Wolverine World Wide DEF 14A 2008
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
WOLVERINE WORLD WIDE, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Wolverine World Wide, Inc.
9341 Courtland Drive, N.E.
Rockford, Michigan 49351
To our Stockholders:
You are invited to attend Wolverines Annual Meeting of Stockholders at Wolverines headquarters located at 9341 Courtland Drive, N.E., Rockford, Michigan, on Thursday, April 17, 2008, at 10 a.m. local time. At the meeting, we will:
You can vote at the meeting and any adjournment of the meeting if you were a stockholder of record on March 3, 2008. A list of stockholders entitled to vote at the meeting will be available for review by Wolverine stockholders at the office of Kenneth A. Grady, Secretary and General Counsel of Wolverine, located at 9341 Courtland Drive, N.E., Rockford, Michigan, during ordinary business hours for the 10-day period before the meeting.
A copy of Wolverines Annual Report to Stockholders for the year ended December 29, 2007, is enclosed with this Notice. The following proxy statement and enclosed proxy card are being sent to stockholders on and after March 14, 2008.
By Order of the Board of Directors
Kenneth A. Grady, Secretary and General Counsel
March 14, 2008
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 17, 2008.
Wolverines Proxy Statement for the 2008 Annual Meeting of Stockholders and the Annual
Report to Stockholders for the fiscal year ended December 29, 2007 are available at
TABLE OF CONTENTS
WOLVERINE WORLD WIDE, INC.
9341 Courtland Drive, N.E.
Rockford, Michigan 49351
ANNUAL MEETING OF STOCKHOLDERS
April 17, 2008
This proxy statement and enclosed proxy card are being furnished to you in connection with the solicitation of proxies by the Wolverine Board of Directors for use at the annual meeting. In this proxy statement, we, us, our and Wolverine refer to Wolverine World Wide, Inc. and you and your refer to Wolverine stockholders.
election of three directors for three-year terms expiring in 2011; and
ratification of the appointment of Ernst & Young LLP as independent auditors for Wolverine for the current fiscal year.
As recommended by the Governance Committee, the Board of Directors proposes that the following nominees be elected as directors for terms expiring at the 2011 annual meeting:
William K. Gerber
Blake W. Krueger
Michael A. Volkema
All of the nominees are currently directors of Wolverine whose terms will expire at the annual meeting. Each proposed nominee is willing to be elected and serve as a director. However, if a nominee is unable to serve or is otherwise unavailable for election, which is not contemplated, the incumbent Wolverine Board of Directors may or may not select a substitute nominee. If a substitute nominee is selected, your shares will be voted for the substitute nominee (unless you give other instructions). If a substitute nominee is not selected, your shares will be voted for the remaining nominees. Proxies will not be voted for more than three nominees.
Wolverines Board of Directors currently consists of 11 directors. Phillip D. Matthews, age 69, is retiring at this years annual meeting after 26 years of service as a director. Mr. Matthews served as Chairman of the Board of Wolverine from 1993 until 1996 and served as Lead Director of Wolverine from 1996 until 2007. Mr. Matthews is also Chairman of Zodiac Marine Holdings, Inc. and is a director of Washington Mutual.
Wolverines Amended and Restated Bylaws provide that the Board of Directors is divided into three classes, with each class to be as nearly equal in number as possible. Each class serves a term of office of three years, with the term of one class expiring at the annual meeting in each successive year.
Biographical information for each nominee and each current director who will continue to serve after the annual meeting is presented below. Except as otherwise indicated, all have had the same principal positions and employment for over five years.
Your Board of Directors recommends that you vote FOR each nominee.
Wolverines Board of Directors
WILLIAM K. GERBER (age 54) was appointed to the Companys Board of Directors on February 7, 2008. Mr. Gerber is Managing Director of Cabrillo Point Capital LLC, a private investment fund. He has held that position since 2008. From 1998 to 2007, Mr. Gerber was Executive Vice President and Chief Financial Officer of Kelley Services, Inc., a staffing solutions company. Mr. Gerber is also a director of AK Steel Corporation and Kaydon Corporation.
BLAKE W. KRUEGER (age 54) has been a director since 2006. Mr. Krueger is Chief Executive Officer and President of Wolverine, a position he assumed at last years annual meeting of stockholders. From October 2005 until April 2007, Mr. Krueger served as President and Chief Operating Officer of Wolverine. From 2004 to October 2005, he served as Executive Vice President and Secretary of Wolverine and President of the Heritage Brands Group. From 2003 to 2004, Mr. Krueger served as Executive Vice President and Secretary of Wolverine and President of the Caterpillar Footwear Group. He has also previously served as Executive Vice President, General Counsel and Secretary of Wolverine with various responsibilities including the human resources, retail, business development, accessory licensing, mergers and acquisitions, and legal areas.
MICHAEL A. VOLKEMA (age 52) has been a director since 2005. Mr. Volkema is Chairman of Herman Miller, Inc., a leading designer and manufacturer of furnishings for the office and home. He has held that position since 2000. Mr. Volkema became President and Chief Executive Officer of Herman Miller in 1995 and held those positions until 2003 and 2004, respectively.
JEFFREY M. BOROMISA (age 53) has been a director since 2006. Mr. Boromisa is Executive Vice President of Kellogg International, President of Asia Pacific and Senior Vice President of Kellogg Company, a leading global cereal, snack and specialty foods company. He has held these positions since 2006. Mr. Boromisa is also a member of Kellogg Companys Global Leadership Team. From 2004 until 2006, he was Senior Vice President and Chief Financial Officer of Kellogg Company. In 2002, Mr. Boromisa was promoted to Senior Vice President, Corporate Controller and Chief Financial Officer of Kellogg International. Mr. Boromisa served as Vice President and Corporate Controller of Kellogg Company from November 1999 until 2002. In 1997, he was promoted to Vice President Purchasing of Kellogg North America, and since 1981, has served Kellogg Company in various financial positions.
DAVID T. KOLLAT (age 69) has been a director since 1992. Mr. Kollat is Lead Director of Wolverine. Mr. Kollat is also President and Chairman of 22, Inc., a company specializing in research and management consulting for retailers and consumer goods manufacturers. Mr. Kollat is also a director of Limited Brands, Inc.; Big Lots, Inc.; and Select Comfort Corporation.
DAVID P. MEHNEY (age 68) has been a director since 1977. Mr. Mehney is President of The KMW Group, Inc., an importer and distributor of medical products, and distributor of marine products in Michigan.
TIMOTHY J. ODONOVAN (age 62) has been a director since 1993. Mr. ODonovan is Chairman of the Board of Wolverine, and has served in that position since April 2005. Effective as of April 19, 2007, Mr. ODonovan retired as Chief Executive Officer of Wolverine, a position which he has held since April 2000. Mr. ODonovan served Wolverine as its Chief Executive Officer and President from April 2000 until April 2005. Before April 2000, Mr. ODonovan was Chief Operating Officer and President of Wolverine since 1996. Before 1996, Mr. ODonovan was Executive Vice President of Wolverine. Mr. ODonovan is also a director of Spartan Stores, Inc. and Kaydon Corporation.
ALBERTO L. GRIMOLDI (age 66) has been a director since 1994. Mr. Grimoldi is Chairman of Grimoldi, S.A., a shoe manufacturer and retailer in Argentina. He has held that position since 1986. Mr. Grimoldi was previously a member of the Advisory Board of Ford Motor Company in Argentina, and has also held various positions in the Argentinean government.
BRENDA J. LAUDERBACK (age 57) was appointed to the Board of Directors in 2003. From 1995 until her retirement in 1998, Ms. Lauderback was president of the Wholesale and Retail Group of Nine West Group, Inc., a footwear wholesaler and distributor. She was previously the President of the Wholesale Division of U.S. Shoe Corporation, a footwear manufacturer and distributor, and a Vice President of Dayton Hudson Corporation, a retailer. Ms. Lauderback is also a director of Irwin Financial Corporation; Big Lots, Inc.; Dennys Corporation; and Select Comfort Corporation.
SHIRLEY D. PETERSON (age 66) has been a director since 2005. From 1995 until her retirement in 2000, Ms. Peterson served as President of Hood College of Frederick, Maryland. From 1993 to 1995 she was a partner at the law firm Steptoe & Johnson LLP. She was previously the Commissioner of the Internal Revenue Service and an Assistant Attorney General of the Tax Division for the U.S. Department of Justice. Ms. Peterson is also a director of The Goodyear Tire & Rubber Company; AK Steel Holding Corporation; Champion Enterprises Inc.; and DWS Scudder Funds. Ms. Peterson expects to retire as a Board Member of the DWS Scudder Funds effective April 1, 2008.
During the 2007 fiscal year, the Board of Directors held five regular meetings. Each of the directors attended 75% or more of the aggregate of the total number of full Board meetings and the total number of meetings of committees on which he or she served (during the periods that he or she served).
The Board of Directors has three standing committees: the Audit Committee, the Compensation Committee and the Governance Committee. Members of each committee are appointed by the Board of Directors and the authority, duties and responsibilities of each committee are governed by written charters approved by the Board of Directors. In addition to regular Board and Committee meetings, Wolverine has regular scheduled executive sessions for non-management directors. Wolverines independent Lead Director, Mr. Kollat, presides at all non-management executive sessions. Interested parties may make concerns known to the non-management directors by communicating with Mr. Kollat or with the non-management directors as a group, through one of the Board communication mechanisms described later in this proxy statement under the heading Corporate Governance Principles Communication with the Board.
The table below shows current membership for each of the standing committees:
Below is a description of each of the standing committees.
Audit Committee. The Audit Committee has been established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 and performs the following duties:
Only independent directors may serve on the Audit Committee. Each member of the Audit Committee satisfies the independence standards for such committee members established by the New York Stock Exchange (NYSE) and the SEC. The Audit Committee met eleven times in 2007.
Compensation Committee. The Compensation Committee:
Only independent directors may serve on the Compensation Committee. Each member of the Compensation Committee satisfies the independence standards for such committee members established by NYSE. The Compensation Committee met five times during 2007.
Governance Committee. The Governance Committee:
In evaluating the skills and characteristics required of Board members, the Governance Committee addresses issues such as experience, diversity, age and skills in the context of the current make-up of the Board. The Governance Committee will consider candidates for nomination that are recommended by stockholders, directors, officers, third-party search firms and other sources. Stockholders may recommend individual nominees for consideration by the Governance Committee by communicating with the Governance Committee through one of the Board communication mechanisms described under the heading Corporate Governance Principles Communication with the Board. The Board of Directors ultimately determines individuals to be nominated at each annual meeting. Direct stockholder nominations may be made through the procedure described below under the subheading Stockholder Nominations. From time to time, Wolverine or the Governance Committee engages third-party search firms to assist with identifying and evaluating potential nominees.
In making nominee recommendations to the Board, the Governance Committee considers a potential nominees ability, judgment and personal and professional integrity. The Governance Committee seeks nominees who are likely to be most effective, in conjunction with other nominees and Board members, in collectively serving the long-term interests of the stockholders.
Only independent directors may serve on the Governance Committee. Each member of the Governance Committee satisfies the independence standards for such committee members established by NYSE. The Governance Committee met five times during 2007.
Nominations may be made by a stockholder entitled to vote for the election of directors if, and only if, the stockholder submits advance notice of the proposed nomination to the Secretary of Wolverine and the notice is received by the Secretary of Wolverine not less than 50 nor more than 75 days before the annual meeting. However, if the first to occur of the notice of the meeting or public disclosure is given or made to stockholders less than 65 days before the annual meeting, the notice of the proposed nomination must be received not later than the close of business on the 15th day after the day on which the notice of the date of the meeting was mailed or the public disclosure was made, whichever occurs first. Each notice submitted by a stockholder must set forth each nominees name, age, business address, residence address and principal occupation and employment, the class and number of shares of common stock beneficially owned by each nominee, and any other information concerning each nominee required to be included in a proxy statement soliciting proxies for the election of the nominee under the rules of the SEC. In addition, the notice must state the name, record address and the class and number of shares of common stock beneficially owned by the stockholder submitting the notice. If the chairman of the
meeting determines that a nomination was not made in accordance with these procedures, he or she must announce that determination at the meeting and the nomination will be disregarded.
Wolverine has developed governance principles to assist the Board in fulfilling its responsibilities to stockholders and to provide a framework for the Boards oversight responsibilities regarding the management of Wolverine. Wolverines governance principles are dynamic and have been developed and revised over a period of many years to reflect changing laws, regulations and best business practices. The governance principles also provide guidance and transparency to management, employees, investors and other stakeholders regarding the Boards philosophy, high ethical standards, expectations for conducting business, and decision-making processes.
The following is a summary of certain of Wolverines policies, charters, guidelines and principles relating to corporate governance and financial reporting. You may access complete current copies of our Code of Conduct & Compliance, Corporate Governance Guidelines, Director Independence Standards, Accounting and Finance Code of Ethics, Audit Committee Charter, Governance Committee Charter and Compensation Committee Charter at our website, www.wolverineworldwide.com. Each of these is also available in print to any stockholder upon request, and the Director Independence Standards are attached as Appendix A to this Proxy Statement.
The Board believes that the independence of directors and Board committee members is important to assure that the Board and its committees operate only in the best interests of the stockholders and to avoid any appearance of conflict of interest. For over 14 years, Wolverine has functioned with not more than two active or former management employees as directors. The remainder of the Boards 8 to 12 directors over this period have been non-management directors. Only two current or former management employees, Wolverines Chief Executive Officer and President, and Wolverines Chairman and former Chief Executive Officer, currently serve as directors. Wolverines formal Corporate Governance Guidelines require that a substantial majority of the directors be independent.
The Board has determined that the following 8 of its 11 directors meet the director independence standards adopted by the Board and the applicable NYSE standards for independence (including, with respect to audit committee members, the heightened independence criteria applicable to audit committee members under the NYSE and SEC independence standards), have no material relationship with Wolverine, and therefore are independent:
Our Board of Directors has adopted categorical Independence Standards, which are attached as Appendix A to this Proxy Statement and which are also available at our website. These Independence Standards comply with and, in some areas, exceed the director independence standards required by NYSE. In summary, under these standards a director is considered independent only if the director and his or her immediate family members do not have, and generally have not had in the most recent three years, any material relationships with Wolverine, its subsidiaries or affiliates (including certain relationships with Wolverines independent auditors). The standards establish thresholds at which such relationships are deemed to be not material. In addition, the Board examines on a case-by-case basis transactions and relationships that are not of a nature addressed by the categorical standards.
The Board has adopted Corporate Governance Guidelines that set forth the primary framework of governance principles applicable to Wolverine. The Corporate Governance Guidelines outline the general duties and functions of the Board and management, and set forth general principles regarding Board composition, independence, Board meetings and responsibilities, Board committees, expectations of directors, annual performance evaluations, management succession and ethical expectations.
* See the discussion of indirect related party transactions under the caption Related Matters, subheading Certain Relationships and Related Transactions.
For many years, the Board has believed that directors and management should have a significant financial stake in Wolverine to align their interests with those of the stockholders. For that reason, several years ago the Board adopted formal requirements that directors and executive management own specified amounts of Wolverine stock (including ownership credit for stock units allocated to non-employee directors under the Deferred Compensation Plan) within five years of their respective election to the Board or appointment as a member of executive management. The ownership requirements are as follows: (i) for directors, five times the current Board retainer, (ii) for the Chief Executive Officer, five times base salary, (iii) for other executive officers, between two and three times base salaries, and (iv) for other executive management, between one and two times base salaries.
For years, Wolverine and its employees and directors have followed an extensive Code of Conduct & Compliance (Code). This comprehensive Code establishes basic guidelines to help employees and directors comply with applicable legal requirements and sets forth Wolverines expectations regarding business ethics, integrity, honesty, fairness and keeping commitments. The Code contains Wolverines principles and procedures regarding conflicts of interest, corporate opportunities, confidentiality, fair dealing, protection and proper use of Wolverines assets, compliance with laws, rules and regulations, engagement criteria for Wolverines trading partners, whistle blower protection provisions, expectations regarding the integrity of books and records, and guidelines and procedures for many other subjects. Employees are surveyed annually to identify any areas of noncompliance with the Code, and the results of this survey are reported to the Board.
The Board has adopted an Accounting and Finance Code of Ethics (Finance Ethics Code). This is an ethics code focused on the financial reporting process and is intended to protect the interests of all of Wolverines constituents, including stockholders, employees, customers and the communities in which Wolverine conducts business. Many of the basic tenets of the Finance Ethics Code have been incorporated for many years in the Code. The Finance Ethics Code is applicable to Wolverines Chief Executive Officer, Chief Financial Officer and Corporate Controller and sets forth specific rules of conduct and expectations regarding the financial reporting process, protection of Wolverines assets, compliance with rules and regulations and honest and ethical conduct in connection with the financial reporting process and related disclosures. The Finance Ethics Code and the Code are available on the Corporate Governance section of the Investors section of Wolverines website at www.wolverineworldwide.com, where Wolverine will post any waiver of these codes for directors or executive officers.
The Board has organized and formed three committees, the Audit Committee, the Compensation Committee and the Governance Committee. The Board has approved a committee charter for each committee that contains basic principles regarding the committees organization, purpose, authority and responsibilities. The performance of each committee is reviewed annually by committee members and the Board.
Since 1993, the Board has operated with an independent Lead Director, who is selected by the independent directors. The duties of the independent Lead Director include: (a) working closely with the Chairman regarding the agenda and scheduling for Board and committee meetings; (b) overseeing information sent to the Board; (c) presiding over executive sessions; (d) serving as a liaison between the Chairman and the independent Directors; (e) presiding over Board meetings in the absence of the Chairman; and (f) being available for consultation and communications with stockholders as appropriate.
The Board prides itself on its ability to recruit and retain directors who have a diversity of experience, who have the highest personal and professional integrity, who have demonstrated exceptional ability and judgment and who are effective (in conjunction with the other members of the Board) in collectively serving the long-term interests of the stockholders. Board and committee attendance is central to the proper functioning of the Board of Directors and is a priority. Directors are expected to make every effort to attend every Board meeting. Directors are also expected to attend the Annual Meeting of Stockholders in person. All 11 then-current directors attended the 2007 annual meeting.
Stockholders and interested parties may communicate with members of Wolverines Board of Directors through various links provided on the Corporate Governance section of the Investors section of Wolverines website at www.wolverineworldwide.com or by sending correspondence to the Board, a specific Board committee or a Board member c/o General Counsel, Wolverine World Wide, Inc., 9341 Courtland Drive, N.E., Rockford, Michigan 49351. Any communications submitted by any of the above means (or the means described below) are received by Wolverines General Counsel and forwarded to the appropriate person or persons. Complaints or concerns regarding Wolverines financial statements and accounting, auditing, internal control and reporting practices can be reported to the audit committee (including anonymous and confidential submissions) by sending an e-mail to firstname.lastname@example.org or by writing to the audit committee c/o the General Counsel at the above address.
Wolverines comprehensive governance guidelines and principles are coupled with a robust, open and effective Board environment that promotes respect, trust and candor, fosters a culture of open dissent and permits each director to express opinions and contribute to the Board process. Directors are expected to have unrestricted access to management and any company information they desire. The participation of Board members and the open exchange of opinions is further encouraged at the Board committee level through the periodic rotation of Board members among its standing committees. This open and candid operating environment is shared by management and the Board and is essential to fully realize the benefits of Wolverines formal governance guidelines, principles, charters and policies.
Ownership of Wolverine Stock
The following table sets forth information concerning the number of shares of Wolverine stock held by each entity known to Wolverine to be the beneficial owner of more than five percent of Wolverines outstanding shares of common stock:
The following table sets forth the number of shares of common stock beneficially owned as of March 3, 2008, by each of Wolverines directors and nominees for director, each of the named executive officers and all of Wolverines directors, nominees for director and executive officers as a group. An asterisk in the column for Percent of Class means the individual beneficially owns less than one percent of the common stock:
Objectives of Wolverines Compensation Programs
The basic compensation philosophy of the Compensation Committee and Wolverine is to provide competitive salaries and incentives to achieve superior financial performance. Wolverines executive compensation policies are designed to achieve four primary objectives:
The Compensation Committee reviews and structures Wolverines compensation programs to balance employee salaries with compensation that is performance-based and also to reward annual performance while maintaining a focus on longer-term objectives. The mix of compensation elements varies based on an employees position and responsibilities. Wolverines objective is to balance the total compensation package between cash, non-cash, long-term, short-term and currently paid compensation in a way that meets the goals set forth above. Wolverine believes it serves the needs of its stockholders and key management employees to provide incentives commensurate with individual management responsibilities and past and future contributions to corporate objectives.
The Compensation Committee compares the base salaries and overall compensation levels of Wolverines Chief Executive Officer, Chief Operating Officer (through April 2007 when Mr. Krueger was Chief Operating Officer), and Chief Financial Officer with those of executives with similar positions in companies of similar type, size and financial performance. Although some footwear companies are among the companies included in the comparison group, this group is not limited to footwear companies because Wolverine competes for talent with a wide range of corporations. Wolverines current comparison group includes: Jones Apparel Group, Inc.; Brown Shoe Company, Inc.; The Timberland Company; Genesco, Inc.; Columbia Sportswear Company; Skechers U.S.A., Inc.; The Stride Rite Corp.; Kenneth Cole Productions, Inc.; K-Swiss Inc.; Steven Madden, Ltd.; Rocky Brands, Inc.; Deckers Outdoor Corporation; and Weyco Group, Inc. (the Peer Group). For purposes of comparative total shareholder return under the LTIP for the 2005-2007 performance period, Nike, Inc. replaces The Stride Rite Corp. in the Peer Group because of the acquisition of The Stride Rite Corp. in 2007.
In general, the Compensation Committee has targeted base salaries for the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer positions to be at the median to slightly below the median percentile of base salaries paid for comparable positions within the Peer Group. The Compensation Committee targets this level of salary in recognition of the need to provide competitive base salaries to attract and retain executive talent, while allowing for a greater portion of compensation to come in forms that are at risk, and dependent upon performance. This pay for performance approach allows potential overall compensation to exceed or fall below the median Peer Group levels, depending on Wolverines performance under the Annual Bonus Plan and Long-Term Incentive Plan and depending on whether Wolverines stock price has increased or decreased.
Implementation of Wolverines Compensation Programs
The Compensation Committee administers and makes recommendations with respect to Wolverines compensation plans and reviews and approves (with input from the independent directors in the case of the Chief Executive Officer) the compensation of key senior executives. The Compensation Committee receives recommendations from Wolverines Chief Executive Officer regarding the compensation of senior executive officers (other than the Chief Executive Officer). Wolverine did not engage a compensation consultant in 2007.
In addition to reviewing comparative data from the Peer Group, the Compensation Committee reviews aggregate compensation data for U.S. publicly traded companies with revenues ranging from $1 billion to $1.5 billion (excluding companies with overall compensation in excess of certain dollar thresholds). The Compensation Committee focuses its comparative analysis primarily on the Peer Group since it believes that the Peer Group represents companies that are most similarly-positioned to Wolverine.
Elements of Compensation
Executive compensation at Wolverine consists primarily of the following elements:
These components, individually and in the aggregate, are designed to accomplish one or more of the four compensation objectives described above.
To attract and retain well-qualified executives, the Compensation Committee seeks to establish competitive base salaries. In setting individual base salaries, the Compensation Committee considers the executives performance, the executives current compensation, the executives responsibilities and Wolverines or the applicable business units performance (determined by reference to pre-tax levels of profit and levels of sales). The Compensation Committee also considers Peer Group base salary information for the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer positions, and has generally targeted salaries to be at the median to slightly below the median percentile of base salaries paid for comparable positions within the Peer Group. Although the Compensation Committee does not give specific weight to any particular factor, the most weight is given to the executives performance, and a significant but lesser weight is generally given to the comparative data.
In general, base salaries for the Chief Executive Officer, Chief Operating Officer (through April 2007 when Mr. Krueger was Chief Operating Officer), and Chief Financial Officer were near the median of salaries paid by companies included in the Peer Group. The 2007 average base salary of executive officers increased over the previous years level as a result of a combination of factors, including improved individual performance, improved or continued high-level performance by Wolverine, promotions and increased responsibilities.
The Annual Bonus Plan is designed to provide key employees with the opportunity for bonuses based on the performance of Wolverine, its subsidiaries, operating divisions and/or profit centers. A target bonus goal (the target bonus), expressed as a percentage of the participants base salary, is established by the Compensation Committee. The Compensation Committee then establishes incentive bonus levels, expressed as a percentage of the target bonus, that are paid to the participant at specified levels of performance.
The two primary measures of corporate and divisional performance in 2007 were pre-tax profits and sales, with 80% of participants target amounts weighted on pre-tax profits. The Compensation Committee determined that the weighting between sales and profits reflected Wolverines goal to grow sales, but not at the expense of profits and shareholder return. With the exception of Mr. Zwiers, the targets for named executive officers were based solely on corporate performance. Mr. Zwiers targets were based on a mix of corporate performance and the performance of the Hush Puppies and Hush Puppies U.S. businesses because of his role as President of the Hush Puppies USA business during 2007.
During fiscal 2007, the named executive officers were targeted to receive the following percentages of their annual salaries as annual bonus compensation: Mr. Grady 20%; Mr. Gulis 32%; Mr. Krueger 48%; Mr. ODonovan 48% (but prorated to the period of time during 2007 when Mr. ODonovan was Chief Executive Officer); Mr. Ottenwess 20%; and Mr. Zwiers 20%. Actual payouts, if any, could range from 50% to 212.5% of the target percentage, based on Wolverines performance. Maximum payout under this annual incentive bonus and the annual discretionary bonus that is based on individual performance (described below), on a combined basis, is 200% of target.
In determining the target percentages, the Compensation Committee considered each named executive officers position, competitive incentives and the executives aggregate incentive compensation potential under all of Wolverines plans. The Compensation Committee determined that these percentages were competitive in the marketplace for similar positions and responsibilities. The percentage of total compensation represented by annual bonuses is generally higher for more senior executives to reflect their greater influence on profits and sales and to put a larger percentage of their total potential cash compensation at risk. Accordingly, the target for the Chief Executive Officer is at the top end of the range.
For 2007, Wolverines corporate sales and corporate pre-tax profit performance goals were as follows:
Wolverines sales for 2007 were between threshold and target levels. Wolverines pre-tax earnings for 2007 exceeded the maximum goal. Based on these corporate performance levels, payments under the Annual Bonus Plan for Messrs. Grady, Gulis, Krueger, ODonovan (prorated) and Ottenwess were at approximately 185% of each individuals respective target level. Because of the comparative performance levels between pre-tax earnings and sales and the weighting of the performance factors, approximately 91% of the actual payout under the Annual Bonus Plan for 2007 related to pre-tax earnings and approximately 9% related to sales.
Mr. Zwiers annual bonus for 2007 was based partially on corporate performance and partially on the sales and pre-tax profit performance of the Hush Puppies and Hush Puppies U.S. businesses. The sales and pre-tax profit performance of the Hush Puppies and Hush Puppies U.S. businesses ranged from below threshold level to goal level with the overall payout to Mr. Zwiers based on all of his annual bonus components between threshold and target levels.
The Annual Bonus Plan closely links the bonus opportunity for key employees to the performance of the specific divisions and operations over which they have substantial control and ability to impact results. This structure provides clear incentives and line-of-sight management to drive operational performance and divisional achievements on an annual basis. This complements the approach of the LTIP described below, which is focused on Wolverines long-term achievements in earnings-per-share and total stockholder return.
In addition to performance-based compensation under the Annual Bonus Plan, Wolverine generally pays annual bonuses to key employees based on individual performance goals. Wolverine uses discretionary bonuses as a way to provide further incentive for support of corporate initiatives.
Bonuses based on individual performance are paid on a discretionary basis based on achievement of personal goals, which may include elements such as executing strategies to support Wolverines vision, developing people, supporting social and environmental responsibility, growing new business initiatives, and driving operational excellence. The performance bonus for the Chief Executive Officer is paid only after the review and approval of the Compensation Committee and the independent Directors. Discretionary bonuses are generally not paid to executive officers if Wolverine (or the applicable division) does not achieve at least the threshold pre-tax earnings goal under the Annual Bonus Plan.
During 2007, discretionary bonuses for named executive officers were targeted at the following percentages of annual salary: Mr. Grady 5%; Mr. Gulis 8%; Mr. Krueger 12%; Mr. ODonovan 12% (but prorated to the period of time during 2007 when Mr. ODonovan was Chief Executive Officer); Mr. Ottenwess 5%; and Mr. Zwiers 5%. In determining the percentages, the Compensation Committee considered the factors discussed above in connection with the Annual Bonus Plan and each named executive officers capacity to affect Wolverines performance.
Discretionary bonus payouts range from 75% of the target for 60-70% achievement of personal goals, to 100% of the target for 70-80% achievement of personal goals, to 135% of target for 80-90% achievement of personal goals, to 150% of target for 90-100% achievement of personal goals. Because Wolverine exceeded its corporate threshold pre-tax earnings goal under the Annual Bonus Plan for fiscal 2007, discretionary bonus payouts between target and maximum levels were made to Messrs. Grady, Gulis, Krueger, ODonovan and Ottenwess for this period based upon achievement of individual performance goals. In addition, Wolverine awarded Mr. Zwiers a bonus, as reflected in the Summary Compensation Table,
based on his performance of additional duties during 2007.
The LTIP provides the opportunity for performance-based compensation based upon the achievement of company financial performance goals over a three-year period. The LTIP is intended to foster cooperation among all business units and provide significant incentive to achieve Wolverines long-term EPS performance goals and strong total stockholder return. The primary concept of the LTIP is to establish financial performance goals for each three-year time period for Wolverine. New performance periods begin each fiscal year and end three full fiscal years later.
Awards under the LTIP are based on a percentage of average annual earned salary during the three-year period, and performance is determined by reference to one or more of the performance factors listed in the plan. If the minimum three-year targeted goal is not achieved, no bonus will be paid.
For the 2005-2007 performance period, performance was determined 50% by reference to Wolverines aggregate EPS over the three-year period and 50% by reference to TSR compared to the Peer Group. The Compensation Committee believes it is important to provide a reward and incentive for increasing EPS, but also believes that such reward must be gauged against and superior to the results achieved by the Peer Group.
Performance objectives for the 2005-2007 performance period under the LTIP relating to relative TSR against the Peer Group are as follows:
EPS performance objectives for the 2005-2007 period under the LTIP were as follows:
EPS performance for the three year period exceeded the maximum goal level and a TSR ranking of 7th was at the threshold payout level of 50% of target for the 2005-2007 performance period under the LTIP. Based on EPS and TSR performance, Wolverine paid cash incentive bonuses with respect to the three-year performance period ended December 29, 2007, at 125% of target levels.
Wolverine grants restricted stock and stock options (including incentive stock options) to its named executive officers. These awards are designed to:
The Compensation Committee believes that stock ownership by management is beneficial to stockholders and stock incentives have been granted by Wolverine to executives and other key employees pursuant to various equity-based plans for several decades. The Compensation Committee administers all aspects of these plans and determines the amount of and terms applicable to any award under these plans.
In determining the number of shares of restricted stock and the number of options to be awarded to executives in 2007, the Compensation Committee took into consideration the executives level of responsibility and, with respect to the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer positions, compensation practices of the companies within the Peer Group. As a general practice, both the number of shares and options granted and their proportion relative to the total number of shares and options granted increase in some proportion to increases in each executives responsibilities. Accordingly, the Chief Executive
Officer generally receives more stock options and restricted stock than the other named executive officers. The Compensation Committee also considers the recommendations of management (except for awards to the Chief Executive Officer), the individual performance of the executive and the number of shares previously awarded to the executive.
The value of equity grants to the Chief Executive Officer and Chief Operating Officer was generally targeted between 100% and 120% of base salary. The value of equity grants to the Chief Financial Officer was generally targeted between 90% and 110% of base salary. The value of equity grants to the other named executive officers was generally targeted between 40% and 60% of base salary. The different levels of equity compensation reflect the ability of an individual to impact Wolverines performance and stock price.
The Compensation Committee has reviewed the mix of restricted stock and stock options and believes the mix is appropriate based on the retentive nature of restricted stock and the incentive nature of stock options. Due to the strong retentive nature of restricted stock, considering the extended vesting schedule, the value of equity award grants is weighted slightly more heavily toward restricted stock grants. Restrictions lapse with respect to 25% of the shares granted on the third anniversary of the date of grant, with restrictions lapsing on an additional 25% on the fourth anniversary. Restrictions on the final 50% of a restricted award do not vest until the fifth anniversary of the date of grant. This schedule encourages retention and long-term investment in Wolverine by participating executives.
The Compensation Committee also views the grant of stock options as having a retentive element because 1/3 of each option grant vests on each of the first three anniversaries of the date of grant. The Compensation Committee views stock options primarily as an incentive for the named executive officers to increase stockholder value and drive increased share prices.
Stock options vest and the restrictions on shares of restricted stock lapse upon a change in control of Wolverine. Change in control includes certain changes in the composition of the board of directors, certain acquisitions of 20% of Wolverines common stock and other specified reorganizations, mergers, consolidations, liquidations, dissolutions or disposition of substantial assets. Wolverine calculates the accounting cost of equity-based awards under SFAS No. 123(R), Share Based Payments. As such, the grant date accounting fair value, which is fixed at date of grant, is expensed over the vesting period. Consistent with SEC rules, the 2007 compensation expense associated with any outstanding equity grants for the named executive officers is presented in the Summary Compensation Table.
The Compensation Committee also maintains stock ownership guidelines that apply to all executive management, including the named executive officers. The ownership guidelines require, within certain time periods, ownership by the named executive officers in the following amounts: two times base salary (Messrs. Grady, Ottenwess and Zwiers); three times base salary (Mr. Gulis); and five times base salary (Mr. Krueger). The Compensation Committee believes that these ownership guidelines bolster the goal of aligning managements interests with stockholders interests under Wolverines restricted stock plans by requiring continued levels of ownership of Wolverine stock even after restrictions on the sale of stock lapse. Wolverines policy does not allow hedging by Wolverine officers.
Wolverine generally awards stock options and restricted stock in February of each year at the Compensation Committees regularly scheduled meeting. The exercise price of stock options is the fair market value of Wolverines common stock on the grant date.
The named executive officers participate in Wolverines qualified pension plan and 401(k) savings plan (including potential company matching) covering most salaried domestic employees. Certain named executive officers also participate in a supplemental executive retirement plan. The Compensation Committee believes that, through vesting and participation requirements and increased value based on years of service, Wolverines retirement plans encourage long-term commitment by Wolverines executives and assist Wolverine in attracting and retaining talented executives.
The vesting period for participation in the qualified pension plan is five years of service. Subject to the limitations imposed by the Internal Revenue Code, the Wolverine employee pension plan generally provides monthly benefits at normal retirement in an amount equal to 1.6% of final average monthly earnings (generally base salary and annual bonus, less social security allowance) multiplied by the number of years of service up to 30 years. For certain named executive officers, the benefit is calculated using 2.4% (for Messrs. ODonovan, Krueger and Gulis) or 2.0% (for Messrs. Ottenwess and Zwiers) of final average monthly
earnings multiplied by the participants number of years of service up to 25 years. The higher percentages in place for Messrs. ODonovan, Krueger and Gulis reflect an enhanced retention element of their compensation due to their respective positions and ability to affect Wolverines performance.
Wolverine also maintains a Supplemental Executive Retirement Plan (the SERP) which covers certain officers of Wolverine, including Messrs ODonovan, Krueger, Gulis, Ottenwess and Zwiers. The SERP is maintained because the Compensation Committee believes that the limit on compensation that can be taken into account for Wolverines qualified pension plan does not allow Wolverine to provide sufficient retirement benefits that have the recruitment and retention value necessary to attract and retain highly compensated executives who are significantly responsible for Wolverines results of operations.
Under the SERP, a participating executive will be eligible for an annual supplemental benefit once he or she has completed five years of service after having been approved as a participant in the SERP. This schedule is intended to provide significant retention incentives for participating executives.
The supplemental benefit is generally equal to the difference between the executives retirement benefit under Wolverines qualified pension plan and the benefits the executive would have received if there were no cap on earnings when calculating the benefit under the pension plan. The SERP caps years of service at 25 years rather than 30 years (the pension plan cap for non-SERP participants). The SERP also allows a retired executive to draw earlier (beginning at 55) and on different terms than under the pension plan. The percentage multiplier is the same under the SERP as it is under the Pension Plan. Wolverine may grant additional deemed years of service under the SERP, subject to the overall limit of 25 years of service. The full benefit of any additional years of deemed service is paid under the SERP.
A retired SERP participant may draw the full benefit beginning at age 65 or may elect to begin receiving a reduced benefit at or after age 55 (see the notes to the Pension Benefits Table). The SERP also includes a disability benefit (See the Disability Benefit calculation and related note under the Potential Payments Upon Termination or Change in Control Table). The SERP also provides for a death benefit to the executives designated beneficiary if the executive dies before retiring (See the Death Benefit calculation and related note under the Potential Payments Upon Termination or Change in Control Table).
The SERP provides for lump sum payments to participating executives if, within two (Messrs. Ottenwess and Zwiers) or three (Messrs. Krueger and Gulis) years after a change in control the executive resigns for good reason or is terminated by Wolverine other than for cause or due to death or disability, all as defined in the SERP (See the SERP Change in Control benefit calculation and related note under the Potential Payments Upon Termination or Change in Control Table).
The SERP also contains non-competition, confidentiality and employee non-solicitation provisions in favor of Wolverine. Under the non-competition provisions of the SERP, the participant shall not be entitled to any benefit payment if, prior to the date on which such benefit payment is due, the participant enters into certain relationships with a competing business. Benefits under the SERP are also subject to forfeiture if the executives employment is terminated for serious misconduct or if Wolverine cannot collect under an insurance policy purchased to fund SERP benefits for certain reasons. Wolverine may terminate the SERP or stop further accrual of SERP benefits for a participating executive at any time, but termination will not affect previously accrued benefits.
As of December 29, 2007, the persons listed in the Summary Compensation Table had the following years of credited service under the pension plan and, unless otherwise indicated, the SERP: Mr. ODonovan, 25 years; Mr. Krueger, 12 years (pension plan) and 16 years (SERP); Mr. Gulis, 22 years; Mr. Ottenwess, 20 years; Mr. Grady, 1 year (pension plan only); and Mr. Zwiers, 10 years. Messrs. Gulis, Krueger and Ottenwess are all vested in the SERP. Mr. Zwiers has been designated as a participant in the SERP, but is not yet vested in the SERP. Mr. ODonovan is currently drawing benefits under the SERP.
The named executive officers participate in Wolverines medical and dental plans and are provided with life and disability insurance. In addition, Wolverine provides for some basic tax and estate planning services for the named executive officers.
Mr. Gradys 2007 compensation includes amounts relating to relocation costs that were paid and/or reimbursed by Wolverine in connection with Mr. Gradys
relocation to Michigan after being hired by Wolverine in October 2006.
Chief Executive Officer Transition
On April 19, 2007, Mr. ODonovan retired as Chief Executive Officer of Wolverine and Mr. Krueger was appointed as Chief Executive Officer of Wolverine. Mr. ODonovan retained his position as Chairman of the Board of Directors. Below is a summary of some additional arrangements with Messrs. ODonovan and Krueger in connection with this transition.
Wolverine entered into a one-year consulting arrangement with Mr. ODonovan in April 2007 in order to retain his services after retirement. Wolverine will pay Mr. ODonovan an annual fee of $350,000 under the consulting arrangement. This payment is in lieu of any remuneration (other than standard director stock option grants) as Chairman of the Board of Wolverine. Under the consulting arrangement, Wolverine will continue to provide Mr. ODonovan with office space, administrative support and continued estate and financial planning and tax preparation services. In addition, Mr. ODonovans 2007 restricted stock grant will vest upon the successful conclusion of the consulting arrangement.
In February 2008 Wolverine extended Mr. ODonovans term as Chairman through April 2009. Mr. ODonovan will receive $150,000 for his services as Chairman for the period from April 2008 to April 2009 and will also have office space and administrative staffing at Wolverines headquarters. Mr. ODonovan will not receive any other compensation for his services as Chairman and a director, other than normal annual director stock option grants.
In connection with the transition to his role as Chief Executive Officer, Wolverine agreed to grant Mr. Krueger one additional deemed year of service under the SERP for each year he serves as Chief Executive Officer of Wolverine, beginning with 2007. This additional grant is intended as an enhanced retention element of Mr. Kruegers compensation.
Mr. Krueger also entered into an agreement with Wolverine in connection with his appointment as Chief Executive Officer that, upon termination of his employment other than termination by Wolverine for cause or termination by Mr. Krueger for other than good reason, requires the following payments in exchange for a general release in favor of Wolverine: 18 months base salary (reduced by payments he receives if he is employed by a competing business); a pro rata portion of the annual incentive bonus and the long-term bonus for all uncompleted performance periods based on actual corporate performance for the applicable performance periods; a pro rata portion of the annual discretionary bonus relating to personal performance objectives; and, with respect to any triggering termination occurring before Mr. Kruegers 60th birthday, either a waiver of the non-competition clause in the SERP or a payment of 36 months base salary. Mr. Krueger also will be paid any annual incentive bonus and long-term incentive bonus earned but not paid prior to his termination.
The Impact of Accounting and Tax Treatments on Compensation
Section 162(m) of the Internal Revenue Code provides that publicly held companies may not deduct compensation paid to certain executive officers in excess of $1,000,000 annually, with certain exceptions for qualified performance-based compensation. Wolverine has obtained stockholder approval of the Annual Bonus Plan, the LTIP, and its stock incentive plans, which are intended to permit certain amounts payable under these plans to qualify as performance-based compensation for purposes of Section 162(m). Incentives under these plans were not included in the $1,000,000 limit for purposes of calculating Wolverines deduction for compensation paid to its executive officers, and Wolverines deduction was not limited in 2007 with respect to compensation paid to any named executive officer. However, Wolverine believes it is important to preserve flexibility in administering compensation programs in a manner designed to promote varying corporate goals. Accordingly, Wolverine has not adopted a policy that all compensation must be deductible under Section 162(m). Certain compensation paid by Wolverine in the future may not qualify as performance-based compensation excluded from the limitation on deductibility.
Executive Severance Agreements
Under individual agreements, Messrs. Grady, Gulis, Krueger, Ottenwess and Zwiers will receive compensation if their employment is terminated within two (Messrs. Grady, Ottenwess and Zwiers) or three (Messrs. Krueger and Gulis) years following a change in control of Wolverine. The Compensation Committee believes that this double trigger requirement (change in control plus termination of employment rather than just a change in control) for triggering the payment of
benefits is appropriate because the executive is not materially harmed by a change in control if there is no termination of employment.
Severance Agreements are intended to provide stability in management during the transition period accompanying a change in control by providing significant retention incentives for executives to remain with Wolverine during the period following a change in control.
No payment will be made under the Severance Agreement if:
The executive has no requirement to mitigate the payments made under the Severance Agreement by seeking employment, but the compensation to be paid during the fourth and later months after termination will be reduced to the extent of any compensation earned by the officer during the applicable period.
You will find information on applicable payments to each named executive officer and the specific elements comprising the payment under the Severance Agreements in the Potential Payments Upon Termination or Change in Control section of this Proxy Statement.
Wolverine has established a Benefit Trust to ensure that payments to employees under the Severance Agreements (as well as the SERP) will not be improperly withheld after a change in control of Wolverine, as defined in the agreement establishing the trust.
The following Summary Compensation Table shows selected information concerning the compensation of the Principal Executive Officer, Principal Financial Officer, each of Wolverines three most highly compensated executive officers who served in positions other than Principal Executive Officer and Principal Financial Officer at the end of the last completed fiscal year and the former Chief Executive Officer (the named executive officers).
Grants of Plan-Based Awards During 2007
The following table provides information concerning each grant of an award made to the named executive officers in the last completed fiscal year.
Outstanding Equity Awards at December 29, 2007
The following table provides information concerning unexercised options; stock that has not vested; and equity incentive plan awards for each named executive officer outstanding as of December 29, 2007.
The following table provides information concerning each exercise of stock options and each vesting of restricted stock during the last completed fiscal year for each of the named executive officers on an aggregated basis.
The following table provides information concerning plans that provide for payments or other benefits at, following, or in connection with retirement.
excess of 25 reduced by .3333% (1/3 of 1%) for each month for which the benefit commencement date precedes normal retirement age.
Under the SERP, a participant may elect to begin receiving a reduced benefit at or after age 55. The reduction factor is 0.333% for each month prior to age 60, and 0.1666% for each month between age 60 and age 65.
The following table provides information concer