SPARTAN STORES, INC.
850 76th Street, S.W.
(3)
P.O. Box 8700
Filing party:
Grand Rapids, Michigan 49518-8700
(4)
Date filed:
(616) 878-2000
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) ofPROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
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| SPARTAN STORES, INC. | |
850 76th Street, S.W. |
P.O. Box 8700 |
Grand Rapids, Michigan 49518-8700 |
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(616) 878-2000 | |
SPARTAN STORES, INC.850 76th Street, S.W.P.O. Box 8700Grand Rapids, Michigan 49518-8700(616) 878-2000
June 25, 201024, 2011
Dear Shareholder:
We cordially invite you to attend the 20102011 Annual Meeting of Shareholders of Spartan Stores, Inc., to be held on Wednesday, August 11, 2010,10, 2011, at Grand Valley State University's Eberhard Conference Center, 301 W. Fultonthe JW Marriott Hotel, 235 Louis Street NW, Grand Rapids, Michigan 49504,49503, beginning at 10:9:00 a.m., local time. Your Board
The following pages contain the formal notice of Directors looks forward to greeting those shareholders who are able to attendmeeting and proxy statement describing the meeting.
The matters to be acted upon at the Annual Meeting are described in the enclosed notice of meeting and proxy statement. The proxy statement also contains information about the different methods you can use to vote your proxy, including by telephone or internet. Also enclosed is our Annual Report for the year ended March 27, 2010.Meeting. We encourage you to read the proxy statement carefully. Securities and Exchange Commission rules allow us to furnish our proxy statement and annual report to our shareholders on the Internet. We are pleased to take advantage of these rules for most of our shareholders and believe that they enable us to provide our shareholders with the information that they need, while lowering the cost of delivery and reducing the environmental impact of the documents carefully.related to our Annual Meeting.
The annualMany of our shareholders now rely on the Internet and other electronic means of communication to obtain information about Spartan Stores, and few shareholders rely on the Annual Meeting as a source of current information. In recognition of this trend, and as part of an effort to reduce the cost of our Annual Meeting, this year’s meeting will be streamlined to consist primarily of the matters to be considered and voted upon by the shareholders. Management will present a brief report on results for fiscal 2011 and shareholders will have an opportunity to ask questions. Please note that this year there will be no gift bags, product samples, or refreshments.
The Annual Meeting will continue to be webcast live. Anyone may access the webcast by visiting the "For Investors"“For Investors” section of our website, www.spartanstores.com, and following the links to the live webcast.
It is important that your shares be represented at the annual meeting,Annual Meeting, regardless of how many shares you own.Please sign,date and return the enclosed proxy card as soon as possible, or vote your shares by telephone or internet asusing any of the means described in the Introduction section of our proxy statement. Regardless of whether or not you plan to attend the annual meeting,Annual Meeting, voting your shares prior to the meeting will not affect your right to vote in person if you attend the meeting.attend.
If you plan to attend, please mark the appropriate box on the proxy card to help us plan for the meeting, and pleasePlease note that attendance will be limited to shareholders of the Company and the holders of shareholder proxies. If you are a shareholder of record, you must bring your notice of availability of proxy materials or the admission ticket attached to your proxy card to be admitted to the meeting. "Street name"“Street name” shareholders must bringpresent a copy of a brokerage statement reflecting stock ownership as of June 16, 2010 to be admitted to the meeting.15, 2011. For all attendees, admission to the meeting will require presentation of a valid driver'sdriver’s license or other federal or state issued photo identification card.
identification. Thank you.
Sincerely,
Dennis Eidson President and Chief Executive Officer Your vote is important. Even if you plan to attend the meeting, PLEASE VOTE PROMPTLY BY TELEPHONE OR INTERNET, OR BY SIGNING, DATING AND RETURNING A PROXY CARD. |
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SPARTAN STORES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To our shareholders:
The 20102011 Annual Meeting of Shareholders of Spartan Stores, Inc. will be held at Grand Valley State University's Eberhard Conference Center, 301 W. Fultonthe JW Marriott Hotel, 235 Louis Street NW, Grand Rapids, Michigan 49504,49503, on Wednesday, August 11, 2010,10, 2011, at 10:9:00 a.m., local time. At the meeting, we will consider and vote on:
1. | The election of three |
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| 3. | An advisory vote on the frequency of the |
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| Ratification of the selection of Deloitte & ToucheLLP as our independent auditors for the current fiscal year; and |
| Any other business that may properly come before the meeting. |
You are receiving this notice and can vote at the meeting and any adjournment of the meeting if you were a shareholder of record on June 16, 2010. A copy of Spartan Stores' Annual Report for the year ended March 27, 2010 is enclosed with this notice.15, 2011.
If you plan to attend the meeting:Please note that attendance will be limited to shareholders of the Company, the holders of shareholder proxies and invited guests. Admission to the meeting will require presentation of a valid driver'sdriver’s license or other federal or state issued photo identification card. If you are a shareholder of record, you must bring your notice of availability of proxy materials or the admission ticket attached to your proxy card to be admitted to the meeting. "Street name"“Street name” shareholders must bring a copy of a brokerage statement reflecting stock ownership as of June 16, 201015, 2011 to be admitted to the meeting.
Please note that as part of an effort to reduce the cost of our Annual Meeting, this year’s meeting will be streamlined to consist primarily of the matters to be considered and voted upon by the shareholders. Management will present a brief report on results for fiscal 2011 and shareholders will have an opportunity to ask questions. Please note that this year there will be no gift bags, product samples, or refreshments.
Important Notice Regarding the Availability of Proxy Materials: Spartan Stores'Stores’ Proxy Statement and Annual Report to Shareholders for the fiscal year ended March 27, 2010, which accompany this notice,26, 2011 are available for viewing via the Internet at www.edocumentview.com/SPTN.
In addition, you may obtain electronic copies of all of our filings with the U.S. Securities and Exchange Commission in the "For Investors"“For Investors” section of our website, www.spartanstores.com, by clicking the "SEC Filings"“SEC Filings” link.
BY ORDER OF THE BOARD OF DIRECTORS
Alex J. DeYonker
Executive Vice President General Counsel and Secretary
June 25, 2010
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Your vote is important. Even if you plan to attend the meeting, PLEASE VOTE PROMPTLY BY TELEPHONE OR INTERNET, OR BY SIGNING, DATING AND RETURNING A PROXY CARD. See the information in the Introduction section of our proxy statement regarding how to vote by telephone or internet, how to obtain a printed proxy card, revoke a proxy, and how to vote in person.
SPARTAN STORES, INC.
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 11, 201010, 2011
PROXY STATEMENT
Dated June 25, 201024, 2011
Introduction
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Use of Terms
In this proxy statement, "we," "us," "our,"“we,” “us,” “our,” the "Company"“Company” and "Spartan Stores"“Spartan Stores” refer to Spartan Stores, Inc., and "you"“you” and "your"“your” refer to each shareholder of Spartan Stores, Inc.
Questions and Answers About the Proxy Materials and Our 20102011 Annual Meeting
| Q. | Why am I receiving these materials? | |
A. | The |
| Q. | Why am I being asked to review materials on-line? |
| A. | Pursuant to rules adopted by the SEC, the Company has elected to provide access to its proxy materials for most shareholders via the Internet. Accordingly, the Company is sending a Notice of Internet Availability of Proxy Materials (the “Notice”) to most of the Company’s shareholders. All shareholders will have the ability to access the proxy materials on the website referred to in the Notice or request to receive a printed set of |
the proxy materials. You can find instructions on how to access the proxy materials over the Internet in the Notice. Shareholders may request to receive this year’s proxy materials in printed form by mail or electronically by email. The Company encourages shareholders to take advantage of the availability of the proxy materials on the Internet to help reduce the environmental impact of our Annual Meetings. | |
Q. | What information is contained in these materials? |
A. | The information included in this proxy statement relates to the proposals to be voted upon at the |
Q. | When did the Company begin sending and delivering this proxy statement to shareholders? |
A. | We |
Q. | Who may attend the meeting? |
A. | Only the |
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availability of proxy materials or the admission ticket attached to your proxy | |
Q. | What proposals will be voted on at the |
A. | There are |
election of three directors from among the nominees in this proxy statement for one-year terms expiring in 2012;
an advisory vote on executive compensation;
an advisory vote on the frequency of the advisory vote on executive compensation; and
ratification of the selection of Deloitte & Touche LLP as our independent auditors for the current fiscal year.
In addition, any other business that may properly come before the meeting will be considered and voted on. As of the date of this proxy statement, we are not aware of any other matters to be considered and voted on at the Annual Meeting. If any other matters are presented, the persons named as proxies on the Company’s proxy card will have discretionary authority to vote for you on those matters.
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Q. | How does the |
A. | Your Board of Directors recommends that you voteFOR election of each nominee named in this proxy statement,FOR |
EVERY YEARfor the frequency of the advisory vote on executive compensation, andFOR ratification of the selection of Deloitte & Touche LLP as our independent auditor. | |
Q. | Who may vote? |
A. | You may vote at the |
Q. | How do I vote? |
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If you are a shareholder of record, Spartan Stores | |
Internet Voting. You may vote via the Internet by visiting www.envisionreports.com/SPTN. You may navigate to the online voting site by clicking the “Cast Your Vote” button. Have the instructions attached to your proxy card ready when you access the site, and follow the prompts to record your vote. This vote will be counted immediately and there is no need to send in your proxy card.
Telephone Voting. To vote by telephone, dial the toll-free number on the instructions attached to your proxy card and listen for further directions. You must have a touch-tone phone. Telephonic votes will be counted immediately and there is no need to send in your proxy card.
Voting by Mail. You may request a printed copy of your proxy card. If you properly sign and return the proxy card, the shares
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represented by that proxy card will be voted at the Annual Meeting and at any adjournment of the meeting.
If you specify a choice on the proxy card, your shares will be voted as specified. If you do not specify a choice, your shares will be voted for election of each of the nominees named in this proxy statement, and for each of the proposals described in this proxy statement. If any other matter comes before the meeting, your shares will be voted in the discretion of the persons named as proxies on the proxy card.
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Q. | How do I vote if I hold my shares in |
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voting instructions by telephone or Internet, | |
Q. | What happens if I do not cast a vote? |
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If you are a shareholder of record and you do not cast your vote, no votes will be cast on your behalf on any of the items of business at the Annual Meeting. |
If you hold your shares in street name and do not provide timely voting instructions to your broker, your bank or broker may vote your shares only on “routine” matters, such as the ratification of the Company’s independent public accounting firm. NYSE rules applicable to its member firms provide that your broker may not vote uninstructed shares on a discretionary basis on non-routine matters, such as the election of directors or either of the executive compensation proposals. In such cases, the broker can register your shares as being present at the Annual Meeting for purposes of determining the presence of a quorum but will not be able to vote on non-routine matters. This is called a “broker non-vote.”
| Q. | What effect do broker non-votes have on the voting on the proposals? |
| A. | Although broker non-votes count for quorum purposes, we do not count them as votes for or against any proposal. |
Therefore, if you hold your shares in street name it is critical that you cast your vote if you want it to count.
| Q. | Can I change my mind after I return my proxy? | |
A. | Yes. You may revoke your proxy at any time before it is voted at the meeting by doing any of the following four things: |
by delivering written notice of revocation to Spartan Stores’ Secretary, 850 76th Street, S.W., P.O. Box 8700, Grand Rapids, Michigan 49518-8700;
by delivering a proxy card bearing a later date than the proxy that you wish to revoke;
by casting a subsequent vote via telephone or the Internet, as described above; or
by attending the meeting and voting in person.
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Merely attending the meeting will not, by itself, revoke your proxy; you must cast a subsequent vote at the meeting using forms provided for that purpose. Your last valid vote that we receive before or at the Annual Meeting is the vote that will be counted.
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Q. | What is the quorum requirement for the | |
A. | To conduct business at the |
Q. | May the |
A. | Yes. The shareholders present at the meeting, in person or by proxy, may, by a majority vote, adjourn the meeting despite the absence of a quorum. Shares represented by proxy may be voted in the discretion of the proxy holder on a proposal to adjourn the meeting. If a quorum is not present at the meeting, we expect the Chairman of the Board to adjourn the meeting to solicit additional proxies, as is authorized |
under the | ||
Q. | What vote is necessary to approve the proposals? |
A. | Election of Directors. A plurality of the shares voting is required to elect directors. This means that, if there are more nominees |
than positions to be filled, the nominees who receive the most votes will be elected to the open director positions. Abstentions, broker non-votes and other shares that are not voted in person or by proxy will not be included in the vote count to determine if a plurality of shares voted in favor of each nominee. As discussed in the Corporate Governance Principles section of this Proxy Statement, a director-nominee receiving a greater number of votes | |
Advisory Vote on Executive Compensation. The advisory vote on executive compensation (the “say on pay” vote) will be approved if a majority of the shares that are voted on the proposal at the meeting are voted in favor of approval. Abstentions, broker non-votes and other shares that are not voted on the proposal in person or by proxy will not be included in the vote count to determine if a majority of shares voted on this proposal voted in favor of approval. Because your vote is advisory, it will not be binding on the Company, the Board of Directors or the Compensation Committee. However, the Board of Directors and Compensation Committee value the opinions of our shareholders and will review the voting results and take them into consideration when making future decisions regarding executive compensation.
Advisory Vote on the Frequency of the Say on Pay Vote.The proposal that receives the most votes—once every one year, two years or three years—will be approved. Abstentions, broker non-votes and other shares that are not voted on the proposal in person or by proxy will not be included in the vote count to determine which proposal receives the most votes. Because your vote is advisory, it will not be binding on the
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Company, the Board of Directors or the Compensation Committee. However, the Board of Directors and Compensation Committee will review the voting results and take them into consideration when making future decisions regarding the frequency of future shareholder advisory votes on executive compensation.
Ratification of Independent Auditors. The ratification of the selection of Deloitte & Touche LLP as our independent auditors for the current fiscal year will be approved if a majority of the shares that are voted on the proposal at the meeting are voted in favor of ratification. Abstentions, broker non-votes and other shares that are not voted on the proposal in person or by proxy will not be included in the vote count to determine if a majority of shares voted on this proposal voted in favor of this proposal.
Required Vote for Other Matters. We do not know of any other matters to be presented at the meeting. Generally, any other proposal to be voted on at the meeting would be approved if a majority of the shares that are
voted on the proposal at the meeting are voted in favor of the proposal. Abstentions, broker non-votes and other shares that are not voted on the proposal in person or by proxy would not be included in the vote count to determine if a majority of shares voted on the proposal voted in favor of each such proposal.
Declassification of the Board of Directors. The proposed amendment to the Articles of Incorporation to declassify the Board of Directors will be approved if a majority of the shares that are outstanding and entitled to vote on June 16, 2010 are voted in favor of the proposal. Abstentions, broker non-votes and other shares that are not voted on the proposal in person or by proxy will have the same effect as a vote against the proposal.
Vote Required for to Amend Article XIII. The proposed amendment to Article XIII of the Articles of Incorporation to lower the supermajority shareholder vote required to amend the Bylaws from 80% to two-thirds of shares outstanding will be approved if 80% of the shares that are outstanding and entitled to vote on June 16, 2010 are voted in favor of the proposal. A supermajority vote is required to amend Article XIII due to the requirements of the Michigan Business Corporation Act. Abstentions, broker non-votes and other shares that are not voted on the proposal in person or by proxy will have the same effect as a vote against the proposal.
Vote Required to Amend Article XII(A).The proposed amendment to Article XII(A) of the Articles of Incorporation to delete the supermajority shareholder vote required for changes to the Bylaws (which is duplicative of the similar provision included in Article XIII but states a different level of required vote) will be approved if a majority of the shares that are outstanding and entitled to vote on June 16, 2010 are voted in favor of the proposal. Abstentions, broker non-votes and other shares that are not voted on the proposal in person or by proxy will have the same effect as a vote against the proposal.
The Executive Cash Incentive Plan of 2010. The Executive Cash Incentive Plan to be voted on at the meeting will be approved if a majority of the shares voted on this proposal are voted in favor of approval. Abstentions, broker non-votes and other shares that are not voted in person or by proxy will not be included in the vote count to determine if a majority of shares voted in favor of this proposal.
Ratification of Independent Auditors. The ratification of the selection of Deloitte & Touche LLP as our independent auditors for the current fiscal year will be approved if a majority of the shares that are voted on the proposal at the meeting are voted in favor of ratification. Abstentions, broker non-votes and other shares that are not voted on the proposal in person or by proxy will not be included in the vote count to determine if a majority of shares voted on this proposal voted in favor of this proposal.
Required Vote for Other Matters. We do not know of any other matters to be presented at the meeting. Generally, any other proposal to be voted on at the meeting would be approved if a majority of the shares that are voted on the proposal at the meeting are voted in favor of the proposal. Abstentions,
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A. | It means your shares are registered differently or are in more than one account. Please provide voting instructions for all proxy and voting instruction cards you receive. |
Q. | Where can I find the voting results of the |
A. | We will announce preliminary voting results at the |
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Election of Directors
The Board of Directors proposes that the following three individuals be elected as directors of Spartan Stores for three-year termsa one-year term expiring at the 2013 annual meeting2012 Annual Meeting of shareholders:
Craig C. SturkenDennis EidsonFrederick J. Morganthall, IIElizabeth A. Nickels
Wendy A. Beck
Yvonne R. Jackson
Biographical information concerning the nominees appears below under the heading "The“The Board of Directors."”
The persons named as proxies on the proxy card intend to vote for the election of each of the
nominees. The proposed nominees are willing to be elected and to serve as directors. If any nominee becomes unable to serve or is otherwise unavailable for election, which we do not anticipate, the incumbent Board of Directors may select a substitute nominee. If a substitute nominee is selected, the shares represented by your proxy card will be voted for the election of the substitute nominee, unless you give other instructions. If a substitute is not selected, all proxies will be voted for the election of the remaining nominees. Proxies will not be voted for more than three nominees.
Your Board of Directors recommends that you voteFOR election of all nominees as directors.
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The Board of Directors recommends approval of
In accordance with recent legislation, the Company is providing its shareholders with the opportunity to cast an amendment to Article Vadvisory vote on executive compensation of the Company's ArticlesCompany’s named executive officers as disclosed in this proxy statement pursuant to the SEC’s compensation disclosure rules. This proposal, commonly known as a “say-on-pay” proposal, gives our shareholders the opportunity to express their views on our executive compensation.
As described in more detail in the “Executive Compensation” section of Incorporation that would declassifythis proxy statement, the BoardCompany has designed its executive compensation programs to attract, motivate, reward and cause each directorretain the senior management talent required to be elected annually for a one-year term.
Article Vachieve our corporate objectives and increase shareholder value through long-term profitable growth. Accordingly, our compensation programs are focused on pay-for-performance principles and are strongly aligned with the long-term interests of our Articlesshareholders. For these reasons, and the reasons discussed in the “Compensation Discussion & Analysis” section of Incorporation currently providesthis proxy statement, we are asking our shareholders to vote “FOR” the adoption of the following resolution:
“RESOLVED, that our Board is divided into three classesthe shareholders of Spartan Stores, Inc. (the “Company”) approve, on an advisory basis, the compensation of the Company’s named executive officers, as nearly equaldisclosed in number as possible, with each class being elected every three years and with the term of one class expiring at eachCompany’s proxy statement for the 2011 Annual Meeting of Shareholders. IfShareholders under the proposed amendments are approved byheading entitled “Executive Compensation.”
This vote is not intended to address any specific item of compensation, but rather the requisite voteoverall compensation of our shareholders,named executive officers and the classification of the Board will be phased out as follows:philosophy and programs described in this proxy statement.
The term of office of those directors elected at the 2010 Annual Meeting will end at the 2013 Annual Meeting, at which those directors will be eligible to stand for re-election for a one-year term.
Those continuing directors whose current terms expire at the 2011 or 2012 Annual Meetings, respectively, will serve the remainder of their terms (i.e., until the 2011 or 2012 Annual Meetings, respectively),vote is advisory and thereafter will be eligible to stand for re-election for a one-year term.
Beginning with the 2013 Annual Meeting of shareholders, all of the Company's directors would be elected each year for a term of one year.
Any director chosen as a result of a newly-created directorship or to fill a vacancyis not binding on the Board prior to the 2012 Annual Meeting will hold office until the next election of the class for which such director has been chosen for appointments. After the 2012 Annual Meeting, any director appointed to fulfill a newly appointed directorship or to fill a vacancy on the Board will hold office until the next Annual Meeting.
If our shareholders do not approve these amendments, the Board will remain classified and the directors will continue to be elected to serve three-year terms, subject to their earlier removal in accordance with the Articles of Incorporation.
If approved, this proposal will become effective upon the filing of an amendment to the Articles of Incorporation with the appropriate agency of the State of Michigan, which Spartan Stores intends to do promptly if shareholder approval is obtained. In addition, if this proposal is approved,Company, the Board of Directors intends to promptly amendor the Bylaws of the Company to provide for the annual election of directors consistent with the Articles of Incorporation, as amended.
The Board is committed to good corporate governance and has periodically considered the advantages and disadvantages of maintaining a classified board. In the past, the Board has concluded that a classified board structure was in the best interests of Spartan Stores and its shareholders under the circumstances because a classified board generally provides for continuity and stability, promotes a long-term focus and may assist in the event of a hostile or coercive takeover attempt because the acquirer, being unable to unilaterally replace the entire board in a single election, may be more likely to negotiate with the board on pricing and other acquisition terms.
In its most recent review of this issue, however, after considering evolving corporate governance practices and the risk of coercive takeover efforts,Compensation Committee. However, the Board of Directors unanimously concluded that amendingand Compensation Committee value the Articlesopinions of Incorporation to provide forour shareholders and will take the annual election of all directors in the manner set forth in the proposed amendments is in the best interests of Spartan Stores and our shareholders. In this regard, the Board recognizes that many
investors and commentators believe that the election of directors is the primary means for shareholders to influence corporate governance policies and hold management accountable for implementing those policies.
The Board has unanimously approved the amendments and recommends that shareholders approve the amendment to Article Vresults of the Articles of Incorporation to provide for the declassification of the Board of Directors. Copies of these proposed amendments are attached to this Proxy Statement as Appendix A.vote into consideration when making future decisions regarding executive compensation.
Your Board of Directors Recommends That You VoteFORApproval of the DeclassificationCompensation of the Company’s Named Executive Officers.
Advisory (Non-Binding) Vote on Frequency of Future Advisory Votes on the
Compensation of the Named Executive Officers
In accordance with recent legislation, we are asking our shareholders to cast an advisory vote on how frequently we should hold future shareholder advisory votes on compensation of the named executive officers. By voting on this proposal, shareholders may indicate whether they would prefer a shareholder advisory vote on executive compensation once every year, once every two years or once every three years.
After careful consideration, the Board of Directors has decided to recommend that shareholders vote in favor of holding a shareholder
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advisory vote on executive compensation every year. The Board supports an annual advisory vote because we believe that this will provide our shareholders with an ongoing, consistent and timely means of Directors recommends approvalproviding input regarding our executive pay programs.
The frequency—one year, two years or three years—that receives the greatest number of an amendmentvotes will be considered to Article XIII of the Company's Articles of Incorporation that will lower the shareholder vote required by that Article for the Company's shareholders to amend, alter, or repeal the bylaws, or to adopt new bylaws, from 80% of the shares outstanding and entitled to vote to two-thirds of the shares outstanding and entitled to vote. In addition, the Board of Directors recommends approval of an amendment to delete a duplicative provision regarding shareholder changes to the bylaws set forth in Article XII(A).
These proposed changes would eliminate an inconsistency between Article XII(A) and Article XIII regarding the vote required for changes to the bylaws initiated by shareholders. Specifically, while current Article XIII states that an 80% vote of the shareholders is required, Article XII(A) provides that a vote of two-thirds of the voting stock of the Company is required for the shareholders to repeal or change the bylaws.
Pursuant to the Michigan Business Corporation Act, the proposed amendment to Article XIII must behave been approved by the affirmativeShareholders. This vote of 80% of shares outstandingis advisory and entitled to vote.
If the proposals are adopted, the shareholders of the Company may amend, alter or repeal the bylaws by a vote of two-thirds of the shares issued and outstanding and entitled to vote.
If the proposal to amend Article XII(A) is approved but the proposal to amend Article XIII is not approved, thenbinding on the vote required for shareholders to amend the bylaws would remain at 80%.
The proposed changes to Articles XII and XIII are set forth on Appendix B to this proxy statement.
Your Board of Directors Recommends That You VoteFOR the Proposed Change to Article XIII andFOR the Proposed Change to Article XII(A) of the Articles of Incorporation
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The Board of Directors believes that Spartan Stores' interests are best advanced by aligning the interests of its key officers with the interests of its shareholders. Therefore, to provide incentives and rewards for achievement of financial and other business goals, on May 12, 2010, the Board of Directors adopted and approved, subject to shareholder approval, the Spartan Stores, Inc. Executive Cash Incentive Plan of 2010 (the "Executive Plan").
The Executive Plan is similar to the Company's Annual Executive Incentive Plan of 2005, which will expire by its terms at the Company's 2010 annual meeting of shareholders, except that the Executive Plan permits the Compensation Committee to establish performance objectives for multi-year periods.
Section 162(m) of the Internal Revenue Code, as amended, limits to $1,000,000 the annual income tax deduction that a publicly-held corporation may claim for compensation paid to its chief executive officer and to its four most highly compensated officers other than the chief executive officer. Qualified "performance-based" compensation is exempt from the $1,000,000 limit and may be deducted even if other compensation exceeds $1,000,000. The Executive Plan is intended to provide for the ability to award compensation that qualifies as performance-based compensation under Section 162(m) of the Internal Revenue Code.
The Executive Plan would permit the Compensation Committee to designate for the performance period any executive officer (currently nine persons) of Spartan Stores or any of its subsidiaries as a participant under the Executive Plan. However, it is the intention of the Compensation Committee that participation in the Executive Plan in any period would be limited to those individuals who are expected to receive compensation for that year that would not otherwise be tax deductible under Section 162(m). Because Section 162(m), by its terms, limits its application to a corporation's chief executive officer and four other most highly compensated officers or other officers who may be included among those five officers, it is not presently expected that any person other than those officers would receive bonuses under the Executive Plan for a given performance period.
Participants in the Executive Plan could also receive cash or other bonuses from Spartan Stores under that or other bonus programs. The Executive Plan provides, however, that no payment under any other bonus program or compensation arrangement may be contingent upon failure to meet the performance goals for payment of an incentive bonus under the Executive Plan.
The following is a summary of the material features of the Executive Plan; however, it is not complete and, therefore, you should not rely solely on it for a detailed description of every aspect of the Executive Plan. The summary is qualified in its entirety by reference to the terms of the Executive Plan, a copy of which is attached as Appendix C to this proxy statement.
Under the Executive Plan, the Compensation Committee must specify for each participant, for the applicable performance period:
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Incentive bonus levels could be expressed as a matrix of percentages of the target bonus that would be paid at specified levels of performance. The percentage of the target bonus paid may be determined by interpolation if the performance achieved falls between specified performance levels above the threshold. Alternatively, incentive bonus levels may be expressed as a mathematical formula determining the percentage of the target bonus payable at varying levels of performance.
The term incentive bonus, as used in the Executive Plan, means a bonus awarded and paid to a participant for services to Spartan Stores or its subsidiaries during a performance period, that would be based upon achievement of pre-established financial and other objectives
by Spartan Stores, one or more of its subsidiaries or business units, or any combination thereof.
The Compensation Committee would determine the performance goal or set of goals for each participant for the performance period, the attainment of which would have to be substantially uncertain when specified. The performance goal or set of goals would have to be established in writing by the Compensation Committee during the first 90 days of the performance period and would have to be based solely upon objective criteria from which an independent third party with knowledge of the facts could determine whether the performance goal or set of goals was satisfied and from that determination could calculate the performance-based compensation to be paid. Although the Compensation Committee would have authority to exercise reasonable discretion to interpret the Executive Plan and the performance goals that it would specify pursuant to the Executive Plan, it may not amend or waive such performance goals after the 90th day of a performance period. The Compensation Committee woul d have no authority or discretion to increase any incentive bonus or to construct, modify or apply the measurement of performance in a manner that would directly or indirectly increase the incentive bonus for any participant for any performance period above the amount determined by the applicable objective criteria established within the first 90 days of the performance period.
Under the Executive Plan the performance of Spartan Stores would be determined by reference to one or more of the following business criteria specified by the Compensation Committee, either individually or in any combination, applied to either Spartan Stores as a whole or to a Spartan Stores business unit or subsidiary, either individually or in any combination, and measured against pre-determined levels, the performance of a pre-established peer group or a published or special index: net earnings; earnings before or after taxes, interest, depreciation, and/or amortization; earnings per share, reflecting dilution of the common stock as the Compensation Committee deems appropriate, and, if the Compensation Committee so determines, net of or including dividends; net sales; net sales growth; return measures (including, but not limited to, return on assets, capital, equity, or sales); cash flow (including, but not limited to, operating cash flow and free cash flow); cash flo w return on capital; gross or operating margins; productivity ratios; share price (including, but not limited to, growth measures and total shareholder return); expense or cost levels; margins; operating efficiency; customer satisfaction, satisfaction based on specified objective goals or a Spartan Stores-sponsored customer survey; working capital targets; economic value added measurements; market share or market penetration with respect to specific designated products or product groups and/or specific geographic areas; aggregate product price and other product measures; reduction of losses, loss ratios or expense ratios; reduction in fixed costs; inventory turnover; debt reduction; associate turnover; specified objective social goals; and safety record.
The performance measurement defined by the Compensation Committee could provide that any evaluation of performance could include or exclude certain specific events or their effects that occur during the performance period, including asset write-downs; litigation or claim judgments or settlements; changes in tax laws, accounting principles, or other laws or provisions affecting reported results; any reorganization and restructuring programs; extraordinary nonrecurring items as described in Accounting Principles Board Opinion No. 30 and/or in management's discussion and analysis of financial condition and results of operations appearing in the Company's annual report to shareholders for the applicable fiscal year; acquisitions, divestitures or accounting changes; foreign exchange gains and losses; and other special charges or extraordinary items.
Payment of an incentive bonus to a participant for a performance period under the Executive Plan would be entirely contingent upon the attainment of the specified performance goal or goals. The maximum bonus for any participant for a single performance period under any and all single or multi-year
performance plans could not exceed $4,500,000 multiplied by the number of full or partial fiscal years included in the performance period. The incentive bonus payable to a participant for a year would be paid as soon as feasible following final determination and written certification by the Compensation Committee that the applicable performance goals and any vesting period established by the Committee had been satisfied.
In general, if an associate ceased to be a participant during any performance period, or prior to actual receipt of the award for a previous performance period, because of the participant's termination of employment for any reason other than death, disability, retirement or change in control, then the participant would not be entitled to any award for such performance period. The Compensation Committee would be authorized under the Executive Plan to provide for the payment of an incentive bonus to a participant who dies, retires, or becomes disabled during a performance period or any applicable vesting period, and may provide for payment of an incentive bonus to participants upon a change in control of the Company, all subject to the requirements and restrictions of Section 162(m) and 409A of the Internal Revenue Code. The Compensation Committee would nevertheless be authorized to reduce or eliminate any incentive award otherwise payable under the Executive Plan.
If approved, the Executive Plan would be in effect for fiscal 2011 and would terminate without action by the Board of Directors or the Compensation Committee asCommittee. However, the Board of the date of the first meeting of shareholders held in fiscal 2015, unless reapproved by shareholders at such meeting or earlier. If reapproval occurs, the Executive Plan will terminate as of the date of the first meeting of shareholders in the fifth year following reapproval or any subsequent reapproval. If the Executive Plan terminates due to lack of reapproval by the shareholders, no incentive bonuses will be paid under the Executive Plan for any performance period that ends on or after the date of the Company's first shareholder meeting held in 2015.
The Board of
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Directors or Compensation Committee could terminate the Executive Plan at any time and could from time to time amend the Executive Plan as it considers proper and in the best interests of Spartan Stores, provided that no termination or amendment could impair the validity of, or the obligation of Spartan Stores to pay, any incentive bonus awarded for any performance period prior to the fiscal year in which the termination or amendment is adopted or, if later, is effective. In addition, no amendment could be made without the approval of shareholders of Spartan Stores if it would change the list of business criteria on which the Compensation Committee may base performance goals. An amendment adopted aftervalues the first 90 daysopinions of a performance period could not directly or indirectly increaseour shareholders and will take them into consideration when making future decisions regarding the amountfrequency of any incentive bonus, alter the allocation of benefits among participants, or alter any element of a performance goal in a manner that would increase any incentive bonus payable to any participant for that period.
Benefits that would be paid under the Executive Plan in the future if the Executive Plan is approved by the shareholders, are not determinable. The amount of incentive bonus any individual would receive under the Executive Plan will depend upon corporate and/or business unit performance for each fiscal year and is not presently determinable, however, the Executive Plan is similar to the Company's Annual Executive Plan of 2005, which was in effect for fiscal 2010. As discussed in the Compensation Discussion and Analysis section of this proxy statement, no awards were made under the Annual Executive Plan of 2005 for fiscal 2010 because the threshold levels of performance were not achieved. The same result would have occurred if the proposed Executive Plan had been in effect for fiscal 2010.
Selection of a participant for a performance period would be limited to that performance period and would not assure selection for any other period. Messrs. Eidson, Staples, Sturken, Adornato and DeYonker, and other officers of Spartan Stores or its subsidiaries who could be designated to
participate in the Executive Plan in the future, could be considered to have an interest in the Executive Plan.
To qualify as performance-based compensation under Section 162(m), the material terms of the Executive Plan must be approved by the shareholders of Spartan Stores. No compensation will be paid under the Executive Plan unless the Executive Plan is approved by the shareholders. The affirmative vote of the holders of a majority of the shares of Spartan Stores common stock represented in person or by proxy and voting on this proposal at the annual meeting is required to approve the Executive Plan. For purposes of countingshareholder advisory votes on this proposal, abstentions, broker non-votes and other shares not voted will not be counted as shares voted on the proposal, and the number of shares of which a majority is required will be reduced by the number of shares not voted.executive compensation.
Your Board of Directors Recommends That You Vote FOR Approvalto Hold an Advisory Vote on Executive CompensationEVERY YEAR.
Ratification of the Executive Cash Incentive PlanSelection of 2010Independent Auditors
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Spartan Stores'Stores’ Audit Committee has approved the selection of Deloitte & ToucheLLP (“Deloitte”) as the Company'sCompany’s independent auditors to audit the financial statements and internal controls of Spartan Stores and its subsidiaries for fiscal 2011,2012, and to perform such other appropriate accounting services as may be approved by the Audit Committee. The Audit Committee and the Board of Directors propose and recommend that shareholders ratify the selection of Deloitte & ToucheLLPto serve as the Company'sCompany’s independent auditors for the fiscal year ending March 26, 2011.31, 2012.
The independence of the Company'sCompany’s independent public accounting firm is of paramount concern to the Audit Committee and the Board of Directors. The Audit Committee evaluates the independence of the auditors at least annually. Deloitte & Touche has provided written affirmation that they are independent under all applicable standards, and the Audit Committee believes that Deloitte & Touche has effective internal monitoring of their independence. The Company and Deloitte & Touche have complied with SEC requirements on audit partner rotation. The lead audit partner was replaced in fiscal 2009.
Independence is not the sole factor in the selection of the Company'sCompany’s independent auditor. The Audit Committee also considers price, quality of service and knowledge of Spartan Stores and the Company'sCompany’s industry when considering auditor selection.
More information concerning the relationship of the Company with its independent auditors appears below under the headings "Audit“Audit Committee," "Independent” “Independent Auditors,"” and "Audit“Audit Committee Report."”
If the shareholders do not ratify the selection of Deloitte, & ToucheLLP, the Audit Committee will consider a change in auditors for the next year.
Representatives of Deloitte & ToucheLLP are expected to be present at the annual meeting,Annual Meeting, will have the opportunity to make a statement if they desire to do so, and are expected to be available to respond to appropriate questions from shareholders.
Your Board of Directors and Audit Committee, which consists entirely of independent directors, and Board of Directors recommend that you voteFOR ratification of the selection of Deloitte & ToucheLLP as our independent auditors for fiscal 2011.2012.
Corporate Governance Principles |
Spartan Stores is committed to developing and implementing principles of corporate governance to help the Board fulfill its responsibilities to shareholders and to provide a framework for overseeing the management of the Company. The formal requirements pertaining to Spartan Stores'Stores’ corporate governance structure are
set forth in our restated articles of incorporation, bylaws and committee charters. TheIn addition, the Board has adopted a written Corporate Governance Policy. The Policy is designed to communicate our fundamental governance principles and to provide management, associates, and shareholders with insight to the Board'sBoard’s ethical standards,
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expectations for conducting business, and decision-making processes. The Policy includes, among other things, guidelines regarding:
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Board size and criteria;
director independence;
term limits and retirement of directors;
Board meetings and committees;
evaluation and compensation of the Board and executive officers;
directors’ access to management and outside advisors;
strategic planning;
succession planning; and
communications.
This section of our proxy statement summarizes certain charters, policies, and principles relating to Spartan Stores'Stores’ corporate governance. More information regarding the Company'sCompany’s corporate governance, including a copy of our Corporate Governance Policy, is available in the "For Investors-Corporate Governance"“For Investors—Corporate Governance” section of our website, www.spartanstores.com.
Declassification of the Board of Directors
In 2010, the Board of Directors unanimously recommended, and the shareholders approved, amendments to the Company’s Articles of Incorporation that declassified the Board and caused each director to be elected annually for a one-year term. Previously, the Board had been divided into three classes of directors serving three year terms.
The declassification is being phased in over a three-year period, beginning with this year’s Annual Meeting and continuing in 2012.
Beginning with the 2013 Annual Meeting, every director of the Company will stand for election for a one-year term of office. Directors who are currently serving a term of office that will expire at either the 2012 or 2013 Annual Meetings will continue to serve until the end of their current term. Directors with terms expiring at the 2011 Annual Meeting will stand for election to a one-year term of office.
Director Independence
The Board believes that the independence of directors is an essential feature of the Company'sCompany’s governance. Independent directors help assure that the Board and its committees are dedicated to acting in the best interests of the shareholders. Accordingly, Spartan Stores'Stores’ Corporate Governance Policy requires that at least two-thirds of the directors must be independent (as defined by the applicable standards of the SEC and the Nasdaq Listing Rules).
More than two-thirds of the Company'sCompany’s Board has consisted of independent directors for years. Currently, sixeight of Spartan Stores' eightStores’ ten directors are independent. At present, the Board has only two current or former management directors: Craig Sturken, the current Chairman of the Board, former Executive Chairman and former Chief Executive Officer, and Dennis Eidson, the current President and Chief Executive Officer.
When the Chairperson of the Board is the current or former Chief Executive Officer, the Chairperson of the Nominating and Corporate Governance Committee serves as Lead Independent Director. The role of the Lead Independent Director is to aid and assist the Chairperson and the rest of the Board in assuring effective corporate governance in managing the affairs of the Board and the Company. The Lead Independent Director acts as the principal liaison between the independent directors and the Chairperson of the Board, may recommend matters for the Board to consider and advises the Chairperson of the Board as to the quality, quantity and timeliness of the flow of information from management that is necessary for the independent directors to effectively and responsibly perform their duties. Other responsibilities of the Lead Independent Director including developing the agenda for
and chairing executive sessions of the Board of Directors and communicating with the Chairperson as appropriate, presiding over Board meetings in the absence of or at the request of the Chairperson, assisting in the recruitment of Board candidates, and, in coordination with the Nominating and Corporate Governance Committee, providing performance feedback to the Chairperson. Although management is responsible for the preparation of materials for the Board's review, the Lead Independent Director may request the inclusion of specific material. The Lead Independent Director may also recommend to the Chairperson of the Board the retention of consultants who report directly to the Board.
The Board of Directors'Directors’ Role in Risk Oversight
Management of risk is the direct responsibility of the Company'sCompany’s senior leadership team. The Board of Directors is responsible for overseeing the Company'sCompany’s risk management and risk mitigation. In its oversight of the Company'sCompany’s risk-management process, the Board seeks to ensure that the Company is informed and deliberate in its risk-taking. The Company'sCompany’s primary mechanisms for risk management are the Company'sCompany’s enterprise risk management program ("ERM"(“ERM”), its internal audit program, strategic review sessions held between the Board and management, and the Company'sCompany’s external audit by an independent accounting firm.
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The Company relies on its ERM process to help identify, monitor, measure and manage risks. The ERM approach is designed to enable the Board of Directors to establish a mutual understanding with management of the effectiveness of the Company'sCompany’s risk management practices and capabilities. The Company'sCompany’s internal audit department provides management and the Board with information and analysis regarding operational, compliance and strategic risks, and seeks to improve business processes to minimize risks of fraud and abuse. Management and the internal auditor provide the Audit Committee with reports and updates on risk management matters at each Audit Committee meeting.
At least annually, the Board of Directors undertakes a comprehensive review of the Company'sCompany’s strategic plans and objectives with management. This review necessarily involves the identification and assessment of strategic risks attendant to initiatives such as acquisitions and divestitures, major investments, financings and capital commitments.
The Board implements its risk oversight function both as a whole and through Committees, which meet regularly and report back to the full Board. In particular:
The Audit Committee oversees risks related to the Company’s financial statements, the financial reporting process, accounting and legal matters. The Audit Committee oversees the Company’s internal audit and ethics programs, including the Company’s codes of conduct and ethics. The Audit Committee members meet independently with the Company’s internal auditor and representatives of the independent auditing firm on a regular basis.
The Compensation Committee evaluates the risks and rewards associated with the Company’s compensation philosophy and programs. As discussed in more detail in the Compensation Discussion & Analysis section of this proxy statement, the
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The Nominating and Corporate Governance Committee regularly reviews the Company’s governance structure and mechanisms to promote the long-term interests of shareholders. The Nominating and Corporate Governance Committee also oversees the succession planning process for senior leadership positions.
Board Leadership Structure
The Nominating and Corporate Governance Committee and the Board of
Directors evaluate, from time to time, the leadership structure of the Board of Directors in light of a variety of factors that the Board considers important, including efficiency, the Company'sCompany’s current Board composition, the experience and skills of our management team, and other factors.
The Board of Directors, upon the recommendation of the Nominating and Corporate Governance Committee, has determined that at this time, it is in the best interests of the Company and its shareholders to separate the roles of Chief Executive Officer and Chairman of the Board in recognition of the differences between the two roles. The Chief Executive Officer is responsible for setting the strategic direction for the Company and the day to day leadership and performance of the Company, while the Chairman of the Board, who previously served as the Company'sCompany’s Chief Executive Officer for over five years, provides guidance to the Chief Executive Officer and sets the agenda for Board meetings and presides over meetings of the full Board.
When the Chairman of the Board is the current or former Chief Executive Officer, the Chairperson of the Nominating and Corporate
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Governance Committee serves as Lead Independent Director. The role of the Lead Independent Director is to aid and assist the Chairman and the rest of the Board in assuring effective corporate governance in managing the affairs of the Board and the Company. Specific responsibilities and authority of the Lead Independent Director include:
acting as the principal liaison between the independent directors and the Chairman of the Board;
recommending matters for the Board to consider;
advising the Chairman of the Board as to the quality, quantity and timeliness of the flow of information from management that is necessary for the independent directors to effectively and responsibly perform their duties;
developing the agenda for and chairing executive sessions of the Board of Directors and communicating with the Chairperson as appropriate;
presiding over Board meetings in the absence of or at the request of the Chairperson;
assisting in the recruitment of Board candidates;
providing performance feedback to the Chairperson (in coordination with the Nominating and Corporate Governance Committee);
requesting that management prepare specific materials for the Board’s review; and
recommending to the Chairman of the Board the retention of consultants who report directly to the Board.
The Board of Directors believes that this leadership structure supports the risk oversight function of the Board (discussed above) by allowing the Chief Executive Officer and senior management to focus on strategic opportunities and risks within the framework of the Company'sCompany’s risk management programs, while the Board, under the leadership of the Executive Chairman, provides oversight in connection with those efforts.efforts, and the Lead Independent Director helps promote overall effective governance.
Committee Charters
The Board has appointed four chartered committees: the Audit Committee, the Compensation Committee, the Nominating and Corporate Governance Committee, and the Executive Committee. The Board has approved a written committee charter for each of these committees. The charters define basic principles regarding the committee'seach committee’s organization, purpose, authority and responsibilities. The charters for the Audit, Compensation, and Nominating and Corporate Governance Committees are available in the "For Investors-Corporate Governance"“For Investors—Corporate Governance” section of our website, www.spartanstores.com.
Director Attendance
The Board is proud of its record of recruiting and retaining directors who have a diversity of experience, whoexperience; have the highest personal and professional integrity, whointegrity; have demonstrated exceptional ability and judgment,judgment; and who are effective in serving the long-term interests of shareholders. Board and committeeCommittee attendance is critical to the proper functioning of the Board of Directors and is a priority. Each director is expected to make every effort to personally attend every Board meeting and every meeting of each committeeCommittee on which he or she serves as a member.
Spartan Stores'Stores’ Board of Directors held fiveseven meetings during fiscal 2010.2011. In fiscal 2010,2011, each director attended at least 75% of the total of all meetings of the Board of Directors and the committees on which he or she served. The Board is scheduled to meet at least quarterly and may meet more frequently.
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Independent directors meet in executive sessions, without the presence of management, at each regularly scheduled Board meeting.
Directors are also expected to attend the annual meetingAnnual Meeting of shareholders in person unless compelling personal circumstances prevent attendance. Despite the geographic diversity of their home cities, all of Spartan Stores' then-currentStores’ directors have attended the annual meetingsAnnual Meetings of shareholders for at least the past sixseven years, except thatwith one exception for one director who was unable to attend the 2009 annual meetingone Annual Meeting of shareholders.
Alignment of Shareholder, Management, and Director Interests
The Board has long believed that directors and management should have a significant financial stake in the Company to align their interests with those of the shareholders. Therefore, the Board and the Compensation Committee have made equity awards a substantial component of management and director compensation. In addition, the
Board of Directors has established stock ownership guidelines for corporate officers and directors to ensure that they face the same downside risk and upside potential as shareholders. Under the stock ownership guidelines, the Company'sCompany’s executive officers are expected to achieve and maintain a level of stock ownership having a value that is approximately equal to or greater than a specified multiple of the executive'sexecutive’s annual base salary, ranging for various positions from five times the applicable salary to one times the applicable salary. Each member of the Board of Directors is expected to acquire and continue to hold shares of the Company'sCompany’s common stock having an aggregate market value from time to time which equals or exceeds five times the rate of the regular annual retainer then in effect for non-employee directors who are not chairs. Please see the "Compensation“Compensation Discussion and Analysis"Analysis” and "Compensation“Compensation of Directors"Directors” sections of this proxy statement for additional information.
Majority Voting
The Board believes that the Company and its shareholders are best served by having directors who enjoy the confidence of the Company'sCompany’s shareholders. It will be presumed that any director who receives a greater number of votes "withheld"“withheld” than votes "for"“for” such election in an uncontested election at an annual meeting of shareholders (a "Majority“Majority Withheld Vote"Vote”) does not have the full confidence of the shareholders. A director receiving a Majority Withheld Vote is required to promptly offer his or her resignation from the Board to the Nominating and Corporate Governance Committee upon certification of the shareholder vote. The resignation will be effective if and when accepted by the Nominating and Corporate Governance Committee.
Retirement and Change in Employment Status
The Board of Directors believes that it is generally appropriate for directors to retire before the age of 72. A director will not ordinarily be nominated for re-election to the Board of Directors following the expiration of the term of office which ends after his or her 72nd birthday. The Board of Directors recognizes, however, that the wisdom, experience and contribution of an older director could benefit the Board and the Nominating and Corporate Governance Committee may, in its discretion, nominate a director for re-election after his or her 72nd birthday in a case which the Nominating and Corporate Governance Committee determines to be exceptional. Currently, none of our directors is age 72 or older.
Directors recognize that they have been chosen for nomination or appointment to the Board of Directors in part because of the knowledge and insight they gain on a continuing basis from their active employment in their current positions and for the public respect they bring to the Company and its Board of Directors because of the positions they hold in the business community. A director
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who experiences a material change in his or her employment status is expected to promptly offer his or her resignation as a director to the Nominating and Corporate Governance Committee. The Committee will promptly consider and vote upon acceptance or rejection of the director'sdirector’s offer to resign (excluding the affected director from consideration of and voting on acceptance of the resignation).
Other Board Memberships
Spartan Stores recognizes that the proper direction and management of the Company requires the dedication of the executive officers and a significant commitment from its directors. Accordingly, the Board has established a policy governing membership on the boards of other companies.
Executive officers of the Company must notify the Nominating and Corporate Governance Committee before serving as a member of the Board of Directors of any other business organization. The Nominating and Corporate Governance Committee reviews the Chief Executive Officer'sOfficer’s membership on external boards of directors at least annually.
The Chief Executive Officer may not serve on the board of directors of more than one business organization not affiliated with the Company without the prior review and approval of the Nominating and Corporate Governance Committee. The Committee may limit the directorships for any other executive officer if it believes that they will interfere with the executive officer'sofficer’s responsibilities to the Company. Non-management directors may not serve on more than three other public company boards without the prior review and approval of the Nominating and Corporate Governance Committee.
Codes of Conduct and Ethics
Spartan Stores is committed to the highest standards of integrity, honesty, and ethics in business. The Board has approved, and the Audit
Committee administers, a Code of Conduct and Business Ethics (the "Code"“Code”) that articulates the Company'sCompany’s standards regarding business ethics and expectations regarding the conduct of directors, management, and associates. This Code establishes basic guidelines to help the Company comply with legal requirements and conduct our business with honesty and integrity. The Code sets forth rules of conduct concerning disclosure of information, conflicts of interest, accurate recordkeeping and reporting, and receipt of personal benefits. The Code requires all associates of the Company to report promptly any violations of the Code. Associates may report violations through the Company'sCompany’s HonorLine telephone system on a confidential and anonymous basis. The Code is available in the "For Investors-Corporate Governance"“For Investors—Corporate Governance” section of our website, www.sp artanstores.com.www.spartanstores.com.
In addition, the Company has a comprehensive Code of Conduct Policy applicable to all associates that articulates the Company'sCompany’s core values and sets forth standards of conduct regarding a broad range of topics, including antitrust compliance, securities matters, environmental law compliance, political contributions, workplace conduct, and other matters that are essential to the integrity of our business activities.
Succession Planning
The Board of Directors reviews periodically succession planning for the Company'sCompany’s Chief Executive Officer and other executive officers to manage continuity of leadership in the execution of the Company'sCompany’s business strategies, as reflected in the recent transition of Mr. Eidson into the Chief Executive Officer position in accordance with the Board of Director'sDirector’s succession planning. For more information, please see our Corporate Governance Policy, and the Compensation Committee Charter and the Nominating and Corporate Governance Committee Charter in the "For Investors"“For Investors” section of our website, www.spartanstores.com.
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Board and Management Communication
Spartan Stores is committed to open and effective communication between the Board and management. Directors are encouraged to consult with any Spartan Stores manager or associate and may visit Company facilities without the approval or presence of corporate management. The Board encourages executive officers to invite managers to Board meetings from time to time who can provide additional insight into matters under discussion. The Board is required to dedicate a substantial portion of at least one meeting per year to discussions with management regarding the Company'sCompany’s strategic plan.
Director Education
Spartan Stores encourages all of its directors to attend continuing education programs so that they may stay abreast of developments in corporate governance and best practices and further develop their expertise. The Board of Directors expects that each director will attend an appropriate continuing director education program at least once every two years.
Nominee Qualifications and the Nominations Process
There are no specific or minimum qualifications or criteria for nomination for election or appointment to the Board of
Directors. The Nominating and Corporate Governance Committee identifies and evaluates nominees for director on a case-by-case basis, regardless of who recommended the nominee, and has no written procedures for doing so. The Board has indentified certain qualifications, attributes and skills that should be represented on the Board as a whole. These are discussed beginning on page 14.
The Board of Directors believes that Spartan Stores and its shareholders are best served by having a Board of Directors that brings a diversity of education, experience, skills, and perspective to Board meetings. The Board of Directors welcomes opportunities to include diverse perspectives, talents, ideas and
contributions. Consistent with this philosophy, the Board of Directors may consider factors and characteristics that are pertinent to diversity, such as race and gender, when evaluating nominees to stand for election or re-election to the Board.
The Company has engaged and paid fees to third party search firms to assist the Nominating and Corporate Governance Committee in identifying possible nominees for director and providing information to assist the Committee in the evaluation of possible nominees.
The Board of Directors expects that there would be no material difference in the manner in which the Nominating and Corporate Governance Committee would evaluate a nominee for director that was recommended by a shareholder.
Shareholder Nominations of Director Candidates
Under our restated articles of incorporation, a shareholder of record may nominate a person for election as a director at a meeting of shareholders at which directors will be elected if, and only if, the shareholder has delivered timely notice to the Secretary of Spartan Stores setting forth:
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the name, age, business address and residence address of each proposed nominee;
the principal occupation or employment of each nominee;
the number of shares of Spartan Stores stock that each nominee beneficially owns;
a statement that each nominee is willing to be nominated; and
any other information concerning each nominee that would be required under the rules of the Securities and Exchange Commission (“SEC”) in a proxy statement soliciting proxies for the election of those nominees.
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The Nominating and Corporate Governance Committee will consider every nominee proposed by a shareholder that is received in a timely manner in accordance with these procedures and report each such nomination, along with the Nominating and Corporate Governance Committee'sCommittee’s recommendations, to the full Board of Directors.
To be timely, a shareholder'sshareholder’s notice must be delivered to or mailed and received at Spartan Stores'Stores’ principal executive offices at least 120 days before the date of notice of the meeting in the case of an annual meeting of shareholders, or not more than seven days following the date of notice of the meeting in the case of a special meeting of shareholders. Any nomination that does not comply with these procedures will be void.
The Nominating and Corporate Governance Committee may also, in its discretion, consider shareholders'shareholders’ informal recommendations of possible nominees. Shareholders may send such informal recommendations to the Committee by directing them in care of the Secretary of the
Company at the address that appears on the first page of this proxy statement.
Shareholder Communications with Directors
In accordance with the Spartan Stores'Stores’ Shareholder Communication Policy, shareholders who wish to send communications to Spartan Stores'Stores’ Board of Directors may do so by sending them in care of the Secretary of the Company at the address that appears on the first page of this proxy statement. Such communications may be addressed either to specified individual directors or the entire Board. The Secretary has the discretion to screen and not forward to directors communications which the Secretary determines in his or her discretion are communications unrelated to the business or governance of Spartan Stores and its subsidiaries, commercial solicitations, offensive, obscene, or otherwise inappropriate. The Secretary will, however, compile all shareholder communications which are not forwarded and such communications will be available to any director. A copy of our Shareholder Communication Policy can be found in the "For“For Investors-—Corporate Governance"Governance” section of our website, www.spartanstores.com.
The Board of Directors |
General
General
The Board of Directors currently consists of eightten directors. Assuming that all of the nominees are elected, there will be eightnine directors immediately following the annual meeting. TheAnnual Meeting. At our 2010 Annual Meeting, our shareholders voted to amend the Company’s Articles of Incorporation to declassify our Board of Directors and cause each director to stand for election annually. The declassification is divided into three classes,being phased in over a three-year period, beginning with each class as nearly equal in number as possible.this year’s Annual Meeting. Continuing directors elected prior to the 2011 Annual Meeting will continue to serve the remainder of their three-year terms, and thereafter will be eligible to stand for re-election for a one-year term. Each class of directors serveselected at the
2011 Annual Meeting will serve a three-yearone-year term, with the term of one class expiring at the annual meeting in each successive year. Mr. Sturken, Mr. Morganthall, and Mr. Eidson are standing for re-election.2012 Annual Meeting.
The biographies of each of the nominees and continuing directors below contains information regarding the person'sperson’s service as a director, business experience, director positions held currently or at any time during the last five years, and the experiences, qualifications, attributes or skills that caused the Nominating and Corporate Governance Committee and the Board to determine that the person should continue to serve as a director for the Company. Except as otherwise indicated, each of these persons has had the same principal position and employment for over five years.
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Nominees for Directors With Terms Expiring in 20132012
Craig C. Sturken (age 66) is the Executive Chairman of the Company. Mr. Sturken has been a director of Spartan Stores since March 2003, was Chief Executive Officer of Spartan Stores from March 2003 to October 2008, President of Spartan Stores from March 2003 to October 2007, and Chairman of the Board of Spartan Stores since August 2003 (including Executive Chairman since October 2008). Mr. Sturken spent his entire career in the grocery industry and has more than 40 years of retail grocery experience, including 10 years with the Great Atlantic & Pacific Tea Company ("A&P"), a food retailer whose stock is traded on the New York Stock Exchange. From October 2000 to March 2002, Mr. Sturken was the CEO of A&P's Atlantic region, after which he retired. From October 1992 to October 2000, he was CEO of A&P's Midwest region. Before A&P, Mr. Sturken held executive positions with The Grand Union Company and Hannaford Brothers' Company. Mr. Sturken is uniquely qualified to serve as a director of Spartan Stores by virtue of his four decades of experience in the retail grocery industry and his knowledge of the Company and its operations gained during his service as Spartan's Chief Executive Officer.
Frederick J. Morganthall, II (age 58) has been a director of Spartan Stores since his appointment to the Board in May 2006. Since October 1997, Mr. Morganthall has been the President of Harris Teeter, Inc., a supermarket chain operating in North Carolina, South Carolina, Virginia, Georgia, Tennessee, and Florida. Harris Teeter is a wholly owned subsidiary of Ruddick Corporation, a holding company whose stock is traded on the New
York Stock Exchange. Prior to becoming President of Harris Teeter, Mr. Morganthall served Harris Teeter in other executive positions since 1992. Mr. Morganthall's qualifications for service as a director of Spartan Stores include his extensive executive experience in the grocery industry (including distribution and supply chain operations) and his knowledge of competitive conditions and strategic developments in our industry.
Dennis Eidson (age 56) has been a director of Spartan Stores since October 2007, Chief Executive Officer since October 2008, President of Spartan Stores since October 2007, and was our Chief Operating Officer from February 2007 to October 2008, and our Executive Vice President Marketing and Merchandising from March 2003 to February 2007. Prior to joining Spartan Stores, Mr. Eidson served as the Divisional President and Chief Executive Officer of A&P's Midwest region from October 2000 to July 2002, as the Executive Vice President Sales and Merchandising of A&P's Midwest region from March 2000 to October 2000, and as the Vice President of Merchandising of A&P's Farmer Jack division from June 1997 to March 2000. Mr. Eidson brings valuable insight and knowledge to the Board due to his service as President and Chief Executive Officer. Mr. Eidson also provides the benefit of his years of service in the retail grocery industry, including his executive experience at A&P.
Directors With Terms Expiring in 2011
Elizabeth A. Nickels(age 48)49) has been a director of Spartan Stores since 2000. Since February 2000, Ms. Nickels has served as an executive at Herman Miller, Inc., an office furniture manufacturing company whose stock is traded on the Nasdaq Global Select Market. She is currently President of Herman Miller Healthcare, a position she has held since August 2007, and Executive Vice President of Herman Miller, Inc., a title she has held since February 2000. Ms. Nickels also served as Chief Financial Officer of Herman Miller from February 2000 to August 2007. From 1993 to February 2000, she was Vice President and Chief Financial Officer of Universal Forest Products, Inc., a wood products manufacturer whose stock is traded on the Nasdaq Global Select Market. Ms. Nickels ishas practiced as a certified public accountant.accountant and maintains her registration as a C.P.A. Ms. Nickels'Nickels’ qualifications to serve as a director include her wealth of experience and knowledge of business, finance and accounting matters gained through seven teenseventeen years of executive experience with publicly traded companies.
James F. WrightYvonne R. Jackson(age 60)61) has been a director of Spartan Stores since 2002. Mr. Wright is the Chairman ofher appointment to the Board in October 2010. Ms. Jackson is President and Principal of BeecherJackson, a human resources management consulting firm that she co-founded in 2006. From 2002 to 2005, she served as Senior Vice President, Corporate Human Resources of Pfizer, Inc., a global pharmaceutical company with over 100,000 employees whose stock is traded on the NYSE, where she was responsible for overall strategy development and the execution of Pfizer’s company-wide human resources policies and initiatives. From 1999 to 2002, she served as Senior Vice President Human Resources and Chief ExecutivePeople Officer of Tractor Supply Company,at Compaq Computer Co., a farm equipmentcomputer manufacturing and supplymarketing company, prior to its acquisition by Hewlett-Packard. From 1993 to 1999, she served as Senior Vice President Human Resources and
Chief People Officer at Burger King Corporation, a nationwide fast-food retailer whose stock is listedtraded on the New York Stock Exchange. Since 2006, Ms. Jackson has served as a director of Winn-Dixie Stores, Inc., a regional grocery retailer whose common stock is traded on the Nasdaq Stock Market. Mr. Wright servedMarket, and she is chairperson of its Compensation Committee. Ms. Jackson is a former director and member of the Compensation and Nominating and Corporate Governance Committees of Best Buy Co., Inc., whose stock is traded on the NYSE. Ms. Jackson has over 30 years’ experience in human resources, including experience as Chairman,the most senior human resources executive. Her experience enables her to assist the Board in its deliberations regarding succession planning, compensation and benefits, change management, talent management, organizational management and diversity strategies.
Wendy A. Beck(age 46) has been a director of Spartan Stores since her appointment to the Board in October 2010. Ms. Beck is the Executive Vice President and Chief ExecutiveFinancial Officer of Tractor Supply from 2007 to 2009, PresidentNorwegian Cruise Line, one of the leading cruise ship operators in the world. She was formerly CFO of Domino’s Pizza, a public pizza delivery company with more than 9,000 national and international franchise and company-owned retail stores, and an extensive food distribution operation. She also previously held Chief ExecutiveFinancial Officer from October 2004 to November 2007,and Treasurer positions with Whataburger Restaurants and Checkers Drive-In Restaurants, which was publicly traded during her time with Checkers Drive-In Restaurant, and was Presidenta senior tax accountant with Lincare, a publicly traded national healthcare services company. Ms. Beck is a Certified Public Accountant, a member of the American Institute of Certified Public Accountants and Chief Operating Officer from 2000 until October 2004. From 1997 to 2000, heFlorida Institute of Certified Public Accountants, and served as President and Chief Executive Officer of Tire Kingdom, a chain of retail tire stores headquartered in West Palm Beach, Florida. Mr. Wright contributes toon the Board of Directors his valuable knowledgefor the Women’s Foodservice Forum from 2006 to 2011, including service on the Executive Committee and experience gainedas Treasurer of that organization from his many years of executive experience with retail organizations, including over six years of experience as the Chief Executive Officer2006 to 2008. Ms. Beck possesses expertise in accounting, finance, taxes, budgeting, forecasting, SEC compliance and nearly three years of experience as Chairman of the Board o f a publicly traded retailer.reporting, strategic planning, and information technology systems.
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Continuing Directors With Terms Expiring in 2012
M. Shân Atkins(age 53)54) has been a director of Spartan Stores since 2003. Since 2001, Ms. Atkins has been Managing Director of Chetrum Capital LLC, a private investment firm. Ms. Atkins is a director and chair of the Human ResourcesCompensation Committee of The Pep Boys -– Manny, Moe and Jack, an auto parts and service retailer whose common stock is listed on the New York Stock Exchange. Ms. Atkins is also a director and member of the Human Resource and Compensation Committee and the Nominating and Corporate Governance Committee of Tim Hortons, Inc., Canada'sCanada’s leading quick service restaurant chain whose stock is traded on the New York Stock Exchange, and a director and chair of the Audit Committee of Shoppers Drug Mart Corporation, a retail drug store chain whose stock is traded on the Toronto
Stock Exchange. Ms. Atkins serves as a director and chair of the Audit Committee of True Value Company, a retailer-owned hardware cooperative. From 1999 to 2001, Ms. Atkins served as a director and a member of the audit committeeAudit Committee of Chapters, Inc., a book retailer whose stock was traded on the Toronto Stock Exchange prior to the company'scompany’s acquisition. From 1996 to 2001, Ms. Atkins served in a variety of executive positions with Sears, Roebuck and Co. (now known as Sears Holdings Corporation), a retailer whose common stock is listed on the New York Stock Exchange, most recently as Executive Vice President, Strategic Initiatives. From 1982 to 1996, she served in a variety of positions with Bain and Company, Inc., an international management consulting firm, where she specialized in the consumer and retail sectors, most recently serving as Vice President. Ms. Atkins was an auditor with Price Waterhouse in Toronto, Canada, from 1979 to 1981. She has been a member of the Canadian Institute of Chartered Accountants since 1981 and is a certified public accountant. Ms. Atkins'Atkins’ qualifications to serve on the Board of Directors include h erher expertise in finance and accounting, her extensive experience as a director of other publicly traded corporations, her experience in developing and executing strategic plans for major retail organizations, and her business and investment experience in private equity.
Dr. Frank M. Gambino(age 56)57) has been a director of Spartan Stores since 2003. Dr. Gambino is a Professor of Marketing and the Director of the Food & Consumer Packaged Goods Marketing Program in the Haworth College of Business at Western Michigan University. He has been on the WMU faculty since 1984. Prior to joining WMU he had over 15 years of experience in the retail food industry. Dr. Gambino remains active within the food and consumer packaged goods industries at both the national and regional level. He is a frequent speaker, trainer and consultant to a diverse group of industry organizations. Currently, he serves on the Retail Site Development Committee for Wakefern Food Corporation (a grocery retailer cooperative) of Elizabeth, New Jersey, which is an advisory committee that reports to the Wakefern Board of Directors. He is also secretary to the Western Michigan University Food Industry Advisory Board. He is a past member of the board of director sdirectors for Alliance Foods and the Food Distribution Research Society and past senator to the WMU Faculty Senate. He has served and continues to serve on several industry advisory groups including such organizations as the National Grocers Association and the Food Marketing Institute. Dr. Gambino'sGambino’s qualifications to serve on the Board of Directors include his knowledge and expertise in the food industry.
Timothy J. O'DonovanO’Donovan (age 65)66) has been a director of Spartan Stores since 2003. Mr. O'DonovanO’Donovan is the retired Chairman of the Board and Chief Executive Officer of Wolverine World Wide, Inc. a footwear company whose common stock is listed on the New York Stock Exchange. Mr. O'DonovanO’Donovan served as Chairman of the Board of Wolverine from April 2005 through December 2009. In April 2007, Mr. O'DonovanO’Donovan retired as Chief Executive Officer of Wolverine, a position which he held since April 2000. Mr. O'DonovanO’Donovan served as Wolverine'sWolverine’s Chief Executive Officer and President from April 2000 until April 2005, and as Chief Operating Officer and President from 1996 until April 2000. Before 1996, Mr. O'DonovanO’Donovan was Executive Vice President of Wolverine. Mr. O'DonovanO’Donovan is also a director of Kaydon Corporation, a designer and
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manufacturer of bearing systems whose stock is traded on the New York Stock Exchange. Mr. O'Donovan'sO’Donovan’s qualifications for service as a Director include his extens iveextensive experience as a public company executive and more than 25 collective years of experience on public company boards and service on both audit and compensation committees of public company boards.
Continuing Directors With Terms Expiring in 2013
Craig C. Sturken (age 67) is the Chairman of the Board of Directors. Mr. Sturken has been a director of Spartan Stores since March 2003, was Chief Executive Officer of Spartan Stores from March 2003 to October 2008, President of Spartan Stores from March 2003 to October 2007, and Chairman of the Board of Spartan Stores since August 2003 (including Executive Chairman from October 2008 to February 2011). Mr. Sturken spent his entire career in the grocery industry and has more than 40 years of retail grocery experience, including 10 years with the Great Atlantic & Pacific Tea Company (“A&P”), a food retailer whose stock is traded on the New York Stock Exchange. From October 2000 to March 2002, Mr. Sturken was the CEO of A&P’s Atlantic region, after which he retired. From October 1992 to October 2000, he was CEO of A&P’s Midwest region. Before A&P, Mr. Sturken held executive positions with The Grand Union Company and Hannaford Brothers’ Company. Mr. Sturken is uniquely qualified to serve as a director of Spartan Stores by virtue of his four decades of experience in the retail grocery industry and his knowledge of the Company and its operations gained during his service as Spartan’s Chief Executive Officer.
Frederick J. Morganthall, II (age 59) has been a director of Spartan Stores since 2006. Since October 1997, Mr. Morganthall has been the President of Harris Teeter, Inc., a supermarket chain operating in North Carolina, South Carolina, Virginia, Georgia, Tennessee, and Florida. Harris Teeter is a wholly owned subsidiary of Ruddick Corporation, a holding company whose stock is traded on the New York Stock Exchange. In 2011, Mr. Morganthall was elected Chairman of the
Board Committeesof the Food Marketing Institute, an organization representing 1,500 food retailers and wholesalers with a combined annual sales volume of $680 billion. Prior to becoming President of Harris Teeter, Mr. Morganthall served Harris Teeter in other executive positions since 1992. Mr. Morganthall’s qualifications for service as a director of Spartan Stores include his extensive executive experience in the grocery industry (including distribution and supply chain operations) and his knowledge of competitive conditions and strategic developments in our industry.
Dennis Eidson (age 57) has been a director of Spartan Stores since October 2007, Chief Executive Officer since October 2008, President of Spartan Stores since October 2007, and was our Chief Operating Officer from February 2007 to October 2008, and our Executive Vice President Marketing and Merchandising from March 2003 to February 2007. Prior to joining Spartan Stores, Mr. Eidson served as the Divisional President and Chief Executive Officer of A&P’s Midwest region from October 2000 to July 2002, as the Executive Vice President Sales and Merchandising of A&P’s Midwest region from March 2000 to October 2000, and as the Vice President of Merchandising of A&P’s Farmer Jack division from June 1997 to March 2000. Mr. Eidson brings valuable insight and knowledge to the Board due to his service as President and Chief Executive Officer. Mr. Eidson also provides the benefit of his years of service in the retail grocery industry, including his executive experience at A&P.
Director with a Term of Office Expiring at the Annual Meeting
James F. Wright(age 61) has been a director of Spartan Stores since 2002. Mr. Wright is the Chairman of the Board and Chief Executive Officer of Tractor Supply Company, a farm equipment and supply retailer whose stock is listed on the Nasdaq Stock Market. As previously disclosed, Mr. Wright will conclude his service as a director when his current term of office expires at the 2011 Annual Meeting.
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Qualifications, Attributes, Skills and Experience to be Represented on the Board as a Whole
The Board has identified particular qualifications, attributes, skills and experience that are important to be represented on the Board as a whole, in light of the Company’s current needs and the business priorities.
We are a leading regional grocery distributor and grocery retailer. We estimate that we are the eleventh largest wholesale distributor to supermarkets in the United States and the largest wholesale distributor to supermarkets in Michigan. Grocery retailing and distribution is a highly competitive and dynamic business. Accordingly, the Board of Directors believes that at least some of our directors should have experience or specific knowledge in retail or wholesale industries at the executive level. The Board believes that directors with experience or in-depth knowledge of the retail grocery industry are uniquely qualified to inform the Board’s deliberations regarding business strategy. Because merchandising and marketing is central to our business, the Board believes that merchandising and marketing experience should be represented on the Board. In addition, the Board believes that its membership should include directors who have:
a high degree of financial expertise;
experience with human resources matters;
strategic planning skills; and
relevant business experience as a chief executive officer or equivalent.
The Board of Directors believes that Spartan Stores'Stores and its shareholders are best served by having a Board of Directors that brings a diversity of education, experience, skills, and perspective to Board meetings. The Board of Directors welcomes opportunities to include diverse perspectives, talents, ideas and contributions. Consistent with this philosophy, the Board of Directors may consider factors and characteristics that are pertinent to diversity, such as race and gender, when evaluating nominees to stand for election or re-election to the Board.
Board Committees
Spartan Stores’ Board has four standing committees:
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the Audit Committee;
the Compensation Committee;
the Nominating and Corporate Governance Committee; and
the Executive Committee.
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The table below shows the current membership of each Board committee and the number of meetings each Committee held in fiscal 2010.2011.
BOARDOF DIRECTORS COMMITTEE MEMBERSHIP
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| Nominating |
M. Shân Atkins | Yes |
| Member |
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Dennis Eidson | No |
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Dr. Frank M. Gambino | Yes |
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| Member | Member |
Frederick J. Morganthall, II | Yes |
| Member |
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Elizabeth A. Nickels | Yes | Member | Chair |
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Timothy J. O'Donovan | Yes | Member |
| Chair | Member |
Craig C. Sturken | No | Chair |
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James F. Wright | Yes | Member |
| Member | Chair |
Number of Meetings in Fiscal 2010(2) | 1 | 6 | 6 | 4 | |
| Director | Independent Director(1) | Audit Committee | Compensation Committee | Nominating & Corporate Governance Committee(2) | Executive Committee | |||||
M. Shân Atkins | Yes | Member | Member | |||||||
Wendy A. Beck | Yes | Member | ||||||||
Dennis Eidson | No | |||||||||
Dr. Frank M. Gambino | Yes | Member | ||||||||
Yvonne R. Jackson | Yes | Member | Member | |||||||
Frederick J. Morganthall, II | Yes | Member | Member | |||||||
Elizabeth A. Nickels | Yes | Chair | Member | |||||||
Timothy J. O’Donovan | Yes | Chair | Member | |||||||
Craig C. Sturken | No | Chair | ||||||||
James F. Wright | Yes | Member | Chair | Member | ||||||
Number of Meetings in Fiscal 2011(3) | 6 | 5 | 4 | 0 | ||||||
(1) | Independent under Nasdaq independence standards for directors generally and for each Committee on which the director serves. | |
| (2) | The membership reflected in this column is as of the end of fiscal 2011. Prior to October 2010, all independent directors served on the Nominating and Corporate Governance Committee. |
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Executive Committee. The Executive Committee has the full power and authority of the Board to manage the business affairs and property of Spartan Stores between meetings of the full Board. The Executive Committee has authority to recommend to the Board a successor to the Chief Executive Officer when a vacancy occurs.
Audit Committee. The Board of Directors has established the Audit Committee to assist the Board in fulfilling its fiduciary responsibilities with respect to accounting, auditing, financial reporting, internal control,controls, and legal compliance. The Audit Committee oversees management and the independent auditors in the Company'sCompany’s accounting and financial reporting processes and audits of the Company'sCompany’s financial statements. The Audit Committee serves as a focal point for communication among the Board, the independent auditors, the internal auditors and management with regard to accounting, reporting, and internal controls. The Audit Committee represents the Board in oversight of:
the integrity of the financial statements of the Company; the Company’s system of disclosure controls and procedures and internal controls over financial reporting; the independence and performance of the Company’s independent auditors (who are ultimately responsible to the Board of Directors and the Audit Committee); the performance of the Company’s internal audit function; and
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compliance by the Company with legal and regulatory requirements.
The Audit Committee has direct authority and responsibility for the appointment, compensation, retention and oversight of the work
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of any accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attestation services for the Company. The Audit Committee is also directly responsible for the resolution of disagreements between management and the independent auditors regarding financial reporting. The Audit Committee reviews the performance, independence, and objectivity of the independent auditors at least annually and takes or recommends to the full Board appropriate action to ensure the independence of the independent auditors. Independent auditors report directly to the Audit Committee.
See "Independent Auditors-Audit“Independent Auditors–Audit Committee Approval Policies"Policies” for a discussion of the Audit Committee'sCommittee’s procedures for approving services to be provided by the independent auditors to Spartan Stores and its subsidiaries.
The Audit Committee operates under a charter adopted by the Board of Directors. A copy of the Audit Committee Charter is available in the "For Investors-Corporate Governance"“For Investors—Corporate Governance” section of our website, www.spartanstores.com.
The Board of Directors has determined that Audit Committee members M. Shân Atkins and Elizabeth A. Nickels and Wendy A. Beck are Audit Committee financial experts, as that term is defined in Item 401(h)(2) of Securities and Exchange Commission Regulation S-K. Under SEC regulations, a person who is determined to be an Audit Committee financial expert will not be deemed an expert for any other purpose, including without limitation for purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an Audit Committee financial expert, and the designation or identification of a person as an Audit Committee financial expert does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Audit Committee and Board of Directors in the absence of such designation or identification or affect the duties, obligations or liability of any other member of the A uditAudit Committee or Board of Directors.
Each member of the Audit Committee is independent, as that term is defined in applicable Nasdaq Listing Rules.
Compensation Committee. The Board of Directors has established the Compensation Committee to assist the Board of Directors in fulfilling its responsibilities relating to compensation of the Company'sCompany’s executive officers and the Company'sCompany’s compensation and benefit programs and policies. The Compensation Committee has full power and authority to perform the responsibilities of a public company compensation committee under applicable law, regulations, stock exchange rules, and public company custom and practice.
The Compensation Committee has the authority and responsibility to:
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| determine and oversee the Company’s executive compensation philosophy, structure, policies and programs, and assess whether the Company’s compensation structure establishes appropriate incentives for management and associates; administer, amend, interpret or make recommendations to the Board of Directors with respect to retirement, stock incentive, cash incentive, welfare and other compensation and benefit plans of the Company that are approved by the Board of Directors (“Plans”); approve stock option and other stock incentive awards and authorize the issuance of shares of the Company’s Common Stock, options and rights to acquire Common Stock, awards and units denominated in Common Stock, and other interests in the Company’s Common Stock pursuant to the Plans; review and approve corporate and personal goals and objectives relevant to the compensation and evaluation -20-
approve the base salary, annual bonus plan and award opportunities and long-term incentive plan and award opportunities of the Chief Executive Officer; review with the Chief Executive Officer and approve the base salary, annual bonus plan and award opportunities and long-term incentive plan and award opportunities of the Company’s other executive officers; evaluate the risks and rewards associated with the Company’s compensation philosophy and programs and take actions that the Committee considers necessary to mitigate risk and discourage excessive or inappropriate risk-taking; review succession planning for the Chief Executive Officer and other key executive officers of the Company; review, recommend and approve employment agreements and severance arrangements for executive officers, including change-in-control provisions, plans or agreements; review, recommend and approve Company policies pertaining to executive perquisites and personal benefits; and review and approve the compensation and benefits provided to directors and authorize the issuance of equity compensation, including restricted stock and stock options, for services to the Company as a director. The Compensation Committee also has additional powers, authority and responsibilities that are specified in the Compensation Committee Charter or delegated to the Compensation Committee by the Board of Directors or by Plans approved by the Board of Directors. Compensation Committee Processes and Procedures. The Compensation Committee reviews Consultants and Advisors. The Compensation Committee is authorized to engage consultants, advisors and legal counsel at the expense of the Company. The Compensation Committee Charter requires that any consultant engaged for the purpose of determining the compensation of executive officers must be engaged directly by the Committee and report to the Compensation Committee. The Compensation Committee has authority to approve contracts with and payment of fees and other compensation of consultants, advisors and legal counsel. Please see the information under the caption Participation by Management. The
-21- Committee and provide advice, information, analysis and documentation to the Compensation Committee upon request. In appropriate cases, in its discretion, the Compensation Committee may delegate its authority to the executive officers, being mindful that the Compensation Committee and the Board of Directors are responsible to the Although the Compensation Committee makes many of the most significant compensation decisions in the first quarter of the fiscal year, the Share-based Award Policy.The Board of Directors has long believed that the process by which the Company awards stock options and other share-based compensation must be transparent, fair, and compliant with all applicable legal requirements and stock exchange rules. For these reasons, the Board of Directors has adopted the Policy Regarding Stock Option Grants and other Share Based Awards which provides, among other provisions, that: Share based awards will not be back-dated. No share based award may have an effective date earlier than the actual date of the action of the Board of Directors or authorized
The exercise price for all share based awards will be based on the market value of Spartan Stores common stock on the effective date of award (as defined under the applicable plan); The Company will not time its release of material non-public information for the purpose of affecting the value of executive compensation, or time the grant of compensation awards to take advantage of material non-public information; Only the Board of Directors or the Compensation Committee, which consists entirely of independent directors, will approve share based awards. This authority may not be delegated to executive officers or associates; and All share based awards to the Company’s executive officers and directors will be timely reported pursuant to Section 16 of the Securities and Exchange Act of 1934. Share-based awards are typically granted in May of each year and in conjunction with promotions or newly hired executives. A copy of the Policy Regarding Stock Option Grants and other Share Based Awards is available in the Additional information regarding the The Compensation Committee operates under a charter adopted by the Board of Directors. A copy of the Compensation Committee Charter is available in the
-22- Each member of the Compensation Committee is independent, as that term is defined in Rule 5605(a)(2) of the Nasdaq Listing Rules. Nominating and Corporate Governance Committee. The Board of Directors has established the Nominating and Corporate Governance Committee to assist the Board of Directors in fulfilling its responsibilities by providing independent director oversight of nominations for election to the Board of Directors and leadership in the The Committee has the authority and responsibility to: determine, review, administer, interpret, amend and make recommendations to the Board of Directors regarding the Company’s corporate governance policy; review and recommend to the Board of Directors any changes in the size and composition of the Board of Directors and develop and recommend to the Board of Directors criteria for the selection of candidates for election as directors; provide the independent director oversight of nominations for election to the Board of Directors contemplated by Nasdaq Listing Rules; lead the search for individuals qualified to become members of the Board of Directors, review the qualifications of candidates for election to the Board of Directors, and assess the qualifications, contributions and independence of incumbent directors standing for re-election to the Board of Directors; recommend to the Board of Directors the candidates to be nominated and
develop and recommend to the Board of Directors for its approval an annual evaluation process for the Board of Directors, and its standing committees, and conduct and discuss with the Board of Directors the annual performance evaluation; evaluate periodically the performance, authority, operations, charter and composition of each standing or ad hoc committee of the Board of Directors and recommend to the Board of Directors any changes the Committee determines to be appropriate; review and make recommendations to the Board of Directors on the Board of Director policies and practices relating to corporate governance, independence of directors, conflicts of interest, ethics, and business conduct; review and make recommendations to the Board of Directors regarding responses to proposals of shareholders that relate to corporate governance; assess the independence of directors in accordance with applicable rules and regulations at least annually; and develop and periodically review and revise, as appropriate, a management succession plan and related procedures; consider and recommend to the Board of Directors candidates for successor to the Chief Executive Officer of the Company and, with appropriate consideration of the Chief Executive Officer’s recommendations, candidates for succession to other executive offices.
-23- The Nominating and Corporate Governance Committee also has additional powers, authority and responsibilities specified in its charter or delegated to the committee by the Board of Directors. A copy of the Nominating and Corporate Governance Committee Charter is available in the Under the Corporate Governance Policy, if the chair of the Board is also the current or former Chief Executive Officer of Spartan Stores, the chair of the Nominating and Corporate Governance Committee will act as the Lead Independent Director. The responsibilities and authority of the Lead Independent Director are described in this proxy statement under the caption Each member of the Nominating and Corporate Governance Committee is
-24- Independent Auditors Independent Auditors’ Fees The aggregate fees billed by Deloitte & ToucheLLP to Spartan Stores and its subsidiaries for fiscal
Deloitte Audit Committee Approval Policies The Audit Committee Charter
-25- Audit Committee Report The Board of Directors has appointed the Audit Committee to assist the Board in fulfilling its fiduciary responsibilities with respect to accounting, auditing, financial reporting, internal The Committee acts under a charter which has been adopted by the Board of Directors and is available on the Management of the Company is responsible for the preparation, presentation and integrity of the providing an attestation report on the effectiveness of the The Audit Committee has reviewed, and discussed with management and the independent auditors, the Based on the reviews and discussions described above, the Audit Committee has recommended to the Board of Directors that the audited financial statements be included in Spartan Respectfully submitted, Elizabeth A. Nickels, Chair M. Shân Atkins Wendy A. Beck Frederick J. Morganthall, II
Five Percent Shareholders The following table sets forth the number of shares of Spartan Stores common stock reported to be beneficially owned by each person or group which is known to the Company to be a beneficial owner of 5% or more of Spartan
-27- Security Ownership of Management The table below sets forth the number of shares of Spartan Stores common stock that each of our directors and nominees for director, each executive officer named in the Summary Compensation Table below and all directors, nominees for director and executive officers of Spartan Stores as a group are deemed to have beneficially owned as of April
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(3) | These numbers include shares over which the listed person is legally entitled to share voting or dispositive power by reason of joint ownership, trust or other contract or property right, and shares held by spouses, children or other relatives over whom the listed person may have influence by reason of relationship. |
(4) | The percentages set forth in this column were calculated on the basis of |
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Spartan Stores'Stores’ Executive Officers
Spartan Stores’ executive officers are appointed annually by, and serve at the pleasure of, the Board or the Chief Executive Officer.
Biographical information for Mr. Eidson and Mr. Sturken is included above in the "Board“Board of Directors"Directors” section of this proxy statement. The following sets forth biographical information as of June 25, 201024, 2011 concerning Spartan Stores'Stores’ executive officers who are not directors:
Theodore C. Adornato (age 56)57) has been Executive Vice President Retail Operations since 2003. Mr. Adornato served as Regional Vice President of Tops Markets, L.L.C., Eastern Region, a subsidiary of Royal Ahold, from 1998 to 2003. Previously, Mr. Adornato held various management positions with Tops Markets and Acme Markets, Inc.
David deS. Couch(age 59)60) has served as Vice President Information Technology since 1996. From 1991 to 1996, Mr. Couch was our Director of Information Technology. Previously, Mr. Couch held positions in product marketing, data center management and communication network management for Hewlett Packard and General Foods Corporation.
Alex J. DeYonker(age 60)61) has served as Executive Vice President General Counsel and Secretary since October 2006. Mr. DeYonker joined the Company from Warner Norcross & Judd LLP, a Grand Rapids-based law firm with over 220 attorneys, where he had served as Managing Partner from 2002 to 2006 and Partner from 1988 until joining Spartan Stores. While at Warner Norcross, Mr. DeYonker served as General Counsel to Spartan Stores since 1995 and as the Company'sCompany’s Corporate Secretary since 2000. He was also a Company Board member from 1999 to 2003, serving on the Executive and Nominating Committees.
Alan R. Hartline (age 41)42) has served as Executive Vice President Merchandising and Marketing since June 2009. Mr. Hartline previously served as Spartan'sSpartan’s Executive Vice President Merchandising from October 2008 to June 2009. Mr. Hartline was Spartan'sSpartan’s Senior Vice President Merchandising from February 2007 to October 2008, Vice President Center Store Merchandising from October 2003 to February 2007, and Vice President Retail Merchandising from May 2003 to October 2003. Prior to joining Spartan Stores, Mr. Hartline was strategic business manager at Daymon Worldwide, and spent two years with A&P's&P’s Midwest division where he held positions as Senior Category Manager, Merchandising Program Manager, and Director of Strategic Pricing and Data Integrity. In addition, Mr. Hartline spent 15 years with the Kroger Company in various Operations and Merchandising positions.
Derek R. Jones(age 41)42) has been Executive Vice President Wholesale Operations since June 2009. Prior to holding that position, Mr. Jones served as Spartan Stores'Stores’ Executive Vice President Supply Chain from September 2006 until June 2009. From March 2004 to August 2006, Mr. Jones was Vice President of Distribution for Unisource Worldwide, Inc., a marketer and distributor of printing and imaging systems and equipment. From July 2000 to March 2004, Mr. Jones was Regional Vice President of Supply Chain Operations for Office Depot, Inc., a global supplier of office products and services.
David M. Staples (age 47)48) has been Executive Vice President since November 2000 and Chief Financial Officer since January 2000. Mr. Staples also served as Vice President Finance from January 2000 to November 2000. Mr. Staples oversees information technology, real estate, finance, and safety. From December 1998 to January 2000, Mr. Staples served as Divisional Vice President Strategic Planning and Reporting of Kmart Corporation and from June 1997 to
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December 1998 he served as Divisional Vice President Accounting Operations. He is a certified public accountant.
Thomas A. Van Hall(age 54)55) has been Vice President Finance since March 2001. Prior to joining Spartan Stores, Mr. Van Hall served as
Vice President - President—Planning and Analysis of the U.S. Foods Division of Sara Lee Corporation from May 2000 to March 2001. From December 1997 to May 2000, he was Vice President - President—Supply Chain and from 1991 to 1997 he served as Vice President - President—Finance of the Bil Mar Foods Division of Sara Lee Corporation. He is a certified public accountant.
Executive Compensation |
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
Fiscal 2010 was a challenging year for the Company and most other companies in the food and wholesale industry. Michigan led the nation in unemployment during all of fiscal 2010 with rates up to 15% and improving slightly to approximately 14% at the end of fiscal 2010. While the Company and other retail and wholesale operations experienced inflation prior to 2010, product price deflation became a factor in eroding sales trends in fiscal 2010. The bankruptcies of General Motors and Chrysler and the resulting effects on auto suppliers and employment in the auto industry severely affected the state and created thousands of job cuts in auto manufacturing and supply industries. Although the Company is encouraged by recent economic developments, the economic recovery for Michigan is predicted to be slower and the state's economic vitality may lag the rest of the U.S. The Company's review of U.S. compensation surveys found many employers cutting or freezing base pay increase bu dgets, and almost half of the participants in surveys by Mercer Consulting and Towers Watson expected their annual incentive plans to pay out below target or not at all for calendar 2009.
Management and the Board of Directors were challenged to attract and retain our top talent, while making necessary cutbacks to plan for the inevitable economic impact to our fiscal 2010 business. Therefore, the Company's leadership began fiscal 2010 by suspending the 401(k) match for corporate associates and retail store directors and assistant store directors, reducing the Annual Incentive Plan bonus participation levels to 75% of normal participation levels for all officers and other eligible associates, deferring base pay increases from June 2009 to October 2009and reducing the salary increases to 2%. There was a reduction in force conducted in January 2010 affecting 40 associates and all retail banners reduced hours and staff in reaction to softer sales. These adjustments made possible the second best EBITDA performance in the Company's history.
COMPENSATION DISCUSSIONAND ANALYSIS
The Company also experienced other successes in fiscal 2010, including the successful consolidation of the Company's Plymouth Distribution Center into its Grand Rapids distribution facilities and the integration of VG's into the organization. Benefit adjustments were made in January and extra compensation for Sunday store employment was eliminated in April 2010 in the VG's banner.
After considering the extraordinary events in fiscal 2010, management proposed and the Board of Directors approved a modified
bonus for associates who are participants in the Annual Incentive Plan other than the Executive Chairman, President and Chief Executive Officer, and all Executive Vice Presidents. Under the modified bonus, the payout was at 50% of the reduced plan target, with limits imposed by positions, resulting in a median payment of $1,280 per associate, an average payout of $2,602 per associate, and a total for the modified bonus in an amount equal to approximately $2.35 million for associates who did not otherwise earn a bonus under the plan. This modified bonus addressed reward and recognition, a key driver of engagement in a tough year with many accomplishments and sacrifices. The Company and the Board believe that this modified bonus also sets the stage for associates to be re-energized toward the achievement of financial results in fiscal 2011.
Overview
The Board of Directors has appointed the Compensation Committee to assist the Board in fulfilling its responsibilities relating to compensation of the Company'sCompany’s executive officers and the Company'sCompany’s compensation and benefit programs and policies. The Committee has full power and authority to perform the responsibilities of a public company compensation committee under applicable law, regulations, stock exchange rules, and public company custom and practice. The Compensation Committee determines and implements the Company'sCompany’s executive compensation philosophy, structure, policies and programs, and administers and interprets the Company'sCompany’s compensation and benefit plans.
Executive Summary and Highlights
ObjectivesBusiness Context
In fiscal 2011, the Company delivered solid performance, achieving overall earnings growth and strengthening its balance sheet despite a struggling Michigan economy. The Company focused on consistency across operations, and reduced operating expenses in an effort to maximize profitability. The Retail and Distribution
segments generated a combined $68 million in operating earnings and had a third consecutive year of over $100 million in Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA).1 Cash flow from operating activities remained at a strong annual level—$90 million, which enabled us to strengthen our balance sheet by reducing debt and allowed the Board of Directors to increase dividends and authorize a share repurchase program in May 2011.
The tables below show our Company profile during the tenure of our Chief Executive Officer, Dennis Eidson (who was promoted to Chief Executive Officer in October 2008). We believe the data reflect the Company’s response to a challenging economic environment during Mr. Eidson’s tenure, including the execution of our strategy to increase our presence in fuel and pharmacy, and closing stores that were not profitable. We believe we have built a stronger offering to our customers that has helped mitigate extraordinarily difficult economic conditions.
Company Profile
| Fiscal Year Ended | ||||||
| March 28, 2009 | March 27, 2010 | March 26, 2011 | ||||
Stores | 100 | 96 | 97 | |||
Fuel Centers | 19 | 24 | 25 | |||
Pharmacies | 63 | 66 | 67 | |||
Stores serviced by Distribution | 372 | 358 | 375 | |||
1 This information was discussed in “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Fiscal 2011 Form 10-K, which included a reconciliation of Adjusted EBITDA to net earnings on a GAAP basis, and a discussion of why the Company believes the non-GAAP financial measure is useful to investors. A copy of our Fiscal 2011 Form 10-K is being provided with our proxy statement to our shareholders.
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The table below reflects our financial performance during Mr. Eidson’s tenure as Chief Executive Officer, which began approximately midway through our 2009 fiscal year. The following selected financial information shows the impact of the economic conditions which had
adversely affected our results in fiscal years 2009, 2010 and 2011.2 Due to the execution of our business plan, we have been able to limit the negative impact, and begun to increase the important results of operating earnings, net earnings, cash flow and diluted earnings per share
Selected Financial Information
| (in millions, except per share data and percentage data) | Fiscal Year Ended | ||||||||||||||
| March 28, 2009 | March 27, 2010 | March 26, 2011 | |||||||||||||
Net Sales | $ | 2,577 | $ | 2,552 | $ | 2,533 | |||||||||
Gross Profit Margin | 20.8 | % | 21.9 | % | 22.0 | % | |||||||||
Operating Earnings3 | 73 | 59 | 68 | ||||||||||||
Net Earnings3 | 37 | 26 | 32 | ||||||||||||
Diluted Earnings Per Share3 | 1.66 | 1.14 | 1.42 | ||||||||||||
Adjusted EBITDA | 108 | 103 | 104 | ||||||||||||
Cash from Operating Activities | 81 | 92 | 90 | ||||||||||||
TotalNet Long-Term Debt4 | 192 | 176 | 131 | ||||||||||||
We believe that our investors should consider these financial results in the context of the challenging economic conditions in which we achieved them. As a grocery retailer and wholesaler, we are greatly affected by the economic conditions of the communities we serve, which are located primarily in Michigan, and also in Indiana and Ohio. The unemployment rate in Michigan at the end of fiscal 2009, 2010 and 2011 was 12.6%, 13.3% and 10.3% respectively.5 Michigan’s unemployment rate exceeded the
national rate for that entire three-year period. The employment conditions in Michigan were actually significantly worse than the general unemployment rate suggests. A broader measure of labor underutilization (called the U-6 measure) reveals that the actual rate of unemployed and underemployed workers in Michigan was 17.2%, 21.7% and 20.3% at the end of fiscal 2009, 2010 and 2011 respectively.6 This rate also exceeded the national rate for the same periods by approximately 5%.
2The table provides selected historical consolidated financial information of Spartan Stores' Compensation Programs
The primary objectivesStores derived from our audited consolidated financial statements as of and for each of the Company'sfiscal years presented. For all years presented, earnings information has been adjusted for the reclassification of discontinued operations information. See Note 14 to our consolidated financial statements in Item 8 of our Form 10-K for the fiscal year ended March 26, 2011 for additional information on discontinued operations.
3Fiscal years 2010 and 2011 include impacts of $6.2 million expense ($4.0 million net of taxes) and $2.9 million income ($1.8 million net of taxes) respectively related to restructuring, asset impairment and pension curtailment. These items impacted diluted earnings per share by negative $0.17 in fiscal 2010 and positive $0.08 in fiscal 2011.
4This information was discussed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Fiscal 2011 Form 10-K, which included a reconciliation of total net long-term debt to long-term debt and capital lease obligations on a GAAP basis, and a discussion of why the Company believes the non-GAAP financial measure is useful to investors. A copy of our Fiscal 2011 Form 10-K is being provided with our proxy statement to our shareholders.
5 Seasonally adjusted unemployment rate for March 2009, 2010, and 2011, according to the U.S. Department of Labor, Bureau of Labor Statistics.
6 The U-6 alternative measure of labor underutilization (which includes total unemployment, marginally attached workers, and workers employed part-time for economic reasons) for the quarters ending March 31, 2009, 2010 and 2011, according to the U.S. Department of Labor, Bureau of Labor Statistics.
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We also believe that the uncertainty regarding the rate of economic recovery, particularly in Michigan, may affect our stock price and its relative performance. Comparing our stock price and dividend performance (commonly referred to as “total shareholder return” or “TSR”) to the total
shareholder return of other organizations with whom we share a four-digit S&P Global Industry Classification Standard (“GICS”) code for each calendar quarter in the 12-month period ending March 31, 2011 reveals the following:
| One Year Total Shareholder Return | ||||||||
Calculation Date | Spartan Stores | Median Industry (GICS 3010)* | ||||||
3/31/2011 | 3.95 | % | 4.82 | % | ||||
12/31/2010 | 20.25 | % | 18.57 | % | ||||
9/30/2010 | 4.08 | % | 10.45 | % | ||||
6/30/2010 | 12.13 | % | 2.28 | % | ||||
*Based on Russell 3000 companies within the four-digit GICS industry group (3010, Food & Staples Retailing)
As reflected in the table above, in two of the four TSR measurement dates our TSR was above the median of the industry benchmark. Based on this, we regard our TSR performance for fiscal 2011 to be within reasonable proximity of the industry median.
Executive Compensation Decisions in 2011
In fiscal 2011, the Compensation Committee believed it was appropriate to increase the compensation of Mr. Eidson, our Chief Executive Officer, because his total compensation opportunity was significantly below the market and because he was instrumental in driving the operational success of our organization. The Compensation Committee’s actions regarding the compensation of Mr. Eidson also reflected his relatively recent tenure as our Chief Executive Officer (2011 was only his second full fiscal year in that position). Following the Committee’s review of competitive market data prepared by the Committee’s independent consultant, the Committee increased Mr. Eidson’s base salary, adjusted his annual incentive compensation opportunity, and granted a long-term incentive opportunity that would bring his total compensation opportunity closer to the market median for the Peer Group Companies – although still below the market median.
The increase in the Chief Executive Officer’s compensation also reflects the completion of the gradual transition of Mr. Eidson’s compensation from the median levels for a Chief Operating Officer at the Peer Group Companies to those of the Chief Executive Officer position.
In addition, for fiscal 2011, the total compensation for our Chief Executive Officer and other named executive officers increased over total compensation for fiscal 2010 in part because each executive earned an annual cash incentive award and a portion of a long-term cash incentive award, in each case due to Company performance achieved in fiscal 2011. No annual incentive award payments were made to our named executive officers in fiscal 2010, and no performance-based restricted stock units granted to our officers in fiscal 2010 vested.
In fiscal 2011, the Committee also made other changes to our compensation program for all of our named executive officers.7 The changes included the following, as described in more detail below:
The Compensation Committee changed the long-term incentive component so that 50% of the value is paid in cash based on specified measures of Company performance.
7 Mr. Sturken retired as an officer of the Company in February 2011 and no longer participates in our cash incentive award plans.
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The Compensation Committee did not grant stock options or restricted stock units, and instead granted long-term performance-based cash awards, thereby reducing the Company’s burn rate (the annual use of shares) and thus also reducing shareholder dilution.
The Compensation Committee modified the performance and payment range of our annual incentive plan.
The Committee also reviewed the Company’s compensation programs to utilize best practices (and avoid poor pay practices), including the following:
A majority of the compensation paid to our named executive officers is “at-risk,” which requires specific and disclosed financial performance, continued employment, or both, or is granted in the form of equity and therefore dependent on the value of our common stock.
No guaranteed salary increases;
All performance payouts for named executive officers are to:based on financial performance linkage; all financial goals—both short-term and long-term metrics and targets—are disclosed;
Our severance agreements require a loss of employment following a change in control (a “double-trigger”) before severance payments based on salary and bonus are made; the multiple used to determine the severance payments is not greater than two times the salary and bonus components of severance;
Perquisites are limited to certain tax and financial planning benefits provided to our executives;
No tax reimbursements, except that existing executive severance agreements provide modified tax gross-ups with respect to certain payments in connection with termination following a change in control of the Company (the Company did not enter into any new change-in-control agreements in fiscal 2011);
Repricing of options is prohibited without shareholder approval; and
No dividends are paid on unvested performance shares or units.
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Elements of Executive Compensation Program for Fiscal 2011
The following table lists the elements of our fiscal 2011 executive compensation program and a description of each element.
| Element | Description, Objectives and Characteristics | |
Base Salary | • Base compensation that is competitive. | |
| ||
• Generally set within 10% of the | ||
• Other factors are considered, including input from our Chief Executive Officer on non-CEO officers, the executive’s experience, the level of responsibility and complexity of the executive’s job, and individual performance in the prior year. | ||
Annual Cash Incentive Award | • Opportunity to earn cash compensation based on the achievement of specified levels of consolidated net earnings for the fiscal year. | |
• Target amount is set as a percentage of base salary. | ||
• No payout unless the Company achieves a threshold performance level. | ||
• Reviewed annually and at the time of hire or promotion. | ||
• Generally set within 15% of the median for the Peer Group Companies. | ||
Long-Term Cash Incentive Award | • Aligns executive and shareholder interests by encouraging executives to focus on long-term profitable growth. | |
| ||
• Each component of the award is subject to an | ||
• Reviewed annually and at the time of hire or promotion. | ||
• Generally set within 15% of the | ||
Long-Term Incentives – Restricted Stock | • Aligns executive and shareholder interests by rewarding executives for building shareholder value. | |
• |
| |
• Generally set within 15% of the median for the Peer Group Companies. |
In addition to the elements of compensation discussed above, our executives participate in certain defined benefit and deferred compensation plans. These plans are discussed below under the captions “Pension Benefits” and “Nonqualified defined contribution plans and other nonqualified deferred compensation plans.”
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Analysis of Compensation Elements for Fiscal 2011
Overview
The following is a discussion of key compensation programs and decisions for fiscal 2011.
| 1. | Base Salaries |
Following Mr. Eidson’s promotion to Chief Executive Officer in October 2008, the Compensation Committee has focused on transitioning his compensation from the median levels for a Chief Operating Officer at the Peer Group Companies to that of the Chief Executive Officer position over two to three years, subject to satisfactory performance. In light of Mr. Eidson’s performance as Chief Executive Officer and our stated compensation policy of providing compensation consistent with market practices, the Compensation Committee approved a 10% increase in Mr. Eidson’s base salary in May 2010. As of the end of fiscal 2011, base compensation for Mr. Eidson remained below the 50th percentile for corresponding positions within the Peer Group Companies.
The Compensation Committee concluded that the base salaries for the other named executive officers were generally consistent with the 50th percentile market level of Peer Group Companies. Accordingly, each named executive officer received a 2% increase in base salary, effective in October 2010, consistent with the general increase in the base salary for other Company associates at that time.
| 2. | Changes to Incentive Compensation Plan Design for Annual Awards |
The Compensation Committee reviews annually incentive compensation opportunities for named executive officers and certain other management associates to establish the financial objectives and award parameters on a short-term (i.e., annual) and long-term basis.
The Committee determines the payout levels for threshold, target, and maximum performance by reviewing and analyzing payout levels of the Peer Group Companies and other industry groups.
In fiscal 2011, the Compensation Committee analyzed the Company’s incentive compensation programs and concluded that the structure of the programs designed to reward our executives for performance on consolidated net earnings and earnings per share were not competitive compared to the programs of the Peer Group Companies. For example, our incentive compensation programs have in recent years required the achievement of at least 90% of the performance goal target in order to receive any payout. Based on analysis of Peer Group Companies and general industry, the Compensation Committee believes a more competitive range for performance threshold is approximately 80% to 85%. As a result of this misalignment, over the past several years our named executive officers have not realized compensation opportunities that are consistent with those at our Peer Group Companies when considered in the context of the value delivered to our shareholders over the same period.
Accordingly, in May 2010 the Compensation Committee made the changes illustrated below to the annual incentive award opportunity.
Fiscal | Threshold Performance | Threshold Payout | Maximum Performance Level | Maximum Payout | ||||
2010 | 90% | 50% | 125% | 160% | ||||
2011 | 80% | 10% | 116.3% | 200% |
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Under the restructured incentive compensation arrangements, our executives will earn a 10% threshold payout at 80% threshold performance and a 200% maximum payout for maximum performance. Therefore, executives will receive incrementally more compensation for achievement above the target level compared to achievement below the target level. This structure creates additional incentive for executives to meet and exceed the target level of performance, while offering compensation levels more consistent with those in Peer Group Companies.
| 3. | Annual Cash Incentive Awards |
Each named executive officer was granted an opportunity to earn an annual incentive award
under the Spartan Stores, Inc. Executive Cash Incentive Plan of 2010 (the “Executive Plan”). For each named executive officer, the value of the annual incentive award is dependent on the Company’s achievement of specified levels of consolidated net earnings and is paid in cash. If the threshold level of consolidated net earnings is not achieved, then no award is paid for the fiscal year (as occurred in fiscal 2010).
For fiscal 2011, the annual incentive award opportunity provided to each named executive officer was calculated according to the following matrix:
Fiscal 2011 Annual Cash Incentive Award
Payout Design
| Consolidated Net Earnings (in thousands) | Percentage of Targeted Consolidated Net Earnings Achieved for Fiscal 2011 | Percent of Target Annual Incentive Award Paid* | ||||||||
| <80 | % | 0 | % | |||||||
Threshold | $ 23,627 | 80 | % | 10 | % | |||||
| 85 | % | 32.5 | % | |||||||
| 90 | % | 55 | % | |||||||
| 95 | % | 77.5 | % | |||||||
Target | 29,534 | 100 | % | 100 | % | |||||
| 104 | % | 125 | % | |||||||
| 108 | % | 150 | % | |||||||
| 112 | % | 175 | % | |||||||
Maximum | 34,360 | >116.3 | % | 200 | % | |||||
* The threshold, target, and maximum annual incentive award for each named executive officer is reported in the Grants of Plan-Based Awards Table in this proxy statement. The percentage of Target annual incentive award paid is interpolated for actual achievement between the threshold and maximum performance levels identified above. |
| |||||||||
The Company’s actual performance after adjustments for extraordinary items permitted under the terms of the Executive Plan for the fiscal year was 105.4% of the target level of consolidated net earnings. Therefore, each named executive officer received a payout at 133.8% of the target award.
After reviewing competitive target payout levels as a percent of base salary for each named executive officer position compared to like positions at Peer Group Companies, the Compensation Committee increased the target annual incentive payout level for Mr. Eidson from
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85% of base salary in fiscal 2010 to 100% in fiscal 2011. The Compensation Committee believes that increasing the target level to 100% will help to bring Chief Executive Officer annual incentive pay opportunity to market levels while improving alignment of our Chief Executive Officer’s compensation with Company performance. The
Compensation Committee considered the target annual incentive payout levels for the other named executive officer to be competitive with the 50th percentile of competitive market practices, and accordingly no other changes were made. Target payout levels are summarized as follows:
| Target Payout as Percentage of Base Salary | ||||||||
Executive Position | Fiscal 2010 | Fiscal 2011 | ||||||
Chief Executive Officer | 85 | % | 100 | % | ||||
Executive Vice Presidents | 50 | % | 50 | % | ||||
| 4. | Long-Term Incentive Awards |
In fiscal 2011, the Compensation Committee adjusted the long-term incentive plan
mix to 50% restricted stock, 50% long-term cash incentive award, as follows:
| Equity Awards | ||||||||
Fiscal Year | Restricted Stock | Stock Options | Performance-Based Compensation | |||||
| 2010 | 50% | 25% | 25% | Restricted Stock Units, based on achievement of consolidated earnings per share | ||||
| 2011 | 50% | 0% | 50% | Cash award, paid based on achievement of consolidated diluted earnings per share (60%) and return on invested capital (40%) | ||||
The Compensation Committee made the change from granting stock options and restricted stock performance units to performance based cash compensation in part to address concerns regarding the Company’s use of shares under its equity incentive compensation programs. Moreover, the Compensation Committee tightened the linkage between the Company’s performance and named executive officer pay by introducing multi-year performance-based cash awards.
Restricted Stock Awards. The Committee awarded service vesting shares of restricted stock to each named executive officer in an effort to target the 50th percentile market levels for corresponding positions at the Peer Group Companies. Mr. Eidson received a grant of restricted stock having an aggregate grant date fair value approximately 25% higher than his fiscal 2010 grant as part of an effort to increase his compensation to the market median
for Chief Executive Officers at the Peer Group Companies, a process that has been in progress since his appointment to Chief Executive Officer in October 2008. The Compensation Committee increased the size of this grant for fiscal 2011 in view of the results the Company achieved during challenging economic and market conditions. In addition, the Compensation Committee considered data indicating that Mr. Eidson’s target long-term incentive compensation significantly lagged the median by approximately 49% for such compensation at the Peer Group Companies, and was therefore not adequately aligned with our compensation philosophy.
The Compensation Committee determined that the equity compensation of the other named executive officers was consistent with or slightly below the median for the Peer Group Companies, and therefore awarded fiscal 2011 long-term incentive grants to other named executive officers
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slightly higher than grant date fair value as grants for fiscal 2010 (2% for CFO; 7% for other named executive officers).
Long-Term Cash Incentive Awards. Each named executive officer was granted an opportunity to earn a long-term cash incentive award under the Executive Plan, to be earned over the three-year period covering fiscal 2011, 2012 and 2013. To the extent earned, the awards will be paid in cash. For each named executive officer, the value of the long-term incentive award is entirely dependent on the Company’s performance with respect to two performance measurements: earnings per share (“EPS”) and return on invested capital (“ROIC”). The Company defines EPS as diluted earnings per share based on consolidated net earnings, subject to adjustments for extraordinary items permitted under the terms of the Executive Plan. The Company defines ROIC as operating profit after tax, adjusted for asset impairment, exit costs and LIFO expense, divided by total invested capital (total assets plus LIFO reserve less cash and non-interest bearing current liabilities), also subject to adjustments for extraordinary items permitted under the terms of the Executive Plan.
For each named executive officer, sixty percent (60%) of the long-term incentive award is determined by Spartan’s EPS performance for fiscal 2011, and forty percent (40%) of the long-term incentive award will be determined by Spartan’s ROIC performance determined at the end of fiscal 2012.
Each component of the long-term cash incentive award is designed to be earned and vested over a total period of three years (fiscal 2011, 2012, and 2013). Therefore, each component of the long-term incentive award earned, if any, is subject to an additional vesting period during which the executive must remain employed by the Company. For the EPS component, the performance period is fiscal 2011 and the vesting period is the two following fiscal years, and for the ROIC component, the performance level is measured at the end of fiscal 2012 and the vesting period is the following fiscal year. The fiscal 2011 award opportunity for each named executive officer can be summarized as follows:
| Performance Measurement | Percentage of Long- Term Incentive Bonus | Performance Period | Vesting Period | |||||
EPS |
|
| 60 | % | 1 year (fiscal 2011) | 2 years after completion of the Performance Period (paid after FYE 2013) | ||
ROIC | ||||||||
|
| 2 years (measured at the | 1 year after completion of the | |||||
|
| |||||||
|
| |||||||
As
The target award for each named executive officer is discussedexpressed as a specific dollar amount determined by the Compensation Committee.
The Compensation Committee selected EPS as a metric for the long-term incentive award as it is a basis for the valuation of our stock, and therefore an effective barometer of the growth of
shareholder wealth. The Compensation Committee selected ROIC because it focuses our executives on the cost of investment when making profit and loss decisions. ROIC also places appropriate emphasis on the balance sheet by causing executives to analyze investment of the Company’s resources, including in more detail below,accounts receivable, inventory, prepayments and acquisitions.
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The amount of the long-term incentive award earned will be determined according to achieve these objectives,the following matrices:
Earnings Per Share Component
| Earnings Per Share | Percentage of Earnings Per Share | Percent of Target Long-Term Cash Incentive Award Paid* | ||||||||
| <80 | % | 0 | % | |||||||
Threshold | $ 1.04 | 80 | % | 10.0 | % | |||||
| 85 | % | 32.5 | % | |||||||
| 90 | % | 55.0 | % | |||||||
| 95 | % | 77.5 | % | |||||||
Target | 1.30 | 100 | % | 100.0 | % | |||||
| 104 | % | 125.0 | % | |||||||
| 108 | % | 150.0 | % | |||||||
| 112 | % | 175.0 | % | |||||||
Maximum | 1.51 | ³116.3 | % | 200.0 | % | |||||
* The threshold, target, and maximum long-term cash incentive award for each named executive officer is reported in the Grants of Plan-Based Awards Table in this proxy statement. The percentage of Target long-term cash incentive award paid is interpolated for actual achievement between the threshold and maximum performance levels identified above. |
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ROIC Component
| 2-Year ROIC (Measured as of the End of Fiscal 2012) | Percentage of 2-Year ROIC | Percent of Target Long-Term Cash Incentive Award Paid* | ||||||||
| <97.3 | % | 0 | % | |||||||
Threshold | 7.10% | 97.3 | % | 50.0 | % | |||||
| 97.9 | % | 62.5 | % | |||||||
| 98.6 | % | 75.0 | % | |||||||
| 99.3 | % | 87.5 | % | |||||||
Target | 7.30% | 100.0 | % | 100.0 | % | |||||
| 100.9 | % | 133.3 | % | |||||||
| 101.8 | % | 166.7 | % | |||||||
Maximum | 7.50% | ³102.7 | % | 200.0 | % | |||||
* The threshold, target, and maximum long-term cash incentive award for each named executive officer is reported in the Grants of Plan-Based Awards Table in this proxy statement. The percentage of Target long-term cash incentive award paid is interpolated for actual achievement between the threshold and maximum performance levels identified above. |
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The fiscal 2011 long-term cash incentive award opportunities for each named executive officer are summarized in the following table:
| Name | EPS (60%) | ROIC (40%) | Total Fiscal 2011 Target Long Term Incentive Award Value | |||||||||||||||||||||||||
| Threshold | Target | Maximum | Threshold | Target | Maximum | |||||||||||||||||||||||
Dennis Eidson | $ | 37,500 | $ | 375,000 | $ | 750,000 | $ | 125,000 | $ | 250,000 | $ | 500,000 | $ | 625,000 | ||||||||||||||
David M. Staples | 11,250 | 112,500 | 225,000 | 37,500 | 75,000 | 150,000 | 187,500 | |||||||||||||||||||||
Craig C. Sturken | 7,500 | 75,000 | 150,000 | 25,000 | 50,000 | 100,000 | 125,000 | |||||||||||||||||||||
Alex J.DeYonker | 7,500 | 75,000 | 150,000 | 25,000 | 50,000 | 100,000 | 125,000 | |||||||||||||||||||||
Theodore Adornato | 7,500 | 75,000 | 150,000 | 25,000 | 50,000 | 100,000 | 125,000 | |||||||||||||||||||||
Derek R. Jones | 7,500 | 75,000 | 150,000 | 25,000 | 50,000 | 100,000 | 125,000 | |||||||||||||||||||||
The Company’s actual EPS performance for fiscal 2011 after adjustments for extraordinary items permitted under the terms of the Executive Plan was 105.4% of the target level. Therefore, each of our named executive officers earned 135% of the EPS component of the award, as shown on the preceding table. The earned portion of the awards have not been paid, and will not be paid unless and until the named executive officer satisfies the continued service requirement.
Mix of Compensation Elements
When determining the mix of awards, the Compensation Committee considers factors such as the short-term and long-term compensation expense
to the Company, the economic value delivered to the executives, the overall level of share ownership by the executives, share availability under Company plans, burn rate (the annual use of shares under equity grant programs) and dilution of shareholders, and practices at the Peer Group Companies. The Compensation Committee believes that the Company’s mix of pay at target levels of performance is competitively aligned with the median for the Peer Group Companies, as illustrated in the following tables showing the compensation mix at target for fiscal 2011. The Compensation Committee considers compensation “at risk” if it requires financial performance or continued employment, or both, or the compensation is in the form of equity and thus determined by the value of our common stock.
Chief Executive Officer Compensation Opportunity (at Target Level)
| At-Risk Compensation | ||||||
| Base Compensation | Annual Incentive Compensation | Long-Term Incentive Compensation | ||||
Spartan Stores | 26% | 26% | 48% | |||
Peer Group Market Median | 25% | 23% | 52% | |||
All Other Named Executive Officer Compensation Opportunity (at Target Level)
| At-Risk Compensation | ||||||||||||
| Base Compensation | Annual Incentive Compensation | Long-Term Incentive Compensation | ||||||||||
Spartan Stores | 43 | % | 22 | % | 35 | % | ||||||
Peer Group Market Median | 37 | % | 23 | % | 40 | % | ||||||
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Pay for Performance
Our executive compensation elements and programs result in a “pay for performance” policy for our executives. This means that the Compensation Committee and the Board have implemented and intend to maintain compensation plans that link a substantial proportion of executive compensation to the achievement of goals that the Board considers important.
As a result of this general policy, a substantial portion of the compensation paid to our executives is incentive-based and therefore “at-risk.” Specifically, for fiscal 2011, approximately 66% of total compensation paid to our named executive officers in the aggregate consisted of variable, or at-risk, compensation (i.e., stock awards and performance-based cash awards). Our executive officers do not realize value from annual or long-term cash incentive awards under the Executive Plan unless the Company meets specified minimum financial goals. The value of restricted stock awards to our named executive officers depends on the value of the share price. Alternatively, when the company exceeds performance goals, compensation to our named executive officers increases accordingly.
The tables above showing the mix of compensation elements illustrate the importance of at-risk compensation in our compensation programs. In addition to reviewing at-risk pay elements compared to the Peer Group Companies, the Compensation Committee analyzes the alignment of executive pay to company performance. The Compensation Committee believes that when the Company outperforms Peer Group Companies on a relative basis, then our executive pay should be relatively higher. Alternatively, when Company performance is relatively lower, executive pay should be correspondingly lower. The Compensation Committee seeks to maintain this relationship through the use of at-risk pay elements that tie compensation to company performance.
In the period covering fiscal 2007 through fiscal 2010, our named executive officer compensation (realizable pay) was not well aligned
with our market or financial performance. Total shareholder return and composite financial performance were positioned near the 60th percentile of the Peer Group Companies, but realizable pay was only positioned at the 20th percentile. A brief discussion of the reasons for misalignment follows:
In prior years, pay opportunity was below market median for some of Spartan’s named executive officers. In particular, the Chief Executive Officer’s fiscal 2009 and fiscal 2010 compensation was more than 15% below the market median for the Peer Group Companies.
Prior to fiscal 2011, threshold incentive payments required a higher level of performance than is competitively required by incentive plans at the Peer Group Companies. As a result, our named executive officers were not paid either the Restricted Stock Units awarded in fiscal 2010, or the annual cash incentive award for fiscal 2010.
In the fiscal 2007-fiscal 2010 period, our over-all performance was generally strong relative to the Peer Group Companies. However, due to significant fluctuations in the price of our stock, the current value of equity granted over this period is not consistent with the Company’s overall four-year performance trend.
The recent misalignment in realizable pay and performance raises some concern regarding the retention of executive talent. Accordingly, the Compensation Committee made changes in fiscal 2011 (discussed above under the caption “Analysis of Compensation Elements”) to improve the alignment of our executive pay with the Company’s performance while also considering executive compensation practices of Peer Group Companies.
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Objectives of Spartan Stores’ Compensation Programs
The primary objectives of the Company’s compensation are to:
attract, retain, motivate, and reward talented executives who are critical to the current and long-term success of the Company;
provide an overall level of compensation opportunity that is competitive within the markets in which Spartan Stores competes and within a broader group of companies of comparable size, financial performance, and complexity;
provide targeted compensation levels that are consistent with the 50th percentile of competitive market practices for each pay component (base salary, annual incentives, and long-term incentives);
support Spartan Stores’ long-range business strategy;
promote the long-term profitable growth of the Company by linking compensation elements to the achievement of key strategic and financial goals;
reward the Company’s executives for individual performance; and
align the interests of the executives with those of the shareholders by linking compensation to the Company’s performance and share price.
How the Compensation Committee Determines Compensation Levels
The processes the Compensation Committee follows when determining pay levels are discussed in more detail below.
Overview
The Compensation Committee’s overall decision making process is summarized as follows:
the Committee reviews with its independent compensation consultant recent trends and developments in executive compensation, including salaries, short-term and long-term incentive plan targets and payouts, equity awards, and perquisites and benefits;
the Committee reviews publicly disclosed grants of share-based awards to named executive officers at the Peer Group Companies and other relevant companies;
the Company’s executive officers and Human Resources associates serve as a resource to the Compensation Committee and provide advice, information, analysis and documentation to the Compensation Committee upon request;
the Committee reviews and analyzes data to determine the median level of compensation for each type of compensation paid for comparable positions at comparable companies;
the Committee compares the compensation of the Company’s executives to compensation at the comparable companies in the context of the Company’s financial performance, economic conditions, and other factors; and
the Committee sets compensation opportunities for our executives to target generally the median levels for comparable companies, but makes adjustments for a number of considerations discussed below, including individual performance, company performance, past compensation (as summarized on “tally sheets”), and other factors.
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Targeting the Median Market Level
In general, the Compensation Committee seeks to provide target compensation opportunities that are consistent with the median (i.e., 50th percentile) market levels for each major category of compensation for executives in similar positions at companies of comparable size, financial performance, industry and complexity (referred to as “Peer Group Companies”).
The Compensation Committee reviews the constituents of the Peer Group Companies from time to time to help ensure that the group is fairly comparable to the Company. Changing business models, mergers, growth, and other factors may necessitate adjustments. The Peer Group Companies for fiscal 2011 were as follows (there are no changes from the prior year):
Brown Shoe Co. Inc.
Chiquita Brands International
Flowers Foods, Inc.
Herman Miller
Jo-Ann Stores, Inc.
The Pep Boys – Manny, Moe & Jack
Nash Finch Co.
Ralcorp Holdings
Ruddick Corp.
Steelcase, Inc.
Susser Holdings Corp.
Tractor Supply Co.
United Natural Foods, Inc.
Universal Forest Products, Inc.
Wolverine Worldwide
The Compensation Committee reviews annually the Peer Group Company constituents to help ensure that they serve as a fair and accurate basis of comparison for our executive compensation programs. In establishing the current peer group, the Compensation Committee looked for companies having characteristics similar to Spartan Stores, including revenue (approximately $1.3 to $5.2 billion), business operations, customer base, distribution channels, geographic diversity and locations, and market capitalization. The Compensation Committee believes that
comparator groups selected by limited criteria, such as industrial classification code, do not present a fair means of comparison because they do not account for factors such as ownership and control by a small group, simplicity or complexity of operations, business strategy (e.g., balanced focus on retail and wholesale operations), and other factors that can create a misleading comparison. Spartan’s current peer group consists of companies representing five industrial classifications, including Food Retail, Grocery Stores and Supermarkets, Food Distributors, General Distributors, and Packaged Foods and Meats.
In addition to determining the median level for a compensation category at the Peer Group Companies, the Committee analyzes competitive compensation practices in the general industry for those positions that may be occupied by officers and executives recruited from outside of the wholesale and retail grocery business and performs regression analysis to adjust to Spartan’s revenue size in these cases.
In general, the Compensation Committee considers a pay component to be consistent with the 50th percentile target amount if it is within 10% of the target amount for base salary, and annualwithin 15% of the target amount for all other pay components. These targets serve as a reference point; the Committee also considers:
individual performance;
time each executive has served in the position;
the experience of each executive;
future potential of the executive;
internal equity;
retention concerns; and long term
company performance.
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Evaluating Individual Performance
Each year, the Compensation Committee reviews and evaluates individual executive performance as part of its decision making process with respect to base salary, equity incentive compensation data for peer group companiesaward opportunities, and, retailfrom time to time, discretionary bonuses. The Chairman of the Compensation Committee coordinates the board’s review of the individual performance of the Chief Executive Officer. The Chairman of the Board and general industry surveys, evaluatesthe Chairman of the Compensation Committee communicate the board’s review to the Chief Executive Officer.
For the named executive officers other than the Chief Executive Officer, and reviews the Chief Executive Officer's evaluationsOfficer reviews with the Compensation Committee and the full Board of otherDirectors an evaluation of each executive officer’s performance.
As discussed above, individual performance is only one factor among several that the Compensation Committee considers in making these adjustments, and there is no prescribed formula or mechanism for translating individual performance into specific amounts of compensation. The Compensation Committee’s decision-making process necessarily involves the Committee’s informed judgment with respect to individual executive performance considers generallyin the Company's financialcontext of many considerations and criteria, none of which are individually controlling, including experience, potential of the executive, retention concerns, recent compensation of the executive, internal pay equity, Company performance, and success in achieving strategic objectives,general industry and economic conditions.
Reviewing Tally Sheets
When making compensation decisions, the Compensation Committee reviews tally sheets summarizingprepared for each of the named executive officers. Each of these tally sheets presents the dollar amount of each named executive officers’ current cash compensation opportunities(base salary and realizedannual incentive awards) and long-term (equity and long-term cash incentive) awards. These tally sheets
report a multi-year history of annual compensation for the named executive officers (both opportunity and realized).
Internal Pay Equity
Our core compensation philosophy is to pay our executive officers competitive levels of compensation that best reflect their individual responsibilities and contributions to the Company while providing incentives to achieve the Company’s business and financial objectives. While we believe that our executive compensation program must be internally consistent and equitable in order to achieve our corporate objectives, the Compensation Committee considers internal pay equity as one factor among the many considerations discussed in this section, and is not individually determinative of any element of individual compensation. Generally speaking, each of our executive officers is compensated according to determine the executive's levelresponsibilities and competitive considerations for the position and the accomplishments and potential of the individual. As a natural result of these considerations, persons holding positions with relatively greater responsibilities receive relatively higher levels of compensation.
The ratio between Chief Executive Officer and other named executive officer target compensation is often used as an indicator of reasonableness of Chief Executive Officer compensation based on internal pay equity. For Spartan Stores, this ratio was 3.3 to 1 as of fiscal 2011. The Compensation Committee believes that this ratio is consistent with market practices.
Use of Independent Compensation Consultants
In fiscal 2011, the Compensation Committee engaged Towers Watson (“Towers”), a compensation consulting firm, to provide objective research and analysis regarding compensation best practices and current information regarding compensation levels at companies of similar type, size, and financial performance. The Compensation Committee instructed Towers to provide advice and guidance on compensation
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proposals, including changes to compensation levels, the design of incentive plans and other forms of compensation, and to provide information about market practices and trends. Typically, Towers attends Compensation Committee meetings, reviews existing compensation programs for consistency with our compensation philosophy and current market practices and produces the comparative information derived from peer group and published survey data that the Compensation Committee reviews when setting compensation. With respect to 2011, Towers Watson’s activities included:
reviewing our annual and long-term incentive plan design structure;
performing a market review of executive officer compensation and preparing “tally sheets”;
reviewing the composition of the peer group we use for executive compensation benchmarking purposes;
reviewing current issues and trends in executive compensation;
assisting with executive compensation disclosures for the annual proxy filing; and
reviewing the pay-for-performance alignment of our executive compensation programs.
Under the terms of its engagement, Towers will not provide any other services to the Company in fiscal 2011.
The Compensation Committee has adopted the practice of engaging an independent compensation consultant to provide a full review and analysis of Peer Group Company executive compensation data every two years rather than annually. The Compensation Committee requested and received a full review and analysis from the compensation consultant in fiscal 2011. For years in which the consultant does not provide a full review (i.e., fiscal 2012 and expected to be alternate years thereafter), the Compensation Committee reviews market trends in executive compensation, updated information and analysis provided in the previous year by the compensation consultant, reviews tally sheets, and considers focused analysis of named executive officer compensation of Spartan named executive officers compared to the named executive officers of the Peer Group Companies. Alternate years provide the Compensation Committee opportunity to engage compensation consultants in analysis of other areas of executive compensation, such as stock ownership, change-in-control, and regulatory issues. The Compensation Committee also reviews and considers independent compensation studies, compilations, analysis and surveys that are not specifically prepared or commissioned for performance based compensation.the Company.
Stock Ownership Guidelines
Spartan’s Board of Directors has established stock ownership guidelines for corporate officers. These guidelines are designed to help ensure that officers face downside risk and upside potential with other shareholders.
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Under these guidelines, the Company’s executive officers are expected to achieve and maintain a level of stock ownership having a value
that is approximately equal to or greater than a specified percentage of the executive’s annual base salary. The percentages are as follows:
Position | Percentage of Base Salary | |||
Chairman | 500 | % | ||
Chief Executive Officer | 500 | % | ||
President | 400 | % | ||
Executive Vice Presidents | 300 | % | ||
Senior Vice President | 200 | % | ||
Vice Presidents and Division Vice Presidents | 100 | % | ||
Each executive is expected to achieve the target value within three years of the date that the executive first became subject to the policy by adoption of the policy or by the individual’s promotion or appointment to a designated executive position. If an executive’s target ownership level increases due to a promotion or an amendment to the policy, then the executive will have two additional years to achieve the target ownership level. The two additional years are measured from the later of the date of the increase or the date the executive would otherwise have been required to achieve the target ownership level before the increase. Until the specified level of ownership is achieved, executives are required to hold at least 25% of all restricted stock granted to them, and designate at least 20% of any annual bonus granted under the Company’s cash incentive plans. As of March 26, 2011, all of the Company’s executive officers were in compliance with the Company’s stock ownership policy.
The Board of Directors periodically reviews the stock ownership guidelines for corporate officers to help ensure that the policy effectively encourages key associates to own a meaningful equity stake in the Company, but does not interfere with the Company’s ability to attract and retain talented individuals. The Board believes that it is appropriate to require more senior executives to own a relatively greater stake in the Company. Accordingly, the ownership requirements are set on a “sliding scale” ranging from 100% to 500%.
Personal Benefits, Perquisites, and Loans
Spartan Stores has long believed that compensation in the form of executive perquisites and personal benefits does not provide transparency for shareholders or efficiently serve the goals of the Company’s compensation programs. Consequently, such benefits play a minor role in the Company’s compensation program. Spartan Stores does not provide perquisites such as club memberships, use of private aircraft, use of automobiles owned or leased by the Company, security details, commuting expenses, clothing, jewelry, discounts that are not available to all associates, or personal travel unrelated to our business. Spartan Stores does not make loans or extend credit to its directors or executive officers. None of Spartan Stores’ directors or executive officers was indebted to the Company in fiscal 2011.
Risk ConsiderationsReviewing Tally Sheets
In the context of the domestic retail and distribution operating company nature of our business,When making compensation decisions, the Compensation Committee does not
believe our compensation program encourages excessive or inappropriate risk takingreviews tally sheets prepared for the following additional reasons:
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Pay for Performance
The Company observes a "pay for performance" policy for executives. This means that the Compensation Committee and the Board have implemented and intend to maintain compensation plans that link a substantial proportion of executive compensation to the achievement of goals that the Board considers important. As a result of this general policy, a substantial portioneach of the named executive officers. Each of these tally sheets presents the dollar amount of each named executive officers’ current cash compensation paid to our executives is incentive-based. Specifically, approximately 60%(base salary and annual incentive awards) and long-term (equity and long-term cash incentive) awards. These tally sheets
report a multi-year history of target total netannual compensation paid to ourfor the named executive officers in the aggregate consisted of variable, or at-risk, compensation (i.e., payments under our cash incentive plans(both opportunity and option and restricted stock share-based awards)realized). Our executive officers are not able to realize value from stock options unless the Company's share price increases, and will not receive payments under cash incentive plans unless the Company meets specified minimum financial goals. The value of restricted stock awards to our name d executive officers depends on the value of the share price as the shares vest.
The measures of performance that the Committee uses are discussed in detail below under the headingHow the Compensation Committee Determines Compensation Levels.
Internal Pay Equity
Our core compensation philosophy is to pay our executive officers competitive levels of compensation that best reflect their individual responsibilities and contributions to the Company while providing incentives to achieve the Company'sCompany’s business and financial objectives. While we believe that our executive compensation program must be internally consistent and equitable in order to achieve our corporate objectives, the Compensation Committee considers internal pay equity as one factor among the many considerations discussed in this section, and is not individually determinative of any element of individual compensation. Generally speaking, each of our executive officers is compensated according to the responsibilities and competitive considerations for the position and the accomplishments and potential of the individual. As a natural result of these considerations, persons holding positions with relatively greater responsibilities receive relatively higher levels of com pensation.
Elements of Compensation
The ratio between Chief Executive compensation generally consists of the following elements:
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Each component of compensation, as well as the mix of each component, is designed to accomplish one or more of the compensation objectives described above. We use these elements of compensation because we believe that they provide a mix of fixedOfficer and at-risk compensation that creates appropriate incentives for short-term and long-term performance.
Base Salary. Competitive base salaries are necessary to attract and retain well-qualified executives. Pursuant to employment agreements entered into with each of itsother named executive officers,officer target compensation is often used as an indicator of reasonableness of Chief Executive Officer compensation based on internal pay equity. For Spartan Stores, reviews the salarythis ratio was 3.3 to 1 as of each executive on an annual basis.fiscal 2011. The Compensation Committee analyzed executive salaries at its May 2009 and October 2009 meetings and adjusted base salaries effective in October 2009 (as discussed in greater detail under the caption "Analysisbelieves that this ratio is consistent with market practices.
Use of Independent Compensation Elements" below).Consultants
Annual Incentive Award. In fiscal 2010, we provided2011, the opportunityCompensation Committee engaged Towers Watson (“Towers”), a compensation consulting firm, to provide objective research and analysis regarding compensation best practices and current information regarding compensation levels at companies of similar type, size, and financial performance. The Compensation Committee instructed Towers to provide advice and guidance on compensation
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proposals, including changes to compensation levels, the design of incentive plans and other forms of compensation, and to provide information about market practices and trends. Typically, Towers attends Compensation Committee meetings, reviews existing compensation programs for each ofconsistency with our executive officers to earn an annual cash incentive award ("Incentive Award") under Spartan Stores, Inc. Annual Executive Incentive Plan of 2005 (the "2005 Annual Plan"). Becausecompensation philosophy and current market practices and produces the threshold performance targetscomparative information derived from peer group and published survey data that the Compensation Committee reviews when setting compensation. With respect to 2011, Towers Watson’s activities included:
reviewing our annual and long-term incentive plan design structure;
performing a market review of executive officer compensation and preparing “tally sheets”;
reviewing the composition of the peer group we use for executive compensation benchmarking purposes;
reviewing current issues and trends in executive compensation;
assisting with executive compensation disclosures for the annual proxy filing; and
reviewing the pay-for-performance alignment of our executive compensation programs.
Under the terms of its engagement, Towers will not provide any other services to the Company in fiscal 2011.
The Compensation Committee has adopted the practice of engaging an independent compensation consultant to provide a full review and analysis of Peer Group Company executive compensation data every two years rather than annually. The Compensation Committee requested and received a full review and analysis from the compensation consultant in fiscal 2011. For years in which the consultant does not provide a full review (i.e., fiscal 2012 and expected to be alternate years thereafter), the Compensation Committee reviews market trends in executive compensation, updated information and analysis provided in the previous year by the compensation consultant, reviews tally sheets, and considers focused analysis of named executive officer compensation of Spartan named executive officers compared to the named executive officers of the Peer Group Companies. Alternate years provide the Compensation Committee opportunity to engage compensation consultants in analysis of other areas of executive compensation, such as stock ownership, change-in-control, and regulatory issues. The Compensation Committee also reviews and considers independent compensation studies, compilations, analysis and surveys that are not specifically prepared or commissioned for the Company.
Stock Ownership Guidelines
Spartan’s Board of Directors has established stock ownership guidelines for corporate officers. These guidelines are designed to help ensure that officers face downside risk and upside potential with other shareholders.
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Under these guidelines, the Company’s executive officers are expected to achieve and maintain a level of stock ownership having a value
that is approximately equal to or greater than a specified percentage of the executive’s annual base salary. The percentages are as follows:
Position | Percentage of Base Salary | |||
Chairman | 500 | % | ||
Chief Executive Officer | 500 | % | ||
President | 400 | % | ||
Executive Vice Presidents | 300 | % | ||
Senior Vice President | 200 | % | ||
Vice Presidents and Division Vice Presidents | 100 | % | ||
Each executive is expected to achieve the target value within three years of the date that the executive first became subject to the policy by adoption of the policy or by the individual’s promotion or appointment to a designated executive position. If an executive’s target ownership level increases due to a promotion or an amendment to the policy, then the executive will have two additional years to achieve the target ownership level. The two additional years are measured from the later of the date of the increase or the date the executive would otherwise have been required to achieve the target ownership level before the increase. Until the specified level of ownership is achieved, executives are required to hold at least 25% of all restricted stock granted to them, and designate at least 20% of any annual bonus granted under the 2005 Annual Plan were not achieved, noCompany’s cash incentive awardsplans. As of March 26, 2011, all of the Company’s executive officers were paid toin compliance with the Executive Chairman, Chief Executive Officer or any Executive Vice President for fiscal 2010.Company’s stock ownership policy.
As discussed under the caption "Proposal to Approve the Executive Cash Incentive Plan of 2010," the 2005 Annual Plan will expire by its terms at the Company's 2010 annual meeting of shareholders, and will be succeeded (if approved by the shareholders) by the Spartan Stores, Inc. Executive Cash Incentive Plan of 2010, which is similar to the 2005 Annual Plan, but allows multi-year performance periods.
During fiscal 2010, the Company also maintained the Spartan Stores, Inc. 2000 Annual Incentive Plan (the "2000 Annual Plan"), in which certain non-executive associates were provided an opportunity to earn cash incentive compensation. The 2000 Annual Plan expired by its terms at the end of fiscal 2010. The Board of Directors upon recommendation of the Compensation Committee, approved the Spartan Stores, Inc. 2010 Cash Incentive Plan to succeed the 2000 Annual Plan. The 2010 Cash Incentive Plan is substantially the same as the 2000 Annual Plan, but allows multi-year performance periods.
The following discussion specifically addresses the plans that were in place for fiscal 2010, namely, the 2005 Annual Plan and 2000 Annual Plan. However, because the proposed Executive Cash Incentive Plan of 2010 and the 2010 Cash Incentive Plan are very similar to the expiring plans, the following discussion applies equally to the Executive Cash Incentive Plan of 2010 (if approved), and the 2010 Cash Incentive Plan.
The 2005 Annual Plan and 2000 Annual Plan are non-equity incentive compensation plans that are designed to motivate executive officers and other participants who are in a position to make substantial contributions toward the achievement of goals established under the plans. The plans are designed to:
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The 2005 Annual Plan permits annual incentive compensation paid under the plan to be deductible under the Internal Revenue Code. Under the terms of the 2005 Annual Plan, the Compensation Committee may use only objective measures of financial performance specified in the Plan itself (or approved by the Company's shareholders at a later date), and it must specify the relationship between the level of the Incentive Award and the performance measure. Payment of Incentive Awards under the 2005 Annual Plan is entirely contingent on the achievement of specified objective measures of performance. Under the terms of the 2000 Annual Plan, the Compensation Committee has more discretion to establish performance criteria (which may be subjective) and determine Incentive Award levels.
Spartan's named executive officers and certain other key associates may elect to receive all or a portion of any Incentive Award they may receive in the form of Spartan Stores common stock pursuant to the Company's 2001 Stock Bonus Plan. The Stock Bonus Plan is designed to create additional incentive for participants to make significant contributions to the long-term performance and growth of the Company and to join the interests of participants with the Company's shareholders. Under the Plan, participants have ten days following notification of the amount of their Incentive Award (if any) to provide a written election to receive up to 100% of their Incentive Award in the form of Spartan Stores stock. At the conclusion of the ten-day election period, associates who make such an election receive Spartan common stock having a value equal to the portion of the Incentive Award designated by the associate, plus an additional grant of shares having a value of 30% of the portio n of the participant's Incentive Award that he or she elected to receive in stock. The common stock granted under the plan is valued at the average of the highest and lowest sales prices of Spartan common stock reported by Nasdaq on the first trading day following the conclusion of the ten-day election period. All shares issued under the Stock Bonus Plan are subject to a twelve-month holding period.
Equity-Based Incentive Awards.Spartan maintains two equity incentive plans that permit the Compensation Committee to award stock options, shares of restricted stock, and other equity awards to executives: the Spartan Stores, Inc. 2001 Stock Incentive Plan and the Spartan Stores, Inc. Stock Incentive Plan of 2005. Both plans have been approved by the Company's shareholders. Awards under Spartan's equity compensation plans are designed to:
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Prior to making any equity awards, the Compensation Committee considers share usage under all of the Company's equity compensation plans, dilution of shareholders, and each executive's current ownership of the Company's stock.
Equity incentive awards have several key advantages over cash compensation, including promoting executive retention through the use of vesting periods and aligning executive and shareholder interests by giving executives an ownership stake in the Company. For fiscal 2010, our long-term equity incentive awards consisted of grants of restricted stock, stock options, and restricted stock units (which were not earned).
Restricted Stock. The Compensation Committee has granted restricted stock to named executive officers and certain other key associates of the Company. Shares of restricted stock awarded in fiscal 2010 vest ratably over a five-year period from the date of the grant. Restricted stock awards encourage executives to focus on strategies that promote the long-term profitable growth of the Company and increase shareholder value. Grants of restricted stock have three key advantages over other forms of equity compensation:
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Executives receive any dividends paid on unvested restricted shares. For information regarding accelerated vesting of restricted stock upon termination or a change-in-control of the Company, please see the section entitled "Potential Payments Upon Termination or Change-in-Control."
Stock Options. The Compensation Committee has granted stock options under the Company's equity incentive plans and has set the terms upon which stock options are granted, the number of shares subject to each option and the form of consideration payable upon the exercise of an option. In fiscal 2010, the Compensation Committee awarded stock options to each named executive officer. The stock options vest ratably over a four-year period beginning one year from the date of the grant and have a ten-year exercise period. The exercise price for stock options awarded in fiscal 2010 was equal to the closing price of Spartan Stores common stock traded on Nasdaq on the date of the grant.
Restricted Stock Units. The Compensation Committee awarded performance-based restricted stock units to our executives in fiscal 2010. The restricted stock units were denominated and were to be paid in shares of Spartan Stores stock based on the Company's achievement of threshold, target, and maximum levels of earnings per share as determined by the Compensation Committee. No restricted stock units would be earned unless the threshold level of performance was achieved. The actual number of restricted stock units earned, if any, could have varied from 50% of the target number (if the threshold level of performance was met) to 200% of the target number (if the maximum level of performance was met or exceeded). The earned restricted stock units, if any, would have converted to shares of restricted stock on a one-for-one basis. The restricted stock would then have been subject to a two-year cliff vesting period. For fiscal 2010, the Compensation Committee established t he following matrix to determine the degree to which the restricted stock units were to be earned:
Percentage of Targeted Percent of Target <90 % 0 % Threshold $ 1.37 90 % 50 % 95 % 75 % Target 1.52 100 % 100 % 105 % 117 % 110 % 133 % 115 % 150 % 120 % 167 % Maximum 1.90 >125 % 200 %
Earnings
Per Share
Earnings Per Share
Achieved for Fiscal 2010
Restricted Stock Units
Earned*
*The percentage of Restricted Stock Units Vesting earned is interpolated for actual achievement between the threshold and maximum performance levels identified above.
The threshold level of earnings per share was not achieved for fiscal 2010. Accordingly, no restricted stock units granted to any executive officer in fiscal 2010 were earned.
In addition to the elements of compensation discussed above, our executives participate in certain defined benefit and deferred compensation plans. These plans are discussed below under the captions "Pension Benefits" and "Nonqualified defined contribution plans and other nonqualified deferred compensation plans."
How the Compensation Committee Determines Compensation Levels
Overview
The Compensation Committee's overall decision making process can be summarized as follows:
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Targeting the Median Market Level
In general, the Compensation Committee seeks to provide target compensation opportunities that are consistent with the median
(i.e., 50th percentile) market levels for each major category of compensation for executives in similar positions at companies of comparable size, financial performance, industry and complexity (referred to in this section as "Peer Group Companies").
The Compensation Committeeperiodically reviews the constituents of the Peer Group Companies from time to timestock ownership guidelines for corporate officers to help ensure that the grouppolicy effectively encourages key associates to own a meaningful equity stake in the Company, but does not interfere with the Company’s ability to attract and retain talented individuals. The Board believes that it is fairly comparableappropriate to require more senior executives to own a relatively greater stake in the Company. Changing business models, mergers, growth,Accordingly, the ownership requirements are set on a “sliding scale” ranging from 100% to 500%.
Personal Benefits, Perquisites, and other factors may necessitate adjustments. Following its reviewLoans
Spartan Stores has long believed that compensation in the form of executive perquisites and personal benefits does not provide transparency for shareholders or efficiently serve the goals of the Peer Group Companies in October 2009, the Compensation Committee made additions and deletions to the Peer Group Companies (noted below). The Peer Group Companies for fiscal 2010 were as follows:
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Because the Compensation Committee established opportunities for equityCompany’s compensation and annual cash incentive compensation in May 2009 and adjusted executive salaries in October 2009 (as discussed below), the changes made to the Peer Group Companies identified above did not factor into those decisions.
Determining the median level forprograms. Consequently, such benefits play a compensation category at the Peer Group Companies is not the end of the analysis. In most cases, the Committee analyzes competitive compensation practicesminor role in the general industry for those positions that may be occupied by officers and executives recruited from outside of the wholesale and retail grocery business.
The Company'sCompany’s compensation targets for each category of compensation are summarized in the following table. The Company's competitive posture is measured relative to the estimated 50th percentiles of the Peer Group Companies or, where appropriate, broader industry groups.
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In general, a pay component is considered to be consistent with the 50th percentile target if it is within 10% of the applicable amount. While the Compensation Committee believes that each component of compensation should be consistent with the
targets above, the target serves only as a reference point andprogram. Spartan Stores does not endprovide perquisites such as club memberships, use of private aircraft, use of automobiles owned or leased by the analysis. The Committee also considers:
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Because the duties, responsibilities and authority of the Executive Chairman positionCompany, security details, commuting expenses, clothing, jewelry, discounts that are not easily comparableavailable to corresponding positions at the Peer Group Companies, Mr. Sturken's compensation levels are determined by the Compensation Committee based his experience, his performance, and his contributionsall associates, or personal travel unrelated to our business. Spartan Stores does not make loans or extend credit to its directors or executive officers. None of Spartan Stores’ directors or executive officers was indebted to the Company in the context of compensation data for reasonably comparable positions in a broad industry group.fiscal 2011.
Evaluating Individual Performance
Each year, the Compensation Committee reviews and evaluates individual executive performance as part of its decision making process with respect to salary, equity incentive award opportunities, and, from time to time, discretionary bonuses.
To evaluate the individual performance of the Chief Executive Officer, the Committee works with the Chief Executive Officer to establish performance objectives for the upcoming fiscal year. These goals are typically qualitative, but may include quantitative measures of operational or financial performance. Following the completion of the fiscal year, the Chief Executive Officer completes a self-evaluation of his performance and submits it to the Board of Directors. Each member of the Board of Directors reviews the self-evaluation and prepares his or her own review of the Chief Executive Officer and submits it to the chair of the Compensation Committee. The chair of the Compensation Committee compiles the evaluations and, together with the chair of the Nominating and Corporate Governance Committee, communicates an overall review to the Chief Executive Officer.
For the named executive officers other than the Chief Executive Officer, the Chief Executive Officer reviews with the Compensation Committee and the full Board of Directors an evaluation of each executive officer's performance.
The Compensation Committee considers the evaluations of individual performance of the Chief Executive Officer and the other named executive officers in any adjustment of salaries and the value of equity awards up or down from the 50th percentile target for the applicable compensation element. As discussed above, individual performance is only one factor among several that the Compensation Committee considers in making these adjustments, and there is no prescribed formula or mechanism for translating individual performance into specific amounts of compensation. The Compensation Committee's decision-making process necessarily involves the Committee's informed judgment with respect to individual executive performance in the context of many considerations and criteria, none of which are individually controlling, including experience, potential of the executive, retention concerns, recent compensation of the executive, internal pay equity, Company performance, and general ind ustry and economic conditions.
Reviewing Tally Sheets
When making compensation decisions, the Compensation Committee reviews tally sheets prepared for each of the named executive officers. Each of these tally sheets presents the dollar amount of each named executive officers'officers’ current cash compensation (base salary and annual incentive awards) and equitylong-term (equity and long-term cash incentive) awards. These tally sheets
report a multi-year history of annual compensation for the named executive officers (both opportunity and realized). The tally sheets exclude the two nonqualified deferred
Internal Pay Equity
Our core compensation plans discussed below under the caption "Nonqualified defined contribution planphilosophy is to pay our executive officers competitive levels of compensation that best reflect their individual responsibilities and other nonqualified deferred compensation
plans" because the executives participation in those plans is not materialcontributions to the Compensation Committee's overall decision making process.
The purpose ofCompany while providing incentives to achieve the tally sheets isCompany’s business and financial objectives. While we believe that our executive compensation program must be internally consistent and equitable in order to bring together various elements of compensation ofachieve our named executive officers so that the Compensation Committee may review both the individual elements of compensation (including the compensation mix) and the aggregate total amount of compensation. The Compensation Committee uses the tally sheet information as part of its analysis in compensation decision-making. In its most recent review of tally sheets, the Compensation Committee determined that the annual compensation amounts for our CEO and the other named executive officers remained consistent with the Compensation Committee's expectations. The Committee made certain adjustments described below in response to competitive considerations and individual performance considerations.
Analysis of Compensation Elements for Fiscal 2010
As discussed in more detail above, the Committee generally seeks to provide each executive with a base salary, cash incentive opportunity, and share-based compensation that is consistent with the market level for similar positions, while taking into account the executive's performance, level of responsibility, retention concerns, and other factors discussed above. With respect to share-based awards, the Compensation Committee also considers the availability and usage of shares under the Company's equity compensation plans, and resulting dilution to shareholders.
Base Salaries. In October 2009, the Compensation Committee approved a base salary increase of 2% for all salaried associates. Mr. Eidson received a salary increase of 6%. The Committee authorized the incremental increase as a result of Mr. Eidson's individual performance during the prior fiscal year and an increase in the median salary for corresponding positions at the Peer Group Companies. The Compensation Committee believes that the base compensation for Mr. Eidson remained below the 50th percentile for corresponding positions within the Peer Group Companies as of the end of fiscal 2010.
Mr. Sturken's base salary was reduced by 50% in fiscal 2010 in connection with the transition to his current position as Executive Chairman
The Compensation Committee concluded that the base salaries for Mr. Staples and Mr. Adornato were below and Mr. DeYonker was above, but generally consistent with, the 50th percentile market level, and accordingly each of them received the 2% increase in base salary provided for salaried associates.
Incentive Awards. The Compensation Committee reviews Incentive Award opportunities for our named executive officers and certain other associates annually to establish the financialcorporate objectives, and award parameters for the current fiscal year. For fiscal 2010, each named executive officer was granted an opportunity to earn an Incentive Award under the Spartan Stores, Inc. Annual Executive Incentive Plan of 2005.
The Committee calibrates the payout levels for threshold, target, and maximum performance by reviewing and analyzing the payout levels (relative to salary) for threshold, target, and maximum performance at the Peer Group Companies and other industry groups. This calibration process helps the Company avoid payout levels that are too high or too low relative to the companies with which we compete for talent. Depending on the actual performance attained, each named executive officer has an opportunity to receive an Incentive Award, if any, ranging from 50% to 200% of the target bonus.
For each named executive officer, the value of the Incentive Award is solely dependent on the Company's achievement of specified levels of consolidated net earnings. If the threshold level of consolidated net earnings is not achieved, then no Incentive Awards are paid (as occurred in fiscal 2010).
For fiscal 2010, the Incentive Award opportunity provided to each named executive officer was calculated according to the following matrix:
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| The threshold, target, and maximum Incentive Award for each named executive officer is reported in the Grants of Plan-Based Awards Table in this proxy statement. The percentage of Target Incentive Award paid is interpolated for actual achievement between the threshold and maximum performance levels identified above. | ||||||||||
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Subject to Section 162(m) of the Internal Revenue Code and the terms of the Company's 2000 Annual Plan and 2005 Annual Plan (and their respective successor plans), the Compensation Committee may make appropriate adjustments to financial methods used to determine Incentive Awards for events that are unrelated to executive performance, such as: asset write-downs; litigation settlements or judgments; changes in tax laws, accounting principles, or other laws affecting reported results; reorganization or restructuring; extraordinary nonrecurring items, acquisitions or divestitures; foreign exchange gains and losses; and other special charges or extraordinary items.
For fiscal 2010, the Compensation Committee established the threshold and target level of consolidated net earnings at $30.8 million and $34.2 million, respectively. The Compensation Committee established a maximum bonus for each named executive officer at the achievement of consolidated net earnings of $42.8 million or higher.
The Company's actual performance after adjustments for extraordinary items permitted under the terms of the incentive plan for the fiscal year was 83.5% of the target level of consolidated net earnings under the annual incentive plans, which was below the threshold level of performance. Therefore the Company did not pay an Incentive Award to the Executive Chairman, the Chief Executive Officer, or any Executive Vice President. As described above, the Company did pay bonuses to certain other associates on a modified basis under the Annual Incentive Plan of 2000.
Equity-Based Compensation. The Compensation Committee determines the number of shares of restricted stock or restricted stock units and number of shares subject to stock options granted to each named executive officer.
For fiscal 2010, the named executive officers other than Mr. Sturken received increases in their equity compensation opportunities that moved them closer to 50th percentile market levels for corresponding positions at the Peer Group Companies.
Nevertheless, the Compensation Committee believes that equity compensation for these executives remained below the 50th percentile as of the end of fiscal 2010. Mr. Sturken was awarded equity compensation opportunity that the Committee determined was appropriate for his responsibilities, experience and performance and consistent with market data for similar positions in general industry.
Mix of Compensation Elements
When determining the mix of share-based awards, the Compensation Committee considers factors suchinternal pay equity as one factor among the short-termmany considerations discussed in this section, and long-term compensation expenseis not individually determinative of any element of individual compensation. Generally speaking, each of our executive officers is compensated according to the Company,responsibilities and competitive considerations for the economic value delivered toposition and the executives, the overall level of share ownership by the executives,accomplishments and share availability under Company plans. Prior to fiscal 2009, the Compensation Committee determined that option awards would account for approximately 30%potential of the valueindividual. As a natural result of the share-based compensation awarded to eachthese considerations, persons holding positions with relatively greater responsibilities receive relatively higher levels of compensation.
The ratio between Chief Executive Officer and other named executive officer and restricted stock would account for the remaining 70%. The Compensation Committee's purpose in awarding a relatively greater amounttarget compensation is often used as an indicator of restricted stockreasonableness of Chief Executive Officer compensation based on internal pay equity. For Spartan Stores, this ratio was 3.3 to encourage retention1 as of executives. In fiscal 2009, the Compensation Committee determined that it was appropriate to place greater emphasis on performance and shareholder value. In fiscal 2009, the Compensation Committee determined that share-based compensation would be provided to named executive officers in a mix of 50% options and 50% restricted stock.
For fiscal 2010, the Compensation Committee changed the mix of share-based awards to 50% restricted stock, 25% stock options, and 25% performance-based restricted stock units (based on the target value of the award at the time of the grant).2011. The Compensation Committee believes that this slightly different mix would continue to emphasize short-term and long-term performance and shareholder value because 50% of the share-based awards derive their value, if any, from the Company's share price (for stock options) and the achievement of specified levels of earnings per share (for restricted stock units). If the Company's share price falls, the stock options will not be exercisable for value, and if the threshold level of earnings per share is not achieved (as was the case for fiscal 2010), then the restricted stock units will not be earned.
As discussed above, the Compensation Committee generally seeks to provide each executive with the opportunity to earn net total compensation for salary, Annual Incentive Award, and equity-based incentive awards thatratio is consistent with the 50th percentile market levels for similar positions within the Peer Group Companies and general industry (where appropriate). The Committee uses a mix of compensation elements that is weighted toward at-risk pay (i.e., annual and long-term incentives). For fiscal 2010, at-risk compensation (consisting of the target Incentive Award and equity-based incentive awards) accounted for approximately 60% of such net total compensation for our executives in the aggregate, while base salary constituted 40% of such net total compensation. The Company believes this composition results in a pay-for-performance orientation for our executives and creates incentive for our executives to focus on the profitable growth of the Company. The Compensation Co mmittee believes this mix is consistent with the mix of compensation opportunities at the 50th percentile market levels provided to executives in similar positions at the Peer Group Companies.practices.
Use of Independent Compensation Consultants
In fiscal 2010,2011, the Compensation Committee engaged Hewitt Associates LLC ("Hewitt"Towers Watson (“Towers”), a compensation consulting firm, to provide objective research and analysis regarding compensation best practices and current information regarding compensation levels at companies of similar type, size, and financial performance. The services provided by Hewitt included, among others, annual benchmarkingCompensation Committee instructed Towers to provide advice and guidance on compensation
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proposals, including changes to compensation levels, the design of incentive plans and other forms of compensation, and to provide information about market practices by position atand trends. Typically, Towers attends Compensation Committee meetings, reviews existing compensation programs for consistency with our compensation philosophy and current market practices and produces the Peer Group Companies,comparative information derived from peer group and published survey data that the Compensation Committee reviews when setting compensation. With respect to 2011, Towers Watson’s activities included:
reviewing our annual and long-term incentive plan design structure;
performing a market review of executive officer compensation and preparing tally sheets for our executives, and making recommendations regarding“tally sheets”;
reviewing the design and implementationcomposition of the Company'speer group we use for executive compensation benchmarking purposes;
reviewing current issues and trends in executive compensation;
assisting with executive compensation disclosures for the annual proxy filing; and
reviewing the pay-for-performance alignment of our executive compensation programs.
In 2008,Under the terms of its engagement, Towers will not provide any other services to the Company in fiscal 2011.
The Compensation Committee has adopted the practice of engaging thean independent compensation consultant to provide a full review and analysis of Peer Group Company executive compensation data every two years rather than annually. The Compensation Committee requested and received a full review and analysis from the compensation consultant in fiscal 2009.2011. For years in which the consultant does not provide a full review (i.e., fiscal 20102012 and expected to be alternate years thereafter), the Compensation Committee reviews updates tomarket trends in executive compensation, updated information and analysis provided in the previous year by the compensation consultant. These updates are typically prepared byconsultant, reviews tally sheets, and considers focused analysis of named executive officer compensation of Spartan named executive officers compared to the Company's managementnamed executive officers of the Peer Group Companies. Alternate years provide the Compensation Committee opportunity to engage compensation consultants in analysis of other areas of executive compensation, such as stock ownership, change-in-control, and Human Resources associates.regulatory issues. The Compensation Committee also reviews and considers independent compensation studies, compilations, analysis and surveys that are not specifically prepared or commissioned for the Company.
Though the Compensation Committee did not engage Hewitt to perform a full review and analysis of Peer Group Company data during fiscal 2010, it did request and receive data and analysis from Hewitt regarding director and executive compensation from time to time, including the preparation of compensation tally sheets. The Company paid a total of $65,574 to Hewitt for executive compensation services provided to the Compensation Committee in fiscal 2010. Hewitt was also engaged by management to provide the Company with actuarial and investment consulting services for the Company's pension plans during fiscal 2010. The Company paid a total of $225,044 to Hewitt for these additional services in fiscal 2010.
The Compensation Committee has engaged Towers Watson ("Towers") as its independent compensation consultant for fiscal 2011. Under the terms of its engagement, Towers will not provide any other services to the Company in fiscal 2011.
Stock Ownership Guidelines
Spartan'sSpartan’s Board of Directors has established stock ownership guidelines for corporate officers. These guidelines are designed to help ensure that officers face downside risk and upside potential with other shareholders.
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Under these guidelines, the Company'sCompany’s executive officers are expected to achieve and maintain a level of stock ownership having a value
that is approximately equal to or greater than a specified percentage of the executive'sexecutive’s annual base salary. The percentages are as follows:
| Percentage of | |||
Chairman | ||||
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Chief Executive Officer |
| 500 | % | |
President |
| 400 | % | |
Executive Vice Presidents |
| 300 | % | |
Senior Vice President |
| 200 | % | |
Vice Presidents and |
| 100 | % | |
Each executive is expected to achieve the target value within three years of the date that the executive first became subject to the policy by adoption of the policy or by the individual'sindividual’s promotion or appointment to a designated executive position. If an executive'sexecutive’s target ownership level increases due to a promotion or an amendment to the policy, then the executive will have two additional years to achieve the target ownership level. The two additional years are measured from the later of the date of the increase or the date the executive would otherwise have been required to achieve the target ownership level before the increase. Until the specified level of ownership is achieved, executives are required to hold at least 25% of all restricted stock granted to them, and designate at least 20% of any annual bonus granted under the Company'sCompany’s cash incentive plans. As of March 27, 2010,26, 2011, all of the Company'sCompany’s executive officers were in compliance with the Company'sCompany’s stock own ershipownership policy.
The Board of Directors periodically reviews the stock ownership guidelines for corporate officers to help ensure that the policy effectively encourages key associates to own a meaningful equity stake in the Company, but
does not interfere with the Company'sCompany’s ability to attract and retain talented individuals. The most recent such review took place in late 2007. For that review, the Board reviewed information provided by the Company's management and compensation consultants indicating that the typical practice for public companies who disclose such information is to require executive officers to own equity securities having a value between three and fives times the applicable executive's salary, with more senior executives having a higher multiple. Following this review, the Board of Directors increased the ownership requirements for the Chief Executive Officer by 200% of salary and for the Executive Vice Presidents by 100% of salary. The Board believes that it is appropriate to require more senior executives to own a relatively greater stake in the Company. Accordingly, the ownership requirements are set on a "sliding scale"“sliding scale” ranging from 100% of salary for Vice Presidents to 500% of salary for the Executive Chairman and Chie f Executive Officer. The Board has determined, in its judgment, that at this time the sliding scale balances the goals of promoting meaningful executive ownership with the need to compete for executive talent..
Personal Benefits, Perquisites, and Loans
Spartan Stores has long believed that compensation in the form of executive perquisites and personal benefits does not provide transparency for shareholders or efficiently serve the goals of the Company'sCompany’s compensation programs. Consequently, such benefits play a very minor role in the Company'sCompany’s compensation program. Spartan Stores does not provide perquisites such as club memberships, use of private aircraft, use of automobiles owned or leased by the Company, security details, commuting expenses, clothing, jewelry, discounts that are not available to all associates, or personal travel unrelated to our business. Spartan Stores does not make loans or extend credit to its directors or executive officers. None of Spartan Stores'Stores’ directors or executive officers was indebted to the Company in fiscal 2010.2011.
Risk Considerations
In the context of the domestic retail and distribution operating company nature of our business, the Compensation Committee does not believe our compensation program encourages excessive or inappropriate risk taking for the following additional reasons:
we structure our pay to consist of both fixed compensation and variable compensation;
we cap our cash incentive opportunity at twice the target level;
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our restricted stock awards generally vest over five years, stock option awards granted in previous fiscal years generally vest over four years;
because consolidated net earnings is the performance measure for determining annual cash incentive payments for named executive officers and certain other officers, we believe that our executives are encouraged to take a balanced approach that focuses on corporate profitability;
our consolidated net earnings targets are applicable to other management associates as well as executives;
we have strict internal controls;
our Chief Executive Officer and Chief Financial Officer are contractually obligated to reimburse the Company for any incentive-based or equity-based compensation if the Company is required to prepare an accounting restatement due to misconduct; and
we have stock ownership guidelines.
Severance and Change in Control Payments
Spartan Stores believes that severance payments upon certain terminations of employment benefit the Company and the shareholders by attracting and retaining executives and allowing executives to remain focused during uncertain times while also obtaining restrictive covenants for the benefit of the Company. Spartan Stores also believes that cash payments upon a "double-trigger"“double-trigger” of both termination of employment and a change in control benefit the Company and the shareholders by motivating and encouraging each executive to be receptive to potential strategic transactions that are in the best interest of shareholders, even if the executive faces potential job loss, and by motivating the executives in the period leading up to a potential change in control. To accomplish these goals, Spartan Stores has entered into an employment agreement and an
executive severance agreement with each named executive officer, which are discussed in more detail elsewhere in this proxy statemen t.statement.
Under the terms of our equity based compensation plans and our executive employment and severance agreements, the CEOChief Executive Officer and other named executive officers are entitled to payments and benefits upon the occurrence of specified events including termination of employment and upon a change in control of the Company. The specific terms of these arrangements and an estimate of the compensation that would have been payable had they been triggered as of fiscal year-end are described in detail in the section of this Proxy Statement entitled "Potential“Potential Payments Upon Termination or Change in Control."” The terms and conditions of these arrangements are the result of arms-length negotiations between the Compensation Committee and the Company'sCompany’s executive officers.
The termination of employment provisions of the executive employment and severance agreements are intended, in part, to address retention concerns by providing these individuals with a certain amount of compensation that would offset the potential
disincentive to support an effort that would result in a change in control of the Company that could threaten the executive'sexecutive’s own jobs. From time to time, the Compensation Committee reviews and reassesses the termination and change in control arrangements with the named executive officers to determine whether the arrangements effectively serve their intended purposes and are consistent with prevailing practices for the markets in which the Company competes for executive talent. The Committee typically engages a compensation consultant to assist the determination of prevailing market practices.
The most recent such review took place in 2008. After reviewing analysis provided by Hewitt Associates, the Committee determined that it was appropriate for the Company to seek a substantial reduction in the benefits payable to the Company's executives to more closely align the key terms of the agreements with market practices. The Company's executives agreed to the reductions sought by the Committee and each executive entered into a new executive employment and severance agreement that replaced the prior agreements. Key changes to the agreements included:
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In addition, the executive officers agreed to changes in the executive employment agreements that restrict the circumstances under which the executive may terminate employment for "good reason" and be entitled to severance pay.
More recently, the executive officers have agreed to a modification to the executive severance agreements that ensure that benefits payable upon a "change in control" of the Company may be triggered only upon the completion of a change in control transaction, and not by the shareholder approval of such a transaction. This modification eliminates the possibility that such benefits would be payable without the change in control transaction being completed.
Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code includes potential limitations on the deductibility of compensation in excess of $1 million paid to certain officers. While we do not design our compensation programs solely for tax
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purposes, we do design our programs to be tax efficient for the Company where possible. Under appropriate circumstances, Spartan Stores may approve compensation that is not deductible
under Section 162(m) if it determines that it would be in the best interests of Spartan Stores and its shareholders for such compensation to be paid.
Summary Compensation Table
The following table shows certain information concerning the compensation earned by each person who served asthe Chief Executive Officer, during the most recently completed fiscal year, the Chief Financial Officer, and each of the Company'sCompany’s three most highly compensated executive officers who served in positions other than the Chief Executive Officer or Chief Financial Officer during thewho were serving as executive officers as of fiscal year ended March 27, 2010end, and Mr. Sturken, who would have been included among the three most highly compensated executive officers but for the fact that he retired as an executive officer in February 2011 (the officers identified in the table below are referred to in this Proxy Statement as the "named“named executive officers"officers”).
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards (1)(2)(3) ($) | Option Awards (1)(2) ($) | Non-Equity Incentive Plan Compen- sation(4)(5) ($) | Change in Pension Value and Non- qualified Deferred Compen- sation Earnings(6) ($) | All other Compen- sation(7) ($) | Total(8) ($) | |||||||||||||||||||||||||||
Dennis Eidson, | 2011 | 691,385 | - | 689,443 | - | 1,442,850 | 23,955 | 21,229 | 2,868,862 | |||||||||||||||||||||||||||
President and CEO | 2010 | 615,923 | - | 832,200 | 196,350 | - | 31,834 | 16,199 | 1,692,506 | |||||||||||||||||||||||||||
| 2009 | 545,673 | - | 536,858 | 403,464 | 509,420 | - | 38,666 | 2,034,081 | ||||||||||||||||||||||||||||
David M. Staples, | 2011 | 411,609 | - | 190,036 | - | 430,286 | 17,358 | 9,339 | 1,058,628 | |||||||||||||||||||||||||||
EVP and CFO | 2010 | 403,539 | - | �� | 306,527 | 72,450 | - | 23,915 | 8,419 | 814,850 | ||||||||||||||||||||||||||
| 2009 | 388,750 | - | 247,321 | 184,750 | 213,800 | - | 27,541 | 1,062,162 | ||||||||||||||||||||||||||||
Craig C. Sturken, | 2011 | 135,577 | - | 890,507 | - | 254,776 | 10,893 | 11,437 | 1,303,190 | |||||||||||||||||||||||||||
Executive Chairman(9) | 2010 | 233,654 | - | 312,075 | 73,500 | - | 26,812 | 22,119 | 668,160 | |||||||||||||||||||||||||||
| 2009 | 549,039 | 247,582 | 1,009,709 | 747,799 | 288,630 | 34,091 | 72,841 | 2,949,691 | ||||||||||||||||||||||||||||
Theodore C. Adornato, | 2011 | 310,765 | - | 126,588 | - | 311,450 | 9,682 | 6,733 | 765,218 | |||||||||||||||||||||||||||
EVP Retail Operations | 2010 | 304,672 | - | 195,567 | 46,200 | - | 13,429 | 5,729 | 565,597 | |||||||||||||||||||||||||||
| 2009 | 299,750 | - | 156,561 | 117,009 | 161,419 | - | 20,849 | 755,588 | ||||||||||||||||||||||||||||
Alex J. DeYonker, | 2011 | 355,013 | - | 141,005 | - | 341,380 | 9,743 | 6,982 | 854,123 | |||||||||||||||||||||||||||
EVP General Counsel and Secretary | 2010 | 348,052 | - | 195,567 | 46,200 | - | 14,116 | 5,116 | 609,051 | |||||||||||||||||||||||||||
| 2009 | 342,450 | - | 156,561 | 117,009 | 184,402 | - | 21,782 | 822,204 | ||||||||||||||||||||||||||||
Derek R. Jones | 2011 | 303,562 | - | 138,910 | - | 306,578 | 8,289 | 6,338 | 763,677 | |||||||||||||||||||||||||||
EVP Wholesale Operations | ||||||||||||||||||||||||||||||||||||
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valuation of share-based awards, see Note | |
| (2) | |
| The amounts reported in the “Stock Awards” and “Option Awards” columns are not reduced by the amount of any awards that were not earned or were otherwise forfeited. The values reported under |
| (3) | In compliance with the |
| |
|
|
| (4) | |
|
|
| (5) | The amount reported in this column for fiscal 2011 for each named executive officer consists of the annual cash incentive award earned for 2011 and the portion of the long-term cash incentive award that was earned for the Company’s achievement of specified levels of earnings per share in fiscal 2011. The long-term portion of the cash award has not been paid; it remains subject to a two-year vesting condition and will be forfeited if the employment of the named executive officer is terminated under certain circumstances prior to the end of fiscal 2013. The following table provides details regarding the non-equity incentive compensation earned by each named executive officer in fiscal 2011: |
Name | Annual Cash Incentive Award Earned | Portion of Long-Term Cash Incentive Award Earned | Total | |||||||||
Mr. Eidson | $ | 936,600 | $ | 506,250 | $ | 1,442,850 | ||||||
Mr. Staples | 278,411 | 151,875 | 430,286 | |||||||||
Mr. Sturken | 163,262 | 91,514 | 254,776 | |||||||||
Mr. Adornato | 210,200 | 101,250 | 311,450 | |||||||||
Mr. DeYonker | 240,130 | 101,250 | 341,380 | |||||||||
Mr. Jones | 205,328 | 101,250 | 306,578 | |||||||||
| (6) | |
| The amounts reported in this column consist of the change in the actuarial present value of the named executive |
-50-
and Supplemental Executive Retirement Plan, computed as of the pension plan measurement date used for financial statement reporting purposes for the reported years. For more information, see the Pension Benefits section of this proxy statement and Note | |
| (7) | |
|
|
|
|
|
|
|
|
| Dividends |
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Mr. Eidson |
| $ | 346 |
| $ | - |
| $ | 15,631 |
| $ | 222 |
| $ | 16,199 |
| Mr. Staples |
|
| 231 |
|
| - |
|
| 7,966 |
|
| 222 |
|
| 8,419 |
| Mr. Sturken |
|
| 87 |
|
| - |
|
| 21,810 |
|
| 222 |
|
| 22,119 |
| Mr. Adornato |
|
| 262 |
|
| - |
|
| 5,245 |
|
| 222 |
|
| 5,729 |
| Mr. DeYonker |
|
| 299 |
|
| - |
|
| 4,595 |
|
| 222 |
|
| 5,116 |
Name | Qualified Savings Plan Match | Nonqualified Savings Plan Match | Dividends on Unvested Restricted Stock | Insurance Premiums | Total | |||||||||||||||
Mr. Eidson | $ | 1,750 | $ | - | $ | 19,281 | $ | 198 | $ | 21,229 | ||||||||||
Mr. Staples | 1,561 | - | 7,580 | 198 | 9,339 | |||||||||||||||
Mr. Sturken | 115 | - | 11,124 | 198 | 11,437 | |||||||||||||||
Mr. Adornato | 1,571 | - | 4,964 | 198 | 6,733 | |||||||||||||||
Mr. DeYonker | 1,795 | - | 4,989 | 198 | 6,982 | |||||||||||||||
Mr. Jones | 1,151 | - | 4,989 | 198 | 6,338 | |||||||||||||||
| (8) | The amounts reported in the “Total” column include the value of unearned and forfeited Stock Awards. Please see Note 2 above. |
| (9) | Mr. Sturken retired as an executive officer of the Company, effective February 18, 2011. He continues to serve as Chairman of the Board of Directors. Please see page 61 for information regarding the vesting of restricted stock on February 18, 2011 upon Mr. Sturken’s retirement. |
-51-
Grants of Plan-Based Awards
The table on the following pagetable provides information concerning each grant of an award made to the named executive officers in the last completed fiscal year.
Grants of Plan-Based Awards
Name | Grant | Estimated Possible Payouts | Estimated Possible Payouts | All |
|
|
| ||||
Thresh- | Target | Maxi- | Thresh- | Target | Maxi- | ||||||
Dennis | 5/15/2009 | 202,725 | 405,450 | 810,900 |
|
|
|
|
|
| - |
Eidson | 5/15/2009(4) |
|
|
| 10,200 | 20,400 | 40,800 |
|
|
| 278,868 |
| 5/15/2009 |
|
|
|
|
|
| 39,600 |
|
| 549,252 |
| 5/15/2009 |
|
|
|
|
|
|
| 37,400 | 13.87 | 196,350 |
|
|
|
|
|
|
|
|
|
|
|
|
David | 5/15/2009 | 76,500 | 153,000 | 306,000 |
|
|
|
|
|
| - |
Staples | 5/15/2009(4) |
|
|
| 3,750 | 7,500 | 15,000 |
|
|
| 102,525 |
| 5/15/2009 |
|
|
|
|
|
| 14,600 |
|
| 202,502 |
| 5/15/2009 |
|
|
|
|
|
|
| 13,800 | 13.87 | 72,450 |
|
|
|
|
|
|
|
|
|
|
|
|
Craig | 5/15/2009 | 50,625 | 101,250 | 202,500 |
|
|
|
|
|
| - |
Sturken | 5/15/2009(4) |
|
|
| 3,850 | 7,700 | 15,400 |
|
|
| 105,259 |
| 5/15/2009 |
|
|
|
|
|
| 14,800 |
|
| 205,276 |
| 5/15/2009 |
|
|
|
|
|
|
| 14,000 | 13.87 | 73,500 |
|
|
|
|
|
|
|
|
|
|
|
|
Theodore | 5/15/2009 | 57,758 | 115,515 | 231,030 |
|
|
|
|
|
| - |
Adornato | 5/15/2009(4) |
|
|
| 2,400 | 4,800 | 9,600 |
|
|
| 65,616 |
| 5/15/2009 |
|
|
|
|
|
| 9,300 |
|
| 128,991 |
| 5/15/2009 |
|
|
|
|
|
|
| 8,800 | 13.87 | 46,200 |
|
|
|
|
|
|
|
|
|
|
|
|
Alex | 5/15/2009 | 65,981 | 131,963 | 263,925 |
|
|
|
|
|
| - |
DeYonker | 5/15/2009(4) |
|
|
| 2,400 | 4,800 | 9,600 |
|
|
| 65,616 |
| 5/15/2009 |
|
|
|
|
|
| 9,300 |
|
| 128,991 |
| 5/15/2009 |
|
|
|
|
|
|
| 8,800 | 13.87 | 46,200 |
| Name | Estimated Possible or Future Payouts Under Non-Equity Incentive Plan Awards | All | Grant | |||||||||||||||||||||
| Grant Date | Thresh- old ($) | Target ($) | Maxi- mum ($) | |||||||||||||||||||||
Dennis | 5/12/2010 | (2) | 70,000 | 700,000 | 1,400,000 | |||||||||||||||||||
Eidson | 5/12/2010 | (3) | 162,500 | 625,000 | 1,250,000 | |||||||||||||||||||
| 5/12/2010 | 41,120 | 633,248 | ||||||||||||||||||||||
| 5/31/2011 | (4) | 2,978 | 56,195 | |||||||||||||||||||||
David | 5/12/2010 | (2) | 20,808 | 208,080 | 416,160 | |||||||||||||||||||
Staples | 5/12/2010 | (3) | 48,750 | 187,500 | 375,000 | |||||||||||||||||||
| 5/12/2010 | 12,340 | 190,036 | ||||||||||||||||||||||
Craig | 5/12/2010 | (2) | 13,500 | 135,000 | 270,000 | |||||||||||||||||||
Sturken | 5/12/2010 | (3) | 32,500 | 125,000 | 250,000 | |||||||||||||||||||
| 5/12/2010 | 8,220 | 126,588 | ||||||||||||||||||||||
Theodore | 5/12/2010 | (2) | 15,710 | 157,101 | 314,201 | |||||||||||||||||||
Adornato | 5/12/2010 | (3) | 32,500 | 125,000 | 250,000 | |||||||||||||||||||
| 5/12/2010 | 8,220 | 126,588 | ||||||||||||||||||||||
Alex | 5/12/2010 | (2) | 17,947 | 179,469 | 358,938 | |||||||||||||||||||
DeYonker | 5/12/2010 | (3) | 32,500 | 125,000 | 250,000 | |||||||||||||||||||
| 5/12/2010 | 8,220 | 126,588 | ||||||||||||||||||||||
| 5/31/2011 | (4) | 764 | 14,417 | |||||||||||||||||||||
Derek | 5/12/2010 | (2) | 15,346 | 153,459 | 306,918 | |||||||||||||||||||
Jones | 5/12/2010 | (3) | 32,500 | 125,000 | 250,000 | |||||||||||||||||||
| 5/12/2010 | 8,220 | 126,588 | ||||||||||||||||||||||
| 5/31/2011 | (4) | 653 | 12,322 | |||||||||||||||||||||
|
|
| (1) | |
|
|
| Amount reported is the aggregate grant date fair value determined in accordance with ASC 718, and does not represent cash payments to or amounts realized by the named executive officers. For valuation assumptions, see Note |
|
|
-52-
| (3) | The amounts reported in these rows represent the possible threshold, target, and maximum payouts that could be earned by each named executive officer under a the long-term cash incentive award granted under the 2010 Cash Incentive |
| (4) | These shares were received by Mr. Eidson, Mr. DeYonker and Mr. Jones under the terms of the Company’s 2001 Stock Bonus Plan. Please see the Compensation Discussion and Analysis section of this proxy statement for more information regarding the 2001 Stock Bonus Plan. |
Discussion of Summary Compensation and Plan-Based Awards Tables
The Company paid the compensation set forth in the Summary Compensation Table and the grants of Plan Based Awards table pursuant to the philosophy, procedures, and practices set forth above in the "Compensation“Compensation Discussion and Analysis"Analysis” section of this proxy statement. A summary of certain material terms of our compensation plans and arrangements is set forth below.
Salary; Employment Agreements. Each named executive officer is paid a salary pursuant to an employment agreement with the Company. For information regarding determination of base salaries, see the Compensation Discussion and Analysis section of this proxy statement.
The Company has entered into an Executive Employment Agreement with each of its executive officers. None of the agreements have a specified term of years. Under the terms of each Agreement, the Company will employ the executive as an officer of the Company for an indefinite period of time.time until termination of employment. Each executive officer receives a base salary that will be reviewed annually and is eligible to participate in any of the Company's Company’s
bonus programs. Each executive officer'sofficer’s employment terminates automatically in the event of death, and the Company may terminate the executive'sexecutive’s employment for disability or for cause. Please see the Potential Payments Upon Termination or Change-in-Control section of this proxy statement for detailed information regarding payments to executive officers upon termination of employment for any reason.
Non-Equity Incentive Plan Awards. ForAs discussed in detail on pages 35-39, for fiscal 2010,2011, each named executive officers hadofficer was granted the opportunity to earn non-equitycash incentive plancompensation on an annual basis for fiscal 2011, and a long-term incentive award covering fiscal 2011 through fiscal 2013. The awards were granted under the 2005 Annual Plan.Company’s shareholder approved Executive Cash awards are paid to participants only if the Company achieves specified levels of consolidated net earnings for the fiscal year. For fiscal 2010, the threshold level of performance was not achieved and therefore no awards were paid to named executive officers. The range of awards for the fiscal year is typically determined each May by the Compensation Committee, and awards, if any, are typically paid the following May after the Company's year-end financial results are available. For details regarding how non-equity incentive awards are determined and paid, see the information regarding annual incentive plan awards in the Compensation Discussion and Analysis section of this proxy statement.
Pension Benefits and Non-Qualified Deferred Compensation. For information on pension benefits and non-qualified deferred compensation, please see the tables and accompanying narrative below.
Options. All options granted to named executive officers in fiscal 2010 were granted pursuant to the Company's Stock Incentive Plan of 2005. 2010.
The options vestExecutive Plan is a non-equity incentive compensation plan that is designed to motivate executive officers and other participants who are exercisable in four equala position to make substantial contributions toward the achievement of goals established under the plan. The plan is designed to:
motivate participants to achieve Spartan Stores’ annual increments on May 1. In other words, one-fourth of the option became exercisable on May 1, 2010, the second one-fourth becomes exercisable on May 1, 2011, the third one-fourth becomes exercisable on May 1, 2012financial and the final one-fourth becomes exercisable on May 1, 2013. All options were granted forbusiness objectives;
-53-
allow participants to share appropriately in Spartan Stores’ financial success;
provide a term of 10 years. Options terminate, subject to limited exercise provisions,competitive incentive compensation opportunity;
create linkage between participant contribution and Spartan Stores’ business and financial objectives; and
assist in the eventattraction, retention, and motivation of termination of employment, except that for termination dueplan participants.
The Executive Plan permits incentive compensation paid under the plan to death or disability, option holders have twelve months to exercisebe deductible under the portion of the option that was exercisable at the time of termination, if any. If an option holder retires, then the options will continue to vest and be exercisable in accordance withInternal Revenue Code. Under the terms of the grant. InExecutive Plan, the eventCompensation Committee may use only objective measures of a change in contro l (as definedfinancial performance specified in the Incentive Plan)Plan itself (or approved by the Company’s shareholders at a later date), all options will vest and become exercisable in accordance withit must specify the termsrelationship between the level of the Incentive Plan. The exercise pricecash incentive award and the performance measure. Payment of cash incentive awards under the options may be paid in cash or by surrendering sharesExecutive Plan is entirely contingent on the achievement of Spartan Stores common stock.specified objective measures of performance.
Restricted Stock. All shares of restricted stock were awarded to the named executive officers pursuant to the Stock Incentive Plan of 2005. This plan, and the 2001 Stock Incentive Plan, are the Company’s two equity incentive plans. Both plans have been approved by the Company’s shareholders. Awards under Spartan’s equity compensation plans are designed to:
align executive and shareholder interests;
reward executives and other key associates for building shareholder value; and
encourage long-term investment in Spartan.
Prior to making any equity awards, the Compensation Committee considers share usage under all of the Company’s equity compensation plans, dilution of shareholders, and each executive’s current ownership of the Company’s stock.
Equity incentive awards have several key advantages over cash compensation, including promoting executive retention through the use of vesting periods and aligning executive and shareholder interests by giving executives an ownership stake in the Company.
The shares of restricted stock granted to the named executive officers in fiscal 2011 are service vesting shares which vest in five equal yearly increments on May 1 of each year. In other words, the first one-fifth of the shares vestvested on May 1, 2010,2011, the second one-fifth vests on May 1, 2011,2012, the third one-fifth vests on May 1, 2012,2013, the fourth one-fifth vests on May 1, 2013,2014, and the final one-fifth vests on May 1, 2014. Dividends are paid on vested and unvested shares of restricted stock at the rate dividends are paid on common stock.2015. If the employment of an executive officer is terminated for any reason other than death, disability, or retirement, then all unvested shares of restricted stock are forfeited unless the Compensation Committee exercises its discretion to waive any remaining restrictions. If an executive officer dies or becomes disabled,
then all outstanding shares of restricted stock will vest automatically. In the event of retirement, a pro-rata portion of the outstanding shares will vest (based on the number of months of service during the vesting period divided by the length of the service period). If a change in control (as defined in the Incentive Plan) occurs, then all unvested shares of restricted stock will automatically vest.
Restricted Stock UnitsDividends. In fiscal 2010,Executives receive any dividends paid on vested and unvested restricted shares. For information regarding accelerated vesting of restricted stock upon termination or a change-in-control of the Company, please see the section entitled “Potential Payments Upon Termination or Change-in-Control.”
Holding Period. The shares of restricted stock awarded to the named executive officers were awardedare subject to forfeiture if not held until the opportunityrestrictions applicable to earnthe shares have elapsed. While the shares of restricted stock units. Theonce vested are not subject to an express holding period, each named executive officer must comply with the stock ownership guidelines discussed on page 45. Until the specified level of ownership is achieved, executives are required to hold at least 25% of all restricted stock units are denominatedgranted to them.
-54-
Stock Bonus Plan. Spartan’s named executive officers and certain other key associates may elect to receive all or a portion of any annual cash incentive award they may receive in sharesthe form of Spartan Stores common stock pursuant to the Company’s 2001 Stock Bonus Plan. The Stock Bonus Plan is designed to create additional incentive for participants to make significant contributions to the long-term performance and convertgrowth of the Company and to sharesjoin the interests of participants with the Company’s shareholders. Under the Plan, participants have ten days following notification of the amount of their annual cash incentive award (if any) to provide a written election to receive up to 100% of their annual cash incentive award in the form of Spartan Stores stock. At the conclusion of the ten-day election period, associates who make such an election receive Spartan common stock only ifhaving a value equal to the Company achievesportion of the threshold, target, or maximum levels of earnings per share for fiscal 2010 as specifiedannual cash incentive award designated by the Compensation Committeeassociate, plus an additional grant of shares having a value of 30% of the portion of the participant’s annual cash incentive award that he or she elected to receive in stock. The common stock granted under the plan is
valued at the average of the highest and disclosed inlowest sales prices of Spartan common stock reported by Nasdaq on the Compensation Discussion and Analysis sectionfirst trading day following the conclusion of this proxy statement. Because the Company did not achieveten-day election period. All shares issued under the threshold level of earnings per share for fiscal 2010, no restricted stock units were earned for any executive officer. Had the restricted stock units been earned, they would have beenStock Bonus Plan are subject to an additional two-year vestinga twelve-month holding period.
Pension Benefits and Non-Qualified Deferred Compensation. For information on pension benefits and non-qualified deferred compensation, please see the tables and accompanying narrative below.
All Other Compensation. The amounts reported under "All“All Other Compensation"Compensation” include dividends paid on unvested restricted stock awards (which are paid at the same rate as dividends paid on the Company'sCompany’s common stock), matching payments for contributions to the Company'sCompany’s qualified and non-qualified retirement plans, and the dollar value of premiums paid by the Company for group term life insurance for the named executive officers. The Company pays group term life insurance premiums for all of its associates.
The proxy statement continues on the following page.
-55-
The following table provides information concerning unexercised options and restricted stock awards that have not vested for each named executive officer outstanding as of March 27, 2010:26, 2011:
Outstanding Equity Awards at Fiscal Year-End
|
| Option Awards |
| Stock Awards | ||||||||
|
|
|
|
|
|
|
|
|
|
|
| Market |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dennis Eidson |
| - |
| 37,400 |
| 13.87 |
| 5/15/2019 |
| 78,153 |
| 1,133,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
David M. Staples |
| - |
| 13,800 |
| 13.87 |
| 5/15/2019 |
| 39,830 |
| 577,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Craig C. Sturken |
| - |
| 14,000 |
| 13.87 |
| 5/15/2019 |
| 109,050 |
| 1,581,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Theodore C. Adornato |
| - |
| 8,800 |
| 13.87 |
| 5/15/2019 |
| 26,225 |
| 380,263 |
|
|
|
|
|
|
|
|
|
|
|
| |
Alex J. DeYonker |
| - |
| 8,800 |
| 13.87 |
| 5/15/2019 |
| 22,100 |
| 320,450 |
Name | Option Awards | Stock Awards | ||||||||||||||||||||||
| Number of Securities Underlying Unexercised Options (#) Exercisable(1) | Number of Securities Underlying Unexercised Options (#) Unexercisable(3) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested(3) (#) | Market Value of Shares or Units of Stock That Have Not Vested ($)(2) | |||||||||||||||||||
Dennis Eidson | 9,350 | 28,050 | 13.87 | 5/15/2019 | 96,407 | 1,453,818 | ||||||||||||||||||
| 5,600 | 5,600 | 23.04 | 10/15/2018 | |||||||||||||||||||||
| 17,150 | 17,150 | 22.69 | 5/16/2018 | |||||||||||||||||||||
| 765 | 255 | 22.50 | 10/17/2017 | |||||||||||||||||||||
| 7,950 | 2,650 | 28.28 | 5/18/2017 | |||||||||||||||||||||
| 12,000 | - | 13.70 | 5/10/2016 | |||||||||||||||||||||
| 6,250 | - | 11.50 | 5/11/2015 | |||||||||||||||||||||
| 3,125 | - | 3.25 | 5/12/2014 | |||||||||||||||||||||
| 5,000 | - | 2.44 | 3/17/2013 | |||||||||||||||||||||
David M. Staples | 3,450 | 10,350 | 13.87 | 5/15/2019 | 37,900 | 571,532 | ||||||||||||||||||
| 10,500 | 10,500 | 22.69 | 5/16/2018 | |||||||||||||||||||||
| 5,625 | 1,875 | 28.28 | 5/18/2017 | |||||||||||||||||||||
| 9,000 | - | 13.70 | 5/10/2016 | |||||||||||||||||||||
| 3,125 | - | 11.50 | 5/11/2015 | |||||||||||||||||||||
| 1,563 | - | 3.25 | 5/12/2014 | |||||||||||||||||||||
Craig C. Sturken | 3,500 | 10,500 | 13.87 | 5/15/2019 | - | - | ||||||||||||||||||
| 42,500 | 42,500 | 22.69 | 5/16/2018 | |||||||||||||||||||||
| 21,125 | 7,875 | 28.28 | 5/18/2017 | |||||||||||||||||||||
| 19,875 | 6,625 | 13.70 | 5/10/2016 | |||||||||||||||||||||
| 4,688 | - | 11.50 | 5/11/2005 | |||||||||||||||||||||
Theodore C. Adornato | 2,200 | 6,600 | 13.87 | 5/15/2019 | 24,820 | 374,286 | ||||||||||||||||||
| 6,650 | 6,650 | 22.69 | 5/16/2018 | |||||||||||||||||||||
| 3,675 | 1,225 | 28.28 | 5/18/2017 | |||||||||||||||||||||
| 8,000 | - | 13.70 | 5/10/2016 | |||||||||||||||||||||
| 3,282 | - | 11.50 | 5/11/2015 | |||||||||||||||||||||
| 2,188 | - | 3.25 | 5/12/2014 | |||||||||||||||||||||
| 3,750 | - | 5.65 | 12/8/2013 | |||||||||||||||||||||
Alex J. DeYonker | 2,200 | 6,600 | 13.87 | 5/15/2019 | 24,070 | 362,976 | ||||||||||||||||||
| 6,650 | 6,650 | 22.69 | 5/16/2018 | |||||||||||||||||||||
| 3,675 | 1,225 | 28.28 | 5/18/2017 | |||||||||||||||||||||
| 6,000 | - | 17.13 | 10/1/2016 | |||||||||||||||||||||
Derek R. Jones | 2,200 | 6,600 | 13.87 | 5/15/2019 | 24,070 | 362,976 | ||||||||||||||||||
| 6,650 | 6,650 | 22.69 | 5/16/2018 | |||||||||||||||||||||
| 3,675 | 1,225 | 28.28 | 5/18/2017 | |||||||||||||||||||||
| 6,000 | - | 17.13 | 9/17/2016 | |||||||||||||||||||||
(1) | All exercisable options are fully vested. |
-56-
| (2) | |
| The market value reflected in this column is based on a closing market price of |
| (3) | |
| The following table sets forth the vesting dates for unvested option awards and restricted stock awards to each named executive officer as of March |
Vesting Schedule for Restricted Stock and Options
Dennis Eidson David M. Staples Craig C. Sturken Theodore C. Alex J. DeYonker Restr. Restr. Restr. Restr. Restr. 5/1/2010 11,375 4,714 5,250 2,180 21,250 8,900 3,325 1,380 3,325 1,380 5/1/2010 9,350 7,920 3,450 2,920 3,500 2,960 2,200 1,860 2,200 1,860 5/10/2010 3,000 3,500 3,000 3,500 13,250 12,600 2,000 2,500 - - 5/11/2010 - 3,750 - 3,750 - 11,250 - 2,625 - - 5/18/2010 2,905 2,982 1,875 1,920 7,250 7,400 1,225 1,260 1,225 1,260 10/1/2010 - - - - - - - - 1,500 1,750 5/1/2011 11,375 4,714 5,250 2,180 21,250 8,900 3,325 1,380 3,325 1,380 5/1/2011 9,350 7,920 3,450 2,920 3,500 2,960 2,200 1,860 2,200 1,860 5/10/2011 - 3,500 - 3,500 - 12,600 - 2,500 - - 5/18/2011 2,905 2,982 1,875 1,920 7,250 7,400 1,225 1,260 1,225 1,260 10/1/2011 - - - - - - - - - 1,750 5/1/2012 11,375 4,714 5,250 2,180 21,250 8,900 3,325 1,380 3,325 1,380 5/1/2012 9,350 7,920 3,450 2,920 3,500 2,960 2,200 1,860 2,200 1,860 5/18/2012 - 2,983 - 1,920 - 7,400 - 1,260 - 1,260 5/1/2013 - 4,714 - 2,180 - 8,900 - 1,380 - 1,380 5/1/2013 9,350 7,920 3,450 2,920 3,500 2,960 2,200 1,860 2,200 1,860 5/1/2014 - 7,920 - 2,920 - 2,960 - 1,860 - 1,860
Adornato
Vesting
Date
Options
Vesting
(#)
Stock
Vesting
(#)
Options
Vesting
(#)
Stock
Vesting
(#)
Options
Vesting
(#)
Stock
Vesting
(#)
Options
Vesting
(#)
Stock
Vesting
(#)
Options
Vesting
(#)
Stock
Vesting
(#)
| Dennis Eidson | David Staples | Craig Sturken | Theodore Adornato | Alex DeYonker | Derek R. Jones | |||||||||||||||||||||||||||||||||||||||||||
Vesting Date | Options Vesting (#) | Restr. Stock Vesting (#) | Options Vesting (#) | Restr. Stock Vesting (#) | Options Vesting (#) | Restr. Stock Vesting (#) | Options Vesting (#) | Restr. Stock Vesting (#) | Options Vesting (#) | Restr. Stock Vesting (#) | Options Vesting (#) | Restr. Stock Vesting (#) | ||||||||||||||||||||||||||||||||||||
5/1/2011 | 11,375 | 4,714 | 5,250 | 2,180 | 21,250 | - | 3,325 | 1,380 | 3,325 | 1,380 | 3,325 | 1,380 | ||||||||||||||||||||||||||||||||||||
5/1/2011 | 9,350 | 7,920 | 3,450 | 2,920 | 3,500 | - | 2,200 | 1,860 | 2,200 | 1,860 | 2,200 | 1,860 | ||||||||||||||||||||||||||||||||||||
5/1/2011 | - | 8,224 | - | 2,468 | - | - | - | 1,644 | - | 1,644 | - | 1,644 | ||||||||||||||||||||||||||||||||||||
5/10/2011 | - | 3,500 | - | 3,500 | - | - | - | 2,500 | - | - | - | - | ||||||||||||||||||||||||||||||||||||
5/18/2011 | 2,905 | 2,982 | 1,875 | 1,920 | 7,250 | - | 1,225 | 1,260 | 1,225 | 1,260 | 1,225 | 1,260 | ||||||||||||||||||||||||||||||||||||
9/18/2011 | - | - | - | - | - | - | - | - | - | - | - | 1,750 | ||||||||||||||||||||||||||||||||||||
10/1/2011 | - | - | - | - | - | - | - | - | - | 1,750 | - | - | ||||||||||||||||||||||||||||||||||||
5/1/2012 | 11,375 | 4,714 | 5,250 | 2,180 | 21,250 | - | 3,325 | 1,380 | 3,325 | 1,380 | 3,325 | 1,380 | ||||||||||||||||||||||||||||||||||||
5/1/2012 | 9,350 | 7,920 | 3,450 | 2,920 | 3,500 | - | 2,200 | 1,860 | 2,200 | 1,860 | 2,200 | 1,860 | ||||||||||||||||||||||||||||||||||||
5/1/2012 | - | 8,224 | - | 2,468 | - | - | - | 1,644 | - | 1,644 | - | 1,644 | ||||||||||||||||||||||||||||||||||||
5/18/2012 | - | 2,983 | - | 1,920 | - | - | - | 1,260 | - | 1,260 | - | 1,260 | ||||||||||||||||||||||||||||||||||||
5/1/2013 | - | 4,714 | - | 2,180 | - | - | - | 1,380 | - | 1,380 | - | 1,380 | ||||||||||||||||||||||||||||||||||||
5/1/2013 | 9,350 | 7,920 | 3,450 | 2,920 | 3,500 | - | 2,200 | 1,860 | 2,200 | 1,860 | 2,200 | 1,860 | ||||||||||||||||||||||||||||||||||||
5/1/2013 | - | 8,224 | - | 2,468 | - | - | - | 1,644 | - | 1,644 | - | 1,644 | ||||||||||||||||||||||||||||||||||||
5/1/2014 | - | 7,920 | - | 2,920 | - | - | - | 1,860 | - | 1,860 | - | 1,860 | ||||||||||||||||||||||||||||||||||||
5/1/2014 | - | 8,224 | - | 2,468 | - | - | - | 1,644 | - | 1,644 | - | 1,644 | ||||||||||||||||||||||||||||||||||||
5/1/2015 | - | 8,224 | - | 2,468 | - | - | - | 1,644 | - | 1,644 | - | 1,644 | ||||||||||||||||||||||||||||||||||||
Option Exercises and Stock Vested Table
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.
Option Exercises and Stock Vested
|
| Option Awards(1) |
| Stock Awards | ||||
|
| Number of |
|
|
| Number of |
|
|
Dennis Eidson |
| - |
| - |
| 18,696 |
| 286,170 |
David M. Staples |
| - |
| - |
| 15,100 |
| 229,964 |
Craig C. Sturken |
| - |
| - |
| 51,400 |
| 783,388 |
Theodore C. Adornato |
| - |
| - |
| 10,390 |
| 158,205 |
Alex J. DeYonker |
| - |
| - |
| 4,390 |
| 64,395 |
| Option Awards(1) | Stock Awards | |||||||||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($)(2) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($)(3) | ||||||||||||
Dennis Eidson | - | - | 22,866 | 349,401 | ||||||||||||
David M. Staples | - | - | 14,270 | 217,935 | ||||||||||||
Craig C. Sturken | - | - | 117,270 | 1,815,862 | ||||||||||||
Theodore C. Adornato | - | - | 9,625 | 146,909 | ||||||||||||
Alex J. DeYonker | - | - | 6,250 | 95,062 | ||||||||||||
Derek R. Jones | - | - | 6,250 | 94,747 | ||||||||||||
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(1) | None of the named executive officers exercised any stock options in fiscal |
| (2) | |
| The dollar values reported in this column are calculated by multiplying the number of shares acquired on exercise by the |
| (3) | |
| The dollar values reported in this column are calculated using the market value of the stock on the date of vesting. |
Equity Compensation Plans
|
|
|
|
|
| Number of securities |
|
| (a) |
| (b) |
| (c) |
Equity compensation plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
| 831,943 |
| $ 17.39 |
| 1,347,649 |
|
|
Pension Benefits
Our named executive officers are eligible to participate in the Spartan Stores, Inc. Cash Balance Pension Plan. All non-union associates of Spartan Stores, Inc. or Spartan Stores Associates, LLC, except associates who are classified as associates of the Company's VG's operations, are eligible to participate in the Cash Balance Pension Plan. Each associate classified asPlan, a VG's associate is eligible for Company contributions made under the Savings Plus Plan. No executive is eligible for the Company contribution for VG's associates.
qualified pension plan. The Plan utilizes a cash balance formula under which principal credits are added annually to a participant's "account." Theparticipant’s “account.” Effective January 1, 2011, the Cash Balance Pension Plan was frozen and, as a result, additional service credits will no longer be added to each associate’s account, however, interest credits will continue to accrue. Prior to the suspension of basic credits, the basic principal credit formula has been periodically amended and was suspended for the period beginning April 1, 2003 and ending March 31, 2004. As of April 1, 2004, basic principal credits were reinstated. The basic principal credit formula equalsequaled a percentage of the participant'sparticipant’s compensation based upon a participant'sparticipant’s years of service at the beginning of the calendar year in accordance with the following table:
Years of Service as of January 1 | Percentage of | ||||
0 – 5 | 2.5 | % | |||
6 – 15 |
|
|
| ||
|
| ||||
16 |
| 4 | |||
26 or more |
| 5 | |||
In additionThe participants in the Cash Balance Pension Plan will continue to the principal credits,accrue interest credits are also added annually to a participant's account based uponat the participant's accountend of each month until the cash balance as of the last day of the immediately preceding calendar year. Effective as of April 1, 2004, theis paid out. The interest rate used for this purpose is
the average of the 10-
year10-year Treasury interest rate over the 12 months ending in November of the prior calendar year.
Upon termination of employment, a participant will be entitled to his or her vested accrued benefit, which may be distributed either in a monthly annuity or in a lump sum. A participant is considered vested after 3 years of vested service. For the calendar years beginning January 1, 2004 a year of vested services is credited for each calendar year that a participant is credited with 1,000 hours of service. If distributed in a lump sum, the participant'sparticipant’s benefit generally will be equal to the participant'sparticipant’s account balance.
A participant'sparticipant’s years of service for vesting purposes includes all service with the Company, including service in an ineligible job classification. However, for purposes of determining the participant'sparticipant’s service for basic principal credit purposes, years of service generally only includes employment while a participant in the Plan.
The table on the following page summarizes the pension benefits for our named executive officers.
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Pension Benefits
| |||||||||||
Name | Plan Name | Number | Present Value of Accumulated Benefit ($)(1)(2) | ||||||||
Dennis Eidson | Spartan Stores, Inc. Cash Balance Pension Plan Supplemental Executive Retirement Plan | 7.75 7.75 |
| 46,257
|
| ||||||
| |||||||||||
David M. Staples | Spartan Stores, Inc. Cash Balance Pension Plan Supplemental Executive Retirement Plan | 10.92 10.92 |
| 86,106
|
| ||||||
| |||||||||||
Craig C. Sturken | Spartan Stores, Inc. Cash Balance Pension Plan Supplemental Executive Retirement Plan | 7.75 7.75 |
| 49,076
|
| ||||||
| |||||||||||
Theodore C. Adornato(3) | Spartan Stores, Inc. Cash Balance Pension Plan Supplemental Executive Retirement Plan | 6.00 6.00 |
| 38,102
|
| ||||||
| |||||||||||
Alex J. DeYonker(3) | Spartan Stores, Inc. Cash Balance Pension Plan Supplemental Executive Retirement Plan | 3.00 3.00 |
| 18,752
| |||||||
Derek R. Jones | Spartan Stores, Inc. Cash Balance Pension Plan Supplemental Executive Retirement Plan |
| 3.00
| 18,752 13,437 | |||||||
(1) | Represents the actuarial present value of the named executive |
| (2) | |
| None of our named executive officers received a distribution from any pension plan during the fiscal year ended March |
| (3) | |
| Mr. |
Qualified defined contribution retirement plan.
The Company maintains the Spartan Stores, Inc. Savings Plus Plan, a qualified 401(k) defined contribution retirement plan that is generally open to all of the Company'sCompany’s non-union associates. Our named executive officers are eligible to participate in the Savings Plus Plan , subject to wage and contribution limits imposed by the Internal Revenue Code.
The Savings Plus Plan allows for 50% matching contributions by the Company up to 6% of salary. Matching contributions are subject to a
vesting schedule for associates with less than sixfive years of service. Beginning in fiscal 2010,In April 2009, the Company suspended matching contributions in the Savings Plus Plan for most associates, including our named executive officers, due to the challenging economic environment.
Each associate classified as a VG's associate who works Effective January 1, 2011, in covered employment is eligible for aconjunction with the suspension of basic credits under the Company’s Cash Balance Pension Plan, the Company contribution underreinstated the matching contributions in the Savings Plus Plan upon meeting certain eligibility requirements. Thisfor participants, including our named executive officers. In addition, the Company introduced a discretionary profit-sharing contribution for eligible participants. The profit-sharing contribution is made on an annual basis in accordance with the termstargeted at 1.5% of the plan. No named executive officer is eligible for this contribution.compensation annually.
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Nonqualified defined contribution plans, and other nonqualified deferred compensation plans.
Spartan Stores maintains two nonqualified deferred compensation plans: the Supplemental Executive Retirement Plan ("SERP"(“SERP”), which provides nonqualified deferred compensation benefits to Spartan Stores'Stores’ officers, and the Supplemental Executive Savings Plan (the "SESP"“SESP”), which is a nonqualified deferred compensation plan for Spartan Stores'Stores’ officers and director-level associates.
The purpose of the SERP is to provide officers with the benefits that they are otherwise denied under the Cash Balance Pension Plan due to the annual dollar limit on compensation and other limitations of the Internal Revenue Code, which are referred to collectively as the "statutory“statutory limits."” Accordingly, each officer'sofficer’s benefit under the SERP is equal to the officer'sofficer’s benefit that would have accrued under the Pension Plan but for the operation of the statutory limits, minus the accrued benefit actually payable to the officer under the Pension Plan calculated in accordance with the statutory limits. The suspension of basic credits under the Cash Balance Pension Plan (as described above) will have a corresponding impact on the SERP (i.e., SERP participants will no longer accrue basic credits under the SERP, but may accrue interest credits).
Benefits under the SERP are paid from Spartan Stores'Stores’ general assets. There is no separate trust that has been established to fund benefits.
The purpose of the SESP is to provide officers with the benefits that they are otherwise denied under the Company'sCompany’s qualified savings plan, the Spartan Stores, Inc. Savings Plus Plan, due to statutory limits. Participants in the SESP may defer up to 50% of base salary and up to 100% of any bonuses under the plan. This opportunity is in addition to a participant'sparticipant’s savings opportunity under the Savings Plus Plan (subject to statutory limits). Prior to fiscal 2010, participantsParticipants in the SESP wereare entitled to a Company-matching contribution that mirroredmirrors the matching 50% matching contribution under the Savings Plus Plan, except the statutory limits do not apply. Matching contributions in the SESP were suspended in April 2009 in conjunction with the suspension of matching contributions in the Savings Plus Plan, duebut reinstated effective January 1, 2011 in conjunction with the reinstatement of matching contributions in the Savings Plus Plan. Effective January 1, 2011, SESP participants will be entitled to challenging economic conditions.a profit sharing contribution that mirrors the Company’s discretionary profit-sharing contribution in the Savings Plus Plan, as described above under caption “Qualified defined contribution retirement plan,” but only to the extent that statutory limits prevent such participants from receiving the match under the Savings Plus Plan.
The SESP provides participants with various investment alternatives, consisting primarily of mutual funds. The investments are only hypothetical investments, also referred to as phantom investments. The investment results for a participant are determined as if the contributions had actually been invested in the selected investment fund during the relevant time period.
-60-
The following table provides certain information regarding participation of the named executive officers in our non-qualified deferred compensation plans.
Non-Qualified Deferred Compensation
|
| Executive |
| Registrant |
| Aggregate |
|
|
| Aggregate |
Dennis Eidson |
| 46,241 |
| - |
| 46,057 |
| - |
| 251,004 |
David M. Staples |
| 44,156 |
| - |
| 47,199 |
| - |
| 269,871 |
Craig C. Sturken |
| 38,492 |
| - |
| 23,494 |
| - |
| 390,686 |
Theodore C. Adornato |
| 15,597 |
| - |
| 27,101 |
| - |
| 101,454 |
Alex J. DeYonker |
| 59,984 |
| - |
| 34,589 |
| - |
| 163,045 |
Name | Executive Contributions In Last FY(1) ($) | Registrant Contributions In Last FY ($) | Aggregate Earnings In Last FY ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance At Last FYE(2) ($) | |||||||||||||||
Dennis Eidson | 27,655 | - | 9,620 | - | 288,229 | |||||||||||||||
David M. Staples | 21,621 | - | 4,597 | - | 296,000 | |||||||||||||||
Craig C. Sturken | 6,779 | - | 16,551 | - | 414,160 | |||||||||||||||
Theodore C. Adornato | 9,323 | - | 17,785 | - | 128,559 | |||||||||||||||
Alex J. DeYonker | 21,301 | - | 21,123 | - | 205,461 | |||||||||||||||
Derek R. Jones | 9,107 | - | 5,311 | - | 51,586 | |||||||||||||||
(1) | All of the amounts in this column are also reported as either |
(2) | The aggregate balance at last fiscal year-end shown in this column includes Company contributions in prior years which were reported as |
|
Potential Payments Upon Termination or Change-in-Control
The Executive Chairman
Mr. Sturken retired as an executive officer of the Company on February 18, 2011. He continues to serve as Chairman of the Board of Directors. In connection with his retirement as an executive officer, Mr. Sturken did not and will not receive any payments under his Executive Employment Agreement or Executive Severance Agreement, each of which effectively terminated as of the date of his retirement (except for certain ongoing obligations of Mr. Sturken with respect to non-competition with the Company and other customary continuing provisions under the Executive Employment Agreement).
Upon his retirement, Mr. Sturken was entitled to receive a pro-rata portion of the unvested restricted stock previously granted to him.
In recognition of Mr. Sturken’s extraordinary contributions to the Company during his eight years of service, the Compensation Committee exercised its discretion under the Company’s Stock Incentive Plan and the terms of each grant to waive the remaining restrictions on the balance of the unvested restricted stock effective as of Mr. Sturken’s retirement. As a result, the Company recognized compensation expense of $763,919 for the shares of restricted stock that would have otherwise been forfeited. Mr. Sturken received no other discretionary compensation from the Company as a result of his retirement.
All Other Named Executive Officers
The following discussion applies to the Company’s named executive officers other than Mr. Sturken.
-61-
Spartan Stores has entered into an employment agreement and severance agreement with each of its named executive officers.
The employment agreements and severance agreements are summarized below.
Executive Employment Agreements
Each of Spartan Stores'Stores’ executive officers has an employment agreement with Spartan Stores providing that if the officer'sofficer’s employment is terminated by Spartan Stores other than due to death, disability or cause (as defined in the employment agreement), or if the employment is terminated by the officer for good reason (as defined in the employment agreement), the officer will receive the payments and benefits described and quantified in the tables below. The termination provisions of Mr. Sturken's employment agreement differ from those of the other named executive officers in that he is required to tender his resignation as Executive Chairman annually to the Board of Directors. If the Board accepts the tendered resignation, or otherwise terminates his employment without cause, he will receive a lump-sum payment equal to one year's salary.
Each named executive officer'sofficer’s employment agreement requires that the officer meet certain conditions to be eligible for severance pay, including execution of a release of certain employment-related claims and compliance with the post-employment confidentiality and non-competition provisions of the employment agreement.
Executives will not receive severance payments or benefits under the Executive Employment Agreements if they receive any payments or benefits under the Executive Severance Agreements, which are described below.
Executive Severance Agreements
Each of Spartan Stores'Stores’ executive officers has an executive severance agreement with Spartan Stores. Under these agreements, if the officer'sofficer’s employment with Spartan Stores terminates for reasons other than a nonqualifying termination (as described below) during the two-year period following a change in control (as described below) of Spartan Stores, then the officer will receive the payments and benefits described and quantified in the tables below. Each of the Company's Company’s
executives is required to accept up to a 10% reduction of severance benefits to avoid imposition of any excise tax imputed under the Internal Revenue Code.
Spartan Stores will not provide benefits under the executive severance agreements in the event of a "nonqualifying“nonqualifying termination."” A nonqualifying termination is defined in the agreements as any of the following: termination by Spartan Stores for cause, termination by the officer (with notice to the Company) for any reason other than for good reason (as defined in the executive severance agreement), retirement of the officer, and death or disability of the officer.
The term "change“change in control"control” is defined in the executive severance agreements generally as (1) the acquisition by any person or group of 20% or more of the outstanding common stock or voting power of Spartan Stores, (2) the majority of the Board being comprised of persons other than the current members of the Board or their successors whose nominations
were approved by at least two-thirds of the Board, or (3) the effective time of certain mergers, reorganizations, plans of dissolution or sales of substantially all of Spartan Stores'Stores’ assets. Prior to June 2010, under the executive severance agreements a "change“change in control"control” was deemed to occur upon the shareholder approval of a change in control transaction. In June 2010, our executive officers agreed to amendments to the executive severance agreements providing that a change in control is deemed to occur only upon the effective time and consummation of a change in control transaction. This modification eliminates the possibility that benefits under the executive severance agreements would be payable if the change in control transaction is approved by shareholders but not completed.
The Company believes that the employment agreements and executive severance agreements help retain our executives and keep them focused on implementing our strategic plan during a time of increased competition, consolidation, and uncertainty in our industry. The agreements provide a measure of earnings security by offering income protection in the form of
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severance and continued benefits if the executive is terminated without cause, economic protection for the executive'sexecutive’s family if the executive becomes disabled or dies, and additional protections in connection with a change in control of the company.
Providing severance to our executives is an appropriate bridge to subsequent employment if the person is terminated without cause. This is particularly so for executive-level positions for which the opportunities are typically more limited and the job search lead time longer. In addition, the agreements benefit the Company by enabling executives to remain focused on the business of the Company in uncertain times without the distraction of potential job loss.
The executive severance agreements are even more important in the context of a change in control as we believe they will motivate and
encourage each executive to be receptive to potential strategic transactions that are in the best interest of shareholders, even if the executive faces potential job loss, which would otherwise result in losing the opportunity to vest in equity awards, which comprise a significant portion of each executive'sexecutive’s compensation. We believe this benefits the Company and the potential acquirer because it enables the Company to retain and motivate the executive during the time preceding a potential change in control.
The table on the following pagetable summarizes the potential payments and benefits payable to each named executive officer upon termination for the reasons set forth below, assuming that the triggering event took place on March 27, 201026, 2011 (and that no change in control took place before the triggering event).:
Potential Payments upon Termination Not in Connection
with a Change in Control
| Dennis | David M. | Craig C. | Theodore C. | Alex J. |
Termination Other than for Retirement, Death, Disability or Cause(1)(2) | |||||
Lump-Sum Salary |
|
|
|
|
|
Health Coverage |
|
|
|
|
|
Outplacement |
|
|
|
|
|
TOTAL | 662,645 | 434,645 | 150,000 | 323,313 | 372,548 |
Retirement (5)(6) | |||||
Restricted Stock |
|
|
|
|
|
Death or Disability (5)(6) | |||||
Restricted Stock |
|
|
|
|
|
| Dennis Eidson | David M. Staples | Theodore C. Adornato | Alex J. DeYonker | Derek R. Jones | ||||||||||||||||
Termination Other than for Retirement, Death, Disability or Cause(1)(2) |
| |||||||||||||||||||
Lump-Sum Salary Payment(3) | $ | 700,000 | $ | 416,160 | $ | 314,201 | $ | 358,938 | $ | 306,918 | ||||||||||
Health Coverage Reimbursement (COBRA)(4) | 18,750 | 18,750 | 6,053 | 12,266 | 21,114 | |||||||||||||||
Outplacement Assistance | 10,000 | 10,000 | 10,000 | 10,000 | 10,000 | |||||||||||||||
TOTAL | $ | 728,750 | $ | 444,910 | $ | 330,254 | $ | 381,204 | $ | 338,032 | ||||||||||
Retirement(5)(6) |
| |||||||||||||||||||
Restricted Stock Vesting(7) | 381,844 | 191,877 | 126,932 | 110,872 | 113,460 | |||||||||||||||
Long-Term Cash Incentive Award(8) | 631,250 | 189,375 | 126,250 | 126,250 | 126,250 | |||||||||||||||
TOTAL | $ | 1,013,094 | $ | 381,252 | $ | 253,182 | $ | 237,122 | $ | 239,710 | ||||||||||
Death or Disability(5)(6) |
| |||||||||||||||||||
Restricted Stock Vesting(7) | 1,453,818 | 571,532 | 374,286 | 362,976 | 362,976 | |||||||||||||||
Long-Term Cash Incentive Award(9) | 631,250 | 189,375 | 126,250 | 126,250 | 126,250 | |||||||||||||||
TOTAL | $ | 2,085,068 | $ | 760,907 | $ | 500,536 | $ | 489,226 | $ | 489,226 | ||||||||||
(1) | Under the Employment Agreements with each named executive officer, the Company will provide severance payments and benefits only if the named executive officer is terminated by the Company at will (i.e., not for death, disability, or |
-63-
| (2) | |
| Any named executive officer who is terminated for cause (as defined in the Employment Agreements) will receive only salary and benefits accrued as of the date of termination. |
| (3) | |
| The Employment Agreements with each named executive officer requires lump-sum payment of an amount equal to the |
| (4) | |
| The amounts would be paid as reimbursement by the Company to the executive for the COBRA continuation coverage premium necessary to continue the named executive |
| (5) | |
| The named executive officers will receive benefits under the SERP and Cash Balance Pension Plan as described in the |
| (6) | |
| Under the terms of each stock option grant to our named executive officers, a participant that retires as an associate of the Company may exercise any options granted under the Plan according to their terms during the remaining term of the options. If a participant dies or becomes disabled, then any options that are not exercisable at the time of the death or disability are forfeited. |
| (7) | |
| Under the terms of the |
| (8) | Under the terms set forth in the letter agreement governing each named executive officer’s long-term cash incentive award under the Executive Plan, if a named executive officer retires during the performance period, then the payout, if any, will be the amount the officer would have earned had he remained employed with the Company for the full performance and vesting period based on actual performance results, paid on a pro-rated basis according to the length of employment during the performance period. If an officer retires after the performance period but before the vesting date, the earned portion of the award, if any, will be paid. The amounts reported in the table are based on the Company’s actual performance for fiscal 2011 with respect to the EPS component of the award, and the Company’s projected performance at the end of fiscal 2012 with respect to the ROIC component of the award. |
| (9) | Under the terms set forth in the letter agreement governing each named executive officer’s long-term cash incentive award under the Executive Plan, if a named executive officer dies or becomes disabled with 12 months of more remaining in the performance period, the target bonus will be paid on a pro-rata basis based on the length of employment during the performance period. If an officer dies or becomes disabled with less than 12 months remaining in the performance period, the payout, if any, will be paid based on actual performance results on a pro-rata basis based on the length of employment during the performance period. If an officer dies or becomes disabled after the performance period, any earned portion of the award will be paid. The amounts reported in the table are based on the Company’s actual performance for fiscal 2011 with respect to the EPS component of the award, and each officer’s target award with respect to the ROIC component of the award to be determined at the end of fiscal 2012. |
-64-
The following table summarizes the potential payments and benefits payable to each of Spartan'sSpartan’s named executive officers upon termination after a change of control of the Company, assuming that the termination took place on March 27, 2010.26, 2011.
Potential Payments upon Termination in
Connection with a Change in Control
| Dennis |
| David M. |
| Craig C. |
| Theodore C. |
| Alex J. |
|
|
|
|
|
|
|
|
|
|
|
|
Lump Sum Payment(1) | $ 2,486,122 |
| $ 1,119,194 |
| $ 758,159 |
| $ 961,990 |
| $ 1,098,964 |
|
Acceleration of Options(2) | 25,962 |
| 11,094 |
| 19,420 |
| 7,144 |
| 5,544 |
|
Acceleration of |
|
|
|
|
|
|
|
|
|
|
Cash Balance Pension Plan |
|
|
|
|
|
|
|
|
|
|
Continued Benefits(4) | 76,120 |
| 73,476 |
| 14,552 |
| 31,070 |
| 54,039 |
|
Outplacement Services(5) | 25,000 |
| 25,000 |
| 25,000 |
| 25,000 |
| 25,000 |
|
Adjustment to Avoid Tax |
|
|
|
|
|
|
|
|
|
|
Excise Tax Gross-Up(6)(7) | - |
| - |
| - |
| - |
| - |
|
TOTAL | $ 3,821,347 |
| $ 1,851,751 |
| $ 2,426,863 |
| $ 1,434,584 |
| $ 1,530,991 |
|
| Dennis Eidson | David M. Staples | Theodore C. Adornato | Alex J. DeYonker | Derek R. Jones | ||||||||||||||||
Lump Sum Payment(1) | $ | 3,385,592 | $ | 1,389,142 | $ | 1,048,802 | $ | 1,226,950 | $ | 1,049,132 | ||||||||||
Long-Term Cash Incentive Award(2) | 631,250 | 189,375 | 126,250 | 126,250 | 126,250 | |||||||||||||||
Acceleration of Options(3) | 33,941 | 12,524 | 7,986 | 7,986 | 7,986 | |||||||||||||||
Acceleration of Restricted Stock | 1,453,818 | 571,532 | 374,286 | 362,976 | 362,976 | |||||||||||||||
Cash Balance Pension Plan Benefit and SERP | 8,907 | 11,247 | 4,517 | 2,442 | 2,020 | |||||||||||||||
Continued Benefits(5) | 79,494 | 76,857 | 32,544 | 57,189 | 84,741 | |||||||||||||||
Outplacement Services(6) | 25,000 | 25,000 | 25,000 | 25,000 | 25,000 | |||||||||||||||
Adjustment to Avoid Tax Gross-Up(7) | - | - | - | - | (116,354) | |||||||||||||||
Excise Tax Gross-Up(7)(8) | 1,808,438 | - | - | 580,725 | - | |||||||||||||||
TOTAL | $ | 7,426,440 | $ | 2,275,677 | $ | 1,619,385 | $ | 2,389,518 | $ | 1,541,751 | ||||||||||
(1) | Under the Executive Severance Agreements, each officer is entitled to receive a lump sum payment equal to the sum of: (i) the |
| (2) | Under the terms set forth in the letter agreement governing each named executive officer’s long-term cash incentive award, upon a change in control of the Company during the performance period, each officer will earn a long-term cash incentive award equal to the greater of the target amount or the projected earned amount of the award based on the Company’s performance as of the date of the change in control, to be paid on a pro-rata basis for the length of employment during the performance period. If a change in control follows the performance period, any earned but unvested portion of the award will be payable in full upon the earliest to occur of the termination of the officer’s employment for any reason, the applicable vesting date, or the date that is the 15th day of the third month following the change in control. The amounts reported in the table represent the actual amount earned by each officer with respect to the EPS component of the award for fiscal 2011, and the pro-rata portion of the target award for each officer with respect to the ROIC component of the award to be determined at the end of fiscal 2012. |
| Upon a change in control, each |
| Each Executive Severance Agreement calls for a lump sum payment equal to: (i) the difference between the named executive |
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balance if the executive remained employed for 24 additional months; and (ii) a lump sum payment equal to the difference between the amount he or she would have been entitled to receive under the Spartan Stores, Inc. Cash Balance Pension Plan, assuming the officer was fully vested under the Plan and had continued employment and years of service coverage for 24 additional months. | |
| (5) | |
| Under the Executive Severance Agreements, each named executive officer will receive reimbursement for the following benefits (a) for 24 months, all health, dental and prescription drug benefits for the officer and his or her family; (b) for 12 months, tax and financial planning benefits; and (c) for 24 months, Company funded life insurance coverage. The reimbursement amount also includes an amount necessary to eliminate the income tax cost to the named executive officer resulting from any conversion of such benefits from non-taxable employee benefits to taxable reimbursements. |
| (6) | |
| Under the Executive Severance Agreement, each named executive officer is entitled to outplacement assistance in an amount not to exceed $25,000. |
| (7) | |
| Upon a change in control, |
affected associates for those excise taxes as well as any income and excise taxes payable by the executive as a result of any reimbursements for the 280G excise taxes (the | |
| (8) | |
| The calculations used to determine potential excise tax liability under Section 280G are based on an excise tax rate of 20%, a 35.08% effective federal income tax rate, a 1.45% Medicare tax rate and a 4.35% state income tax rate. |
The proxy statement continues on the following page.
-66- Compensation of Directors |
Spartan Stores believes that attracting and retaining talented directors is of fundamental importance to the Company and its shareholders. The Compensation Committee coordinates with the Nominating and Corporate Governance Committee to evaluate whether the Company'sCompany’s non-employee directors are fairly compensated for their services to the Company. Employee directors do not receive compensation for service as a director. In making director compensation decisions, the Compensation Committee is guided by three basic principles:
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compensation should fairly pay directors for services expected of a director of a company of similar size and scope to the Company;
compensation should align directors’ interests with the long-term interests of shareholders; and
the structure of the compensation should be transparent and easy for shareholders to understand.
The Compensation Committee conducts periodic reviews of non-employee director compensation and benefits with these guiding principles in mind. The Committee also reviews compensation survey data for retail companies and companies of comparable size by revenue to help the Company compensate its directors fairly and competitively.
Each non-executive director except for Mr. Sturken receives an annual retainer of $40,000 per year and $1,500 for attendance at each meeting of the Board of Directors (or $750 if attending the meeting by telephone conference), and $1,000 for attendance at any meeting of a Board committee (or $500 if attending by telephone conference). The Audit Committee chair receives an additional $7,500 fee, and the chairs of the Compensation Committee and Nominating and Corporate Governance Committee each receives an additional $5,000
$5,000 fee. Non-executive directors also are reimbursed for travel and lodging expenses for meetings attended.
In addition toAs Chairman of the Board, effective February 18, 2011, Mr. Sturken receives an annual retainer andof $150,000. He is not entitled to receive any fees eachfor meeting attendance.
Each non-employee director receives an annual equity award having an economic value established at $65,000. The value of the equity grant was increased from $50,000 in May 2008is designed to more closely align director equity compensation with the 50th percentile level for such compensation for a retail group and two broad general industry groups with revenue sizesamong directors of $1 billionour Peer Group Companies. In February 2011, the Board amended its director compensation program to $2.5 billion and between $2.5 billion and $5 billion. Theprovide that annual equity award has typically been grantedawards to directors will be made in the same form and percentage mix of stock options, restricted stock or other equity awards as made to executive officers, but for fiscal 2010, the percentage mix remained at 50% restricted stock and 50% stock options with no restricted stock units awarded to non-executive directors.only.
The Company has established stock ownership guidelines for non-employee directors to help align the interests of directors with those of our shareholders. Under these guidelines, each director is expected to acquire and continue to hold shares of the Company'sCompany’s common stock having an aggregate market value from time to time which equals or exceeds five times the rate of the regular annual retainer then in effect for non-employee directors who are not chairs. Each director is expected to achieve the target ownership level within five years of becoming a director. Incumbent directors at the time of the policy'spolicy’s adoption in 2006 have five years from the date of adoption to comply.
On May 15, 2009,2010, each non-executive director was issued 2,4064,280 shares of restricted stock and options to purchase 4,676 shares of Spartan Stores common stock pursuant to the Stock Incentive Plan of 2005, which vest over a period of three years, subject to certain limitations and acceleration of vesting upon retirement from the Board.
Our Executive Chairman, Craig C. Sturken, serves as an executive officer of the Company and is compensated for his service in that capacity. Mr. Sturken receives no additional compensation for his service as director.
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The following table provides information concerning the compensation of non-employee directors for Spartan'sSpartan’s last completed fiscal year.
Director Compensation
|
| Fees Earned |
| Stock |
| Option |
|
|
M. Shân Atkins |
| 51,750 |
| 33,371 |
| 24,268 |
| 109,389 |
Dr. Frank M. Gambino |
| 51,750 |
| 33,371 |
| 24,268 |
| 109,389 |
Frederick J. Morganthall, II |
| 51,000 |
| 33,371 |
| 24,268 |
| 108,639 |
Elizabeth A. Nickels |
| 58,250 |
| 33,371 |
| 24,268 |
| 115,889 |
Timothy J. O'Donovan |
| 57,250 |
| 33,371 |
| 24,268 |
| 114,889 |
Kenneth T. Stevens(4) |
| 23,000 |
| 33,371 |
| 24,268 |
| 80,639 |
James F. Wright |
| 57,250 |
| 33,371 |
| 24,268 |
| 114,889 |
Name | Fees Earned Or Paid in Cash ($) | Stock Awards(1)(2) ($) | Total(3) ($) | |||||||||
M. Shân Atkins | 54,250 | 65,912 | 120,162 | |||||||||
Wendy A. Beck | 25,500 | 32,923 | 58,423 | |||||||||
Dr. Frank M. Gambino | 51,250 | 65,912 | 117,162 | |||||||||
Yvonne R. Jackson | 26,000 | 32,923 | 58,923 | |||||||||
Frederick J. Morganthall, II | 52,750 | 65,912 | 118,662 | |||||||||
Elizabeth A. Nickels | 60,000 | 65,912 | 125,912 | |||||||||
Timothy J. O’Donovan | 57,750 | 65,912 | 123,662 | |||||||||
Craig C. Sturken(4) | 37,500 | - | 37,500 | |||||||||
James F. Wright | 58,750 | 65,912 | 124,662 | |||||||||
(1) | These amounts represent the portion of the grant date fair value of restricted stock and options determined in accordance with ASC 718. For details regarding the assumptions used in the valuation of share-based awards, see Note |
| (2) | |
| On May |
| (3) | |
| As of March |
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26, 2011. |
| (4) | Mr. Sturken retired as an executive officer on February 18, 2011 and continues to serve as Chairman of the Board. The fees reported above were earned by Mr. Sturken following his retirement as an officer. Mr. Sturken did not receive any stock awards for service as a director in fiscal 2011. The stock awards earned by Mr. Sturken as an officer of the Company prior to his retirement are reported on the Summary Compensation Table. |
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Compensation Committee Interlocks and Insider Participation
Messrs. Wright and O'DonovanO’Donovan, Ms. Jackson, and Dr. Gambino served as members of the Compensation Committee during the last completed fiscal year. None of the above members of the Compensation Committee were, during the fiscal year, an officer or associate of
Spartan or formerly an officer of Spartan. None of Spartan'sSpartan’s executive officers served as a member of a compensation committee (or Board committee performing a similar function) for another entity.
| Compensation Committee Report
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Compensation Committee Report.Report The.The Compensation Committee has reviewed and discussed with management the information provided under the heading "Compensation“Compensation Discussion and Analysis."” Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in Spartan'sSpartan’s annual report on Form 10-K and proxy statement.
Respectfully submitted,
Frank M. Gambino
Yvonne R. Jackson
Timothy J. O'Donovan
O’Donovan
James F. Wright
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Transactions with Related Persons
Spartan Stores recognizes that transactions with related persons can present potential or actual conflicts of interest. Accordingly, the Company has adopted written policies and procedures intended to ensure that potential conflicts of interests are identified, reviewed, approved, and disclosed as necessary. The Company has regular communications with related persons and relevant associates regarding these policies.
It is the responsibility of Spartan Stores'Stores’ management to conduct an appropriate review of all transactions with "related persons"“related persons” (as defined by Nasdaq and SEC rules) for potential conflicts of interest situations on an ongoing basis. Pursuant to Nasdaq Listing Rule 5630 and the Audit Committee Charter, the Audit Committee must evaluate and approve every proposed transaction with a related person. For any proposed transaction in which a director has an interest, Spartan Stores'Stores’ general policy is that the director may proceed with the transaction only if the material facts of the transaction and the director'sdirector’s interest in the
transaction have been disclosed to the Audit Committee of the Board, the Audit Committee determines that the transaction is fair to Spartan Stores, and the transaction is approved by the Audit Committee. There is no established criteria for evaluating such transactions, and the Audit Committee may consider any information or factors and it deems app ropriateappropriate in making this determination. However, the Audit Committee may not determine that the proposed transaction is "fair"“fair” to the Company unless it determines that the transaction will be made on terms no less favorable than those offered generally to entities that are not affiliated with any director.
Directors and executive officers are required to complete an annual written questionnaire that solicits information regarding any direct or indirect interest that they or members of their family may have in any transaction or series of transactions involving the Company and having a value of $120,000 or more. Directors and executive officers are required to promptly update
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the Company of any change in the information provided by them in the questionnaire.
Spartan Stores has adopted a written conflict of interest policy that requires all associates to report actual and potential conflicts of interest to the Company'sCompany’s internal auditor.
There were no related person transactions requiring disclosure under SEC rules during the fiscal year ended March 27, 201026, 2011 or the current fiscal year to the date of this proxy statement.
Section 16(a) Beneficial Ownership Reporting Compliance |
Section 16(a) of the Securities Exchange Act of 1934 requires Spartan Stores'Stores’ directors and officers and persons who beneficially own more than 10% of the outstanding shares of Spartan Stores common stock to file reports of ownership and changes in ownership of shares of common stock with the SEC. Directors, officers and greater than 10% beneficial owners are required by SEC regulations to furnish Spartan Stores with copies of all Section 16(a) reports they file with the SEC. Spartan Stores and its legal counsel file Forms 4
and other reports under Section 16(a) on behalf of directors and executive officers to report transactions with the Company under our compensation and benefit plans. Based solely on our review of the copies of such reports received by us, or written representations from certain reporting persons that no reports on Form 5 were required for those persons for fiscal 2010,2011, we believe that there have been no failures to timely file required reports by our directors and officers.
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Shareholder Proposals
To be considered timely, shareholder proposals intended to be presented at the 2011 annual meeting2012 Annual Meeting of shareholders, whether or not intended to be included in the proxy statement and form of proxy relating to that meeting, must be received by the Company at its principal executive offices not later than February 25, 2011.24, 2012. Shareholder proposals intended for consideration for inclusion in our proxy statement and form of proxy relating to that meeting should be made in accordance with SEC Rule 14a-8.
All shareholder proposals must comply with the notice provisions set forth in Spartan Stores'Stores’ bylaws which require that a written notice of a proposal to be considered at the Company's 2011 annual meetingCompany’s 2012 Annual Meeting must be delivered to the Secretary of the Company at the principal executive offices of the Company not later than February 25, 2011,24, 2012, if the meeting is held within 30 days of the calendar date of the 2010 annual meeting.2011 Annual Meeting. To be effective, such a notice must comply fully with the bylaws. You should address all shareholder proposals to the attention of our Secretary, 850 76th Street, S.W., P.O. Box 8700, Grand Rapids, Michigan 49518-8700.
-70- Solicitation of Proxies |
We will initially solicit proxies by mail.mail and by making our proxy materials available on the Internet. In addition, directors, officers and associates of Spartan Stores and its subsidiaries may solicit proxies by telephone or facsimile or in person without additional compensation. Proxies may be solicited by nominees and other fiduciaries who may mail materials to or otherwise communicate with the beneficial owners of shares
held by them. We will bear all costs of the preparation and solicitation of proxies, including the charges and expenses of brokerage firms, banks, trustees or other nominees for forwarding proxy material to beneficial owners. We have engaged the Altman GroupEagle Rock Proxy Advisors, LLC at an estimated cost of $6,500, plus expenses and disbursements, to assist in solicitation of proxies.
By Order of the Board of Directors
Alex J. DeYonkerExecutive Vice President, General Counsel, and Secretary
Grand Rapids, MichiganJune 25, 2010
Appendix A
Proposed Amendments to Declassify the Board of Directors
New or amended language is indicated by underlining.
ARTICLE V
BOARD OF DIRECTORS; CLASSIFICATION;VACANCIES; NOMINATIONS
A. The number of the directors of the Corporation shall be fixed from time to time by resolution adopted by the affirmative vote of at least seventy-five percent (75%) of the entire Board of Directors. The number of directors of the Corporation shall not be less than three (3).
B The Board of Directors shall be divided into three classes as nearly equal in number as possible, with the term of office of one class expiring each year. At each annual meeting of the shareholders, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of shareholders held in the third year following the year of their election.Regardless of anything to the contrary in these Restated Articles of Incorporation, commencing with the annual meeting of shareholders that is held in calendar year 2011 (the "2011 Annual Meeting"), the directors shall be elected annually for terms of one year, except that any director in office at the 2011 Annual Meeting whose term expires at the annual meeting of shareholders held in calendar year 2012 or calendar year 2013 shall continue to hold office until the end of the term for which such director was electe d and until such director's successor shall have been elected and qualified. Accordingly, at the 2011 Annual Meeting, the successors of the directors whose terms expire at that meeting shall be elected for a term expiring at the annual meeting of shareholders that is held in calendar year 2012 and until such directors' successors shall have been elected and qualified. At the annual meeting of shareholders that is held in calendar year 2012, the successors of the directors whose terms expire at that meeting shall be elected for a term expiring at the annual meeting of shareholders that is held in calendar year 2013 and until such directors' successors shall have been elected and qualified. At the annual meeting of shareholders in the calendar year 2013 and each annual meeting occurring thereafter, all directors shall be elected for terms expiring at the next annual meeting of shareholders and until such directors' successors shall have been elected and qualified.
C. Any vacancies in the Board of Directors for any reason, and any directorships resulting from any increase in the number of directors, may be filled only by the Board of Directors, acting by a majority of the directors then in office, although less than a quorum. Any director chosen to fill a vacancy shall hold office until the next election of the class for which such directors shall have been chosen and until their successors shall be elected and qualified. Subject to the foregoingand subject to paragraph B. of this Article V, at each annual meeting of shareholders the successors to the class of directors whose term shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting. Notwithstanding the foregoing, if the holders of any class or series of preferred stock are entitled to elect one or more directors to the exclusion of other shareholders, vacancies of any directorship ele cted by that class or series may be filled only by majority vote of the directors elected by that class or series then in office, whether or not a quorum, or by the holders of that class or series.Subject to paragraph B. of this Article V, when the number of directors is changed, any newly created or eliminated directorships shall be so apportioned among the classes as to make all classes as nearly equal in number as possible. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
Appendix B
Proposed Amendments to Clarify the Shareholder VoteRequired to Change the Bylaws
New or amended language is indicated by underlining.
ARTICLEXIIAMENDMENTOFRESTATEDARTICLESOFINCORPORATION
The Corporation reserves the right to amend, alter, change, or repeal any provision contained in these Restated Articles of Incorporation, in the manner now or hereafter prescribed by statute and these Restated Articles of Incorporation, and all rights conferred upon shareholders herein are granted subject to this reservation; provided, however:
A. Supermajority-InGeneral. No amendment to these Restated Articles of Incorporation shall alter, modify, or repeal any or all of the provisions of Articles V, VI, VII, VIII or IX of these Restated Articles of Incorporation, or this Section A of Article XII, and the shareholders of the Corporation shall not have the right to alter, modify, or repeal any or all provisions of the bylaws of the Corporation, unless such amendment, alteration, modification, or repeal is adopted by the affirmative vote of the holders of not less than two-thirds (2/3) of the Voting Stock;provided, that this Section A shall not apply to, and such 2/3 vote shall not be required for, any amendment, alteration, modification, or repeal that has first been approved by the affirmative vote of 80% of the entire Board of Directors.
***
ARTICLEXIIIAMENDMENTOFBYLAWS
The bylaws of the Corporation may be amended, altered, or repealed, or new bylaws may be adopted at any time by the Board of Directors without shareholder approval. The bylaws of the Corporation may not be amended, altered, or repealed, or new bylaws adopted, by the shareholders of the Corporation except upon the affirmative vote of at least80%two-thirds (2/3) of the total voting power of all shares of stock entitled to vote in the election of directors, voting together as a single class at an annual or special meeting of shareholders.
Appendix C
Spartan Stores, Inc.Executive Cash Incentive Plan of 2010
SECTION 1ESTABLISHMENT AND PURPOSES OF PLAN
1.1 Establishment of Plan. Spartan Stores, Inc., a Michigan corporation, hereby establishes the EXECUTIVE CASH INCENTIVE PLAN OF 2010 (the "Plan") for senior executive officers of the Company and its Subsidiaries. The Plan permits the award of incentive compensation in the form of performance-based incentive awards payable in cash.
1.2 Purposes of Plan. The purposes of the Plan are to motivate Participants to achieve the Company's financial and business objectives; to allow Participants to share appropriately in the financial success of the Company; to provide a highly competitive incentive compensation opportunity; to create a linkage between Participant contribution and the Company's financial and business objectives; and to assist in the attraction, retention and motivation of senior executive officers of the Company and its Subsidiaries. The Plan is further intended to provide flexibility to the Company in structuring incentive compensation to best promote the foregoing objectives. Within that context, the Plan is intended to provide performance-based compensation under Section 162(m) of the Code and shall be interpreted and administered to achieve that purpose.
1.3 Plan Document.This instrument, as amended from time to time, constitutes the governing document of the Plan.
1.4 Effective Date.The Plan is initially effective as of the date of the first meeting of shareholders held in 2010 (the "Effective Date"). Adoption of the Plan by the Board and payment of Incentive Bonuses for Fiscal Year 2011 shall be contingent upon approval by the shareholders at the 2010 Annual Meeting of Shareholders or any adjournment thereof or at a Special Meeting of the Shareholders. In the absence of such approval, this Plan shall be void.
1.5 Incentive Compensation Plan. The Plan is an incentive compensation program for Participants. Because the Plan does not provide welfare benefits and does not provide for the deferral of compensation until termination of employment, it is established with the intent and understanding that it is not an employee benefit plan within the meaning of the federal Employee Retirement Income Security Act of 1974, as amended.
SECTION 2DEFINITIONS
The following terms shall have the definitions stated, unless the context plainly requires a different meaning. Other defined terms shall have the meanings ascribed to them herein.
2.1 Annual Base Salary. "Annual Base Salary" means a Participant's annual salary rate in effect at the end of a Performance Period without regard to incentive compensation or bonuses or awards under this Plan or other benefits or incentive compensation plans maintained or provided by the Company.
2.2Affiliate."Affiliate" means any organization controlling, controlled by or under common control with the Company.
2.3 Beneficiary. "Beneficiary" means the individual, trust or other entity designated by the Participant to receive any amount payable with respect to the Participant under the Plan after the Participant's death. A Participant may designate or change a Beneficiary by filing a signed designation with the Committee in a form approved by the Committee. A Participant's will or other estate planning document is not effective for this purpose. If a designation has not been completed properly and filed with the Committee or is ineffective for any other reason, the Beneficiary shall be the Participant's Surviving Spouse. If there is no effective designation and the Participant does not have a Surviving Spouse, the remaining benefits under this Plan, if any, shall be paid to the Participant's estate.
2.4 Board. "Board" means the Board of Directors of the Company.
2.5 Business Unit."Business Unit" means any Subsidiary, department, division, profit center or other operational unit of the Company or any Subsidiary as to which the Committee shall establish a Target Bonus under the Plan applicable in a Performance Period.
2.6 Code. "Code" means the Internal Revenue Code of 1986, as amended.
2.7 Committee."Committee" means the Compensation Committee of the Board or such other committee as the Board designates to administer this Plan. The Committee shall consist of at least two persons, all of whom shall be "non-employee directors" as defined in Rule 16b-3 under the Securities Exchange Act of 1934, as amended, and "outside directors" as defined in the regulations issued under Section 162(m) of the Code.
2.8 Common Stock. "Common Stock" means the Company's common stock, no par value.
2.9 Company. "Company" means Spartan Stores, Inc., a Michigan corporation, and its successors and assigns.
2.10 Fiscal Year. "Fiscal Year" means the financial reporting and taxable year of the Company as the Company may adopt from time to time.
2.11 Incentive Bonus."Incentive Bonus" means a bonus awarded and paid in cash to a Participant for services to the Company or its Subsidiaries during a Performance Period that is based upon achievement of pre-established performance objectives by the Company, a Subsidiary, or a Business Unit.
2.12 Participant. "Participant" means a senior executive officer of the Company or any Subsidiary designated by the Committee to participate in this Plan for a Performance Period.
2.13 Performance. "Performance" means the level of achievement by the Company or its Subsidiaries or Business Units of the performance goals established by the Committee pursuant to Section 5.
2.14 Performance Period. "Performance Period" means the period of time during which the performance objectives must be achieved by the Company, a Subsidiary, or a Business Unit to determine the payout of an Incentive Bonus, if any.
2.15 Retirement."Retirement" means termination of employment as a result of retirement on or after the earlier of the date the Participant reaches (a) age 65; or (b) age 55, but only if such Participant
has completed at least ten Years of Vested Service (as defined below) since the later of the Participant's date of hire or, if the Participant became an associate of the Company in connection with a merger or acquisition, the date of the effective time of such merger or acquisition.
2.16 Subsidiary. "Subsidiary" means any corporation or other entity of which fifty percent (50%) or more of the outstanding voting stock or voting ownership interest is directly or indirectly owned or controlled by the Company or by one or more Subsidiaries of the Company, except that for purposes of this Plan, the term "Subsidiary" does not include Spartan Insurance Company Ltd. or SI Insurance Agency, Inc.
2.17 Surviving Spouse. "Surviving Spouse" means the husband or wife of the Participant at the time of the Participant's death who survives the Participant. If the Participant and the spouse die under circumstances that make the order of their deaths uncertain, it shall be presumed for purposes of this Plan that the Participant survived the spouse.
2.18 Target Bonus."Target Bonus" means the bonus goal established by the Committee for each Participant under Section 5.1(a).
2.19 Total Disability."Total Disability" means the condition of a Participant who is and remains eligible for total and permanent disability benefits under § 223 of the Social Security Act, as amended.
2.20Year ofVested Service. "Year of Vested Service" means a calendar year in which a Participant is credited with at least 1,000 hours of employment with the Company or its Subsidiaries. For the purposes of this definition, "hours of employment" include actual hours of paid work, paid leave or other time off, and hours of work missed due to military service provided that the Participant returns to work while his or her rehire rights are protected by law.
SECTION 3ADMINISTRATION OF PLAN
3.1 Plan Administration.
(a) Power and Authority. The Plan shall be administered by the Committee. Except as limited in the Plan, the Committee shall have full power and authority to interpret the provisions of the Plan and shall have full power and authority to supervise the administration of the Plan. Action may be taken by a written instrument signed by a majority of the members of the Committee and any action so taken shall be as effective as if it had been taken at a meeting. All determinations, interpretations and selections made by the Committee regarding the Plan shall be final and conclusive on all parties. To the extent it deems necessary or appropriate, the Committee may adopt rules, policies and forms for the administration, interpretation and implementation of the Plan.
(b) Delegation of Authority. The Committee may delegate any, some or all of its record keeping, calculation, payment and other ministerial or administrative authority and responsibility from time to time to and among one or more individuals, who may be members of the Committee or employees of the Company or its Subsidiaries or Affiliates, but all actions taken pursuant to delegated authority and responsibility shall be subject to such review, change and approval by the Committee as the Committee considers appropriate.
3.2 Grants or Awards to Participants. In accordance with and subject to the provisions of the Plan, the Committee shall have the authority to determine all matters as the Committee may deem necessary or desirable and as are consistent with the terms of the Plan, including, without limitation, the following: (a) the persons who shall be selected as Participants and (b) the nature and extent of the incentive awards granted to each Participant.
3.3 Indemnification. A member of the Committee or any other individual or group to whom authority is delegated shall not be personally liable for any act or omission in connection with the performance of powers or duties or the exercise of discretion or judgment in the administration and implementation of the Plan. The Company shall hold harmless and indemnify each member of the Committee, and any other individual or group exercising delegated authority or responsibility with respect to the Plan, from any and all liabilities, costs and expenses arising from any act or omission related to the performance of duties or the exercise of discretion and judgment with respect to the Plan. This Section 3.3 shall not be construed as limiting the Company's or any Subsidiary's ability to terminate or otherwise alter the terms and conditions of the employment of an individual or group exercising delegated authority or responsibility with respe ct to the Plan, or to discipline any such person. Each such individual shall be justified in relying on information furnished in connection with the Plan's administration by any appropriate person or persons.
SECTION 4ELIGIBILITY
4.1 Participation. For each Performance Period, the Committee shall designate the senior executive officers of the Company or any Subsidiary who shall be Participants for that Performance Period. Senior executive officers designated as Participants after the first 90 days of any Performance Period shall not be eligible for any Incentive Bonus paid with respect to such Performance Period under this Plan. Participants shall be notified in writing and provided a written summary of the Plan.
4.2 No Continuing Participation.Designation as a Participant for a Performance Period will not continue in effect for any subsequent Performance Period unless and until the Committee designates the individual as a Participant in the subsequent Performance Period. The Committee may terminate participation by any Participant at any time with or without cause.
SECTION 5ESTABLISHMENT OF GOALS AND CRITERIA
5.1 Selection of Criteria.The Committee shall preestablish performance goals for each Participant in the manner and within the time limits specified in this Section 5. For each Participant for each Performance Period, the Committee shall specify:
(a) Performance Period. A Performance Period, expressed as a number of Fiscal Years or other unit of time. Any Performance Period may overlap with one or more other Performance Periods.
(b) Target Bonus. A Target Bonus, expressed as a percentage of the Participant's Annual Base Salary or a specified dollar amount;
(c) Incentive Bonus. The Incentive Bonus levels, expressed as a percentage of the Target Bonus, that shall be paid to the Participant at specified levels of achievement by one or more of the Company, a Subsidiary or a Business Unit, of the performance goals established by the Committee pursuant to this Section 5;
(d) Performance Measurement. The applicable measurement of Performance under Section 5.2; and
(e) Conditions on Incentive Bonus. Any specific conditions under which an Incentive Bonus specified under subsection (b) above may be reduced or forfeited (but not increased).
The Incentive Bonus levels specified under subsection (c) above may be expressed either as (i) a matrix of percentages of the Target Bonus that will be paid at specified levels of the Performance or (ii) a mathematical formula that determines the percentage of the Target Bonus that will be paid at varying levels of Performance. If the Incentive Bonus levels are expressed a matrix of percentages and the actual Performance achieved exceeds the threshold level and falls between specified levels, then the Compensation Committee may determine by interpolation the percentage of the Target Bonus that will be paid.
5.2 Measurement of Performance. Unless and until the Committee proposes for shareholder vote and the shareholders approve a change in the measurements of Performance set forth in this Section 5.2, the performance goals established by the Committee pursuant to this Section 5 shall be determined by reference to one or more of the following measurements of Performance:
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These measurements of Performance may be used to measure Performance of one or more of the Company, its Subsidiaries, its Affiliates, any Business Units of any of them or any combination of the foregoing, compared to pre-determined levels, as the Committee may deem appropriate, or compared to the performance of a pre-established peer group, or published or special index that the Committee, in its sole discretion, deems appropriate; or the Committee may select the measurement of Performance set forth in subsection 5.2(k) above (with respect to the Company) as compared to various stock market indices. The Committee also has the authority to provide for accelerated vesting of any Incentive Bonus based on the achievement of performance goals pursuant to the measurements of Performance specified in this Section 5.
5.3 Incentive Bonus Conditioned on Performance. Except as explicitly provided in Sections 6.4, payment of an Incentive Bonus to a Participant for a Performance Period under this Plan shall be entirely contingent upon achievement of the performance goals established by the Committee pursuant to this Section 5, the satisfaction of which is substantially uncertain when established by the Committee for the Performance Period. The Committee may provide, when establishing the performance goals pursuant to this Section 5, that any evaluation of performance may include or exclude any of the following events or their effects that occurs during the relevant Performance Period: (a) asset write-downs, (b) litigation or claim judgments or settlements, (c) changes in tax laws, accounting principles, or other laws or provisions affecting reported results, (d) any reorganization and restructuring programs, (e) extraordina ry nonrecurring items as described in Accounting Principles Board Opinion No. 30 and/or in management's discussion and analysis of financial condition and results of operations appearing in the Company's annual report to shareholders for the applicable fiscal year(s), (f) acquisitions, divestitures or accounting changes, (g) foreign exchange gains and losses, and (h) other special charges or extraordinary items. To the extent such inclusions or exclusions affect the Incentive Bonus of a Participant, they shall be prescribed in a form that meets the requirements of Section 162(m) of the Code for deductibility.-71-
5.4 Time of Determination by Committee. All determinations to be made by the Committee for a Performance Period pursuant to this Section 5 shall be made in writing by the Committee during the first 90 days of the Performance Period.
5.5 Objective Standards. An Incentive Bonus shall be based solely upon objective criteria, consistent with this Section 5, from which an independent third party with knowledge of the facts could determine whether the performance goal or range of goals is met and from that determination could calculate the Incentive Bonus to be paid. Although the Committee has authority to exercise reasonable discretion to interpret this Plan and the performance goals it shall specify pursuant to this Section 5 of the Plan, it may not amend or waive such performance goals after the 90th day of the Performance Period. The Committee shall have no authority or discretion to increase any Incentive Bonus or to construct, modify or apply the measurement of Performance in a manner that will directly or indirectly increase the Incentive Bonus for any Participant for any Performance Period above the amount determined by the applicable objective criteria est ablished within the first 90 days of the Performance Period.
5.6 Committee Discretion. In the event that applicable tax laws change to permit Committee discretion to alter the governing measurements of Performance set forth in this Section 5 of the Plan without obtaining shareholder approval of such changes, the Committee shall have sole discretion to make such changes without obtaining shareholder approval. In addition, in the event that the Committee determines that it is advisable to grant Incentive Bonuses that shall not qualify as performance-based compensation, the Committee may make such grants without satisfying the
requirements of Section 162(m) of the Code and may base vesting on measurements of Performance other than those set forth in this Section 5 of the Plan.
SECTION 6DETERMINATION AND PAYMENT OF INCENTIVE BONUSES
6.1 Committee Certification. The Incentive Bonus for each eligible Participant for a Performance Period shall be determined on the basis of the Target Bonus and Performance for the Performance Period. The Committee shall determine and, except as explicitly provided in Sections 6.4, shall certify in writing prior to payment of the Incentive Bonus that the Company Performance for the Performance Period satisfied the performance goals established by the Committee for the Performance Period. Approved minutes of the Committee shall constitute sufficient written certification for this purpose.
6.2 Maximum Incentive Bonus. The Incentive Bonus for any Participant shall not, in any event, exceed an amount equal to the number of full or partial Fiscal Years in the Performance Period multiplied by $4,500,000.
6.3 Payment to Participant or Beneficiary; Form of Payment. The Incentive Bonus of each Participant shall be paid to the Participant, or the Beneficiary of any deceased Participant, by the Company as soon as feasible following final determination and certification by the Committee of the amount payable and that the applicable performance goals have been satisfied and vesting by the Participant in the Incentive Bonus; provided, however, such Incentive Bonus shall be paid no later than the 15th day of the third month following the later of the end of the Performance Period for which the performance goals for the Incentive Bonus have been met and the date the Participant vests in the Incentive Bonus award. Unless otherwise elected as set forth below, each Participant will receive his or her Incentive Bonus in cash. Any Participant may elect to receive a portion of his or her Incentive Bonus to be paid in cash under this Pl an in the form of Common Stock under the Company's 2001 Stock Bonus Plan (or any successor to that plan) or any other incentive award plan that the Company may adopt, provided that the Participant is a participant under the other plan with the right to elect to receive shares of Common Stock under the plan.
6.4Eligibility for Payment. The Incentive Bonus otherwise payable to a Participant for a Performance Period shall be adjusted as follows:
(a) Death, Total Disability, or Change in Control. If a Participant ceases to be a Participant because of death, Total Disability or Change in Control (as defined in the Spartan Stores, Inc. Supplemental Executive Retirement Plan), or upon a Change in Control that does not result in the termination of a Participant's employment, before the end of any Performance Period or before vesting in the applicable Incentive Bonus award, an award shall vest and be paid to the Participant or the Participant's Beneficiary if and to the extent provided by the Committee in the grant of the Incentive Bonus award. Notwithstanding the previous sentence, the Committee shall only grant awards payable upon death, Total Disability, or Change in Control in a timely manner so as to be exempt from Section 409A as provided in Section 8.8. Specifically, the award shall be paid no later than the 15th day of the third month following the date on wh ich the Participant's rights under this subsection vest due to the Participant's death, Total Disability, or Change in Control or, if already vested, the 15th day of the third month following the date of death, Total Disability, or Change in Control. Notwithstanding the foregoing, the
(b) Retirement. If a Participant ceases to be a Participant because of Retirement before the end of any Performance Period or before vesting in the applicable Incentive Bonus award, an award shall vest and be paid to the Participant or the Participant's Beneficiary if and to the extent provided by the Committee in the grant of the Incentive Bonus award; provided, however, that the Committee shall have no authority or discretion to waive satisfaction of the Performance requirements or increase any Incentive Bonus. Notwithstanding the previous sentence, the Committee shall only grant awards payable upon Retirement in a timely manner so as to be exempt from Section 409A as provided in Section 8.8. Specifically, the award shall be paid to the Participant or the Participant's Beneficiary in accordance with Section 6.3, including, but not limited to, being paid no later than the 15th day of the third month following the later of the end of the Performance Period for which the performance goals for the Incentive Bonus have been met and the date the Participant vests in the Incentive Bonus award. Notwithstanding the foregoing, the Committee shall have discretion to reduce or eliminate any Incentive Bonus otherwise payable pursuant to this Section 6.4(b).
(c) Other Termination. If an employee ceases to be a Participant because of the Participant's termination of employment for any reason other than described in Section 6.4(a) or (b) during any Performance Period or before vesting in the applicable Incentive Bonus award, or prior to actual receipt of the award for a previous Performance Period, the Participant will not be entitled to any award for such Performance Period.
SECTION 7TERMINATION AND AMENDMENT
The Board or Committee may terminate the Plan at any time, or may from time to time amend the Plan as it deems appropriate and in the best interests of the Company. No termination or amendment may impair the validity of, or the obligation of the Company to pay, any Incentive Bonus awarded for any Performance Period prior to the Performance Period in which the termination or amendment is adopted or, if later, is effective. No amendment adopted after the first 90 days of a Performance Period may directly or indirectly increase any Incentive Bonus for that Performance Period. Except as otherwise provided in this Plan and the applicable objective criteria established pursuant to this Plan for determining the amount of any Incentive Bonus for a Performance Period, no Incentive Bonuses shall be payable for the Performance Period in which the Plan is terminated, or, if later, in which the termination is effective.
SECTION 8GENERAL PROVISIONS
8.1 Benefits Not Guaranteed; No Rights to Award. Neither the establishment and maintenance of the Plan nor participation in the Plan shall provide any guarantee or other assurance that Incentive Bonuses will be payable under the Plan. No Participant or other person shall have any claim to be granted any award or benefit under the Plan and there is no obligation of uniformity of treatment of Participants under the Plan
8.2 No Right to Participate. Nothing in this Plan shall be deemed or interpreted to provide a Participant or any non-participating employee with any contractual right to participate in or receive benefits under the Plan. No designation of a person as a Participant for any Performance Period shall create a right to any Incentive Bonus under the Plan for any other Performance Period.
8.3 No Employment Right. Participation in this Plan shall not be construed as constituting a commitment, guarantee, agreement, or understanding of any kind that the Company or any Subsidiary will continue to employ any individual and this Plan shall not be construed or applied as any type of employment contract or obligation. Nothing herein shall abridge or diminish the rights of the Company or any Subsidiary to determine the terms and conditions of employment of any Participant or other person or to terminate the employment of any Participant or other person with or without cause at any time.
8.4 No Assignment or Transfer. Neither a Participant nor any Beneficiary or other representative of a Participant shall have any right to assign, transfer, attach, or pledge any bonus amount or credit, potential payment, or right to future payments of any bonus amount or credit, or any other benefit provided under this Plan. Payment of any amount due or to become due under this Plan shall not be subject to the claims of creditors of the Participant or to execution by attachment or garnishment or any other legal or equitable proceeding or process.
8.5 Withholding and Payroll Taxes. The Company shall deduct from any payment made under this Plan all amounts required by federal, state and local tax laws to be withheld and shall subject any payments made under the Plan to all applicable payroll taxes and assessments.
8.6 Incompetent Payee. If the Committee determines that a person entitled to a payment hereunder is incompetent, it may cause benefits to be paid to another person for the use or benefit of the Participant or the Participant's Beneficiary at the time or times otherwise payable hereunder, in total discharge of the Plan's obligations to the Participant or Beneficiary.
8.7 Governing Law. The validity, construction and effect of the Plan shall be determined in accordance with the laws of the State of Michigan and applicable federal law.
8.8 Construction. The singular includes the plural and the plural includes the singular. Capitalized terms, except those at the beginning of a sentence or part of a heading, have the meaning defined in the Plan. The Plan is intended to be exempt from Section 409A of the Code by providing for short-term deferrals as described in Treasury Regulations § 1.409A-1(b)(4) and shall be interpreted and administered to achieve that purpose.
8.9 Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of the Plan and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
8.10 No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent the Company or any Subsidiary from adopting or continuing in effect other or additional compensation arrangements, including the grant of stock options and other stock-based awards, and such arrangements may be either generally applicable or applicable only in specific cases. However, no payment under any other plan or arrangement shall be contingent upon failure to attain the Performance necessary for payment of an Incentive Bonus under this Plan.
SECTION 9DURATION OF THE PLAN
Subject to earlier termination by the Board or Committee, this Plan shall terminate without action by the Board or Committee as of the date of the first meeting of shareholders held in 2015, unless reapproved by the shareholders at such meeting or earlier. If reapproval occurs, the Plan will terminate as of the date of the first meeting of shareholders in the fifth year following reapproval or any subsequent reapproval. If the Plan terminates under this provision due to lack of reapproval by the shareholders, no Incentive Bonuses shall be paid under the Plan for any Performance Period ending on or after the date of the first meeting of shareholders held in 2015.
20102011 Annual Meeting Admission Ticket
20102011 Annual Shareholder Meeting of
Spartan Stores, Inc. Shareholders
Wednesday, August 11, 2010, 10:10, 2011, 9:00 ama.m. Local TimeGrand Valley State University's Eberhard Conference Center301 W. Fulton St.
JW Mariott Hotel
235 Louis Street NW, Grand Rapids, Michigan 4950449503
Admission Ticket Information
Spartan Stores, Inc. will be holding its Annual Meeting of Shareholders on August 11, 2010.10, 2011. The enclosed Notice of Annual MeetingCompany’s proxy statement provides information regarding the matters that are expected to be voted on at the meeting. Your vote is important to us. Even if you plan to attend the meeting, please read the enclosed materials and vote through the Internet, by telephone or by mailing the Proxy Card below.
If you plan to attend the Annual Meeting of shareholders, you will need to present this ticket or your notice of availability of proxy materials to gain entrance to the meeting.
PLEASE NOTE THAT GIFT BAGS, PRODUCT SAMPLES AND REFRESHMENTS ARE NO LONGER OFFERED AT THE MEETING. Following the completion of the business portion of the meeting,. You must the Company’s management will present this ticketa brief report on results for fiscal 2011. Shareholders will have an opportunity to gain admission to the meeting.ask questions.
Upon arrival, please present this admission ticket or your notice of availability of proxy materials and photo identification at the registration desk.
You should send in your proxy or vote electronically even if you plan to attend the meeting.
Telephone and Internet Voting.
On the reverse side of this card are instructions on how to vote through the Internet or by telephone. Please consider voting through one of these methods. Your vote is recorded as if you mailed in your Proxy. We believe voting through the Internet or by telephone is convenient, and it also saves money.
Thank you in advance for your participation in our 20102011 Annual Meeting.
Spartan Stores, Inc.
q Proxy — Spartan Stores, Inc. Notice of 6 IF YOU HAVE NOT VOTED VIA THE INTERNETOR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.6qProxy/Voting Instruction Card - Spartan Stores, Inc.20102011 Annual Meeting of Shareholders
Grand Valley State University's Eberhard Conference Center301 W. Fulton St.
JW Mariott Hotel
235 Louis Street NW.
Grand Rapids, MI 4950449503
Proxy Solicited by Board of Directors for Annual Meeting -– August 11, 201010, 2011
Dennis Eidson and David M. Staples, or either of them, each with the power of substitution, are hereby authorized to represent and vote the shares of the undersigned, with all the powers which the undersigned would possess if personally present, at the Annual Meeting of Shareholders of Spartan Stores, Inc. to be held on August 11, 201010, 2011 or at any postponement or adjournment thereof.
If this Proxy is properly executed, the shares represented by this Proxy will be voted as directed by the shareholder. If no such directions are indicated, the Proxies will have authority to vote FOR the election of all nominees named on this proxy as directors, and FOR the approval of the proposals identified in this Proxy.Proxy, and “1 YEAR” (a vote every year) for the proposal on the frequency of the advisory vote on executive compensation.
In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting.
(Items to be voted appear on reverse side.)
This card also serves as voting direction to Fidelity Management Trust Company ("Fidelity"(“Fidelity”), as trustee of the Spartan Stores, Inc. Savings Plus Plan and the Spartan Stores, Inc. Savings Plus Plan for Union Associates. Shares held in these plans will be voted by Fidelity as directed by the plan participants. Unless otherwise required by law, shares for which Fidelity has not received voting instructions by three business days prior to the meeting date will not be voted.
Spartan Stores, Inc. |  | |||||
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Electronic Voting Instructions You can vote by Internet or telephone! Available 24 hours a day, 7 days a week! Instead of mailing your proxy, you may choose one of the two voting methods outlined VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. Proxies submitted by the Internet or telephone must be received by 1:00 a.m. Eastern | ||||||
| Vote by Internet | |||||
| • Log on to the Internet and go to | ||||||
| www.envisionreports.com/SPTN | ||||||
| • Follow the steps outlined on the secured website. | ||||||
| Vote by telephone | |||||
| • Call toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada any time on a touch tone telephone. There isNO CHARGE to you for the call. | ||||||
Using ablack ink pen, mark your votes with anX as shown in this example. Please do not write outside the designated areas. | x | • Follow the instructions provided by the recorded message. | ||||
SPARTAN STORES, INC. Admission Ticket Electronic Voting Instructions You can vote by Internet or telephone! Available 24 hours a day, 7 days a week! Instead of mailing your proxy, you may choose one of the two voting methods outlined below to vote your proxy. VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. Proxies submitted by the Internet or telephone must be received by 1:00 a.m., Eastern Daylight Time, on August 11, 2010. Vote by Internet Log on to the internet and go to Follow the steps outlined on the secured website. Vote by telephone Call toll free within the USA, US territories & Canada any time on a touch tone telephone. There is NO CHARGE to you for the call Follow the instructions provided by the recorded message. Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. Annual Meeting Proxy Card 1234 5678 9012 345q IF YOU HAVE NOT VOTED VIA THE INTERNETOR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTO MBOTTOM PORTION IN THE ENCLOSED ENVELOPE.q
| A | Proposals — The Board recommends a voteFOR all nominees,FOR Proposals | |||||||||||||||||||
| 1. Election of Directors: | For | Withhold | For | Withhold | For | Withhold | ||||||||||||||
| 01 - Wendy A. Beck | ¨ | ¨ | 02 - Yvonne R. Jackson | ¨ | ¨ | 03 - Elizabeth A. Nickels | ¨ | ¨ | + | |||||||||||
| For | Against | Abstain | 1 Yr | 2 Yrs | 3 Yrs | Abstain | ||||||||||
2. Say on Pay - An advisory vote on the approval of executive compensation. | ¨ | ¨ | ¨ | 3. Say When on Pay - An advisory vote on the approval of the frequency of shareholder votes on executive compensation. | ¨ | ¨ | ¨ | ¨ | ||||||||
| For | Against | Abstain | ||||||||||||||
4. Proposal to ratify the appointment of Deloitte & Touche LLP as independent auditors for the current fiscal year. | ¨ | ¨ | ¨ | |||||||||||||
| B | Non-Voting Items | |||||||||||
| Change of Address– Please print your new address below. | Comments– Please print your comments below. | Meeting Attendance | ||||||||||
| Mark the box to the right if you plan to attend the Annual Meeting. | ¨ | |||||||||||
| C | Authorized Signatures— This section must be completed for your vote to be counted. — Date and Sign Below | |||||||
| Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title. | ||||||||
| Date (mm/dd/yyyy) — Please print date below. | Signature 1 — Please keep signature within the box. | Signature 2 — Please keep signature within the box. | ||||||||
| / / | ||||||||||
| ¢ |  | + |
01CO5B
