|
Sherwin-Williams Company DEF 14A 2007 Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a)
INFORMATION REQUIRED IN PROXY
STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities
Exchange Act of 1934
Filed by the Registrant x Filed by a Party other than the Registrant o Check the appropriate box:
THE SHERWIN-WILLIAMS COMPANY
(Name of Registrant as Specified in its
Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant) Payment of Filing Fee (Check the appropriate box):
o Fee
computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
o Fee paid previously with preliminary materials.
Table of Contents
![]()
The Sherwin-Williams Company
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held April 18, 2007
The Annual Meeting of Shareholders of
The Sherwin-Williams
Company will be held in the Landmark Conference Center,
927 Midland Building, 101 Prospect Avenue, N.W., Cleveland, Ohio
on Wednesday, April 18, 2007 at 9:00 A.M., local time, for
the following purposes:
Shareholders of record at the close of business on March 2,
2007 are the only shareholders entitled to notice of and to vote
at the Annual Meeting.
Your vote is important. Whether or not you plan to attend the
Annual Meeting, please promptly vote by the Internet, by
telephone or by completing and returning the enclosed proxy
card. Voting early will help avoid additional solicitation costs
and will not prevent you from voting in person at the Annual
Meeting if you wish to do so.
You may help us save money in the future by accessing your proxy
materials on-line. If
you would like to access proxy materials on the Internet
beginning next year, please follow the instructions on the
Investor Relations page of our website at
www.sherwin.com.
101 Prospect Avenue, N.W.
Cleveland, Ohio 44115-1075
March 8, 2007
ADMISSION TO THE 2007 ANNUAL MEETING.
You are entitled to attend the Annual Meeting only if you were a
Sherwin-Williams shareholder as of the close of business on
March 2, 2007, the record date. We may ask you to present
valid photo identification to enter the Annual Meeting.
Table of Contents
THE SHERWIN-WILLIAMS COMPANY
101 Prospect Avenue, N.W.
Cleveland, Ohio 44115-1075
PROXY STATEMENT
March 8, 2007
PRELIMINARY
We are providing the enclosed proxy materials to you in
connection with the solicitation by the Board of Directors of
proxies to be voted at the Annual Meeting of Shareholders to be
held on April 18, 2007. We began mailing these proxy
materials to our shareholders on March 8, 2007.
ANNUAL REPORT
We are enclosing our Annual Report to Shareholders for the year
ended December 31, 2006 with these proxy materials. We may
submit additional financial and other reports at the Annual
Meeting, but we do not intend to take any action relating to
those reports.
ABOUT THE MEETING
What is the purpose of the Annual Meeting?
At the Annual Meeting, shareholders will act upon the proposals
outlined in the Notice of Annual Meeting of Shareholders. These
proposals include:
the election of directors;
In addition, our management will report on
Sherwin-Williams performance and respond to questions from
shareholders. We are not aware of any other matters that will be
brought before the Annual Meeting for action.
Who is entitled to vote?
Only record holders of our common stock and our ESOP serial
preferred stock at the close of business on March 2, 2007,
the record date, are entitled to vote at the Annual Meeting. At
the close of business on the record date,
131,854,618 shares of common stock and 408,137 shares
of ESOP serial preferred stock were outstanding. Each share
owned on the record date is entitled to one vote.
How do I vote?
Voting by mail. If you are a shareholder of
record, you may vote by signing, dating and returning your proxy
card in the enclosed prepaid envelope. The proxy holders will
vote your shares in accordance with your directions. If you sign
and return your proxy card, but do not properly direct how your
shares should be voted on a proposal, the proxy holders will
vote your shares FOR Proposals 1, 2 and 3. If
you sign and return your proxy card, the proxy holders will vote
your shares according to their discretion on any other proposals
and other matters that may be brought before the Annual Meeting.
If you hold shares in an account through a broker or other
nominee in street name, you should complete, sign
and date the voting instruction card provided to you by your
broker or nominee.
Voting on the Internet or by Telephone. If you are
a shareholder of record, detailed instructions for Internet and
telephone voting are attached to your proxy card. Your Internet
or telephone vote authorizes the proxy holders to vote your
shares in the same manner as if you signed and returned your
proxy card by mail. If you are a shareholder of record and
1
Table of Contents
you vote by the Internet or telephone, your vote must be
received by 5:00 p.m. E.D.T. on April 17, 2007; you should
not return your proxy card.
If you hold shares through a broker or other nominee in
street name, you may be able to vote by the Internet
or telephone as permitted by your broker or nominee.
Voting in Person. All shareholders may vote in
person at the Annual Meeting. Shareholders of record may also be
represented by another person present at the Annual Meeting by
signing a proxy designating such person to act on your behalf.
If you hold shares through a broker or nominee, you may vote in
person at the Annual Meeting only if you have obtained a signed
proxy from your broker or nominee giving you the right to vote
your shares.
Who tabulates the vote?
Representatives of The Bank of New York will tabulate the votes
and act as inspectors of election at the Annual Meeting.
How do I vote if I am a participant in the Stock Ownership
and Automatic Dividend Reinvestment Plan or the Employee Stock
Purchase and Savings Plan?
If you are a participant in one of these plans, your proxy card
also serves as voting instructions for the number of shares
which you are entitled to direct the vote under each plan. You
may vote your shares in the same manner outlined above. If you
are a participant in the Employee Stock Purchase and Savings
Plan, your voting instructions must be received by the close of
business on April 13, 2007 in order to allow the trustee
sufficient time for voting.
If you are a participant in the Employee Stock Purchase and
Savings Plan and you do not timely provide your voting
instructions, the trustee will vote your shares in the same
proportion as the trustee votes those shares for which it
receives proper instructions. The trustee will vote any
unallocated shares held in the Employee Stock Purchase and
Savings Plan in the same proportion as the trustee votes those
shares for which it receives proper instructions.
What are the voting recommendations of the Board of
Directors?
The Board of Directors recommends that you vote:
What constitutes a quorum for the Annual Meeting?
A quorum of shareholders is necessary for us to hold
a valid Annual Meeting. For a quorum, there must be present, in
person or by proxy, or by use of communications equipment,
shareholders of record entitled to exercise not less than fifty
percent of the voting power of Sherwin-Williams.
Proxy cards marked as withholding authority, as well as proxy
cards containing abstentions and broker non-votes,
will be treated as present for purposes of determining a quorum.
A broker non-vote occurs when a broker or other
nominee holding shares for a beneficial owner does not vote on a
particular non-routine proposal because the broker
or nominee does not have discretionary voting power for that
proposal and has not received voting instructions from the
beneficial owner. If you are a beneficial owner and a broker
holds your shares, it is expected that your broker will be
permitted to vote your shares on Proposals 1, 2 and 3 even
if your broker does not receive voting instructions from you.
What vote is required to approve each proposal?
Election of Directors (Proposal 1).
Proposal 1 to fix the number of directors at 11 requires
the affirmative vote of the holders of a majority of the shares
present, in person or by proxy, and entitled to vote on this
proposal. To be elected as a director, a nominee must
2
Table of Contents
receive the affirmative vote of a plurality of the votes cast. A
proxy card marked as withholding authority with respect to the
election of one or more directors will be counted for quorum
purposes.
Under our Majority Voting Policy, in an uncontested election,
any nominee for director who receives a greater number of
withheld votes than for votes is
required to tender his or her resignation for consideration by
the Nominating and Corporate Governance Committee of the Board
of Directors. We have provided more information about our
Majority Voting Policy under the heading Corporate
Governance Majority Voting Policy.
Approval of the 2007 Executive Performance Bonus Plan
(Proposal 2). Proposal 2 to approve the 2007
Executive Performance Bonus Plan requires the affirmative vote
of a majority of the votes cast. A proxy card marked as
abstaining with respect to this proposal and any broker
non-votes with respect to this proposal will be counted for
quorum purposes, but will not be counted as a vote cast, and
therefore will have no effect on the vote.
Ratification of Independent Registered Public Accounting
Firm (Proposal 3). Proposal 3 to ratify the
appointment of Ernst & Young LLP as Sherwin-Williams
independent registered public accounting firm requires the
affirmative vote of a majority of the votes cast. A proxy card
marked as abstaining with respect to this proposal will be
counted for quorum purposes, but will not be counted as a vote
cast, and therefore will have no effect on the vote.
Other Items. All other proposals and other
business as may properly come before the Annual Meeting require
the affirmative vote of a majority of the votes cast, except as
otherwise required by statute or our Amended Articles of
Incorporation or Regulations.
Can I revoke or change my vote after I submit my
proxy?
Yes. You can revoke or change your vote before the proxy holders
vote your shares by timely:
How can I attend the Annual Meeting?
You are entitled to attend the Annual Meeting only if you were a
shareholder as of the close of business on March 2, 2007,
the record date. We may ask you to present valid photo
identification to enter the Annual Meeting.
CORPORATE GOVERNANCE
We have a long history of good corporate governance practices
that has greatly aided our long-term success. The Board of
Directors and management have recognized for many years the need
for sound corporate governance practices in fulfilling their
respective duties and responsibilities to shareholders.
Corporate Governance Guidelines. The Board of
Directors has adopted Corporate Governance Guidelines, which
provide the framework for the governance of our company. The
Board of Directors reviews our Corporate Governance Guidelines
at least annually. From time to time, the Board of Directors may
revise
3
Table of Contents
our Corporate Governance Guidelines to reflect new regulatory
requirements and evolving corporate governance practices.
Business Ethics Policy. We have operated under a
Business Ethics Policy for many years and are committed to
conducting business in an ethical and legal manner throughout
the world. Our Business Ethics Policy applies to all of our
directors, officers and employees and outlines the broad
principles of ethical and legal conduct embraced by
Sherwin-Williams to guide our business related conduct. Under
our Business Ethics Policy, any director or employee who
reasonably believes or suspects that Sherwin-Williams or any
director or employee has or is engaging in improper or illegal
activities, fraud or activities that appear to be inconsistent
with or in violation of the Business Ethics Policy is
responsible for reporting such activities. We do not permit
retaliation of any kind against any person who, in good faith,
reports any known or suspected improper activities pursuant to
the Business Ethics Policy.
Our Business Ethics Policy includes additional ethical
obligations for our senior financial management (which includes
our chief executive officer, our chief financial officer, and
the controller, treasurer and principal financial and accounting
personnel in our operating groups and corporate departments).
Our senior financial management is responsible for creating and
maintaining a culture of high ethical standards throughout our
company to ensure the fair and timely reporting of our financial
results and financial condition.
Communications with Directors. The Board of
Directors has adopted a process by which shareholders and other
interested parties may communicate with the non-management
directors or the chairperson of any of the committees of the
Board of Directors by
e-mail or regular mail.
You may send communications by
e-mail to the
auditchair@sherwin.com, compchair@sherwin.com, or
corpgovchair@sherwin.com, or to the non-management directors as
a group to the
non-managementdirectors@sherwin.com.
You may also send communications by regular mail to the
attention of the Chairperson, Audit Committee; Chairperson,
Compensation and Management Development Committee; or
Chairperson, Nominating and Corporate Governance Committee; or
to the non-management directors as a group to the Non-Management
Directors, each c/o Corporate Secretary, The
Sherwin-Williams Company, 101 Prospect Avenue, N.W., 12th Floor,
Midland Building, Cleveland, Ohio 44115.
Sherwin-Williams management will review all communications
received to determine whether the communication requires
immediate action. Management will pass on all communications
received, or a summary of such communications, to the
appropriate director or directors.
Complaint Procedures for Accounting, Auditing and
Financial Related Matters. The Audit Committee has
established procedures for receiving, retaining and treating
complaints from any source regarding accounting, internal
accounting controls and auditing matters. The Audit Committee
has also established procedures for the confidential, anonymous
submission by employees of concerns regarding questionable
accounting or auditing matters. Interested parties may
communicate such complaints by following the procedures
described under the heading Communications with
Directors, above. Employees may report such complaints by
following the procedures outlined in the Business Ethics Policy.
We do not permit any retaliation of any kind against any person
who, in good faith, submits a complaint or concern under these
procedures.
Independence of Directors. Under our Director
Independence Standards (a copy of which is attached as
Appendix A), 10 of our current 11 directors are
independent and 10 of our 11 director nominees are
independent. In addition, all members of the Audit Committee,
the Compensation and Management Development Committee, and the
Nominating and Corporate Governance Committee are independent.
Majority Voting Policy. The Board of
Directors has adopted a Majority Voting Policy. Any nominee for
director in an uncontested election who receives a greater
number of withheld votes than for votes
shall promptly tender his or her resignation. The Nominating and
Corporate Governance Committee will promptly consider the
tendered
4
Table of Contents
resignation and will recommend to the Board of Directors whether
to accept the tendered resignation or to take some other action,
such as rejecting the tendered resignation and addressing the
apparent underlying causes of the withheld votes.
In making this recommendation, the Committee will consider all
factors deemed relevant by its members. These factors may
include the underlying reasons why shareholders
withheld votes for election from such director (if
ascertainable), the length of service and qualifications of the
director whose resignation has been tendered, the
directors contributions to Sherwin-Williams, whether by
accepting such resignation Sherwin-Williams will no longer be in
compliance with any applicable law, rule, regulation or
governing document, and whether or not accepting the resignation
is in the best interests of Sherwin-Williams and our
shareholders.
In considering the Committees recommendation, the Board of
Directors will consider the factors considered by the Committee
and such additional information and factors that the Board of
Directors believes to be relevant. We will promptly publicly
disclose the Board of Directors decision and process in a
periodic or current report filed with the SEC.
Executive Sessions. The non-management members of
the Board of Directors meet at least twice each year in
regularly scheduled executive sessions. Additional executive
sessions may be scheduled by the non-management directors. The
chairpersons of the Audit Committee, the Compensation and
Management Development Committee, and the Nominating and
Corporate Governance Committee rotate presiding over these
sessions.
Annual Board Self-Assessments. The Board of
Directors has instituted annual self-assessments of the Board of
Directors, as well as the Audit Committee, the Compensation and
Management Development Committee, and the Nominating and
Corporate Governance Committee, to assist in determining whether
the Board of Directors and its committees are functioning
effectively. In early 2007, the Board and each of its committees
completed self-evaluations and reviewed and discussed the
results. The Nominating and Corporate Governance Committee
oversees this evaluation process.
Board Committee Charters. The Board of Directors
has adopted written charters for the Audit Committee, the
Compensation and Management Development Committee, and the
Nominating and Corporate Governance Committee. Each committee
reviews and evaluates the adequacy of its charter at least
annually and recommends any proposed changes to the Board of
Directors for approval.
Stock Ownership Guidelines. The Board of Directors
has established a minimum share ownership requirement for its
directors, executive officers and operating presidents. Each
director who has served on the Board for at least five years is
expected to own a minimum of 5,000 shares of common stock.
Each executive officer and operating president who has served in
such capacity for at least five years is expected to own shares
of common stock equal in value to a multiple of their base
salary ranging from a low of three times to a high of five times
for the Chairman and Chief Executive Officer. For purposes of
meeting this minimum share ownership requirement, each
equivalent share of common stock and each share of restricted
stock held under our benefit plans is considered as a share of
common stock. Stock options are not considered towards meeting
this requirement.
All directors, executive officers and operating presidents have
either met our stock ownership guidelines or are pursuing plans
to meet our guidelines within the time frames prescribed.
Availability of Corporate Governance Materials.
You may access all committee charters, our Corporate Governance
Guidelines, our Director Independence Standards, our Business
Ethics Policy, our Majority Voting Policy and other corporate
governance materials in the Corporate Governance
section on the Investor Relations page of our
website at www.sherwin.com. You also may receive copies without
charge by writing to us at: The Sherwin-Williams Company, 101
Prospect Avenue, N.W., Cleveland, Ohio 44115, Attention:
Investor Relations.
5
Table of Contents
ELECTION OF DIRECTORS (PROPOSAL 1)
At the Annual Meeting, the number of directors is to be fixed at
11, and 11 directors are to be elected to hold office until
the next Annual Meeting of Shareholders and until their
successors are elected.
Our Board of Directors currently has 11 members. All of
these directors are standing for re-election as nominees. All of
the nominees were elected by the shareholders at the 2006 Annual
Meeting. All of the nominees are independent except for
Mr. Connor. Mr. Connor is not considered to be independent
because of his position as Chairman and Chief Executive Officer
of Sherwin-Williams. There are no family relationships among any
of the directors and executive officers.
Each of the nominees has agreed to serve if elected. If any
nominee declines or is unable to accept such nomination or is
unable to serve, an event which we do not expect, the Board of
Directors reserves the right in its discretion to substitute
another person as a nominee or to reduce the number of nominees.
In this event, the proxy holders may vote in their discretion
for any substitute nominee proposed by the Board of Directors
unless you indicate otherwise.
The following is information regarding each nominee:
President and
Chief Executive Officer,
Swagelok Company
Director of Sherwin-Williams since 2006
Arthur F. Anton, 49, has served as President and Chief Executive
Officer of Swagelok Company (manufacturer and provider of fluid
system products and services) since January 2004. Mr. Anton
served as President and Chief Operating Officer of Swagelok from
January 2001 to January 2004, Executive Vice President of
Swagelok from July 2000 to January 2001, and Chief Financial
Officer of Swagelok from August 1998 to July 2000.
Mr. Anton is also a Director of University Hospitals Health
System and is Vice Chairman of the Manufacturing Advocacy &
Growth Network.
Vice Chairman,
Cavaliers Operating Company, LLC
Director of Sherwin-Williams since 1998
James C. Boland, 67, has served as Vice Chairman of Cavaliers
Operating Company, LLC (formerly known as Cavaliers/Gund Arena
Company) (operator of the Cleveland Cavaliers professional
basketball team and Quicken Loans Arena) since January 2003.
Mr. Boland served as President and Chief Executive Officer
of CAVS/Gund Arena Company from January 1998 to January
2003. Prior to his retirement from Ernst & Young LLP in
September 1998, Mr. Boland served for 22 years as a partner
of Ernst & Young LLP in various roles including Vice
Chairman and Regional Managing Partner as well as a member of
the firms Management Committee from 1988 to 1996 and as
Vice Chairman of National Accounts from 1997 to his retirement.
Mr. Boland is also a Director of The Goodyear
Tire & Rubber Company and Invacare Corporation and is a
Trustee of Bluecoats, Inc. and The Harvard Business School Club
of Cleveland.
Christopher M.
Connor
Chairman and
Chief Executive Officer,
Sherwin-Williams
Director of Sherwin-Williams since 1999
Christopher M. Connor, 50, has served as Chairman of
Sherwin-Williams since April 2000 and Chief Executive Officer of
Sherwin-Williams since October 1999. Mr. Connor served
as President of Sherwin-Williams from July 2005 to October 2006,
Vice Chairman of Sherwin-Williams from October 1999 to April
2000, and President, Paint Stores Group of Sherwin-Williams from
August 1997 to October 1999. Mr. Connor has been
with Sherwin-Williams since 1983 in roles of increasing
responsibility. Mr. Connor is also a Director of Eaton
Corporation and National City Corporation. In addition,
Mr. Connor is Chairman of University Hospitals Health
System, serves on the boards of Keep America Beautiful, Rock and
Roll Hall of Fame, Playhouse Square Foundation, United Way
Services of Greater Cleveland, Greater Cleveland Partnership,
National Association of Manufacturers, National Paint &
Coatings Association and The Catholic Diocese of Cleveland
6
Table of Contents
Foundation and is a member of the Deans Advisory Council
of the Fisher College of Business, The Ohio State University.
Retired, Former Chairman, Chief
Executive Officer and Secretary,
Bob Evans Farms, Inc.
Director of Sherwin-Williams since 1990
Daniel E. Evans, 70, prior to his retirement in April 2001,
served as Chairman of Bob Evans Farms, Inc. (food products and
restaurants) since 1971. Mr. Evans served as Chief
Executive Officer and Secretary of Bob Evans Farms from 1971 to
April 2000. Mr. Evans is also a Director of Evans
Enterprises, Inc. and Motorists Mutual Insurance Company.
Retired, Former President and
Chief Executive Officer,
Ace Hardware Corporation
Director of Sherwin-Williams since 2005
David F. Hodnik, 59, prior to his retirement in April 2005,
served as Chief Executive Officer of Ace Hardware Corporation
(cooperative of independent hardware retail stores) since
January 1997. Mr. Hodnik also served as President of Ace
from January 1996 through December 2004. Mr. Hodnik joined
Ace in October 1972 and held various financial, accounting and
operating positions at Ace.
Retired, Former President and
Chief Operating Officer,
Avon Products, Inc.
Director of Sherwin-Williams since 2003
Susan J. Kropf, 58, prior to her retirement in January 2007,
served as President and Chief Operating Officer of Avon
Products, Inc. (global manufacturer and marketer of beauty and
related products) since January 2001. Mrs. Kropf served as
Executive Vice President and Chief Operating Officer, North
America and Global Business Operations, of Avon from December
1999 to January 2001 and Executive Vice President and President,
North America, of Avon from March 1997 to December 1999.
Mrs. Kropf joined Avon in 1970 and held various positions
in manufacturing, marketing and product development.
Mrs. Kropf is also a Director of Coach, Inc., MeadWestvaco
Corporation and the Wallace Foundation.
Retired, Former Chairman, Chief
Executive Officer and President,
Diebold, Incorporated
Director of Sherwin-Williams since 1995
Robert W. Mahoney, 70, prior to his retirement in April 2000,
served as Chairman of Diebold, Incorporated (manufacturer of
financial self-service transaction systems and security
products) since April 1988. Mr. Mahoney served as Chief
Executive Officer of Diebold from April 1988 to November 1999
and President of Diebold from July 1993 to
November 1996. Mr. Mahoney is also a Director of
Cincinnati Bell Inc. and The Timken Company, is Chairman of the
Federal Reserve Bank of Cleveland, Chairman of Ignite Sales,
Inc. and Chairman of Mercy Medical Center (Canton, Ohio), is a
Trustee of the Professional Football Hall of Fame, and is a
Member of the Stark (County, Ohio) Development Board, Inc.
Senior Vice President,
Abbott Laboratories
President, Ross Products Division
Director of Sherwin-Williams since 2002
Gary E. McCullough, 48, has served as Senior Vice President of
Abbott Laboratories and President of its Ross Products Division
(manufacturer of a variety of pediatric and adult nutritional
products) since December 2003. Immediately prior to joining
Abbott, Mr. McCullough served as Senior Vice
President Americas of Wm. Wrigley Jr. Company
from March 2000 to December 2003. Mr. McCullough also
spent 13 years at the Procter & Gamble Company where he
served in a variety of marketing and management positions
including General Manager, North America Home Care Category from
December 1998 to March 2000, Marketing Director, Juice
Products Category from September 1996 to December 1998, and
Marketing Director, Laundry & Cleaning Products, Venezuela
from December 1995 to September 1996. Mr. McCullough is a
Director of the Columbus Chamber of Commerce and a Member of the
Board of Trustees of COSI Columbus
7
Table of Contents
(Center of Science and Industry) and United Way of Central Ohio.
Chairman and Chief Executive Officer,
Invacare Corporation
Director of Sherwin-Williams since 1993
A. Malachi Mixon, III, 66, has served as Chief Executive Officer
of Invacare Corporation (manufacturer and distributor of home
health care products) since January 1980 and Chairman of
Invacare since September 1983. Mr. Mixon served as President of
Invacare from January 1980 to November 1996. Mr. Mixon is
also a Director of The Lamson and Sessions Co. and is Chairman
of The Cleveland Clinic Foundation and the Cleveland Institute
of Music.
Chairman and Chief Executive Officer,
MTD Holdings Inc
Director of Sherwin-Williams since 1997
Curtis E. Moll, 67, has served as Chairman and Chief Executive
Officer of MTD Holdings Inc (manufacturer of outdoor power
equipment and tools, dies and stampings for the automotive
industry) since October 1980. Mr. Moll is also
a Director of AGCO Corporation and is Chairman of the Board
of Directors of Shiloh Industries, Inc.
President and Co-Chief Executive Officer,
The J.M. Smucker Company
Director of Sherwin-Williams since 1991
Richard K. Smucker, 58, has served as Co-Chief Executive Officer
of The J.M. Smucker Company (makers of food products) since
February 2001 and President of J.M. Smucker since January 1987.
Mr. Smucker served as Chief Financial Officer of J.M.
Smucker from June 2003 to January 2005. Mr. Smucker is also a
Director of J.M. Smucker and Wm. Wrigley Jr. Company and is a
Trustee of Miami University of Ohio and the Musical Arts
Association (The Cleveland Orchestra).
The Board of Directors unanimously recommends that you
vote FOR Proposal 1 relating to the election of
directors.
INDEPENDENCE OF DIRECTORS
The Board of Directors has adopted categorical Director
Independence Standards to assist the Board of Directors in
determining the independence of each director. To be considered
independent, the Board of Directors must affirmatively determine
that the director has no material relationship with
Sherwin-Williams. In each case, the Board of Directors broadly
considers all relevant facts and circumstances, including the
directors commercial, industrial, banking, consulting,
legal, accounting, charitable and familial relationships, and
such other criteria as the Board of Directors may determine from
time to time. A copy of our Director Independence Standards is
attached as Appendix A.
During the Board of Directors annual review of director
independence, the Board of Directors considers transactions,
relationships and arrangements between each director or an
immediate family member of the director and Sherwin-Williams.
The Board of Directors also considers transactions,
relationships and arrangements between each director or an
immediate family member of the director and
Sherwin-Williams senior management.
Early this year, the Board of Directors performed its annual
director independence review for 2007. As part of this review,
the Board of Directors considered club memberships common among
our directors, including Messrs. Anton, Boland, Connor,
Mixon and Smucker. The Board of Directors also considered common
public, private and charitable board memberships among our
executive officers and directors, including Messrs. Anton,
Boland, Connor, Mixon and Moll. The Board of Directors does not
believe that any of these common club and board memberships
impair the independence of the directors.
As a result of this review, the Board of Directors determined
that 10 of our 11 current directors and director nominees
are independent, and all members of the Audit Committee, the
Compensation and Management Development Committee, and the
Nominating and Corporate Governance Committee are independent.
The Board of Directors determined that Mrs. Kropf and
Messrs. Anton, Boland, Evans, Hodnik, Mahoney, McCullough,
Mixon, Moll and
8
Table of Contents
Smucker meet these standards and are independent and, in
addition, satisfy the independence requirements of the New York
Stock Exchange. In addition, the Board of Directors determined
in early 2006 that Mr. Collins (who retired at the 2006
Annual Meeting of Shareholders in accordance with the
Boards retirement policy) was independent under those
standards and requirements. Mr. Connor is not considered to
be independent because of his position as Chairman and Chief
Executive Officer of Sherwin-Williams.
2006 DIRECTOR COMPENSATION TABLE
The following table sets forth information regarding the
compensation of our nonemployee directors for 2006.
Mr. Connor, who is our Chairman and Chief Executive
Officer, does not receive any additional compensation for
services as a director.
9
Table of Contents
DIRECTOR COMPENSATION PROGRAM
The Compensation and Management Development Committee is
responsible for annually reviewing and approving the
compensation for the nonemployee directors. All of the
nonemployee directors are paid under the same compensation
program. Officers of Sherwin-Williams who also serve as
directors do not receive any additional compensation for
services as a director.
We use a combination of cash and equity-based compensation to
attract and retain our nonemployee directors. Compensation for
the nonemployee directors consists of an annual cash retainer;
an additional annual cash retainer for chairs of the Audit
Committee, the Compensation and Management Development
Committee, and the Nominating and Corporate Governance
Committee; meeting fees; an annual grant of restricted stock;
and other benefits.
Stock options are not currently a part of the nonemployee
director compensation program. In addition, we do not provide
retirement benefits to our nonemployee directors.
10
Table of Contents
Director Fees. For 2007, the cash and equity
compensation payable to the nonemployee directors is as follows:
Shares of restricted stock vest in annual increments of
one-third of the shares granted over a period of three years.
The shares will immediately vest in the event of the death or
disability of the director or in the event of a change in
control of Sherwin-Williams. In the event of the retirement of
the director, the shares will continue to vest in accordance
with the original three-year vesting schedule.
Other Benefits. We reimburse all directors for
reasonable travel and other out-of-pocket expenses incurred in
connection with attendance at meetings of the Board of Directors
and its committees. This includes travel expenses of spouses if
they are invited for a specific business purpose.
We also pay the premiums for liability insurance and business
travel accident insurance for all directors, including $225,000
accidental death and dismemberment coverage and $225,000
permanent total disability coverage, while the directors are
traveling on Sherwin-Williams business.
Directors may also receive the same discounts as our employees
on the purchase of products at Sherwin-Williams stores and
are eligible to participate in our matching gifts programs on
the same basis as employees. These programs provide for annual
matches of up to $5,000 under the matching gifts to education
program and $1,000 under the matching gifts for volunteer
leaders program, as well as annual grants of up to $200 under
the grants for volunteers program.
Deferral of Director Fees. In accordance with the
Director Deferred Fee Plan, directors may elect to defer all or
a part of their retainer and meeting fees. Deferred fees may be
credited to a common stock account, a shadow stock account or an
interest bearing cash account. The value of the shadow stock
account reflects changes in the market price of our common stock
and the payment of dividend equivalents at the same rate as paid
on our common stock. Amounts deferred may be distributed either
in annual installments over a period up to ten years or in a
lump sum on the date chosen by the director.
11
Table of Contents
BOARD MEETINGS AND COMMITTEE MEMBERSHIP
The Board of Directors held four meetings during 2006. Each
director attended at least 75% of the meetings of the Board of
Directors and committees on which he or she served. Each
director is expected to attend, absent unusual circumstances,
all annual and special meetings of shareholders. All directors
attended the 2006 Annual Meeting of Shareholders.
The Board of Directors has established an Audit Committee, a
Compensation and Management Development Committee, and a
Nominating and Corporate Governance Committee. The Board of
Directors has adopted a written charter for each of these
committees. You can find a complete copy of each committee
charter in the Corporate Governance section on the
Investor Relations page of our website at
www.sherwin.com. The following table sets forth the current
membership of these committees.
* Committee Chair
Audit Committee. The purpose of the Audit
Committee is to assist the Board of Directors in fulfilling the
Board of Directors oversight responsibilities on matters
relating to:
The Audit Committee met five times during 2006. Each member of
the Committee is independent as defined in the corporate
governance listing standards of the New York Stock Exchange, SEC
regulations and our Director Independence Standards. The Board
of Directors has determined that Messrs. Boland and Smucker are
audit committee financial experts, as that term is
defined by SEC regulations. No member of the Audit Committee
serves on the audit committees of three other public companies.
Compensation and Management Development
Committee. The purpose of the Compensation and
Management Development Committee is to assist the Board of
Directors in fulfilling the Board of Directors oversight
responsibilities on matters relating to:
12
Table of Contents
The Compensation and Management Development Committee met four
times during 2006. Each member of the Committee is independent
as defined in the corporate governance listing standards of the
New York Stock Exchange and our Director Independence Standards.
Process for Determining Director and Executive Compensation.
The Committee reports to the Board of Directors on all
compensation matters regarding our directors, executive officers
and other key salaried employees. The Committee annually reviews
and approves the compensation for our directors, executive
officers and other key salaried employees. The Committee does
not generally delegate any of its authority to other persons,
although it has the power to delegate authority to
subcommittees. The Committee relies upon our executive officers
and other employees and outside compensation consultants in
order to assist the Committee in performing its duties.
As explained in more detail under the heading Compensation
Discussion and Analysis, we generally want to pay our
executive officers compensation that is competitive in the
marketplace. Likewise, we also want to pay our directors
competitive compensation. In order to assist in determining
whether compensation is competitive, the Committee and
Sherwin-Williams engage a compensation consultant to annually
compile information regarding the compensation that similar
companies are paying to their directors and executive officers.
Our Senior Vice President Human Resources and his
staff usually work directly with the compensation consultant to
compile the market compensation information. We use that
information as a starting point to set compensation levels for
our directors and executive officers.
During 2006, the Committee and Sherwin-Williams retained Towers
Perrin as the compensation consultant. We requested the
compensation consultant to provide us with information regarding
all elements of compensation that companies comparable to
Sherwin-Williams pay to their directors. In addition, as
described under the heading Compensation Discussion and
Analysis, the compensation consultant was asked to provide
similar market information with regard to compensation paid to
executive officers. During 2006, the Committee and
Sherwin-Williams also engaged Towers Perrin to review our
severance pay agreements to assist us in identifying market
practices.
The Committee relies upon our Senior Vice President
Human Resources and his staff for input in setting director and
executive officer compensation levels. The compensation
consultant typically provides the requested market compensation
information to our Senior Vice President Human
Resources. With regard to director compensation, the
compensation consultant also typically provides the Committee
with recommendations of any changes to director compensation.
Our Senior Vice President Human Resources may also
make recommendations to the Committee for director compensation.
With regard to executive officer compensation, management
generally makes recommendations to the Committee and plays a
more active role in the compensation setting process, including
the evaluation of executive officer performance and making
recommendations with regard to salary levels, annual cash
incentive compensation, long-term annual compensation awards
(restricted stock and stock options) and other employee benefits.
Prior to providing recommendations to the Committee at its
formal meetings, our Senior Vice President Human
Resources generally will meet with our Chief Executive Officer
to review the recommendations, except for recommendations
concerning our Chief Executive Officers compensation. Our
Chief Executive Officer and our Senior Vice
President Human Resources also will meet with the
Chair of the Committee prior to Committee meetings to review the
agenda for the meeting and the compensation recommendations. Our
Chief Executive Officer and our Senior Vice
President Human Resources generally attend all
Committee meetings. Our Senior Vice President Human
Resources serves as secretary for the Committee at its meetings.
Our Chief Executive Officer is excused from that part of
13
Table of Contents
the meeting during which the Committee discusses his annual
performance evaluation and compensation.
Nominating and Corporate Governance
Committee. The purpose of the Nominating and
Corporate Governance Committee is to assist the Board of
Directors in fulfilling the Board of Directors oversight
responsibilities on matters relating to:
The Nominating and Corporate Governance Committee met three
times in 2006. Each member of the Committee is independent as
defined in the corporate governance listing standards of the New
York Stock Exchange and our Director Independence Standards.
Director Qualifications. The Committee seeks a diverse
group of candidates who possess the appropriate characteristics,
skills, experience and time to make a significant contribution
to the Board of Directors, Sherwin-Williams and our
shareholders. Each candidate will be evaluated in the context of
the Board of Directors as a whole, with the objective that the
Board of Directors can best perpetuate Sherwin-Williams
success and represent shareholders interests through the
exercise of sound business judgment using the directors
diversity of experiences. Each candidate shall have the highest
personal and professional character and integrity, and shall
have demonstrated exceptional ability and judgment in their
respective endeavors. Candidates must possess sufficient time to
effectively carry out their duties and responsibilities.
In considering the composition of the Board of Directors as a
whole, the Board of Directors considers the following skills and
experiences of each individual candidate:
In addition, the Board of Directors considers such other skills
and experiences as it deems appropriate given the then-current
needs of the Board of Directors and Sherwin-Williams.
The Committee may employ professional search firms (for which it
would pay a fee) to assist it in identifying potential members
of the Board of Directors with the desired skills and
disciplines.
Consideration of Candidates Recommended by Shareholders.
The Committees policy with respect to the consideration of
director candidates recommended by shareholders is that the
Committee will consider such candidates on the same basis and in
the same manner as it considers all director candidates.
Recommendations are required to include information about the
background and qualifications of the candidate. You may find a
description of these requirements in the Corporate
Governance section on the Investor Relations
page of our website at www.sherwin.com. Shareholders may submit
recommendations, along with proof of shareholder status, in
writing to Chairperson, Nominating and Corporate Governance
Committee, c/o Corporate Secretary, The Sherwin-Williams
Company, 101 Prospect Avenue, N.W., 12th Floor,
Midland Building, Cleveland, Ohio 44115.
14
Table of Contents
AUDIT COMMITTEE REPORT
Management has the primary responsibility for the integrity of
Sherwin-Williams financial information and the financial
reporting process, including the system of internal control over
financial reporting. Ernst & Young LLP,
Sherwin-Williams independent registered public accounting
firm, is responsible for conducting independent audits of
Sherwin-Williams financial statements and
managements assessment of the effectiveness of internal
control over financial reporting in accordance with the
standards of the Public Company Accounting Oversight Board
(United States) and expressing an opinion on the financial
statements and managements assessment based upon those
audits. The Audit Committee is responsible for overseeing the
conduct of these activities by management and Ernst &
Young LLP.
As part of its oversight responsibility, the Committee has
reviewed and discussed the audited financial statements, the
adequacy of financial controls and the effectiveness of
Sherwin-Williams internal control over financial reporting
with management and Ernst & Young LLP. The Committee
also has discussed with Ernst & Young LLP the matters
required to be discussed by Statement on Auditing Standards
No. 61 (Communication with Audit Committees). The Committee
has received the written disclosures and the letter from Ernst
& Young LLP required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit
Committees) and has discussed with Ernst & Young LLP that
firms independence.
Based upon these reviews and discussions, the Committee
recommended to the Board of Directors that the audited financial
statements be included in Sherwin-Williams Annual Report
on Form 10-K for
the year ended December 31, 2006 for filing with the
Securities and Exchange Commission.
AUDIT COMMITTEE
R. K. Smucker, Chairman
J. C. Boland
D. F. Hodnik
G. E. McCullough
C. E. Moll
COMPENSATION COMMITTEE REPORT
The Compensation and Management Development Committee has
reviewed and discussed with management the Compensation
Discussion and Analysis contained in this proxy statement. Based
upon this review and discussions, the Committee recommended to
the Board of Directors that the Compensation Discussion and
Analysis be included in Sherwin-Williams Annual Report on
Form 10-K for the year ended December 31, 2006 and
this proxy statement.
COMPENSATION AND MANAGEMENT
DEVELOPMENT COMMITTEE
R. W. Mahoney, Chairman
A. F. Anton
D. E. Evans
S. J. Kropf
A. M. Mixon, III
15
Table of Contents
COMPENSATION DISCUSSION AND ANALYSIS
Objectives. We design our compensation programs to
maintain a performance and achievement-oriented environment
throughout our company. We also design our compensation programs
to attract, hire, retain and motivate talented and skilled
individuals at all levels of our company. We have designed our
executive compensation program with these same goals in mind.
Generally, we want to pay our executives compensation that is
competitive in the marketplace. We review the median
compensation paid to executives at other comparable chemical,
building product manufacturing and retail companies. We use this
information as a starting point to set compensation levels for
our executives. When setting compensation levels, we also take
into account other factors such as the level of responsibility
of the executive, the performance of the executive, the
experience and tenure of the executive, the compensation of the
executive compared to the compensation of other key salaried
employees, and the performance of our company and our business
units.
The Compensation Committee. The Compensation and
Management Development Committee assists our Board of Directors
in fulfilling our Boards oversight responsibilities to
administer our executive compensation program. Each member of
the Committee is independent as defined in the corporate
governance listing standards of the New York Stock Exchange and
our director independence standards.
The Committee reports to the Board of Directors on all
compensation matters regarding our executives and other key
salaried employees. The Committee annually reviews and approves
the compensation (including annual base salary, annual cash
incentive compensation, long-term incentive compensation and
other employee benefits) for our executives and other key
salaried employees. You may learn more about the
Committees responsibilities by reading the
Committees Charter, which is available in the
Corporate Governance section on the Investor
Relations page of our website at www.sherwin.com. We have
also included additional information about the Committee,
including the role of compensation consultants and our
executives in the compensation setting process, under the
heading Board Meetings and Committee
Membership Compensation and Management Development
Committee.
Components of Compensation. The major components
of our executive compensation program are the following:
The 2006 Summary Compensation Table sets forth amounts for these
components that we paid to our Chairman and Chief Executive
Officer, our Senior Vice President-Finance and Chief Financial
Officer and our three other highest paid executives for 2006. We
refer to these five executives as our named executives.
We compensate our executives principally by using a combination
of short-term compensation (salary and annual cash incentive
compensation) and long-term compensation (stock options and
restricted stock). We determine the mix of short-term and
long-term compensation by using market compensation information.
Accordingly, we do not have a specific policy for the allocation
of compensation between short-term and long-term compensation or
cash and equity compensation. We tie our annual cash incentive
compensation and long-term incentive compensation to the
achievement of performance goals or to the value of our common
stock. We believe it is important that a portion of our
executives incentive compensation is dependent upon the
price of our common stock in order to align the interests of our
executives with the interests of our shareholders. However,
since the price of our common stock is subject to some factors
outside of the control of our company and our executives,
16
Table of Contents
we believe it is also important that a portion of an
executives incentive compensation be tied to performance
goals relating to the operations of our company. We select
performance goals that we believe help to drive our business and
create value for our shareholders.
Our Starting Point. We offer our executives annual
base salaries, annual cash incentive compensation, long-term
incentive compensation and other employee benefits that are
intended to be competitive with those offered at similar
chemical, building product manufacturing and retail companies
with comparable sales. We review compensation paid at these
companies because their size and business make them most
comparable to us. We also believe these companies likely compete
with us for executive talent. We engage a compensation
consultant to identify annually the median compensation paid to
executives holding equivalent positions or having similar
responsibilities at these companies. These companies change from
time to time. We may also use general compensation surveys
sponsored by nationally recognized compensation consulting firms
to assist us in making compensation decisions.
The Committee and Sherwin-Williams engaged Towers Perrin, a
compensation consultant, to provide us with median compensation
information for 24 of these peer companies. We generally
benchmark the compensation that we pay to our executives against
the median compensation that those 24 companies pay to
their executives. We benchmark against median compensation
because it allows us to attract and retain employees, provides
an incentive for employees to strive for better than average
performance to earn better than average compensation, and helps
us to manage the overall cost of our compensation program. The
compensation information provided by the consultant includes
median base salary, annual cash incentive compensation,
long-term incentive compensation and total direct compensation.
Total direct compensation is the sum of base salary, annual cash
incentive compensation and long-term incentive compensation.
These peer companies included:
In October 2006, we promoted Mr. Morikis to President and
Chief Operating Officer. Prior to setting Mr. Morikis
compensation for his new position, we asked the compensation
consultant to compile additional market compensation information
for presidents and chief operating officers. We reviewed this
additional market information (in addition to that of the peer
companies) because the position of Chief Operating Officer had
been vacant at our company for approximately one and one-half
years and many of the peer companies did not employ a president
and chief operating officer. The consultant provided us with the
median amount of salary, annual cash incentive compensation,
long-term incentive compensation and total direct compensation
paid to chief operating officers at: (a) the peer
companies, (b) 35 Fortune 500 companies with revenues
between $6 billion and $10 billion, and (c) an
average of five commercially available surveys from five
nationally recognized compensation consultants. Using this
information, the consultant compiled a composite amount for each
of these components of compensation at the 50th percentile.
When we set Mr. Morikis compensation for his new
position, we used this composite amount in the same way we use
17
Table of Contents
the median amounts for the peer companies for our other
executives.
We review total direct compensation (which is the sum of base
salary, annual cash incentive compensation and long-term
incentive compensation) in order to determine whether the
compensation components that we pay to our executives are
competitive in the aggregate.
Use of Tally Sheets. When approving changes in
compensation for our named executives, we also prepare a tally
sheet for each executive. Tally sheets set forth the dollar
amounts of all components of each named executives current
compensation, including salary, annual cash incentive
compensation, long-term incentive compensation, retirement and
savings programs, health and welfare programs and other
executive benefits, including perquisites. These tally sheets
allow the Committee and management to review how a change in the
amount of each compensation component affects each named
executives total compensation and to review each named
executives total compensation in the aggregate. Based upon
the review of tally sheets, the Committee determined the total
compensation, in the aggregate, for our named executives to be
reasonable and not excessive.
The Committee and management also reviewed potential
compensation payments to our named executives under retirement
and termination in the event of a change in control of our
company. This review included potential severance payment
obligations, potential values of accelerated shares of
restricted stock and stock options and projected payment
obligations in connection with our retirement and savings
programs, health and welfare plans, and other executive benefits.
Base Salary. We pay salaries to our employees to
provide them with a base compensation for the day-to-day
performance of their job responsibilities. We assign pay grades
to salaried positions at our company. Each pay grade has a
salary range. When assigning a pay grade for an executive
position, we review the salary range against median base
salaries at the peer companies based upon the position and level
of responsibility. The midpoint of the range generally
approximates the median salary paid for an equivalent position
at the peer companies. The Committee reviews salary grades for
our executives annually and makes adjustments to these grades as
deemed necessary or appropriate to maintain competitiveness.
Once we determine a range, we set salary levels within the range
based upon other factors, including the executives
performance, experience and tenure in his particular position.
Annual salary increases are based on the overall annual salary
budget guidelines for our company and an evaluation of the
executives performance. As part of our annual budget
process, we review our overall salary structure to ensure that
it remains competitive. Each executive undergoes a performance
review. The executives performance for the prior year is
reviewed by his direct supervisor or, with respect to the
performance of the Chairman and Chief Executive Officer, by the
Committee. The Committee reviews and approves the base salary of
each executive annually and at other times in connection with
any promotion or other change in responsibility.
For 2006, we adopted an overall 3.5% merit budget for salary
increases with possible merit increases ranging from 0% to 8%.
For 2007, we adopted an overall 3.75% merit budget for salary
increases with possible merit increases ranging from 0% to
8.25%. In February 2006 and 2007, we increased the base salaries
of each of our executives. We also increased
Mr. Morikis base salary by 40.5% in October 2006 in
connection with his promotion to President and Chief Operating
Officer. The following table sets forth the 2006 and 2007 base
salaries for our named executives and the percentage increase.
Base salary increases are effective in March.
Annual Cash Incentive Compensation. We pay annual
cash incentive compensation to our executives under our
Management Incentive Plan. The amount of cash incentive
compensation earned by our named executives in 2006 is set forth
in the Non-Equity Incentive
18
Table of Contents
Plan Compensation column of the 2006 Summary Compensation
Table. We paid these amounts in February 2007. All of our
executives participate in our Management Incentive Plan. In
determining the amount of any annual cash incentive paid to our
executives, we place great emphasis on establishing incentive
opportunities that are directly linked with our company
performance and the maximization of shareholder value. We pay
annual cash incentive amounts for the purpose of rewarding
performance during the year based on the achievement of annual
performance goals. We have designed our Management Incentive
Plan so that our executives may earn higher than average annual
cash incentive compensation for above average performance and
lower than average annual cash incentive compensation for below
average performance.
The Committee annually reviews target and maximum annual cash
incentive compensation levels for our executives as a percent of
their salary. Target bonus awards are determined by using the
median annual cash incentive compensation available at the peer
companies, which is generally equivalent to the amount an
executive could receive under our Management Incentive Plan if
he achieves a 100% average of his goals. The annual cash
incentive amount earned by an executive in any year based upon
the achievement of his performance goals may exceed or fall
below the median annual cash incentive compensation available at
the peer companies.
The table below sets forth the minimum, target and maximum cash
incentive amount levels, as a percent of salary, for our named
executives based upon the executive achieving an average of 75%,
100% and 125%, respectively, of his performance goals. These
levels are effective for annual cash incentive amounts earned in
2007 and payable in February 2008. In October 2006, we increased
the maximum annual cash incentive level that may be earned in
2007 for Messrs. Connor, Morikis and Hennessy (from 165%,
135% and 135%, respectively). We increased these levels for
Messrs. Connor, Morikis and Hennessy to align their annual
cash incentive compensation with the annual cash incentive
compensation available at the peer companies.
Under our Management Incentive Plan, we annually establish a
threshold goal of increased company earnings. 75% of this
earnings increase must be met before we pay annual incentive
compensation, subject to the Committees discretion to pay
amounts for individual performance and to make adjustments for
non-recurring or unusual items. For 2006, we set the threshold
earnings goal at an increase in 2006 earnings before taxes of
$38.1 million over 2005 earnings. In 2006, our earnings
before taxes increased $178.1 million compared to 2005.
Accordingly, we attained this threshold earnings goal.
We assign performance goals for each executive at the beginning
of each year. The Committee approves the goals of all of our
named executives. The Chairman and Chief Executive Officer also
approves the goals of our other named executives. These
performance goals vary by executive, are weighted and usually
relate to the particular business unit or function for which
such person has responsibility. Executives are encouraged to
have quantitative goals that stretch performance and have a
significant impact on the improvement of a business unit or our
company. Financial performance goals are generally weighted more
heavily. The Committee reviews and approves annually each named
executives achievement of his performance goals.
For 2006, the target performance goals for the named executives
were as follows:
19
Table of Contents
At its February 2007 meeting, the Committee reviewed each named
executives achievement of these goals during 2006 and
approved cash incentive compensation under our Management
Incentive Plan. For each of our named executives, we have set
forth in the table below the average percentage of performance
goals achieved, the amount of annual cash incentive compensation
earned and the corresponding percentage of their 2006 salary
that the amount represented.
From time to time, we review the accounting and tax laws, rules
and regulations that may affect our compensation programs.
However, tax and accounting considerations have not
significantly impacted the compensation programs that we offer
to our executives.
Section 162(m) of the Internal Revenue Code generally
provides that certain compensation in excess of $1 million
per year paid to a companys chief executive officer and
any of its four other highest paid executive officers is not
deductible by a company unless the compensation qualifies for an
exception. Section 162(m) provides an exception to the
deductibility limit for performance-based compensation if
certain procedural requirements, including shareholder approval
of the material terms of the performance goal, are satisfied.
Compensation paid under our Management Incentive Plan currently
does not qualify for the exception for performance-based
compensation.
As part of this proxy statement, we are submitting the 2007
Executive Performance Bonus Plan for shareholder approval so
that we will have the ability to pay non-discretionary annual
cash incentive compensation to our named executives that will
qualify for deductibility. Independent of the 2007 Executive
Performance Bonus Plan, the Committee retains the discretion to
reward strong individual performance by paying executive
compensation that may not be deductible under
Section 162(m). The Committee believes that its ability to
exercise such discretion is in the best interests of
Sherwin-Williams and our shareholders. We provide additional
information about the 2007 Executive Performance Bonus Plan
under the heading Approval of The Sherwin-Williams Company
2007 Executive Performance Bonus Plan (Proposal 2).
Long-term Incentive Compensation. We grant
long-term incentive compensation in the form of stock options
and restricted stock annually to our executives under our 2006
Equity and Performance Incentive Plan. We begin by determining
the median market value of long-term incentive compensation that
the peer companies grant to their executives, and then we
allocate that compensation between stock options and restricted
stock. When making awards of stock options and restricted stock
to executives, we allocate comparable values to stock options
and to restricted stock. We allocate the mix of stock options
and restricted stock in this way because we want to equally
reward the growth in the value of our common stock and the
achievement of financial performance goals. Grants of stock
options and
20
Table of Contents
restricted stock vest over time, which help us to retain our
executives and encourage our executives to improve the long-term
performance of our company, rather than to focus exclusively on
short-term goals, thereby more closely aligning the interests of
our executives with the interests of our shareholders.
We have used a consistent approach in granting stock options and
restricted stock over the years. We grant stock options and
restricted stock on an annual basis at regularly scheduled Board
of Directors meetings. We schedule the dates of these meetings
approximately one year in advance. We typically grant restricted
stock in February and stock options in October. We grant
restricted stock and stock options in February and October so
that our annual grants are made at different times of the year.
Information relating to the stock options and shares of
restricted stock granted to our named executives is set forth in
the 2006 Summary Compensation Table and the 2006 Grants of
Plan-Based Awards Table.
At each October Board of Directors meeting, we grant stock
options to all of our eligible employees. These grants are made
typically on the same day that the Audit Committee approves our
earnings release for the third quarter and a day or so before we
release the third quarter earnings announcement. At each
February Board of Directors meeting, we grant restricted stock.
This meeting typically occurs in the third week of February,
approximately three or four weeks after we release our annual
earnings results. We may also grant restricted stock and stock
options at other regularly scheduled Board meetings in
connection with an employees promotion and other events.
The dates of these grants may occur shortly before the release
of quarterly earnings announcements. We do not take into account
our earnings announcement when determining the number of stock
options or shares of restricted stock to be granted.
Stock Options. The number of stock options granted to an
executive is based upon the executives position and level
of responsibility using comparable positions at the peer
companies. We determine the specific number of stock options to
be granted by calculating the Black-Scholes-Merton value of the
stock options over a prior 90-day period. Black-Scholes-Merton
is a generally accepted model used in estimating the value of
stock options. In accordance with the terms of our stock plans,
the option exercise price for all stock options is equal to the
average of the high and low market price of our common stock on
the date options are granted. Accordingly, the exercise price
may be higher or lower than the closing price of our common
stock on that day. We do not reprice stock options, and our
stock plans do not contain reload features. Stock options
typically vest at the rate of one-third per year for three years
(beginning one year from the date of grant) and expire ten years
from the date of grant. In October 2006, we granted stock
options to all of our executives.
Restricted Stock. We determine the granting of restricted
stock in the same manner that we determine the granting of stock
options. If granted, shares of restricted stock are subject to a
substantial risk of forfeiture and vest in
accordance with performance and time restrictions. The number of
shares of restricted stock that will vest at the end of the
restriction period is based upon the achievement of one or more
performance goals. Up to 100% of the number of shares of
restricted stock may be forfeited if the performance goals are
not achieved.
In February 2006, we granted shares of performance-based
restricted stock to all of our executives. In October 2006, we
granted additional shares of performance-based restricted stock
to Messrs. Morikis and Seitz. We granted the additional
shares of restricted stock to Mr. Morikis in connection
with his promotion. We granted the additional shares of
restricted stock to Mr. Seitz in recognition of additional
responsibilities as President, Consumer Group. The shares of
restricted stock granted vest in February 2010. During the
vesting period, the executives beneficially own the shares of
restricted stock and possess all voting and dividend rights.
The number of shares of restricted stock that will actually vest
will range from 0% to 100% based upon our companys
achievement of specified financial performance goals. These
goals measure average return on average equity and cumulative
earnings before interest, taxes,
21
Table of Contents
depreciation and amortization over four years. We refer to this
second measure as EBITDA. We explain how we calculate EBITDA on
page 35 of our 2006 Annual Report to Shareholders. We
selected these two performance measures because they reward our
executives in achieving two important business
objectives earnings growth and working capital
management which we believe help us improve our
long-term financial results. The Committee approves these goals.
100% of the shares of restricted stock will vest in the event we
achieve at least a 17% average return on average equity and at
least an 8% cumulative growth in EBITDA. No shares will vest in
the event we achieve below 13% average return on average equity
or below 3% cumulative growth in EBITDA. Between 0% and 100% of
the restricted stock will vest in the event we achieve between
13% and 17% return on average equity and between 3% and 8%
cumulate growth in EBITDA. At the end of the vesting period, the
Committee will review performance against the goals and
determine the number of shares of restricted stock that will
vest.
Long-term incentive opportunities are intended to be competitive
with market long-term incentive opportunities. Therefore, we do
not generally consider the amount of outstanding stock options
and shares of restricted stock currently held by an executive
when making awards of stock options and restricted stock.
Other Benefits. We provide our named executives
with various retirement and savings programs, health and welfare
programs, and employee benefit plans, programs and arrangements
generally available to all employees. We also provide our named
executives with other executive benefit programs and perquisites
as part of providing a competitive executive compensation
program and for employee retention. We annually review all of
these items in connection with our preparation and review of the
overall compensation packages of our named executives and in
connection with our review of tally sheets.
Perquisites may include a company automobile, parking, use of
the corporate aircraft, personal liability insurance, an annual
physical, club memberships, reimbursement for basic financial
planning and a home security system. We have set forth the
incremental cost of providing these perquisites to our named
executives in separate table that is included in a footnote to
the All Other Compensation column of the 2006
Summary Compensation Table.
The other executive benefit programs include an executive life
insurance program, an executive long-term disability program and
a grantor trust program. We have also set forth the amounts for
these programs in a separate table that is included in a
footnote to the All Other Compensation column of the
2006 Summary Compensation Table.
The life insurance and long term disability programs are
designed to provide our named executives with life and
disability benefits greater than the life and disability
benefits available under the broad-based life insurance and long
term disability programs that we offer to other employees due to
benefit limitations within the broad-based programs.
We initiated our grantor trust program in 2003 to replace our
non-qualified deferred compensation plan for some of our
executives to provide financial security to those executives who
have accumulated a significant retirement benefit in our
non-qualified deferred compensation plan. All salaried employees
are eligible to participate in funded retirement plans. The
Internal Revenue Code contains limits on the amount of benefits
that can be contributed to and/or paid from a qualified
retirement plan. Employees whose retirement benefits are limited
are eligible to participate in the non-qualified deferred
compensation plan to provide such employees with the retirement
benefits they would have received under our qualified retirement
plans but for those limitations. Executives who are eligible to
participate in our grantor trust program are not eligible to
participate in our deferred compensation plan.
All of our named executives participate in our grantor trust
program. Under this program, supplemental compensation amounts
are paid to our named executives to fund individual grantor
trusts established by the executives. It is intended that these
amounts provide our named executives with the same after-tax
amount at retirement age as would have been provided under our
non-qualified deferred compensation plan.
22
Table of Contents
Severance Agreements. To ensure continuity
and the continued dedication of our executives during any period
of uncertainty caused by the possible threat of a takeover, we
have entered into severance pay agreements with our executives,
including each of our named executives. In 2006, the Committee
engaged Towers Perrin to evaluate our existing severance pay
agreements in order to determine how these agreements compare to
market practices. Towers Perrins evaluation included a
review of the change in control trigger threshold, severance pay
single versus double triggers, severance pay multiples,
continuation of retirement, health and welfare benefits, excise
tax gross-ups, and the impact of Section 409A of the
Internal Revenue Code.
Based upon this evaluation, the Committee approved a new form of
severance agreement in February 2007, and we entered into new
severance agreements with each of our executives. Information
regarding these new severance agreements, including the
estimated amounts payable to each named executive, is set forth
under the heading Potential Payments upon Termination or
Change in Control.
Stock Ownership Guidelines. We have established a
minimum share ownership requirement for our directors, executive
officers and operating presidents. We require each director who
has served on the Board of Directors for at least five years to
own a minimum of 5,000 shares of common stock. We require
each executive and operating president who has served in such
capacity for at least five years to own shares of common stock
equal in value to a multiple of their base salary ranging from a
low of three times to a high of five times for the Chief
Executive Officer. The requirements for the executives and
operating presidents are as follows.
For purposes of meeting this requirement, each equivalent share
of common stock and each share of restricted stock held under
our benefit plans is considered as a share of common stock.
Stock options are not considered towards meeting the
requirement. All directors, executive officers and operating
presidents have either met the guidelines or are pursuing plans
to meet the guidelines within the time frames prescribed.
23
Table of Contents
2006 SUMMARY COMPENSATION TABLE
The following table sets forth information regarding the
compensation of our Chairman and Chief Executive Officer, our
Senior Vice President Finance and Chief Financial
Officer and our other three highest paid executive officers for
2006.
24
Table of Contents
Amounts do not include the incremental cost of our Business
Travel Accident Insurance Plan, which provides coverage for all
of our directors, executive officers and full-time salaried
employees. The total aggregate premium in 2006 for this plan for
all directors, executive officers and employees was less than
$20,000.
Perquisites and Other Personal Benefits. We provide our
executive officers with perquisites and other personal benefits
as part of providing a competitive executive compensation
program and for employee retention. Perquisites may include a
company automobile, parking, personal use of the corporate
aircraft, personal liability insurance, an annual physical, club
memberships, reimbursement for basic financial planning and a
home security system. The types and costs of all perquisites and
other personal benefits provided to our named executives during
2006 are listed in the following table.
These benefits are valued based upon the incremental cost of
providing the benefit to the executive. The incremental cost of
the executive automobile program is determined by adding all of
the costs of the program, including lease costs and costs of
maintenance, fuel, license and taxes. The incremental cost of
personal use of corporate aircraft is determined based upon the
variable operating costs of the aircraft, which includes fuel
costs, maintenance and repair costs, landing fees, catering
costs, and travel costs for the pilots. An average hourly rate
is calculated by dividing the total variable operating costs for
the year by the number of hours the aircraft is flown. The
average hourly rate is then multiplied by the number of hours of
the executives personal use to derive the total
incremental cost. The incremental cost of personal use of club
memberships is comprised of all dues and costs for the
membership multiplied by the percentage of times that the club
was utilized for personal use.
25
Table of Contents
2006 GRANTS OF PLAN-BASED AWARDS
The following table sets forth information regarding the grants
of annual cash incentive compensation, stock options and
restricted stock during 2006 to our executive officers named in
the 2006 Summary Compensation Table.
Salary. Salaries paid to our named executives are
set forth in the 2006 Summary Compensation Table. For 2006,
salaries paid to our named executives accounted for the
following percentages of their total compensation:
Mr. Connor (15.1%), Mr. Morikis (20.2%),
Mr. Hennessy (21.0%), Mr. Seitz (18.9%) and
Mr. Stellato (25.1%).
26
Table of Contents
Non-equity Incentive Plan Compensation. The
non-equity incentive plan compensation set forth in the tables
above reflects annual cash incentive compensation under our
Management Incentive Plan. Annual cash incentive compensation is
earned based upon the achievement of a threshold company
earnings goal and the accomplishment by the executive of
performance goals. Performance goals vary by executive and
usually relate to the particular business unit or function for
which such person has responsibility. Annual cash incentive
compensation is payable as a percentage of salary. These
percentages vary by named executive. The performance goals and
the percentages of salary are set forth under the heading
Compensation Discussion and Analysis.
The threshold, target and maximum amounts set forth in the 2006
Grants of Plan-Based Awards Table correspond to the named
executive achieving an average of 75%, 100% and 125% of his
performance goals, respectively.
Restricted Stock. We grant restricted stock
pursuant to our 2006 Equity and Performance Incentive Plan. The
shares of restricted stock granted generally vest over a
four-year period based upon the achievement of specified
financial performance goals. The number of shares of restricted
stock that will actually vest at the end of the vesting period
will range from 0% to 100% based upon achievement of the
specified financial performance goals. These goals relate to our
average return on average equity and cumulative earnings before
interest, taxes, depreciation and amortization over the vesting
period. We have included more information about these
performance goals under the heading Compensation
Discussion and Analysis.
At the end of the vesting period, the Compensation Committee
reviews our performance against these goals and determines the
number of shares of restricted stock that will vest. Up to 100%
of the shares of restricted stock may be forfeited if the
performance goals are not achieved. Shares of restricted stock
will vest immediately upon the death or disability of the
employee or upon a change in control of Sherwin-Williams.
During the vesting period, the executives are the beneficial
owners of the shares of restricted stock and possess all voting
and dividend rights. Dividends are payable at the same rate as
is paid on Sherwin-Williams common stock generally. During 2006,
the quarterly dividend rate was $0.25 per share. In
February 2007, the Board of Directors announced an increase in
the quarterly dividend rate to $0.315 per share payable on
March 16, 2007.
Stock Options. We grant stock options pursuant to
our 2006 Equity and Performance Incentive Plan. The option
exercise price is equal to the market value of our common stock
on the date options are granted. In accordance with the terms of
the plan, the market value is equal to the average of the
highest and lowest reported sale prices of our common stock on
the date of grant during normal trading hours on the New York
Stock Exchange. Stock options will vest at the rate of one-third
per year and have a term of ten years. Stock options will become
immediately exercisable in the event of the death or disability
of the executive or in the event of a change in control of
Sherwin-Williams. Stock options are not transferable other than
by will or the laws of descent and distribution.
Employment Agreements. None of the named
executives have written employment agreements with
Sherwin-Williams.
Additional Information. We have provided
additional information regarding the compensation we pay to our
named executives under the heading Compensation Discussion
and Analysis.
27
Table of Contents
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2006
The following table sets forth information regarding the number
of shares of unexercised stock options and the number of shares
and value of unvested restricted stock outstanding on
December 31, 2006 for our executive officers named in the
2006 Summary Compensation Table.
28
Table of Contents
2006 OPTION EXERCISES AND STOCK VESTED
The following table sets forth information regarding the number
and value of stock options exercised and stock vested during
2006 for our executive officers named in the 2006 Summary
Compensation Table.
2006 PENSION BENEFITS
The following table sets forth information relating to The
Sherwin-Williams Company Salaried Employees Pension
Investment Plan. Mr. Seitz is the only executive officer
named in the 2006 Summary Compensation Table that participates
in our Salaried Employees Pension Investment Plan.
Our Salaried Employees Pension Investment Plan is a
qualified noncontributory defined benefit pension plan. The
benefit formula with respect to active participants hired prior
to January 1, 2002, including Mr. Seitz, consists of
the sum of two components: (a) a traditional pension-type
retirement benefit that is determined based upon the greater of
two formulas;
29
Table of Contents
and (b) a contribution credit equal to 1% of the
participants earnings for periods after January 1,
2002.
The pension-type retirement benefit is determined based upon the
greater of the following two formulas:
Pension benefits may be collected upon attainment of normal
retirement age (age 65) or upon satisfying the criteria for
early retirement (age 55-59 with at least 20 years of
vesting service or age 60 or older if the participants
combination of age and years of vesting service equal at least
75). If otherwise eligible for early retirement, a participant
can elect to retire from
Sherwin-Williams at age
62 with unreduced benefits. All other early retirement benefit
payments are actuarially reduced to reflect the longer expected
payout period. Pension benefits commence on the first day of the
calendar month following the month in which the Pension
Administration Committee approves the retirement election.
The normal form of benefit for a married participant is a 60%
joint and survivor annuity, which provides reduced monthly
payments during the participants lifetime and lifetime
payments to the spouse following the participants death in
the amount of 60% of the reduced payments. With the
spouses consent, a married participant may alternatively
elect to receive benefits in the form of a single life annuity,
a 100% joint and survivor annuity, a five-year certain annuity,
a 10-year certain annuity or in a lump sum. Our Salaried
Employees Pension Investment Plan provides guarantees that
at least the first 12 monthly payments will be paid to
either the participant or his beneficiary if the participant
dies during the 12-month period following retirement. We do not
normally grant additional years of service credit.
The 1% contribution credit is converted into units to account
for the participants benefit attributable to this portion
of the retirement benefit. The participants benefit is
determined based upon hypothetical returns achieved on the
allocation of units among investments in various mutual fund
alternatives as directed by the participant.
For purposes of determining the present value of
Mr. Seitzs accumulated benefit, the following
assumptions were used:
Both the RP2000 and the GAM-94 Basic Table are commonly accepted
actuarial tables published by the IRS for purposes of
determining mortality in connection with the determination of
retirement benefits, among other things.
30
Table of Contents
2006 NONQUALIFIED DEFERRED COMPENSATION
The following table sets forth information relating to The
Sherwin-Williams Company Revised Key Management Deferred
Compensation Plan. Mr. Morikis is the only executive
officer named in the 2006 Summary Compensation Table that
participates in our Key Management Plan.
Our Key Management Plan is a nonqualified deferred compensation
plan pursuant which employees who participate in our Management
Incentive Plan or other identified employee groups may elect to
defer on a pre-tax basis up to 100% of their base salary and
bonus. Our Key Management Plan is unfunded for tax
purposes; account balances are merely bookkeeping entries that
measure our obligation to the participant.
Amounts deferred are credited with any associated earnings in
accordance with hypothetical investment options elected by the
participant from a variety of investment funds. All benefits are
100% vested at all times. Amounts deferred may be distributed
in-service only pursuant to the election of scheduled in-service
withdrawals, which may commence no sooner than four years
following the time of initial deferral. All such scheduled
payments are made in January.
Upon retirement (or sooner if elected), participants may receive
a distribution in the form of a single lump sum payment or in
annual installments made once each year over a fixed period not
to exceed 15 years. Upon termination of employment prior to
retirement, any deferred amounts are automatically payable as a
single lump sum, generally within 90 days from date of
separation from service. As a result of the American Jobs
Creation Act of 2004, our Key Management Plan was frozen to all
further participation and contributions effective
December 31, 2004.
31
Table of Contents
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information about our common stock
that may be issued under our equity compensation plans at
December 31, 2006.
32
Table of Contents
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
The following information and table set forth the amount of
payments to each of our named executives in the event of a
termination of employment as a result of normal and early
retirement, involuntary termination, death, disability,
voluntary termination (not for cause), termination for cause,
and termination following a change in control. The table also
sets forth the amount of payments to each of our named
executives in the event of a change in control without a
termination of employment.
We do not have employment agreements with any of our named
executives and do not have a formal severance policy or
arrangement that provides for payments to a named executive in
the event of a termination of employment (other than with
respect to a termination of employment following a change in
control as described below). The Compensation and Management
Development Committee has sole discretion to determine the
amount, if any, of severance payments and benefits that will be
offered to a named executive in the event of a termination. The
Committee believes that it is in the best interests of
Sherwin-Williams and our shareholders that executives are
treated fairly and equitably on a termination of employment.
Assumptions and General Principles. The
following assumptions and general principles apply with respect
to the following table and any termination of employment of a
named executive.
Because we have assumed a December 31, 2006 termination date,
each of the named executives is entitled to receive the annual
cash incentive compensation payment earned under the plan for
2006. Therefore, the amount set forth in the table for prorated
annual cash incentive compensation is the actual annual
incentive compensation earned by each named executive during
2006. This amount is also the amount set forth in the
Non-Equity Incentive Plan Compensation column of the
2006 Summary Compensation Table.
33
Table of Contents
Normal and Early Retirement. A named executive is
eligible to elect normal retirement at age 65 and early
retirement upon satisfying the criteria for early retirement
(age 55-59 with at least 20 years of vesting service or age
60 or older if the executives combination of age and years
of vesting service equal at least 75). All of our full-time
salaried employees hired prior to January 1, 1993 are
eligible for health care and life insurance benefits upon normal
retirement subject to the terms of the plans. In addition, upon
normal retirement, all outstanding stock options will continue
to vest in accordance with their terms, and all outstanding
restricted stock awards will continue to vest as if the named
executive had continued employment throughout the restriction
period. The number of unrestricted shares that the named
executive will be entitled to receive will be determined in
accordance with the plan as if the named executive had remained
employed throughout the restriction period.
In the event of early retirement, all outstanding stock options
will continue to vest in accordance with their terms. The
Committee has the discretion to cancel all of the named
executives rights to outstanding restricted stock,
continue all rights in full, or prorate the number of shares of
restricted stock for the portions of the restricted periods
completed as of the date of retirement. The number of
unrestricted shares that the named executive will be entitled to
receive if the named executives rights continue in full or
prorata will be determined in accordance with the plan as if the
named executive had remained employed throughout the restriction
period.
As of December 31, 2006, none of the named executives were
eligible for normal retirement, and only Messrs. Seitz and
Stellato were eligible for early retirement.
Involuntary Termination. In the event of an
involuntary termination not for cause the Committee has the sole
discretion to determine the amount, if any, of severance
payments and benefits that will be offered to a named executive.
In making this determination, the Committee may consider a
number of factors including the reasons for the termination, the
named executives tenure and performance, the named
executives personal circumstances and the amount of
severance payments, if any, generally offered to executives at
other companies in similar positions. Because we do not have
sufficient experience with involuntary terminations of
executives at the positions of the named executives, we cannot
reasonably estimate the amount or range of amounts of severance
payments and benefits that would be offered to the named
executives. Therefore, although it is reasonably likely that we
will offer a severance payment and benefits to a named executive
in the event of an involuntary termination not for cause, these
amounts are not included in the table.
Death and Disability. In the event of the
death or disability of a named executive, all outstanding stock
options will immediately vest and become exercisable and all
shares of restricted stock will immediately vest and become
unrestricted. The amounts set forth in the table for stock
options reflect the difference between the closing price of our
common stock on December 29, 2006 and the exercise prices
for each option for which vesting accelerated. The amounts set
forth in the table for restricted stock reflect the number of
shares of restricted stock for which the vesting accelerated
multiplied by the closing price of our common stock on
December 29, 2006.
In addition, each named executive participates in our executive
life insurance program. Under our executive life insurance
program, the beneficiary of a named executive is entitled to
34
Table of Contents
receive a death benefit based upon the following formulas:
(a) if the event occurs prior to age 62, then the death
benefit will equal 4.0 times (for Messrs. Connor, Morikis
and Hennessy) or 3.5 times (for Messrs. Seitz and Stellato) the
named executives base salary; (b) if the event occurs
on or after age 62 and before age 65, then the death benefit
will equal 4.0 times (for Messrs. Connor, Morikis and Hennessy)
or 3.5 times (for Messrs. Seitz and Stellato) the named
executives base salary at age 62; and (c) if the
event occurs at age 65 or older, then the death benefit will
equal 2.5 times (for Messrs. Connor, Morikis and Hennessy)
or 2.0 times (for Messrs. Seitz and Stellato) the named
executives base salary at age 62. All of the named
executives were less than 62 years of age on
December 31, 2006.
Each named executive also participates in our executive
long-term disability program. Upon the occurrence of a
disability under the program, a named executive will receive an
annual benefit equal to 60% of base salary until the earlier of:
(a) age 65; (b) recovery from the disability;
(c) the date the named executive begins receiving
retirement plan benefits; or (d) death. The amounts set
forth in the table reflect the amount of the first annual
payment (60% multiplied by the named executives current
base salary) under the program.
Voluntary Termination and Termination for Cause. A
named executive is not entitled to receive any additional forms
of severance payments or benefits upon his voluntary decision to
terminate employment with Sherwin-Williams prior to being
eligible for retirement or upon termination for cause.
Change in Control. Upon the occurrence of a change
in control, as generally defined below, all outstanding stock
options will immediately vest and become exercisable and all
shares of restricted stock will immediately vest and become
unrestricted. The amounts set forth in the table for stock
options reflect the difference between the closing price of our
common stock on December 29, 2006 and the exercise prices
for each option for which vesting accelerated. The amounts set
forth in the table for restricted stock reflect the number of
shares of restricted stock for which vesting accelerated
multiplied by the closing price of our common stock on
December 29, 2006.
We have also entered into change in control severance agreements
with each of the named executives. Forms of these agreements
have been filed as Exhibit 10(b) to our Current Report on
Form 8-K dated
February 21, 2007. Generally, pursuant to these agreements,
a change in control occurs:
(a) if any person becomes the beneficial owner of 20% or
more of Sherwin-Williams then-outstanding voting
securities (other than acquisitions of voting securities
(i) directly from Sherwin-Williams and approved by the
Board of Directors, (ii) by Sherwin-Williams or any
subsidiary, (iii) by the trustee or other fiduciary holding
securities under any employee benefit plan (or related trust)
sponsored or maintained by Sherwin-Williams or any subsidiary,
and (iv) in connection with a business transaction as
proscribed in the agreement);
(b) if a majority of Sherwin-Williams incumbent Board
of Directors during any two year period are replaced other than
in specific circumstances;
(c) upon the consummation of any reorganization, merger or
consolidation of Sherwin-Williams, or the sale or other
disposition of all or substantially all of the assets of
Sherwin-Williams, other than any transaction in which,
immediately following the transaction, (i) the voting
securities of Sherwin-Williams immediately prior to the
transaction represent more than 50% of the combined voting power
of the then-outstanding voting securities of the entity
resulting from the transaction, (ii) no person beneficially
owns, directly or indirectly, 20% or more of the combined voting
power of the then-outstanding voting securities of the entity
resulting from the transaction, and (iii) at least a
majority of the members of the board of directors of the entity
resulting from the transaction were members of
Sherwin-Williams incumbent Board of Directors at the time
of initiating the transaction; or
(d) upon the liquidation or dissolution of Sherwin-Williams
(other than pursuant to a transaction that complies with clauses
(c)(i), (c)(ii) and (c)(iii) above).
The severance agreements provide that upon a termination of
employment following a
35
Table of Contents
change in control (other than termination for cause or by reason
of death or disability) or if the named executive terminates his
employment in certain circumstances defined in the agreement
which constitutes good reason, in addition to the
accelerated vesting of stock options and restricted stock
described above, each will receive:
36
Table of Contents
ESTIMATED PAYMENTS ON TERMINATION OR CHANGE IN CONTROL
37
Table of Contents
APPROVAL OF THE SHERWIN-WILLIAMS COMPANY 2007
EXECUTIVE PERFORMANCE BONUS PLAN (PROPOSAL 2)
On February 21, 2007, the Board of Directors of
Sherwin-Williams unanimously approved The Sherwin-Williams
Company 2007 Executive Performance Bonus Plan (the
Performance Plan). The Performance Plan is an annual
cash incentive plan for our executive officers and key employees
and replaces our Management Incentive Plan.
The Board of Directors approved the Performance Plan so that,
subject to the approval of our shareholders at the 2007 Annual
Meeting, we can make annual cash incentive awards under the
Performance Plan that will be eligible for tax deductions under
Section 162(m) of the Internal Revenue Code, as amended
(the Code). If our shareholders do not approve the
Performance Plan, annual cash incentive compensation payable to
our executives and other key employees will not be fully
deductible as performance-based compensation under
Section 162(m) of the Code.
The Board of Directors believes that the Performance Plan
strengthens the commitment of our executive officers and key
employees to create shareholder value by providing them with
short-term incentive compensation based on the achievement of
financial and other business performance goals that create
shareholder value. The Performance Plan is also intended to
provide performance-based compensation to certain executives
that is fully deductible by us under federal tax laws. Because
the Performance Plan allows the Compensation and Management
Development Committee to retain the flexibility to choose
appropriate business and financial goals and to change the
target level of these goals, federal tax regulations require
that the Performance Plan be resubmitted to our shareholders for
approval every five years.
The following is a summary of the material features of the
Performance Plan. The complete text of the Performance Plan is
set forth as Appendix B to this proxy statement. You should
read the complete text of the Performance Plan for more detail
regarding the operation of the Performance Plan.
Administration of the Performance Plan. The
Compensation and Management Development Committee (the
Committee) of the Board of Directors is responsible
for the general administration and interpretation of the
Performance Plan. The Committee consists of five independent
members of the Board of Directors, who are also considered
outside directors as required by and within the
meaning of Section 162(m) of the Code. Except as may be
required to satisfy the requirements of Section 162(m) of
the Code, the Committee may delegate administrative
responsibilities to our employees to facilitate the proper
administration and management of the Performance Plan. To the
extent not otherwise restricted by Section 162(m) of the
Code or delegated to our employees, the Committee shall also
consider various recommendations from our Chief Executive
Officer.
Eligibility and Participation. The employees
eligible to participate in the Performance Plan are our
executive officers and such other of our key employees as are
designated by the Committee. The Committee will consider
recommendations from our Chief Executive Officer in making its
designation of key employees to participate in the Performance
Plan. Approximately 120 employees currently are eligible to
participate in the Performance Plan. Employees who become
eligible to participate in the Performance Plan after the
beginning of the plan year may participate for that plan year.
In addition, in order to meet the requirements of
Section 162(m) of the Code, there are several, generally
more restrictive provisions that only apply to
162(m) Participants. The 162(m) Participants
are designated at the beginning of each plan year and are
intended to include only those executive officers and key
employees whose incentive award under the Performance Plan would
otherwise not be tax deductible under federal tax laws. A
participant who becomes eligible after the beginning of a plan
year may participate in the Performance Plan as a
162(m) Participant beginning with the succeeding plan year,
unless the participant becomes eligible during the first ninety
days of the plan year and is approved by the Committee to
participate in the Performance Plan as a
162(m) Participant. All eligible employees are notified of
their participation, their target award
38
Table of Contents
opportunity, and the relevant performance goals (as described
below) at the beginning of each plan year.
Performance Goals and Payout Formula
Determination. Within ninety days of the beginning of
each plan year, the Committee will determine performance goals
applicable to 162(m) Participants and executive officers,
and our management will determine performance goals applicable
to all other participants, with respect to an award for such
plan year. The performance goals are based upon financial
performance measurements and may be determined in terms of
company-wide objectives or objectives that are related to the
performance of the individual participant or of a subsidiary,
division, department or function within Sherwin-Williams or a
subsidiary in which the participant is employed.
Performance goals may be stated as a combination of financial
performance measurements and may differ from participant to
participant and from award to award. Financial performance
measurements are limited to specified levels of growth in or
relative peer company performance in: (a) cash flow,
(b) cost of capital, (c) debt reduction,
(d) earnings, (e) earnings before interest and taxes,
(f) earnings before interest, taxes, depreciation and
amortization, (g) earnings per share, (h) economic
value added, (i) expenses, (j) facilities open,
(k) free cash flow, (l) gallon growth,
(m) interest coverage, (n) inventory management,
(o) net profit margin, (p) operating cash flow,
(q) operating income, (r) operating profit margin,
(s) pretax earnings, (t) proforma net income,
(u) working capital, (v) inventory management,
(w) net income, (x) productivity improvement,
(y) profit after tax, (z) reduction of fixed costs,
(aa) return on assets, (bb) return on equity,
(cc) return on invested capital, (dd) return on sales,
(ee) revenues, (ff) sales, (gg) sales per
employee, (hh) sales per dollar of assets, (ii) total
debt to capitalization, (jj) customer services, and/or
(kk) shareholder return. The outcome of any performance
goal must be substantially uncertain at the time such
performance goal is established. The Committee will
appropriately adjust any evaluation of performance under a
performance goal to exclude any extraordinary non-recurring
items or the effect of any changes in accounting principles,
accounting standards or accounting statements issued by
appropriate accounting authorities.
Our Chief Executive Officer recommends, subject to the
Committees approval, the process for measuring corporate
performance and results. This recommendation may include
(a) the organizational level of performance measurement
(e.g., corporate, business unit, division, product line or
another level), (b) specific performance measures for each
organizational level, and (c) specific performance goals
for each organizational level. Once approved, performance goals
normally may not be changed during the plan year. However, if
external changes or other unanticipated business conditions have
materially affected the fairness of the performance goals, then
appropriate adjustments may be made to the performance goals
during the plan year. In the case of 162(m) Participants,
no adjustment may be made to the performance goals that would
have the effect of increasing the amount that would otherwise be
paid out pursuant to the Performance Plan.
The Committee annually establishes a payout formula for purposes
of determining awards payable to participants. The payout
formula will be: (a) set forth in writing, (b) based
on a comparison of actual performance to annual performance
goals, (c) provide for the payment of a participants
target award if performance goals are achieved, and
(d) provide for an award greater than or less than a
participants target award depending upon the extent to
which actual performance exceeds or falls below the performance
goals. Consistent with our compensation objectives to maintain a
performance and achievement-oriented environment, participants
may earn higher than average annual cash incentive compensation
for above average performance and less than average annual cash
incentive compensation for below average performance.
Individual awards will be calculated using the payout formula
and the participants actual base salary paid during the
plan year. For 2007, individual award targets range from 35% to
95% for achieving 100% of target performance goals. Target
awards are designed to provide an award for improvement over
prior year results. For participants other than
162(m) Participants,
39
Table of Contents
the percentage of target awards actually paid is based upon:
(a) the extent to which corporate and/or business group
performance goals are achieved and (b) the extent to which
individual performance objectives are achieved. Individual
performance objectives are subjective and/or qualitative in
nature and generally relate to the participants job
function. Individual performance objectives are tied to overall
corporate or organizational level objectives that are designed
to increase shareholder value. The payout formula also
establishes minimum (based upon the participant achieving an
average of 75% of target performance goals) and maximum (based
upon the participant achieving an average of 125% of target
performance goals) award levels. The maximum award in 2007 is
1.90 times base salary. In no event will the amount payable to a
participant for any calendar year exceed $4,000,000.
For 162(m) Participants, the percentage of the target
awards actually paid is based only on appropriate corporate or
business group financial performance goals and does not involve
an evaluation of individual performance objectives. For 2007,
individual awards for 162(m) Participants may range from
0 to 1.90 times the actual base salary paid during the
plan year. The Committee has the discretion to reduce or
eliminate (but not to increase) the incentive compensation award
calculated for any 162(m) Participant based upon factors
the Committee deems relevant.
Payments and Terminations. Awards are computed for
each participant at the end of each plan year. The Committee
will certify in writing the extent to which the performance
goals applicable to each 162(m) Participant were achieved
or exceeded. The award for each 162(m) Participant is
determined by applying the payout formula to the level of actual
performance that has been certified by the Committee. The
Committee, however, has the sole discretion to eliminate or
reduce the award payable to any participant below that which is
otherwise payable under the payout formula. In addition, except
with respect to 162(m) Participants, the Committee may
approve, on our Chief Executive Officers recommendation,
the payout of awards on a discretionary basis if performance
goals are not achieved.
Participants must be actively employed on the last day of the
plan year, which currently is December 31, to receive an
award. A participant may also be eligible, subject to the
discretion of the Committee, to receive an award in the event
the participants employment terminated as a result of the
participants death, disability, retirement, a reduction in
force or the participants transfer to a non-included
affiliate during the plan year. All awards will be paid in cash
as soon as practicable following the determination and written
certification of the awards earned for a plan year.
Amendment of Performance Plan. The Committee may
amend, modify, suspend or terminate the Performance Plan, in
whole or in part, at any time; provided that no amendment,
modification, suspension or termination shall be made which:
(a) impairs any payments to participants made prior to such
amendment, modification, suspension or termination, unless the
Committee determines that the amendment or modification is in
the best interests of all participants to whom awards have been
granted and that the amendment or modification will not result
in an increase of any awards, or (b) cause awards that are,
or may become, payable under the Performance Plan to 162(m)
Participants to fail to qualify as performance-based
compensation under Section 162(m) of the Code.
Effective Date. The Performance Plan shall become
generally effective on January 1, 2007 and shall remain in
effect until such time as Sherwin-Williams may decide to
terminate the Performance Plan. Provided, however, that the
provisions of the Performance Plan intended to comply with
Section 162(m) of the Code shall only become effective upon
approval by our shareholders and shall remain effective until
the first shareholders meeting in 2012, subject to any
further shareholder approvals (or re-approvals) mandated for
performance-based compensation under Section 162(m) of the
Code, and further subject to the right of the Board of Directors
to terminate the Performance Plan, on a prospective basis only,
at any time.
New Plan Benefits. Because awards under the
Performance Plan are based on
40
Table of Contents
performance during the plan year and are subject to the
discretion of the Committee, the benefits and amounts that will
be received or allocated in the future under the Performance
Plan are not determinable. However, our Management Incentive
Plan is a performance-based annual cash incentive compensation
plan, without provisions relating to Section 162(m) of the
Code, with similar performance goals and payout formula
determinations as the Performance Plan. For comparison purposes,
the following table sets forth the amounts that were awarded
under our Management Incentive Plan for 2006 and likely would
have been awarded under the Performance Plan if the Performance
Plan had been in place for 2006. These amounts may not be
indicative of future awards under the Performance Plan.
Awards under the 2007 Executive Performance Bonus Plan
The Board of Directors unanimously recommends a vote
FOR Proposal 2 to approve the Performance
Plan.
41
Table of Contents
RATIFICATION OF APPOINTMENT
OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
(PROPOSAL 3)
The Audit Committee has appointed Ernst & Young LLP as our
independent registered public accounting firm to audit our
consolidated financial statements for the fiscal year ending
December 31, 2007. Ernst & Young LLP acted as our
independent registered public accounting firm for the fiscal
year ended December 31, 2006. Additional information
regarding the services provided to us by Ernst & Young LLP
during 2006 is set forth under the caption entitled
Matters Relating to the Independent Registered Public
Accounting Firm.
Representatives of Ernst & Young LLP are expected to be
present at the Annual Meeting and will have an opportunity to
make a statement if they wish and to respond to appropriate
shareholder questions.
Although shareholder ratification is not required under the laws
of the State of Ohio, we are submitting the appointment of Ernst
& Young LLP to our shareholders for ratification at the
Annual Meeting as a matter of good corporate practice in order
to provide a means by which our shareholders may communicate
their opinion to the Audit Committee. If our shareholders do not
ratify the appointment of Ernst & Young LLP, the Audit
Committee will reconsider the appointment.
The Board of Directors unanimously recommends that you
vote FOR Proposal 3 relating to the
ratification of the appointment of Ernst & Young LLP as
our independent registered public accounting firm for the fiscal
year ending December 31, 2007.
MATTERS RELATING TO THE INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Fees Paid to Ernst & Young LLP. The following
table sets forth the fees for services provided by Ernst &
Young LLP during the fiscal years ended December 31, 2005
and December 31, 2006.
The following is a description of the nature of the services
comprising the fees disclosed in the table above for each of the
four categories of services. The Audit Committee has considered
whether providing non-audit services is compatible with
maintaining Ernst & Young LLPs independence.
Audit Fees. These are fees for professional services
rendered by Ernst & Young LLP for the integrated audit of
(a) our annual consolidated financial statements,
(b) managements assessment of the effectiveness of
internal control over financial reporting and (c) the
effectiveness of internal control over financial reporting; the
review of financial statements included in our Quarterly Reports
on Form 10-Q;
audits of foreign subsidiary financial statements required by
local statutes; and services that are typically rendered in
connection with statutory and regulatory filings or engagements.
Audit-Related Fees. These are fees for assurance and
related services rendered by Ernst & Young LLP that are
reasonably related to the performance of the audit or the review
of our financial statements that are not included as audit fees.
These services include employee benefit plan audits,
consultation on accounting matters in foreign jurisdictions, and
consultation on financial accounting and reporting.
Tax Fees. These are fees for professional services
rendered by Ernst & Young LLP with respect to tax
compliance, tax advice and tax planning. These services include
the review of certain tax returns, tax audit assistance in
foreign jurisdictions, and consulting on tax planning matters.
All Other Fees. These are fees for other services
rendered by Ernst & Young LLP that do not meet the above
category descriptions and are permissible under applicable laws
and regulations.
42
Table of Contents
Audit Committee Pre-approval Policy. The Audit
Committee is responsible for pre-approving all audit services
and permitted non-audit services (including the fees and
retention terms) to be performed for us by Ernst & Young LLP
prior to their engagement for such services. The Audit Committee
has adopted a pre-approval policy pursuant to which the Audit
Committee establishes detailed pre-approved categories of
non-audit services that may be performed by Ernst &
Young LLP during the fiscal year, subject to dollar
limitations set by the Audit Committee. The Audit Committee has
also delegated to the Chairman of the Audit Committee the
authority to pre-approve all audit and non-audit services when
the entire Audit Committee is unable to pre-approve services.
The Chairman must report to the Audit Committee at its next
meeting all such services pre-approved since the last meeting.
None of the fees paid to Ernst & Young LLP under the
categories Audit-Related, Tax and All Other were approved by the
Audit Committee after the services were rendered pursuant to the
deminimis exception established by the Securities and Exchange
Commission.
43
Table of Contents
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as to each director and nominee,
each executive officer named in the 2006 Summary Compensation
Table and all directors and executive officers as a group,
information regarding the amount and nature of shares of our
common stock beneficially owned at December 31, 2006. All
of the directors, nominees and executive officers have sole
voting and investment power over the shares of common stock
listed or share voting and investment power with his or her
spouse, except as otherwise provided below. No director, nominee
or executive officer beneficially owns any shares of serial
preferred stock.
44
Table of Contents
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as to each beneficial owner of
more than five percent of each class of voting securities,
information regarding shares owned by each at December 31,
2006.
Common Stock
Serial Preferred Stock
45
Table of Contents
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires
our directors and executive officers to file reports of
ownership and changes in ownership of our equity securities with
the Securities and Exchange Commission and the New York Stock
Exchange. To our knowledge, based solely on information
furnished to us and written representations by such persons, all
of our directors and executive officers complied with their
filing requirements in 2006, except that Conway G. Ivy
filed a Form 4 approximately one week late to report a sale
of common stock by his spouse.
CERTAIN RELATIONSHIPS
AND TRANSACTIONS
WITH RELATED PERSONS
We have operated under a Business Ethics Policy for many years.
As part of our Business Ethics Policy, directors and employees
are expected to make business decisions and take actions based
upon the best interests of Sherwin-Williams and not based upon
personal relationships or benefits.
The Board of Directors has recognized that some transactions,
arrangements and relationships present a heightened risk of an
actual or perceived conflict of interest and has adopted a
written policy governing these transactions. This policy governs
any transaction, arrangement or relationship (or any series of
similar transactions, arrangements or relationships) in which
Sherwin-Williams was, is or will be a participant and the amount
involved exceeds $120,000, and in which any of the following
persons had, has or will have a direct or indirect material
interest:
The Nominating and Corporate Governance Committee of the Board
of Directors is responsible to review and approve these
transactions. No such transactions existed during 2006, and
there are currently no proposed transactions.
Directors and executive officers are required to submit to the
Committee a description of any current or proposed transaction
on an annual basis and provide updates during the year. In
addition, we will provide any similar available information with
respect to any known transactions with beneficial owners of 5%
or more of our voting securities. At each calendar years
first regularly scheduled Committee meeting, management shall
provide to the Committee information regarding transactions to
be entered into by Sherwin-Williams for that calendar year.
In the event management becomes aware of any further
transactions subsequent to that meeting, such transactions may
be presented to the Committee for approval at the next Committee
meeting, or where it is not practicable or desirable to wait
until the next Committee meeting, to the Chair of the Committee
(who will possess delegated authority to act between Committee
meetings) subject to ratification by the Committee at its next
meeting. In the event management becomes aware of any
transaction that was not approved under the policy, management
will present the transaction to the Committee for its action,
which may include termination, amendment or ratification of the
transaction.
The Committee (or the Chair) will approve only those
transactions that are in, or are not inconsistent with, the best
interests of Sherwin-Williams and our shareholders, as the
Committee (or the Chair) determines in good faith in accordance
with its business judgment. In addition, the transaction must be
on terms comparable to those that could be obtained in
arms length dealings with an unrelated third party.
46
Table of Contents
EXPENSE AND METHOD OF
PROXY SOLICITATION
The enclosed proxy is solicited by the Board of Directors and
the entire cost of solicitation will be paid by
Sherwin-Williams. Georgeson Shareholder Communications Inc. has
been retained to aid in the solicitation of proxies, for which
it will receive a fee estimated at $15,000 plus reasonable
expenses. In addition, we may reimburse banks, brokers and other
nominees for costs reasonably incurred by them in forwarding
proxy materials to beneficial owners of our common stock. Our
officers and other employees may also solicit the return of
proxies. Proxies will be solicited by personal contact, mail,
telephone and electronic means.
SHAREHOLDER PROPOSALS FOR
THE 2008 ANNUAL MEETING
Proposals to Be Included in the Proxy Statement.
Under SEC rules, shareholder proposals must be received at our
principal executive offices, 101 Prospect
Avenue, N.W., 12th Floor, Midland Building, Cleveland,
Ohio 44115-1075,
Attention: Corporate Secretary, on or before November 8,
2007 in order to be considered for inclusion in the proxy
materials relating to the 2008 Annual Meeting of Shareholders.
Upon timely receipt of any such proposal, we will determine
whether or not to include such proposal in the proxy materials
in accordance with applicable regulations governing the
solicitation of proxies.
Proposals Not to Be Included in the Proxy
Statement. Under our Regulations, shareholders must
follow certain procedures to nominate a person for election as a
director or to introduce an item of business at an Annual
Meeting of Shareholders, which is not intended to be included in
our proxy materials. These procedures provide that nominations
for director nominees and/or an item of business to be
introduced at an Annual Meeting must be timely submitted in
writing to us at our principal executive offices at 101 Prospect
Avenue, N.W., 12th Floor, Midland Building, Cleveland, Ohio
44115-1075, Attention:
Corporate Secretary.
To be timely, a shareholders notice must be delivered to
or mailed and received at our principal executive offices not
fewer than 60 nor more than 90 calendar days prior to the
Annual Meeting. In the event that public announcement of the
date of the Annual Meeting is not made at least 75 calendar
days prior to the date of the Annual Meeting and the Annual
Meeting is held on a date more than ten calendar days before or
after the first anniversary of the date on which the prior
years Annual Meeting was held, notice by the shareholder,
to be timely, must be received not later than the close of
business on the 10th calendar day following the day on which
public announcement is first made of the date of the Annual
Meeting.
These time limits also apply in determining whether notice is
timely for purposes of SEC rules relating to the exercise of
discretionary voting authority. If we do not receive timely
notice, or if we meet other SEC requirements, the persons named
as proxies in the proxy materials for that meeting will use
their discretion in voting at the meeting.
Our Regulations set forth specific requirements for the notice.
You can access a copy of our Regulations in the Corporate
Governance section on the Investor Relations
page of our website at www.sherwin.com. You may also receive a
copy of our Regulations by writing to us at: The
Sherwin-Williams Company, 101 Prospect Avenue, N.W., 12th
Floor, Cleveland, Ohio
44115-1075, Attention:
Investor Relations.
HOUSEHOLDING INFORMATION
Some banks, brokers and other nominees are participating in the
practice of householding proxy statements and annual
reports. This means that beneficial holders of our common stock
who share the same address or household may not receive separate
copies of this proxy statement and our 2006 Annual Report. We
will promptly deliver an additional copy of either document to
you if you write or call us at: The Sherwin-Williams Company,
101 Prospect Avenue, N.W., 12th Floor, Cleveland,
Ohio 44115-1075,
Attention: Investor Relations,
(216) 566-2000.
47
Table of Contents
ANNUAL REPORT ON FORM 10-K
We will provide to each shareholder who is solicited to vote
at the 2007 Annual Meeting of Shareholders, upon the request of
such person and without charge, a copy of our 2006 Annual Report
on Form 10-K. Please write or call us at: The Sherwin-Williams
Company, 101 Prospect Avenue, N.W., 12th Floor, Cleveland, Ohio
44115-1075, Attention: Investor Relations,
(216) 566-2000.
48
Table of Contents
APPENDIX A
THE SHERWIN-WILLIAMS COMPANY
Board of Directors
Director Independence Standards
The Board of Directors of The Sherwin-Williams Company has
adopted the following Director Independence Standards to assist
the Board in determining the independence of a director. To be
considered independent, the Board must affirmatively
determine that the director has no material relationship with
the Company. In each case, the Board shall broadly consider all
relevant facts and circumstances, including the directors
commercial, industrial, banking, consulting, legal, accounting,
charitable and familial relationships. The Board shall also
consider such other criteria as the Board may determine from
time to time.
A-1
Table of Contents
For purposes of these Director Independence Standards,
immediate family member includes a persons
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 such
persons home.
A-2
Table of Contents
APPENDIX B
THE SHERWIN-WILLIAMS COMPANY
2007 Executive Performance Bonus Plan
B-1
Table of Contents
B-2
Table of Contents
B-3
Table of Contents
B-4
Table of Contents
B-5
Table of Contents
B-6
Table of Contents
2007 ANNUAL MEETING ADMISSION TICKET
2007 ANNUAL MEETING OF SHAREHOLDERS
THE SHERWIN-WILLIAMS COMPANY Wednesday, April 18, 2007
9:00 A.M. Landmark Conference Center
927 Midland Building 101 Prospect Avenue, N.W. Cleveland, Ohio At the Annual Meeting, shareholders will act upon the proposals outlined in the Notice of Annual
Meeting of Shareholders, including the election of directors, the approval of The Sherwin-Williams
Company 2007 Executive Performance Bonus Plan, the ratification of the appointment of
Sherwin-Williams independent registered public accounting firm, and the consideration of such
other business as may properly come before the Annual Meeting.
This Admission Ticket only admits the shareholder identified on the reverse side and is
non-transferable. We may also ask you to present valid photo identification to enter the Annual
Meeting.
6 DETACH ADMISSION TICKET HERE 6
The undersigned authorizes C.M. CONNOR, S.P. HENNESSY and L.E. STELLATO, and each of
them, with power of substitution, to vote and otherwise represent all of the shares of common stock
and ESOP serial preferred stock of The Sherwin-Williams Company which the undersigned is entitled
to vote at the Annual Meeting of Shareholders on April 18, 2007, and any adjournment(s) thereof, as
indicated on the reverse side, and in their discretion on all other matters as may properly come
before the Annual Meeting. This card also provides voting instructions for shares of common stock,
if any, held for the account of the undersigned by The Bank of New York, as agent of the Stock
Ownership and Automatic Dividend Reinvestment Plan, and by Fidelity Management Trust Company, as
trustee of the Employee Stock Purchase and Savings Plan.
This card is solicited jointly by the Board of Directors, The Bank of New York (with respect
to shares held under the Dividend Reinvestment Plan) and Fidelity (with respect to shares held
under the Stock Purchase and Savings Plan). You are encouraged to specify your vote by completing
the reverse side of this card. When properly completed and signed, your shares will be voted in
accordance with your directions. To vote in accordance with the Board of Directors recommendations,
simply sign, date and return this card; no boxes need be marked. If you sign and return this card
without specifying your vote, your shares will be voted FOR Proposals 1, 2 and 3 and in the proxy
holders discretion upon all other matters as may properly come before the Annual Meeting. If you
do not timely sign and return this card, the proxy holders cannot vote your shares (or, in the case
of the Stock Purchase and Savings Plan, if you do not sign and return this card by the close of
business on April 13, 2007, your shares will be voted in the same proportion as Fidelity votes
those shares for which it receives proper instructions).
THE SHERWIN-WILLIAMS COMPANY
P.O. BOX 11031 NEW YORK, N.Y. 10203-0031 (Continued and to be dated and signed on reverse side.)
Table of Contents
![]() YOUR VOTE IS IMPORTANT
VOTE BY INTERNET / TELEPHONE 24 HOURS A DAY, 7 DAYS A WEEK INTERNET
https://www.proxypush.com/shw
OR
TELEPHONE
1-866-416-3853
OR
MAIL
Your Internet or telephone vote authorizes the named proxies to vote your shares in the same
manner as if you marked, signed and returned your proxy card. If you have submitted your proxy by
the Internet or telephone, there is no need for you to mail back your proxy card.
1-866-416-3853
CALL TOLL-FREE TO VOTE
If you have chosen to view our proxy statements and
annual reports over the Internet instead of
receiving paper copies in the mail, you can access
our proxy statement and 2006 annual report
electronically at our web site,
http://proxymaterials.sherwin.com
A vote FOR Proposal 1 is recommended by the Board of Directors.
In their discretion, the proxy holders are authorized to vote
upon all other matters as may properly come before the Annual
Meeting or any adjournment thereof.
SCAN LINE
Please sign exactly as your name appears hereon.
Joint owners should each sign. When signing as attorney,
executor, administrator, trustee, guardian or in other
representative capacity, please give your full title.
Table of Contents
![]() SUPPLEMENT TO PROXY STATEMENT FOR THE
2007 ANNUAL MEETING OF SHAREHOLDERS To Be Held April 18, 2007 March 8, 2007
This Supplement to Proxy Statement should be read in conjunction with the enclosed
Notice of Annual Meeting of Shareholders and Proxy Statement relating to the Annual Meeting
of Shareholders of The Sherwin-Williams Company to be held on April 18, 2007.
Subsequent to the printing of the enclosed Proxy Statement, Gary E. McCullough, a
nominee for director of Sherwin-Williams, was appointed as President and Chief Executive
Officer of Career Education Corporation effective March 6, 2007. Mr. McCullough was also
appointed to the Board of Directors of Career Education Corporation. Mr. McCullough had been
employed as Senior Vice President, Abbott Laboratories and President of its Ross Products
Division since December 2003.
|