon the occurrence of these types of events to preserve, without enlarging, the rights of Plan participants with respect to their awards. The Committee may adjust performance conditions and other terms of awards in response to these kinds of events or to changes in applicable laws, regulations, or accounting principles, except that adjustments to awards intended to qualify as ‘‘performance-based’’ generally must conform to requirements imposed by Section 162(m).

Eligibility.    Executive officers and other employees of IFF and its subsidiaries, and non-employee directors, consultants and others who provide substantial services to us, are eligible to be granted awards under the 2000 Plan. In addition, any person who has been offered employment by us may be granted awards, but such prospective grantee may not receive any payment or exercise any right relating to the award until he or she has commenced employment or the providing of services. As of February 28, 2007, approximately 5,300 persons would be potentially eligible for awards under the 2000 Plan. Awards currently outstanding under the 2000 Plan are held by a total of 691 current and former IFF employees as of February 28, 2007.

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Administration.    The Committee will administer the 2000 Plan, except that the Board may itself act to administer the Plan. The Board must perform the functions of the Committee for purposes of granting awards to non-employee directors. (References to the ‘‘Committee’’ here mean the Committee or the full Board exercising authority with respect to a given award.) Subject to the terms and conditions of the 2000 Plan, the Committee is authorized to select participants, determine the type and number of awards to be granted and the number of shares to which awards will relate or the amount of a performance award, specify times at which awards will be exercisable or settled, including performance conditions that may be required as a condition thereof, set other terms and conditions of such awards, prescribe forms of award agreements, interpret and specify rules and regulations relating to the 2000 Plan, and make all other determinations which may be necessary or advisable for the administration of the 2000 Plan. Nothing in the 2000 Plan precludes the Committee from authorizing payment of other compensation, including bonuses based upon performance, to officers and employees, including the executive officers, outside of the 2000 Plan. The 2000 Plan authorizes the Committee to delegate authority to executive officers to the extent permitted by applicable law, but such delegation will not authorize grants of awards to executive officers without direct participation by the Committee. The 2000 Plan provides that members of the Committee and the Board shall not be personally liable, and shall be fully indemnified, in connection with any action, determination, or interpretation taken or made in good faith under the Plan.

Stock Options and SARs.    The Committee is authorized to grant stock options, including both incentive stock options (‘‘ISOs’’), which can result in potentially favorable tax treatment to the participant, and non-qualified stock options. SARs may also be granted, entitling the participant to receive the excess of the fair market value of a share on the date of exercise over the SAR’s designated ‘‘base price.’’ The exercise price of an option and the base price of an SAR are determined by the Committee, but generally may not be less than the fair market value of the underlying shares on the date of grant. The maximum term of each option or SAR, the times at which each option or SAR will be exercisable, and provisions requiring forfeiture of unexercised options at or following termination of employment or upon the occurrence of other events generally are fixed by the Committee, subject to a restriction that the maximum term of each option or SAR will be ten years. Subject to this limit, the times at which each option or SAR will be exercisable and provisions requiring forfeiture of unexercised options and SARs (and in some cases gains realized upon an earlier exercise) at or following termination of employment or upon the occurrence of other events generally are fixed by the Committee. Options may be exercised by payment of the exercise price in cash, shares having a fair market value equal to the exercise price or surrender of outstanding awards or other property having a fair market value equal to the exercise price. These exercise methods may include withholding of option shares to pay the exercise price if that would not result in additional accounting expense. We permit broker-assisted cashless exercises under the 2000 Plan. We may impose limits on any of these methods of exercise and settlement and implement other methods, for both options and SARs. SARs may be exercisable for shares or for cash, as determined by the Committee.

Restricted and Deferred Stock/Restricted Stock Units.    The Committee is authorized to grant restricted stock and deferred stock. Prior to the end of the restricted period, shares granted as restricted stock may not be sold, and will be forfeited in the event of termination of employment in specified circumstances. The Committee will establish the length of the restricted period for awards of restricted stock, but restricted stock must vest over a minimum period of one year except in the case of the participant’s death, disability or retirement, a change in control of IFF, or other special circumstances. Aside from the risk of forfeiture and non-transferability, an award of restricted stock entitles the participant to the rights of a shareholder of IFF, including the right to vote the shares and to receive dividends, which dividends could be either forfeitable or non-forfeitable. Any of these rights may be limited by the Committee.

Deferred stock gives a participant the right to receive shares at the end of a specified deferral period. Deferred stock subject to forfeiture conditions may be denominated as an award of ‘‘restricted stock units.’’ The Committee will establish any vesting requirements for deferred stock/restricted stock units granted for continuing services. One advantage of restricted stock units, as compared to restricted stock, is that the period during which the award is deferred as to settlement can be extended past the date the award becomes non-forfeitable, so the Committee can require or permit a participant to continue to hold

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an interest tied to Common Stock on a tax-deferred basis. Prior to settlement, deferred stock awards, including restricted stock units, carry no voting or dividend rights or other rights associated with stock ownership, but the Committee may choose to authorize payment of dividend equivalents, which may be forfeitable or non-forfeitable, in connection with these awards. Under the 2000 Plan, we have granted awards of this type without dividend equivalent rights with respect to dividends paid while the award is subject to a risk of forfeiture.

Other Stock-Based Awards, Stock Bonus Awards, and Awards in Lieu of Other Obligations.    The 2000 Plan authorizes the Committee to grant awards that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to common stock. The Committee will determine the terms and conditions of such awards, including the consideration to be paid to exercise awards in the nature of purchase rights, the periods during which awards will be outstanding, and any forfeiture conditions and restrictions on awards. In addition, the Committee is authorized to grant shares as a bonus free of restrictions, or to grant shares or other awards in lieu of obligations under other plans or compensatory arrangements, subject to such terms as the Committee may specify.

Performance-Based Awards.    As discussed above, the Committee may grant performance awards that enable participants to earn shares or cash by achievement of pre-established performance goals. Performance goals and related terms of these awards are discussed above under the caption ‘‘Business Criteria Used in Setting Performance Goals Under the 2000 Plan.’’ Performance awards include annual incentive awards, which are cash-denominated awards earned by achievement of performance objectives during a specified period of up to one year. The performance goals may be based on one or more of the business criteria discussed above. Either together with or as an alternative to using those business criteria, the Committee may determine that annual incentive awards will be earned only if and to the extent an annual incentive pool becomes funded, on a hypothetical basis. In that event, the annual incentive pool for each fiscal year will equal 10% of the amount by which the pretax consolidated earnings exceed 20% of net capital for that year, except this funding will in no event exceed 10% of the amount of cash dividends paid by us during the year. For this purpose, pretax consolidated earnings for a fiscal year means (i) our consolidated net earnings for the year before extraordinary items and before the cumulative effect of accounting changes, plus (ii) the amount provided for all income taxes for the year, plus (iii) the amount of the annual incentive pool for the year. ‘‘Net capital’’ for any year means the arithmetic average of the amounts of our consolidated capital and surplus as at the beginning and the end of such year, before extraordinary items and before the cumulative effect of accounting changes. The Committee generally must establish the terms of annual incentive awards no later than 90 days after the beginning of the year.

Business Protection Provisions.    A participant generally will forfeit an award under the 2000 Plan and certain gains resulting from awards if he or she has taken certain actions harmful to IFF. These forfeitures will be triggered if we file financial statements that are in error and must be corrected by a restatement, where the filing resulted from misconduct caused by the participant or which the participant failed to prevent through gross negligence. Forfeitures will apply to: (a) annual incentive awards and other performance awards that the participant earned by performance during the period covered by the erroneous financial report and during the 12-month period following the filing of such report, (b) any award granted during the 12 months after the filing of the erroneous report and during any additional period until the restatement is filed, and (c) any profits realized from the sale, during the 12-month period following such erroneous filing, of shares resulting from awards, with profits measured by the increase in market price after the filing of the erroneous report. These forfeitures will apply to awards granted after March 2007, but the Committee may require as a condition of any new grant that a participant agree that the forfeitures also will apply to earlier granted awards. The 2000 Plan also provides for forfeiture of awards and award gains if a participant fails to comply with conditions relating to non-competition, non-solicitation, confidentiality, non-disparagement and other requirements for the protection of our business, including during specified periods following termination. These conditions apply to all awards, unless otherwise determined by the Committee.

Other Terms of Awards.    Awards may be settled in cash, shares, other awards or other property, in the discretion of the Committee. The Committee may require or permit participants to defer the settlement of all or part of an award, in accordance with such terms and conditions as the Committee may establish, including payment or crediting of interest or dividend equivalents on any deferred amounts. The

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Committee is authorized to place cash, shares or other property in trusts or make other arrangements to provide for payment of our obligations under the 2000 Plan. The Committee may condition awards on the payment of taxes, and may provide for mandatory withholding of a portion of the shares or other property to be distributed in order to satisfy tax withholding obligations, or may permit a participant to elect to satisfy these tax obligations by having us withhold shares. Awards granted under the Plan generally may not be pledged or otherwise encumbered and are not transferable except by will or by the laws of descent and distribution, or to a designated beneficiary upon the participant’s death, except that the Committee may permit transfers of awards other than incentive stock options on a case-by-case basis. Such transfers would be permitted for estate-planning purposes and not for value to third parties.

The 2000 Plan authorizes the Committee to provide for forfeiture of awards and award gains in the event a participant fails to comply with conditions relating to non-competition, non-solicitation, confidentiality, non-disparagement and other requirements for the protection of the our business. Awards under the 2000 Plan may be granted without a requirement that the participant pay consideration in the form of cash or property for the grant (as distinguished from the exercise), except to the extent required by law. Subject to the requirement in the 2000 Plan that a ‘‘repricing’’ be approved by shareholders, the Committee may grant awards in substitution for, exchange for or as a buyout of other awards under the 2000 Plan, awards under our other plans, or other rights to payment from us, and may exchange or buy out outstanding awards for cash or other property. The Committee also may grant awards in addition to and in tandem with other awards or rights. In granting a new award, the Committee may determine that the in-the-money value or fair value of any surrendered award may be applied to reduce the purchase price of any new award, subject to the 2000 Plan’s requirement that repricing transactions must be approved by shareholders.

Dividend Equivalents.    The Committee may grant dividend equivalents. These are rights to receive payments equal in value to the amount of dividends paid on a specified number of shares of Common Stock while an award is outstanding. These amounts may be in the form of cash or rights to receive additional awards or additional shares of Common Stock having a value equal to the cash amount. The awards may be granted on a stand-alone basis or in conjunction with another award, and the Committee may specify whether the dividend equivalents will be forfeitable or non-forfeitable.

Vesting, Forfeitures, and Related Award Terms.    The Committee will determine the vesting schedule of options, restricted stock and other awards, the circumstances resulting in forfeiture of awards, the post-termination exercise periods of options and similar awards, and the events resulting in acceleration of the right to exercise and the lapse of restrictions, or the expiration of any deferral period, on any award.

Change in Control.     The 2000 Plan provides that, in the event of a Change in Control of IFF, outstanding awards will immediately vest and be fully exercisable, any restrictions, deferral of settlement and forfeiture conditions of such awards will lapse, and goals relating to performance-based awards will be deemed met or exceeded to the extent specified in the performance-award documents. A Change in Control means generally (i) any person or group acquires voting securities and as a result is a beneficial owner of 40% or more of the voting power of our voting securities (excluding certain existing shareholders), (ii) a change in the Board’s membership such that the members serving as of September 2000, or those elected or nominated with the approval of two-thirds of the those members and successors elected or nominated by them cease to represent a majority of the Board, (iii) certain mergers or consolidations substantially reducing the percentage of voting power held by shareholders prior to such transactions or changing a majority of the membership of the Board, or (iv) shareholder approval of a sale or liquidation of all or substantially all of our assets. The distribution of awards upon a Change in Control may be limited by applicable restrictions under Code Section 409A.

Amendment and Termination of the 2000 Plan.    The Board may amend, alter, suspend, discontinue, or terminate the 2000 Plan or the Committee’s authority to grant awards thereunder without shareholder approval, except as required by law or regulation or under the Listed Company Manual of the New York Stock Exchange. New York Stock Exchange rules require shareholder approval of any material amendment to plans such as the 2000 Plan. Under these rules, however, shareholder approval will not necessarily be required for all amendments which might increase the cost of the 2000 Plan or broaden eligibility. Outstanding awards may be amended, but the Committee cannot modify or waive award terms

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that are mandatory under the 2000 Plan. Unless earlier terminated, the 2000 Plan will terminate at such time when no shares remain available and we have no further rights or obligations with respect to any outstanding award.

U.S. Federal Income Tax Implications of the 2000 Plan

We believe that under current law the following U.S. Federal income tax consequences generally would arise with respect to awards under the 2000 Plan.

Options and SARs that are not deemed to be deferral arrangements under Code Section 409A would have the following tax consequences: The grant of an option or a SAR will create no federal income tax consequences for the participant or IFF. A participant will not have taxable income upon exercising an option that is an ISO, except that the alternative minimum tax may apply. Upon exercising an option that is not an ISO, the participant generally must recognize ordinary income equal to the difference between the exercise price and the fair market value of the freely transferable or non-forfeitable shares acquired on the date of exercise. Upon exercising an SAR, the participant must generally recognize ordinary income equal to the cash or the fair market value of the shares received.

Upon a disposition of shares acquired upon exercise of an ISO before the end of the applicable ISO holding periods, the participant must generally recognize ordinary income equal to the lesser of (i) the fair market value of the ISO shares at the date of exercise minus the exercise price or (ii) the amount realized upon the disposition of the ISO shares minus the exercise price. Otherwise, a participant’s sale of shares acquired by exercise of any option generally will result in short-term or long-term capital gain or loss measured by the difference between the sale price and the participant’s tax ‘‘basis’’ in such shares. The tax ‘‘basis’’ normally is the exercise price plus any amount he or she recognized as ordinary income in connection with the option’s exercise. A participant’s sale of shares acquired by exercise of an SAR generally will result in short-term or long-term capital gain or loss measured by the difference between the sale price and the tax ‘‘basis’’ in the shares, which normally is the amount he or she recognized as ordinary income in connection with the SAR’s exercise.

We normally can claim a tax deduction equal to the amount recognized as ordinary income by a participant in connection with the exercise of an option or SAR, but no tax deduction relating to a participant’s capital gains. Accordingly, we will not be entitled to any tax deduction with respect to an ISO if the participant holds the shares for the applicable ISO holding periods prior to selling the shares.

Awards other than options and SARs that result in a transfer to the participant of cash or shares or other property generally will be structured under the 2000 Plan to meet applicable requirements under Code Section 409A. If no restriction on transferability or substantial risk of forfeiture applies to amounts distributed to a participant, the participant generally must recognize ordinary income equal to the cash or the fair market value of shares actually received. Thus, for example, if we grant an award of restricted stock units that has vested but as to which the receipt of shares or cash has been validly deferred, the participant should not become subject to income tax until the time at which shares or cash are actually distributed, and we will become entitled to claim a tax deduction at that time.

On the other hand, if a restriction on transferability and substantial risk of forfeiture applies to shares or other property actually distributed to a participant under an award (such as, for example, a grant of restricted stock), the participant generally must recognize ordinary income equal to the fair market value of the transferred amounts at the earliest time either the transferability restriction or risk of forfeiture lapses. In all cases, we can claim a tax deduction in an amount equal to the ordinary income recognized by the participant, except as discussed below. A participant may elect to be taxed at the time of grant of restricted stock or other property rather than upon lapse of restrictions on transferability or the risk of forfeiture, but if the participant subsequently forfeits such shares or property he or she would not be entitled to any tax deduction, including as a capital loss, for the value of the shares or property on which he or she previously paid tax.

Any award that is deemed to be a deferral arrangement (excluding certain exempted short-term deferrals) will be subject to Code Section 409A. Participant elections to defer compensation under such awards and as to the timing of distributions relating to such awards must meet requirements under Section 409A in order for income taxation to be deferred upon vesting of the award and tax penalties avoided by the participant.

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Some options and SARs may be subject to Code Section 409A, which regulates deferral arrangements. In such case, the distribution to the participant of shares or cash relating to the award would have to be restricted in order for the participant not to be subject to tax and a tax penalty at the time of vesting. In particular, the participant’s discretionary exercise of the option or SAR could not be permitted over a period extending more than a year in most cases. If the distribution and other award terms meet applicable requirements under Section 409A, the participant would realize ordinary income at the time of distribution of shares or cash rather than exercise, with the amount of ordinary income equal to the distribution date value of the shares or cash less any exercise price actually paid. We would not be entitled to a tax deduction at the time of exercise, but would become entitled to a tax deduction at the time shares are delivered at the end of the deferral period.

As discussed above, compensation that qualifies as ‘‘performance-based’’ compensation is excluded from the $1 million deductibility cap of Internal Revenue Code Section 162(m), and therefore remains fully deductible by the company that pays it. Under the 2000 Plan, options and SARs granted with an exercise price or base price at least equal to 100% of fair market value of the underlying stock at the date of grant, performance awards to employees the Committee expects to be named executive officers at the time compensation is received, and certain other awards which are conditioned upon achievement of performance goals are intended to qualify as such ‘‘performance-based’’ compensation. A number of requirements must be met in order for particular compensation to so qualify, however, so there can be no assurance that such compensation under the 2000 Plan will be fully deductible under all circumstances. In addition, other awards under the 2000 Plan, such as non-performance-based restricted stock and restricted stock units, generally will not so qualify, so that compensation paid to named executive officers in connection with such awards may, to the extent it and other compensation subject to Section 162(m)’s deductibility cap exceed $1 million in a given year, not be deductible by IFF as a result of Section 162(m). Compensation to certain employees resulting from vesting of awards in connection with a change in control or termination following a change in control also may be non-deductible under Code Sections 4999 and 280G.

The foregoing provides only a general description of the application of federal income tax laws to certain awards under the 2000 Plan. This discussion is intended for the information of shareholders considering how to vote at the Annual Meeting and not as tax guidance to participants in the 2000 Plan, as the consequences may vary with the types of awards made, the identity of the recipients and the method of payment or settlement. Different tax rules may apply, including in the case of variations in transactions that are permitted under the 2000 Plan (such as payment of the exercise price of an option by surrender of previously acquired shares). The summary does not address in any detail the effects of other federal taxes (including possible ‘‘golden parachute’’ excise taxes) or taxes imposed under state, local or foreign tax laws.

New Plan Benefits Under the 2000 Plan

The type, number, recipients and other terms of future awards cannot be determined at this time since future awards under the 2000 Plan will be granted in the discretion of the Committee. Information regarding our recent practices with respect to annual and long-term incentive awards and stock-based compensation under existing plans is presented in the ‘‘Summary Compensation Table’’ and these related tables: ‘‘Grants of Plan-Based Awards,’’ ‘‘Outstanding Equity Awards at Fiscal Year-End,’’ and ‘‘Options Exercised and Stock Vested,’’ elsewhere in this Proxy Statement, and in our financial statements for the fiscal year ended December 31, 2006, in the Annual Report which accompanies this Proxy Statement. If shareholders decline to reapprove the business criteria used in setting performance goals for performance awards under the 2000 Plan, we will not thereafter authorize new performance awards under Section 7(b) of the 2000 Plan.

IFF’s Board of Directors considers reapproval of the business criteria used for performance goals under the 2000 Plan to be in the best interests of IFF and our shareholders and therefore recommends that shareholders vote FOR approval of this proposal at the 2007 Annual Meeting.

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EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION & ANALYSIS

Organization of Information

This Compensation Discussion & Analysis (‘‘CD&A’’) provides an overview of our executive compensation philosophy and programs. It highlights information on the compensation of our named executive officers which is included in the compensation tables accompanying this CD&A. The CD&A includes the following sections:

•  Executive Compensation Philosophy:
•  Objectives
•  Compensation Elements and Targeted Mix
•  Principles for Setting Compensation Levels
•  Benchmarking
•  Role of Outside Advisors
•  Program Components and Policies:
•  Salary Plan
•  Annual Incentive Plan (‘‘AIP’’)
•  Long-Term Incentive Plan (‘‘LTIP’’)
•  Equity Choice Program
•  Other Equity Grants
•  Supplemental Retirement Plan (‘‘SRP’’)
•  Deferred Compensation Plan (‘‘DCP’’)
•  Perquisite Program
•  Executive Separation Policy (‘‘ESP’’)
•  Mr. Goldstein’s Retirement as Chairman and CEO
•  Mr. Martinez’s Appointment as Interim CEO
•  Mr. Amen’s Election as Chairman and CEO
•  Tax Deductibility
•  Stock Ownership and Share Retention Policy

Executive Compensation Philosophy

Objectives

In 2005, we modified our executive compensation philosophy and adopted a framework to evaluate our executive compensation actions. This framework, which applied during 2006, identifies our six objectives for the design and administration of our executive compensation programs:

1.  Align executive interests with shareholder interests
2.  Motivate and reward achievement of both annual and longer term business goals and strategic objectives
3.  Attract, retain and develop individuals critical to our success
4.  Reinforce performance by variable ‘‘at risk’’ incentives based on our desired business goals

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5.  Reinforce Company values
6.  Provide total compensation opportunities at competitive levels and establish our benchmarks in line with the performance we want our executives to achieve.

We believe that executive compensation should:

•  be tied to overall Company performance
•  reflect each executive’s level of responsibility
•  vary based on individual performance and contribution
•  include a significant equity component

We design our performance goals to be ‘‘stretch’’ but achievable, to reinforce each executive’s role in driving Company performance, and to motivate our executives to manage effectively over the long term.

We also believe that executives should own a significant amount of Company stock because we want our executives to share the same investment risk as our shareholders based on our performance.

Compensation Elements and Targeted Mix

The Compensation Committee of our Board of Directors (the ‘‘Compensation Committee’’) reviews and approves all of our compensation policies for our executive officers and other members of senior management. Our executive compensation program includes the following elements.

Direct pay:

•  Base salary
•  Annual Incentive Plan award (‘‘AIP’’)
•  Long-Term Incentive Plan award (‘‘LTIP’’)
•  Equity Choice Program

Indirect pay:

•  Benefits (broad-based benefit programs)
•  Supplemental Retirement Plan (‘‘SRP’’) and Deferred Compensation Plan (‘‘DCP’’)
•  Personal benefits (our perquisite program)

Direct Pay

We structure the direct pay mix for our senior executives to include variable compensation components that are based on performance. We allocate a substantial portion of variable compensation in the form of annual and long term incentive pay, which results in a potentially significant variation in pay from year to year based on our results and performance. This structure reflects the significant impact our executives have on our success.

For our CEO, at target levels, approximately 18% of direct pay is targeted to base salary, 21% to annual incentive and 61% to long term equity and non-equity incentive pay. For our prior CEO, at target levels, approximately 22% of direct pay was targeted to base salary, 26% to annual incentive and 52% to long term equity and non-equity incentive pay. For the other named executive officers who are employed by us, the percentage of direct pay targeted to base salary is approximately 32%, annual incentive is approximately 22% and long term equity and non-equity incentive is approximately 46%.

Indirect Pay

Our executives participate in IFF sponsored benefit programs, many of which are broadly available to our employees. We also maintain other benefit and perquisite programs designed for our senior executives that our independent compensation consultant has opined are in line with market practice. The value from these programs represents a small percentage of overall executive compensation.

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Principles for Setting Compensation Levels

We use a global grading structure for our executives, with compensation ranges for each grade. Executives are placed in a particular grade based on internal factors (including scope of responsibilities and job complexity) and an external market evaluation. The market evaluation is based on published survey information and a review of like positions within select peer groups. This is known as ‘‘market benchmarking’’. This benchmarking also provides information that we use in internal pay review among positions and grade levels.

The compensation decisions our Compensation Committee makes each year take into account the compensation range for each executive’s grade. Our actual determinations within the range are based on the executive’s performance relative to job responsibilities and objectives, the executive’s contribution relative to overall Company performance and the relative position of the executive’s base salary and total compensation against the benchmark. We also use benchmarking to help us determine the appropriate mix of compensation (that is, to determine the appropriate allocation among base salary, annual incentive and long term incentive compensation) in order (i) to maintain a competitive compensation program and (ii) to provide appropriate incentive to achieve the financial results we believe our shareholders expect.

We periodically review and update our job positions and we typically update the external market and peer group data at least every two years.

The Compensation Committee uses its benchmarking data when it sets the executives’ fixed compensation and target values for equity and non-equity incentive compensation each year. The Compensation Committee does not take into account actual or potential gains from short term or long term incentive awards or from equity awards in establishing other elements of executive compensation (e.g., equity award values or level of retirement benefits).

In the event relevant performance measures on which incentive payments are based are subsequently restated or otherwise adjusted in a manner that would reduce the size of a payment, the Compensation Committee would consider recovering or adjusting these payments, as appropriate.

Benchmarking

Defining a single and appropriate peer group for our market benchmarking is a challenge because there are few publicly traded competitors. Our industry is highly fragmented, both geographically and across product lines. Accordingly, the Compensation Committee, with assistance from its independent compensation consultant, identified two separate and distinct peer groups, and other data sources, to accomplish our market benchmarking. The Compensation Committee considers the following criteria in identifying our executive compensation peer groups:

•  Comparable in size (based on revenue and market capitalization)
•  Operations with significant international presence
•  US publicly traded companies, which permit access to comparative compensation data
•  Comparable in-house research and development capabilities
•  Growth orientation, with positive sales and earnings growth
•  Competitors for executive talent
•  Progressive companies with positive reputations

The peer groups, which consist of the following members, represent two market segments: (1) consumer product companies and (2) specialty chemical and flavoring companies.

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Consumer Product Peer Group Specialty Chemical & Flavoring Peer Group
Alberto-Culver Albemarle
Allergan Arch Chemicals
Bausch & Lomb Cabot
Blyth Corn Products
Church & Dwight Cytec Industries
Clorox Ecolab
Del Monte Foods Engelhard
Elizabeth Arden Ferro
Estee Lauder FMC
Hershey HB Fuller
Hormel Foods Lubrizol
Lancaster Colony PolyOne
McCormick RPM
Nu Skin Enterprises Sensient
Ralcorp Sigma-Aldrich
Revlon Valspar
Smuckers  
Spectrum Brands  
UST  
Wrigley  

The Compensation Committee last reviewed our executive compensation peer groups in 2005. At that time, IFF was approximately at the median of both peer groups in terms of revenue and market capitalization. The peer groups and other data sources provided by its consultant and our human resources management are used for compensation benchmarking for all named executive officer positions.

Our peer groups for compensation benchmarking are different from the peer group used in our financial performance graph included in our Annual Report on Form 10-K. Both the compensation and financial peer groups include companies that are international in scope and representative of the customer groups to which we sell our products. However, the financial performance peer group includes companies that exceed the size criteria identified for our compensation peer groups. The Compensation Committee believes that comparably sized companies for the compensation peer groups better reflect the competition we face for executive talent.

The Compensation Committee also uses the Towers Perrin Executive Compensation Database and general industry and local market data as market sources for compensation comparisons.

The Compensation Committee does not apply a specific weighting to each data source when making compensation comparisons. With the help of independent outside consultants, the Compensation Committee develops a ‘‘market consensus’’ for each executive position and considers each of the data sources. The Compensation Committee attempts to use a consistent set of peer companies, survey sources and approach to market analysis year to year in making its compensation decisions.

The Compensation Committee targets total direct pay for executives in the 60th-65th percentile range of the market. Actual compensation versus target varies principally based on Company financial performance.

Role of Outside Advisors

The Compensation Committee retains independent expert consultants for recommendations on executive compensation. In 2005 and 2006, the Compensation Committee retained W.T. Haigh & Company to review our executive compensation philosophy and programs and to recommend potential changes. As a result of this review, the Compensation Committee:

•  developed the above criteria for the compensation peer groups and approved the inclusion of the companies in both peer groups

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•  adopted the executive compensation philosophy framework
•  conducted total compensation market reviews for 27 executive positions
•  adopted the new Equity Choice Program

The Compensation Committee also consulted W.T. Haigh & Company in 2006 regarding the compensation paid to our interim CEO and the compensation arrangements for our new Chairman and CEO.

W.T. Haigh & Company works closely with our management as part of that firm’s engagement by the Compensation Committee to gain an understanding of our executive compensation programs and our management structure and make-up. To date, W.T. Haigh & Company has worked exclusively on executive compensation initiatives on behalf of the Compensation Committee and does not have other consulting arrangements with the Company.

The Company retains Steven Hall & Partners for advisory services concerning compensation plan documents and Buck Consultants for actuarial work and other services relating to the Company’s retirement plans and other post-employment benefits.

Company management also uses other compensation firms from time to time to obtain compensation market data and marketplace trends.

Our CEO and our Senior Vice President, Human Resources also work extensively with the Compensation Committee and with W. T. Haigh & Company on executive compensation matters, including recommendations concerning:

•  direct pay levels
•  incentive criteria and target levels
•  placement of executives within salary grades
•  individual executive compensation arrangements or adjustments
•  executive separation policies
•  operation of specific incentive plans
•  perquisites

Our CEO does not participate in either making compensation decisions or setting performance goals for his own compensation.

Program Components and Policies

Salary Plan

The Compensation Committee reviews the salaries of our CEO and other named executive officers annually, as well as at the time of promotions or other changes in responsibilities. Salary increases are generally based on each executive’s performance and contribution to the achievement of specific financial goals. The leading factor in determining initial salary and increases in salary for senior executives is benchmarking against our peer groups. The salaries of our named executive officers generally do not change substantially year to year, except to reflect changes in market benchmarking or when an executive officer assumes a larger or different role. The Compensation Committee’s general philosophy is to establish named executive officer base salaries in a range of approximately 10 percent above or below market target; the 2006 named executive officer base salaries are all within this range.

2006 named executive officers salary increases were in the 0-16.0% range and in aggregate were consistent with our overall Board-approved budget. In 2006, no salary increases were given to Douglas J. Wetmore and Nicolas Mirzayantz because they were well placed within the market consensus for their respective positions. In 2006, the Compensation Committee increased the base salaries of James Dunsdon, who was Chief Operating Officer (and who is now our Senior Vice President and Transition Leader), and Dennis M. Meany, Senior Vice President, General Counsel and Secretary, by 15.9% and 16.0%, respectively, to reflect competitive market conditions based on the market consensus developed using information from our peer groups and the Towers Perrin Executive Compensation Database.

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Annual Incentive Plan (‘‘AIP’’)

Each named executive officer has an annual incentive award target stated as a percentage of base salary. The AIP target is earned based on the achievement of specific quantitative corporate performance goals. For some executive officers, however, the goals also include ‘‘regional’’ and/or ‘‘category’’ goals which are derived from our overall corporate goals. Regional goals are generally based on the major geographical segments of our business. Category goals are generally based on a business sector such as Fine Fragrances or Flavors.

Each executive has a range of potential awards which can be above, at and below target levels. Performance targets for executives are established by the Compensation Committee by the end of March each year.

The amount paid to each executive following the end of the year depends on the performance achieved against the goals. Failure to meet a threshold level of performance results in no AIP award for that year. For example, in 2005 corporate performance did not reach the threshold performance goals under the AIP. As a result, executives whose AIP target was tied solely to corporate performance objectives did not earn AIP awards for 2005.

For 2006, the corporate performance criteria were sales growth and operating profit as a percent of sales. This was consistent with prior years. These criteria are key measures for evaluating our annual progress against our long term corporate strategic plan of winning new business with major customers and increasing profits in targeted geographic areas or business categories. The specific targets established for each of these criteria were based on growth over 2005 achieved levels and are consistent with the Company’s strategic goals of growing local currency sales by 4+% per year, improving operating margins to 18+% of sales by the end of 2009 and growing earnings per share on average by 10+% per year. The targets related to each of the two criteria were assigned 50% weight in determining total AIP, and threshold achievement was set at 70% of target, and maximum achievement was set at 130% of target.

For 2006 the AIP target participation rate established at the start of the year for our CEO was 120% of salary. The Compensation Committee adjusted the AIP target participation rates of other executive officers as follows:

•  Chief Operating Officer – increased from 75% to 90% of base salary
•  Senior Vice Presidents – increased from 45-50% to 60% of base salary

The Compensation Committee considered these new participation rates to be consistent with its benchmarking and important to provide added ‘‘at risk’’ incentive opportunities to achieve superior Company performance.

The AIP payout for 2006 for the named executive officer group, based on the actual achievement of quantitative objectives, as well as the range of potential awards and related performance objectives for the CEO and the other named executive officers, is discussed in greater detail in conjunction with the Grants of Plan-Based Awards Table at page 56. The 2006 AIP payout represents an improvement over the prior year due to achievement against pre-set performance goals.

For 2007, the Compensation Committee adjusted the AIP performance criteria. The corporate financial performance criteria for 2007, which remain consistent with the Company’s strategic goals, are increases in sales, earnings before interest and taxes and return on invested capital. The Compensation Committee also established non-financial strategic goals for 2007 related to:

•  customers, including sales growth with target customers and improving customer satisfaction, service performance and product quality
•  people, including managing and developing our workforce
•  innovation, including new product growth and research and development innovation.

The Compensation Committee also adjusted the maximum AIP payout from 150% to 200% based on the consultant’s report of benchmarking data.

The Compensation Committee believes that these new 2007 AIP criteria are important keys to drive both short and long term Company performance and shareholder value.

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Long-Term Incentive Plan (‘‘LTIP’’)

Each executive officer has an award target for a 3-year performance cycle based on the achievement against quantitative corporate performance goals. The Compensation Committee develops and approves the performance goals at the beginning of each performance cycle.

A new 3-year performance cycle starts each year:

•  to provide a regular opportunity to re-evaluate long term measures;
•  to align goals with the strategic planning process; and
•  to reflect changes in our business priorities and market factors.

For the 2006-2008 performance cycle, the LTIP performance objectives or criteria were compound earnings per share growth over the 3-year period and return on invested capital.1    This was consistent with prior cycles, including the 2005-2007 cycle. These criteria are key measures for evaluating the management team’s progress in improving shareholder value. The specific target established for earnings per share is consistent with the Company’s strategic goal of growing earnings per share on average by 10+% per year. Each of the two criteria was assigned 50% weight in determining total LTIP, and the threshold achievement was set at 70% of target, and maximum achievement was set at 130% of target.

For the 2006-2008 performance cycle, the LTIP award target for our former CEO was set at 120% of base salary and for other named executive officers at 60%-80% of base salary. Mr. Amen’s LTIP target was set at a higher level (200%) than his CEO predecessor to reflect market consensus based on the Compensation Committee’s review of its consultant’s benchmarking data and the advice of its consultant. 50% of the LTIP award earned for the 2006-2008 LTIP cycle will be paid in Company stock to promote executive stock ownership and to align our executive’s investment in our Company with our shareholders.

The LTIP payout for the 2004-2006 cycle for the named executive officer group, based on the actual achievement of quantitative objectives, is discussed in greater detail in conjunction with the Grants of Plan-Based Awards Table at page 56. The payout for the 2004-2006 LTIP cycle represents an improvement over the prior year due to improved financial achievements against pre-set performance objectives.