Whirlpool DEF 14A 2008
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Proxy Statement Pursuant to Section 14 (a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant x
Filed by a Party other than the Registrant ¨
Check the appropriate box:
(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) :
Reg. (S) 240.14a-101
SEC 1913 (399)
2000 North M-63
Benton Harbor, Michigan 49022-2692
To Our Stockholders:
It is my pleasure to invite you to attend the 2008 Whirlpool Corporation annual meeting of stockholders to be held on Tuesday, April 15, 2008 at 8:00 a.m., Chicago time, at 120 East Delaware Place, 8th Floor, Chicago, Illinois.
The formal notice of the meeting follows on the next page. At the meeting, stockholders will vote on the election of four directors and on two stockholder proposals, if they are properly presented at the meeting, and will transact any other business that may properly come before the meeting. In addition, we will discuss Whirlpools 2007 performance and the outlook for this year, and answer your questions.
A financial supplement containing important financial information about Whirlpool is contained in Part II of this booklet. We have also mailed with this booklet an annual report that includes summary financial and other important information.
Your vote is important. We urge you to please complete and return the enclosed proxy whether or not you plan to attend the meeting. Promptly returning your proxy will be appreciated, as it will save further mailing expense. You may revoke your proxy at any time prior to the proxy being voted by following the procedures described in Part I of this booklet.
Your vote is important and much appreciated!
The 2008 annual meeting of stockholders of WHIRLPOOL CORPORATION will be held at 120 East Delaware Place, 8th Floor, Chicago, Illinois on Tuesday, April 15, 2008, at 8:00 a.m., Chicago time, for the following purposes:
A list of stockholders entitled to vote at the meeting will be available for examination by any stockholder for any purpose relevant to the meeting during ordinary business hours for at least ten days prior to April 15, 2008 at Whirlpools Administrative Center, 2000 North M-63, Benton Harbor, Michigan 49022-2692.
By Order of the Board of Directors
Important Notice Regarding the Availability of Proxy Materials
for the Annual Meeting of Stockholders to be Held on April 15, 2008:
This Proxy Statement and the Accompanying Annual Report are Available at
Among other things, this proxy statement contains information regarding: the date, time and location of the meeting, the matters being submitted to the stockholders and how to vote in person. To obtain directions to attend the annual meeting and vote in person, please contact Investor Relations at (269) 923-2641 or via e-mail at firstname.lastname@example.org.
Whirlpool Corporation is the worlds leading manufacturer and marketer of major home appliances. We manufacture in 12 countries and market products in nearly every country around the world under brand names such as Whirlpool, Maytag, KitchenAid, Jenn-Air, Roper, Estate, Admiral, Amana, Bauknecht, Ignis, Brastemp, Consul, and Acros. We are also a principal supplier to Sears of many major appliances marketed by Sears under the Kenmore brand name. We have approximately 73,000 employees worldwide. Our headquarters are located in Benton Harbor, Michigan, and our address is 2000 North M-63, Benton Harbor, Michigan 49022-2692. Our telephone number is (269) 923-5000.
Our 2008 annual meeting of stockholders will be held on Tuesday, April 15, 2008, at 8:00 a.m., Chicago time, at 120 East Delaware Place, 8th Floor, Chicago, Illinois. All stockholders as of the record date, or their duly appointed proxies, may attend the meeting. If you attend, please note that you may be asked to present valid picture identification. Please also note that if you hold your shares in street name (that is, through a broker or other nominee), you will need to bring a copy of your voting instruction card or brokerage statement reflecting your stock ownership as of the record date and check in at the registration desk at the meeting. Cameras, recording devices, cell phones, and other electronic devices will not be permitted at the meeting other than those operated by Whirlpool or its designees.
Information about this proxy statement and who can vote
We are sending the proxy materials because Whirlpools Board is seeking your permission (or proxy) to vote your shares at the annual meeting on your behalf. This proxy statement presents information we are required to provide to you under the rules of the Securities and Exchange Commission. It is intended to help you in reaching a decision on voting your shares of stock. Only stockholders of record at the close of business on February 26, 2008, the record date, are entitled to vote at the meeting. As of February 26, 2008, there were 75,618,608 shares of common stock outstanding and entitled to vote, with each share entitled to one vote. We have no other voting securities. This proxy statement and the accompanying proxy form are first being mailed to stockholders on or about March 12, 2008.
Information about voting and revocation of proxies
If your shares of common stock are held in your name, you can vote your shares on matters presented at the annual meeting in one of the following ways.
If you participate in the Whirlpool 401(k) Retirement Plan and hold shares of Whirlpool stock in your plan account as of the record date, you will receive a request for voting instructions from the plan trustee (Vanguard) with respect to your plan shares. If you hold Whirlpool shares outside of the plan, you will vote those shares separately. You are entitled to direct Vanguard how to vote your plan shares. If you do not provide voting instructions to Vanguard by 11:59 p.m. Eastern time on April 10, 2008, the Whirlpool shares in your plan account will be voted by Vanguard in the same proportion as the shares held by Vanguard for which voting instructions have been received from other participants in the Plan. You may revoke your previously provided voting instructions by filing with Vanguard either a written notice of revocation or a properly executed proxy bearing a later date prior to the deadline for voting plan shares.
Confidentiality of votes
Whirlpools Board has adopted a policy requiring all stockholder votes to be kept permanently confidential except (1) when disclosure is required by law, (2) when a stockholder expressly consents to disclosure, or (3) when there is a contested election and the proponent filing the opposition statement does not agree to abide by this policy.
Stockholders representing at least 50% of the common stock issued and outstanding as of the record date must be present at the annual meeting, either in person or by proxy, for there to be a quorum at the annual meeting. Abstentions and broker non-votes are counted as present for establishing 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 proposal because the broker or nominee does not have discretionary voting power and has not received instructions from the beneficial owner.
For more information on director elections, see Board of Directors and Corporate Governance Majority Voting for Directors; Director Resignation Policy later in this proxy statement. For the election of directors (provided the number of nominees does not exceed the number of directors to be elected), each director must receive the majority of the votes cast with respect to that director (number of shares voted for a director must exceed the number of votes cast against that director). Abstentions and broker non-votes will have no effect on the election of directors. For a stockholder to nominate an individual for director at the 2009 annual meeting, the stockholder must follow the procedures outlined below under the caption Stockholder Proposals and Director Nominations for 2009 Meeting. Stockholders may also designate a director nominee to be considered by the Board for recommendation to the stockholders in Whirlpools proxy statement for the 2009 annual meeting by following the procedures outlined below under the caption Director Nominations to be Considered by the Board.
The affirmative vote of a majority of the outstanding common stock present in person or represented by proxy at the annual meeting and entitled to vote will be required to approve (1) each of the stockholder proposals, if properly presented at the meeting (Items 2 and 3) and (2) any other matter that may properly come before the meeting. Abstentions will be treated as being present and entitled to vote on the matter and, therefore, will have the effect of votes against the proposal. A broker non-vote will be treated as not being entitled to vote on the matter and, therefore, will not be counted for purposes of determining whether the proposal has been approved.
If any nominee named herein for election as a director is not available to serve, the accompanying proxy will be voted in favor of the remainder of those nominated and may be
voted for a substitute person. Whirlpool expects all nominees to be available and knows of no matter to be brought before the annual meeting other than those covered in this proxy statement. If, however, any other matter properly comes before the annual meeting, we intend that the accompanying proxy will be voted thereon in accordance with the judgment of the persons voting such proxy.
Whirlpool will pay the expenses of the solicitation of proxies. We expect to pay fees of approximately $11,500 plus certain expenses for assistance by Georgeson Inc. in the solicitation of proxies. Proxies may be solicited by directors, officers, and Whirlpool employees and by Georgeson Inc. personally and by mail, telegraph, telephone, or other electronic means.
Our annual meeting of stockholders is generally held the third Tuesday in April. Assuming our 2009 annual meeting is held on that date, we must receive notice of your intention to introduce a nomination for director or other item of business at that meeting by January 21, 2009. This notice must be received by the Corporate Secretary of Whirlpool personally or by registered or certified mail and satisfy the procedures set forth in Whirlpools by-laws. In addition, any proposal that you intend to have us include in a proxy statement for the annual meeting of stockholders in 2009 must be received by us by November 12, 2008, and must otherwise comply with the Securities and Exchange Commissions rules, in order to be eligible for inclusion in the proxy statement and proxy form relating to this meeting.
We currently have 12 directors on the Board. The directors are divided into three classes, with each class serving for a three-year period. The stockholders elect approximately one-third of the Board each year. The Board recommends a vote FOR the election of each of the directors nominated below.
During 2007, our Board met six times and had four committees. The committees consisted of an Audit Committee, a Human Resources Committee, a Corporate Governance and Nominating Committee, and a Finance Committee. Each director attended at least 75% of the total number of meetings of the Board and the Board committees on which he or she served.
All directors properly nominated for election are expected to attend the annual meeting of stockholders. At the 2007 annual meeting of stockholders, all of our directors nominated for election attended the annual meeting. In addition, all other directors, except for Dr. Stern, attended the 2007 annual meeting of stockholders.
The table below breaks down 2007 committee membership for each committee and each director.
The members of the Audit Committee are Mr. White (Chair), Mr. DiCamillo, Mr. Kerr, Mr. Langbo, and Mr. Marsh. Pursuant to a written charter, the Committee provides independent and objective oversight of our accounting functions and internal controls and monitors the objectivity of our financial statements. The Committee assists Board oversight of:
In performing these functions, the Committee is responsible for the review and discussion of the annual audited financial statements, quarterly financial statements and related reports with management and the independent registered public accounting firm. These related reports include our disclosures under Managements Discussion and Analysis of Financial Condition and Results of Operations. The Committee also monitors the adequacy of financial disclosure, retains and/or terminates our independent registered public accounting firm and exercises sole authority to review and approve all audit engagement fees and terms. The Committee approves in advance the nature, extent, and cost of all internal control-related and permissible non-audit services provided by the independent registered public accounting firm; and reviews annual reports from the independent registered public accounting firm regarding its internal quality control procedures.
Under its charter, the Committee is comprised solely of three or more independent directors who meet the enhanced independence standards for audit committee members set forth in the New York Stock Exchange (NYSE) listing standards (which incorporates the standards set forth in the rules of the Securities and Exchange Commission). The Board has determined that each member of this Committee satisfies the financial literacy qualifications of the NYSE listing standards and that Mr. White satisfies the audit committee financial expert criteria established by the Securities and Exchange Commission and has accounting and financial management expertise as required under the NYSE listing rules.
Human Resources Committee
The members of the Human Resources Committee are Dr. Stern (Chair), Mr. Cain, Mr. Johnston, Mr. Kerr, Mr. Marsh, and Mr. White. Pursuant to a written charter, the Committee assures the adequacy of the compensation and benefits of Whirlpools officers and top management and compliance with any executive compensation disclosure requirements. In performing these functions, the Committee has sole authority and responsibility to retain and terminate any consulting firm assisting in the evaluation of CEO or senior executive compensation. The Committee has the following duties and responsibilities, among others:
The Committee has the authority to form subcommittees and delegate to those subcommittees certain actions. Under its charter, the Committee is comprised solely of three or more independent directors who meet the independence standards under the NYSE listing standards. For information about the Committees processes for establishing and overseeing executive compensation refer to Compensation Discussion and Analysis Role of the Human Resources Committee.
Corporate Governance and Nominating Committee
The members of the Corporate Governance and Nominating Committee are Mr. Johnston (Chair), Ms. Hempel, Dr. Stern, and Ms. Stoney. Pursuant to a written charter, the Committee provides oversight on the broad range of issues surrounding the composition and operation of the Board, including:
The Committee also provides recommendations to the Board in the areas of Committee selection and rotation practices, evaluation of the overall effectiveness of the Board and management, and review and consideration of developments in corporate governance practices. The Committee retains the sole authority to retain and terminate any search firm to be used to identify director candidates, including sole authority to approve the search firms fees and other retention terms. To assist the Committee in identifying potential director nominees who meet the criteria and priorities established from time to time and facilitate the screening and nomination process for such nominees, the Committee has retained a third party search firm. During 2007, we engaged Heidrick & Struggles to assist the Committee in identifying and soliciting potential candidates to join our Board. On an annual basis, the Committee solicits input from the full Board and conducts a review of the effectiveness of the operation of the Board and Board Committees, including reviewing governance and operating practices and the Corporate Governance Guidelines for Operation of the Board of Directors. Under its charter, the Committee is comprised solely of three or more independent directors who meet the independence standards under the NYSE listing standards.
The members of the Finance Committee are Mr. DiCamillo (Chair), Mr. Cain, Ms. Hempel, Mr. Langbo, and Ms. Stoney. Pursuant to a written charter, the Committee considers issues impacting our financial structure and makes recommendations to the Board. The Committee develops capital policies and strategies to set an acceptable capital structure, regularly reviews dividend action, risk policy and liquidity management, adequacy of insurance coverage, the annual business plan as it relates to funds flow, capital expenditure and financing requirements, capital investment projects, major financial transactions, and tax and planning strategy and initiatives. The Committee also provides oversight of the Pension Fund Committee with respect to pension plan investment policies and plan funding requirements.
The Corporate Governance and Nominating Committee conducts an annual review of the independence of the members of the Board and its committees and reports its findings to the full Board. Ten of our 12 directors are nonemployee directors (all except Messrs. Fettig and Todman). Although the Board has not adopted categorical standards of materiality for independence purposes (other than those set forth in the NYSE listing standards), information provided by the directors and Whirlpool did not indicate any relationships (e.g., commercial, industrial, banking, consulting, legal, accounting, charitable, or familial), which would impair the independence of any of the nonemployee directors. Based on the report and recommendation of the Corporate Governance and Nominating Committee, the Board has determined that each of its nonemployee directors satisfies the independence standards set forth in the listing standards of the NYSE. Other than the transactions, relationships, and arrangements described in the section entitled Related Person Transactions, there was one other matter considered by the Board in determining that Whirlpools nonemployee directors are independent.
The Committees independence determinations included the review of transactions which commenced in 2004 between Whirlpool and a temporary staffing agency. The agency was selected as a supplier to Whirlpool through a competitive bid process. In 2007, the agency was acquired by a corporation which employs Mr. DiCamillo. The amount involved in transactions between Whirlpool and the agency was below the objective test of independence established under NYSE standards. In addition, Mr. DiCamillo confirmed that he did not participate in transactions between Whirlpool and the agency or receive compensation based on those transactions.
Executive Sessions of Nonemployee Directors and
Communications Between Stockholders and the Board
The Board holds executive sessions of its nonemployee directors generally at each regularly scheduled meeting. The Presiding Director serves as the chairperson for these executive sessions.
The Presiding Director is an independent director elected by the independent directors on the Board. In addition to presiding at executive sessions of nonemployee directors, the Presiding Director has the responsibility to: (1) coordinate with the Chairman and CEO in establishing the annual agenda and topic items for Board meetings; (2) retain independent advisors on behalf of the Board as the Board may determine is necessary or appropriate; (3) assist the Human Resources Committee with the annual evaluation of the Chairman and CEOs performance, and in conjunction with the Chair of the Human Resources Committee, meet with the Chairman and CEO to discuss the results of such evaluation; and (4) perform such other functions as the independent directors may designate from time to time. Mr. Marsh currently is serving as the Presiding Director.
Interested parties, including stockholders, may communicate directly with the Chairman of the Audit Committee or the nonemployee directors as a group by writing to those individuals or the group at the following address: Whirlpool Corporation, 27 North Wacker Drive, Suite 615, Chicago, Illinois 60606-2800. This address is administered by an independent maildrop business. If correspondence is received by the Corporate Secretary, it will be forwarded to the appropriate person or persons in accordance with the procedures adopted by a majority of the independent directors of the Board with a copy to the Presiding Director. When reporting a concern, please supply sufficient information so that the matter may be addressed properly. Although you are encouraged to identify yourself to assist Whirlpool in effectively addressing your concern, you may choose to remain anonymous, and Whirlpool will use its reasonable efforts to protect your identity to the extent appropriate or permitted by law.
Corporate Governance Guidelines for Operation of the Board of Directors
Whirlpool is committed to the highest standards of corporate governance. On the recommendation of the Corporate Governance and Nominating Committee, the Board adopted a set of Corporate Governance Guidelines for Operation of the Board of Directors, which, among other things, sets forth the qualifications and other criteria for director nominees. The desired personal and experience qualifications for director nominees are described in more detail below under the caption Director Nominations to be Considered by the Board.
Majority Voting for Directors; Director Resignation Policy
In December 2006, the Board approved an amendment to Whirlpools by-laws to require directors to be elected by the majority of the votes cast with respect to such director in uncontested elections (number of shares voted for a director must exceed the number of votes cast against that director). In a contested election (a situation in which the number of nominees exceeds the number of directors to be elected), directors will be elected by a plurality of the shares represented in person or by proxy at any such meeting and entitled to vote on the election of directors. If a nominee who is serving as a director is not elected at the annual meeting, under Delaware law the director would continue to serve on the Board as a holdover director. However, under our Boards policy, any director who fails to be elected must offer to tender his or her resignation to the Board. The Board shall nominate for election or re-election as director only candidates who agree to tender, promptly following the annual
meeting at which they are elected or re-elected as director, irrevocable resignations that will be effective upon (1) the failure to receive the required vote at the next annual meeting at which they face re-election and (2) Board acceptance of such resignation. In addition, the Board shall fill director vacancies and new directorships only with candidates who agree to tender, promptly following their appointment to the Board, the same form of resignation tendered by other directors in accordance with this Board policy.
If an incumbent director fails to receive the required vote for re-election, the Corporate Governance and Nominating Committee will act on an expedited basis to determine whether to accept the directors resignation and will submit such recommendation for prompt consideration by the Board. The Board expects the director whose resignation is under consideration to abstain from participating in any decision regarding that resignation. The Corporate Governance and Nominating Committee and the Board may consider any factors they deem relevant in deciding whether to accept a directors resignation.
Code of Ethics
All of Whirlpools directors and employees, including its Chief Executive Officer, Chief Financial Officer, and other senior financial officers, are required to abide by our long-standing Code of Ethics, augmented to comply with the requirements of the NYSE and Securities and Exchange Commission, to ensure that Whirlpools business is conducted in a consistently legal and ethical manner. The Code of Ethics covers all areas of professional conduct, including employment policies, conflicts of interest, fair dealing, and the protection of confidential information, as well as strict adherence to all laws and regulations applicable to the conduct of our business. We intend to disclose future amendments to, or waivers from, certain provisions of the Code of Ethics for executive officers and directors on the Whirlpool website within four business days following the date of any such amendment or waiver.
Director Nominations to be Considered by the Board
Stockholders entitled to vote in the election of directors of the Board may nominate director candidates at times other than at the annual meeting. For a nomination to be properly made by any stockholder and be considered for recommendation by the Board to the stockholders and included in our proxy statement for the 2009 annual meeting, written notice of such stockholders nomination must be given, either by personal delivery or by registered or certified United States mail, postage prepaid, to the Corporate Secretary of Whirlpool (and must be received by the Corporate Secretary) by November 12, 2008. Such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of Whirlpool entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a statement whether such person, if elected, intends to tender, promptly following such persons election or re-election, an irrevocable resignation effective upon such persons failure to receive the required vote for re-election at the next meeting at which such person would face re-election and upon acceptance of such resignation by the Board in accordance with the relevant Board policy; (d) such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement filed pursuant to the then current proxy rules of the Securities and Exchange Commission, if the nominee were to be nominated by the Board; and (e) the consent of each nominee to serve as a director of Whirlpool if so elected. In order for a stockholder nomination to be included in the proxy statement, the nominee must meet the selection criteria as determined by the Corporate Governance and Nominating Committee.
The Board evaluates director nominees recommended by stockholders in the same manner in which it evaluates other director nominees. Whirlpool has established through its Corporate Governance and Nominating Committee selection criteria that identify desirable skills and experience for prospective Board members, including those properly nominated by stockholders, and address the issues of diversity and background. The Board, with the assistance of the Corporate Governance and Nominating Committee, selects potential new Board members using criteria and priorities established from time to time. Desired personal qualifications for director nominees include: intelligence, integrity, strength of character, and commitment. Nominees should also have the sense of timing required to assess and challenge the way things are done and recommend alternative solutions to problems; the independence necessary to make an unbiased evaluation of management performance and effectively carry out responsibilities of oversight; an awareness of both the business and social environment in which todays corporation operates; and a sense of urgency and spirit of cooperation that will enable them to interface with other Board members in directing the future, profitable growth of Whirlpool. Desired experience for director nominees include: at least ten years of experience in a senior executive role with a major business organization, preferably, as either Chief Executive Officer or Chairman (equivalent relevant experience from other backgrounds such as academics or government may also be considered); a proven record of accomplishment and line operating (or equivalent) experience; first-hand experience with international operations; a working knowledge of corporate governance issues and the changing role of the Board; exposure to corporate programs designed to create shareholder value, while balancing the needs of all stakeholders. Director nominees should not be employed by or affiliated with any organization that has competitive lines of business or that may otherwise present a conflict of interest. The composition, skills, and needs of the Board change over time and will be considered in establishing the profile of desirable candidates for any specific opening on the Board.
Whirlpools current Corporate Governance Guidelines, Code of Ethics, and written charters for its Audit, Finance, Human Resources, and Corporate Governance and Nominating Committees are posted on the Whirlpool website: www.whirlpoolcorp.com click on the Governance tab. Stockholders may also request a free copy of these documents from: Greg Fritz, Director, Investor Relations, Whirlpool Corporation, 2000 North M-63, Mail Drop 2800, Benton Harbor, Michigan 49022-2692; (269) 923-2641.
Our 2007 director compensation is reflected in the table below. We believe that it is important to attract and retain outstanding nonemployee directors. One way that we achieve this goal is through a competitive compensation program. To that end, in 2007, our Corporate Governance and Nominating Committee, which is responsible for making director compensation recommendations to the Board, worked with Hewitt Associates to evaluate the competitiveness of our compensation program for our directors who are not employees of Whirlpool. After evaluating competitive market data on nonemployee director compensation, Hewitt recommended an increase in the annual cash retainer, and certain other changes in our director compensation program, so that we can remain competitive with other large publicly held companies. After evaluating Hewitts report, in February 2008 the Committee recommended and the Board approved, effective for 2008, (1) an increase in the annual retainer from $75,000 to $90,000, (2) a change in the term of director stock options (as described below under the heading Nonemployee Director Equity Plan), and (3) termination of the option to relinquish all or part of the annual cash retainer under the Charitable Award Contribution and Additional Life Insurance Plan for Directors (the Charitable Program described below). In addition, the Board has adopted an equity ownership guideline for nonemployee directors under which these directors are encouraged to own Whirlpool stock equal in value to four times the basic annual cash retainer, with a five-year timetable to obtain this objective. Only nonemployee directors receive compensation for their services as a director.
The 2007 nonemployee director compensation, by element, was as follows:
Nonemployee Director Equity Plan
Our Nonemployee Director Equity Plan provides for (1) a one time grant of 1,000 shares of common stock made at the time a director first joins the Board; (2) an annual grant of stock options with the number of options to be based on dividing $36,000 by the product of the fair market value of a single share of our common stock on the final trading day before the annual meeting of stockholders ($88.83 for the April 17, 2007 grant) multiplied by 0.35; and
(3) an annual grant of stock worth $54,000 with the number of shares to be issued to the director determined by dividing $54,000 by the average fair market value of a single share of our common stock for the final three trading days before the grant ($88.42 for the April 17, 2007 grant). The exercise price under each option granted is the fair market value of the common stock on the last trading day before the annual meeting of stockholders ($88.83 on April 16, 2007).
Options granted in 2007 are exercisable for the earlier of 20 years after grant or two years after a nonemployee director ceases to serve on our Board, or one year in the case of the nonemployee directors death. Options granted in and after 2008 are exercisable for the earlier of ten years after grant or five years after a nonemployee director ceases to serve on our Board, or one year in the case of the nonemployee directors death. However, no option is exercisable within the first six months of its term, unless death or disability of the director occurs. In the event that the death or disability of the director does occur and an option is exercised in the first six months of its term, any shares of common stock issued on such exercise may not be sold until the six-month anniversary of the grant date. Payment of the exercise price may be made in cash or, if permitted by law, Whirlpool common stock, valued at its market price at the time of exercise. All annual grants are made to directors on the date of our annual meeting of stockholders.
Deferral of Annual Retainer and Stock Grants
A nonemployee director may elect to defer any portion of the annual cash retainer and annual stock awards retainer until he or she ceases to be a director. Under this policy, when the directors term ends, any deferred annual retainer will be made in a lump sum or in monthly or quarterly installments. In addition, payment of any deferred annual stock grant will be made as soon as is administratively feasible. Amounts deferred on or before December 31, 2004 accrue interest quarterly at a rate equal to the prime rate in effect from time to time. Amounts deferred after December 31, 2004 may be allocated to notional investments that mirror those available to participants in our U.S. 401(k) plan, with the exception of the Whirlpool stock fund.
Through 2007, each nonemployee director, upon election or re-election to the Board, could choose to relinquish all or a portion of the annual cash retainer, in which case Whirlpool may, at its sole discretion, then make an award of up to $1 million to a charitable organization upon the directors death. Under the program, the election to relinquish compensation is irreversible, Whirlpool may decide to purchase insurance or self-fund any charitable contributions made under the program, and Whirlpool may choose to make contributions in the directors name to as many as three charities. As discussed below in the Nonemployee Director Compensation Table, Whirlpool purchases insurance to partially fund this program, and pays the premiums on behalf of the directors. Each director could also elect to relinquish a portion of the annual cash retainer and have such amount used to purchase term life insurance in excess of that described in the next paragraph. The Board of Directors acted to eliminate these two options, prospectively, as of January 1, 2008.
Term Life Insurance
Whirlpool pays the premiums to provide each nonemployee director who elects to participate, with term life insurance while serving as a director, and also makes a related income tax reimbursement payment. The coverage amount is equal to one-tenth of the directors basic annual cash retainer times the directors months of service (not to exceed 120). In addition, Whirlpool provides each nonemployee director with travel accident insurance of $1 million.
For evaluative purposes, Whirlpool permits nonemployee directors to test Whirlpool products for home use, and reimburses the directors for any income taxes they incur as a result of this policy. The cost to Whirlpool of this arrangement in 2007 (based on distributor price of products and delivery, installation, and service charges) did not exceed $10,500 for any one nonemployee director or $29,000 for all nonemployee directors as a group.
Whirlpool reimburses nonemployee directors for business expenses related to their attendance at Whirlpool meetings, including room, meals and transportation to and from Board and committee meetings (e.g., commercial flights, trains, cars and parking). On rare occasions, a directors spouse may accompany a director when traveling on Whirlpool business. Normally a director will travel to and from Whirlpool Board meetings on Whirlpool corporate or other private aircraft. Directors are also reimbursed for attendance at qualified third-party director education programs.
Nonemployee Director Compensation Table
The following table presents the ownership on December 31, 2007 of the only persons known by us as of February 15, 2008 to beneficially own more than 5% of our common stock based upon statements on Schedule 13G filed by such persons with the SEC.
The following table reports beneficial ownership of common stock by each director, nominee for director, the Chief Executive Officer, Chief Financial Officer, and the three other most highly compensated executive officers, and all directors and executive officers of Whirlpool as a group, as of February 19, 2008. Beneficial ownership includes, unless otherwise indicated, all shares with respect to which each director or executive officer, directly or indirectly, has or shares the power to vote or to direct the voting of such shares or to dispose or direct the disposition of such shares. The address of all directors and executive officers named below is c/o Whirlpool Corporation, 2000 North M-63, Benton Harbor, Michigan 49022-2692.
Section 16(a) of the Securities Exchange Act of 1934 requires Whirlpools directors and executive officers and persons who own more than 10% of Whirlpools common stock (each a reporting person) to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of Whirlpools common stock. Based solely on its review of the copies of such reports furnished to or prepared by Whirlpool and written representations that no other reports were required, Whirlpool believes that all Section 16(a) filing requirements applicable to reporting persons were complied with during the fiscal year ended December 31, 2007, except as follows. A third-party benefit plan administrator allocated $4,466 to a phantom stock fund under a deferred compensation plan account for W. Timothy Yaggi. The administrator did not timely report the allocation to Whirlpool, resulting in a late Form 4 filing. In addition, 54.1 shares were allocated to Mr. Templins brokerage account as a result of a dividend reinvestment program maintained by a brokerage firm. The acquisitions were not timely reported to Whirlpool, resulting in late Form 5 filings.
In this proxy statement, we refer to our Chief Executive Officer, Chief Financial Officer and our other three most highly-compensated executive officers as our named executive officers or NEOs. This section includes information regarding, among other things, the overall objectives and philosophy of our compensation program and each element of compensation we provide to our NEOs. This section should be read in conjunction with the detailed tables under Executive Compensation Tables later in this proxy statement.
The Human Resources Committee of the Board of Directors sets compensation for each executive officer using a market-based approach, with differentiation based on individual and company performance. The elements of our compensation program reflect our pay for performance philosophy. The Committee creates a compensation package for each NEO that contains a mix of compensation elements that it believes best addresses the NEOs responsibilities and that will best achieve our overall compensation objectives. In establishing target compensation, the Committee considers factors discussed below such as market value and job responsibility. The Committee does not use a specific formula for allocating between fixed and variable components of pay or between long-term incentive vehicles. Generally, the proportion of equity compensation rises with increasing job responsibility. Taken as a whole, our compensation program is designed so that the individuals target compensation level rises as job responsibility increases, with the portion of performance-based, or at risk compensation rising as a percentage of total target compensation. As a result, actual total compensation of an executive as a multiple of the total compensation of his or her subordinates is designed to increase in periods of above-target performance and decrease in times of below target performance. In addition, the Committee makes distinctions in the mix of cash and equity components based on job responsibility in shaping each NEOs compensation package.
The Objectives of Whirlpools Compensation Program
We are dedicated to global leadership and to delivering superior stockholder value. Our executive compensation philosophy supports these objectives by attracting and retaining the best management talent and by motivating these employees to achieve business and
financial goals that create value for stockholders in a manner consistent with Whirlpools focus on five enduring values: respect, integrity, diversity and inclusion, teamwork, and the spirit of winning.
To achieve our objectives, we implement a pay for performance philosophy using the following guiding principles:
Compensation Process and Methodology
Role of the Human Resources Committee
Our Human Resources Committee has overall responsibility for Whirlpools executive compensation programs. Typically, the Committee adopts the compensation goals and objectives for awards under our short-term and long-term incentive plans at its meeting in February of each year. The Committee also generally considers and makes decisions about the principle elements of each executive officers compensation package at its February meeting. The Committee also performs its evaluation of CEO performance and establishes CEO compensation at this meeting. Throughout the year, the Committee evaluates the overall effectiveness of our compensation philosophy and programs. In addition, the Committee reviews managements recommendations regarding hiring, promotion, retention, severance and individual executive compensation packages related to those events. The Committee may also consider management recommendations to improve compensation programs.
In making its determinations, the Committee reviews and considers various factors and affords different weight to these factors depending on the type of determination and the circumstances under which it arises. For example, in determining base salary, the Committee may rely more heavily on market data and the recommendation of its independent compensation advisor. In determining the payout of incentive awards, the Committees consideration of company performance and managements assessment of individual performance may predominate. In setting long-term compensation, the Committee may give more weight to the complexity of the individuals position and impact on overall company results. While the Committee may solicit and review recommendations from its independent compensation advisor, and in some circumstances, management, the Committee makes decisions regarding these matters in the exercise of its sole discretion.
Benchmarking and the Role of Consultants
Our Human Resources Committee establishes target compensation levels using a market-based approach. Each year, the Committee engages an independent compensation
advisor to advise the Committee on Whirlpools executive compensation program. At the beginning of 2007, the Committee retained Hewitt Associates, an outside human resources consulting firm, as its independent executive compensation advisor to provide data and analysis regarding pay levels for our NEOs and other senior executives. Specifically, the Committee requested that Hewitt Associates assist the Committee in (1) reviewing the group of companies against whom Whirlpools senior executive pay levels are compared (our comparator group); (2) reviewing executive compensation market practices and trends in general; (3) designing and recommending the compensation packages provided to the named executive officers (NEOs) and other senior executives; and (4) providing a marketplace assessment of the compensation for the NEOs and other senior executives in comparison to the compensation for comparable positions within the comparator group. With respect to the CEO, Hewitt Associates provided a recommendation, without the CEOs input, to the Committee regarding the CEOs compensation package (target and mix of pay components). The Committee used Hewitts recommendation as the primary basis for the Committees final decision on the CEOs compensation package. After taking into account input from the CEO, Hewitt Associates also provided a recommendation to the Committee for the other NEOs and senior executives. Other than the work it performs for the Committee, Hewitt Associates provides minimal compensation consulting services to Whirlpool and its executive officers, such as reviewing our nonemployee director compensation, providing market data for non-senior management compensation, and assisting with compensation disclosure. In addition, Hewitt provides actuarial services to Whirlpools European region.
For 2007, Hewitt Associates recommended that the Committee retain the comparator group listed below which we have used to benchmark executive compensation in prior years. We selected these companies because they have national and international business operations and are similar to Whirlpool in sales volumes, market capitalizations, employment levels, lines of business, and organizational structure. Companies in the comparator group are recognized for their excellence in the areas of consumer focus and trade partner relations, and for possessing highly complex global supply chains and manufacturing footprints.
We use publicly disclosed compensation data contained in proxy statements, as well as proprietary surveys purchased from third-party consulting firms to acquire market compensation data for companies in the comparator group. In 2007, Hewitt Associates reviewed the market data and recommended appropriate comparisons within the market data for Whirlpools senior executives, including our NEOs, based on the content, scope, and complexity of each position. To ensure a balanced and accurate review of the market value for each position, the Committee reviewed the statistical median market values for each position in addition to size-adjusted median market values based upon the revenue accountability for each position.
Role of Management
Each year, our management, led by the CEO and Chief Human Resources Officer, makes recommendations to the Committee regarding the compensation and benefit programs for individuals in Career Bands 0 and 1 consisting of 11 employees which includes all executive officers. In addition, the CEO makes recommendations to the independent compensation advisor regarding individual compensation packages of the executive officers. Management recommends the performance metrics to be used in the Performance Excellence Plan and the Strategic Excellence Program for adoption by the Committee. The Committee has authority to adopt or modify these metrics in its sole discretion. In addition, management may assess individual performance to assist the Committee in making determinations regarding awards to be paid out under incentive programs.
The Chief Human Resources Officer attends all Committee meetings, other than portions of those meetings held in executive session. Materials for Committee meetings are drafted by Whirlpools human resources department and the Committees independent compensation advisor.
In February 2007, the Human Resources Committee reviewed salary increase guidelines for each NEO. In the case of NEOs other than the CEO, the guidelines are established based on the CEOs assessment of individual performance, as well as competitive market reviews provided by Hewitt Associates. In the case of the CEO, the salary increase guidelines were based on Hewitt Associates data only.
Based on this review, the Committee made annual salary increases effective March 1, 2007 as follows: Mr. Fettigs salary was increased from $1,100,000 to $1,200,000; Mr. Templins salary was increased from $550,000 to $600,000; Mr. Todmans salary was increased from $650,000 to $720,000; Mr. Bitzers salary was increased from 435,000 to 460,000 (approximately U.S. $596,340 to $630,612). Mr. Periquitos salary was not increased in March 2007, because the Committee determined that his salary at that time was fully competitive with the market. Mr. Periquitos salary was increased from $645,000 to $700,000 in connection with his promotion to President of Whirlpool International in June 2007.
Consistent with Whirlpools pay for performance philosophy, all salaried employees are eligible to participate in an annual cash incentive opportunity, the Performance Excellence Plan (PEP). PEP provides an annual incentive designed to focus attention on stockholder value creation, drive performance in support of this goal and other business goals, and reflect individual performance as measured against financial, customer, and employee-related objectives. The Committee establishes target incentive levels for NEOs as a percentage of their base salary earnings during the performance period. PEP ensures that a significant proportion of pay for our NEOs is at risk and variable. For 2007, PEP targets for NEOs were as follows: Mr. Fettigs target was 140% of his base salary earnings; Mr. Templins target was 85% of his base salary earnings; Mr. Todmans target was 100% of his base salary earnings; Mr. Bitzers target was 80% of his base salary earnings; Mr. Periquitos target was 80% of his base salary earnings from January through June and was increased to 100% of his base salary earnings through the remainder of the year in connection with his promotion.
As discussed below under the caption Deductibility of Compensation and Related Issues, the Human Resources Committee strives to preserve the tax deductibility of executive compensation to the extent practicable. PEP awards granted to the NEOs qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code, and are, therefore, not included in the $1 million cap on deductible compensation, provided that certain requirements are met. Section 162(m) requires that the Committee establish a target within the first 90 days of the fiscal year which cannot be adjusted due to unusual and uncontrollable events or conditions that might affect Whirlpools financial performance. In addition, to qualify under Section 162(m), PEP payouts to NEOs cannot be adjusted upward to take into account the effects of such events or conditions. To preserve maximum tax deductibility and allow the Committee the latitude to address unforeseeable and uncontrollable events and conditions, and to facilitate the Committees ability to assess and reward individual performance under the Whirlpool performance assessment system, the Committee set a return on equity (ROE) target for executive officers at a level that would allow the Committee to take into consideration the impact of such events or conditions in adjusting payouts downward. The Committee set maximum possible payouts with respect to the ROE targets under PEP at $3 million for the CEO and at four times an established percentage of base salary, but not more than 330% of base salary for each other NEO for Section 162(m) purposes (which was an amount less than $3 million). The ROE targets are tied to our projected operating plan and, therefore, their achievement is substantially uncertain at the time they are set.
While the ROE targets were used for purposes of Section 162(m), the PEP for 2007 was designed so that ROE results only determined the maximum possible payouts under PEP. The Committee also established targeted incentive levels and equally weighted company and individual performance factors for each executive officer. In defining PEP performance factors for 2007, the Committee determined that company performance in-line with expected performance would result in a payout equal to 100% of the targeted incentive level. Company performance substantially above expected performance could result in a payout equal to 200%
of the targeted incentive level and performance below expected performance could result in no amount being paid out under PEP. The company performance measures adopted by the Committee for purposes of determining awards under PEP for 2007 are contained in the following balanced scorecard:
The Committee established each executive officers rating under Whirlpools Extraordinary Performance and Results (EP&R) performance management system as the individual performance measure. EP&R is based on a rigorous review of individual achievements during the performance period relative to goals established by each employees direct supervisor. Under the EP&R assessment of individual performance, each employee, including each NEO, is assigned one of the following performance ratings annually: 1-Extraordinary Results; 2-Very Strong Results; 3-Strong Results; 4-Results Need to Be Improved; and 5-Unacceptable Results. For NEOs, individual performance ratings correlate to the following performance factors:
1-Extraordinary Results: 200%
2-Very Strong Results: 150%
3-Strong Results: 100%
4-Results Need to Be Improved: 50% or 75%
5-Unacceptable Results: 0%, no award given
Under the 2007 PEP, the balanced scorecard and performance factors determined through use of the EP&R framework resulted in a combined performance factor that was multiplied by the targeted incentive levels to attain a suggested final payout value under PEP (ranging from 0%-400% of the targeted incentive level).
In reviewing performance under PEP for 2007, at its February 2008 meeting, the Committee determined that the ROE target established for 2007 was met. The Committee then used a judgment-based approach to exercise negative discretion to determine the actual payout to each NEO. For each NEO, the Committee adjusted payouts in a non-formulaic way from a targeted incentive level based on the balanced scorecard and EP&R outcomes.
In exercising its judgment to determine final payouts to the NEOs under PEP in 2007, the Committee considered that our earnings from continuing operations of $8.10 per share versus the previous years record of $6.35 per share reflected achievement of a stretch goal
and good year-over-year performance in a challenging environment. The Committee further considered that overall customer measures were met or exceeded and that each employee measure was met or exceeded. Using these factors, the Committee determined that based on the balanced scorecard results the company performance factor was 100%.
In determining the individual performance factor under EP&R, the Committee considers each NEOs absolute performance, performance relative to internal peers, any unforeseen factors that influenced the results of each NEO, and the extent to which the leadership of each NEO has contributed to Whirlpools success during the performance period based on qualitative measures. With respect to NEOs other than the CEO, the Committee may rely on the assessment of individual performance provided by the CEO. For 2007, each NEO received a performance rating of Level 2 or higher.
Strategic Excellence Program
The Strategic Excellence Program (SEP) is our primary long-term incentive program for executives. The compensation opportunities under SEP are tied directly to Whirlpools financial and strategic performance over a preset period beginning each January 1 and continuing for one year or longer. Each set of performance measures is unique and designed to incentivize the achievement of specific long-term strategic goals. The length of the performance period varies from year to year depending on the performance measures established by the Committee.
SEP is designed to deliver long-term shareholder value by providing performance-based long-term incentives to participants based upon the achievement of strategic objectives. SEP awards consist of either stock options and restricted stock units or stock options, restricted stock units and performance units payable in cash, depending on the NEOs job responsibilities. The Committee typically makes SEP awards to executive officers annually and establishes performance measures at its February meeting. As discussed above with respect to PEP, the Committee establishes an ROE target for purposes of ensuring that SEP awards qualify as performance-based compensation under Section 162(m). For 2007, the Committee established a transformational objective of expanding external operating profit through the full deployment and delivery of operational capability, as the performance measure to determine suggested SEP payouts. The Committee provided for the performance of the transformational objective to be measured on results under a transformational scorecard consisting of innovation, total cost productivity, price margin realization, total cost of quality and the ratio of operating profit to earnings from continuing operations. The Committee designated a performance period of one year.
As discussed above under PEP, the Committee establishes market-based target incentive levels for each executive officer on the basis of a percentage of base salary. The Committee determined the following SEP targets for NEOs for 2007: for Mr. Fettig 500%; for Mr. Templin 175%; for Mr. Todman 175%; for Mr. Bitzer 150%; for Mr. Periquito 175%. For 2007, the Committee determined that performance in-line with expectations would
result in a payout equal to 100% of the targeted incentive level for performance and/or restricted stock units, while performance substantially above expected performance could result in a payout equal to 200% of the targeted incentive level for performance and/or restricted stock units. Performance below expected performance could result in fewer or no performance and/or restricted stock units being paid out. In assessing performance under SEP for 2007, the Committee determined that the ROE target was met and reviewed the transformational scorecard results for 2007. Based on this assessment, the Committee concluded that the objective of expanding external operating profit during 2007 was achieved at the 100% level.
Stock options awarded as part of SEP are not subject to modification based on achievement of performance objectives. Because stock options only provide value in the event that Whirlpools stock price increases beyond the fair market value of Whirlpool stock on the date of grant, it is our belief that compensation awarded through stock options is inherently performance-based. As a result, stock option grants are not based on transformational scorecard performance. Stock option grants are issued with an exercise price equal to the fair market value of the stock at the time of grant. The option term is ten years and options vest in three equal annual installments. Stock options granted to our NEOs in 2007 are reflected in the Summary Compensation Table and the Grant of Plan-Based Awards Table.
In 2005, the Human Resources Committee established an Enhanced Strategic Excellence Program for a limited group of employees in our top two organizational levels, including each NEO. Consistent with the SEP emphasis on long-term strategic value creation, the program was designed to drive shareholder value creation and focus on managing through a long-term economic cycle. The Committee established performance objectives based on earnings per share for 2007 and cumulative free cash flow for 2005 through 2007. The Committee provided for the value of awards under Enhanced SEP to be paid out 50% in stock and 50% in cash. In its February 2008 meeting, the Committee reviewed Whirlpools performance and determined that the 2007 earnings per share measure exceeded expectations and the 2005 through 2007 cumulative free cash flow measure exceeded expectations. As a result of this analysis, the Committee determined that participants in Enhanced SEP, including the NEOs, would receive payouts equal to 255% of the targeted awards. Enhanced SEP awards are reflected in the Summary Compensation Table.
We maintain certain incentive programs to be used by the Committee on an as-needed basis to respond to special circumstances, for example, to recognize individual achievement or to respond to industry and labor market conditions. We do not use a formula or set guidelines to determine when to grant incentives under these programs, however, the Committee is disciplined in its approach to setting compensation. Examples of circumstances that may cause the Committee to believe that additional grants under these programs are required to meet competitive industry and labor market conditions include, but are not limited to, increased responsibility due to strategic transactions or corporate re-alignment or increased recruitment
opportunities due to industry fragmentation or consolidation. In addition, awards granted under these programs can be used to provide an additional incentive to a key employee in order to maximize long-term retention when such employees outstanding incentives fully vest and/or become payable in the near term.
Executive Officer Bonus Program
The Committee does not generally award bonuses on a discretionary basis. The Executive Officer Bonus Plan, however, gives the Committee the discretion to grant bonus payouts to designated executive officers in recognition of individual performance that demonstrates exceptional excellence in the execution and achievement of short-term goals without sacrificing focus on and commitment to Whirlpools long-term success and sustainable performance. These discretionary awards are directly tied to our pay for performance philosophy by providing the Committee with the flexibility to reward strong individual performance outside an individuals structured compensation program. The Committee has not granted awards under this plan during any of the last five fiscal years.
Special Retention Program
The Special Retention Program was established to provide grants of phantom restricted stock to selected officers as a means of motivating and retaining key leadership talent. Mr. Templin received a grant of 15,000 restricted stock units under this program during 2007. The purpose of this grant is to provide additional retention incentive to Mr. Templin and further align his interests with those of stockholders. Half of this grant will vest on the third anniversary of the date of grant, while the other half of the grant will vest on the seventh anniversary of the date of grant. Payment will be made in the form of Whirlpool stock upon vesting.
Career Stock Program
The Career Stock Program was established to provide one-time grants of phantom restricted stock to select key executives as a means of retaining those executives and encouraging long-term employment. Recipients and award sizes are based on determinations relating to a broad range of factors. Mr. Todman and Mr. Bitzer both received grants of 30,000 restricted stock units under this program during 2007. These grants are intended to encourage long-term employment and further align their interests with those of stockholders. Vesting in this program occurs over an extended period of time, with the final tranche becoming vested upon retirement after reaching age 60. Tranches of this grant that vest while employed with the company are automatically deferred and are not paid out. Final payment of this grant is made upon termination of employment in the form of Whirlpool shares.
Timing of Equity Awards
We have generally followed a practice of making all equity-based grants to employees, including NEOs, on a single date every year. The Committee grants these equity-based awards at its regularly-scheduled meeting in mid-February. This meeting usually occurs about two
weeks after we release our final earnings for the prior fiscal year, which permits material information regarding our performance for the prior fiscal year to be disclosed to the public before equity-based grants are made to employees. While most of our equity-based awards have historically been made pursuant to our annual grant program, the Committee retains the discretion to make additional off-cycle awards in connection with promotions, recruitment efforts, or significant accomplishments. Stock option exercise prices are set equal to the fair market value of Whirlpool stock on the date of grant. Under the 2007 Omnibus Stock and Incentive Plan, fair market value is equal to the officially quoted closing price of our common stock on the date of grant.
We provide a very limited number of perquisites to executives, including financial services, limited use of Whirlpool owned and leased property, product discounts, home security, and executive physicals. Mr. Fettig and Mr. Todman may use company aircraft for personal use to ensure their personal security. Personal use of company aircraft is considered taxable income to these executives using the Standard Industry Fare Level method. Mr. Bitzer and Mr. Periquito are eligible to receive the use of a company car as part of a competitive total compensation package. In connection with his promotion to President of Whirlpool International, Mr. Periquito received an increase in his allowance for increased living costs outside the United States from $75,000 to $100,000. As an expatriate in Italy, Mr. Bitzer is eligible for payments to defray the cost of his childrens education. These perquisites are designed to support a market competitive total compensation package and ensure that Whirlpool derives the most value from our overall compensation expenditure.
Our U.S.-based NEOs are eligible to receive benefits under a severance policy generally available to U.S. salaried employees. Under Italian law, Mr. Bitzer is entitled to a lump sum severance benefit equal to one year of salary, plus the average of his last three awards received through participation in PEP, plus an accrued lump sum statutory severance indemnity payment (TFR) equal to 67,687 (approximately U.S. $92,792). Under the terms of his employment agreement, Mr. Periquito is entitled to an amount equal to 13.82 months of base salary. In addition, the Human Resources Committee may agree to provide additional severance benefits upon the termination of an NEO.
We have entered into Compensation Benefits and Assurance agreements with each executive officer, including each NEO, under our change in control severance program. We maintain this program to ensure that our NEOs are not deterred from exploring opportunities that will result in maximum value for stockholders, including actions that may result in a change in their position or standing within Whirlpool. The value of the severance benefits associated with a change in control of Whirlpool is based on a thorough review of competitive market practice. We believe that these benefits are of reasonable value and ultimately benefit stockholders. See the Potential Post-Termination Payments Tables section later in this proxy statement.
Deductibility of Compensation and Related Issues
Section 162(m) of the Internal Revenue Code imposes a $1 million deduction limit on compensation paid to executives named in the compensation section of the proxy statements of public companies, subject to certain rules and exceptions for non-discretionary performance based plans approved by stockholders.
The Committee intends to preserve the tax deductibility of executive compensation to the extent practicable while focusing on consistency with its compensation policies, the needs of Whirlpool, and stockholder interests. Whirlpools stockholders have approved PEP and our omnibus stock and incentive plans that award our long-term incentives to executives. Many of the types of awards authorized in these and other stockholder-approved plans would be considered qualifying performance-based compensation for purposes of Section 162(m). As a result, such awards would not count toward the $1 million deduction limit. However, the Committee retains the ability to make payments in one or more of the programs described in this report that may not qualify for tax deductibility under Section 162(m).
NEOs are eligible for retirement benefits designed to provide, in total, a market-competitive level of income replacement upon achieving retirement eligibility by using a combination of qualified and non-qualified plans. We assess retirement benefits for named executive officers against data provided to the Towers Perrin Employee Benefits Information Center by other U.S. companies that provide survey data on executive benefits. The Towers Perrin Employee Benefits Information Center database contains information on over 700 companies of varying size, competing in a variety of industries.
Accordingly, this survey tool includes data on a much broader base of companies than those included in the executive compensation comparator group. This assessment is an important factor used by the Committee in determining the median retirement income replacement ratio among similarly situated executives at such companies as the targeted amount of total retirement benefits for our NEOs. Total retirement benefits are provided through a combination of qualified and non-qualified defined contribution plans and qualified and non-qualified defined benefit plans. As a result of the current mix of our retirement plans, we believe that total retirement benefits for the NEOs are slightly below the median level when compared to the other companies in the survey. Whirlpool continues to strive to provide retirement benefits at the median level.
Our NEOs in the United States participate in one qualified defined contribution plan, the Whirlpool 401(k) Retirement Plan, and the following non-qualified defined contribution plans: the Executive Deferred Savings Plan II (which includes the Whirlpool Executive Restoration Plan, also known as the DC Restoration Plan) and its predecessor, the Executive Deferred Savings Plan. These plans are defined contribution plans that for 2007 only provide a benefit in the event that eligible employees, including the NEOs, elect to participate in the plans by deferring portions of their base salary, PEP incentive payment, and SEP incentive payment into the plans.
Our NEOs in the United States participate in three defined benefit pension plans: the Whirlpool Employees Pension Plan (WEPP) and the associated Whirlpool Retirement Restoration Plan (the DB Restoration Plan), and the Supplemental Executive Retirement Plan (SERP). These plans provide a defined benefit upon retirement relative to base salary and PEP incentive earned during the employment period. The formulas for these programs are designed to provide a benefit at the median of the competitive market and support Whirlpools overall retirement benefit goal of providing a median level of replacement income upon retirement.
U.S.-based NEO Defined Contribution Plans
The Whirlpool 401(k) Retirement Plan provides a defined contribution retirement benefit qualified under section 401(k) of the Internal Revenue Code. This plan offers participants a pre-tax retirement savings vehicle plus employer contributions that encourage participant retirement savings and provide additional assets for employees retirement. Most employees of Whirlpool are eligible to participate in this plan, although different levels of employer contributions apply to different groups. This plan provides an automatic employer contribution of 3% of pay and a match of up to 4% of pay, provided that participants contribute at least 5% of pay on a pre-tax basis to the plan and subject to contribution and benefit limitations under the Internal Revenue Code.
The Whirlpool Corporation Executive Deferred Savings Plan (EDSP I) is a non-qualified plan designed to provide executives with pre-tax deferral opportunities beyond those offered by the Whirlpool 401(k) Retirement Plan. Participants may no longer make deferrals to EDSP I. The Whirlpool Corporation Executive Deferred Savings Plan II (EDSP II) became effective January 1, 2005 to comply with the requirements of Section 409A of the Internal Revenue Code. EDSP II includes two components: the traditional component is known as EDSP II and the new component, which became effective January 1, 2007, is known as the Whirlpool Executive Restoration Plan (the DC Restoration Plan). The traditional component allows eligible executives to contribute up to 75% of their short-term incentives and long-term incentives. The DC Restoration Plan works with the Whirlpool 401(k) Retirement Plan to enable executives to defer funds and receive Whirlpool matching contributions and non-elective contributions using the same formula as the Whirlpool 401(k) Retirement Plan, but without regard to limitations imposed by the Internal Revenue Code. Amounts deferred into this plan have already been earned by the executives and have been deferred through a voluntary enrollment process. These values are unfunded and are paid from Whirlpools general assets.
U.S.-based NEO Defined Benefit Plans
WEPP is a qualified plan that provides all eligible employees, which includes most Whirlpool salaried employees in the United States, with a defined pension benefit upon reaching retirement eligibility as described under the caption Pension Benefits Table later in this proxy statement. Benefits in this plan have been frozen for most participants effective December 31, 2006 based on their service and pay as of December 31, 2006. The benefits of
participants eligible to retire on or before December 31, 2009 will be frozen effective December 31, 2009. None of our NEOs are eligible for the delayed freeze date and none of our NEOs are currently eligible for early retirement.
The DB Restoration Plan is a non-qualified plan that works with WEPP to provide Whirlpool executives that portion of their retirement benefit which would have been paid under WEPP if Internal Revenue Code maximum annual benefits and compensation limitations did not apply. Benefits under this plan are frozen as of the same dates as benefits under WEPP as described above. Years of service are calculated under this plan using the same method employed under WEPP. The plan does not grant additional years of service credits to our NEOs.
SERP is a non-qualified plan that supplements Whirlpools broad-based retirement plan and provides benefits in excess of Internal Revenue Code limitations under WEPP. SERP generally provides retirement income based on the average of the highest five payouts received under PEP during the last ten years of employment multiplied by years of service. Years of service are calculated under this plan using the same method employed under WEPP. SERP does not grant additional years of service credits to our NEOs. Other companies may reflect the value of incentive compensation, like PEP, in their qualified plan benefit formulas. In contrast, WEPP calculates benefits based solely on salary. Therefore, SERP is designed to further our goal of providing Whirlpool executives with a level of income replacement compensation at retirement that approximates the median when compared to the other companies in the Towers Perrin survey discussed above.
NEOs based outside the U.S.
Our NEOs in locations outside the United States receive retirement benefits designed to be competitive with benefits provided to executives in comparable positions within their regions. As an executive in Italy, Mr. Bitzer is subject to the National Collective Agreement for Industrial Dirigenti, which stipulates certain compensatory arrangements and benefits for industrial executives in Italy. One of the benefits mandated by the agreement is a voluntary defined contribution plan, Previndai, to which both Mr. Bitzer and Whirlpool contribute.
Pursuant to the terms of his employment contract, Mr. Periquito participates in the Founder Pension Plan, a non-U.S. retirement plan, to which both Mr. Periquito and Whirlpool contributed. In 2006, the pension asset and obligation attributable to Mr. Periquito were transferred to a private pension fund with Bradesco Bank pursuant to the terms of the Founder Pension Plan. The benefit under this plan is fully accrued and funded. No further contributions are expected to be made to this private pension fund. Mr. Periquito is able to draw from the reserve prior to and during retirement.
Stock Ownership Guidelines
In 1995, management adopted, with the Committees approval, stock ownership guidelines to support the objective of increasing the amount of stock owned by the most senior group of executives. The guidelines for stock ownership are based on an individuals level in the organization and range from seven times base salary for the Chief Executive Officer to one-half times base salary for lower level executives, including those who are not NEOs. Ownership guidelines as a multiple of base salary are listed below:
These ownership guidelines are approved by the Committee and are based on a review of competitive market practice as conducted by the independent executive compensation advisor to the Committee, as well as to ensure that our NEOs and other senior Whirlpool leaders have a significant stake in Whirlpools long-term success. The guidelines state that each executive should achieve the required level of stock ownership within five years.
The Committee, as well as Whirlpools senior leadership, annually reviews progress for each executive on achieving their required level of ownership. During the Committees most recent review of ownership levels, it was determined that all NEOs had either met their guideline or were on track to meet their guideline during the required timeframe.
As detailed in its charter, the Human Resources Committee of Whirlpools Board oversees our compensation program on behalf of the full Board. In the performance of its oversight function, the Human Resources Committee, among other things, reviewed and discussed with management the Compensation Discussion and Analysis set forth in this proxy statement.
Based upon the review and discussions referred to above, the Human Resources Committee recommended to the Board that the Compensation Discussion and Analysis be included in Whirlpools Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and Whirlpools Proxy Statement to be filed in connection with our 2008 Annual Meeting of Stockholders, each of which will be filed with the Securities and Exchange Commission.
HUMAN RESOURCES COMMITTEE
Dr. Paul G. Stern, Chair
Mr. Herman Cain
Mr. Michael F. Johnston
Mr. William T. Kerr
Mr. Miles L. Marsh
Mr. Michael D. White
Summary Compensation Table
The following table includes information regarding total compensation, as defined by the proxy disclosure rules applicable to executive compensation, earned by our NEOs during the 2007 and 2006 fiscal years; however, 2006 information is not provided for Mr. Bitzer because he was not a NEO during fiscal year 2006. It does not reflect the actual compensation received by our NEOs or the target compensation established for our NEOs by the Human Resources Committee for those periods.
The components of total compensation set forth in the Summary Compensation Table are described below:
Salary. This column reflects salary amounts earned during each fiscal year.
Bonus. The NEOs, with the exception of Mr. Periquito, do not typically receive discretionary cash bonuses. Mr. Periquito receives a cash payment as compensation for increased living costs outside of the United States.
Stock Awards. Stock awards consist of restricted stock units awarded under the Strategic Excellence Program (SEP), Career Stock Program (CSP) and/or Special Retention Program (SRP) in 2007 and 2006, and other restricted stock units which were awarded, but not vested by January 1, 2006. A restricted stock unit is the right to receive a share of Whirlpool common stock or the equivalent on a pre-defined date. Amounts recorded in this column reflect the FAS 123(R) compensation expense recognized for these awards in our financial statements for the 2007 fiscal year. The recognized compensation expense will likely vary from the actual value realized by the NEO due to stock price fluctuations, forfeitures and differences between valuation assumptions and actual experience.
Option Awards. Option awards consist of non-qualified stock options awarded under the Strategic Excellence Program in 2007 and 2006, and other options which were awarded but not vested by January 1, 2006. Amounts recorded in this column reflect the FAS 123(R) compensation expense recognized for these awards in our financial statements for the 2007 fiscal year. The recognized compensation expense will likely vary from the actual value realized by the NEO due to stock price fluctuations, timing of exercises, forfeitures and differences between valuation assumptions and actual experience.
Non-equity Incentive Compensation Expense. Non-equity compensation expense consists of annual cash bonuses earned on the basis of achievement of company and individual performance objectives under the Performance Excellence Plan (PEP) and performance units earned on the basis of achievement of long-term objectives under the SEP. A performance unit is the right to receive a specific cash payment on a pre-defined date. Once earned, performance units may be subject to additional vesting requirements under the terms of the award. Amounts recorded in this column include performance units earned both under the 2007 Strategic Excellence Program and the 2005 Enhanced Strategic Excellence Program.
Please refer to the sections under the captions Compensation Discussion and Analysis Long-Term Incentives Strategic Excellence Program and Enhanced SEP for more information on these awards.
Change in Pension Value and Non-qualified Deferred Compensation Earnings. For U.S.-based NEOs, change in pension value reflects the difference between the actuarial present value of each NEOs accumulated benefit under the Whirlpool Employees Pension Plan (WEPP), Supplemental Executive Retirement Plan (SERP), and Defined Benefit Restoration Plan (DB Restoration Plan) as set forth in the Pension Benefits Table for 2006 and for 2007. No increase in actuarial present value was recorded for Mr. Periquitos accumulated benefit under the Founders Pension Plan because the pension has been fully funded and does not accumulate additional value. As a non U.S.-based employee, Mr. Bitzer does not participate in a defined benefit or actuarial plan. None of the NEOs receive above-market or preferential earnings on their non-qualified deferred compensation.
All Other Compensation. All other compensation includes perquisites and insurance premiums. NEOs may receive different perquisites and different levels of personal benefits depending on what is usual and customary for comparable positions in their geographic markets.
Grant of Plan-Based Awards Table
During the 2007 fiscal year, we granted short- and long-term cash incentives, restricted stock units, and stock options. The table below describes the awards that we granted to our NEOs for the 2007 fiscal year on an award-by-award basis.
PEP awards are granted under the stockholder approved Performance Excellence Plan. SEP awards, including stock options, restricted stock units (RSUs) and performance units (Long-term Cash) were granted under the 2002 Omnibus Stock and Incentive Plan. Career Stock Program (CSP) awards and Special Retention Program (SRP) awards were granted under the 2007 Omnibus Stock and Incentive Plan.
Under our 2007 Omnibus Stock and Incentive Plan, fair market value is defined as the officially quoted closing price of our common stock on the grant date. Previously, our omnibus stock and incentive plans, including the 2002 Omnibus Stock and Incentive Plan, defined fair market value as the average of the highest and lowest trading price per share of common stock on the grant date. In the following table, we have provided an extra column to show the closing price on the grant date (see Closing Price column).
For more information about these programs, see Compensation Discussion and Analysis Short-Term Incentives and Compensation Discussion and Analysis Long-Term Incentives.
Outstanding Equity Awards at Fiscal Year-End Table
Our NEOs had the following types of equity awards outstanding at the end of the 2007 fiscal year: stock option awards granted under SEP or our predecessor program and restricted stock awards granted under SEP, SRP, or CSP. The predecessor program to the SEP had substantially the same terms and guidelines as the SEP. For more information about these programs, see Compensation Discussion and Analysis Long-Term Incentives. In addition, in 2006, certain executives received restricted stock units to recognize their contributions to the acquisition and integration of Maytag (Special Recognition RSUs).
Option Exercises and Stock Vested Table
The table below describes the option awards exercised by our NEOs listed in the table and their stock awards that vested during 2007. The option awards exercised consist of awards granted under SEP (or the predecessor plan to SEP, which had substantially the same terms and guidelines as SEP). The stock awards that vested consist of awards granted under the:
For more information about these programs, see Compensation Discussion and Analysis Long-Term Incentives.
Pension Benefits Table
The following table describes the estimated actuarial present value of accrued pension benefits through the end of our 2007 fiscal year for each of our NEOs listed in the table. Our U.S.-based NEOs are entitled to benefits under the Whirlpool Employees Pension Plan (WEPP), the Whirlpool Retirement Benefit Restoration Plan (DB Restoration Plan), and the Whirlpool Supplemental Executive Retirement Plan (SERP). None of our U.S.-based NEOs is retirement-eligible as of the last day of our 2007 fiscal year. The number of years of service credited to each NEO equals the NEOs length of eligible service with Whirlpool. Whirlpool currently has a policy against crediting additional years of service under the following pension plans.
For benefits under WEPP, the formula is:
In this formula:
Retirement benefits under this formula are limited by the Internal Revenue Code. Benefits can be paid to plan participants in a variety of annuity forms or as a lump sum amount. The benefits payable to our NEOs from this plan were frozen as of December 31, 2006.
After reaching age 55 and completing five years of service with Whirlpool, salaried participants in this plan are eligible for early retirement benefits under the plan. Benefits paid prior to age 65 are reduced. The factors used to determine this reduction vary with the participants age. For example, for salaried participants whose benefits have vested and who retire from active service at age 55, their retirement benefits are reduced to 55% of the full retirement benefit payable at age 65. None of our NEOs who participate in this plan are eligible for early retirement as of the last day of our 2006 fiscal year.
Under the DB Restoration Plan, the retirement eligibility and benefit formula are the same as under WEPP, except that in this plan statutory benefit limitations are not applied in
calculating benefits under the formula. With respect to our NEOs who participate in this plan, payments under this plan are generally made in a lump sum after the later of: (1) six months following termination of employment or (2) the participants reaching age 55. Participants may not make withdrawals during their employment. The benefits payable to our NEOs from this plan were frozen as of December 31, 2006.
With respect to benefits under SERP, the formula is:
In this formula:
Our NEOs are eligible for benefits under SERP if they terminate employment for any reason except a termination for Cause after early retirement age or normal retirement age, or after completing five years of service, provided they have received one or more PEP awards within the last ten calendar years preceding their termination of employment. Executives may also be eligible for SERP benefits if they terminate employment prior to early retirement age or before completing five years of service due to the existence of a long-term disability.
Normal retirement means retiring on or after the normal retirement age, which is generally the later of the executives 65th birthday or completion of five years of continuous service. With respect to our NEOs who participate in this plan, payments under this plan are generally made in a lump sum after the later of: (1) six months following termination of employment or (2) the participants reaching age 55. Participants may not make withdrawals during their employment.
The actuarial present values of benefits under these plans are calculated in accordance with the following assumptions: (1) discount rate: 2007 6.2%, 2006 5.90%, 2005 5.65%; (2) assumed retirement age: 65; (3) no pre-retirement decrements; (4) assumed form of payment: lump sum, determined as equal to the present value of the life annuity provided by the plans formulas and calculated based on the plans provisions, including an interest rate based on high-quality corporate bond yields (assumed to be 6.2%) and mortality assumption that is based on the RP-2000 Table. The actuarial increase during our 2007 fiscal year of the projected retirement benefits can be found in the Summary Compensation Table in the Change in Pension Value and Non-Qualified Deferred Compensation Earnings column (all amounts reported under that heading represent actuarial increases in our plans).
Mr. Periquito is retirement eligible as of the last day of our 2007 fiscal year. Both Mr. Periquito and Whirlpool contributed to his benefit under the Founder Pension Plan, a non-U.S. pension plan, prior to its transfer to a private pension fund. No further contributions
to the fund are expected to be made by Whirlpool. Mr. Periquito may draw from the fund prior to and during retirement. Mr. Bitzer does not participate in any defined benefit pension plans.
Non-Qualified Deferred Compensation Table
The table below provides information about the non-qualified defined contribution deferred compensation plans in which our NEOs participate. Our U.S.-based NEOs participate in the Whirlpool Corporation Executive Deferred Savings Plan (EDSP I) and the Whirlpool Corporation Executive Deferred Savings Plan II (EDSP II). EDSP I was designed to provide executives with pre-tax deferral opportunities beyond those offered by the Whirlpool 401(k) Retirement Plan. Participants may no longer make deferrals to EDSP I. EDSP II became effective January 1, 2005 to comply with the requirements of new Code Section 409A.
EDSP II includes two components: the traditional component is known as EDSP II and the new component, which became effective January 1, 2007, is known as the Whirlpool Executive Restoration Plan (the DC Restoration Plan). The traditional EDSP II is designed to provide executives with pre-tax deferral opportunities beyond those offered by the Whirlpool 401(k) Retirement Plan and the DC Restoration Plan. This component allows eligible executives to contribute up to 75% of their base salary, short-term incentives and long-term incentives.
For our NEOs, the DC Restoration Plan treats base salary as the only form of compensation eligible for deferral under the plan. With respect to our NEOs who participate in this plan, distributions under the plan are generally made in a lump sum after a six month waiting period following termination of employment. EDSP I and EDSP II (including both the traditional component and the DC Restoration Plan component) are unfunded non-qualified plans that are secured by our general assets. Amounts deferred are credited to recordkeeping accounts for participants, and the recordkeeping balances are credited with earnings and losses measured by investments generally similar to those selected by executives and available in the Whirlpool 401(k) Retirement Plan (other than the Whirlpool stock fund). Participants may not make withdrawals during their employment, except in the event of hardship, as approved by the Human Resources Committee.
As an executive in Italy, Mr. Bitzer participates in Previndai, a voluntary defined contribution plan mandated by the National Collective Agreement for Industrial Dirigenti. Both Mr. Bitzer and Whirlpool make contributions to his Previndai account, as reflected in the Summary Compensation Table. Mr. Periquito does not participate in any non-qualified defined contribution or other non-qualified deferred compensation plans.
Potential Post-Termination Payments Tables
The tables below describe the compensation and benefits payable to each of our NEOs in the following circumstances: involuntary termination by Whirlpool for cause, involuntary termination by Whirlpool without cause, resignation, retirement, death, disability, and change in control (with and without a qualifying termination). The amounts shown assume that termination of employment or a change in control occurred as of December 31, 2007, and estimate certain amounts which would be paid to our NEOs upon the specified event. Due to the number of factors that affect the nature and amounts of compensation and benefits provided upon the events discussed below, the actual amounts paid or distributed may be different. Factors that could greatly affect these amounts include the timing during the year of any such event, Whirlpools stock price, and the NEOs age.
The tables quantify and the accompanying narrative disclosure describes the compensation and benefits that are paid in addition to compensation and benefits generally available to salaried employees. Examples of compensation and benefits generally available to salaried employees, and thus not included below, are distributions under the Whirlpool 401(k) Retirement Plan, accrued vacation pay, and, in certain circumstances, vested equity.
Involuntary Terminations and Resignation
We provide no additional benefits to any of our NEOs in the event that the NEO resigns from Whirlpool. Also, we do not have employment agreements with any of our NEOs that would provide benefits in the event that we terminate the NEOs employment involuntarily for cause. Upon resignation and involuntary termination for cause, and in accordance with the terms of the long-term incentive awards granted under our incentive programs, our NEOs forfeit all unvested awards, as well as all vested, or partially vested, but unexercised awards. Generally, in the event we terminate the employment of an NEO involuntarily without cause, the payment of the value of the unvested portion of restricted stock units granted under the Career Stock Program is the only benefit to which the NEO is entitled. Under Italian law, in the event of termination without cause, Mr. Bitzer is also entitled to a lump sum severance benefit equal to one year of salary, plus the average of his last three awards received through participation in PEP, plus an accrued lump sum statutory severance indemnity payment (TFR) equal to 67,687 (approximately U.S. $92,792). The severance benefit provided to Mr. Bitzer in the event of involuntary termination without cause is generally available to all employees in his classification and is, therefore, not reflected below. Under the terms of his employment agreement, Mr. Periquito is entitled to an amount equal to 13.82 months of base salary, in the event of termination without cause. The Human Resources Committee may, in its discretion, approve additional severance benefits designed to mitigate economic injury to the NEO as a direct result of the termination.
Among our NEOs, only Mr. Periquito is retirement-eligible as of the last day of our 2007 fiscal year, and, thus, he may take a full distribution of his pension plan benefit at any time, including prior to retirement. Since the other NEOs are not retirement-eligible, if these
NEOs chose to retire as of the last day of our 2007 fiscal year, the effect of that retirement would be the same as if the NEO had resigned, as described immediately above. Since none of our NEOs (other than Mr. Periquito) is retirement-eligible, the following quantification of estimated compensation and benefits payable at retirement, as well as the accompanying narrative disclosure, assume that each of our NEOs was retirement-eligible as of the end of our 2007 fiscal year.
In the event of retirement, our NEOs would be entitled to a mix of short- and long-term incentives. The possible short-term incentive payout would consist of a prorated cash payout at target under PEP for the fiscal year in which the NEO retires. Proration is based on the ratio of the number of days worked during the performance period to the total number of days in the performance period.
The possible long-term incentive payouts consist of accelerated vesting of unvested, or partially unvested, restricted stock awards, performance units, and stock options under SEP and restricted stock units under the CSP. Performance units are payable in cash. The presently unvested, or partially unvested, SEP awards that remain outstanding are from fiscal years 2005, 2006, and 2007. At the first regularly-scheduled Human Resources Committee meeting following the completion of the applicable performance period, the Committee reviews certain performance measures and determines whether the NEO has earned the award. The Committee met on February 18, 2008 and determined that our NEOs earned their 2005 Enhanced SEP awards. The Enhanced SEP cash and restricted stock awards were granted for a three-year performance period (2005-2007) and no determination was made as to whether our NEOs had earned the Enhanced SEP grant as of December 31, 2007. As a result, a retirement-eligible NEO would become eligible to receive a prorated benefit, in cash and restricted stock, if the NEO was at least 18 months into the performance period prior to retirement. In the case of the Enhanced SEP awards, as of the last day of our 2007 fiscal year, each NEO had completed the entire performance period. Therefore, a retirement-eligible NEO would receive a full target award in cash and restricted stock, upon retirement.
The 2006 SEP award was granted for a one-year performance period. The Human Resources Committee met on February 19, 2007 and determined that our NEOs earned their 2006 SEP awards. As a result, a retirement-eligible NEO would be eligible to receive a full award, in cash and restricted stock, upon retirement.
The 2007 SEP award was granted for a one-year performance period. The Human Resources Committee met on February 18, 2008 and determined that our NEOs earned their 2007 SEP awards. However, as of the last day of our 2007 fiscal year, no determination had been made as to whether our NEOs had earned this SEP grant. As a result, a retirement-eligible NEO would become eligible to receive a prorated benefit, in cash and restricted stock, if the NEO was at least six months into the performance period prior to retirement. In the case of the 2007 SEP awards, as of the last day of our 2007 fiscal year, each NEO would have completed the full 12 months of the performance period. However, since the Committee would not yet have met to determine whether our NEOs earned their 2007 SEP awards and the actual amount of these awards would not be known, a retirement-eligible NEO would receive
a payout at target, in cash and restricted stock, upon retirement. If the NEO is terminated at any time prior to the end of the fiscal year, the NEO would receive a prorated payout, in cash and restricted stock, upon retirement. Proration is based on the ratio of the number of days worked during the performance period to the total number of days in the performance period.
In addition, upon the retirement of a retirement-eligible NEO, the NEO would receive accelerated vesting of all applicable unvested stock option awards granted under SEP. Unvested stock options under SEP that are accelerated upon the retirement of a retirement-eligible NEO must be exercised within five years or the unexercised stock options will be cancelled.
With respect to unvested restricted stock awards granted under the CSP, the benefit a retirement-eligible NEO would receive upon retirement would depend on the NEOs place in the vesting timeline of the award. For the purposes of the table below and consistent with our assumption that each of our NEOs is retirement-eligible, we include a value showing the full vesting of unvested awards under the CSP. In reality, even a retirement-eligible NEO might not receive this full vesting treatment. This determination would likely vary depending on the NEOs age, tenure with Whirlpool, the number of years since the grant date, and the vesting schedule described in the individual award agreement.
Upon retirement, our NEOs would forfeit any applicable unvested Special Recognition RSUs, unvested restricted stock units under SRP and restricted stock units granted under the CSP for which time-based vesting requirements were not met.
Death and Disability
Upon the death or disability of one of our NEOs, with respect to the accelerated vesting of unvested, or partially unvested, SEP cash awards, restricted stock awards, and stock options, the same analysis applies under these two scenarios as would apply in the case of the retirement of a retirement-eligible NEO, as described immediately above.
Unlike the treatment in the case of retirement, the benefit upon death or disability consists of the accelerated vesting of all unvested restricted stock awards under the CSP without regard to the time elapsed under the vesting schedule.
Just as in the event of a retirement-eligible NEOs retirement, in the case of disability or death, the NEO forfeits any applicable unvested Special Recognition RSUs and unvested restricted stock awards granted under SRP.
The following table shows the possible payouts to each of our NEOs for the specified type of employment termination. As detailed above, the values for the retirement portion of the table assume that our NEOs were retirement-eligible as of the last day of the 2007 fiscal year and also assume that our NEOs were eligible for the full vesting of any unvested restricted stock awards under the CSP. As a result of these assumptions, the benefit conferred to our NEOs upon retirement is identical to the benefit conferred in the event of a disability. In addition, the amounts under Retirement and Disability Total in the table below are identical to the amounts under Death Total in the table below for each of the NEOs other than Mr. Periquito. In the event that Mr. Periquito dies, his designated beneficiaries would receive a life insurance benefit equal to 36 times his monthly base salary. This benefit is unique to Mr. Periquito and, thus, the incremental benefit paid out in the event of his death varies by the amount of this benefit from the payout in the event of his retirement or disability. The designated beneficiaries of our other NEOs would receive the same life insurance benefits generally available to all salaried employees and, thus, there is no additional incremental benefit paid out in the event that they die.
Change in Control
We have agreements with Messrs. Fettig, Templin, Todman, Periquito, and Bitzer that take effect only in the event of a change in control. A change in control in accordance with these agreements is generally defined to include the acquisition by any person or group of 25% or more of Whirlpools voting securities, a change in the composition of the Board such that the existing Board or persons who were approved by a majority of directors or their successors on the existing Board no longer constitute a majority, and approval by the stockholders of an acquisition or liquidation of Whirlpool.
Upon the occurrence of a change in control, our NEOs receive full accelerated vesting of previously unvested, or partially unvested, long-term incentives. These long-term incentives include:
In addition to the accelerated vesting of these awards, our NEOs may be entitled to receive an additional lump-sum payment in an amount sufficient to cover the full cost of any excise tax and the NEOs city, state, and federal income, employment, and excise taxes on this additional payment and on such iterative payments such that the NEO is made entirely whole for the impact of the excise tax. The excise tax gross-up represents a benefit actually paid out by Whirlpool in connection with the occurrence of a change in control, whereas the accelerated vesting of long-term incentives provides a benefit to our NEOs, but does not represent amounts that we pay out solely in the event of a change in control. The following table shows the possible payouts to our NEOs triggered solely upon the occurrence of a change in control as of December 31, 2007.
Additional benefits are payable to our NEOs after a change in control, but only after a qualifying termination occurs. Qualifying terminations include: involuntary termination of the NEO by Whirlpool; voluntary termination by the NEO for good reason, as defined in the agreement; voluntary termination by the NEO during, and only during, the 13th month after the change in control; or a material breach of the change in control agreement by Whirlpool.
Cash severance arising from these change in control agreements is paid out in a lump sum payment equal to:
The amount of cash severance will be offset by any other severance-type payments the NEO may be eligible or entitled to receive from any other sources.
Our NEOs are also entitled to receive continued benefits for 36 months in connection with a termination after a change in control. These benefits include certain health, life, and short- and long-term disability insurance benefits. The severance benefits provided to the NEOs in the event of a change in control include an amount, payable at the same time and in the same form as if paid from the non-qualified defined benefit pension plans, equal to the additional benefits to which the NEO would be entitled under our non-qualified defined benefit pension plans if:
The continuation of the NEOs benefits will be calculated at the same cost and at the same level of coverage as in effect on the date of termination.
Mr. Periquitos change in control agreement differs slightly due to certain cost of living adjustments that are factored into his cash severance. In addition, Mr. Periquitos continued benefits differ from those benefits for other NEOs as described above and include: a designated automobile, special life insurance, and hospital, medical, dental, and pharmaceutical assistance.
The following table shows possible payouts to our NEOs as of December 31, 2007, triggered upon the occurrence of a change in control and a subsequent qualifying termination.
Policy for Evaluating Related Person Transactions
The Board has adopted a written policy relating to the Corporate Governance and Nominating Committees review and approval of transactions with related persons that are required to be disclosed in proxy statements by SEC regulations (related person transactions). A related person is defined under the applicable SEC regulation and includes our directors, executive officers, and owners of 5% or more of our common stock. The Corporate Secretary administers procedures adopted by the Board with respect to related person transactions and the Committee reviews and approves all such transactions. At times, it may be advisable to initiate a transaction before the Committee has evaluated it, or a transaction may begin before discovery of a related persons participation. In such instances, management consults with the Chairman of the Committee to determine the appropriate course of action. Approval of a related person transaction requires the affirmative vote of the majority of disinterested directors on the Committee. In approving any related person transaction, the Committee must determine that the transaction is fair and reasonable to Whirlpool. The Committee periodically reports on its activities to the Board. The written policy relating to the Committees review and approval of related person transactions is available on our website: www.whirlpoolcorp.com click on the Governance tab, then click on Board of Directors. All of the related person transactions described under the heading Related Person Transactions below have been approved by the Corporate Governance and Nominating Committee pursuant to this policy.
Related Person Transactions
Harbor Shores Community Redevelopment Inc. (Harbor Shores) is a not-for-profit entity partially owned by three U.S. not-for-profit entities, including the Whirlpool Foundation. The purpose of the Harbor Shores project is to transform approximately 530 acres in Benton Harbor and St. Joseph, Michigan into a residential, recreational and commercial community with a goal of enhancing the economic base in southwest Michigan. The project, which is expected to be completed in 2013, places a special emphasis on providing literacy and job training combined with employment options for low and moderate income residents. Since September 2005, Whirlpool Corporation has loaned $12 million to Harbor Shores, secured by a mortgage on real estate owned by Harbor Shores, and guaranteed up to an additional $10 million borrowed by Harbor Shores from a third-party bank. The guarantee was made in the ordinary course, on substantially the same terms as those prevailing at the time for comparable guarantees with persons not related to the lender, and did not involve other unfavorable features. Certain current and former members of Whirlpool Corporation management serve as volunteer officers and trustees of Harbor Shores, including Whirlpools current CFO. None of these individuals has a personal financial interest in or otherwise receives compensation or benefits from Harbor Shores, Whirlpool Corporation, or the Whirlpool Foundation for their services to the Harbor Shores project.
Whirlpool employs a son of Arnold Langbo, one of the directors of Whirlpool. Mr. Gary Langbo holds a management position in Whirlpools Marketing Department and received base salary and bonus compensation of $251,303 in 2007, along with other employment benefits that are standard for Whirlpool employees at that management level. Mr. Arnold Langbo was not involved in the recruiting or hiring of his son, nor in any decision affecting his sons compensation. His sons compensation was established by Whirlpool in accordance with our compensation practices applicable to employees with equivalent qualifications and responsibilities and holding similar positions.
No member of the Human Resources Committee was at any time during 2007 an officer or employee of Whirlpool and no member of the Committee has formerly been an officer of Whirlpool. In addition, no compensation committee interlocks existed during fiscal year 2007.
The following table presents information relating to securities authorized under equity compensation plans as of December 31, 2007. The only plan reflected below that was not approved by our security holders is the Key Employee Treasury Stock Ownership Plan. This plan, the terms of which are substantially similar to our omnibus stock and incentive plans, was established to support the hiring and retention initiatives at key leadership positions by providing key leaders with the opportunity to receive Whirlpool common stock and stock options, restricted stock, and phantom stock awards to be paid from our treasury stock. In 2007, no awards were made under this plan.
Ernst & Young LLP has been appointed by the Audit Committee to be our independent registered public accounting firm for fiscal year 2008. Representatives of Ernst & Young are expected to be present at the annual meeting to respond to appropriate questions and may make a statement if they so desire.
In the years indicated, Ernst & Young billed Whirlpool the following fees (in millions):
Audit-related fees are principally comprised of fees for services provided in connection with employee benefit plan audits and consultation with management as to the accounting or disclosure treatment of various transactions or events. Tax fees are principally comprised of fees for services provided in connection with worldwide tax planning and compliance services, expatriate tax services, and assistance with tax audits and appeals.
Advance Approval Policy for Independent Registered Public Accounting Firm Services
Pursuant to its written charter, the Audit Committee, or a subcommittee thereof comprised of one or more independent directors, is responsible for approving in advance all audit, internal control-related, and permitted non-audit services the independent registered public accounting firm performs for us. In recognition of this responsibility, the Audit Committee has established a policy to approve in advance all audit, internal control-related, and permissible non-audit services the independent registered public accounting firm provides. Prior to engagement of the independent registered public accounting firm for the next years audit, management or the independent registered public accounting firm submits to the Audit Committee a request for approval of services expected to be rendered during that year. This request outlines each of the four categories listed above and the Audit Committee approves these services by category. The fees are budgeted and the Audit Committee requires the independent registered public accounting firm and management to report actual fees versus the budget periodically throughout the year by category of service. During the year, circumstances may arise when it may become necessary to engage the independent registered public accounting firm for additional services not contemplated in the original advance
approval. In those instances, the Audit Committee requires specific approval in advance before engaging the independent registered public accounting firm. The Audit Committee may delegate authority to make advance approval to one or more of its members. The member or members to whom such authority is delegated must report, for information purposes only, any such approval decisions to the Audit Committee at its next scheduled meeting. A copy of the Audit Committee Pre-Approval Policy for Independent Registered Public Accounting Firm Services appears on Whirlpools website: www.whirlpoolcorp.com click on the Governance tab, and then Board of Directors.
Audit Committee Report
The Audit Committee provides independent oversight of Whirlpools accounting functions and monitors the objectivity of the financial statements prepared under the direction of Whirlpools management. In addition, the Committee retains our independent registered public accounting firm; reviews major accounting policy changes by Whirlpool; reviews and approves the scope of the annual internal and independent audit processes; reviews and monitors our assessment of internal controls; approves in advance audit, permitted non-audit, and internal control-related services provided by the independent registered public accounting firm; approves all fees paid to the independent registered public accounting firm; and monitors our activities designed to assure compliance with Whirlpools ethical standards. The Committee is composed of five directors who have been determined by the Board to be independent and financially literate pursuant to the NYSE listing requirements. The Committee operates under a written charter adopted by our Board.
The Committee has reviewed our audited consolidated financial statements for 2007 with management, and management has represented to the Committee that these financial statements were prepared in accordance with accounting principles generally accepted in the United States. The Committee discussed with management the quality and the acceptability of the accounting principles employed, including all critical accounting policies used in the preparation of the financial statements and related notes, the reasonableness of judgments made, and the clarity of the disclosures included in the statements.
The Committee also reviewed our consolidated financial statements for 2007 with Ernst & Young LLP, our independent registered public accounting firm for 2007 (Ernst & Young), which is responsible for expressing an opinion on the conformity of those audited financial statements with accounting principles generally accepted in the United States. Further, the Committee reviewed with Ernst & Young its judgment as to the quality, not just the acceptability, of Whirlpools accounting principles. In addition, the Committee met with Ernst & Young, with and without management present, to discuss the results of its examinations, its evaluations of our internal controls, and the overall quality of our financial reporting. The Audit Committee met eleven times during the fiscal year ended December 31, 2007.
The Committee has received the written disclosures and the letter from Ernst & Young required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), as modified or supplemented, and has discussed with Ernst & Young its
independence. The Committee considered the compatibility of non-audit services Ernst & Young provided to us with Ernst & Youngs independence. Finally, the Committee discussed with Ernst & Young the matters required to be discussed by the Statement on Auditing Standards No. 61 (Communication with Audit Committees), as amended.
In reliance on the reviews and discussions referred to above, the Committee recommended to the Board, and the Board has approved, the inclusion of the consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2007 for filing with the Securities and Exchange Commission. The Committee has selected Ernst & Young as our independent registered public accounting firm for 2008.
Mr. Michael D. White, Chair
Mr. Gary T. DiCamillo
Mr. William T. Kerr
Mr. Arnold G. Langbo
Mr. Miles L. Marsh
Item 2 Stockholder Proposal Relating to Annual Election of Directors
We have been advised that the following non-binding stockholder proposal will be presented at the annual meeting. The proposal will be voted on at the annual meeting if the proponent (who owns 95 shares of our common stock, as of November 2007), or a qualified representative, is present at the meeting and submits the proposal for a vote. Following the stockholder proposal is our statement in opposition. We will provide to stockholders the name and address of the proponent upon receiving an oral or written request.
For the reasons set forth below in our Boards statement in opposition to the stockholder proposal, our Board of Directors recommends a vote against Item 2.
The text of the shareholder proposal and supporting statement appear below as received by us and Whirlpool assumes no responsibility for its content or accuracy.
Resolution Proposed by Stockholder
RESOLVED: Shareholders request that our Directors take the steps necessary to adopt annual election of each director in the most expeditious manner possible, in compliance with applicable law and in a manner so that each director shall have a term of equal length from the date of first implementation to the greatest extent possible.
This includes using all means in our Boards power such as corresponding special company solicitations and one-on-one management contacts with major shareholders to obtain the vote required for formal adoption of this proposal topic. Also for such transition solely through direct action of our board if such transition is in compliance with applicable law.
Stockholders Supporting Statement
This topic won a 69% yes-vote average at 44 major companies in 2007. The Council of Institutional Investors www.cii.org recommends adoption of annual election of each director.
Arthur Levitt, Chairman of the Securities and Exchange Commission, 1993-2001 said: In my view its best for the investor if the entire board is elected once a year. Without annual election of each director shareholders have far less control over who represents them. Source: Take on the Street by Arthur Levitt.
Nick Rossi, Boonville, Calif., who submitted a number of proposals on this topic, said the merits our current practice, in which only a few directors stand for elected annually, is not in the best interest of our Company and its stockholders. Eliminating this staggered system would require each director to stand for election annually and would give stockholders an opportunity to register their view on the performance of each director annually. Electing directors in this manner is one of the best methods available to stockholders to ensure that the Company will be managed in a manner that is in the best interest of stockholders.
Some companies express the unfounded concern that the annual election of each director could leave a company without experienced directors in the event that all incumbents are voted out by stockholders. In the unlikely event that stockholders would vote to replace all directors, such a decision would express an overwhelming dissatisfaction with the incumbent directors and would reflect the need for change.
In recent years, a number of companies have completely transitioned to annual election of each director in one year in response to the strong shareholder support like the 69% yes-vote average at 44 major companies in 2007.
Elect Each Director Annually Yes on 2
Whirlpools Board of Directors Statement OPPOSING This Proposal
The Corporate Governance and Nominating Committee of Whirlpools Board of Directors, which is composed entirely of independent directors, regularly considers and evaluates a broad range of corporate governance issues. For the reasons set forth below, and based on the recommendation of the Corporate Governance and Nominating Committee, Whirlpools Board has determined that it is in the best interests of Whirlpool and its stockholders to maintain the current classified Board structure which has been in place for over 20 years.
Accountability to Stockholders and Strong Corporate Governance. Whirlpools stockholders already have a meaningful opportunity at each annual meeting of stockholders to communicate their views on our oversight of Whirlpools management through the director election process. In December 2006, the Board approved an amendment to Whirlpools by-laws to require each director to be elected by the majority of votes cast with respect to that director in an uncontested election. Under our policy, any director who fails to be elected must tender his or her resignation. The Board will then make a final determination, taking into account all the relevant facts and circumstances, of whether to accept that resignation. Prior to this amendment, a director could have been elected even if he or she did not receive the affirmative vote of the majority of shares voted at the annual meeting.
With this majority voting standard now in place, Whirlpools stockholders can effectively register their views on the performance of directors by withholding their votes from any nominee for any reason. In addition, each director is required to uphold his or her fiduciary duties to Whirlpools stockholders and Whirlpool, regardless of whether he or she is subject to election in a particular year.
Enhances the Independence of the Board. We believe that electing directors to three-year terms, rather than one-year terms, enhances the independence of nonemployee directors by providing them with a longer assured term of office, thereby insulating them against pressures from special interest groups who might have an agenda contrary to the interests of all stockholders. Our current classified Board structure permits directors to focus on Whirlpools long-term interests instead of on the re-nomination process, leading to greater independence and better governance.
Stability and Continuity. We believe that in light of the adoption of the majority vote provision described above, staggered board elections are necessary to ensure that the majority of directors have prior experience and familiarity with Whirlpools businesses, products, markets, opportunities and challenges. At a company with both a majority vote provision and a non-classified board, it is possible that a majority, or even all, of the directors could fail to be elected in a single year, jeopardizing the companys long-term strategies and growth plans.
A classified Board also assists Whirlpool in attracting and retaining highly qualified directors who are willing to commit the time and resources necessary to understand Whirlpool, its operations and its competitive environment. We believe that agreeing to serve a three-year term demonstrates a nominees commitment to Whirlpool and its stockholders over the long-term. Given the current corporate governance climate, in which many qualified individuals are increasingly reluctant to serve on public boards, Whirlpool could be at a competitive disadvantage in recruiting qualified director candidates if their Board service might be limited to a one-year period.
Protection against Certain Takeovers. We believe that a classified board plays an important role in ensuring that the interests of all stockholders are protected and maximized in connection with an unsolicited takeover proposal. A classified board structure prevents the strategy of a potential acquirer replacing a majority of the Board with its own nominees at a single meeting and thereby gaining control of Whirlpool without paying a fair value to Whirlpools stockholders. A classified board structure does not preclude a takeover, but rather provides the Board the additional time and leverage necessary to evaluate the adequacy and fairness of a takeover proposal, and to negotiate the best deal possible for the benefit of all stockholders, without the threat of imminent removal of a majority of Board members.
Recommendation Only. Whirlpools stockholders should be aware that this stockholder proposal is simply a request that the Board take the actions stated in the proposal. Declassification of the Board requires an amendment to Whirlpools Certificate of Incorporation which must first be approved by the Board and then submitted to a vote of the stockholders at a subsequent meeting. A vote in favor of the proposal, therefore, would constitute a recommen