|
|
 | | | |
- close
- close
- close
- close
Motorola DEF 14A 2009 Documents found in this filing:Table of Contents
UNITED STATES SCHEDULE 14A Proxy Statement Pursuant to Section 14(a) of the Securities
Motorola, Inc.
Payment of Filing Fee (Check the appropriate box):
Table of Contents
To our Stockholders:
Our Annual Meeting will be held at the Rosemont Theatre,
5400 N. River Road, Rosemont, Illinois 60018 on
Monday, May 4, 2009 at 5:00 P.M., local time.
The purpose of the meeting is to:
Only Motorola stockholders of record at the close of business on
March 9, 2009 (the “record date”) will be
entitled to vote at the meeting. Please vote in one of the
following ways:
PLEASE NOTE THAT ATTENDANCE AT THE MEETING WILL BE
LIMITED TO STOCKHOLDERS OF MOTOROLA AS OF THE RECORD DATE (OR
THEIR AUTHORIZED REPRESENTATIVES). YOU WILL BE REQUIRED TO
PROVIDE THE ADMISSION TICKET THAT IS DETACHABLE FROM YOUR
MOTOROLA NOTICE OR PROXY CARD OR PROVIDE OTHER EVIDENCE OF
OWNERSHIP. IF YOUR SHARES ARE HELD BY A BANK OR BROKER, PLEASE
BRING TO THE MEETING YOUR BANK OR BROKER STATEMENT EVIDENCING
YOUR BENEFICIAL OWNERSHIP OF MOTOROLA STOCK TO GAIN ADMISSION TO
THE MEETING.
By order of the Board of Directors,
A. Peter Lawson
Secretary
Table of Contents
March 13,
2009
Dear Fellow
Stockholder:
You are cordially invited to attend Motorola’s 2009 Annual
Stockholders Meeting. The meeting will be held on Monday,
May 4, 2009 at 5:00 p.m., local time, at the Rosemont
Theatre, 5400 N. River Road, Rosemont, Illinois 60018.
We encourage you to vote your shares through one of the three
convenient methods described in the enclosed Proxy Statement
and, if your schedule permits, to attend the meeting. We would
appreciate your support on the following management proposals:
Your vote is important, so please act at your first opportunity.
On behalf of your Board of Directors, thank you for your
continued support of Motorola.
TABLE OF
CONTENTS
Table of Contents
1
PROXY STATEMENT
PROXY
STATEMENT
This proxy statement (the “Proxy Statement”) is being
furnished to holders of common stock (the “Common
Stock”), currently $3 par value per share, of
Motorola, Inc. (“Motorola”, or the
“Company”). Proxies are being solicited on behalf of
the Board of Directors of the Company (the “Board”) to
be used at the 2009 Annual Meeting of Stockholders (the
“Annual Meeting”) to be held at the Rosemont Theatre,
5400 N. River Road, Rosemont, Illinois 60018 on
Monday, May 4, 2009 at 5:00 P.M., local time, for the
purposes set forth in the Notice of 2009 Annual Meeting of
Stockholders.
This Proxy Statement, the form of proxy and the Company’s
2008 Annual Report are being mailed to stockholders who have
requested hard copies on or after March 17, 2009.
All stockholders may view and print Motorola’s Proxy
Statement and the 2008 Annual Report at
http://materials.proxyvote.com/620076.
The Proxy Statement and the 2008 Annual Report are also
available on the Company’s website at
www.motorola.com/investor.
VOTING
PROCEDURES
Only stockholders of record at the close of business on
March 9, 2009 (the “record date”) will be
entitled to notice of, and to vote at, the Annual Meeting or any
adjournments or postponements thereof. On the record date, there
were issued and outstanding 2,276,939,837 shares of Common
Stock entitled to vote at the Annual Meeting. The Common Stock
is the only class of voting securities of the Company.
A list of stockholders entitled to vote at the meeting will be
available for examination at the Motorola Innovation Center,
1295 East Algonquin Road, Door 60, Schaumburg, Illinois 60196
for ten days before the Annual Meeting and at the Annual Meeting.
The Securities and Exchange Commission adopted rules for the
electronic distribution of proxy materials. We have elected to
provide access to our proxy materials and 2008 Annual Report on
the Internet instead of sending a full set of printed proxy
materials as in years past. This enables us to reduce costs,
provide ease and flexibility for our stockholders and lessen the
environmental impact of our Annual Meeting. On or about
March 17, 2009, we intend to mail to most of our U.S. and
Canadian stockholders a Motorola Notice of Internet Availability
of Proxy Materials (the “Motorola Notice”) containing
instructions on how to electronically access our 2009 Proxy
Statement and 2008 Annual Report and vote online. If you
received a Motorola Notice by mail, you will not receive a
printed copy of the proxy materials in the mail unless you
request it. Instead, the Motorola Notice instructs you on how to
access and review all of the important information contained in
the 2009 Proxy Statement and 2008 Annual Report. The Motorola
Notice also instructs you on how you may submit your proxy over
the Internet. If you received a Motorola Notice by mail and
would like to receive a printed copy of our proxy materials, you
should follow the instructions for requesting such materials
included in the Motorola Notice.
There are three convenient methods for registered stockholders
to direct their vote by proxy without attending the Annual
Meeting:
Table of Contents
2
PROXY STATEMENT
If you are a beneficial owner, or you hold your shares in
“street name,” please check your voting instruction
card or contact your bank, broker or nominee to determine
whether you will be able to vote by Internet or telephone.
Registered stockholders can revoke their proxy at any time
before it is voted at the Annual Meeting by either:
If your shares are held in the name of a bank, broker or other
nominee, you must obtain a proxy, executed in your favor, from
the holder of record (that is, your bank, broker or nominee) to
be able to vote at the Annual Meeting.
In order for business to be conducted, a quorum must be
represented in person or by proxy at the Annual Meeting. A
quorum is a majority of the shares entitled to vote at the
Annual Meeting. Shares represented by a proxy marked
“abstain” will be considered present at the Annual
Meeting for purposes of determining a quorum.
You are entitled to cast one vote for each share of Common Stock
you own on the record date. Stockholders do not have the right
to vote cumulatively in electing directors.
In February 2006, Motorola’s Board of Directors amended the
Company’s Bylaws and Board Governance Guidelines to adopt a
majority vote standard for non-contested director elections.
Because the number of nominees properly nominated for the 2009
Annual Meeting is the same as the number of directors to be
elected at the 2009 Annual Meeting, the 2009 election of
directors is a non-contested election. To be elected in a
non-contested election, a director nominee must receive more
“For” votes than “Against” votes.
Abstentions will have no effect on the director election since
only votes “For” and “Against” a nominee
will be counted.
The affirmative vote of the holders of a majority of the
outstanding shares entitled to vote at the Annual Meeting will
be required to authorize amendments to the Restated Certificate
of Incorporation to change the par value of our Common Stock to
$0.01 per share. Abstentions and broker non-votes will have the
same effect as a vote “Against” the proposal.
The affirmative vote of the holders of a majority of the shares
present in person or by proxy and entitled to vote at the Annual
Meeting will be required to approve the amendment to existing
equity plans to permit a one-time stock option exchange program
for employees, other than executive officers and directors.
Abstentions will have the same effect as a vote
“Against” the proposal. Broker non-votes will have no
effect on this proposal.
In order to authorize the amendment to the MOTshare Plan, an
affirmative vote of a majority of the shares present in person
or by proxy and entitled to vote at the Annual Meeting is
required. Abstentions will have the same effect as a vote
“Against” the proposal. Broker non-votes will have no
effect on this proposal.
The affirmative vote of the holders of a majority of the shares
present in person or by proxy and entitled to vote at the Annual
Meeting will be required to approve the Stockholder Advisory
Vote on Executive Compensation. Abstentions will have the same
effect as a vote “Against” the proposal.
The affirmative vote of the holders of a majority of the shares
present in person or by proxy and entitled to vote at the Annual
Meeting will be required to ratify the selection of KPMG LLP.
Abstentions will have the same effect as a vote
“Against” the proposal.
Table of Contents
3
PROXY STATEMENT
In order to recommend that the Board consider adoption of any
shareholder proposal, the affirmative vote of the holders of a
majority of the shares present in person or by proxy and
entitled to vote at the Annual Meeting is required. For any
shareholder proposal, an abstention will have the same effect as
a vote “Against” the proposal. Broker non-votes will
have no effect on the shareholder proposals.
If you are the beneficial owner of shares held in “street
name” by a broker, the broker, as the record holder of the
shares, is required to vote those shares in accordance with your
instructions. If you do not give instructions to the broker, the
broker will be entitled to vote the shares with respect to
“discretionary” items but will not be permitted to
vote the shares with respect to “non-discretionary”
items (those shares are treated as “broker
non-votes”). The election of directors will be a
“discretionary” item. The ratification of the
appointment of KPMG LLP and stockholder advisory vote on
compensation are also “discretionary” items. The
proposals to amend the Restated Certificate of Incorporation to
change the par value of our Common Stock to $0.01, to amend
existing equity plans to permit the stock option exchange
program and to amend the Motorola Employee Stock Purchase Plan
of 1999 are “non-discretionary” items. The three
shareholder proposals are also “non-discretionary”
items.
If you do not vote in person at the Annual Meeting, but have
voted your shares over the Internet, by telephone or by signing
and returning your proxy card, you have authorized certain
members of Motorola’s senior management designated by the
Board and named in your proxy to represent you and to vote your
shares as instructed.
All shares that have been properly voted—whether by
Internet, telephone or mail—and not revoked will be voted
at the Annual Meeting in accordance with your instructions. If
you sign your proxy but do not give voting instructions, the
shares represented by that proxy will be voted as recommended by
the Board of Directors. The Board of Directors recommends a
vote: (1) “For” the election of the
13 director nominees named in this Proxy Statement,
(2) “For” the amendment to the Restated
Certificate of Incorporation to change the par value of our
Common Stock to $0.01 per share, (3) “For” the
amendment to existing equity plans to permit the one-time stock
option exchange, (4) “For” the amendment to the
Motorola Employee Stock Purchase Plan of 1999,
(5) “For” the stockholder advisory vote on
executive compensation, and (6) “For” the
ratification of the appointment of KPMG LLP as the
Company’s independent public accounting firm for 2009. The
Board of Directors recommends a vote “Against” each of
the three shareholder proposals
If any other matters are properly presented at the Annual
Meeting for consideration and if you have voted your shares by
Internet, telephone or mail, the persons named as proxies in
your proxy will have the discretion to vote on those matters for
you. At the date we filed this Proxy Statement with the
Securities and Exchange Commission, the Board of Directors did
not know of any other matter to be raised at the Annual Meeting.
If you own shares of Common Stock through the Motorola 401(k)
Plan (the “401(k) Plan”), the Motorola Notice or proxy
card includes the shares you hold in the 401(k) Plan as well as
the shares you hold outside of the 401(k) Plan. Under the 401(k)
Plan, participants are “named fiduciaries” to the
extent of their authority to direct the voting of shares of
Common Stock credited to their 401(k) Plan accounts and their
proportionate share of allocated shares for which no direction
is received and unallocated shares, if any (together,
“Undirected Shares”). The trustee of the 401(k) Plan
will vote Undirected Shares in the same proportion as the shares
for which directions are received, except as otherwise provided
in accordance with ERISA. By submitting voting instructions by
Internet, telephone, or if hardcopies are requested, by signing,
dating and returning the proxy card, you direct the trustee of
the 401(k) Plan to vote these shares, in person or by proxy, as
designated therein, at the Annual Meeting.
Table of Contents
4
PROXY STATEMENT
PROPOSAL 1
ELECTION
OF DIRECTORS FOR A ONE-YEAR TERM
The number of directors of the Company to be elected at the 2009
Annual Meeting is 13. The directors elected at the 2009 Annual
Meeting will serve until their respective successors are elected
and qualified or until their earlier death or resignation.
NOMINEES
Who Are
the Nominees?
Each of the nominees named below is currently a director of the
Company. Each of the nominees was elected at the Annual Meeting
of Stockholders held on May 5, 2008, except for
Dr. Jha who is standing for election for the first time.
The ages shown are as of January 1, 2009.
Messrs. Nicholas Negroponte and Miles White are not
standing for re-election.
Table of Contents
5
PROXY STATEMENT
Table of Contents
6
PROXY STATEMENT
Table of Contents
7
PROXY STATEMENT
RECOMMENDATION
OF THE BOARD
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE ELECTION OF THE THIRTEEN NOMINEES NAMED HEREIN AS DIRECTORS.
UNLESS OTHERWISE INDICATED ON YOUR PROXY, YOUR SHARES WILL BE
VOTED FOR THE ELECTION OF SUCH THIRTEEN NOMINEES
AS DIRECTORS.
If any of the nominees named above is not available to serve as
a director at the time of the 2009 Annual Meeting (an event
which the Board does not now anticipate), the proxies will be
voted for the election as director of such other person or
persons as the Board may designate, unless the Board, in its
discretion, reduces the number of directors.
Table of Contents
8
PROXY STATEMENT
CORPORATE
GOVERNANCE MATTERS
The Board has long adhered to governance principles designed to
assure the continued vitality of the Board and excellence in the
execution of its duties. The Board has responsibility for
management oversight and providing strategic guidance to the
Company. In order to do that effectively, the Board believes it
should be comprised of individuals with appropriate skills and
experiences to contribute effectively to this dynamic process.
The Board is comprised of active and former CEOs and CFOs of
major corporations and individuals with experience in high-tech
fields, investment banking and academia. The Board believes that
it must continue to renew itself to ensure that its members
understand the industries and the markets in which the Company
operates. The Board also believes that it must remain
well-informed about the positive and negative issues, problems
and challenges facing Motorola and its industries and markets so
that the members can exercise their fiduciary responsibilities
to stockholders.
On February 24, 2009, the Board made the determination,
based on the recommendation of the Governance and Nominating
Committee and in accordance with the Motorola, Inc. Director
Independence Guidelines, that Mr. Dorman,
Mr. Hambrecht, Ms. Lewent, Mr. Meister,
Mr. Negroponte, Mr. Scott, Dr. Sommer,
Mr. Stengel, Mr. Vinciquerra, Mr. Warner,
Dr. J. White and Mr. M. White were independent during
the periods in 2008 and 2009 that they were members of the
Board. Mr. Brown, Dr. Jha and Mr. Zander do not
qualify as independent directors since they are, or have been,
employees of the Company. The Board determined on
February 21, 2008 that following the completion of
Mr. Meredith’s interim employment from April 1,
2007 to March 31, 2008 he would again be considered
independent. See “What is Motorola’s Relationship
with Entities Associated with Independent Directors?”
for further details.
The Motorola, Inc. Director Independence Guidelines include both
the NYSE independence standards and categorical standards the
Board has adopted to determine if a relationship that a Board
member has with the Company is material. The categorical
standards adopted by the Board are as follows:
• Contributions or payments (including the provision
of goods or services) from Motorola to a charitable organization
(including a foundation), a university, or other not-for-profit
organization, of which a director or an immediate family member
of a director (defined to include a director’s spouse,
parents, children, siblings, mothers and
fathers-in-law,
sons and
daughters-in-law,
brothers and
sisters-in-law
and anyone (other than domestic employees) who shares the
director’s home) is an officer, director, trustee or
employee, will not impair independence unless the contribution
or payment (excluding Motorola matches of charitable
contributions made by employees or directors under
Motorola’s or the Motorola Foundation’s matching gift
programs):
(i) is to an entity of which the director or the
director’s spouse currently is an officer, director or
trustee, and such person held such position at the time of the
contribution,
(ii) was made within the previous three years, and
(iii) was in an amount which, in the entity’s last
fiscal year prior to the year of the contribution or payment,
exceeded the greater of $300,000 or 5% of such entity’s
consolidated gross revenues (or equivalent measure).
• Indebtedness of Motorola to a bank or similar entity
of which a director or a director’s immediate family member
is a director, officer, employee or 10% Owner (as defined below)
will not impair independence unless the following are applicable:
(i) the director or the director’s spouse is an
executive officer of such entity or an owner who directly or
indirectly has a 10% or greater equity or voting interest in
such entity (a “10% Owner”) and he or she held that
position at any time during the previous twelve months, and
(ii) the total amount of Motorola’s indebtedness
during the previous twelve months is more than 5% of the total
consolidated assets of such entity in its last fiscal year.
• Other business relationships between a director or a
director’s immediate family member, such as consulting,
legal or financial advisory services provided to Motorola, will
not impair independence unless the following are applicable:
(i) the director or the director’s spouse is a
partner, officer or 10% Owner of the
Table of Contents
9
PROXY STATEMENT
company or firm providing such services, and he or she held such
position at any time during the previous twelve months, and
(ii) the services that were provided during the previous
twelve months were in an amount which, in the company’s or
firm’s last fiscal year, exceeded the greater of
$1 million or 2% of such company’s or firm’s
consolidated gross revenues.
This categorical standard does not include business
relationships with Motorola’s independent registered public
accounting firm because those relationships are covered by the
NYSE independence standards.
• Motorola’s ownership of voting stock of a
company of which the director or the director’s immediate
family member is a director, officer, employee or 10% Owner will
not impair independence unless the following are applicable:
(i) the director or the director’s spouse is an
executive officer of that company, and
(ii) Motorola is currently a 10% Owner of that company.
The ownership of Motorola Common Stock by a director or a
director’s immediate family member will not be considered
to be a material relationship that would impair a
director’s independence.
When applying the NYSE independence standards and the
categorical standards set forth above, “Motorola”
includes Motorola, Inc. and any of its subsidiaries, and the
Motorola Foundation. A complete copy of the Motorola, Inc.
Director Independence Guidelines is available on the
Company’s website at www.motorola.com/investor.
As previously disclosed, Thomas Meredith’s term as Acting
Chief Financial Officer and Executive Vice President of Motorola
ended on March 1, 2008 and, under the terms of his
agreement, his employment ended on March 31, 2008. In
February 2008, the Board determined that after the end of his
employment Mr. Meredith’s independence under the
Motorola, Inc. Independence Guidelines and the NYSE independence
requirements was not impaired by his status as an employee of
the Company from April 1, 2007 through March 31, 2008,
because he was serving as an interim employee of the Company at
the request of the Board while the Company conducted a search
for a permanent chief financial officer.
As previously disclosed, Motorola and the Motorola Foundation
have had various commercial and charitable relationships with
the Massachusetts Institute of Technology (“MIT”) and
the MIT Media Laboratory. Nicholas Negroponte is a tenured
professor of MIT on leave, and formerly the Chairman of the MIT
Media Laboratory, an academic and research laboratory at MIT.
Judy Lewent is a life member of the MIT Corporation. Motorola
and the Motorola Foundation made payments to MIT in each of the
last three years significantly below the threshold described in
the guidelines. Neither Mr. Negroponte nor Ms. Lewent
direct the relationship nor do they vote as a member of the
Motorola Board of Directors to approve MIT relationships.
All independent directors, other than William Hambrecht, Keith
Meister and Ron Sommer, had relationships with entities that
were reviewed by the Board under the NYSE’s independence
standards
and/or the
Board’s categorical standards described above covering
contributions or payments to charitable or similar
not-for-profit organizations. In each case, the payments or
contributions were significantly less than the NYSE independence
standards or the categorical standards and were determined by
the Board to be immaterial.
Yes. The Board has determined that all of the members of the
Audit and Legal Committee, the Compensation and Leadership
Committee and the Governance and Nominating Committee are
independent within the meaning of the Motorola, Inc. Director
Independence Guidelines and the NYSE listing standards for
independence.
Motorola maintains a corporate governance page on its website at
www.motorola.com/investor that includes information about
its corporate governance practices. The following documents are
currently included on the website:
Table of Contents
10
PROXY STATEMENT
The Company intends to disclose amendments to the above
documents or waivers applicable to its directors, chief
executive officers, chief financial officer or corporate
controller from certain provisions of its ethical policies and
standards for directors and its employees, on the Motorola
website. The Company will also provide you a printed copy of
these documents if you contact Investor Relations, in writing at
Motorola, Inc., 1303 E. Algonquin Road, Schaumburg, IL
60196 or by email at investors@motorola.com.
BOARD OF
DIRECTORS MATTERS
The Board of Directors held 15 meetings during 2008. Overall
attendance at Board and committee meetings was 94%. Each
incumbent director attended 81% or more of the combined total
meetings of the Board and the committees on which he or she
served during 2008.
The Board of Directors currently is comprised of
15 directors. Immediately following the Annual Meeting, the
Board will consist of 13 directors. In the interim between
Annual Meetings, the Board has the authority under the
Company’s Bylaws to increase or decrease the size of the
Board and to fill vacancies.
Independent directors of the Company meet regularly in executive
session without management as required by the Motorola, Inc.
Board Governance Guidelines. Generally, executive sessions are
held in conjunction with regularly-scheduled meetings of the
Board of Directors. In 2008, the non-employee members of the
Board met in executive session 10 times.
On March 31, 2008, the Board of Directors elected
Mr. Dorman to serve as the non-executive Chairman of the
Board. Mr. Dorman acts as the presiding director at
meetings of the independent directors.
Board members are expected to attend the Annual Meeting as
provided in the Motorola, Inc. Board Governance Guidelines. With
the exception of Mr. Hambrecht, all of our directors who
stood for election at the 2008 Annual Meeting attended that
meeting.
Table of Contents
11
PROXY STATEMENT
To assist it in carrying out its duties, the Board has delegated
certain authority to several committees. The Board currently has
the following committees: (1) Audit and Legal,
(2) Compensation and Leadership, (3) Governance and
Nominating, (4) Executive, and (5) Finance. Mr. Zander
did not serve on any Board committee in 2008. Committee
membership as of December 31, 2008 and the number of
meetings of each committee during 2008 are described below:
Current versions of the Audit and Legal Committee charter,
Compensation and Leadership Committee charter and Governance and
Nominating Committee charter are available on our website at
www.motorola.com/investor.
Table of Contents
12
PROXY STATEMENT
The Board has delegated to the Compensation and Leadership
Committee the responsibility to oversee the programs under which
compensation is paid or awarded to Motorola’s executives
and to evaluate the performance of Motorola’s senior
management. The specific functions of the Compensation and
Leadership Committee are described in this Proxy Statement under
“What Are the Functions of the Compensation and
Leadership Committee?” and in the Compensation and
Leadership Committee’s charter, which the Compensation and
Leadership Committee and the Board periodically review and
revise as necessary.
The Global Rewards department in Motorola’s Human Resources
organization supports the Compensation and Leadership Committee
in its work and, in some cases, acts pursuant to delegated
authority from the Compensation and Leadership Committee to
fulfill various functions in administering Motorola’s
compensation programs.
In carrying out its duties, the Compensation and Leadership
Committee has direct access to outside advisors, independent
compensation consultants and others to assist them. During 2008
and 2009, the Compensation and Leadership Committee directly
engaged an outside compensation consulting firm to assist them
in their review of the compensation for Motorola’s
executive officers.
For more information on the decisions made by the Compensation
and Leadership Committee, see the “Compensation
Discussion and Analysis”.
The Governance and Nominating Committee recommends to the Board
the compensation for non-employee directors, which is to be
consistent with market practices of other similarly situated
companies and is to take into consideration the impact on
non-employee directors’ independence and objectivity. The
Board has asked the Compensation and Leadership Committee to
assist the Governance and Nominating Committee in making such
recommendations. Although the charter of the Governance and
Nominating Committee authorizes the Committee to delegate
director compensation matters to management based on its
reasonable judgment, the Committee has chosen not to delegate
matters related to director compensation. Management has no role
in recommending the amount or form of director compensation.
In accordance with the Compensation and Leadership
Committee’s charter, the Committee has the sole authority,
to the extent deemed necessary
Table of Contents
13
PROXY STATEMENT
and appropriate, to retain and terminate any compensation
consultants, outside counsel or other advisors, including the
sole authority to approve the firm’s or advisor’s fees
and other retention terms.
In accordance with this authority, in 2007, 2008 and 2009, the
Compensation and Leadership Committee retained Mercer
(“Mercer”) as an external independent consultant to
provide insight and advice on matters regarding trends in
executive compensation, relative executive pay and benefits
practices, relative assessment of pay of Motorola executives to
performance, and other topics as the Compensation and Leadership
Committee deemed appropriate. See “Independent
Consultant Review of Executive Compensation” in
“Compensation Discussion and Analysis” for
further details on the compensation-related elements the
Compensation and Leadership Committee requested be reviewed.
In its 2007, 2008 and 2009 independent reviews of
Motorola’s senior leadership team’s compensation,
Mercer found that Motorola’s current executive compensation
programs are fundamentally competitive and sound. The
Compensation and Leadership Committee intends to engage an
external independent consultant to complete an exhaustive
evaluation of the Company’s executive rewards program on a
periodic basis, generally every one or two years. The
Compensation and Leadership Committee intends to engage an
external independent consultant to review the specific
compensation of the Co-CEOs and all members of the senior
leadership team annually. The Compensation and Leadership
Committee agreed with the Mercer studies’ conclusions that
no substantive revisions to the compensation programs are
required.
In 2007, the Compensation and Leadership Committee engaged
Mercer to assist the Committee in its review of the compensation
for Motorola’s non-employee directors. In view of the
market trends outlined by Mercer, the Compensation and
Leadership Committee recommended the Governance and Nominating
Committee consider: (1) increasing the Audit and Legal
Committee Chair annual retainer, (2) introducing stock
ownership guidelines equal to four times the annual director
retainer fee, and (3) making pro-rata equity grants
effective upon the election of a new director to the Board if
the election occurs at a time other than at the annual grant to
directors.
The Governance and Nominating Committee, after reviewing and
discussing these recommendations, submitted its recommendations
to the Board, which adopted the compensation program currently
in place for non-employee directors as described under
“How Are the Directors Compensated?”
In January 2009, the Committee engaged Mercer as it has in the
past to independently review our executive rewards program and
the compensation of our senior leadership team, including the
Named Executive Officers. Mercer’s 2009 executive
compensation review studied: (1) the relationship between
our actual 2007 senior executive compensation levels and the
Company’s performance using available proxy data at that
time, (2) the competitiveness of our target executive pay
program in light of our executive compensation strategy, and
(3) the competitiveness of our “pay mix”,
long-term incentive compensation (“LTI”) mix, equity
grants and LTI performance metrics compared to the market.
Mercer reviewed the following compensation components in its
competitive assessment:
Mercer relied on both published survey sources and peer company
proxy data, including data from our comparator group, to
determine our competitive positioning relative to the market.
Each position reviewed was matched to the market based on
position, responsibility and the scope of the business for which
the position was responsible.
Mercer’s study found that our compensation structure is
highly leveraged so that strong Company performance leads to
above-market pay and weak Company performance results in
below-market pay. Mercer found that, overall, Motorola’s
business-based performance on select metrics was below the
25th percentile
of our peers for 2007 and approximately at the
25th percentile
for the three-year period from 2005 to 2007. The metrics were:
Table of Contents
14
PROXY STATEMENT
Mercer also found that 2007 base salaries and MIP awards for our
named executive officers in the 2008 Proxy Statement were at the
25th
percentile of the competitive market. Our total compensation on
a present value basis (2007 base salary plus 2007 actual bonus
and 2008 LTI value), was above the
25th percentile
of the peer group.
Mercer’s study found that:
Mercer’s study found that:
The Committee agreed with the Mercer study’s conclusions
and, as discussed below, relied on the study’s findings in
setting the 2009 compensation levels for our senior leadership
team.
Motorola’s senior leadership team, comprised of the Co-CEOs
and certain executives designated by the Co-CEOs, provides
recommendations regarding the design of the Company’s
compensation program to the Compensation and Leadership
Committee. Upon Compensation and Leadership Committee approval,
the senior leadership team is responsible for executing the
objectives of the approved compensation program.
Each member of Motorola’s senior leadership team is
ultimately responsible for approving all compensation actions
for their respective organizations. When these compensation
actions involve other Motorola executives, the involved senior
leadership team member is accountable for ensuring adherence to
all established governance procedures.
The Co-CEOs are responsible for recommending all compensation
actions involving any member of the senior leadership team or
officer subject to Section 16 of the Securities Exchange
Act of 1934, as amended (“Section 16 Officer”),
to the Compensation and Leadership Committee for its approval.
The Co-CEOs
take an active role in Compensation and Leadership Committee
meetings at which compensation actions involving the above
officers are discussed.
The Compensation and Leadership Committee directly engages an
outside consulting firm, Mercer, to assist it in its review of
the compensation for Motorola’s senior leadership team.
Mercer also participates in certain Committee meetings.
The Global Rewards department in Motorola’s Human Resources
organization, together with the Senior Vice President, Human
Resources, prepares recommendations regarding each Co-CEO’s
compensation and brings those recommendations to the
Compensation and Leadership Committee. The Co-CEOs do not
participate in the discussions regarding their compensation at
Committee meetings. Mercer is also available at such meetings.
The Compensation and Leadership Committee is responsible for
bringing recommended compensation actions involving each Co-CEO
to the Board for its concurrence. The Compensation and
Leadership Committee cannot unilaterally approve compensation
changes for the Co-CEOs.
As stated above, management does not recommend or determine
director compensation.
Table of Contents
15
PROXY STATEMENT
Our Board Governance Guidelines provide that, within five years
of joining the Board, directors are expected to own Motorola
Common Stock with a value equivalent to at least four times the
annual retainer fee for directors. For the purposes of these
guidelines, Motorola Common Stock includes stock units.
During 2008, the annual retainer fee paid to each non-employee
director was $100,000. In addition: (1) the chair of the
Audit and Legal Committee received an additional annual fee of
$20,000; (2) the chair of the Compensation and Leadership
Committee received an additional annual fee of $15,000;
(3) the non-employee chairs of the other committees each
received an additional annual fee of $10,000; and (4) the
members of the Audit and Legal Committee, other than the chair,
each received an additional annual fee of $5,000. Effective
May 5, 2008, the non-employee Chairman of the Board
received an additional annual fee of $280,000. The Company also
reimburses its directors and, in certain circumstances, spouses
who accompany directors, for travel, lodging and related
expenses they incur in attending Board and committee meetings or
other meetings as requested by Motorola.
A director may elect to receive a portion of his or her retainer
and other fees in the form of deferred stock units up to the
level of deferred stock units permitted in the Motorola Omnibus
Incentive Plan of 2006.
Non-employee directors receive an annual grant of deferred stock
units in the second quarter of the fiscal year. On May 6,
2008, each non-employee director received a deferred stock unit
award of 11,696 shares of Common Stock. The number of
deferred stock units awarded was determined by dividing $120,000
by the fair market value of a share of Common Stock on the date
of grant (rounded up to the next whole number) based on the
closing price on the date of grant. The deferred stock units are
paid to the director in shares of Common Stock upon termination
of service from the Motorola Board of Directors. Dividend
equivalents are reinvested in additional deferred stock units
subject to the same terms.
For a non-employee director who becomes a member of the Board of
Directors after the annual grant of deferred stock units, the
award will be pro-rated based on the number of months served
($10,000 per month) divided by the closing price of Motorola
stock on the day of election to the Board.
As of January 1, 2006, non-employee directors are no longer
eligible to participate in the Motorola Management Deferred
Compensation Plan. Motorola does not currently have a non-equity
incentive plan or pension plan for non-employee directors.
Non-employee directors do not receive any additional fees for
attendance at meetings of the Board or its committees or for
additional work done on behalf of the Board or a committee.
Mr. Brown, Dr. Jha and Mr. Zander who are, or
have been, employees of Motorola, receive no additional
compensation for serving on the Board or its committees.
Further, Mr. Meredith did not receive any additional
compensation for Board service while he was Acting Chief
Financial Officer.
Table of Contents
16
PROXY STATEMENT
The following table further summarizes compensation paid to the
non-employee directors during 2008 and to Mr. Zander, our
former Chief Executive Officer, who served as Chairman of the
Board until May 5, 2008.
Director
Compensation for 2008
Table of Contents
17
PROXY STATEMENT
In 1996, the Board terminated its retirement plan. In 1998,
Ms. Lewent, Mr. Negroponte, Mr. Scott and
Dr. J. White, the only current directors with interests in
the plan at the time of termination, converted their accrued
benefits in the retirement plan into shares of restricted Common
Stock. They may not sell or transfer these shares and these
shares are subject to repurchase by Motorola until such
directors are no longer members of the Board because either:
(1) they do not stand for re-election or are not
re-elected, or (2) their disability or death. Accordingly,
there are no current
non-employee
directors entitled to receive payment of retirement benefits.
Table of Contents
18
PROXY STATEMENT
Non-employee directors are covered by insurance that provides
accidental death and dismemberment coverage of $500,000 per
person. The spouse of each such director is also covered by such
insurance when traveling with the director on business trips for
the Company. The Company pays the premiums for such insurance.
The total premiums for coverage of all such non-employee
directors and their spouses during the year ended
December 31, 2008 was $2,660.
The Company has established written policies and procedures (the
“Related Person Transaction Policy” or the
“Policy”) to assist it in reviewing transactions in
excess of $120,000 (“Transactions”) involving Motorola
and its subsidiaries (collectively, the “Company”) and
Related Persons (as defined below). This Policy supplements the
Company’s other conflict of interest policies set forth in
the Principles of Conduct for Members of the Motorola, Inc.
Board of Directors and the Motorola Code of Business Conduct for
employees and its other internal procedures. A summary
description of the Related Person Transaction Policy is set
forth below.
For purposes of the Related Person Transaction Policy, a Related
Person includes the Company’s directors, director nominees
and executive officers since the beginning of the Company’s
last fiscal year, beneficial owners of 5% or more of any class
of the Company’s voting securities (“5% Holder”)
and members of their respective Immediate Family (as defined in
the Policy).
The Policy provides that any Transaction since the beginning of
the last fiscal year is to be promptly reported to the
Company’s General Counsel. The General Counsel will assist
with gathering important information about the Transaction and
present the information to the applicable Board committee
responsible for reviewing the Transaction. The appropriate Board
committee will determine if the Transaction is a Related Person
Transaction and approve, ratify or reject the Related Person
Transaction. In approving, ratifying or rejecting a Related
Person Transaction, the applicable committee will consider such
information as it deems important to conclude if the transaction
is fair to the Company. The Governance and Nominating Committee
will make all determinations regarding transactions involving a
director or director nominee. The Audit and Legal Committee will
make all determinations involving an executive officer or 5%
Holder.
The Company had no Related Person Transactions in 2008.
As stated in the Motorola, Inc. Board Governance Guidelines,
when selecting directors, the Board and the Governance and
Nominating Committee review and consider many factors,
including: experience in the context of the Board’s needs;
leadership qualities; diversity; ability to exercise sound
judgment; existing time commitments; years to retirement age;
and independence. It also considers ethical standards and
integrity.
The Governance and Nominating Committee will consider nominees
recommended by Motorola stockholders provided that the
recommendation contains sufficient information for the
Governance and Nominating Committee to assess the suitability of
the candidate, including the candidate’s qualifications.
Candidates recommended by stockholders that comply with these
procedures will receive the same consideration that candidates
recommended by the Committee and management receive.
The Governance and Nominating Committee considers
recommendations from many sources, including members of the
Board, management and search firms. From time-to-time, Motorola
hires global search firms to help identify and facilitate the
screening and interview process of director candidates. The
search firm screens candidates based on the Board’s
criteria, performs reference checks, prepares a biography for
each candidate for the Committee’s review and helps set up
interviews. The Committee and the Chairman of the Board conduct
interviews with candidates who meet the Board’s criteria.
The Committee has full discretion in considering its nominations
to the Board.
PROPOSAL NO. 2
The Board of Directors has approved, and recommends that the
stockholders approve, an amendment to Article 4 of the
Company’s Restated Certificate of Incorporation to change
the par value of the Company’s Common Stock from $3.00 per
share to $0.01 per share.
Table of Contents
19
PROXY STATEMENT
The change to “$0.01 par value” Common Stock will
have no impact on the value of the Company’s stock or the
rights of its stockholders. It will, however, provide the
Company with additional flexibility in utilizing its shares of
Common Stock for various corporate purposes.
Par value is used to designate the lowest value for which a
company can sell its shares and to value the shares on a
company’s balance sheet. Historically, the concept of par
value was to protect creditors and senior security holders by
ensuring that when issuing its own shares a company received at
least par value as consideration for the shares. As markets have
become more liquid, with stock prices responding more rapidly to
market developments, par value has become a generally outdated
concept. Instead, for public companies like Motorola, the market
sets the price at which stock may be issued or otherwise sold.
For these reasons, the vast majority of companies today set
their par value at $0.01 per share or even less.
Because of the Company’s current $3.00 par value and,
in particular, the proximity of this par value to recent market
trading prices for the Company’s Common Stock, the
Company’s ability to issue stock, declare cash or stock
dividends, or repurchase stock, could be hampered. The change in
par value to $0.01 per share will give the Company greater
flexibility for structuring future transactions and making
future financial decisions.
The change in the par value of the Company’s stock from
$3.00 per share to $0.01 per share will have no effect on the
dollar amount of the Company’s total shareholders’
equity. If the change is approved, the Common Stock account on
the Company’s balance sheet at $3 per share will be reduced
to reflect the product of the number of shares outstanding and
the new par value of $0.01 per share. The difference will be
transferred to the capital surplus account.
The change in par value also will not change the number of
authorized common shares. There will remain 4.2 billion
authorized common shares, of which approximately 2,276,939,837
were outstanding on March 9, 2009. The change in par value
will also have no impact on outstanding Company-issued stock
options or restricted stock units.
RECOMMENDATION
OF THE BOARD
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE APPROVAL OF THE AMENDMENT TO THE COMPANY’S RESTATED
CERTIFICATE OF INCORPORATION TO CHANGE THE PAR VALUE OF THE
COMPANY’S COMMON STOCK FROM $3 PER SHARE TO $0.01 PER
SHARE. UNLESS OTHERWISE INDICATED ON YOUR PROXY, YOUR
SHARES WILL BE VOTED FOR THE APPROVAL OF THE
AMENDMENT TO THE COMPANY’S RESTATED CERTIFICATE OF
INCORPORATION TO CHANGE THE PAR VALUE OF THE COMPANY’S
COMMON STOCK FROM $3 PER SHARE TO $0.01 PER SHARE.
PROPOSAL NO. 3
We are seeking stockholder approval of amendments to our
existing equity plans (as described below) to allow for a
one-time Stock Option Exchange Program (the
“Program”). Under the Program, eligible employees
would be permitted to exchange outstanding stock options granted
prior to June 1, 2007, expiring after December 31,
2009 and with exercise prices equal to or greater than $12.00
per share (the “Eligible Options”), or higher, if the
52-week stock price high exceeds $12.00 at the start date of the
Program, for a lesser number of stock options (the
“Replacement Options”) or restricted stock units (the
“Replacement RSUs” and collectively, “Replacement
Awards”) to be granted following the expiration of a tender
offer to be made to eligible employees. In no event will we
include outstanding options with exercise prices that are below
the 52-week stock price high. Our directors and executive
officers (as defined under
Rule 3b-7
of the Securities Exchange Act of 1934, as amended
(“Exchange Act”)) and members of the Motorola senior
leadership team are not eligible to participate in the Program.
As a result of the financial performance of our Mobile Devices
business, Motorola has had substantial operating losses over the
last two years, contributing to a decline in our stock price.
Factors contributing to the Mobile Devices’ financial
results include limited product offerings in certain market
segments, particularly 3G devices, including smartphones, as
well as very low-tier products. More recently, there has been
additional pressure on the share price due in part to several
factors beyond the control of our employees and our current
senior leadership team. Our Mobile Devices business has been
adversely impacted by slowing consumer demand, lengthening
replacement cycles, and reduced purchasing power in certain
foreign countries associated with the ongoing global economic
Table of Contents
20
PROXY STATEMENT
recession. Our Broadband Mobility Solutions business has
performed well in recent years, but is now under increasing
pressure as the recession impacts enterprise and government
spending globally.
Our Co-CEOs, both of whom assumed their current roles in 2008,
have taken several actions to address the unprecedented economic
environment, as well as the challenges facing our Mobile Devices
business. Specifically, in late 2008 and early 2009 we announced
significant actions to accelerate the consolidation of our
product platforms in our Mobile Devices business, and have
refocused our investment and market priorities. These efforts
will result in a leaner organization with a more competitive and
cost-effective product portfolio. Additionally, we are making
good progress in developing important new smartphones for 2009
and are pleased with the positive response from our customers to
these new devices. Finally, we announced significant
cost-reduction actions in late 2008 and in early 2009 across all
of our businesses.
To date, we believe all of these actions, especially those
related to Mobile Devices, have been positively received by the
investment community as the right actions to take. We also
believe that investors see our Broadband Mobility businesses as
healthy, viable, and well-managed businesses with good long-term
prospects. Despite these perspectives, and with the continuing
challenges in the economic environment, an anticipated rebound
has not occurred. As a result, the majority of the stock options
currently held by our employees have exercise prices
significantly above our current stock price.
The Program is structured as a value-for-value exchange. The
Replacement Awards would be targeted at providing value that is,
in the aggregate, not greater than the fair value of the
exchanged options. This means that the employees who participate
in the Program are expected to receive a number of Replacement
Awards with an aggregate value that does not exceed the
aggregate value of the options surrendered in the exchange. The
Program is intended to encourage retention and build engagement
among Motorola employees, in a manner that is substantially cost
neutral and simple to communicate and implement.
Our equity compensation programs are designed to attract,
retain, and motivate the right people, in the right places, at
the right time. Approximately 30,000 Motorola employees
worldwide—about half of our workforce—participate in
our equity grants, which are typically made in May of each year.
Prior to 2008, stock options were the primary form of equity
compensation granted to employees. As a result, as of
February 27, 2009, approximately 226,293,294 options are
outstanding to approximately 31,000 optionees. These options
were granted under the Motorola Omnibus Incentive Plan of 2006
(the “2006 Plan”) and under the following prior plans
which were merged into the 2006 Plan: the Motorola Omnibus
Incentive Plan of 2003 (the “2003 Plan”), the Motorola
Omnibus Incentive Plan of 2002 (the “2002 Plan”), the
Motorola Omnibus Incentive Plan of 2000 (the “2000
Plan”), the Motorola Amended and Restated Incentive Plan of
1998 (the “1998 Plan”) (collectively, the “Prior
Plans”) and the Motorola Compensation/Acquisition Plan of
2000 (the “C/A Plan” and, collectively, with the 2006
Plan and the Prior Plans, the “Equity Plans”).
Over the past three years, Motorola’s stock price has
declined significantly, which has had a negative impact on our
ability to retain and motivate employees through the use of
stock options. As of February 27, 2009, the closing price
of our common stock on the New York Stock Exchange was $3.52 and
nearly 100% of our outstanding options were underwater.
Approximately 53.1% of the stock options held by employees as of
that date had exercise prices equal to or greater than $12.00
per share, were granted prior to June 1, 2007, and will
expire after December 31, 2009.
The sustained decline in the price of Motorola stock has
significantly weakened the retention value of a major component
of employee compensation. Because such a large number of our
outstanding options have exercise prices well above the current
stock price, many employees believe their options are of little
or no value. These options are no longer an effective means of
retaining our key talent, but we will continue to recognize the
compensation expense of these options as they are likely to
remain unexercised until they expire. In addition, in our
current economic climate, using cash compensation to improve the
retention impact of our compensation programs is not desirable.
We believe that our stockholders will benefit from the Program,
as it will drive improved retention and engagement among a
significant portion of our workforce, at substantially no change
in cost. In an economic climate where we have recently made
difficult decisions to suspend merit increases in many
countries, freeze the U.S. defined benefit pension plan,
and suspend the Company match in the U.S. 401(k), we feel
the Program would improve retention and engagement through a
Table of Contents
21
PROXY STATEMENT
balanced approach that meets both employee and stockholder
interests.
By structuring the Program as a value-for-value exchange,
Motorola would restore economic value to the options held by
employees, while not creating material additional compensation
expense to Motorola. In addition, the Program will reduce
outstanding stock option overhang and avoid the potential
dilutive effects that would be associated with granting new
options to supplement, rather than replace, outstanding options.
Finally, Motorola is aware that stockholders generally do not
believe that senior executives and directors should benefit from
an option exchange program. Accordingly, directors, executive
officers and members of the Motorola senior leadership team will
not be eligible to participate in the Program.
We believe the Program would be beneficial to stockholders by
cancelling a large number of outstanding options and issuing new
options in their place. This allows Motorola to avoid potential
additional dilution to our stockholders’ interests, while
also allowing Motorola to recapture the value of compensation
costs already being incurred for underwater options. Prior to
January 1, 2006, the Company applied the intrinsic value
method to all share-based compensation. On January 1, 2006,
the Company began using FAS 123R for share-based
compensation. Using these methods, we are required to recognize
$910 million (net of forfeitures) in compensation expense
relating to the Eligible Options, of which $769 million has
already been recognized. The remaining $141 million would
have to be recognized even if those outstanding awards are never
exercised because they are underwater.
The Program would benefit our employees by providing a renewed
stake in the future success of Motorola. The Replacement Options
would have a new exercise price that reflects Motorola’s
stock price at the time the Program is completed. However,
because the Program is structured as a value-for-value exchange,
eligible employees who participate in the Program would receive
a smaller number of Replacement Awards than those that are
surrendered. The Replacement Awards also would carry a new
vesting schedule, which will foster retention by requiring
employees to continue employment in order to realize the value
of the new awards.
If our stockholders do not approve the amendments to the Equity
Plans authorizing the Program, Eligible Options will remain
outstanding and in effect in accordance with their existing
terms. We will continue to recognize compensation expense for
these Eligible Options, even though the Eligible Options may
have little or no retention or incentive value.
If stockholders approve the requisite amendments to our Equity
Plans, the Compensation and Leadership Committee (the
“Compensation Committee”) of the Company’s Board
of Directors will determine the date upon which the Program will
begin. At that time, Motorola will file written materials
relating to the Program with the United States Securities and
Exchange Commission (the “SEC”) as part of a tender
offer statement on Schedule TO. Should Motorola’s
stock price increase significantly, the Company will reassess
the advisability of implementing the Program. After we file
materials with the SEC, we will send to eligible employees
written materials explaining the precise terms and timing of the
Program. Documents filed relating to the Program will be
available to the public, including eligible employees, at
www.sec.gov.
Under the terms of the Program, eligible employees who elect to
participate would surrender Eligible Options they currently
hold, and in return would receive new Replacement Awards under
the 2006 Plan. Motorola is not taking advantage of very recent
declines in stock price. Therefore, Motorola is not including
any recent stock option grants in its option exchange program.
Specifically, Motorola will not include any stock option grants
made on or after June 1, 2007. In some non-U.S.
jurisdictions, Eligible Options may be exchanged for a lesser
number of Replacement RSUs granted under the 2006 Plan, based on
local regulatory, tax, accounting or administrative
considerations. The number of Replacement Awards that would be
received will be determined by an exchange ratio approved by the
Compensation Committee after stockholder approval of the
Program, based on the price of Motorola stock at the time the
Program is initiated, and the exercise price and remaining term
of the Eligible Options. Avoiding significant incremental
expense will be a significant factor in determining the exchange
ratio. In all cases, the number of Replacement Awards received
will be fewer than the number of Eligible Options surrendered.
Based on a $3.678 stock price at the time of the exchange (using
the 10-day
average stock price close as of February 27, 2009), the
exchange ratio for the Replacement Options would vary from
2-to-1 to 77-to-1 and the exchange ratio for the Replacement
RSUs would vary from 4.5-to-1 to 165.5-to-1, depending on the
exercise price and remaining term
Table of Contents
22
PROXY STATEMENT
of the eligible options. The actual exchange ratios will be
established at the time the Program is initiated and will not
include outstanding options that have an exercise price below
the 52-week stock price high.
As of December 31, 2008, there were approximately
228,145,000 options and 32,230,000 shares underlying other
types of stock awards outstanding under the Equity Plans.
Dividend equivalents are not permitted on stock options or SARs.
Of the outstanding options, up to 120,193,022 (or 52.7%) would
be eligible for exchange under the proposed Program. If all of
the Eligible Options were exchanged for Replacement Options at
the estimated exchange ratios described below, the number of
Replacement Options granted would be 34,131,051. If all of the
Eligible Options that have currently been deemed eligible for
Replacement RSUs were exchanged at the estimated exchange ratios
described below, the number of Replacement RSUs granted would be
28,779.
Up to 52 million of the shares underlying Eligible Options
that are surrendered under the Program would be returned to the
2006 Plan and would be eligible for future awards under the 2006
Plan.
The actual number of Eligible Options will depend on the number
of countries where we determine it to be practical and desirable
to offer the Program.
For example purposes, after the exchange (assuming all Eligible
Options are tendered and without including any grants after
December 31, 2008), there will be 124,200,000 shares
available for grant (72,200,000 shares available for grant as of
December 31, 2008 plus 52,000,000 shares returned to the
plan), 142,083,029 options and SARs outstanding (228,145,000 as
of December 31, 2008 less 120,193,022 tendered
options plus 34,131,051 options granted as part of the
exchange) and 32,258,779 full value awards outstanding
(32,230,000 as of December 31, 2008 plus 28,779
granted as part of the exchange). These outstanding options and
SARs would have a weighted average exercise price of $12.53 and
a weighted average remaining term of 6 years. Please see
the table below for a
side-by-side
comparison of before and after the exchange:
If the proposed amendments to the Equity Plans are approved by
the stockholders, upon approval of the specific terms of the
Program by the Compensation Committee, we will file an Offer of
Exchange with the SEC. We will then distribute the Offer of
Exchange to eligible employees and initiate the exchange period.
Eligible employees will be given at least 20 business days from
the date the Program is initiated to elect to exchange any or
all of their Eligible Options for Replacement Awards. We expect
to implement the Option Exchange Program as soon as
administratively possible after stockholder approval on
May 4, 2009, but in any event it will be implemented no
later than 12 months following the date stockholders
approve the proposed amendments to the Equity Plans.
The Program would be open to all of our employees worldwide who
are employed at the beginning and the end of the exchange period
and on the new option grant date, and who hold Eligible Options,
except for the following:
We intend to make the Program available to our employees who are
located outside of the United States, where permitted by local
law and where we determine it would be practicable to do so. It
is possible that we would need to make modifications to the
terms of the Program offered to employees in countries outside
the United States either to comply with local requirements, or
for tax or accounting reasons. In addition, we may exclude
employees in certain non-U.S. jurisdictions from the Program if
local law, expense, complexity, administrative burden or similar
considerations would make their participation illegal,
infeasible or impractical. The tax consequences for
participating non-U.S. employees may differ from the U.S.
federal income tax consequences.
Up to 30,000 employees would be eligible for the Program.
The Program will not be made available to former employees or
retirees.
Replacement Options would be used for eligible employees located
in the United States and are
Table of Contents
23
PROXY STATEMENT
anticipated to be used in most of the countries with eligible
employees covered by the Program. It is possible that certain
terms of the Program may need to be modified in countries
outside the United States in order to comply with local
requirements, or for tax, accounting or administrative reasons.
This could include, in some countries, the offering of
Replacement RSUs (instead of Replacement Options) in exchange
for Eligible Options.
The number of Eligible Options that an eligible employee must
surrender to obtain Replacement Awards is called the Exchange
Ratio. The Exchange Ratio will, in all cases, require an
employee to exchange a larger number of Eligible Options for a
smaller number of Replacement Awards. The Exchange Ratio will be
determined by the Compensation Committee prior to the
commencement of the Program, and will be based on the exercise
price and the remaining term of the Eligible Option. The options
subject to the Program will be valued using the Black-Scholes
option pricing model. The model uses the following variables:
stock price volatility, risk free interest rates, option term,
option exercise price, dividend yield and stock price on the
date of grant.
Based on a $3.678 stock price at the time of the exchange (using
the 10-day
average stock price close as of February 27, 2009), the
exchange ratios of surrendered Eligible Options to new
Replacement Options would vary from 2-to-1 to 77-to-1 and the
exchange ratio for the Replacement RSUs would vary from 4.5-to-1
to 165.5-to-1.
STOCK
OPTION EXCHANGE RATIOS
The table below displays the Replacement Option exchange ratios
for our estimated number of outstanding eligible options. The
actual number of Eligible Options may vary based on the
determination of eligibility for employees who are located
outside of the United States.
The Program is structured as a value-for-value exchange. The
Replacement Options would be targeted at providing value that
is, in the aggregate, not greater than the fair value of the
exchanged options. The majority of the Eligible Options have a
remaining term that is greater than the 5-year term of the
Replacement Options and have a weighted average remaining term
of approximately 5.72 years.
For purposes of example only, if a participant exchanged two
grants of Eligible Options, one grant of 500 options falling in
the Tier 1 category and one grant of 500 options
falling in the Tier 3 category, the Replacement Option
grant would be a total of 305 new stock options. The new options
would have an exercise price equal to the closing price of
Motorola Common Stock on the grant date, vest 50% per year at
the first and second anniversary of the grant, and would have a
term of 5 years. Below is an example of the calculation:
The same methodology used to determine the exchange ratios in
the above example will be used to determine the actual exchange
ratios under the Program.
RESTRICTED
STOCK UNIT EXCHANGE RATIOS
The table below displays the Replacement RSU exchange ratios for
our estimated number of outstanding eligible options that have
been deemed eligible for Replacement RSUs. The actual number of
Eligible Options eligible for Replacement RSUs may vary based on
the determination of eligibility for employees who are located
outside of the United States.
The Program is structured as a value-for-value exchange. The
Replacement RSUs would be targeted at providing value that is,
in the aggregate, not greater than the fair value of the
exchanged options.
Table of Contents
24
PROXY STATEMENT
For purposes of example only, if a participant exchanged two
grants of Eligible Options, one grant of 500 options falling in
the Tier 1 category and one grant of 500 options
falling in the Tier 3 category, the Replacement RSU grant
would be a total of 136 new RSUs that vest 50% per year at the
first and second anniversary of the grant. Below is an example
of the calculation:
The same methodology used to determine the exchange ratios in
the above example will be used to determine the actual exchange
ratios under the Program.
Participation in the Program is voluntary. Under the Program,
eligible employees will have the choice, on a grant by grant
basis, to exchange any or all of their Eligible Options.
However, eligible employees would not be permitted to exchange a
portion of a single option grant for Replacement Awards; but
rather would be required to exchange all or none of the Eligible
Options within a single grant.
The Replacement Awards would be subject to a new vesting
schedule and would be unvested at the time of grant, regardless
of whether the Eligible Options exchanged were partly or wholly
vested. The Replacement Awards would vest 50% per year on the
first and second anniversary of the grant, and Replacement
Options would have a term of 5 years. At the time the
Program is initiated, the Eligible Options that are expected to
be eligible for Replacement Awards will have a weighted average
remaining vesting period of approximately 6.81 months and a
weighted average remaining term of approximately 5.72 years.
The 5-year
term of the Replacement Options is shorter than the weighted
average remaining term of the Eligible Options that are expected
to be eligible for Replacement Awards. Additionally, the vesting
period of the Replacement Awards is longer than the weighted
average remaining vesting period of the Eligible Options that
are expected to be eligible for Replacement Awards.
The other terms and conditions of the Replacement Awards would
be governed by the 2006 Plan and would be outlined in an award
agreement to be entered into as of the grant date.
All surrendered options would be cancelled at the time of the
proposed exchange. Up to 52 million of the shares
underlying Eligible Options that are surrendered under the
Program would be returned to the 2006 Plan and would be eligible
for future awards under the 2006 Plan. Eligible Options that are
not surrendered will not be affected and will remain exercisable
according to their original terms.
The Program will be accounted for under Statement of Financial
Accounting Standards No. 123 (revised), Share-Based Payment
(FAS 123R). Under these rules, the exchange of options will
be characterized as a modification of the exchanged options. Any
difference between the fair value of the new Replacement Awards
over the fair value of the exchanged options at the time of the
exchange will result in a modest additional compensation
expense. The actual amount of the compensation expense will
depend on participation levels and on the exchange ratios,
Black-Scholes values, and vesting schedules established at the
time of the exchange. We do not expect the additional
compensation expense, if any, to be material to Motorola.
The exchange of Eligible Options should be treated as a
non-taxable exchange and neither Motorola nor our employees
should recognize any income for U.S. federal income tax purposes
upon the grant of the Replacement Options. However, the tax
consequences for participating non-U.S. employees may differ
from U.S. federal income tax consequences.
If the Company commences the Program, the terms of the Program
will be described in a
Table of Contents
25
PROXY STATEMENT
Schedule TO that will be filed with the SEC before or
concurrent with the initiation of the exchange period. Although
we do not expect the SEC to require any modifications, it is
possible that we would need to alter the terms of the Program to
comply with comments from the SEC. In addition, we intend to
make the Program available to certain employees located outside
the United States, where permitted by local law and where we
determine it would be practical and desirable to do so. It is
possible that we would need to make modifications to the terms
offered to employees in countries outside the United States
either to comply with local requirements, or for tax or
accounting reasons. Motorola also reserves the right to not
implement the Program in any country where it would be
impractical or inadvisable to do so.
Although we are unable to predict the precise impact of the
Program on our stockholders because we are unable to predict how
many or which employees will exchange their eligible awards, we
have designed the Program in a manner intended to ensure that
the value of the equity granted in the Program is no greater
than the value of the eligible awards surrendered. The Program
is intended to restore competitive and appropriate equity
incentives for our employees, reduce our existing overhang and
recapture value for compensation expense already being incurred.
In order to permit the Company to implement the Program in
compliance with its Equity Plans and applicable New York Stock
Exchange listing rules, the Compensation Committee recommended
and the Board approved amendments to the Company’s Equity
Plans, subject to approval of the amendments by the
Company’s stockholders. The Company is seeking stockholder
approval to amend each of the Company’s Equity Plans to
allow for the Program. The amendments permitting the exchange of
Stock Options (as defined below) would replace the last sentence
of Section 6 of the 2006 Plan, the 2003 Plan, the 2002
Plan, the 2000 Plan and the C/A Plan and Section 5 of the
Restated 1998 Plan, respectively. By amending the Restated 1998
Plan, the amendment will be inserted as a new sentence in place
of the last clause of Section 13.3 of the Company’s
1998 Incentive Plan (the Restated 1998 Plan prior to its
amendment and restatement) (“1998 Plan”), and will
become a term of the stock options which remain outstanding
under the 1998 Plan. The amendment will read as follows:
Notwithstanding any other provision of the Plan to the contrary,
upon approval of the Company’s stockholders, the Committee
may provide for, and the Company may implement, a one time
only option exchange offer, pursuant to which certain
outstanding Stock Options could, at the election of the person
holding such Stock Option, be tendered to the Company for
cancellation in exchange for the issuance of a lesser amount of
Stock Options with a lower exercise price, or other equity
benefit as approved by the Committee, provided that such one
time only option exchange offer is implemented within twelve
months of the date of such stockholder approval.
Summary
of the 2006 Plan
The following is a summary of the material terms of the 2006
Plan as proposed to be amended and is qualified in its entirety
by reference to the 2006 Plan that was filed electronically with
this Proxy Statement with the Securities and Exchange
Commission. Such text is not included in the printed version of
this proxy statement. A copy of the 2006 Plan is available from
the Company’s Secretary at the address on the cover of this
document.
The 2006 Plan permits awards of Stock Options, Stock
Appreciation Rights (“SARs”), Restricted Stock and
Restricted Stock Units, Deferred Stock Units, Performance
Shares, Performance Cash Awards, Annual Management Incentive
Awards, and other Stock Awards and Cash Awards as defined and
described below.
Awards and grants under the 2006 Plan are referred to as
“Benefits.” Those eligible for Benefits under the 2006
Plan are referred to as “Participants.” Participants
include all employees and non-employee directors of the Company
and employees of any subsidiary in which the Company owns a 50%
or greater interest which the Company consolidates for financial
reporting purposes.
The total number of shares reserved for issuance under the 2006
Plan after the merger of the Prior Plans was approximately
140.5 million shares (based upon 80 million shares
reserved for issuance under the 2006 Plan and approximately
60.5 million shares available under the Prior Plans as of
April 30, 2006), plus any shares that became available for
issuance pursuant to the reusage provisions discussed below.
Table of Contents
26
PROXY STATEMENT
The 2006 Plan is administered by the Compensation Committee. The
Compensation Committee approves the aggregate Benefits and the
individual Benefits for most senior elected officers and
non-employee directors. The Compensation Committee delegates
some of its authority under the 2006 Plan in accordance with the
terms of the 2006 Plan.
No Participant may receive in any calendar year: (i) Stock
Options relating to more than 3 million shares,
(ii) Restricted Stock or Restricted Stock Units relating to
more than 1.5 million shares, (iii) SARs relating to
more than 3 million shares, (iv) Performance Shares
relating to more than 1.5 million shares, or
(v) Deferred Stock Units relating to more than
50,000 shares. No non-employee director may receive in any
calendar year: (i) Stock Options relating to more than
50,000 shares, or (ii) Deferred Stock Units relating
to more than 50,000 shares. (Each of the above limits is
subject to the adjustment provisions discussed below).
Benefits
Stock
Options
The Compensation Committee is authorized to grant Stock Options
to Participants (“Optionees”), which may be either
Incentive Stock Options (“ISOs”) or Nonqualified Stock
Options (“NSOs”). NSOs and ISOs are collectively
referred to as “Stock Options”. The exercise price of
any Stock Option must be at least equal to the fair market value
of the shares on the date of the grant. At the time of grant,
the Compensation Committee in its sole discretion will determine
when Options are exercisable and when they expire, provided the
term cannot exceed 10 years.
For purposes of the 2006 Plan, fair market value shall be
determined in such manner as the Compensation Committee may deem
equitable, or as required by applicable law or regulation.
Payment for shares purchased upon exercise of a Stock Option
must be made in full at the time of purchase. Payment may be
made: (a) in cash, (b) by the transfer to the Company
of shares owned by the Participant having a fair market value on
the date of exercise equal to the option exercise price (or
certification of ownership of such shares), (c) to the
extent permitted by applicable law, by delivery of a properly
executed exercise notice, together with irrevocable instructions
to a broker to promptly deliver to the Company the amount of
sale proceeds from the option shares or loan proceeds to pay the
exercise price and any withholding taxes due to the Company, or
(d) in such other manner as may be authorized by the
Compensation Committee.
The Compensation Committee has the authority to grant SARs to
Participants and to determine the number of shares subject to
each SAR, the term of the SAR, the time or times at which the
SAR may be exercised, and all other terms and conditions of the
SAR. A SAR is a right, denominated in shares, to receive, upon
exercise of the right, in whole or in part, without payment to
the Company, an amount, payable in shares, in cash or a
combination thereof, that is equal to: (i) the fair market
value of Common Stock on the date of exercise of the right,
minus (ii) the fair market value of Common Stock on the
date of grant of the right, multiplied by the number of shares
for which the right is exercised. Except with respect to SARs
issued in substitution for Stock Options (see the following
paragraph), the exercise price of any SAR must be at least equal
to the fair market value of the shares on the date of the grant.
The Compensation Committee also may, in its discretion,
substitute SARs which can be settled only in Common Stock for
outstanding Stock Options. The grant price of the substituted
SAR shall be equal to the exercise price of the related Stock
Option. Additionally, the other terms and conditions of any
substitute SAR shall be substantially the same as those
applicable to the Stock Option that it replaces and the term of
the substitute SAR shall not exceed the term of the Stock Option
that it replaces.
The Compensation Committee is prohibited from cancelling any
outstanding Stock Option or SAR for the purpose of reissuing the
option or SAR to the participant at a lower option exercise
price or SAR grant price or reducing the exercise price of an
outstanding option or grant price of an outstanding SAR.
However, upon approval of the Company’s stockholders of
this proposal to amend the Equity Plans, the Compensation
Committee may provide for, and the Company may implement, a one
time only exchange offer, pursuant to which certain outstanding
options could, at the election of the person holding such
option, be tendered to the Company for cancellation in exchange
for the issuance of a lesser amount of options with a lower
exercise price, provided that such one time only exchange offer
is implemented within twelve months of the date of such
stockholder approval.
Table of Contents
27
PROXY STATEMENT
Restricted Stock consists of shares which are transferred or
sold by the Company to a Participant, but are subject to
substantial risk of forfeiture and to restrictions on their sale
or other transfer by the Participant. Restricted Stock Units are
the right to receive shares at a future date after vesting upon
the attainment of certain conditions and satisfaction of certain
restrictions. The Compensation Committee determines the eligible
Participants to whom, and the time or times at which, grants of
Restricted Stock or Restricted Stock Units will be made, the
number of shares or units to be granted, the price to be paid,
if any, the time or times within which the shares covered by
such grants will be subject to forfeiture, the time or times at
which the restrictions will terminate, and all other terms and
conditions of the grants. Restrictions or conditions could
include, but are not limited to, the attainment of performance
goals (as described below), continuous service with the Company,
the passage of time or other restrictions or conditions. Awards
of Restricted Stock and Restricted Stock Units may include the
right to be credited with dividends or dividend equivalents.
Deferred Stock Units provide a Participant a vested right to
receive shares in lieu of other compensation at termination of
employment or service or at a specific future designated date.
Deferred Stock Units may include the right to be credited with
dividend equivalents in accordance with the terms and conditions
of the units.
A Participant who is granted Performance Shares has the right to
receive shares or cash or a combination of shares and cash equal
to the fair market value of such shares at a future date in
accordance with the terms of such grant and upon the attainment
of performance goals specified by the Compensation Committee for
a performance period of at least 12 months. The
Compensation Committee may, in its discretion, make a cash
payment equal to the fair market value of shares of Common Stock
otherwise required to be issued to a Participant pursuant to a
Performance Share award.
A Participant who is granted a Performance Cash Award has the
right to receive a payment in cash upon the attainment of
performance goals specified by the Compensation Committee for a
performance period of at least 12 months. The Compensation
Committee may substitute actual shares of Common Stock for the
cash payment otherwise required to be made pursuant to a
Performance Cash Award.
Awards of Restricted Stock, Restricted Stock Units, Performance
Shares, Performance Cash Awards and other incentives under the
2006 Plan may be made subject to the attainment of performance
goals relating to one or more business criteria within the
meaning of Section 162(m) of the Code, including, but not
limited to: cash flow; cost; ratio of debt to debt plus equity;
profit before tax; economic profit; earnings before interest and
taxes; earnings before interest, taxes, depreciation and
amortization; earnings per share; operating earnings; economic
value added; ratio of operating earnings to capital spending;
free cash flow; net profit; net sales; sales growth; price of
the Common Stock; return on net assets, equity or
stockholders’ equity; market share; or total return to
stockholders (“Performance Criteria”).
Any Performance Criteria may be used to measure the performance
of the Company as a whole or any business unit of the Company
and may be measured relative to a peer group or index.
Performance Criteria shall be calculated in accordance with
(a) the Company’s financial statements (including
without limitation the Company’s “consolidated
earnings before income taxes” as defined in the following
section), (b) Generally Accepted Accounting Principles, or
(c) under an objective methodology established by the
Compensation Committee prior to the issuance of an award which
is consistently applied.
The Compensation Committee has the authority to grant Management
Incentive Awards to designated executive officers of the Company
or any subsidiary.
Management Incentive Awards will be paid out of an incentive
pool equal to five percent of the Company’s
“consolidated earnings before income taxes” for each
calendar year.
The Compensation Committee will allocate an incentive pool
percentage to each designated executive officer for each
calendar year. In no event, may the incentive pool percentage
for any one executive officer exceed 30% of the total pool. For
purposes of the 2006 Plan, “consolidated earnings before
income taxes” will mean the consolidated earnings before
income taxes of the Company, computed in accordance with
Generally Accepted Accounting Principles, but shall exclude the
effects of the following items, if and only if, such items are
separately identified in the Company’s quarterly
Table of Contents
28
PROXY STATEMENT
earnings releases: (i) extraordinary, unusual,
and/or
nonrecurring items of gain or loss, (ii) gains or losses on
the disposition of a business or investment, (iii) changes
in tax or accounting regulations or laws, or (iv) the
effect of a merger or acquisition. The executive officer’s
incentive award then will be determined by the Compensation
Committee based on the executive officer’s allocated
portion of the incentive pool subject to adjustment in the sole
discretion of the Compensation Committee. In no event may the
portion of the incentive pool allocated to an executive officer
who is subject to Section 162(m) of the Code be increased
in any way, including as a result of the reduction of any other
executive officer’s allocated portion.
The Compensation Committee may award shares of Common Stock to
Participants without payment therefore as additional
compensation for service to the Company or a subsidiary. Stock
Awards may be subject to other terms and conditions, which may
vary from time to time and among employees, as the Compensation
Committee determines to be appropriate.
A Cash Award consists of a monetary payment made by the Company
to an employee as additional compensation for his or her
services to the Company or a subsidiary. Cash Awards may be
subject to other terms and conditions, which may vary from time
to time and among employees, as the Compensation Committee
determines to be appropriate.
The Board or the Compensation Committee has the right and power
to amend the 2006 Plan, provided, however, that neither the
Board nor the Compensation Committee may amend the 2006 Plan in
a manner which would impair or adversely affect the rights of
the holder of a Benefit without the holder’s consent,
except that the Compensation Committee may, in its discretion,
substitute SARs which can be settled only in stock for
outstanding Stock Options without a Participant’s consent,
as described above. The Company shall obtain stockholder
approval of any amendment of the 2006 Plan to the extent
necessary to comply with applicable laws, regulations or stock
exchange rules.
The Board may terminate the 2006 Plan at any time. The Plan is
scheduled to terminate on February 23, 2016, the tenth
anniversary of its adoption by the Board. Termination will not
in any manner impair or adversely affect any Benefit outstanding
at the time of termination.
Upon the occurrence of a Change in Control (as defined in the
2006 Plan), all outstanding Stock Options and SARs shall become
vested and exercisable, all restrictions on Restricted Stock and
Restricted Stock Units shall lapse, all performance goals shall
be deemed achieved at target levels and all other terms and
conditions met, all Performance Shares shall be delivered, all
Performance Cash Awards, Deferred Stock Units and Restricted
Stock Units shall be paid out as promptly as practicable, all
Annual Management Incentive Awards shall be paid out at target
levels (or earned levels, if greater) and all other terms and
conditions deemed met, and all Other Stock or Cash Awards shall
be delivered or paid. The treatment of outstanding Benefits set
forth above is referred to herein as “Accelerated
Treatment”. Accelerated Treatment shall not apply if and to
the extent that such Benefits are assumed by the successor
corporation (or parent thereof) or are replaced with an award
that preserves the value of the award existing at the time of
the Change in Control and provides for subsequent payout in
accordance with the same vesting schedule applicable to the
original Benefit; provided, however, that with respect to any
awards that are assumed or replaced, such assumed or replaced
awards must provide for the Accelerated Treatment with respect
to any Participant that is involuntarily terminated (for a
reason other than Cause (as defined in the 2006 Plan)) or quits
for Good Reason (as defined in the 2006 Plan) within
24 months of the Change in Control. The Change in Control
provision under the 2006 Plan is commonly known as a
“double trigger change in control provision”.
If there is any change in the number, class, market price or
terms of the Common Stock by reason of any stock dividend, stock
split, recapitalization, reorganization, merger, consolidation,
spin-off, disaffiliation of a subsidiary, combination of shares,
exchange of shares, stock rights offering or other similar event
or any distribution to the holders of shares of Common Stock
other than a regular cash dividend, the Compensation Committee
shall make such substitution or adjustment in the number of or
class of shares which may be issued under the 2006 Plan in the
aggregate or to any one Participant in any calendar year and in
the number, class, price or terms of shares subject to
outstanding awards granted under the 2006 Plan as it deems
appropriate.
Table of Contents
29
PROXY STATEMENT
In direct connection with the sale, lease, distribution to
stockholders, outsourcing arrangement or any other type of asset
transfer or transfer of any portion of a facility or any portion
of a discrete organizational unit of the Company or a
subsidiary, the Compensation Committee may authorize the
assumption or replacement of affected Participants’ awards
by the spun-off facility or organization or by the entity that
controls the spun-off facility or organizational unit following
disaffiliation.
In the event of any merger, consolidation, or reorganization of
the Company with or into another corporation which results in
the Company’s outstanding Common Stock being converted into
or exchanged for different securities, cash, or other property,
there shall be substituted on an equitable basis as determined
by the Compensation Committee, for each share of Common Stock
subject to a Benefit, the number and kind of shares of stock,
other securities, cash, or other property to which holders of
Common Stock of the Company are entitled pursuant to the
transaction.
Either the Board or the Compensation Committee may authorize the
issuance of Benefits in connection with the assumption of, or
substitution for, outstanding benefits previously granted to
individuals who become employees of the Company or any
subsidiary as the result of any merger, consolidation,
acquisition of property or stock, or reorganization other than a
Change in Control, upon such terms and conditions as it deems
appropriate. To the extent permitted by Section 303A.08 of
the Corporate Governance Standards of the New York Stock
Exchange, any substitute awards granted under the 2006 Plan
shall not count against the share limitations set forth herein.
If a Stock Option granted under the 2006 Plan or the Prior Plans
expires or is terminated, surrendered or canceled without having
been fully exercised or if Restricted Stock, Restricted Stock
Units, Deferred Stock Units, Performance Shares or SARs granted
under the 2006 Plan or the Prior Plans are forfeited or
terminated without the issuance of all of the shares subject
thereto, the shares covered by such Benefits will again be
available for use under the 2006 Plan (to the extent permitted
under the terms of the Prior Plans if the original award
occurred under such a Plan). Shares covered by a Benefit granted
under the 2006 Plan or the Prior Plans will not be counted as
used unless and until they are actually issued and delivered to
a Participant. Any shares of Common Stock covered by a SAR shall
be counted as used only to the extent shares are actually issued
to the Participant upon exercise of the SAR. Shares exchanged by
an optionee as full or partial payment of the exercise price
under any Stock Option exercised under the 2006 Plan, shares
withheld to pay withholding taxes in connection with the
exercise or payment of a Benefit will not be counted as used.
Shares covered by a Benefit that is settled in cash will not be
counted as used.
The Company has been advised by counsel that the federal income
tax consequences as they relate to Benefits are as follows:
An Optionee does not generally recognize taxable income upon the
grant or upon the exercise of an ISO. Upon the sale of ISO
shares, the Optionee recognizes income in an amount equal to the
difference, if any, between the exercise price of the ISO shares
and the fair market value of those shares on the date of sale.
The income is taxed at long-term capital gains rates if the
Optionee has not disposed of the stock within two years after
the date of the grant of the ISO and has held the shares for at
least one year after the date of exercise and the Company is not
entitled to a federal income tax deduction. The holding period
requirements are waived when an Optionee dies.
The exercise of an ISO may in some cases trigger liability for
the alternative minimum tax.
If an Optionee sells ISO shares before having held them for at
least one year after the date of exercise and two years after
the date of grant (a “disqualifying disposition”), the
Optionee recognizes ordinary income to the extent of the lesser
of: (i) the gain realized upon the sale; or (ii) the
difference between the exercise price and the fair market value
of the shares on the date of exercise. Any additional gain is
treated as long-term or short-term capital gain depending upon
how long the Optionee has held the ISO shares prior to
disposition. In the year of a disqualifying disposition, the
Company receives a federal income tax deduction in an amount
equal to the ordinary income that the Optionee recognizes as a
result of the disposition.
An Optionee does not recognize taxable income upon the grant of
an NSO. Upon the exercise of such a Stock Option, the Optionee
recognizes ordinary income to the extent the fair market value
of the shares received upon exercise of the NSO on the date of
exercise exceeds the exercise price. The Company receives an
income tax deduction in an amount equal to the ordinary
Table of Contents
30
PROXY STATEMENT
income that the Optionee recognizes upon the exercise of the
Stock Option.
A Participant who receives an award of Restricted Stock does not
generally recognize taxable income at the time of the award.
Instead, the Participant recognizes ordinary income in the first
taxable year in which his or her interest in the shares becomes
either: (i) freely transferable; or (ii) no longer
subject to substantial risk of forfeiture. The amount of taxable
income is equal to the fair market value of the shares less the
cash, if any, paid for the shares.
A Participant may elect to recognize income at the time he or
she receives Restricted Stock in an amount equal to the fair
market value of the Restricted Stock (less any cash paid for the
shares) on the date of the award.
The Company receives a compensation expense deduction in an
amount equal to the ordinary income recognized by the
Participant in the taxable year in which restrictions lapse (or
in the taxable year of the award if, at that time, the
Participant had filed a timely election to accelerate
recognition of income).
In the case of an exercise of a SAR or an award of Restricted
Stock Units or Deferred Stock Units, Performance Shares, Common
Stock or a Cash Award, the Participant will generally recognize
ordinary income in an amount equal to any cash received and the
fair market value of any shares received on the date of payment
or delivery. In that taxable year, the Company will receive a
federal income tax deduction in an amount equal to the ordinary
income which the Participant has recognized.
The material terms of the 2003 Plan, the 2002 Plan, the 2000
Plan, the C/A Plan and the Restated 1998 Plan are substantially
similar to the material terms of the 2006 Plan described above,
except with respect to available shares under the plans,
numerical limitations on individual awards, Change in Control,
Eligibility and Benefits that may be granted under the Plan.
With respect to the C/A Plan, Motorola directors and officers
are not eligible to participate. In addition, the only benefits
that may be granted under the Restated 1998 Plan are Stock
Options and SARs. As noted above, the Replacement Awards under
the Program would be granted under the 2006 Plan and not under
any of the Prior Plans or the C/A Plan.
In the event of a Change in Control (as defined under the 2003
Plan, the 2002 Plan, the 2000 Plan, the C/A Plan and the
Restated 1998 Plan which is substantially the same as defined
under the 2006 Plan), all outstanding Benefits will receive
Accelerated Treatment as described above under the description
of Change in Control under the 2006 Plan. Such Accelerated
Treatment is not subject to forfeiture. This Change in Control
provision is commonly known as a “single trigger change in
control provision.”
In the event of Change in Control as defined under the 1998
Plan, each Stock Option outstanding on the date on which the
Change in Control occurs will immediately become exercisable in
full for the remainder of its term and each participant holding
such Stock Options will have the right, upon his or her election
made during a period of 60 days following the date on which
the Change in Control occurs, to have the Company purchase any
or all such Stock Options for an immediate lump-sum cash payment
equal to the product of the (1) the excess, if any, of the
higher of (i) the fair market value on the date immediately
prior to the date of payment, or if the shares of the
Company’s Common Stock did not trade on such date, on the
last previous day on which the shares of the Company’s
Common Stock traded prior to such date, or (ii) the highest
per share price for the Company’s Common Stock actually
paid in connection with the Change in Control, over the per
share exercise price of each such Stock Option held, and
(2) the number of shares covered by each such stock option.
For purposes of the 1998 Plan, a Change of Control is defined as
(i) any change in the person or group that possesses,
directly or indirectly, the power to direct or cause the
direction of the management and the policies of the Company,
whether through the ownership of voting securities, by contract
or otherwise; (ii) the acquisition, directly or indirectly,
of securities of the Company representing at least
20 percent of the combined voting power of the outstanding
securities of the Company (other than by the Company, or any
employee benefit plan of the Company); (iii) certain
mergers and consolidations involving the Company; (iv) the
sale or other disposition of all or substantially all of the
Company’s assets; (v) a liquidation or dissolution of
the Company approved by its stockholders; and (vi) a change
in the majority of the board in existence prior to the first
public announcement relating to any cash tender offer, exchange
offer, merger or other business combination, sale of assets,
proxy or consent solicitation (other than by the Board of the
Company), contested election or substantial stock accumulation.
Fair Market Value for purposes of the 1998 Plan is defined as
the
Table of Contents
31
PROXY STATEMENT
average of the high and low sale prices of shares of the
Company’s common stock as reported for the New York Stock
Exchange—Composite Transactions on a given date or in the
absence of sales on a given date, the average of the high and
low sale prices (as so reported) for the New York Stock
Exchange—Composite Transactions on the previous day on
which a sale occurred prior to such date.
All Benefits made under the 2006 Plan are made at the discretion
of the Compensation Committee. Awards made under the 2006 Plan
in connection with the Program will be determined by the extent
to which eligible employees participate in the Program.
Therefore, the benefits and amounts that will be received or
allocated under the 2006 Plan in connection with the Program are
not determinable at this time. In addition, directors, executive
officers and members of the Motorola senior leadership team are
not eligible to participate in the Program.
This proposal to amend the Equity Plans must be approved by the
affirmative vote of a majority of the outstanding shares
represented at the meeting and entitled to vote. If stockholders
approve this proposal, the Board and the Compensation Committee
intend to commence the Program as soon as practicable after the
Annual Meeting. If stockholders do not approve this proposal,
the Program will not take place.
RECOMMENDATION
OF THE BOARD
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR THE AMENDMENT TO EXISTING EQUITY PLANS
TO PERMIT A ONE-TIME STOCK OPTION EXCHANGE PROGRAM. UNLESS
OTHERWISE INDICATED ON YOUR PROXY, YOUR SHARES WILL BE
VOTED FOR THE AMENDMENT TO EXISTING EQUITY
PLANS TO PERMIT A ONE-TIME STOCK OPTION EXCHANGE PROGRAM.
PROPOSAL NO. 4
The Board of Directors believes it is in the best interests of
the Company to encourage stock ownership by employees of the
Company. The Board of Directors has approved, subject to
stockholder approval, amending the Motorola Employee Stock
Purchase Plan of 1999 (the “MOTshare Plan” or the
“Plan”) to increase the aggregate number of shares of
Common Stock available for sale to employees by an additional
75 million shares. The Plan was initially adopted in 1999
and authorized the sale to employees of up to an aggregate of
54.3 million shares of Common Stock issued under the Plan.
Both the Board of Directors and the stockholders in 2002 and
2007 approved amending the Plan to increase the aggregate number
of shares of Common Stock available for sale to employees by
50 million shares each time.
As of March 1, 2009, the Company had issued and employees
had purchased approximately 123.7 million shares of the
154.3 million total shares authorized to date under the
Plan. The Company estimates that an additional 28.4 million
shares will be issued and purchased for the six-month purchase
period ending March 31, 2009. Accordingly, there is the
possibility that, without this amendment, there would be
insufficient authorized shares for all issuances before the 2010
Annual Meeting. The Company believes that with the approval of
the additional authorized shares, there will be sufficient
shares for purchases under the Plan until 2010, or beyond,
depending on the participation rates and the price of our Common
Stock.
If the Plan is approved by stockholders, this approval will
satisfy the stockholder approval requirements of
Section 423 of the Internal Revenue Code, as amended
(“Section 423”), and so permit certain
participants to receive special tax treatment under
Section 423 with respect to the purchase and sale of the
shares purchased under the Plan as described below.
A summary of the principal features of the Plan as
administered in the U.S. is provided below, but is
qualified in its entirety by reference to the full text of the
Plan that was filed electronically with this Proxy Statement
with the Securities and Exchange Commission. Such text is not
included in the printed version of this proxy statement. A copy
of the Plan is available from the Company’s Secretary at
the address on the cover of this document.
The Plan is administered by the Compensation and Leadership
Committee of the Board of Directors (the “Committee”).
The Committee has the authority to make rules and regulations
governing the administration of the Plan. The Committee may
delegate the administration of the Plan in accordance with the
terms of the Plan.
The Committee may, in its discretion: (i) deviate from the
provisions of the Plan in administering the Plan in
jurisdictions other than the United States, or (ii) adopt
sub-plans of the Plan applicable to particular countries or
qualifying subsidiaries outside of the United States, that are
not intended to comply with the requirements of Section 423
(“non-Section
Table of Contents
32
PROXY STATEMENT
423 subplan”); provided however, that the aggregate number
of shares of Common Stock subject to the Plan does not exceed
the aggregate number of shares of Common Stock available for
sale under the Plan. The specific terms of any
non-Section 423 subplan such as eligibility requirements or
method of contribution are not known at this time and may vary
from the terms of the Plan described below.
Substantially all regular employees of the Company and
designated subsidiaries are eligible to participate in the
MOTshare Plan, except that the following may be excluded at the
discretion of the Committee: (i) employees whose customary
employment is 20 hours or less per week; and
(ii) employees whose customary employment is for not more
than 5 months per year.
As of December 31, 2008, approximately
50,000 employees were eligible to participate in the Plan
and approximately 17,300 employees actually participated in
the MOTshare Plan.
An eligible employee may elect to participate in the Plan as of
any Enrollment Date. “Enrollment Dates” occur on the
first day of the offering period which is currently set at
six-month intervals beginning on approximately April 1 and
October 1. To participate in the Plan, an employee must
complete an enrollment and payroll deduction authorization form
which indicates the amounts to be deducted from his or her
salary and applied to the purchase of the shares on the Share
Purchase Date (as hereinafter defined). The payroll deduction
must be within limits set by the Committee.
A payroll deduction account is established for each
participating employee by the Company and all payroll deductions
made on behalf of each employee (on an after-tax basis) are
credited to each such employee’s respective payroll
deduction account. On the last trading day of each offering
period (the “Share Purchase Date”), the amount
credited to each participating employee’s payroll deduction
account is applied to purchase as many shares as may be
purchased with such amount at the applicable purchase price.
The purchase price for the Shares will not be less than the
lesser of 85% of the closing price of shares of Common Stock as
reported on the New York Stock Exchange on: (i) the first
trading day of the applicable offering period, or (ii) the
Share Purchase Date. Employees may purchase shares through the
MOTshare Plan only by payroll deductions.
The Board of Directors of the Company may amend the Plan at any
time, provided that if stockholder approval is required for the
Plan to continue to comply with the requirements of Securities
and Exchange Commission
Regulation Section 240.16b-3
or Section 423 of the Internal Revenue Code (the
“Code”), such amendment shall not be effective unless
approved by the Company’s stockholders within twelve months
after the date of the adoption by the Board of Directors.
The MOTshare Plan may be terminated by the Board of Directors at
any time.
The MOTshare Plan is intended to be an “employee stock
purchase plan” as defined in Section 423, as from time
to time amended, with the exception of non-Section 423
subplans. As a result, an employee participant will pay no
federal income tax upon enrolling in the Plan or upon purchase
of the shares. A participant may recognize gain or loss upon the
sale or other disposition of shares purchased under the Plan,
the amount and character of which will depend on whether the
shares are held for two years from the first day of the offering
period.
Table of Contents
33
PROXY STATEMENT
On March 9, 2009, the closing price of the Common Stock was
$3.12.
The design of the MOTshare Plan does result in a financial
statement expense under applicable accounting guidance
(FAS 123R). However, the MOTshare Plan allows the Company
to provide an efficient and
cost-effective
vehicle for all eligible employees to acquire Motorola shares on
a regular basis.
RECOMMENDATION
OF THE BOARD
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
AMENDING THE MOTOROLA EMPLOYEE STOCK PURCHASE PLAN OF 1999
(THE “MOTSHARE PLAN”). UNLESS OTHERWISE INDICATED ON
YOUR PROXY, THE SHARES WILL BE VOTED FOR AMENDING
THE MOTSHARE PLAN.
PROPOSAL NO. 5
The Board of Directors has adopted a Corporate Governance
Guideline, commonly known as a
“Say-on-Pay”
proposal, to annually provide stockholders with the opportunity
to endorse or not endorse the Company’s executive
compensation policies and procedures through consideration of
the following
non-binding
advisory resolution:
“Resolved, that the stockholders approve the overall
executive compensation policies and procedures employed by the
Company, as described in the Compensation Discussion and
Analysis regarding named executive officer compensation
(together with the accompanying narrative disclosure) in this
Proxy Statement.”
Motorola’s executive compensation policies and procedures
are designed to attract, retain and motivate key individuals
with competitive compensation differentiated for superior
performers to correlate with such individuals’
contributions to Company success. Motorola uses meaningful
equity awards to provide compensation that is dependent on the
Company’s performance (or “at-risk”) to align the
interests of our executives and stockholders.
Because your vote is advisory, it will not be binding upon the
Board. However, the Compensation Committee will take into
account the outcome of the vote when considering future
executive compensation arrangements.
RECOMMENDATION
OF THE BOARD
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE APPROVAL OF THE EXECUTIVE COMPENSATION POLICIES AND
PROCEDURES. UNLESS OTHERWISE INDICATED ON YOUR PROXY, YOUR
SHARES WILL BE VOTED FOR THE APPROVAL OF THE
EXECUTIVE COMPENSATION POLICIES AND PROCEDURES.
PROPOSAL NO. 6
The Audit and Legal Committee of the Board has appointed KPMG
LLP as the Company’s independent registered public
accounting firm for the fiscal year ending December 31,
2009. Services provided to the Company and its subsidiaries by
KPMG LLP in fiscal year 2008 are described under “Audit
and Legal Committee Matters—Independent Registered Public
Accounting Firm Fees”.
We are asking our stockholders to ratify the selection of KPMG
LLP as our independent registered public accounting firm.
Although ratification is not required by our Bylaws or
otherwise, the Board is submitting the selection of KPMG LLP to
our stockholders for ratification as a matter of good corporate
practice.
Representatives of KPMG LLP will be present at the Annual
Meeting to respond to appropriate questions and to make such
statements as they may desire.
The affirmative vote of the holders of a majority of the shares
present in person or by proxy and entitled to vote at the Annual
Meeting will be required to ratify the selection of KPMG LLP.
Abstentions will have the same effect as a vote
“Against” the proposal.
In the event stockholders do not ratify the appointment, the
appointment will be reconsidered by the Audit and Legal
Committee and the Board. Even if the selection is ratified, the
Audit and Legal Committee in its discretion may select a
different independent registered public accounting firm at any
time during the year if it determines that such a change would
be in the best interests of the Company and our stockholders.
Table of Contents
34
PROXY STATEMENT
RECOMMENDATION
OF THE BOARD
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS THE
COMPANY’S INDEPENDENT PUBLIC ACCOUNTING FIRM FOR 2009.
UNLESS OTHERWISE INDICATED ON YOUR PROXY, YOUR SHARES WILL
BE VOTED FOR THE RATIFICATION OF KPMG LLP.
PROPOSAL NO. 7
The Company has been advised that Kenneth Steiner, the
beneficial owner of 5,000 shares, intends to submit the
following proposal for consideration at the 2009 Annual
Meeting.
RESOLVED: Cumulative Voting. Shareholders
recommend that our Board take the steps necessary to adopt
cumulative voting. Cumulative voting means that each shareholder
may cast as many votes as equal to the number of shares held,
multiplied by the number of directors to be elected. A
shareholder may cast all such cumulated votes for a single
candidate or split votes between multiple candidates. Under
cumulative voting shareholders can withhold votes from certain
poor-performing nominees in order to cast multiple votes for
others.
Cumulative voting won 54%-support of Aetna and greater than
51%-support at Alaska Air in 2005 and in 2008. It also received
greater than 53%-support at General Motors (GM) in 2006 and in
2008. The Council of Institutional Investors www.cii.org
recommended adoption of this proposal topic. CalPERS also
recommend a yes-vote for proposals on this topic.
Cumulative voting allows a significant group of shareholders to
elect a director of its choice—safeguarding minority
shareholder interests and bringing independent perspectives to
Board decisions.
The merits of this Cumulative Voting proposal should also be
considered in the context of the need for improvements in our
company’s corporate governance and in individual director
performance. For instance in 2008 the following governance and
performance issues were identified:
Judy Lament
Miles White (also on our nomination committee)
Call a special shareholder meeting.
Act by written consent.
Cumulative voting.
Vote on executive pay.
The above concerns shows there is need for improvement. Please
encourage our board to respond positively to this proposal:
Table of Contents
35
PROXY STATEMENT
RECOMMENDATION
OF THE BOARD
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST
ADOPTION OF THIS SHAREHOLDER PROPOSAL FOR THE REASONS
SET FORTH BELOW. UNLESS OTHERWISE INDICATED ON YOUR PROXY, YOUR
SHARES WILL BE VOTED AGAINST THE ADOPTION OF THIS
PROPOSAL.
Cumulative voting would serve to disproportionately empower
special interests. It allows a minority to usurp the will of the
majority. Cumulative voting could enable individual shareholders
or groups of shareholders with far less than a majority of the
shares to pool their votes and elect directors concerned only
with advancing the interests of the group responsible for their
election, rather than the best interests of Motorola and of all
of our shareholders.
The Board believes our current majority voting standard is the
most fair with one vote per share per nominee and most likely to
annually produce an effective board of directors that will
represent the interests of all the stockholders. This is
why the vast majority of S&P 500 companies do not have
cumulative voting.
Importantly, the Board also believes that cumulative voting is
inconsistent with our shareholder-approved majority voting
standard adopted in early 2006 for the election of directors. In
the case of an uncontested election, both Motorola’s Bylaws
and Board Governance Guidelines provide that in order to be
elected, directors must receive a majority of the votes cast.
Whereas majority voting is a democratic approach to
determinations; cumulative voting could allow a minority group
of stockholders to block the will of the majority and frustrate
the very purposes of majority voting. In adopting majority
voting, at least one other company has simultaneously eliminated
cumulative voting to avoid the incompatibility.
Further, when cumulative voting is combined with a majority
voting standard, difficult technical and legal issues can arise.
It is unclear if and how the proposal is intended to apply to
both contested and uncontested elections. Further, it is unclear
whether the corporation laws of Delaware, the state of
Motorola’s incorporation, allow for cumulating
“against” votes. As a result, groups such as the
American Bar Association Committee on Corporate Laws, the
Council of Institutional Investors and other commentators have
recognized the incompatibility of cumulative and majority
voting. For these reasons and the others stated above, the Board
of Directors recommends that you vote AGAINST the
adoption of this shareholder-submitted proposal.
PROPOSAL NO. 8
The Company has been advised that William Steiner, the
beneficial owner of 3,000 shares, intends to submit the
following proposal for consideration at the 2009 Annual
Meeting.
RESOLVED, Shareowners ask our board to take the steps necessary
to amend our bylaws and each appropriate governing document to
give holders of 10% of our outstanding common stock (or the
lowest percentage allowed by law above 10%) the power to call
special shareowner meetings. This includes that such bylaw
and/or
charter text will not have any exception or exclusion conditions
(to the fullest extent permitted by state law) that apply only
to shareowners but not to management
and/or the
board.
Special meetings allow shareowners to vote on important matters,
such as electing new directors, that can arise between annual
meetings. If shareowners cannot call special meetings investor
returns may suffer. Shareowners should have the ability to call
a special meeting when a matter merits prompt consideration.
This proposal topic won impressive support at the following
companies (based on 2008 yes and no votes):
Shareowners should have the ability to call a special meeting
when a matter is sufficiently important to merit prompt
consideration. Fidelity and Vanguard have supported a
shareholder right to call a special meeting.
The proxy voting guidelines of many public employee pension
funds also favor this right. Governance ratings services, such
as The Corporate Library and Governance Metrics International,
have taken special meeting rights into consideration when
assigning company ratings.
Please encourage our board to respond positively to this
proposal:
Table of Contents
36
PROXY STATEMENT
RECOMMENDATION
OF THE BOARD
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST
ADOPTION OF THIS SHAREHOLDER PROPOSAL FOR THE REASONS
SET FORTH BELOW. UNLESS OTHERWISE INDICATED ON YOUR PROXY, YOUR
SHARES WILL BE VOTED AGAINST THE ADOPTION OF THIS
PROPOSAL.
Motorola’s stockholders already have the power to act by
written consent at any time under Delaware law. The written
consent may be on any issue that would be presented at a
stockholder meeting. There is no minimum ownership threshold
required for any stockholder or group of stockholders to
commence a written consent solicitation. Furthermore, the
written consent method does not require prior notice or a vote
to commence.
At the same time, the burden on the Company for holding
additional stockholder meetings would be significant in
financial expense, time and management resources. For a company
of Motorola’s size, special meetings require extensive
planning, logistics, communications, staff support and security
measures. We also respect our stockholders’ limited time
with a thoughtfully designed process that does not subject them
to special interests or agendas.
Permitting holders of 10% to call a special meeting that may
serve their narrow purpose rather than those of our Company and
the majority of our stockholders is neither good corporate
governance, nor in the best interests of our Company and
stockholders. Unlike a stockholder with a potential agenda or
special interest, the Chairman of the Board and the Board of
Directors have a legal fiduciary duty to represent the best
interests of all shareholders. The Board believes the decision
to call a special meeting should remain in the hands of our
Chairman of the Board and Board of Directors in order to make
sure all stockholders’ interests are taken into
consideration and to enable our Company’s business to be
conducted in an orderly fashion.
The annual stockholders meeting, annual director elections,
shareholder proposal process, written communication methods with
the Board, investor relations contacts and stockholder written
consent process described above all provide mechanisms for
dialogue between the Company and stockholders.
Therefore, the requested amendment does not provide much value
because the right for any stockholder to commence a written
consent already exists along with various other communication
methods. However, it subjects both the Company and therefore its
stockholders to potential unlimited costs for what may serve
special interests or agendas and disserve the stockholders as a
whole. For these reasons and the others stated above, the Board
of Directors recommends that you vote AGAINST the
adoption of this shareholder-submitted proposal.
PROPOSAL NO. 9
The Company has been advised that the Presbyterian Church
(U.S.A.), the beneficial owner of 750 shares intends to
submit the following proposal for consideration at the 2009
Annual Meeting. The following proposal has also been co-filed by
the General Board of Pension and Health Benefits of The United
Methodist Church, the Domestic and Foreign Missionary Society of
the Episcopal Church, and the Mercy Investment Program.
Whereas, Motorola, as a global corporation, faces
increasingly complex problems as the international social, and
cultural context within which Motorola operates changes.
Companies are faced with ethical and legal challenges arising
from diverse cultures and political and economic contexts.
Today, management must address issues that include human rights,
workers’ right to organize and bargain collectively,
non-discrimination in the workplace, protection of the
environment and sustainable community development. Motorola
itself does business in countries with human rights challenges
including China, Malaysia, Russia, and Israel and the occupied
Palestinian territories, for example.
Several international conventions, declarations and treaties set
forth internationally recognized standards designed to protect
human rights—civil, political, social environmental,
cultural and economic—that should be reflected in
Motorola’s policies. These include the Universal
Declaration of Human Rights, the Fourth Geneva Convention, the
Hague Conventions, International Covenant on Civil and Political
Rights, the core labor standards of the International Labor
Organization, and the International Covenant on Economic,
Cultural and Social Rights. We believe that these documents will
help inform Motorola’s revision of its human rights policy.
In addition, United Nations resolutions and reports of special
rapporteurs on countries where Motorola does business, and
“Norms on the Responsibilities of Transnational
Corporations and Other Business Enterprises with Regard to Human
Rights,” adopted by the United Nations Sub-Commission on
the Promotion and Protection of Human
Table of Contents
37
PROXY STATEMENT
Rights in August 2003 are helpful, as are the comprehensive
human rights policies developed for global companies found in
“Principles for Global Corporate Responsibility: Bench
Marks for Measuring Business Performance,” developed by an
international group of religious investors.
As companies formulate comprehensive policies, we believe
significant commercial advantages may accrue through enhanced
corporate reputation, improved employee recruitment and
retention, improved community and stakeholder relations and
reduced risk of adverse publicity, consumer boycotts, divestment
campaigns and lawsuits.
RESOLVED, shareholders request the Board to amend by
October 2009 Motorola’s policies related to human rights
that guide its international and U.S. operations to conform
more fully with international human rights and humanitarian
standards as reflected in the above-named documents.
We believe Motorola’s current human rights policies are
limited in scope, and provide little or no guidance for
determining business relationships where our products or
services could entangle the company in human rights violations.
We believe that our company’s policies should reflect a
more comprehensive understanding of human rights.
Motorola should be able to assure shareholders that employees
are treated fairly and with dignity wherever they work in the
global economy. Going beyond internal practices, however, the
company should be able to provide similar assurance that its
products and services are not used in human rights violations.
One element of ensuring compliance is utilization of independent
monitors made up of respected local human rights, religious and
non-governmental organizations that know local culture and
conditions. We believe the adoption of a more comprehensive
human rights policy, coupled with implementation, enforcement
and independent monitoring, make assure shareholders of
Motorola’s global leadership.
Please support this resolution.
RECOMMENDATION
OF THE BOARD
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
AGAINST ADOPTION OF THIS SHAREHOLDER
PROPOSAL FOR THE REASONS SET FORTH BELOW. UNLESS OTHERWISE
INDICATED ON YOUR PROXY, YOUR SHARES WILL BE VOTED
AGAINST THE ADOPTION OF THIS PROPOSAL.
The Company agrees with the principles on which this proposal is
based and already addresses the concerns it raises, making this
proposal unnecessary. In fact, the Company already has in place
a comprehensive set of policies and procedures that address
human rights, which are designed to ensure that its operations
worldwide are conducted using the highest standards of integrity
and ethical business conduct applied uniformly and consistently.
The Company’s policies include: the Motorola Code of
Business Conduct, the Motorola Human Rights Policy, the Motorola
Supplier Code of Conduct, and the Motorola Environment,
Health & Safety Policy. These specific policies are
based upon internationally recognized human rights standards,
such as the Universal Declaration of Human Rights, the core
labor standards of the International Labour Organization, the
United Nation’s Global Compact, Social Accountability 8000
(SA 8000) standard, and the Organisation for Economic
Co-operation and Development (OECD) Guidelines for Multinational
Enterprises, to name a few.
The Company’s policies reflect a comprehensive
understanding of human rights and support the following
important areas:
As part of the Company’s management practices, we
periodically perform thorough reviews of the aforementioned
policies and update them to keep them in alignment with
internationally recognized human rights standards. Such a review
was undertaken in 2008, and was informed by the international
conventions, declarations and treaties cited in this proposal.
The amended policies have been posted to our website.
The Board of Directors believes that the Company’s policies
effectively articulate our long-standing support for, and
continued commitment to, human rights rendering the proposal
duplicative and unnecessary. For these reasons and the others
stated above, the Board of Directors recommends that you vote
AGAINST the adoption of this shareholder-submitted
proposal.
Table of Contents
38
PROXY STATEMENT
The following table summarizes the Company’s equity
compensation plan information as of December 31, 2008. The
table does not include information with respect to shares
subject to outstanding options granted under equity compensation
plans assumed by the Company in connection with mergers or
acquisitions where the plans governing the options will not be
used for future awards, as described below.
Table of Contents
39
PROXY STATEMENT
The Motorola Compensation/Acquisition Plan of 2000 (the
“C/A Plan”) was initially adopted on November 7,
2000 by the Board of Directors. Upon the adoption of the 2006
Plan, no further grants may be made under the C/A Plan. The C/A
Plan provided that awards could be granted to employees of the
Company and its subsidiaries who were not executive officers or
directors of the Company, in connection with its recruiting and
retention efforts. From its inception, the major purposes of the
C/A Plan were to grant awards: (1) to persons newly hired
by the Company, and (2) in connection with the acquisition
of businesses. The C/A Plan permitted the granting of stock
options, stock appreciation rights, restricted stock and
restricted stock units, performance stock, performance units and
other stock awards.
Awards included options to acquire shares of Common Stock,
shares of restricted Common Stock and restricted stock units.
Each option granted has an exercise price of 100% of the market
value of the Common Stock on the date of grant. Generally,
options expire 10 years from the date of grant and vest and
become exercisable at 25% increments over four years. Awards of
restricted stock or restricted stock units consist of shares or
rights to shares of Common Stock. The restrictions on individual
grants vary, but are designed so that the awards are subject to
substantial risk of forfeiture by the employee.
Upon the occurrence of a change in control, each stock option
outstanding on the date on which the change in control occurs,
will immediately become exercisable in full. In addition, the
restrictions on all shares of restricted stock or restricted
stock units outstanding on the date on which the change in
control occurs will be automatically terminated.
The Jha Inducement Exception Awards were made pursuant to the
inducement award exception under the New York Stock Exchange
rules to induce an executive officer to join the Company. These
awards were granted to Dr. Sanjay K. Jha pursuant to his
employment agreement and were made in order to attract and
retain an executive of his unique caliber and experience. In
light of the desire to grant Dr. Jha a significant amount
of make-whole and inducement equity awards, the plan limits of
the Motorola Omnibus Incentive Plan of 2006 were exceeded with
the remaining amounts granted under the Jha Inducement Exception
Awards, consisting of: (i) restricted stock units
corresponding to 2,167,422 shares of Common Stock vesting
ratably on July 31, 2009, July 2, 2010 and
July 31, 2011, subject to continued employment; and
(ii) options to purchase 13,594,884 shares of Common
Stock vesting ratably on July 31, 2009, July 31, 2010
and July 31, 2011.
Table of Contents
40
PROXY STATEMENT
OWNERSHIP
OF SECURITIES
Security
Ownership of Management and Directors
The following table sets forth information as of
February 28, 2009 (except where otherwise noted), regarding
the beneficial ownership of shares of Common Stock by each
director and nominee for director of the Company, by the persons
named in the Summary Compensation Table (the “Named
Executive Officers”), and by all current directors,
nominees and executive officers of the Company as a group. Each
director, nominee and Named Executive Officer owns less than 1%
of the Common Stock. All current directors, nominees and current
executive officers as a group own less than 1%.
Table of Contents
41
PROXY STATEMENT
No directors, nominees or current executive officers have
pledged shares of Motorola Common Stock pursuant to any loan or
arrangement where there is an expectation that the loan or
arrangement may be repaid by foreclosure or other recourse to
the shares of Motorola Common Stock.
Table of Contents
42
PROXY STATEMENT
The following table sets forth information with respect to any
person who is known to be the beneficial owner of more than 5%
of the Company’s Common Stock.
Table of Contents
43
PROXY STATEMENT
COMPENSATION
DISCUSSION AND ANALYSIS
While our compensation philosophy, guiding principles, and
components of compensation programs have not changed
significantly in 2008, circumstances have. The global economic
crisis, severe challenges in our Mobile Devices business, and
our announced strategy to separate into two publicly-traded
companies have impacted priorities in 2008. Motivating our
employees remains an essential pillar of our philosophy and
paying for performance remains a predominant guiding principle.
Nonetheless, we have taken actions to attract and retain key
leaders requiring us to provide guaranteed compensation.
Attracting Dr. Jha from his position at another public
company required both guaranteeing certain elements of
compensation and also providing inducements to take on the
additional risk of leading a turnaround. We believe Dr. Jha
is one of the very few industry leaders with the qualifications
to lead our Mobile Devices business during its turnaround.
Mr. Brown was provided with some additional incentive
opportunities related to his direct leadership role for part of
the year in the Mobile Devices business and also an additional
equity grant related to his employment contract.
Additionally, Mr. Brown and Dr. Jha have been provided
with significant compensation opportunities related to equity
grants, but the majority will be realized only if and when a
successful separation of the Company occurs
and/or the
Company’s stock price increases significantly.
Our general compensation philosophy is to provide world-class
reward strategies and programs that attract, retain and motivate
the right people, in the right places, at the right time. We
strive to provide a total compensation package that is
competitive with the prevailing practices for the industries and
countries in which we operate, allowing for above average total
compensation when justified by business results and individual
performance.
Our compensation, including equity grants with typical vesting
over four years, is not designed to encourage excessive risk
taking, but is designed to align management’s incentives
with those of shareholders.
Our general compensation philosophy is further guided by the
following principles specific to our executives:
The compensation program for our Named Executive Officers
consists of:
With each component of our compensation program, we strive to
align the interests of our executives with the interests of our
stockholders in different ways—by focusing on short-term
and long-term performance goals, by requiring significant
ownership in the Company, by linking individual performance to
the Company’s performance, and by promoting healthy
employees.
Motorola’s senior leadership team, comprised of the
Co-Chief Executive Officers (each a “Co-CEO” and,
together, the “Co-CEOs”) and certain executives
designated by the Co-CEOs, provides recommendations regarding
the design of the Company’s compensation program to the
Compensation and Leadership Committee (the
“Committee”). Upon Committee approval, the senior
leadership
Table of Contents
44
PROXY STATEMENT
team is responsible for executing the objectives of the approved
compensation program. Each member of Motorola’s senior
leadership team approves all compensation actions for his or her
respective part of the organization and is accountable for
compliance with established governance procedures.
The Co-CEOs are responsible for recommending all compensation
actions involving any member of the senior leadership team or
Section 16 Officer to the Committee for its approval,
including any modifications to their compensation. The Co-CEOs
take an active role in Committee meetings at which compensation
actions involving these officers are discussed. The
Committee’s independent compensation consultant, Mercer,
also participates in these Committee meetings.
The Global Rewards department in Motorola’s Human Resources
organization, together with our Senior Vice President, Human
Resources, prepares recommendations regarding CEO compensation
for the Committee. Neither Co-CEO participates in the
discussions regarding his compensation at Committee meetings.
The Committee is responsible for bringing recommended
compensation actions involving the Co-CEOs to the Board for its
concurrence. The Committee cannot unilaterally approve
compensation or compensation changes for the Co-CEOs.
We measure the competitiveness of our total direct compensation
(base salary + target short-term incentive opportunity + target
long-term incentive opportunity) against high-tech market
practices. In 2008, total direct compensation levels for each
executive position are targeted between the
50th percentile
and the
65th percentile
of similar positions in our comparator group, consisting of 16
large-cap, high-tech companies. We structure our compensation
mix to be market competitive for each compensation element. Both
base salary and incentives (including annual and long-term
incentives) are generally targeted between the
50th percentile
and
65th percentile
of the comparator group, but the exact percentile may differ by
individual. In 2009, total direct compensation levels, base
salaries and incentives (both annual and long term incentives)
will be generally targeted at the
50th percentile
of the comparator group.
However, as described in more detail below, the Committee,
primarily on the recommendation of management for positions
other than CEO, has the discretion to set total compensation
above or below the targeted percentile of similar positions in
our comparator group when the value of the individual’s
experience, performance and specific skill set justifies
variation. As a result, competitively superior pay is awarded to
those executives who earn it, and the greatest retention value
is invested in our strongest performers.
The cost of our compensation program impacts our financial
performance. As a result, we continue to remain focused on
ensuring that our compensation program is optimized to motivate
employees to improve our results on a cost-effective basis.
We also recognize the need to balance the components of our
compensation program appropriately depending on an
individual’s position and ability to impact the
Company’s results. Accordingly, our compensation program is
generally structured so that more than two-thirds of our Named
Executive Officer’s targeted total compensation is “at
risk” (in the form of equity grants and awards under LRIP
and MIP) and is dependent upon the Company’s results and
stock price.
Annually, at the beginning of each year when the Committee
reviews salary increases for that year, the Committee reviews an
outline of each element of compensation granted and total
overall compensation for each member of the senior leadership
team. In early 2009, the Committee reviewed the total
compensation outline provided by Mercer.
The initial compensation package for Dr. Sanjay Jha is an
exception to the Company’s general pay mix principle.
Unique circumstances demanded the Company attract a top quality
leader for our Mobile Devices business, particularly in light of
the planned separation of Motorola into two publicly-traded
companies. The Committee determined it was necessary to have a
competitive and compelling compensation package involving a
significant amount of “at-risk” equity awards.
Attracting Dr. Jha to Motorola required both guaranteeing
certain elements of compensation and also providing inducements
to take on the additional risk of leading a turnaround. We
believe Dr. Jha will successfully lead the Mobile Devices
business during its transition and is one of very few industry
leaders qualified to meet this challenge.
The individual elements, as well as the total direct
compensation, of our rewards program for Named Executive
Officers are benchmarked against our comparator group. We strive
to award both competitive forms of compensation (base salary,
short-term incentive compensation and long-term incentive
compensation) and to ensure that the individual elements
comprising our compensation are competitively positioned in the
marketplace.
Our comparator group consists of 16 large-cap, high-tech
companies that, in the aggregate, both the Company and the
Committee believe best
Table of Contents
45
PROXY STATEMENT
represent our portfolio of businesses and our competition for
executive talent. We believe using our comparator group for our
Named Executive Officers in the United States is an appropriate
method to understand the executive talent market in which we
must compete to attract and retain top-quality talent. The
Committee reviews the composition of the comparator group
annually to determine if any changes are necessary. Since 2000,
we and the Committee have sought to more closely align our
compensation program with that of our large-cap, high-tech peers.
In 2008, our comparator group consisted of the following
companies: Alcatel-Lucent, Apple, Inc., Cisco Systems, Inc.,
Dell Inc., Electronic Data Systems Corp. (which was acquired by
Hewlett Packard Co. in 2008), EMC Corp., LM Ericsson Telephone
Co., Hewlett Packard Co., International Business Machines Corp.,
Intel Corp., Microsoft Corp., Nokia Corp., Nortel Networks
Corp., Oracle Corp., QUALCOMM Inc., Sun Microsystems, Inc. and
Texas Instruments Inc. Based upon the markets in which we
compete for executive talent within our industries, the
Committee approved our comparator group, and Mercer, the
Committee’s independent consultant, confirmed that the
companies comprising the comparator group were appropriate. In
2009, we expect a very similar group of companies will again
comprise our comparator group.
In addition to our comparator group data, for the broader
executive group we also gather and analyze supplemental
compensation market data from multiple survey sources in order
to obtain a more complete picture of the overall compensation
environment. We utilize supplemental data gathered from the
following survey sources:
Because these surveys contain competitive compensation market
data on a number of companies spanning a number of different
industries, our market analysis involves narrowing the available
data to “cuts” that most accurately reflect our
competitive labor market. We complete regression analyses using
the appropriate “data cuts” to capture the most
accurate market data possible.
In order of priority, the “data cuts” we employ
include:
We strongly believe in engaging the best talent for critical
functions, which may require negotiations with individual
executives who have significant retention packages in place with
other employers. In order to compensate these individuals for
the compensation that they would forfeit by terminating their
previous employment, the Committee, on the recommendation of
management, may determine that it is in our best interest to
offer compensation packages that deviate from our general
compensation principles in order to recruit executive talent.
The Committee, on the recommendation of management, may
determine it is appropriate to provide certain individuals with
compensation outside of our normal cycles. The Committee makes
such decisions based on:
Accordingly, for some Named Executive Officers, the individual
compensation elements are above the target of the
50th percentile.
In determining actual compensation for a Named Executive
Officer, the Committee considers such Named Executive
Officer’s role, responsibilities, experience, performance,
and skill set in making its judgment of the Named Executive
Officer’s value to our Company and in the marketplace.
These determinations are generally subjective, and the Committee
does not rely on formulaic weighting of these factors in making
its compensation decisions. Rather, the Committee uses these
factors to provide an overall
Table of Contents
46
PROXY STATEMENT
context for its decisions on specific elements of compensation.
The Committee has the discretion, to the extent deemed necessary
and appropriate, to retain and terminate compensation
consultants, outside counsel or other advisors, including the
sole authority to approve fees and other retention terms for any
such consultant, counsel or advisor. The Committee’s
practice is to engage an external independent consultant to
complete an evaluation of our compensation program on a periodic
basis, typically every one or two years, and to annually review
the specific compensation of our Co-CEOs and our Co-CEOs’
senior leadership team.
The Committee’s current compensation consultant, Mercer, is
independent from the Company and reports directly to the Chair
of the Committee. The Committee believes that Mercer is
presently the appropriate consultant to review and assist in the
development of our compensation program. Mercer does not have
any other significant business relationships with us other than
the foreign engagements discussed below. The Company’s 2008
expenditures with Mercer were approximately $1.6 million,
of which approximately 20% was for work with the Committee and
80% was for the foreign engagement work discussed below. The
Company’s total expenditures with Mercer are not a
significant portion of Mercer’s total revenue. When
appropriate, the Committee has discussions with Mercer without
management present to protect impartiality.
Due to our global reach and Mercer’s expertise, it may be
in the Company’s best interest to retain Mercer for limited
services that are unrelated to their role as advisor to the
Committee. Accordingly, engagements of Mercer are sometimes made
by local management of certain of Motorola’s
non-U.S. subsidiaries.
Management reports to the Committee regarding any fees for
unrelated services and products purchased from Mercer. The most
recent review took place in July 2008. At that time, the other
work performed for the Company by Mercer involved:
(1) pension consulting services in Ireland and the United
Kingdom, and (2) the purchase of international compensation
survey reports. Mercer has also performed the following
international services: (1) medical insurance claims
administration in Mexico, (2) group disability claims
administration in Australia, and (3) consulting work in
Ireland, Australia and New Zealand on benefits
and/or
reduction-in-force
matters. The Committee reviews the services Mercer provides
Motorola and other matters of judgment to ensure Mercer’s
independence in advising the Committee.
In January 2009, the Committee engaged Mercer as it has in the
past to independently review our executive rewards program and
the compensation of our senior leadership team, including the
Named Executive Officers. Mercer’s 2009 executive
compensation review studied: (1) the relationship between
our actual 2007 senior executive compensation levels and the
Company’s performance using available proxy data at that
time, (2) the competitiveness of our target executive pay
program in light of our executive compensation strategy, and
(3) the competitiveness of our “pay mix”,
long-term incentive compensation (“LTI”) mix, equity
grants and LTI performance metrics compared to the market.
Mercer reviewed the following compensation components in its
competitive assessment:
Mercer relied on both published survey sources, including the
surveys listed above under “Compensation
Benchmarking,” and peer company proxy data, including data
from our comparator group, to determine our competitive
positioning relative to the market.
Each position reviewed was matched to the market based on
position, responsibility and the scope of the business for which
the position was responsible.
Mercer’s study found that our compensation structure is
highly leveraged so that strong Company performance leads to
above-market pay and weak Company performance results in
below-market pay. Mercer found that, overall, Motorola’s
business-based performance on select metrics was below the
25th percentile
of our peers for 2007 and approximately at the
25th percentile
for the three-year period from 2005 to 2007. The metrics were:
Table of Contents
47
PROXY STATEMENT
Mercer also found that 2007 base salaries and MIP Awards for our
named executive officers in the 2008 Proxy Statement were at the
25th
percentile of the competitive market. Our total compensation on
a present value basis (2007 base salary plus 2007 actual bonus
and 2008 LTI value), was above the
25th percentile
of the peer group.
Mercer’s study found that:
Mercer’s study found that:
The Committee agreed with the Mercer study’s conclusions
and, as discussed below, relied on the study’s findings in
setting the 2009 compensation levels for our senior leadership
team.
Base salary levels for each Named Executive Officer are
generally targeted at the
50th percentile
of the comparator group, but the exact percentile may differ by
individual. As such, the base salaries for our senior leadership
team, including the Named Executive Officers, were established
in accordance with an external market competitiveness analysis
by Mercer. As previously described, the Committee, on the
recommendation of management, has the discretion to deviate from
the targeted percentile range when a Named Executive
Officer’s experience, performance and specific skill set
justifies variation.
Effective January 1, 2008, the Committee decided, with the
independent Board members concurrence, to increase
Mr. Brown’s base salary from $950,000 to $1,200,000,
in recognition of Mr. Brown’s election as CEO. The
Committee determined that the base salary adjustment was
appropriate in light of Mr. Brown’s expanded
responsibilities and was necessary to pay a competitive base
salary to Mr. Brown in his new role as CEO. Mr.
Brown’s salary was memorialized as not less than $1,200,000
in his employment agreement as Co-CEO dated August 27, 2008.
In late 2008, Mr. Brown voluntarily agreed to reduce his
base salary for 2009 by 25% to $900,000.
Pursuant to the terms of the employment agreement the Company
entered into with Dr. Jha on August 4, 2008,
Dr. Jha’s annual base salary for the initial
three-year term beginning in 2008 is not less than $1,200,000.
Dr. Jha’s employment agreement was approved by the
Board, based in part on the recommendation of the Committee and
other Board members involved in Dr. Jha’s hiring
process. The Board members involved hired their own external CEO
compensation advisor who, together with Mercer, the
Committee’s consultant, and management developed the
compensation package that is reflected in Dr. Jha’s
employment agreement. Comparator data from similarly-sized
companies and companies in our industries was gathered and
analyzed in determining Dr. Jha’s initial compensation
package. The agreement is further described under
“Employment Contracts, Termination of Employment and
Change in Control Arrangements”.
In late 2008, Dr. Jha voluntarily agreed to reduce his base
salary for 2009 by 25% to $900,000.
Mr. Liska’s annual base salary was $750,000 in 2008.
On February 2, 2009, Mr. Liska was replaced as Chief
Financial Officer and ceased to be an executive officer. On
February 19, 2009, Mr. Liska was terminated from the
Company. For a discussion of Mr. Liska’s termination, see
“Employment Offer Agreement with and Termination of Paul
J. Liska”.
Table of Contents
48
PROXY STATEMENT
Mr. Meredith served as Acting Chief Financial Officer of
the Company from April 1, 2007 to March 1, 2008. On
March 27, 2007, in connection with becoming Acting Chief
Financial Officer, Mr. Meredith entered into an employment
agreement with a term of six months that provided him a base
salary of $1 per year. On October 2, 2007, the Committee
approved an amended and restated employment agreement with
respect to Mr. Meredith’s continuing interim tenure
with Motorola. Mr. Meredith’s interim tenure as Acting
Chief Financial Officer and Executive Vice President was
extended on a month-to-month basis through no later than
April 1, 2008. Beginning October 1, 2007, Motorola
began paying Mr. Meredith a gross monthly base salary of
$75,000. Mr. Meredith’s term as Acting Chief Financial
Officer and Executive Vice President ended on March 1, 2008
and, under the terms of his agreement, his employment ended on
March 31, 2008.
Mr. Moloney’s annual base salary was $600,000 in 2007
and 2008. In January 2009, the Committee decided that
Mr. Moloney’s base salary would not be increased at
that time.
Mr. Lawson’s annual base salary was $540,000 in 2007
and 2008. In January 2009, the Committee decided that
Mr. Lawson’s base salary would not be increased at
that time.
Mr. Lee’s annual base salary was $475,000 in 2008. In
January 2009, the Committee decided that Mr. Lee’s
base salary would not be increased at that time.
Mr. Reed’s annual base salary was $600,000 in 2008. On
March 7, 2008, the Company and Mr. Reed entered into a
separation agreement with respect to Mr. Reed’s
separation from the Company on December 31, 2008. This
agreement is discussed under “Employment Contracts,
Termination of Employment and Change in Control
Arrangements”.
Mr. Keller’s annual base salary was $475,000 in 2008.
On February 29, 2008, Mr. Keller entered into a
separation agreement with respect to Mr. Keller’s
separation from the Company on October 31, 2008. This
agreement is discussed under “Employment Contracts,
Termination of Employment and Change in Control
Arrangements”.
Short-Term
Incentives
The Motorola Incentive Plan (“MIP”) is a cash-based,
pay-for-performance annual incentive plan that was initiated in
January 2002 and applies to all of our regular employees
(excluding those employees participating in a sales incentive
plan), including the Named Executive Officers. This discussion
of MIP relates to MIP awards granted in 2008 under the 2008 MIP
Plan approved by the Committee in March 2008 (the “2008
MIP”). For information regarding the impact of
Section 162(m) of the Internal Revenue Code on awards
granted under MIP, see the discussion set forth under
“The Impact of Favorable Accounting and Tax Treatment on
Compensation Program Design”.
Similar to many of our competitors, we use our annual incentive
plan, MIP, to reward employees for their contributions to strong
annual business performance. Through MIP, we strive to promote
teamwork, strengthen our financial performance and improve
customer satisfaction and quality. Moreover, MIP supports our
goals of: attracting and retaining the talent we need to
succeed; focusing employees’ attention on critical business
goals; sharing the financial benefits of superior performance;
and providing pay that is competitive with our comparator
companies.
The payout value of awards under MIP is based on the following
incentive formula:
The MIP Individual Incentive Targets are based on
market-competitive data and are established as a percentage of
eligible earnings (generally, base salary). At the beginning of
each year, the Committee designates individual target levels for
each of our Named Executive Officers. For 2008, Individual
Incentive Targets for each Named Executive Officer were
generally targeted between the
50th percentile
and the
65th percentile
of the comparator group, but the exact percentile may differ by
individual. In 2009, and going forward, the Individual Incentive
Targets for each Named Executive Officer will be generally
targeted at the
50th percentile
of the comparator group.
For 2008, the Individual Incentive Targets for our Named
Executive Officers ranged from 75% to 220% of base salary,
depending on the
Table of Contents
49
PROXY STATEMENT
responsibilities of each individual’s position, as set
forth below:
The Individual Incentive Targets for our Named Executive
Officers were established by the Committee based on
Mercer’s market competitiveness analysis.
At the beginning of each year, the Committee establishes
Business Performance Factor targets for the Company as a whole
and for specified business units. Most employees receive rewards
based, in part, on the performance of their particular business
unit (and such unit’s corresponding Business Performance
Factor). 100% of the award for each of our Named Executive
Officers in 2008 is based on the overall Motorola Business
Performance Factor, except Dr. Jha’s award is pursuant
to his employment agreement in 2008.
In 2008, the MIP Business Performance Factor measures and their
relative weights for the NEOs were:
The following table sets forth the minimum, maximum and target
levels for each of the 2008 corporate MIP Business Performance
measures, as well as the actual 2008 performance levels and the
calculation of the total MIP Business Performance Factor for the
Company as a whole. Company-wide award payouts range from 25% of
the established target award level (at the minimum level of
performance) to 200% of the established target award level (at
the maximum level of performance). No award payments are made
for performance below the minimum level of performance.
On January 28, 2009, the Committee used its discretion to
lower the 2008 corporate MIP business performance weighted
contributing result from 49% to 40%.
The Company’s actual 2008 performance with relation to the
Operating Earnings measure fell below the target performance
threshold but above the minimum performance threshold and,
accordingly, contributed to a below target payout. The
Company’s actual 2008 perfor mance with relation to the
Operating Cash Flow measure fell below the minimum performance
threshold and, accordingly, did not contribute to an incentive
payout under MIP.
Based on our 2008 performance, the corporate MIP Business
Performance Factor (“MIP BPF”) was 49% of the
established target award level and in light of the overall
performance of the Company, the Committee used its discretion to
lower the MIP BPF to 40%.
The MIP Individual Performance Factor gives the Committee the
ability to adjust the awards, which are formula-driven based on
business results, according to an individual’s contribution
to our success. We believe that the most effective performance
management process establishes a tight and
Table of Contents
50
PROXY STATEMENT
clear link between individual and organizational goals and
performance. We strive to establish a clear line of sight
between our performance management process and our business
strategy. Individual performance is measured by both what
an individual accomplishes (goal achievement) and how
the individual accomplishes those goals (behaviors).
Since not all Named Executive Officers perform at the same
level, nor contribute equally to the metrics used to determine
the MIP Business Performance Factors, the Committee has the
discretion to adjust awards to account for these differences in
individual contribution and performance. We believe that this
discretion results in a stronger pay-for-performance culture.
Individual Performance adjustments are made by the Committee
based on its determination of how much to differentiate among
individual participants. The use of Individual Performance
multipliers demonstrates our commitment to strongly
differentiate rewards to the senior leadership team based on
individual performance. Individual Performance multipliers for
our Named Executive Officers range from 0% (no award paid) for
poor performance to 130% (130% of the formula-driven award) for
exceptional performance, demonstrating our commitment to
strongly differentiate rewards for superior performers.
Due to poor overall Company performance in 2008, the Committee
determined that no individual Named Executive Officer should
receive an incentive payout under the 2008 MIP that was greater
than what was generated by the Business Performance Factor
formula. As a result, the 2008 Individual Performance multiplier
for each Named Executive Officer was limited to 1.0, but could
be lower.
Based on the 2008 Business Performance Factor (40%) and the 2008
Individual Performance multiplier (1.0 or below), the 2008 MIP
award for each of our Named Executive Officers was 40% of the
established target award level. On February 24, 2009, the
Committee determined that Mr. Liska will not receive a 2008
MIP award.
The following table sets forth the 2008 MIP awards for each of
our Named Executive Officers:
Table of Contents
51
PROXY STATEMENT
For 2008, in light of Mr. Brown’s expanded role and
responsibilities as CEO and acting head of the Mobile Devices
business for part of the year, the Committee took actions to
strongly incent Mr. Brown in his efforts to rapidly improve
the Company’s performance. In order to incentivize actions
to improve performance on both a Company-wide basis and
specifically in the Mobile Devices business, the Committee
structured Mr. Brown’s incentive pay for 2008 as two
separate awards.
Mr. Brown’s Individual Incentive Target with respect
to his 2008 MIP award based on company-wide performance was set
at 220% of his eligible earnings. For 2008, the target for a
separate cash-based pay-for-performance award was set at 130% of
his base salary (the “Special 2008 MIP Award”). The
Special 2008 MIP Award was based on Mobile Devices performance
as measured by gross margin earned from new product
introductions in the Company’s Mobile Devices business and
operating earnings of the Mobile Devices business. The Special
2008 MIP Award was subject to the terms and conditions of the
2008 MIP and could be paid separately or together with any other
award that Mr. Brown could earn under the 2008 MIP.
In December 2008, Mr. Brown voluntarily decided to forego
any 2008 bonuses under MIP.
Pursuant to Dr. Jha’s employment agreement, his annual
bonus target is 200% of base salary with a 2008 minimum bonus of
$2,400,000 agreed upon.
However, in December 2008, Dr. Jha voluntarily decided to
forego any 2008 bonus under MIP. At that time, the Committee
agreed to make a grant of RSUs to Dr. Jha in the first
quarter of 2009 as further discussed in the footnotes to the
Summary Compensation Table.
Pursuant to his employment agreement, Dr. Jha’s 2009
minimum bonus is $1,200,000. The formula for the business
performance factor for Dr. Jha’s 2009 MIP is as
determined by the Committee.
Our LTI programs are designed to encourage creation of long-term
value for our stockholders, promote employee retention and
encourage stock ownership. These programs include: (1) the
LRIP, and (2) grants of stock options, restricted stock
units or other equity.
Many of our employees participate in one or more of our LTI
programs, which we believe promote a focus on long-term results
and align employee and stockholder interests. In designing and
refining our programs, we carefully consider the impact of
equity expensing, actions taken by our comparator group to
reduce the use of stock options, and our dilution and overhang
levels. As a result, during 2008 we made certain changes to our
equity programs in the interest of achieving the appropriate
balance between cost competitiveness and maintaining employee
incentive, such as additional use of Restricted Stock Units for
those below the vice president level.
For 2008, LTI levels for our Named Executive Officers were
generally targeted between the
50th percentile
and the
65th percentile
of the comparator group, but the exact percentile may differ by
individual. In 2009, and going forward, LTI levels for each
Named Executive Officer will be generally targeted at the
50th percentile
of the comparator group.
Our Named Executive Officers receive a large proportion of their
overall targeted compensation (approximately two-thirds) in the
form of LTI in order to align their interests with those of
stockholders and to promote a focus on long-term results. The
LRIP accounts for roughly one-third of the total targeted LTI
value, and the balance comes in the form of equity grants.
Targeted LTI value for each of our Named Executive Officers was
established based on a market competitiveness analysis by Mercer.
The LRIP is a pay-for-performance, multi-year incentive plan. A
three-year cycle started on January 1, 2008 and will
conclude on December 31, 2010. On April 21, 2008, the
Compensation and Leadership Committee of the Board of Directors
of Motorola, Inc. approved the cancellation of the
January 1, 2006 to December 31, 2008
(2006-2008)
performance cycle and the January 1, 2007 to
December 31, 2009
(2007-2009)
performance cycle under the Company’s Long-Range Incentive
Plan of 2006 without the payment of awards for such performance
cycles. These cycles were cancelled due to the poor performance
versus the established plan goals and metrics and there were no
new awards granted in their place. As a result, there will be no
LRIP payouts in 2008 or 2009.
Participation in the LRIP is limited to our elected
officers—including all Named Executive Officers and
corporate, senior and executive vice presidents (approximately
90 participants in total).
Table of Contents
52
PROXY STATEMENT
The
2008-2010
LRIP program was redesigned to focus even more on creating
shareowner value and does not retain many elements of prior
plans.
The payout value of awards under the LRIP is based on the
following incentive formula:
LRIP
Individual Incentive Targets
The LRIP Individual Incentive Targets are based on
market-competitive data and are established as a percentage of
base salary at the start of a performance cycle. The Committee
designates target levels for all LRIP participants. For the LRIP
cycle beginning in 2008 the Individual Incentive Targets for our
Named Executive Officers ranged from 150% to 350% of base salary
at the start of the performance cycle, depending on the
responsibilities of each individual’s position, as set
forth below:
The LRIP Business Performance Factor is calculated in a two-step
process.
Step
1:
Calculate Motorola’s
20-day
average stock price at the end of the
2008-2010
LRIP cycle.
Motorola’s
20-day
average stock price at the end of the
2008-2010
LRIP cycle will determine the potential size of the
2008-2010
cycle award, as illustrated in the following performance table.
If Motorola’s 20-day average stock price at the end of the
cycle is less than $16.00, then no payout shall be made for the
2008-2010 LRIP cycle.
Step
2:
Measure our three-year total shareholder return
(“TSR”) compared with our comparator group to
determine the final Business Performance Factor to be used for
the LRIP cycle.
For LRIP purposes, TSR is calculated as follows:
For the
2008-2010
LRIP cycle, in order for a full LRIP award to be paid:
(1) our three-year TSR must exceed the
55th percentile
of our comparator group, and (2) our “absolute”
three-year TSR must be positive (i.e., greater than 0%).
If our three-year TSR is equal to or above the
55th percentile
of our comparator group, then the full LRIP Business Performance
Factor is applied. If our three-year TSR is below the
55th percentile
but above the
25th percentile
of our comparator group, then a “haircut” reduction is
applied to the LRIP Business Performance Factor. The
“haircut” is linear between performance at the
55th percentile
(no reduction) and the
25th percentile
(50% reduction). If our three-year TSR is below the
25th percentile
of our comparator group, then the Committee will use its
discretion to determine if any
2008-2010
LRIP awards are paid. In addition, our “absolute”
three-year TSR must be
Table of Contents
53
PROXY STATEMENT
positive (i.e., greater than 0%) to ensure that any
2008-2010
LRIP award will be paid. In the event that our three-year TSR is
at or above the
75th percentile,
the Committee could use its discretion to determine an increase
in an award under the
2008-2010
LRIP cycles above the formula-driven award is warranted. The
Committee has not previously exercised such discretion.
Our Co-CEOs may recommend adjustment to the amount of the LRIP
award to any participant at any time prior to payment as a
result of the participant’s performance during the
performance cycle; provided, however, that any such adjustment
may not result in a payment to the participant in excess of the
participant’s maximum award under the LRIP. Any such
adjustment to a payment to a member of the senior leadership
team, including any Named Executive Officer, is subject to the
approval of the Committee.
Likewise, the Committee (with or without counsel from the
Co-CEOs) may reduce the amount of the LRIP award to any member
of the senior leadership team, including any Named Executive
Officer, at any time prior to payment as a result of the
participant’s performance during the performance cycle.
As a result of Mr. Brown’s election as CEO, the
Committee decided, with the independent Board members
concurrence, that Mr. Brown’s target award for the
performance cycle under the
2008-2010
LRIP cycle is a target payout equal to 350% of his base pay rate
in effect at the commencement of the performance cycle. Under
Mr. Brown’s employment agreement, each fiscal year
after 2008 is targeted as not less than 250% of his base pay
rate at the commencement of the performance cycle.
Equity awards are the other component of our long-term incentive
program. To reward, retain and motivate employees in 2008, the
Committee, on the recommendation of management, awarded stock
options and restricted stock units (“RSUs”). Stock
options and stock appreciation rights provide economic value to
the holder if the price of our Common Stock increases from the
grant date to the time the option or right is exercised. In
contrast, RSUs convert to shares of our Common Stock when they
vest, so they have a gross value at the time of vesting equal to
the then-current market value of our Common Stock. While stock
options motivate employees by providing more potential upside,
RSUs assist us in retaining employees because RSUs have value
even if our stock price does not increase.
Only the Committee may grant equity awards to a Co-CEO, member
of the senior leadership team or a Section 16 Officer. We
do not structure the timing of equity award grants to precede or
coincide with the disclosure of material non-public information.
Since 2002, the grant date for the annual equity award has
always been within a few days of the annual stockholders
meeting. This practice is expected to continue in 2009.
A wide range of employees participate in our equity plans. On
May 6, 2008, the Committee granted equity to approximately
29,000 employees, including Named Executive Officers, as
part of our annual award of equity. The annual equity grants
generally vest and become exercisable in four equal annual
installments, with the first installment vesting on May 6,
2009. The per share exercise price for the stock options is
$10.26, the Fair Market Value of our Common Stock on the date of
the grant. The stock options expire on May 6, 2018.
Approximately 96% of the RSUs and stock options covered by the
May 6, 2008 general grant were granted to employees other
than the Named Executive Officers.
We also grant stock options
and/or RSUs:
(1) to help make new employees “whole” for the
compensation that they forfeit by terminating their previous
employment; (2) to attract new critical talent; (3) to
encourage retention of critical talent; (4) as a strategic
investment in individuals deemed critical to our leadership
succession plans; and (5) to reward strong performance. In
2008, approximately 1,000 of our approximately
64,000 employees received a grant of stock options or
restricted stock units outside of the May annual award of equity.
Until March 1, 2007, “Grant Date Fair Market
Value” was defined as the closing price for a share of our
Common Stock on the last trading day before the date of grant
for equity awards. For equity award grants on or after
March 1, 2007, “Grant Date Fair Market Value”
(also termed “Fair Market Value”) is defined as the
closing price for a share of our Common Stock on the date of
grant. The official source for the closing price is the New York
Stock Exchange Composite Transactions in the Wall Street Journal
at www.online.wsj.com.
In January 2008, the Committee decided, with the independent
Board members concurrence, to grant Mr. Brown, in
connection with his election to
Table of Contents
54
PROXY STATEMENT
CEO, market-based, premium-priced options to acquire
679,348 shares of Motorola Common Stock that vest only if
the market price of the Common Stock reaches defined levels as
described below (“Performance Options”). The
Performance Options, if vested, expire on the tenth anniversary
of the date of grant.
The exercise price for the Performance Options is $13.31, which
was equal to 115.7% of the Fair Market Value of a share of
Motorola Common Stock on the date of grant, as defined above in
“Fair Market Value Definition”.
The Performance Options vest as follows:
The Committee granted the Performance Options to provide
Mr. Brown added incentive to make the Company performance
improvements necessary to stimulate stock price growth.
Additionally, the Committee decided, with the independent Board
members concurrence, to grant Mr. Brown, in connection with
his election to CEO, 304,348 RSUs, 50% of which vest on
July 31, 2010 and the remaining 50% of which vest on
January 31, 2013. The Committee granted the RSUs to
Mr. Brown in light of his expanded role and
responsibilities as CEO.
In connection with Mr. Brown’s employment agreement,
on August 27, 2008, he was granted 583,123 restricted stock
units, 2,320,652 stock options and 564,064 stock appreciation
rights. The employment agreement and grants were approved by the
Committee with the independent Board members concurrence upon
the recommendation of Mercer. The value of the restricted stock
units, stock options and stock appreciation rights awarded under
the new employment agreement depends entirely upon the value of
our Common Stock. The stock options and stock appreciation
rights (which together represent approximately 66% of the
contract awards) will have no spread value (i.e., the
difference between the strike price and the fair market value of
Common Stock) unless the price of Common Stock increases from
the grant date price of $9.60.
As an incentive to work toward the separation of Motorola into
two publicly-traded companies, an agreement to make a
post-separation equity award was also entered into with
Mr. Brown. In the event the Mobile Devices business
(“MDB”) becomes a separate, publicly-traded company
and MDB has a market capitalization of at least
$2.0 billion, Motorola will grant to Mr. Brown:
(1) an option to purchase shares of Motorola Common Stock
having an aggregate Black-Scholes value of $3,333,333 as of the
grant date, and (2) restricted Motorola Common Stock having
a grant date value of $1,666,667. The option and restricted
stock will vest, subject to continued employment, in three
installments, each vesting date to be the later of: (a) the
date on which the average closing price of Motorola Common Stock
over a fifteen day trading period is 10% greater than the
average closing price of Motorola Common Stock over the fifteen
day trading period immediately following the date that MDB
becomes a separate, publicly-traded company, and (b) the
first, second and third anniversary of the grant date, as
applicable. The agreement is further described under
“Employment Contracts, Termination of Employment and
Change in Control Arrangements”.
In connection with Dr. Jha’s employment agreement, on
August 4, 2008, he was granted 2,304,653
“make-whole” restricted stock units and 10,211,226
“make-whole” options to replace awards of equivalent
current value that Dr. Jha forfeited upon joining the
Company. The employment agreement and grants were approved by
the Committee with the independent Board members concurrence
upon the recommendation of Mercer. Approximately 60% of the
value of the make-whole awards is in the form of stock options
which will result in no payment unless the price of the
Company’s stock increases from the grant date price of
$9.82. Thus, Dr. Jha has effectively reinvested his
forfeited compensation in Motorola equity.
Also in connection with Dr. Jha’s employment
agreement, he was granted 1,362,769 “inducement”
restricted stock units and 6,383,658 “inducement”
options. These grants were made to Dr. Jha in order to
attract and retain an executive of his unique caliber and
experience. Each of the “make-whole” and
“inducement” equity awards vests ratably on
Table of Contents
55
PROXY STATEMENT
July 31, 2009, July 31, 2010 and July 31, 2011,
subject to continued employment.
As an incentive to work toward the separation of Motorola into
two publicly-traded companies, Dr. Jha’s employment
agreement provides for a post-separation MDB equity award. This
equity award would be granted only if and when the Mobile
Devices business becomes a separate publicly-traded company and
there is a post-separation increase in the price of the MDB
stock. In the event MDB becomes a separate, publicly-traded
company, MDB will grant a post-separation equity award to
Dr. Jha in an amount that, together with the existing
inducement awards, represents 3% of the total MDB equity
immediately following the separation. 90% of the award will be
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
