


		Avery Dennison Corporation 150 North Orange Grove Boulevard Pasadena, California 91103


Notice of Annual Meeting of Stockholders To be held April ~~23, 2009~~22, 2010		To the Stockholders: The Annual Meeting of Stockholders of Avery Dennison Corporation will be held at 150 North Orange Grove Boulevard, Pasadena, California, on Thursday, April ~~23, 2009,~~22, 2010, at 1:30 p.m. for the following purposes:
		1. To elect ~~four~~three directors to the Board of Directors to hold office for a term of three years and until their successors are elected and have qualified;

		2. To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent auditors for the current fiscal year, which ends on January ~~2, 2010;~~1, 2011;

		3. To consider and vote upon a proposal to eliminate: (i) the supermajority voting requirements and (ii) the interested person stock repurchase provision in the Restated Certificate of Incorporation of Avery Dennison Corporation;

		4. To consider and vote upon a proposal to approve ~~the Senior Executive Annual Incentive Plan;~~an amended and restated stock option and incentive plan; and

		4.5. To transact such other business as may properly come before the meeting and any adjournments thereof.

		In accordance with the Bylaws, the Board of Directors has fixed the close of business on Monday, February ~~23, 2009,~~22, 2010, as the record date for the determination of stockholders entitled to vote at the Annual Meeting and to receive notice thereof.

		All stockholders are cordially invited to attend the meeting.

		BY ORDER OF THE BOARD OF DIRECTORS

		Susan C. Miller Secretary

		Pasadena, California Dated: March ~~12, 2009~~19, 2010
		Whether or not you presently plan to attend the Annual Meeting, in order to ensure your representation, please vote by telephone or by using the Internet as instructed on the enclosed proxy card, or complete, sign and date the enclosed proxy card as promptly as possible and return it in the enclosed envelope (which does not require postage if mailed in the United States). If you attend the meeting and wish to vote in person, your proxy will not be used.

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TABLE OF CONTENTS


PROXY STATEMENT
ELECTION OF DIRECTORS (Proxy Item 1)
~~2009~~2010 NOMINEES
CONTINUING DIRECTORS
RETIRING DIRECTORS
SECURITY OWNERSHIP OF MANAGEMENT
BOARD OF DIRECTORS AND COMMITTEE MEETINGS
DIRECTOR COMPENSATION FOR ~~2008~~2009
EXECUTIVE COMPENSATION --
COMPENSATION DISCUSSION AND ANALYSIS
EXECUTIVE SUMMARY
ROLE OF COMPENSATION COMMITTEE & EXECUTIVE OFFICERS
COMPENSATION PHILOSOPHY AND OBJECTIVES
SETTING EXECUTIVE COMPENSATION AND NEO PAY POSITIONING IN RELATION TO THE MARKET
COMPENSATION SURVEYS AND PEER COMPANIES
KEY COMPONENTS OF COMPENSATION PROGRAM
2009 ANNUAL BONUS RESULTS
TAX AND ACCOUNTING IMPLICATIONS
COMPENSATION AND EXECUTIVE PERSONNEL COMMITTEE REPORT
ADDITIONAL INFORMATION REGARDING EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
GRANTS OF PLAN-BASED AWARDS FOR ~~2008~~2009
OUTSTANDING EQUITY AWARDS FOR ~~2008~~2009
OPTION EXERCISES AND STOCK VESTED FOR ~~2008~~2009
PENSION BENEFITS FOR ~~2008~~2009
NONQUALIFIED DEFERRED COMPENSATION(1) FOR ~~2008~~2009
EQUITY COMPENSATION PLAN INFORMATION as of December 31, 2009
TRANSACTIONS WITH RELATED ~~PARTY TRANSACTIONS~~PERSONS
VOTING SHARES
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS (Proxy Item 2)
AUDIT COMMITTEE REPORT
PROPOSAL TO ~~APPROVE SENIOR EXECUTIVE ANNUAL~~ELIMINATE SUPERMAJORITY VOTING REQUIREMENTS AND THE INTERESTED PERSON STOCK REPURCHASE PROVISION (Proxy Item 3)
EMPLOYEE STOCK OPTION AND INCENTIVE PLAN, amended and restated (“Stock Plan”) (Proxy Item 3)4)
GENERAL
EXHIBIT A
EXHIBIT B
EXHIBIT C
EXHIBIT D

AVERY DENNISON CORPORATION
150 North Orange Grove Boulevard
Pasadena, California 91103

PROXY STATEMENT

This proxy statement is furnished to the stockholders on behalf of the Board of Directors (“Board”) of Avery Dennison Corporation, a Delaware corporation (hereinafter called “Avery Dennison” or the “Company”), for solicitation of proxies for use at the Annual Meeting of Stockholders (the “Annual Meeting”) to be held on Thursday, April ~~23, 2009,~~22, 2010, at 1:30 p.m. at 150 North Orange Grove Boulevard, Pasadena, California and at any and all adjournments and postponements thereof. A stockholder giving a proxy pursuant to the present solicitation may revoke it at any time before it is exercised by delivering a later dated proxy, by delivering to the Secretary of the Company a written notice of revocation prior to the voting of the proxy at the Annual Meeting, or by voting in person at the Annual Meeting. Simply attending the Annual Meeting will not revoke your proxy. Votes cast by proxy or in person at the Annual Meeting will be tabulated by the election inspectors appointed for the meeting and the inspectors also will determine whether or not a quorum is present. At the Annual Meeting: (i) shares represented by proxies that reflect abstentions or “broker non-votes” (i.e., shares held by a broker or nominee that are represented at the meeting, but with respect to which such broker or nominee is not empowered to vote on a particular proposal) will be counted as shares that are present and entitled to vote at the Annual Meeting for purposes of determining the presence of a quorum; (ii) there is no cumulative voting and the director nominees receiving a majority of the votes cast (in uncontested elections) will be elected (for purposes of determining the vote required to elect directors, “a majority of the votes cast” shall mean that the number of shares voted “for” a director’s election exceeds ~~50%~~the number of votes cast against that director (with abstentions not counted as votes cast)); (iii) the affirmative vote of at least 80% of the total ~~votes cast with respect~~voting power of all shares of stock of Avery Dennison entitled to ~~that director and votes cast shall include votes to withhold authority (which shall be treated as votes “against”~~vote in the election of ~~that director)~~directors shall be required for adoption of Proxy Item 3; and ~~exclude abstentions with respect to that director’s election); and (iii)~~(iv) for all matters other than the election of directors and Proxy Item 3, the affirmative vote of the majority in voting power of the shares represented at the Annual Meeting and entitled to vote on the matter shall be the act of the stockholders and, therefore, ~~proxies that reflect~~ abstentions as to a particular proposal will have the same effect as a vote against that proposal and ~~proxies that reflect~~ broker non-votes will ~~also~~ have no effect on the vote. The Company has retained D. F. King & Co., Inc. to assist in soliciting proxies for this meeting at a fee estimated at ~~$11,000~~$11,500 plus out of pocket expenses. Expenses incident to the preparation and mailing of the notice of meeting, proxy statement and form of proxy are to be paid by the Company. This proxy statement is to be mailed to stockholders on or about March ~~12, 2009.~~19, 2010.

The purpose of the meeting and the matters to be acted upon are set forth in the preceding Notice of Annual Meeting. In addition to the election of ~~four~~three directors and ratification of the appointment of PricewaterhouseCoopers LLP as independent auditors for the Company, a proposal to eliminate the ~~Senior Executive Annual~~supermajority voting requirements and the interested person stock repurchase provision in the Restated Certificate of Incorporation (“Certificate of Incorporation”) of the Company, and a proposal on the Stock Option and Incentive Plan, as amended and restated (“Stock Plan”), will be submitted for approval by the Company’s stockholders. The Stock Plan has been previously approved by stockholders, and is proposed to be amended to increase the total number of shares issuable thereunder by 2.8 million shares, to provide that equity awards may also be granted to members of the Board, and to increase the aggregate number of shares represented by full-value awards (such as restricted stock, restricted stock units and performance units) that may be granted by 1.2 million out of the total of 2.8 million.

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~~2009~~2010 NOMINEES

The Board ~~of Directors~~ recommends a voteFORthe ~~four~~three nominees below.



		~~John T. Cardis~~Rolf Börjesson, age 67. Since May 2008, Mr. ~~Cardis is~~Börjesson has been the Retired Chairman of Rexam PLC, a ~~private investor. In~~worldwide consumer packaging company based in London, United Kingdom. From May 2004 through April 2008, Mr. Börjesson was non-executive Chairman of Rexam. From 1996 through May 2004, Mr. Cardis retired as National Managing Partner — Global Strategic Clients of Deloitte & Touche USA LLP, an audit, tax, consulting and financial advisory service company. From 1991 through June 1999, Mr. CardisBörjesson served as ~~Office Managing Partner, Los Angeles, for Deloitte & Touche.~~Chief Executive Officer of Rexam. He ~~was~~is also ~~a member of the executive committee and a member of the board of directors. He also is~~ a director of ~~Edwards Lifesciences Corporation,~~SCA AB (Svenska Cellulosa Aktiebolaget), a ~~cardiovascular disease treatment company.~~pulp and paper manufacturer based in Stockholm, Sweden, and Huhtamäki Oyj, a manufacturer of consumer and specialty packaging based in Espoo, Finland. He has been a director of Avery Dennison Corporation since ~~October 2004.~~January 2005. Mr. Börjesson’s qualifications to be a member on our Board include his international experience as a chairman and chief executive officer, as well as his forty years of experience in the consumer packaging and manufacturing industries.

		~~David E.I. Pyott~~Peter W. Mullin, age ~~55.~~69. Since ~~February 2006,~~November 2008, Mr. ~~Pyott~~Mullin has been Chairman Emeritus of MullinTBG, an executive compensation, benefit planning and corporate insurance consulting firm. From March 2006 through October 2008, Mr. Mullin was Chairman of MullinTBG; prior to March 2006, he was Chairman of Mullin Consulting, Inc.; and prior to July 2003, Mr. Mullin also served as Chief Executive Officer of Allergan, Inc., a global healthcare company. From April 2001 through January 2006, Mr. Pyott was Chairman, President and Chief Executive Officer and from January 1998 through March 2001, he was President and Chief Executive Officer of Allergan. He is also a director of Edwards Lifesciences Corporation, a cardiovascular disease treatment company.Mullin Consulting. He has been a director of Avery Dennison Corporation since ~~November 1999.~~January 1988. During the past five years, Mr. Mullin also served as a director of Mrs. Fields Holding Company, Inc. Mr. Mullin’s qualifications to be a member on our Board include his experience as a chairman and chief executive officer, as well as his forty years of experience in the benefit planning and corporate insurance profession.

		~~Dean A. Scarborough~~Patrick T. Siewert, age ~~53.~~54. Since ~~May 2005,~~April 2007, Mr. ~~Scarborough~~Siewert has been a Managing Director for The Carlyle Group, an investment company. From February 2006 through March 2007, Mr. Siewert was a Senior Advisor to The Coca-Cola Company, a worldwide beverage company. From August 2001 through March 2007, Mr. Siewert was Group President, and Chief Executive Officer of Avery Dennison Corporation, a global leader in pressure-sensitive technology. From May 2000 through April 2005, Mr. Scarborough served the Company as President and Chief Operating Officer. From November 1999 through April 2000, Mr. Scarborough served the Company as Group Vice President, Fasson Roll Worldwide. Prior to November 1999, Mr. Scarborough held other executive positions with theAsia, The Coca-Cola Company. He is also a director of ~~Mattel Corporation,~~Computime Group Ltd., a manufacturer of home and commercial control products, and Natural Beauty Ltd., a manufacturer and ~~marketer~~distributor of ~~toys and family products.~~personal care products, both based in Hong Kong. He has been a director of Avery Dennison Corporation since ~~May 2000.~~

		~~Julia A. Stewart~~~~, age 53. Since June 2008, Ms. Stewart has been Chairman~~April 2005. Mr. Siewert’s qualifications to be a member on our Board include his experience with an investment company as a managing director and ~~Chief Executive Officer~~in the consumer goods industry as a group president, as well as his thirty years of ~~DineEquity, Inc. (formerly IHOP Corporation), which owns, operates~~international and franchises the IHOP and Applebee’s restaurant chains. From May 2006 through May 2008, Ms. Stewart was Chairman and Chief Executive Officer, and from May 2002 through April 2006, Ms. Stewart was President, Chief Executive Officer and Chief Operating Officer of IHOP. She has been a director of Avery Dennison Corporation since January 2003.domestic business experience.

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		Ken C. Hicks, age 57. Since February 2010, Mr. Hicks has been Chairman and since August 2009, he has been President and Chief Executive Officer of Foot Locker, Inc., a specialty athletic retailer. From January 2005 through July 2009, Mr. Hicks was the President and Chief Merchandising Officer of J.C. Penney Company, Inc., a retailing company. From July 2002 through December 2004, Mr. Hicks was President and Chief Operating Officer of J.C. Penney Company. From January 1999 through February 2002, he was President of Payless ShoeSource, Inc. He has been a director of Avery Dennison Corporation since July 2007. During the past five years, Mr. Hicks also served as a director of J.C. Penney Company. Mr. Hicks’ qualifications to be a member on our Board include his experience as a president and chief merchandising officer and his twenty-eight years of experience in the retail and apparel industries and in the consulting profession. His present term expires in 2011.

		Debra L. Reed, age 53. Since February 2007, Ms. Reed has served as Chairperson, President and Chief Executive Officer of Southern California Gas and San Diego Gas & Electric, the regulated utilities of Sempra Energy. From April 2004 through October 2006, she served as Chief Operating Officer, and in October 2006, she became Chief Executive Officer of Southern California Gas and San Diego Gas & Electric. Prior to serving as Chief Operating Officer, Ms. Reed was the Chief Financial Officer for Southern California Gas and San Diego Gas & Electric. Ms. Reed also serves on the board of Halliburton Company. Ms. Reed has been a director of Avery Dennison Corporation since October 2009, and was recommended by Korn/Ferry, an executive search firm. During the past five years, Ms. Reed also served as a director of Genentech, Inc. Ms. Reed’s qualifications to be a member on our Board include her experience as a chairperson, president, chief executive officer and chief financial officer, as well as her thirty years of experience in the energy services industry. Her present term expires in 2011.

		John T. Cardis, age 68. Mr. Cardis is a private investor. In May 2004, Mr. Cardis retired as National Managing Partner — Global Strategic Clients of Deloitte & Touche USA LLP, an audit, tax, consulting and financial advisory service company. From 1991 through June 1999, Mr. Cardis served as Office Managing Partner, Los Angeles, for Deloitte & Touche. He was also a member of the executive committee and a member of the board of directors. He also is a director of Edwards Lifesciences Corporation, a cardiovascular disease treatment company. He has been a director of Avery Dennison Corporation since October 2004. During the past five years, Mr. Cardis also served as a director of Energy East Corporation. Mr. Cardis’ qualifications to be a member on our Board include his forty years of experience dealing with public company financial accounting matters for complex global organizations. His present term expires in 2012.

		David E.I. Pyott, age 56. Since February 2006, Mr. Pyott has been Chairman and Chief Executive Officer of Allergan, Inc., a global healthcare company. From April 2001 through January 2006, Mr. Pyott was Chairman, President and Chief Executive Officer and from January 1998 through March 2001, he was President and Chief Executive Officer of Allergan. He is also a director of Edwards Lifesciences Corporation, a cardiovascular disease treatment company. He has been a director of Avery Dennison Corporation since November 1999. During the past five years, Mr. Pyott also served as a director of Pacific Mutual Holding Company. Mr. Pyott’s qualifications to be a member on our Board include his experience as a chairman, president and chief executive officer, as well as his thirty years of international and domestic experience in the health care industry. His present term expires in 2012.

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		Dean A. Scarborough, age 54. Since May 2005, Mr. Scarborough has been President and Chief Executive Officer of Avery Dennison Corporation, a global leader in pressure-sensitive technology. From May 2000 through April 2005, Mr. Scarborough served the Company as President and Chief Operating Officer. From November 1999 through April 2000, Mr. Scarborough served the Company as Group Vice President, Fasson Roll Worldwide. Prior to November 1999, Mr. Scarborough held other executive positions with the Company. He is also a director of Mattel Corporation, a manufacturer and marketer of toys and family products. He has been a director of Avery Dennison Corporation since May 2000. Mr. Scarborough’s qualifications to be a member on our Board include his twenty-five years of international and domestic experience in the pressure-sensitive materials industry, the last five years as our Chief Executive Officer and the last ten years as our President. His present term expires in 2012.

		Julia A. Stewart, age 54. Since June 2008, Ms. Stewart has been Chairman and Chief Executive Officer of DineEquity, Inc. (formerly IHOP Corporation), which owns, operates and franchises the IHOP and Applebee’s restaurant chains. From May 2006 through May 2008, Ms. Stewart was Chairman and Chief Executive Officer, and from May 2002 through April 2006, Ms. Stewart was President, Chief Executive Officer and Chief Operating Officer of IHOP. She has been a director of Avery Dennison Corporation since January 2003. Ms. Stewart’s qualifications to be a member on our Board include her experience as a chairman, president and chief executive officer, as well as her nearly forty years of experience in the restaurant industry. Her present term expires in 2012.

RETIRING DIRECTORS



		Richard M. Ferry, age ~~71.~~72. Mr. Ferry is a private investor. Since July 2001, Mr. Ferry has been Founder Chairman of Korn/Ferry International, an international executive search firm. In June 2001, Mr. Ferry retired as Chairman of Korn/Ferry, a position he had held since May 1997; and in June 2002, he left the Korn/Ferry board. From May 1991 through May 1997, Mr. Ferry was Chairman and Chief Executive Officer of Korn/Ferry. He ~~is also a director of Pacific Mutual Holding Company, the parent of Pacific Life Insurance Company, a provider of life insurance, annuities and mutual funds. He~~ has been a director of Avery Dennison Corporation since December 1985. ~~His present term expires~~During the past five years, Mr. Ferry also served as a director of Dole Food Company, Inc., Pacific Mutual Holding Company and Mrs. Fields Famous Brands, LLC. Mr. Ferry’s qualifications to be a member on our Board include his experience as a chairman and chief executive officer and his thirty-five years of experience in ~~2011.~~the international executive search profession. Mr. Ferry will retire at the Annual Meeting in April.

		~~Ken C. Hicks~~, age 56. Since January 2005, Mr. Hicks has been President and Chief Merchandising Officer of J.C. Penney Company, Inc., a retailing company. From July 2002 through December 2004, Mr. Hicks was President, Chief Operating Officer of J.C. Penney Company. From January 1999 through February 2002, he was President of Payless ShoeSource, Inc. He is also a director of J.C. Penney Company. He has been a director of Avery Dennison Corporation since July 2007. His present term expires in 2011.

		Kent Kresa, age ~~70.~~71. Since December 2005, Mr. Kresa has served as non-executive Chairman of Avery Dennison ~~Corporation; since~~Corporation. During the period from March 30 until July 10, 2009, Mr. Kresa also served as Interim Chairman of General Motors Corporation. Since October 2003, he has been Chairman Emeritus of Northrop Grumman Corporation, ~~an aeronautics and~~a defense systems manufacturer. In October 2003, Mr. Kresa retired as Chairman of Northrop Grumman, a position he had held since September 1990. From September 1990 through March 2003, he served as Chairman and Chief Executive Officer of Northrop Grumman. He is also a director of Fluor Corporation, an engineering, procurement, construction, and maintenance services company; General Motors Corporation, an automotive manufacturer; and ~~Mannkind~~MannKind Corporation, a pharmaceutical manufacturer. He has been a director of Avery Dennison Corporation since February 1999. ~~His present term expires~~Mr. Kresa’s qualifications to be a member on our Board include his experience as a chairman and chief executive officer, as well as his forty years of experience in ~~2011.~~

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SECURITY OWNERSHIP OF MANAGEMENT

The following table shows the number of shares of the Company’s common stock beneficially owned by each director of the Company and each of the executive officers named on page ~~10,~~13, and the aggregate number of such shares beneficially owned by all directors and executive officers as of December 31, ~~2008.~~2009.

Amount and

Nature of

Beneficial

Percent

Beneficial

Percent

Name

Ownership⁽¹⁾

of Class

Name of Beneficial Owner

Ownership⁽¹⁾

of Class

Dean A. Scarborough

678,755

⁽³⁾

⁽²⁾

831,132

⁽³⁾

⁽²

⁾

Richard M. Ferry

59,138

⁽⁴⁾

⁽²⁾

68,647

⁽⁴⁾

⁽²

⁾

Peter W. Mullin

94,135

⁽⁵⁾

⁽²⁾

108,020

⁽⁵⁾

⁽²

⁾

Kent Kresa

49,587

⁽⁶⁾

⁽²⁾

55,165

⁽⁶⁾

⁽²

⁾

David E.I. Pyott

40,583

⁽⁷⁾

⁽²⁾

40,589

⁽⁷⁾

⁽²

⁾

Julia A. Stewart

25,790

⁽⁸⁾

⁽²⁾

32,142

⁽⁸⁾

⁽²

⁾

Peter K. Barker

26,430

⁽⁹⁾

⁽²⁾

32,716

⁽⁹⁾

⁽²

⁾

John T. Cardis

17,053

⁽¹⁰⁾

⁽²⁾

24,817

⁽¹⁰⁾

⁽²

⁾

Rolf Börjesson

12,750

⁽¹¹⁾

⁽²⁾

18,051

⁽¹¹⁾

⁽²

⁾

Patrick T. Siewert

17,600

⁽¹²⁾

⁽²⁾

22,850

⁽¹²⁾

⁽²

⁾

Ken C. Hicks

7,534

⁽¹³⁾

⁽²⁾

19,274

⁽¹³⁾

⁽²

⁾

Debra L. Reed

490

⁽¹⁴⁾

⁽²

⁾

Daniel R. O’Bryant

306,201

⁽¹⁴⁾

⁽²⁾

360,976

⁽¹⁵⁾

⁽²

⁾

Robert G. van Schoonenberg

380,098

⁽¹⁵⁾

⁽²⁾

Donald A. Nolan

59,768

⁽¹⁶⁾

⁽²

⁾

Timothy S. Clyde

250,632

⁽¹⁶⁾

⁽²⁾

304,433

⁽¹⁷⁾

⁽²

⁾

Robert M. Malchione

283,986

⁽¹⁷⁾

⁽²⁾

327,849

⁽¹⁸⁾

⁽²

⁾

All Directors and Executive Officers as a Group
(23 persons, including those named)

2,794,056

⁽¹⁸⁾

2.6%

All Directors and Executive Officers as a Group (24 persons, including those named)

2,915,937

⁽¹⁹⁾

2.5

%


⁽¹⁾		Except as otherwise indicated and subject to applicable community property and similar statutes, the persons listed as beneficial owners of the shares have voting and/or investment power with respect to such shares. Exercise prices for stock options for the persons referred to above on shares range from ~~$49.44~~$20.64 to $67.80.

⁽²⁾		Less than 1%.

⁽³⁾		Includes ~~591,600~~740,000 shares with respect to which Mr. Scarborough holds options exercisable within 60 days from December 31, ~~2008.~~2009. Also includes ~~137~~145 shares held by Mrs. Scarborough, as to which Mr. Scarborough disclaims beneficial ownership, and ~~2,583~~2,702 shares issuable under stock units designated for Mr. Scarborough under the Company’s Capital Accumulation Plan (“CAP”) trust.

⁽⁴⁾		Includes 17,000 shares with respect to which Mr. Ferry holds options exercisable within 60 days from December 31, ~~2008.~~2009. Also includes ~~2,372~~6,062 stock units designated for Mr. Ferry under the Director Deferred Equity Compensation Program (“DDECP”)~~. Also includes 1,500~~, and 1,569 shares issuable under stock units designated for Mr. Ferry under the CAP trust.

⁽⁵⁾		Includes 17,000 shares with respect to which Mr. Mullin holds options exercisable within 60 days from December 31, ~~2008.~~2009. Also includes ~~750~~785 shares issuable under stock units designated for Mr. Mullin under the CAP ~~trust. Also includes~~trust, and 3,000 shares held by Mrs. Mullin (405 shares of which are held in a trust), as to which Mr. Mullin disclaims beneficial ownership.

⁽⁶⁾		Includes ~~22,000~~17,000 shares with respect to which Mr. Kresa holds options exercisable within 60 days from December 31, ~~2008.~~2009. Also includes ~~23,637~~33,465 stock units designated for Mr. Kresa under the DDECP.

⁽⁷⁾		Includes ~~22,000~~17,000 shares with respect to which Mr. Pyott holds options exercisable within 60 days from December 31, ~~2008.~~2009. Also includes ~~14,833~~19,089 stock units designated for Mr. Pyott under the DDECP.

⁽⁸⁾		Includes ~~14,000~~16,000 shares with respect to which Ms. Stewart holds options exercisable within 60 days from December 31, ~~2008.~~2009. Also includes ~~8,640~~12,242 stock units designated for Ms. Stewart under the DDECP.

⁽⁹⁾		Includes ~~14,000~~16,000 shares with respect to which Mr. Barker holds options exercisable within 60 days from December 31, ~~2008.~~2009. Also includes ~~2,280~~5,816 stock units designated for Mr. Barker under the DDECP.

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⁽¹⁰⁾		Includes ~~12,000~~14,000 shares with respect to which Mr. Cardis holds options exercisable within 60 days from December 31, ~~2008.~~2009. Also includes ~~303~~317 stock units designated for Mr. Cardis under the DDECP.

⁽¹¹⁾		Includes ~~10,000~~12,000 shares with respect to which Mr. Börjesson holds options exercisable within 60 days from December 31, ~~2008.~~2009.

⁽¹²⁾		Includes ~~10,000~~12,000 shares with respect to which Mr. Siewert holds options exercisable within 60 days from December 31, ~~2008.~~2009.

⁽¹³⁾		Includes ~~3,500~~8,000 shares with respect to which Mr. Hicks holds options exercisable within 60 days from December 31, ~~2008.~~2009. Also includes ~~1,284~~2,774 stock units designated for Mr. Hicks under the DDECP.

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listing standards. This year the Company is proposing to eliminate supermajority voting requirements in the Certificate of Incorporation and in the Bylaws. In 2011, the Company will propose declassification of the Board, which will result in annual elections of directors, and the Company will provide a“say-on-pay” proposal. There is a corporate governance section on the Company’s ~~Web~~web site, which includes key information about

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Corporation, 150 North Orange Grove Boulevard, Pasadena, California 91103. Stockholders and other interested parties may also write to John T. Cardis, Chairman of the Audit Committee, regarding accounting and auditing mattersc/o Secretary at the same address.

Risk Oversight

Although the Company’s management is responsible for theday-to-day management of risks to the Company, the Board has broad oversight responsibility for the Company’s risk management programs. In this oversight role, the Board is responsible for satisfying itself that the risk management processes designed and implemented by the Company’s management are functioning, and that necessary steps are taken to foster a culture of risk-adjusted decision-making within the organization. In carrying out its oversight responsibility, the Board has delegated to individual Board Committees certain elements of its oversight function. In this context, the Audit Committee regularly discusses the Company’s risk assessment and risk management processes to determine that our risk management programs are effective. Employees who supervise variousday-to-day risks provide reports and information to Board Committees and when appropriate to the Board. The Board receives updates from its Committees on individual areas of risk, such as: updates on accounting, credit, operational, financial reporting, and environmental, health and safety risks from the Audit Committee; updates on financing related matters and risks, including liquidity risk, from the Finance Committee; updates on compensation program issues and related risks from the Compensation and Executive Personnel Committee; updates on business ethics and conflict of interest matters and related risks from the Ethics and Conflict of Interest Committee; and updates on corporate governance matters and risks from the Nominating and Governance Committee. Significant potential risks to the Company are identified and discussed in the Company’s public filings with the SEC.

Risk Considerations in our Compensation Programs

The Compensation and Executive Personnel Committee (“Compensation Committee”) believes that the Company’s executive compensation and other employee compensation programs have been designed to provide the appropriate level of incentives that do not encourage our executive officers to take unnecessary risks in managing their businesses, or other employees to take unnecessary risks in carrying out their responsibilities. A majority of our executive officers’ compensation is performance-based, consistent with our executive compensation philosophy. Our annual incentive award program is designed to reward annual financialand/or strategic performance in areas considered important to the short and long-term success of the Company. Our longer term equity incentive awards are directly aligned with long-term stockholder interests through their link to our stock price and multi-year vesting, and our executive stock ownership guidelines, as described on page 21 and Exhibit C, further support a long-term focus by requiring our executives to personally acquire and retain significant levels of the Company’s stock. The Compensation Committee has adopted a compensation recovery (clawback) policy as described on page 17. In combination, the Committee believes that the various elements of our compensation programs sufficiently tie our executives’ and other employees’ compensation opportunities to the Company’s sustained long-term performance.

Criteria and Diversity

The Company does not have a formal policy with regard to the consideration of diversity in identifying director nominees. In considering whether to recommend any candidate for inclusion in the Board’s slate of recommended director nominees, including candidates recommended by stockholders, the Nominating and Governance Committee applies a number of criteria, including what is set forth in the Company’s Corporate Governance Guidelines. The Guidelines provide that the Board will have a majority of directors who meet the criteria for independence required by the NYSE and that the Nominating and Governance Committee is responsible for reviewing with the Board the requisite skills and characteristics of new Board members, as well as the composition of the Board as a whole. This assessment includes consideration of members’ and nominees’ qualifications as independent, as well as relevant business experience (considering factors such as size, the particular industry, scope,

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complexity and international operations); attendance; time commitments; conflicts of interest; ability to contribute to the oversight and governance of the Company; as well as an ability to represent the balanced interests of stockholders as a whole, rather than those of any special interest group in the context of the needs of the Board.

Nominees for Directorship are selected by the Nominating and Governance Committee. The Committee seeks nominees to recommend to the Board with a broad diversity of experience, professions, skills, geographic representation and backgrounds. The Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all prospective nominees. The Board believes that the backgrounds and qualifications of the directors, considered as a group, should provide a significant composite mix of complimentary experience, knowledge and abilities that will allow the Board to fulfill its responsibilities.

Standing Committees of the Board of Directors

The Audit Committee, which is composed of the following independent directors: John T. Cardis (Chairman), Peter K. Barker, Richard M. Ferry, Ken C. Hicks and Kent Kresa, met ~~three~~eight times during ~~2008. The Audit Committee also held four teleconference reviews~~2009, including meetings prior to the Company’s issuing its quarterly and annual news releases concerning financial results. Debra L. Reed was appointed to the Audit Committee by the Board on February 26, 2010. The Audit Committee is appointed by the Board to assist the Board with its oversight responsibilities in monitoring (i) the integrity of the financial statements of the Company; (ii) the independent auditors’ qualifications and independence; (iii) the performance of the Company’s internal audit function and independent auditors; and (iv) the compliance by the Company with legal and regulatory requirements. A copy of the Audit Committee Charter is available on the Company’s ~~Web~~web site. The Board has designated Mr. Cardis and Mr. Barker as “audit committee financial experts” (as defined by applicable SEC regulations). The Board has determined that each of the members of the Audit Committee is “independent” (as defined by applicable SEC regulations).

The Compensation ~~and Executive Personnel~~ Committee, ~~(“Compensation Committee”),~~ which is composed of the following independent directors: David E.I. Pyott (Chairman), Peter K. Barker (who was a member during a majority of 2009), Richard M. Ferry, Debra L. Reed and Julia A. Stewart, met seven times during ~~2008.~~2009. The Compensation Committee is appointed by the Board to discharge the Board’s responsibilities relating to compensation of the Company’s directors, Chairman, and ~~Chief Executive Officer (“CEO”)~~CEO and other executive officers. The Compensation Committee has overall responsibility for approving and evaluating compensation plans, policies and programs of the Company, as they affect the directors, CEO and executive officers. In addition, the Compensation Committee reviews plans and candidates for succession to CEO and other executive officers. The Compensation Committee is also responsible for providing a report concerning its review of the Compensation Discussion and Analysis section of this annual proxy statement. A copy of the Compensation Committee’s Charter is available on the Company’s ~~Web~~web site.

The Ethics and Conflict of Interest Committee, which is composed of the following directors: Julia A. Stewart (Chairman), Rolf Börjesson, John T. Cardis, Kent Kresa and Patrick T. Siewert, met twice during ~~2008.~~2009. The functions of the Ethics and Conflict of Interest Committee are toto: survey, monitor and provide counsel as to the business relationships, affiliations and financial transactions of directors, officers and key employees, as they may relate to possible conflicts of interest or to the Company’s Legal and Ethical Conduct Policy; monitor the Company’s compliance program; and report and make recommendations to the Board in instances where it is believed that possible violations of Company policy could exist.

The Finance Committee, which is composed of the following directors: Peter K. Barker (Chairman), Rolf Börjesson, John T. Cardis, Peter W. Mullin and Patrick T. Siewert, met ~~once~~three times during ~~2008.~~2009. The functions of the Finance Committee are toto: assist the Board in consideration of matters relating to the financial affairs and

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identifying individuals qualified to become Board members consistent with criteria approved by the Board, and to recommend to the Board the director nominees for the next annual meeting of stockholders, as well as between annual meetings when appropriate; (ii) to review and recommend to the Board, the Company’s Corporate Governance Guidelines; (iii) to oversee the evaluations of the Board and management (related to corporate governance); and (iv) to recommend to the Board director nominees for each committee. A copy of the Nominating Committee’s Charter is available on the Company’s ~~Web~~web site. The Nominating Committee has a process under which all director candidates are evaluated. The Nominating Committee uses certain criteria in evaluating any candidate’s capabilities to serve as a member of the Board including: attendance, independence, number of other board directorships, time commitments, education, relevant geographical experience, conflict of interest, senior management experience with a multinational business or other organization with the size, scope, and complexity of the Company, as well as an ability and desire to contribute to the oversight and governance of the Company and to represent the balanced interests of stockholders as a whole, rather than those of special interest groups. Further, the Nominating Committee reviews the qualifications of any candidate with those of current directors to determine coverage and gaps in experience in related industries and in diverse functional areas, such as finance, manufacturing, technology, and investing. Sources for identifying potential nominees include members of the Nominating Committee, other Board members, executive officers of the Company, third-party search firms, and stockholders. Stockholders desiring to make recommendations concerning new directors should submit the candidate’s name, together with biographical information and professional experience, and the candidate’s written consent to nominationc/o Secretary, Nominating and Governance Committee of the Board of Directors, Avery Dennison Corporation, 150 North Orange Grove Boulevard, Pasadena, California 91103. Stockholders wishing to nominate new directors for election at an annual meeting must comply with the requirements described under the heading “GENERAL — Stockholder Proposals” on page ~~46.~~57.

In addition to the standing committees noted above, the Board has an Ad Hoc Committee, which is composed of the following directors: Kent Kresa (Chairman) and David E.I. Pyott, ~~that~~ met ~~once~~three times during ~~2008.~~2009. The Ad Hoc Committee is appointed by the Board and has been assigned the oversight responsibility for, and is empowered to take action (or if deemed appropriate to make recommendations to the Board) with respect to, the Company’s response to pending competitive practices related litigation.

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DIRECTOR COMPENSATION FOR ~~2008~~2009

The following table provides information regarding compensation earned or awarded by the Company’s non-employee directors during ~~2008:~~2009:


									Change in												Change in
	Fees								Pension						Fees						Pension
	Earned						Non-Equity		Value and						Earned						Value and
	or Paid		Stock		Option		Incentive Plan		NQDC		All Other				or Paid		Stock		Option		NQDC		All Other
Name	in Cash⁽²⁾		Awards⁽³⁾		Awards⁽⁴⁾		Compensation		Earnings⁽⁵⁾		Compensation⁽⁶⁾		Total		in Cash⁽²⁾		Awards⁽³⁾		Awards⁽⁴⁾		Earnings⁽⁵⁾		Compensation⁽⁶⁾		Total

Peter K. Barker	$	93,500	$	32,948	$	29,146		—		—	$	10,000	$	165,594	$	97,500	$	19,260	$	12,830		—	$	10,000	$	139,590
Rolf Börjesson	$	71,500	$	32,948	$	29,146		—		—		—	$	133,594	$	80,500	$	19,260	$	12,830		—		—	$	112,590
John T. Cardis	$	92,000	$	32,948	$	29,146		—		—	$	10,000	$	164,094	$	95,500	$	19,260	$	12,830		—	$	10,000	$	137,590
Richard M. Ferry	$	97,500	$	32,948	$	29,146		—	$	133,741	$	10,000	$	303,335	$	103,500	$	19,260	$	12,830	$	190,895	$	10,000	$	336,485
Ken C. Hicks	$	76,000	$	32,948	$	52,297		—		—	$	10,000	$	171,245	$	83,500	$	19,260	$	12,830		—	$	10,000	$	125,590
Kent Kresa⁽¹⁾	$	244,000	$	32,948	$	29,146		—		—	$	10,000	$	316,094	$	248,500	$	19,260	$	12,830	$	2,865	$	10,000	$	293,455
Peter W. Mullin	$	67,000	$	32,948	$	29,146		—	$	1,609	$	10,000	$	140,703	$	68,500	$	19,260	$	12,830	$	22,359	$	10,000	$	132,949
David E.I. Pyott	$	92,500	$	32,948	$	29,146		—	$	7,132	$	10,000	$	171,726	$	101,500	$	19,260	$	12,830	$	16,341	$	10,000	$	159,931
Debra L. Reed															$	18,250		—	$	44,124		—	$	10,000	$	72,374
Patrick T. Siewert	$	70,000	$	32,948	$	29,146		—		—		—	$	132,094	$	71,500	$	19,260	$	12,830		—		—	$	103,590
Julia A. Stewart	$	89,500	$	32,948	$	29,146		—		—	$	7,500	$	159,094	$	92,500	$	19,260	$	12,830		—	$	7,954	$	132,544


⁽¹⁾		Mr. Kresa serves as Chairman. His annual retainer is $220,000.

⁽²⁾		Amounts ~~represent~~represented retainers and meeting fees earned by the directors in ~~2008.~~2009. The annual retainer for all non-employee directors (except for Mr. Kresa) isfor 2009 was $55,000. Directors ~~may~~were able to elect to defer all or a portion of their fees into the Director Variable Deferred Compensation Plan (“DVDCP”) or the DDECP. Ms. Reed joined the Board in October 2009.

⁽³⁾		Amounts ~~represent~~represented the value of the stock awards made on June 30, ~~2008~~2009 (750 shares at ~~$43.93)~~$25.68).

⁽⁴⁾		Amounts shown do not reflect compensation actually received by the directors. ~~Instead,~~Rather, the amounts shown are the ~~compensation expense recognized by~~aggregate grant date fair value of option awards granted during 2009, without adjustment for forfeitures. The fair value of option awards was estimated as of the ~~Company in~~date of grant using the ~~2008 Consolidated Statement~~Black-Scholes option-pricing model. This model requires input assumptions for expected dividend yield, expected volatility, risk-free interest rate and the expected life of ~~Income~~the option awards. Refer to footnote 5 of the “Summary Compensation Table” for ~~stock options granted to directors in 2008 and in prior years, calculated in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “~~~~Share-Based Payment.~~”more information on these assumptions. Options vest in equal installments on the first two anniversaries of the grant date and expire after ten years. As of December 31, ~~2008,~~2009, the directors held stock options as follows: Mr. Barker –— 17,000; Mr. Börjesson — 13,000; Mr. Cardis — 15,000; Mr. ~~Börjesson – 11,000; Mr. Cardis – 13,000; Mr.~~ Ferry –— 18,000; Mr. Hicks ~~– 7,000;~~— 9,000; Mr. Kresa ~~– 23,000;~~— 18,000; Mr. Mullin –— 18,000; Mr. Pyott ~~– 23,000;~~— 18,000; Ms. Reed — 5,000; Mr. Siewert ~~– 11,000;~~— 13,000; and Ms. Stewart ~~– 15,000.~~— 17,000.

⁽⁵⁾		NQDC means ~~Nonqualified Deferred Compensation.~~nonqualified deferred compensation. For Mr. Ferry and Mr. Mullin, the amounts ~~reflect~~include above-market earnings during fiscal year ~~2008~~2009 on fees that were deferred prior to fiscal year ~~2008~~2009 under two legacy plans (the fixed-rate alternatives that were frozen prior to ~~2008~~2009 and are no longer open for additional Company or director contributions): the Director Deferred Compensation Plan and/or the DVDCP. For Mr. Ferry, Mr. Kresa, Mr. Mullin and Mr. Pyott, the ~~amount represents~~amounts include the change in present value of ~~his~~their director retirement plan benefit; this plan was frozen effective December 31, 2002.

⁽⁶⁾		Reflects amounts of Company matching gifts for director’s contributions to ~~the United Way~~charitable and/or to educational institutions; the maximum Company match is ~~$10,000.~~$10,000 per year.

As President and CEO of the Company, Mr. Scarborough receives no fees for services rendered in his capacity as a director. ~~Each~~For 2009, each non-employee director iswas paid an annual retainer fee of $55,000; the non-executive Chairman iswas paid an annual retainer of $220,000. Directors ~~are~~were paid attendance fees of $1,500 per Board meeting attended, and $2,000 per committee meeting attended as Chairman of a committee or $1,500 per committee meeting attended as a member of the committee (whether it iswas a standing or an ad hoc committee). The Chairmen of the Audit and the Compensation Committees ~~are~~were each also paid an annual retainer fee of $10,000; the Chairmen of the Finance, the Nominating and Governance, and the Ethics and Conflict of Interest Committees ~~are~~were each paid an annual retainer fee of $5,000. ~~Committee members are also paid $1,500 for teleconferences.~~ See Exhibit B for a summary of non-employee director ~~compensation.~~compensation for 2009. Under the DVDCP, fees that are deferred accrue earnings at the rate of return of certain bond and equity investment funds managed by an insurance company. Under the DDECP, directors may defer fees into stock units, which will

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be paid out in shares of Company stock at retirement. As of December 31, ~~2008,~~2009, the following directors held stock units in the DDECP: Mr. Barker ~~– 2,280;~~— 5,816; Mr. Cardis ~~– 303;~~— 317; Mr. Ferry ~~– 2,372;~~— 6,062; Mr. Hicks ~~– 1,284;~~— 2,774; Mr. Kresa ~~– 23,637;~~— 33,465; Mr. Pyott ~~– 14,833;~~— 19,089; Ms. Reed — 490; and Ms. Stewart ~~– 8,640.~~— 12,242. The Company has a matching gift program under which the Company will match an amount of up to $10,000 that a director contributes to charitableand/or educational institutions.

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Each non-employee director who was a member of the Board on June 30, 2009, received a stock award of 750 shares of the Company’s common stock, ~~on June 30, 2008,~~ as a portion of their director ~~compensation.~~compensation for 2009. Non-employee directors also ~~participate~~participated in the Director Equity Plan, which ~~provides~~provided for each non-employee director to receive a 5,000 stock option grant upon joining the Board, and an annual grant of 2,000 stock options thereafter. In February ~~2008,~~2009, options to purchase a total of 20,000 shares (2,000 options for each non-employee director) of Company stock were granted to the non-employee directors under this plan. When the stock options ~~are~~were granted, the option price iswas 100% of the fair market value of the Company’s common stock on the date of grant. ~~All~~These options granted have a term of ten years, and become exercisable in two equal installments on the first and second anniversaries of the grant date, except that all options held by a director, which are otherwise unexercisable on the date the director retires from the Board at or after age 72, will become fully vested and exercisable on the date of such retirement.

EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

The Compensation Discussion and Analysis (“CD&A”) provides an overview and analysis of the Company’s executive compensation ~~programs. Later in this proxy statement under the heading~~program. Refer to “Additional Information Regarding Executive Compensation” isbelow for a series of tables containing information about the compensation for the following individuals, whom the Company refers to as named executive officers, or NEOs, of the Company:


	•	Dean A. Scarborough, President and Chief Executive Officer (“CEO”)

	•	Daniel R. O’Bryant, Executive Vice President, Finance and Chief Financial Officer (“CFO”)

	•	~~Robert G. van Schoonenberg, Executive~~Donald A. Nolan, Group Vice President, ~~and Chief Legal Officer~~^(*)Roll Materials

	•	Timothy S. Clyde, Group Vice President, Specialty Materials and Converting

	•	Robert M. Malchione, Senior Vice President, Corporate Strategy and Technology

The discussion below is intended to ~~help in~~provide an understanding of the detailed information ~~provided~~contained in ~~those~~the tables following the CD&A and ~~put that~~provide further information ~~into context within~~about the Company’s overall compensation program.

EXECUTIVE SUMMARY

The Compensation Committee designs and sets the Company’s executive compensation program and levels consistent with the Company’s compensation strategy to provide a compensation package that attracts, motivates and retains executive talent and to reward performance and provide downside risk for underperformance. When the Compensation Committee met at the beginning of 2009 to establish the incentive program, there were a number of economic and business related factors to consider. Of particular concern was the recessionary environment throughout North America and Europe and expected slower growth in Asia. As a result, the Compensation Committee ratified management’s recommendation that there be no salary increases for our U.S. — based employees, including the NEOs due to the challenging economic environment. The Compensation Committee also made annual equity awards with values lower than the NEO’s targeted long-term incentive award values. For the 2009 annual bonus, the Compensation Committee left the target bonus levels for the NEOs unchanged, but did establish funding hurdles (gates), based on free cash flow and earnings per share, before any annual bonus award could be paid. Despite a decline in revenues in 2009, the Company improved or maintained its market share in key businesses and exceeded target goals for both free cash flow and earnings per share.

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For 2010, executive incentives will be focused on rewarding profitable growth, with a greater emphasis on revenue growth in order to create shareholder value as markets recover.

ROLE OF COMPENSATION COMMITTEE & EXECUTIVE OFFICERS

The Compensation Committee is appointed by the Board to manage the Board’s responsibilities relating to the compensation of the Company’s directors, CEO, other NEOs and other executive officers.

The Compensation Committee’s major responsibilities are to:

1. Review and approve Company objectives and goals related to CEO compensation annually, evaluate the CEO’s performance in light of those goals and objectives, and determine and approve the CEO’s overall compensation level based on this evaluation. In determining the incentive components of the CEO’s compensation, the Compensation Committee considers the Company’s performance and strategic direction and the value of incentive awards to CEOs at companies of similar size.

2. Review and approve the annual base salary increases and annual bonus awards of the other executive officers, as well as long-term cash and equity-based incentive awards. In addition, the Compensation Committee provides periodic reports and makes recommendations to the Board on the Company’s compensation program for the other executive officers. The Compensation Committee also reviews and approves employment agreements and special or supplemental compensation and benefits for the CEO and other executive officers, including supplemental retirement benefits and perquisites. The Compensation Committee also submits the CEO’s compensation package, which has been reviewed and approved by the Compensation Committee, to the Board for ratification.

^(*) ~~Mr. van Schoonenberg retired from the Company at the end of 2008.~~

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3. Select, retain and terminate any compensation consultant used to assist the Compensation Committee in the evaluation of compensation for directors, the CEO and other executive officers. The Compensation Committee has sole authority to approve the consultant’s fees and other terms and conditions.

4. Conduct ~~an annual evaluation~~evaluations of, and make ~~periodic~~ reports to, the Board on succession planning for the CEO and the CEO’s direct reports. To that end, the Compensation Committee meets ~~annually~~throughout the year to review and discuss succession planning for the CEO and ~~other executive officers.~~his direct reports. As part of this process, the Compensation Committee reviews the executives’ skill sets, experience and readiness for their next roles. In addition, development plans are reviewed. The Board also reviews succession planning and potential successors to the CEO annually.

5. Review the Compensation Committee Charter annually and recommend any proposed changes to the Board for approval.

The Compensation Committee has retained the services of Watson Wyatt Worldwide (“Watson Wyatt”), an independent executive compensation consultant, to assist the Compensation Committee in determining the overall compensation program. During 2008, Watson Wyatt continued its reviewChairman of the Company’s executive compensation program, including the annual bonus and long-term incentive plans. As a result of this review, the Compensation Committee determined that the cash Long-Term Incentive Plan (“LTIP”) program be phased out at the end of the 2006 - 2008 Employee performance cycle. In 2008, the CEO and other NEOs were eligible to receive stock options and performance units (“PUs”) under the Employee Stock Option and Incentive Plan, which are targeted to represent approximately 60% and 40%, respectively, of their long-term incentive opportunity.

~~The Chairman~~Board reviews and evaluates the CEO’s annual performance and makes compensation recommendations to the Compensation Committee concerning salary and incentive awards for the CEO. The CEO makes compensation recommendations, including salary adjustments and incentive awards, to the Compensation Committee, for the other NEOs and other executive officers based on the CEO’s annual review of each officer’s performance. These recommendations are presented to the Compensation Committee for review and approval. The Compensation Committee ~~may exercise~~exercises its discretion inwhen modifying recommended salary adjustments or incentive awards.

The CEO and the Senior Vice President and Chief Human Resources Officer, and in some cases the CFO, participate during portions of Compensation Committee meetings to:


	•	review and recommend performance objectives and goals for the annual bonus and long-term incentive plans

	•	review performance against goals for the annual bonus and long-term incentive plans

	•	review changes to the executive compensation program

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The Compensation Committee has retained the services of Towers Watson (formerly Watson Wyatt), an independent executive compensation consultant, to assist the Compensation Committee in determining the overall compensation program. The Compensation Committee has the sole authority to engage, as well as to terminate, the services of the compensation consultant. During 2009, Towers Watson provided the Compensation Committee with support in its review of the executive severance program (which provides certain benefits when an executive is terminated without cause), and the Company’s stock ownership guidelines for executives, which are designed to achieve greater alignment with the interests of the Company’s stockholders. In addition, Towers Watson conducted a risk assessment of the Company’s executive compensation program. Utilizing qualitative and quantitative factors developed for its assessment, Towers Watson concluded that the Company’s executive compensation program strikes an appropriate balance between corporate risk mitigation and executive pay for performance. The Compensation Committee conducted its annual assessment of the consultant’s performance during the Compensation Committee’s December meeting, which also included a review of fees paid to Towers Watson. In 2009, Towers Watson provided no services for Company management (outside of its work for the Compensation Committee), but the Company may request services from Towers Watson in the future.

COMPENSATION PHILOSOPHY AND OBJECTIVES

The Board believes that hiring and retaining effective leaders and providing appropriate incentives for executives are essential to the Company’s success in the marketplace and to creating an attractive investment for stockholders. The Compensation Committee of the Board has responsibility for establishing and implementing the Company’s executive compensation program.

The Compensation Committee has established a compensation strategy and supporting plans that tie a significant portion of executive compensation to the Company’s success in meeting specified performance goals and topositively influencing the appreciation inof the Company’s stock price. The objectives of this strategy are to attract and retain the best possible executive talent, to motivate these executives to achieve the Company’s near- and long-term goals, to link the interests of executives and stockholders through equity-based plans and to provide a compensation program that recognizes individual contributions, as well as overall business results.

The Compensation Committee believes that the Company’s compensation program should be balanced, providing a mix of incentive plans that balance short- and long-term objectives, provide potential upside for exceeding performance targets and downside risk for missing performance targets. In addition, the program should balance retention with reward for stockholder value creation, while also ensuring that the elements of the program, individually and in the aggregate, do not encourage excessive risk-taking. Consistent with this approach, the Compensation Committee has also adopted a compensation recovery (clawback) policy, which is described on Page 17.

SETTING EXECUTIVE COMPENSATION AND NEO PAY POSITIONING IN RELATION TO THE MARKET

The Compensation Committee has established a total direct compensation positioning strategy for executive officers ~~around~~in the 65^th ~~percentile~~third quartile of companies similar in size, global scope and complexity with which the

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Company may compete for executive talent. Using the third quartile for its positioning strategy allows the Compensation Committee to use a range to reflect executive experience, skills and performance. In 2009, average target total direct compensation for the NEOs was positioned at the 60th percentile. “Total direct compensation” is base salary plus annual bonus (based on market ~~reference)~~reference data) and annual long-term incentive opportunities ~~(may~~(which may include cash, stock options, performance units and restricted stock units). In general, base ~~salaries are~~salary is positioned around the market median with target incentive opportunities driving the overall total direct compensation positioning. The Compensation Committee believes this positioning is appropriate given the Company’s business portfolio mix, product diversity and the global nature of the Company’s operations, which require its executives to have a wide range of business leadership experiences and skills. In addition, this positioning strategy is

15

intended to drive performance, because a significant portion of executive compensation is tied to incentive compensation. ~~Although the Compensation Committee targets total direct compensation at the 65~~^th ~~percentile on an aggregate basis, some executives may be paid above the 65~~^th ~~percentile, while others may be paid below the 65~~^th ~~percentile for a variety of reasons, including tenure in the position, experience and individual performance.~~

COMPENSATION SURVEYS AND PEER COMPANIES

The Company ~~uses different surveys~~performs competitive benchmarking of executive pay levels and Company performance based on competitive peer ~~companies for comparison purposes,~~groups and survey data, as follows:


	•	Executive officer compensation: broad cross section ofU.S.-based companies to reflect similarly broad talent market, as provided in executive compensation surveys, adjusted and regressed for revenue size. Each year, the Company reviews surveys prepared by independent third parties to understand the compensation practices of publicly-traded companies and to assess the Company’s competitiveness. In ~~2008,~~2009, primary sources were Hewitt Associates and Towers Perrin executive compensation surveys.

	•	~~PU performance~~Performance Unit (“PU”) vesting determination: For 2009, the financial metric is based solely on the Company’s relative total shareholder return (“TSR”) compared to other companies in the S&P 500 Industrials and Materials subsets. The Company is in the S&P 500 Industrials subset.

	•	~~LTIP award determination: Company’s relative total shareholder return compared to other companies in the S&P 500 Index.~~

	•	~~RSU~~Restricted Stock Unit (“RSU”) performance vesting determination: Company’s relative annual return on total capital (“ROTC”) compared to a market basket of peer companies (set forth below) consisting of 50 publicly-traded U.S. companies selected on the basis of market diversity, international focus and investment, market volatility, and product line mix.

The Company’s market basket of peer group companies is comprised of Air Products & Chemicals Inc., ArvinMeritor Inc., Baker-Hughes, Inc., Ball Corporation, Bemis Company, Inc., Black & Decker Corporation, Cabot Corporation, Cooper Tire & Rubber Company, Crane Company, Crown Holdings, Inc., Cummins Inc., Dana Holding Corporation, Danaher Corporation, Dover Corporation, Eaton Corporation, Ecolab Inc., Ferro Corporation, FMC Corporation, H. B. Fuller Company, Goodrich Corporation, W. R. Grace & Company,Harley-Davidson, Inc., Harris Corporation, Harsco Corporation, Illinois Tool Works Inc., Ingersoll-Rand Company, MASCO Corporation, MeadWestvaco Corporation, NACCO Industries, Newell Rubbermaid Inc., Olin Corporation, Owens-Illinois, Inc., PACCAR Inc., Parker-Hannifin Corporation, Pentair Inc., Pitney Bowes Inc., PolyOne Corporation, Potlatch Corporation, P.P.G. Industries Inc., The Sherwin-Williams Company, Smurfit-Stone Container Corporation, Snap-On Inc., Sonoco Products Company, The Stanley Works, Tecumseh Products Company, Temple-Inland Inc., Thermo Fisher Scientific, Inc., Thomas & Betts Corporation, Timken Company and Trinity Industries.

During 2008, Sequa Corp. was acquired by The Carlyle Group, and Hercules, Inc. was acquired by Ashland Inc. Sequa and Hercules were deleted from the peer group. In 2008, Owens-Illinois, Inc. and Cooper Tire & Rubber Company were added to the peer group.

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KEY COMPONENTS OF COMPENSATION PROGRAM

The key components of the Company’s executive compensation program are:


	•	base salary

	•	performance-based compensation

	•	benefits

	•	perquisites

For the Company’s executive officers, the largest component of total direct compensation opportunity is performance-based. To motivate the Company’s executives, the Compensation Committee allocates compensation between cash and equity compensation based on its assessment of the Company’s objectives and the competitive practices of other public companies. Further, the Compensation Committee considers the Company’s business portfolio to provide appropriate linkage of incentives to the Company’s objectives. Accordingly, the Company’s compensation program includes annual and long-term incentive awards.

16

For fiscal year ~~2008,~~2009, approximately 80% of Mr. Scarborough’s and approximately ~~75%~~70% of the other NEOs’ total direct compensation consisted of performance-based compensation from the annual bonus plan and long-term incentive plans. In February ~~2009,~~2010, the Compensation Committee approved the ~~2008~~2009 annual bonus payments and ~~payments~~the annual equity awards for 2010. In 2009, the~~2006-2008~~ ~~LTIP performance cycle~~ CEO and ~~certain equity awards.~~other NEOs were eligible to receive stock options and PUs under the Employee Stock Option and Incentive Plan, which are targeted to represent approximately 60% and 40%, respectively, of their long-term incentive opportunity.

Base Salary

Base salary provides executives with a base level of monthly income and compensates them for services rendered during the fiscal year reflecting:


	•	the responsibilities of the position

	•	the experience and performance of the individual

	•	the Company’s or business group’s financial results

	•	other objectives, including leadership development, environmental health and safety, Company values and operating principles, and employee relations

	•	internal equity

	•	the competition for executive talent

	•	the projected annual base salary increases for executives based on salary surveys

~~The Compensation Committee uses data from compensation surveys to assist in establishing base salaries.~~ In both 2008 and 2009, the CEO and the other NEOs did not receive an annual salary ~~increase. In~~increase in response to ~~current~~ global economic conditions ~~the CEO~~ and the ~~other NEOs will not receive an annual salary increase in 2009, as well.~~Company’s outlook for performance.

Performance-Based Compensation

The Company structures its performance-based compensation program to reward the NEOs based on the Company’s performance, as well as the individual executive’s contributions. The NEOs are awarded incentive compensation in the event certain Company and individual performance objectives are achieved. The CEO’s targeted long-term incentive opportunity represents approximately 80% of his performance-based compensation. For the other NEOs, their targeted long-term incentive opportunity represents approximately 75% of their performance-based compensation.

Performance-based compensation consists of the following:


	•	Annual Bonus Plan

	•	Long-Term Incentives

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Compensation Recovery (Clawback) Policy

In February 2009, the Compensation Committee adopted a compensation recovery ~~(“clawback”)~~(clawback) policy. Under this policy, in the event of fraud or other intentional misconduct on the part of an employee that necessitates a restatement of our financial results, the employee will be required to reimburse the Company for any bonus awards or other incentive compensation paid or issued to the employee in excess of the amount that would have been paid or issued based on the restated financial results. The Compensation Committee approved this policy after consideration of market practices and to further align the interests of our employees with our stockholders.

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2009 ANNUAL BONUS RESULTS


	Sales
	Growth						FCF		Financial
	(ex-currency)			EPS			(in millions)		Modifier

Target		(3.9	)%	$	1.35		$	265.0		100	%

As Reported		(11.3	)%	$	(7.21	)	$	465.7		—
Currency Translation⁽¹⁾		3.7	%		—			—		—

		(7.6	)%	$	(7.21	)	$	465.7		87	%

Adjustment Factors
Goodwill and indefinite-lived intangible asset impairment charges⁽²⁾		—		$	7.84			—		—
Restructuring costs⁽³⁾		—		$	1.34			—		49	%

Adjusted Results		(7.6	)%	$	1.97		$	465.7		136	%


⁽¹⁾		Excludes the impact of currency for sales growth.

⁽²⁾		EPS adjustment relates to goodwill and indefinite-lived intangible asset impairment charges (net of taxes) of $812.6 million.

⁽³⁾		EPS adjustment relates to charges for restructuring costs, asset impairment and lease cancellation charges, legal settlement costs and loss from debt extinguishment (net of taxes) of $138.4 million.

Although sales declined in 2009, our key businesses were able to improve or maintain market share in a challenging global economic environment. In addition, the Company successfully managed FCF and overall profitability. The goodwill and intangible asset impairment charges were non-cash items.

Over the last three fiscal years, including 2009, the financial modifier for the Company has averaged 81%.


	AIP Payout %

2007		88	%
2008		19	%
2009		136	%
3 year average		81	%

Individual Modifier: The NEOs have individual performance objectives that are designed to improve the Company’s performance. Individual objectives may include leadership development, employee relations, environmental health and safety, ~~operating principles~~Company values and ~~Company values.~~overall impact on the Company. Achievement of individual objectives is evaluated and translated into an individual modifier, which can range from 0% to 150%. For ~~2008,~~2009, individual modifiers for the NEOs averaged ~~105%~~120%, based upon the annual review of performance objectives established at the beginning of the year. The Compensation Committee determines the individual modifier for the CEO, based on its assessment of the CEO’s performance; and the CEO recommends the individual modifiers for the other NEOs based on his assessment of their individual performance. The Compensation Committee considers the CEO’s recommendations before finalizing the other NEOs individual modifiers.

~~For 2008,~~During 2009, the Corporate Leadership Team (CLT), of which all the NEOs are members, developed a plan to address the numerous challenges presented by the global economy and competitive pressures. In addition to the financial performance, the Company ~~achieved~~created a ~~19% financial modifier based on~~New Growth Platform organization and a new Company vision and growth plan to foster a culture of innovation. The Company also continued to invest in its strategic marketing capabilities. At the ~~Company’s financial results for sales growth (33%)~~same time, the Company continued its efficiency efforts through the utilization of enterprise lean sigma (ELS) tools to deliver significant working capital and ~~EPS (67%). See the table~~customer service improvements and ~~narrative below for the Company’s results against these goals, which~~execute an estimated $160 million restructuring plan. Finally, key personnel changes were ~~applied~~made to ~~the market reference bonus opportunities.~~bring in new skills and enhanced end-customer industry experience.

1419

~~Annual Bonus~~
~~2008 Performance Objectives and Goals~~

Sales Growth EPS

Threshold (50% payout) 2.0 % $ 3.92
100% payout 8.5 % $ 4.35
150% payout 9.0 % $ 4.46
200% payout 9.5 % $ 4.56

~~To determine the financial modifier for the 2008 annual bonus awards, the Compensation Committee approved the following adjustments to reported 2008 results:~~

~~Annual Bonus~~
~~2008 Financial Modifier~~

(1/3) Sales
Financial

Growth (2/3) EPS Modifier

Target 8.5 % $ 4.35 100 %
Year-end Result 6.4 % $ 2.70 28 %
Adjustment Items:
Acquisitions⁽¹⁾
(0.6 )% — (2 )%
Currency Translation⁽²⁾
(2.7 )% — (7 )%

Adjusted Result 3.1 % $ 2.70 19 %


⁽¹⁾		~~Exclude impact of acquisitions completed after the beginning of the performance period that were not planned for in the performance period.~~

⁽²⁾		~~Exclude impact of currency translation.~~

On March 6, 2009, the Senior Executive Annual Incentive Plan (“SEAIP”) was approved by the Compensation Committee and the SEAIP is being submitted to the stockholders for approval at the 2009 Annual Meeting [see Proxy Item 3 — on page 43].

Under the SEAIP, if a performance goal based upon the Company’s annual Gross Profit less Marketing, General and Administrative expense (“Performance Measure”) determined from the Company’s annual Consolidated Statement of Income is achieved, participants (including the NEOs) will be eligible for an annual bonus payment based on a percentage of the Performance Measure. The CEO will be eligible for a bonus payment of up to 1.5%, and the other NEOs and participants for a bonus payment of up to 0.75%, of the Performance Measure, with the Committee having discretion to reduce any such payment.

Long-Term Incentives

~~For 2008,~~In order to focus alignment more closely with the interests of the stockholders, the Company’s long-term incentives for 2009 consisted solely of equity awards granted under the ~~following:~~


	•	~~LTIP – cash awards –2006-2008~~ ~~was the last LTIP cycle~~

	•	~~The Employee Stock Option and Incentive Plan (“Stock Plan”) – equity awards (stock options, restricted stock units (“RSUs”) and PUs)~~

Employee Stock Option and Incentive Plan; in prior years, the Company has had a cash-based long-term incentive plan. In ~~2008,~~2009, after discussions with its compensation consultant, the Compensation Committee targeted the following ~~ratios~~percentages for the NEOs’ long-term incentives:


	•	60% stock options

	•	40% PUs

15

certain levels of stock ownership during their tenure with the Company. At the recommendation of Towers Watson, the Compensation Committee increased the targeted ownership levels. Recognizing the impact of a changing stock price the Compensation Committee established guidelines that will allow executives to achieve the new ownership guideline level using the lesser of the number of shares equal to a multiple of salary, or a fixed number of shares. The new ownership guidelines are effective as of January 1, 2010 and the executives will have a five-year transition period to achieve the new guideline levels. See Exhibit C for further information concerning these guidelines. It is expected, however, that the executives will make progress toward their new ownership levels during the transition period. The Compensation Committee will review the ownership levels annually at the December Compensation Committee meeting, starting in 2010, to assess progress. If an executive has not reached the guideline ownership levels by the end of the transition period, the executive will be required to hold all net shares acquired (shares remaining after the payment of taxes and transaction fees following the vesting of a stock award or an exercise of a stock option). The CEO is a Level 1 executive and the other NEOs are Level 2 executives.

Targeted Levels of Stock Ownership⁽¹⁾ (to be achieved generally within five years of assuming the position):


	•	~~CEO – 4 times base salary~~

	•	~~Other NEOs – 2 times base salary~~


	Stock Ownership Guidelines⁽¹⁾
	Multiple of Base			Fixed Shares
Position/Levels	Salary			or Units

CEO		5	X		95,000
Level 2		3	X		27,000
Level 3		2	X		17,000
Level 4		1	X		4,000


⁽¹⁾		~~Defined as~~The lesser of a multiple of base salary or a fixed number of shares ~~with a market value at year end equivalent to the multiple of salary.~~or units.

Under the Stock Plan and the Charter of the Compensation Committee, the Compensation Committee has the authority to make equity awards to executive officers and other employees of the Company. The Compensation Committee reviews and approves the total annual pool of stock options, PUs and RSUs, as well as annual and special equity awards to executive officers, including the size of the awards and related terms and conditions. The Compensation Committee has delegated the authority to the Compensation Committee chairman to approve special equity grants to executive officers. The Compensation Committee has also delegated the authority to the CEO to make equity awards for annual and special equity grants of stock options, PUs and RSUs to employees, other than executive officers. Following approval by the Compensation Committee or the CEO, as appropriate, special equity awards (other than those granted at the time of the annual grant) are granted and dated on the first day of the next third, sixth, ninth, or twelfth calendar month (if the NYSE is closed on that date, then on the first day thereafter that the NYSE is open). Special equity grants (including those for new hires, promotions, retention, and special recognition) may have different terms and vesting schedules depending on the purpose of the grant.

Benefits

The Company provides a benefit program for all eligible employees in the United States, including the NEOs, to provide them with retirement, savings, health and welfare, and disability coverage. The Compensation Committee works with the Committee’s consultant and management to provide a benefit program that is competitive with other companies in the industries in which it competes for executive talent to support the recruiting and retention of employees, including the NEOs.

Defined Benefit Retirement Plans

The Company provides retirement benefits for all eligible employees, including the NEOs, under the Avery Dennison Pension Plan (“~~Avery~~ Pension Plan”), the successor plan to the Retirement Plan for Employees of Avery Dennison Corporation and the Avery Associate Retirement Plan, which merged on November 30, 2008. The Company also provides the Benefit Restoration Plan (“BRP”) for eligible employees as described below. Effective January 1, 2009, the ~~Avery~~ Pension Plan and the BRP have been closed to new employees.

21

described in the Severance Plan. In the event of a covered termination of employment, a participant designated as a Level 1 executive will receive two times the sum of his annual pay, his highest annual bonus received in the preceding three years and the cash value of his health benefits, and a participant designated as a Level 2, Level 3 or Level 4 executive will receive the sum of his annual pay, his highest annual bonus received in the preceding three years and the cash value of his health benefits. Participants in the Severance Plan will also be eligible for outplacement services for up to one year following termination of employment. Payments under the Severance Plan are offset by payments received by the participant under any statutory, legislative and regulatory requirement or under any other Company severance plan or agreement.

On December 15, 2009, the Company provided a notice to Messrs. Scarborough, O’Bryant, Clyde and Malchione that their individual employment agreements (described in the following two paragraphs) will be terminated on December 31, 2010. As of January 1, 2011, Messrs. Scarborough, O’Bryant, Clyde and Malchione will be eligible to participate in the COC Severance Plan and the Severance Plan. Mr. Scarborough was designated a Tier A participant in the COC Severance Plan and a Level 1 participant in the Severance Plan, and Messrs. O’Bryant, Clyde and Malchione were designated as Tier B participants in the COC Severance Plan and Level 2 participants in the Severance Plan. Mr. Nolan, who did not have an individual employment agreement, was designated a Tier B participant in the COC Severance Plan and a Level 2 participant in the Severance Plan as of January 1, 2010.

On August 1, 1997, the Company entered into an agreement with Mr. Scarborough, which was amended on May 1, 2005, to reflect his promotion to President and CEO, providing that, if his employment is terminated for any reason other than for cause, death, disability, or voluntary resignation without good reason (as such terms are defined in the agreement), he (i) would receive a payment equivalent to a pro-rated annual bonus for the year of termination; (ii) would receive salary and bonus (based on his highest combined annual base salary plus bonus in any of the three previous years) for one year before a change of control and three years after a change of control (“severance period”); (iii) would receive additional retirement and supplemental retirement benefits that would have accrued during the severance period; (iv) would continue to participate in benefit plans (including medical, dental, and life insurance) during the severance period (but reduced to the extent such benefits are provided by another employer); (v) would receive additional age and service credit under a deferred compensation plan following termination during the severance period (or the minimum age and service credit required for early retirement benefits and the retirement interest rate); and (vi) if such termination occurs after a change of control, the Company would pay for outplacement services not to exceed $50,000. Benefits and amounts to which Mr. Scarborough would be entitled under the agreement would be reduced to the extent of any benefits and earned income from any new employment or services performed during the severance period. Mr. Scarborough would receive agross-up payment for any excise taxes that are imposed under Section 4999 of the Code.

On September 1, 2000, the Company entered into an agreement with Mr. Malchione; on January 2, 2001, the Company entered into an agreement with Mr. O’Bryant; and on January 1, 2002, the Company entered into an agreement with Mr. Clyde. These agreements are substantially the same as Mr. Scarborough’s, including the change of control provisions described above.

On March 31, 2005, the Company entered into a retention agreement with Mr. O’Bryant under which he will remain employed by the Company in his present position and the Company (i) contributed $1 million on April 1, 2005 to Mr. O’Bryant’s deferred compensation account, which contribution (and any earnings thereon) will vest at age 55; (ii) granted to him 30,000 shares of restricted stock, which will vest in two equal installments on April 1, 2009 and August 14, 2012; and (iii) during the period2005-2011, agreed to grant to him incremental options each year equal to $180,000 divided by the Black-Scholes value of the Company’s stock used at the time of the annual stock option grant, with such options to vest under the same terms as other annual options granted to Mr. O’Bryant. These benefits vest upon death or disability, involuntary (not for cause) termination, good reason termination, or a change of control.

25

TAX AND ACCOUNTING IMPLICATIONS

Deductibility of Executive Compensation

With its performance-based compensation programs, the Company aims to compensate the NEOs in a manner that is tax effective for the Company.

Under the 1993 Omnibus Budget Reconciliation Act (“OBRA”) and Section 162(m) of the Code, income tax deductions of publicly-traded companies may be limited to the extent total compensation for certain executive officers exceeds $1 million in any one year, except for compensation payments that qualify as “performance-based.” To qualify as “performance-based,” compensation payments must be based solely upon the achievement of objective performance goals and made under a plan that is administered by the Compensation Committee. In addition, the material terms of the plan must be disclosed to and approved by the stockholders and the Compensation Committee must certify that the performance goals were achieved before payments can be made. The Compensation Committee has designed certain of the Company’s compensation programs to conform with Section 162(m) of the Code and related regulations so that total compensation paid to any employee covered by Section 162(m) generally should not exceed $1 million in any one year, except for compensation payments that qualify as “performance-based.” However, the Company may pay compensation that is not deductible in certain circumstances.

~~Nonqualified Deferred Compensation~~Section 409A of the Internal Revenue Code

~~On October 22, 2004,~~Section 409A of the ~~American Jobs Creation Act~~Code requires that “nonqualified deferred compensation” be deferred and paid under plans or arrangements that satisfy the requirements of ~~2004 was adopted, which changed~~ the statute with respect to the timing of deferral elections, timing of payments and certain other matters. Failure to satisfy these requirements can expose employees and other service providers to accelerated income tax ~~rules applicable to nonqualified deferred~~liabilities, penalty taxes and interest on their vested compensation ~~arrangements. The Company believes~~under such plans. Accordingly, as a general matter, it is ~~operating~~our intention to design and administer our compensation and benefits plans and arrangements for all of our employees and other service providers, including our, NEOs, so that they are either exempt from, or satisfy the requirements of, Section 409A.

Section 280G of the Internal Revenue Code

Section 280G of the Code disallows a tax deduction with respect to excess parachute payments to certain executives of companies which undergo a change in ~~good-faith compliance with~~control. In addition, Section 4999 of the ~~statutory provisions.~~Internal Revenue Code imposes a 20 percent penalty on the individual receiving the excess payment. Parachute payments are compensation that is linked to or triggered by a change in control and may include, but are not limited to, bonus payments, severance payments, certain fringe benefits, and payments and acceleration of vesting from long-term incentive plans including stock options and other equity-based compensation. Excess parachute payments are parachute payments that exceed a threshold determined under Section 280G based on the executive’s prior compensation. In approving the compensation arrangements for our NEOs in the future, the Compensation Committee will periodically consider the elements of the cost to our Company of providing such compensation, including the potential impact of Section 280G. However, our Compensation Committee may, in its judgment, authorize compensation arrangements that could give rise to loss of deductibility under Section 280G and the imposition of excise taxes under Section 4999, when the Compensation Committee believes that such arrangements are appropriate to attract and retain executive talent.

Accounting ~~for Stock-Based Compensation~~Standards

~~The Company accounts~~Accounting Standards Codification (“ASC”) Topic 718,Compensation — Stock Compensation(referred to as ASC Topic 718 and formerly known as Statement of Financial Accounting Standards No. 123(R), requires us to recognize an expense for ~~stock-based~~the fair value of equity-based compensation awards. Grants of stock options, restricted stock, restricted stock units and performance units under our equity incentive award plans will be accounted for under ASC Topic 718. Our Compensation Committee will periodically consider the accounting implications of

26

significant compensation decisions, especially in connection with decisions that relate to our equity incentive award plans and programs. As accounting standards change, we may revise certain programs to appropriately align accounting expenses of our equity awards ~~under the provisions of SFAS No. 123(R).~~with our overall executive compensation philosophy and objectives.

COMPENSATION AND EXECUTIVE PERSONNEL COMMITTEE REPORT

The Compensation and Executive Personnel Committee of the Board of Directors has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) ofRegulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included or incorporated by reference in the Company’s annual report onForm 10-K and this Proxy Statement.

February 25, 2010


		David E.I. Pyott, Chairman ~~Peter K. Barker~~ Richard M. Ferry Debra L. Reed Julia A. Stewart

The above Report of the Compensation and Executive Personnel Committee of the Board of Directors does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates this Report by reference therein.

2227

ADDITIONAL INFORMATION REGARDING EXECUTIVE COMPENSATION

Executive Compensation

The following table and accompanying notes show, for the President and CEO, the CFO and the other three most highly compensated executive officers of the Company, ~~during2006-2008,~~the compensation earned ~~by the NEOs~~ or ~~the compensation expense recognized by the Company~~awarded during~~2006-2008.~~2007-2009.

SUMMARY COMPENSATION TABLE


													Change in																			Change in
													Pension																			Pension
											Non-Equity		Value and																Non-Equity			Value and
Name and Principal							Stock		Option		Incentive Plan		NQDC		All Other
Position	Year		Salary⁽²⁾		Bonus⁽³⁾		Awards⁽⁴⁾		Awards⁽⁵⁾		Compensation⁽⁶⁾		Earnings⁽⁷⁾		Compensation⁽⁸⁾		Total
																									Stock		Option		Incentive Plan			NQDC		All Other
Name and Principal Position																			Year		Salary⁽²⁾		Bonus⁽³⁾		Awards⁽⁴⁾		Awards⁽⁵⁾		Compensation⁽⁶⁾			Earnings⁽⁷⁾		Compensation⁽⁸⁾		Total

Dean A. Scarborough		2008	$	945,000		—	$	345,688	$	1,875,011	$	1,325,650	$	1,202,837	$	137,811	$	5,831,997		2009	$	945,000		—	$	627,120	$	1,924,478	$	1,700,000		$	2,733,704	$	128,445	$	8,058,747
President and Chief		2007	$	916,000		—	$	265,819	$	1,154,241	$	831,600	$	479,908	$	119,929	$	3,767,497		2008	$	945,000		—	$	799,380	$	3,233,975	$	1,325,650		$	1,202,837	$	137,811	$	7,644,653
Executive Officer		2006	$	847,000		—	$	131,171	$	1,036,809	$	2,147,723	$	1,015,864	$	97,587	$	5,276,154		2007	$	916,000		—		—		—	$	831,600		$	479,908	$	119,929	$	2,347,437
Daniel R. O’Bryant		2008	$	559,800		—	$	450,296	$	542,954	$	594,173	$	323,001	$	152,150	$	2,622,374		2009	$	559,800		—	$	164,945	$	662,245	$	639,600		$	321,286	$	114,941	$	2,462,817
Executive Vice President,		2007	$	552,600		—	$	414,751	$	518,834	$	295,600	$	26,499	$	132,420	$	1,940,704		2008	$	559,800		—	$	361,409	$	954,318	$	594,173		$	323,001	$	152,150	$	2,944,851
Finance and Chief		2006	$	531,789		—	$	367,396	$	487,724	$	944,966	$	335,021	$	122,149	$	2,789,045		2007	$	552,600		—		—		—	$	295,600		$	26,499	$	132,420	$	1,007,119
Financial Officer
Robert G. van
Schoonenberg⁽¹⁾		2008	$	581,900		—	$	287,169	$	764,399	$	611,058	$	1,402,904	$	89,364	$	3,736,794
Executive Vice President		2007	$	575,333		—	$	267,248	$	193,730	$	307,300	$	321,985	$	87,334	$	1,752,930
and Chief Legal Officer		2006	$	555,533		—	$	325,636	$	1,433,542	$	987,112	$	692,620	$	75,499	$	4,069,942
Donald A. Nolan⁽¹⁾																				2009	$	500,000		—	$	147,325	$	455,800	$	612,000		$	48,806	$	85,318	$	1,849,249
Group Vice President,
Roll Materials
Timothy S. Clyde⁽¹⁾		2008	$	500,000		—	$	247,305	$	476,903	$	418,540	$	83,556	$	90,837	$	1,817,141		2009	$	500,000		—	$	147,325	$	540,207	$	408,000		$	166,753	$	116,608	$	1,878,893
Group Vice President, Specialty Materials and Converting
Group Vice President,																				2008	$	500,000		—	$	832,522	$	1,370,936	$	418,540		$	83,556	$	90,837	$	3,296,391
Specialty Materials and																															��
Converting
Robert M. Malchione		2008	$	479,100		—	$	104,900	$	324,474	$	503,138	$	97,184	$	85,552	$	1,594,348		2009	$	479,100		—	$	141,162	$	436,748	$	391,000		$	152,550	$	81,978	$	1,682,538
Senior Vice President,		2007	$	474,433		—	$	73,299	$	356,499	$	231,900	$	43,677	$	76,068	$	1,255,876		2008	$	479,100		—	$	309,316	$	629,360	$	503,138		$	97,184	$	85,552	$	2,103,650
Corporate Strategy and		2006	$	460,567		—	$	40,631	$	408,941	$	756,255	$	85,123	$	53,366	$	1,804,883		2007	$	474,433		—		—		—	$	231,900		$	43,677	$	76,068	$	826,078
Technology


⁽¹⁾		Mr. ~~van Schoonenberg retired from the Company at the end of 2008;~~Nolan became an NEO in 2009; Mr. Clyde became an NEO in 2008.

⁽²⁾		Amounts shown include amounts earned ~~but~~and deferred at the election of these officers under the Employee Savings Plan, a qualified defined contribution plan under ~~the~~Section 401(k) ~~Plan~~ of the ~~Code.~~Code, and the nonqualified deferred compensation plan.

⁽³⁾		Amounts paid under the annual bonus plan, ~~and LTIP,~~ which prior to 2006 were reported in theBonuscolumn, are reported in theNon-Equity Incentive Plan Compensationcolumn.

⁽⁴⁾		Amounts shown do not reflect compensation actually received by the NEOs. Rather, the amounts shown are the ~~compensation expense, without reduction for forfeitures, recognized by the Company as an expense in the 2008 Consolidated Statement~~aggregate grant date fair value of ~~Income for restricted~~ stock ~~RSU and PU~~ awards granted to the NEOs in 2008 and in prior years. These amounts are calculated in accordance with SFAS No. 123(R). This means that these numbers will be difficult to compare with information in proxy statements prior to 2007. It is also difficult to make comparisons between the NEOs, because of (i) retirement eligibility (Mr. van Schoonenberg retired at the end of 2008 and met certain equity vesting criteria), and (ii) a prior year grant of restricted stock to Mr. O’Bryant (described in his retention agreement referred to in the CD&A) also influence accounting expense calculations under SFAS No. 123(R).during 2009, without adjustment for forfeitures. For ~~the~~ values actually received by the NEOs during ~~2008,~~2009, see theValue Realized on Vestingcolumn in the Option Exercises and Stock Vested for ~~2008~~2009 table.

~~The related expense for restricted stock is amortized over a7-year~~ These stock awards granted during 2009 will vest at the end of a three-year cliff period provided that certain performance objectives are achieved. Target amounts are shown in the above table. The payout levels range from 50% of the target amounts for threshold performance to 200% of the target amounts for maximum performance. The fair value of stock awards is estimated as of the date of grant using the Monte-Carlo simulation method, which utilizes multiple input variables, including expected volatility and other assumptions to estimate the probability of satisfying the market condition target stipulated in the award. ~~and5-month~~ ~~period for Mr. O’Bryant. PUs and RSUs are amortized over a36-month~~ ~~period.~~



⁽⁵⁾		Amounts shown do not reflect compensation actually received by the NEOs. Rather, the amounts shown are the ~~compensation expense, without reduction for forfeitures, recognized by the Company as an expense in the 2008 Consolidated Statement~~aggregate grant date fair value of ~~Income for stock~~ option awards granted to the NEOs in 2008 and in prior years. These amounts are calculated in accordance with SFAS No. 123(R). This means that these numbers will be difficult to compare with information in proxy statements prior to 2007. It is also difficult to make comparisons between the NEOs because retirement eligibility also influences compensation expense calculations (Mr. van Schoonenberg retired at the end of 2008 and met certain equity vesting criteria).during 2009, without adjustment for forfeitures. For ~~the~~ values actually received by the NEOs during ~~2008,~~2009, see theValue Realized on Exercisecolumn, in the Option Exercises and Stock Vested for ~~2008~~2009 table.

~~Stock~~These option ~~expense is the estimated fair value of options~~awards granted ~~amortized on~~during 2009 will vest ratably over a ~~straight-line basis over the requisite service~~4-year period. The fair value of stock option awards is estimated as of the date of grant using the Black-Scholes option-pricing model. This model requires input

23


		market earnings mean a crediting interest rate in excess of 120% of the applicable federal rate (“AFR”). For ~~2008,~~2009, the AFR was ~~5.86%~~5.19%, and the crediting ~~rates were 12.50%~~rate was 5.63% for ~~the Executive Deferred Compensation Plan (“EDCP”) and 5.90% for both the Executive Variable Deferred Compensation Plan (“EVDCP”) and~~ the Executive Deferred Retirement Plan (“EDRP”).

		The increase in pension value for Mr. Scarborough was primarily because the age at which he can receive an unreduced SERP benefit was changed by the Compensation Committee in 2009 from age 65 to 62, so as to be consistent with the Company’s Pension Plan. Required changes in actuarial assumptions also contributed a significant portion of the total increase in pension value.

* ⁽⁸⁾	~~Legacy plans: EDCP, EVDCP and EDRP. Mr. Scarborough participated in the EDRP; Mr. van Schoonenberg participated in all three plans.~~


⁽⁸⁾	The following table describes the components of items for theAll Other Compensationcolumn in the Summary Compensation Table.

All Other Compensation for ~~2008~~2009


	Perquisites								Benefits																Perquisites								Benefits
									Company																								Company
									Match		Company																						Match		Company
									Employee		Match		Excess				Executive				Dividends on												Employee		Match		Excess				Executive				Dividends on
	Financial				Airline				Savings		Deferred		Life		Medical/		Long-Term		Executive		Restricted				Financial				Airline				Savings		Deferred		Life		Medical/		Long Term		Executive		Restricted
Name	Planning		Automobile		Clubs		Other⁽¹⁾		Plan		Comp		Insurance		Dental		Disability		Physical		Stock⁽²⁾		Total		Planning		Automobile		Clubs		Other⁽¹⁾		Plan		Comp		Insurance		Dental		Disability		Physical		Stock⁽²⁾		Total


Dean A. Scarborough	$	20,000	$	30,000	$	700	$	13,578	$	6,144	$	55,325	$	1,926	$	10,138		—		—		—	$	137,811	$	19,075	$	30,000		—	$	9,660	$	7,350	$	46,398	$	1,932	$	14,030		—		—		—	$	128,445

Daniel R. O’Bryant	$	15,750	$	24,000	$	300	$	348	$	6,625	$	23,200		—	$	26,224	$	1,080	$	970	$	53,653	$	152,150	$	15,000	$	24,000	$	450	$	348	$	7,350	$	18,762		—	$	18,402	$	2,880		—	$	27,749	$	114,941

Robert G. van Schoonenberg	$	18,000	$	24,000	$	650	$	900	$	6,598	$	24,503		—	$	12,018	$	1,080	$	1,615		—	$	89,364
Donald A. Nolan																									$	16,250	$	20,400	$	300	$	745	$	7,350		—	$	1,260	$	35,413	$	2,880	$	720		—	$	85,318

Timothy S. Clyde	$	15,000	$	20,400	$	350		—	$	6,646	$	17,218		—	$	31,223		—		—		—	$	90,837	$	15,346	$	20,400	$	350		—	$	7,350	$	15,360		—	$	57,802		—		—		—	$	116,608

Robert M. Malchione	$	10,810	$	20,400	$	700	$	900	$	6,550	$	17,153	$	1,926	$	25,133	$	1,080	$	900		—	$	85,552	$	15,000	$	20,400	$	350		—	$	7,350	$	14,430	$	1,932	$	18,396	$	2,880	$	1,240		—	$	81,978


	⁽¹⁾	Amounts include fitness, business and social club ~~dues; for Mr. Scarborough, the amount also includes $5,598 for personal use of a Company chartered aircraft.~~dues.

	⁽²⁾	During ~~2008,~~2009, as part of his retention agreement, which is described in the CD&A, Mr. O’Bryant received dividends on his unvested restricted stock in the form of additional restricted stock. On each dividend payment date, additional shares of restricted stock ~~were~~are credited to Mr. O’Bryant’s account. The number of shares of restricted stock to be credited is determined by dividing the dividend that would have been paid on the shares represented by the restricted stock in his account by the closing price of the Company’s common stock on the NYSE on ~~the~~each dividend payment ~~dates.~~date. During ~~2008, 1,259~~2009, 1,138 shares of restricted stock were credited to his account as a result of these dividends.

2429

GRANTS OF PLAN-BASED AWARDS FOR ~~2008~~2009

The following table provides information regarding grants of cash incentive awards made to the NEOs ~~in 2008.~~during 2009.


																	All Other																								All Other
															All Other		Option																						All Other		Option
															Stock		Awards:																						Stock		Awards:
															Awards:		Number		Exercise		Fair		Grant Date																Awards:		Number		Exercise				Grant Date
			Estimated Future Payouts Under						Estimated Future Payouts						Number		of		or Base		Market		Fair Value				Estimated Future Payouts Under						Estimated Future Payouts						Number		of		or Base		Fair		Fair Value
			Non-Equity Incentive Plan						Under Equity Incentive						of Shares		Securities		Price of		Value on		of Stock				Non-Equity Incentive Plan						Under Equity Incentive						of Shares		Securities		Price of		Value on		of Stock
			Awards⁽¹⁾						Plan Awards⁽²⁾						of Stock		Underlying		Option		Date of		and Option				Awards⁽¹⁾						Plan Awards⁽²⁾						of Stock		Underlying		Option		Date of		and Option
Name	Grant Date		Threshold		Target		Maximum		Threshold		Target		Maximum		or Units		Options		Awards		Grant		Awards		Grant Date		Threshold		Target		Maximum		Threshold		Target		Maximum		or Units		Options		Awards		Grant		Awards

Dean A. Scarborough		02/28/08	$	519,750	$	1,039,500	$	3,118,500		—		—		—		—		230,000	$	52.12		—	$	3,233,975		02/26/09	$	519,750	$	1,039,500	$	3,118,500		—		—		—		—		300,000	$	20.64		—	$	1,924,478
		05/01/08		—		—		—		9,000		18,000		36,000		—		—		—	$	44.41	$	799,380		02/26/09		—		—		—		26,000		52,000		104,000		—		—		—	$	12.06	$	627,120

Daniel R. O’Bryant		02/28/08	$	167,940	$	335,880	$	1,007,640		—		—		—		—		67,871	$	52.12		—	$	954,318		02/26/09	$	167,940	$	335,880	$	1,007,640		—		—		—		—		103,235	$	20.64		—	$	662,245
		05/01/08		—		—		—		4,069		8,138		16,276		—		—		—	$	44.41	$	361,409		02/26/09		—		—		—		6,839		13,677		27,354		—		—		—	$	12.06	$	164,945
Robert G. van Schoonenberg		02/28/08	$	174,570	$	349,140	$	1,047,420		—		—		—		—		54,364	$	52.12		—	$	764,399

Donald A. Nolan																										02/26/09	$	150,000	$	300,000	$	900,000		—		—		—		—		71,053	$	20.64		—	$	455,800
																										02/26/09		—		—		—		6,108		12,216		24,432		—		—		—	$	12.06	$	147,325
		05/01/08		—		—		—		4,230		8,459		16,918		—		—		—	$	44.41	$	375,664
Timothy S. Clyde		02/28/08	$	150,000	$	300,000	$	900,000		—		—		—		—		55,363	$	52.12		—	$	778,446		02/26/09	$	150,000	$	300,000	$	900,000		—		—		—		—		84,211	$	20.64		—	$	540,208
		03/03/08		—		—		—		—		—		—		—		43,500	$	50.98		—	$	592,490		02/26/09		—		—		—		6,108		12,216		24,432		—		—		—	$	12.06	$	147,325
		03/03/08		—		—		—		—		—		—		10,000		—		—	$	50.98	$	509,750
		05/01/08		—		—		—		3,634		7,268		14,536		—		—		—	$	44.41	$	322,772
Robert M. Malchione		02/28/08	$	143,730	$	287,460	$	862,380		—		—		—		—		44,760	$	52.12		—	$	629,360		02/26/09	$	143,730	$	287,460	$	862,380		—		—		—		—		68,083	$	20.64		—	$	436,748
		05/01/08		—		—		—		3,483		6,965		13,930		—		—		—	$	44.41	$	309,316		02/26/09		—		—		—		5,853		11,705		23,410		—		—		—	$	12.06	$	141,162

⁽¹⁾

These amounts represent the annual bonus opportunities (based on market ~~reference)~~reference data) under the annual bonus plan for ~~2008,~~2009, as described in the CD&A. Target bonuses (shown in the table above) were established by multiplying base salary at time of grant by the applicable percentage shown below. Actual amounts earned were determined in February 2010 and paid in March ~~2009,~~2010, and are included in theNon-Equity Incentive Plan Compensationcolumn of the Summary Compensation Table.


	~~2008~~2009 Target Bonus
Name	(% of Annual Base Pay at Year End)

Dean A. Scarborough		110	%

Daniel R. O’Bryant		60	%

~~Robert G. van Schoonenberg~~Donald A. Nolan		60	%

Timothy S. Clyde		60	%

Robert M. Malchione		60	%


		Payout levels range from 50% of the target amounts for threshold performance ~~and up~~ to 300% of the target amounts for maximum performance. Actual payouts were determined by the Compensation Committee in February ~~2009,~~2010, and are included in the Summary Compensation Table in theNon-Equity Incentive Plan Compensationcolumn.

⁽²⁾

These payout opportunities represent PUs awarded under the~~2008-2010~~2009-2011 MTIP cycle. These PUs are settled in shares of Company common stock at the end of a three-year performance period, provided that certain performance objectives are achieved at the end of the ~~three-year~~performance period. Payout levels range from 50% of the target units for threshold performance to 200% of the target units for maximum performance.

2530

OUTSTANDING EQUITY AWARDS FOR ~~2008~~2009

The following table provides summary information regarding the outstanding equity awards for the NEOs at December 31, ~~2008.~~2009.


																	Equity			Equity																			Equity			Equity
																	Incentive			Incentive																			Incentive			Incentive
						Equity											Plan			Plan							Equity												Plan			Plan
						Incentive											Awards:			Awards:							Incentive												Awards:			Awards:
						Plan						Number			Market		Number of			Market or							Plan						Number			Market			Number of			Market or
						Awards:						of			Value of		Unearned			Payout Value							Awards:						of			Value of			Unearned			Payout Value
	Number of		Number of			Number of						Shares or			Shares or		Shares,			of Unearned		Number of		Number of			Number of						Shares or			Shares or			Shares,			of Unearned
	Securities		Securities			Securities						Units of			Units of		Units or			Shares, Units		Securities		Securities			Securities						Units of			Units of			Units or			Shares, Units
	Underlying		Underlying			Underlying						Stock			Stock Held		Other			or Other		Underlying		Underlying			Underlying						Stock			Stock Held			Other			or Other
	Unexercised		Unexercised			Unexercised		Option		Option		Held That			that Have		Rights That			Rights That		Unexercised		Unexercised			Unexercised		Option		Option		Held That			that Have			Rights That			Rights That
	Options —		Options —			Unearned		Exercise		Expiration		Have Not			Not Yet		Have Not			Have Not		Options —		Options —			Unearned		Exercise		Expiration		Have Not			Not Yet			Have Not			Have Not
Name	Exercisable		Unexercisable			Options		Price		Date		Vested			Vested		Yet Vested			Yet Vested		Exercisable		Unexercisable			Options		Price		Date		Yet Vested			Vested			Yet Vested			Yet Vested

Dean A. Scarborough		30,000		—			—	$	53.13		09/23/09		—			—		—			—		20,000		—			—	$	64.91		04/27/10		—			—			—			—
		16,600		—			—	$	59.16		12/02/09		—			—		—			—		20,000		—			—	$	54.03		12/07/10		—			—			—			—
		20,000		—			—	$	64.91		04/27/10		—			—		—			—		20,000		—			—	$	50.72		12/07/10		—			—			—			—
		20,000		—			—	$	54.03		12/07/10		—			—		—			—		65,000		—			—	$	55.71		12/06/11		—			—			—			—
		20,000		—			—	$	50.72		12/07/10		—			—		—			—		55,000		—			—	$	62.87		12/05/12		—			—			—			—
		65,000		—			—	$	55.71		12/06/11		—			—		—			—		55,000		—			—	$	55.55		12/04/13		—			—			—			—
		55,000		—			—	$	62.87		12/05/12		—			—		—			—		90,000		—			—	$	59.19		12/02/14		—			—			—			—
		55,000		—			—	$	55.55		12/04/13		—			—		—			—		50,000		—			—	$	52.08		05/02/15		—			—			—			—
		90,000		—			—	$	59.19		12/02/14		—			—		—			—		100,000		—			—	$	59.47		12/01/15		—			—			—			—
		37,500		12,500	⁽¹⁾		—	$	52.08		05/02/15		—			—		—			—		75,000		25,000	⁽¹⁾		—	$	67.80		12/07/16		—			—			—			—
		75,000		25,000	⁽¹⁾		—	$	59.47		12/01/15		—			—		—			—		57,500		172,500	⁽¹⁾		—	$	52.12		02/28/18		—			—			—			—
		50,000		50,000	⁽¹⁾		—	$	67.80		12/07/16		—			—		—			—		—		300,000	⁽¹⁾		—	$	20.64		02/26/19		—			—			—			—
		—		230,000	⁽¹⁾		—	$	52.12		02/28/18		—			—		—			—		—		—			—		—		—		—			—			6,926	⁽²⁾	$	252,730	⁽⁷⁾
		—		—			—		—		—		—			—		6,532	⁽²⁾	$	213,792		—		—			—		—		—		—			—			7,263	⁽³⁾	$	265,027	⁽⁷⁾
		—		—			—		—		—		—			—		6,935	⁽³⁾	$	226,983		—		—			—		—		—		—			—			9,000	⁽⁶⁾	$	328,410	⁽⁷⁾
		—		—			—		—		—		—			—		9,000	⁽⁶⁾	$	294,570		—		—			—		—		—		—			—			26,000	⁽⁶⁾	$	948,740	⁽⁷⁾

Total		534,100		317,500														22,467		$	735,345		607,500		497,500															49,189		$	1,794,907

Daniel R. O’Bryant		4,300		—			—	$	59.16		12/02/09		—			—		—			—		6,500		—			—	$	54.03		12/07/10		—			—			—			—
		1,000		—			—	$	59.16		12/02/09		—			—		—			—		26,500		—			—	$	50.72		12/07/10		—			—			—			—
		6,500		—			—	$	54.03		12/07/10		—			—		—			—		30,000		—			—	$	55.71		12/06/11		—			—			—			—
		20,000		—			—	$	50.72		12/07/10		—			—		—			—		25,000		—			—	$	62.87		12/05/12		—			—			—			—
		6,500		—			—	$	50.72		12/07/10		—			—		—			—		33,250		—			—	$	55.55		12/04/13		—			—			—			—
		30,000		—			—	$	55.71		12/06/11		—			—		—			—		51,400		—			—	$	59.19		12/02/14		—			—			—			—
		25,000		—			—	$	62.87		12/05/12		—			—		—			—		48,862		—			—	$	59.47		12/01/15		—			—			—			—
		33,250		—			—	$	55.55		12/04/13		—			—		—			—		36,717		12,238	⁽¹⁾		—	$	67.80		12/07/16		—			—			—			—
		51,400		—			—	$	59.19		12/02/14		—			—		—			—		16,968		50,903	⁽¹⁾		—	$	52.12		02/28/18		—			—			—			—
		36,647		12,215	⁽¹⁾		—	$	59.47		12/01/15		—			—		—			—		—		103,235	⁽¹⁾		—	$	20.64		02/26/19		—			—			—			—
		24,478		24,477	⁽¹⁾		—	$	67.80		12/07/16		—			—		—			—		—		—			—		—		—		17,579	⁽⁴⁾	$	641,458	⁽⁷⁾		3,526	⁽²⁾	$	128,664	⁽⁷⁾
		—		52,300	⁽¹⁾		—	$	52.12		02/28/18		—			—		—			—		—		—			—		—		—		—			—			2,554	⁽³⁾	$	93,195	⁽⁷⁾
		—		15,571	⁽¹⁾		—	$	52.12		02/28/18		—			—		—			—		—		—			—		—		—		—			—			4,069	⁽⁶⁾	$	148,478	⁽⁷⁾
		—		—			—		—		—		33,555	⁽⁴⁾	$	1,098,255		—			—		—		—			—		—		—		—			—			6,839	⁽⁶⁾	$	249,555	⁽⁷⁾
		—		—			—		—		—		—			—		3,326	⁽²⁾	$	108,860
Total																							275,197		166,376									17,579		$	641,458			16,988		$	619,892

Donald A. Nolan																							41,679		125,034	⁽¹⁾		—	$	50.98		03/03/18		—			—			—			—
																							—		71,053	⁽¹⁾		—	$	20.64		02/26/19		—			—			—			—
																							—		—			—		—		—		—			—			6,526	⁽⁵⁾	$	238,134	⁽⁷⁾
		—		—			—		—		—		—			—		2,439	⁽³⁾	$	79,828		—		—			—		—		—		—			—			3,634	⁽⁶⁾	$	132,605	⁽⁷⁾
		—		—			—		—		—		—			—		4,069	⁽⁶⁾	$	133,178		—		—			—		—		—		—			—			6,108	⁽⁶⁾	$	222,881	⁽⁷⁾

Total		239,075		104,563									33,555		$	1,098,255		9,834		$	321,866		41,679		196,087															16,268		$	593,620

2631

OPTION EXERCISES AND STOCK VESTED FOR ~~2008~~2009

The following table provides summary information regarding stock options that were exercised ~~in 2008~~during 2009 and the value realized on exercise, as well as the value received on vesting of stock ~~awards.~~awards during 2009.


	Option Awards⁽¹⁾				Stock Awards				Option Awards				Stock Award
	Number of Shares						Value		Number of Shares						Value
	Acquired on		Value Realized		Number of Shares		Realized		Acquired on		Value Realized		Number of Shares		Realized
	Exercise		on Exercise		Acquired on Vesting		on Vesting		Exercise		on Exercise		Acquired on Vesting		on Vesting
Name	(#)		($)		(#)		($)		(#)		($)		(#)		($)

Dean A. Scarborough		26,000	$	87,425		—		—		—		—		—		—
Daniel R. O’Bryant		2,189	$	8,663		—		—		—		—		17,114	$	380,280
Robert G. van Schoonenberg		—		—		13,559	$	406,279
Donald A. Nolan										—		—		—		—
Timothy S. Clyde		—		—		—		—		—		—		—		—
Robert M. Malchione		—		—		—		—		—		—		—		—


⁽¹⁾		The value realized equals the market value of the stock on the exercise date minus the exercise price of the options exercised. Amounts represent the value realized by the NEO upon the exercise of stock options granted in prior years. Options had exercise prices equal to the fair market value of the Company’s stock on the date the options were granted. Thus, the amounts realized upon exercise of the stock options resulted directly from appreciation in the Company’s stock price during the NEO’s service with the Company.

28


		unreduced benefit, which is age 62 for the ~~Avery~~ Pension Plan and the BRP; age 62 for Mr. Scarborough’s SERP and age 65 for ~~the~~Mr. O’Bryant’s SERP. The assumptions used to determine the lump-sum value are as follows:


	•	Interest rate for present values: ~~6.60%~~6.0%

	•	Mortality: ~~RP-2000 Combined Healthy mortality tables with projection to the valuation date~~2010 Static Mortality Table for Annuitants per Regulation Section 1.430(h)(3)-1(e)

	•	Pre-retirement decrements: None

	•	The Code pay limit was ~~$230,000~~$245,000 and the maximum benefit was ~~$185,000~~$195,000 for the ~~Avery~~ Pension Plan as of December 31, ~~2008~~2009

Pension Plan

The Company provides qualified retirement benefits for employees who are eligible participants under the ~~Avery~~ Pension ~~Plan, the successor plan to the Retirement Plan for Employees of Avery Dennison Corporation and the Avery Associate Retirement Plan, which merged on November 30, 2008.~~Plan. Benefits under the ~~Avery~~ Pension Plan are based on compensation and are calculated separately for each year of applicable service using the formula 1.25% times compensation up to the breakpoint (currently ~~$53,953,~~$56,628, which is the average of the Social Security wage bases for the preceding 35 years) plus 1.75% times compensation in excess of the breakpoint. The results of

29

under the Code provisions referenced above. The BRP is an unfunded excess benefit plan, which is administered by the Company. Benefits are payable under the BRP in amounts equal to the amount by which a participant’s benefits otherwise payable under the ~~Avery~~ Pension ~~Plans,~~Plan, with respect to periods from and after December 1, 1994, are reduced under the applicable provisions of the Code.

Because the BRP is designed to mirror the ~~Avery~~ Pension Plan, the information concerning the BRP benefit formula, early retirement provisions, and optional payment forms is similar to that of the ~~Avery~~ Pension Plan ~~above, with the exception that the~~above. The BRP was amended, effective January 1, 2009, to provide for payments in the form of a lump-sum distribution, ~~option.~~unless a timely election was made for monthly payments over the lifetime of the participantand/or a designated beneficiary. The BRP benefit is generally payable upon the later of separation from service and age 55. Compensation covered by the BRP also includes both salary and annual bonus amounts (including all deferred amounts) earned in each such year.

Supplemental Executive Retirement Plan

The SERP, adopted in 1983, is designed to provide its participants with additional incentives to further the Company’s growth and development and as an inducement to remain in the Company’s service. Participants

30


		by the plan administrator. The rate of return depends on the funds selected by the participant. Participants with balances in deferred compensation plans that have fixed rates of return selected by the Company may not make any changes.

⁽²⁾		Company contributions to the deferred compensation plans were ~~reported~~included in theAll Other Compensationcolumn of the Summary Compensation Table.

⁽³⁾		Of the amounts included in this column, ~~$1,034 and $217,576 are~~$3,421 is also reported for Mr. Scarborough, ~~and Mr. van Schoonenberg, respectively,~~ in theChange in Pension Value and NQDC Earningscolumn of the Summary Compensation Table. ~~These amounts represent declines in investment accounts.~~

The Company makes an annual contribution to each NEO’s deferred compensation account equal to 3% of annual cash compensation (salary and annual bonus) in excess of the 401(k) Plan limit (these amounts are included in the Summary Compensation Table under theAll Other Compensationcolumn). This contribution is added to each NEO’s deferred compensation account at the beginning of each plan year as long as the NEO has contributed at least the pre-tax limit into the 401(k) Plan during the prior plan year and is employed by the Company at year end. This benefit is designed to supplement pre-tax 401(k) contributions that are limited for certain executives (by the Code). Above-market earnings credited to Mr. Scarborough’s ~~and Mr. van Schoonenberg’s accounts~~account are included in the Summary Compensation Table under theChange in Pension Value and NQDC Earningscolumn.

31

The 2005 EVDRP is the Company’s current deferred compensation plan. Under the 2005 EVDRP participants may defer up to 75% of their salary and 100% of their bonus. Account earnings are based on a fixed rateand/or the performance of certain variable funds selected by the participant from bond and equity funds that are managed by an insurance company.

Potential Payments Upon Termination or Change of Control

The following table provides information regarding potential benefits that may be ~~made~~paid to the NEOs in the event of termination of employment as a result of the termination scenarios indicated below. The amounts shown in the table are estimates and assume that each NEO was terminated on the last day of the Company’s 2009 fiscal year, and include estimated amounts that would be paid to the named executive upon the occurrence of a termination or change of control. The actual amounts that would be paid to the NEOs can only be determined at the time of the termination or change of control. NEOs would also be entitled to receive all amounts accrued and vested under the Company’s pension and savings programs and any deferred compensation plans in which they participate. These amounts would be determined and paid in accordance with the applicable plan, and are not included in the table because they are not severance payments.


															Termination Scenarios
		Termination Scenario													as of the end of fiscal year 2009
						Involuntary											Involuntary
						Termination		Involuntary		Termination							Termination		Involuntary		Termination
				Death or		or Good		Termination		on Change					Death or		or Good		Termination		on Change
Name	Benefit	Voluntary		Disability		Reason		for Cause		of Control		Retirement		Benefit	Disability		Reason		for Cause		of Control⁽¹⁾

Dean A. Scarborough	Severance Payment		—		—	$	1,971,000		—	$	5,913,000		—	Severance Payment		—	$	1,947,000		—	$	5,841,000
	Prorata Bonus Payment		—		—		—		—		—		—	Prorata Bonus Payment		—		—		—		—
	Unvested Stock Option Value		—		—		—		—		—		—	Unvested Stock Option Value	$	4,755,000		—		—	$	4,755,000
	Unvested Restricted Stock		—	$	234,065		—		—	$	234,065		—	Unvested Restricted Stock		—		—		—		—
	LTI Plan and Performance Unit Payment		—	$	196,380	$	589,140		—	$	589,140		—	LTI Plan and Performance Unit Payment	$	1,590,338	$	3,074,264		—	$	3,074,264
	Incremental Retirement Benefit⁽¹⁾		—	$	3,632,105	$	6,236,868		—	$	8,242,782		—	Incremental Retirement Benefit⁽²⁾	$	4,924,888	$	5,584,103		—	$	7,275,816
	Deferred Comp. Benefit (Acceleration of Vesting)		—	$	124,003	$	124,003		—	$	124,003		—	Deferred Comp. Benefit (Acceleration of Vesting)	$	130,432	$	130,432		—	$	130,432
	Welfare Benefit Values		—		—	$	18,676		—	$	56,028		—	Welfare Benefit Values		—	$	18,146		—	$	54,437
	Perquisites		—		—	$	162,500		—	$	487,500		—	Perquisites		—	$	162,500		—	$	487,500
	Outplacement		—		—	$	50,000		—	$	50,000		—	Outplacement		—	$	50,000		—	$	50,000
	Excise Tax & Gross-Up		—		—		—		—	$	7,853,442		—	Excise Tax & Gross-Up		—		—		—	$	9,110,158


	Total		—	$	4,186,553	$	9,152,187		—	$	23,549,960		—	Total	$	11,400,658	$	10,966,445		—	$	30,778,607


Daniel R. O’Bryant	Severance Payment		—		—	$	1,037,067		—	$	3,111,201		—
	Prorata Bonus Payment		—		—		—		—		—		—
	Unvested Stock Option Value⁽²⁾		—	$	540,000	$	540,000		—	$	540,000		—
	Unvested Restricted Stock		—	$	1,183,319	$	1,101,000		—	$	1,183,319		—
	LTI Plan and Performance Unit Payment		—	$	88,786	$	266,357		—	$	266,357		—
	Incremental Retirement Benefit⁽¹⁾		—	$	1,201,213	$	1,887,999		—	$	2,829,506		—
	Deferred Comp Benefit (Acceleration of Vesting)		—	$	864,088	$	864,088		—	$	864,088		—
	Welfare Benefit Values		—		—	$	15,145		—	$	45,436		—
	Perquisites		—		—	$	147,000		—	$	441,000		—
	Outplacement		—		—	$	50,000		—	$	50,000		—
	Excise Tax & Gross-Up		—		—		—		—	$	4,424,683		—


	Total		—	$	3,877,406	$	5,908,656		—	$	13,755,590		—

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															Termination Scenarios
		Termination Scenario													as of the end of fiscal year 2009
						Involuntary											Involuntary
						Termination		Involuntary		Termination							Termination		Involuntary		Termination
				Death or		or Good		Termination		on Change					Death or		or Good		Termination		on Change
Name	Benefit	Voluntary		Disability		Reason		for Cause		of Control		Retirement		Benefit	Disability		Reason		for Cause		of Control⁽¹⁾

Robert G. van Schoonenberg⁽³⁾	Severance Payment		—		—		—		—		—		—
Daniel R. O’Bryant														Severance Payment		—	$	950,989		—	$	2,852,967
														Prorata Bonus Payment		—		—		—		—
														Unvested Stock Option Value⁽³⁾	$	1,996,275	$	360,000		—	$	1,996,275
														Unvested Restricted Stock	$	639,086	$	639,086		—	$	639,086
														LTI Plan and Performance Unit Payment	$	587,162	$	1,018,863		—	$	1,018,863
														Incremental Retirement Benefit⁽²⁾	$	1,300,065	$	1,662,010		—	$	2,525,700
														Deferred Comp Benefit (Acceleration of Vesting)	$	1,067,940	$	1,067,940		—	$	1,067,940
														Welfare Benefit Values		—	$	22,829		—	$	68,488
														Perquisites		—	$	147,000		—	$	441,000
														Outplacement		—	$	50,000		—	$	50,000
														Excise Tax & Gross-Up		—		—		—	$	4,459,627


														Total	$	5,590,528	$	5,918,717		—	$	15,119,946


Donald A. Nolan														Severance Payment		—	$	607,600		—	$	1,215,200
	Prorata Bonus Payment		—		—		—		—		—		—	Prorata Bonus Payment		—		—		—		—
	Unvested Stock Option Value		—		—		—		—		—		—	Unvested Stock Option Value	$	1,126,190		—		—	$	1,126,190
	Unvested Restricted Stock		—		—		—		—		—	$	443,782	Unvested Restricted Stock		—		—		—		—
	LTI Plan and Performance Unit Payment		—		—		—		—		—	$	92,288	LTI Plan and Performance Unit Payment	$	562,571	$	948,149		—	$	948,149
	Incremental Retirement Benefit⁽¹⁾		—		—		—		—		—	$	747,900	Incremental Retirement Benefit⁽²⁾		—		—		—		—
	Deferred Comp Benefit (Acceleration of Vesting)		—		—		—		—		—		—	Deferred Comp Benefit (Acceleration of Vesting)		—		—		—		—
	Welfare Benefit Values		—		—		—		—		—		—	Welfare Benefit Values		—	$	16,689		—	$	33,378
	Perquisites		—		—		—		—		—		—	Perquisites		—		—		—		—
	Outplacement		—		—		—		—		—		—	Outplacement		—	$	25,000		—	$	25,000
	Excise Tax & Gross-Up		—		—		—		—		—		—	Excise Tax & Gross-Up		—		—		—		—


	Total		—		—		—		—		—	$	1,283,970	Total	$	1,688,761	$	1,597,438		—	$	3,347,917


Timothy S. Clyde	Severance Payment		—		—	$	742,000		—	$	2,226,000		—	Severance Payment		—	$	742,000		—	$	2,226,000
	Prorata Bonus Payment		—		—		—		—		—		—	Prorata Bonus Payment		—		—		—		—
	Unvested Stock Option Value		—		—		—		—		—		—	Unvested Stock Option Value	$	1,334,744		—		—	$	1,334,744
	Unvested Restricted Stock		—	$	403,333		—		—	$	403,333		—	Unvested Restricted Stock		—		—		—		—
	LTI Plan and Performance Unit Payment		—	$	79,294	$	237,882		—	$	274,342		—	LTI Plan and Performance Unit Payment	$	863,075	$	1,248,653		—	$	1,248,653
	Incremental Retirement Benefit⁽¹⁾		—		—	$	100,008		—	$	347,917		—	Incremental Retirement Benefit⁽²⁾		—	$	106,606		—	$	370,088
	Deferred Comp Benefit (Acceleration of Vesting)		—		—		—		—		—		—	Deferred Comp Benefit (Acceleration of Vesting)		—		—		—		—
	Welfare Benefit Values		—		—	$	13,210		—	$	39,630		—	Welfare Benefit Values		—	$	22,327		—	$	66,982
	Perquisites		—		—	$	136,400		—	$	409,200		—	Perquisites		—	$	136,400		—	$	409,200
	Outplacement		—		—	$	50,000		—	$	50,000		—	Outplacement		—	$	50,000		—	$	50,000
	Excise Tax & Gross-Up		—		—		—		—	$	1,758,101		—	Excise Tax & Gross-Up		—		—		—	$	2,275,437


	Total		—	$	482,627	$	1,279,500		—	$	5,508,523		—	Total	$	2,197,819	$	2,305,986		—	$	7,981,104


Robert M. Malchione	Severance Payment		—		—	$	857,992		—	$	2,573,976		—	Severance Payment		—	$	762,467		—	$	2,287,401
	Prorata Bonus Payment		—		—		—		—		—		—	Prorata Bonus Payment		—		—		—		—
	Unvested Stock Option Value		—		—		—		—		—		—	Unvested Stock Option Value	$	1,079,116		—		—	$	1,079,116
	Unvested Restricted Stock		—	$	56,788		—		—	$	56,788		—	Unvested Restricted Stock		—		—		—		—
	LTI Plan and Performance Unit Payment		—	$	75,988	$	227,964		—	$	227,964		—	LTI Plan and Performance Unit Payment	$	456,752	$	826,213		—	$	826,213
	Incremental Retirement Benefit⁽¹⁾		—		—	$	145,084		—	$	519,717		—	Incremental Retirement Benefit⁽²⁾		—	$	149,224		—	$	527,018
	Deferred Comp Benefit (Acceleration of Vesting)		—		—		—		—		—		—	Deferred Comp Benefit (Acceleration of Vesting)		—		—		—		—
	Welfare Benefit Values		—		—	$	14,980		—	$	44,941		—	Welfare Benefit Values		—	$	22,574		—	$	67,723
	Perquisites		—		—	$	136,400		—	$	409,200		—	Perquisites		—	$	136,400		—	$	409,200
	Outplacement		—		—	$	50,000		—	$	50,000		—	Outplacement		—	$	50,000		—	$	50,000
	Excise Tax & Gross-Up		—		—		—		—	$	1,657,518		—	Excise Tax & Gross-Up		—		—		—	$	1,970,297


	Total		—	$	132,776	$	1,432,420		—	$	5,540,104		—	Total	$	1,535,868	$	1,946,878		—	$	7,216,968


⁽¹⁾		As discussed in the CD&A, the employment agreement with each NEO (except Mr. Nolan, who does not have one), will terminate effective December 31, 2010. Commencing January 1, 2011, under the new COC Severance Plan, the NEOs would be eligible to receive severance benefits; however, under this new Plan, there is no excise taxgross-up.

⁽²⁾		Actuarial present value of the annuity enhancement, determined using an effective interest rate of ~~4.83%~~4.78% and the mortality table ~~published in Revenue Ruling2007-67.~~ For Mr. van Schoonenberg, the amount reflected in the pension benefits table is based on an interest rate of 6.60% and the RP-2000 Combined Healthy mortality tables. The amount reflected above for Mr. van Schoonenberg is based on the current plan lump-sum factors, which will actually apply on account of his retirement on December 31, 2008.per Code Section 417(e)(3).

⁽²⁾⁽³⁾		~~Per~~ Mr. O’Bryant’s retention agreement — in the event of death or disability, involuntary termination or voluntary termination due to good reason, or a termination upon a change of control, Mr. O’Bryant (or his beneficiary) would receive $180,000 per full year remaining on his retention agreement in lieu of foregone option awards. There are ~~three~~two full years remaining as of December 31, ~~2008~~2009 — resulting in ~~an amount~~a payment of ~~$540,000.~~

⁽³⁾		~~Mr. van Schoonenberg retired from~~$360,000 in addition to the ~~Company at the end~~value of ~~2008.~~unvested stock options.

3337

The following provides information regarding various termination scenarios for NEOs other than a change of control:

Severance


	•	In the event of an involuntary (not for cause) termination, or a termination for good reason (unrelated to a change of control), the NEOs would receive a lump-sum payment equal to ~~one times (i)~~ the executive’s highest combined annual salary and annual bonus during the last three full fiscal years prior to the date of termination.

Stock Options


	•	In the event of an involuntary (not for cause) termination, or a termination for good reason (unrelated to a change of control), Mr. O’Bryant would receive (in accordance with his retention agreement) $180,000 for each full fiscal year remaining on the agreement at the time of termination in lieu of foregone annual stock option awards.

	•	In the event of an NEO’s death or disability, stock options would vest. In the event of death or disability, Mr. O’Bryant would also receive (in accordance with his retention agreement) $180,000 for each full fiscal year remaining on the agreement at the time of termination in lieu of foregone annual stock option awards.

Restricted Stock, Restricted Stock Units and Performance Units


	•	In the event of an involuntary (not for cause) termination, or a termination for good reason (unrelated to a change of control), Mr. O’Bryant’s restricted stock would vest in accordance with his retention agreement.

	•	In the event of an NEO’s death or disability, restricted stock, RSUs and PUs would vest.

	•	~~In the event of an NEO’s death or disability, PUs would be pro-rated based on the number of months the NEO was employed during the cycle, and would be paid out assuming target performance.~~

PUs would be pro-rated based on the number of months the NEO was employed during the cycle, and paid out assuming target performance.

Retirement Benefits


	•	In the event of an involuntary (not for cause) termination, or a termination for good reason (unrelated to a change of control), the NEOs, with the exception of Mr. Nolan who is covered by the Executive Severance Plan, would receive an additional retirement benefit equal to the difference between:


	(a)	the benefit payable to the NEO under the Company’s qualified, excess and supplemental defined benefit retirement plans assuming the NEO remained employed for an additional year, and


	(b)	the vested benefit earned by the NEO under the Company’s qualified, excess and supplemental defined benefit retirement plans, if any.

The benefit described would be considered fully vested regardless of the NEO’s actual age and service at such time. The benefit would be paid in a single lump-sum amount based on the applicable interest rate and mortality table used to determine lump-sum payments under the Company’s qualified defined benefit plans.


	•	In the event of ~~an NEO’s~~Mr. Scarborough’s or Mr. O’Bryant’s disability, benefits earned under the SERP would commence at the later of the executive’s separation from service due to disability (generally 24 months after becoming disabled) and age ~~65,~~55, provided he is then living.

Deferred Compensation Plan Benefits


	•	In the event of an involuntary (not for cause) termination, or a termination for good reason (unrelated to a change of control), Mr. Scarborough would receive immediate vesting in certain currently unvested interest credits to one of his nonqualified deferred compensation accounts, and Mr. O’Bryant would receive

38


		immediate vesting in certain currently unvested benefits in his nonqualified deferred compensation accounts.

34


		of the cost the executive bore prior to a change of ~~control),~~control, provided, however, that such benefits would be discontinued to the extent the executive receives similar benefits from a subsequent employer.

35

EQUITY COMPENSATION PLAN INFORMATION
as of December 31, ~~2008~~2009


	Number of Securities					Number of Securities		Number of Securities					Number of Securities
	to be Issued Upon					Remaining Available for		to be Issued Upon					Remaining Available for
	Exercise of			Weighted-Average		Future Issuance under		Exercise of			Weighted-Average		Future Issuance under
	Outstanding			Exercise Price of		Equity Compensation Plans		Outstanding			Exercise Price of		Equity Compensation Plans
	Options, Warrants			Outstanding Options,		(Excluding Securities		Options, Warrants			Outstanding Options,		(Excluding Securities
	and Rights			Warrants and Rights		Reflected in Column (a))		and Rights			Warrants and Rights		Reflected in Column (a))
Plan Category	(a)⁽⁴⁾			(b)⁽⁴⁾		(c)		(a)⁽⁴⁾			(b)⁽⁴⁾		(c)

Equity compensation plans approved by security holders⁽¹⁾		168,000		$	58.82		203,000
		8,462,854		$	57.91		5,700,418
Director Equity Plan									175,000		$	54.03		178,000
Stock Plan									10,497,270		$	42.65		3,347,611
Paxar Corporation		623,475	⁽²⁾	$	30.93		—		457,284	⁽²⁾	$	31.10		—
Equity compensation plans not approved by security holders⁽³⁾		2,187,490		$	58.33		—		1,084,740		$	58.74		—

Total		11,441,819		$	53.12		5,903,418		12,214,294		$	43.80		3,525,611


⁽¹⁾		There are two plans: the Company’s Director Equity Plan and the Stock ~~Plan, respectively.~~Plan. Equity awards have included stock options, stock awards and stock units for directors, and stock options, restricted stock, RSUs, PUs and dividend equivalents for employees.

⁽²⁾		The Company acquired Paxar Corporation (“Paxar”) in June 2007. At that time, Paxar had an equity plan and this number represents the outstanding awards (converted into Company awards) granted to former Paxar employees, who are now Company employees. The Company has not issued (and will not issue) any additional awards under the Paxar equity plan.

⁽³⁾		The 1996 Stock Incentive Plan (“Stock Incentive Plan”) was amended and restated in December 2002, to provide that no future stock options or other awards would be made after December 6, 2002, and options that have been granted may not be repriced (note that no previously granted options have ever been repriced).

⁽⁴⁾		Securities in column (a) include restricted stock units and performance units; the weighted average exercise price in column (b) does not include these awards.

In general, the material features of the Stock Incentive Plan are similar to those in the Stock Plan, which was amended and restated and approved by the stockholders in April 2008. The Stock Incentive Plan was adopted by the Board in December 1996 and provided for grants of stock options, stock payments and other awards; however, only stock options ~~and stock payments issued in exchange for cash compensation at fair market value,~~ were awarded. Options were granted at 100% of the fair market value on the grant date.

Under the Stock Incentive Plan, ~~2,187,490~~1,084,740 options were outstanding and exercisable as of December 31, ~~2008.~~2009. The shares available under this Plan upon exercise of stock options, or issuance of stock payments, may be either previously unissued shares, issued shares that have been repurchased by the Company as treasury shares, or former treasury shares held in a grantor trust. This Plan provides for appropriate adjustments in the number and kind of shares subject to this Plan and to outstanding grants thereunder in the event of a stock split, stock dividend or certain other types of recapitalizations.

Options granted under the Stock Incentive Plan were nonqualified stock options (“NQSOs”) and generally became exercisable in equal installments over four years ~~after~~from the ~~grant date.~~date of grant. NQSOs were granted for a term of ten years.

Under the Director Equity Plan, stock payments are authorized in the form of stock units as part of the DDECP, a deferred compensation arrangement asthat may be elected by directors instead of receiving fees or retainers that would otherwise be payable to a director in cash. Dividend equivalents are credited in the form of stock units to the accounts of directors who participate in the DDECP, which represent the value of the dividends per share paid by the Company, calculated with reference to the number of stock units held by each director.

Options and other awards granted under the Stock Plan provide that, in the event of a “change of control” (as defined in the Plan or in an award agreement) of the Company, all previously unexercisable options and other equity awards become immediately vested. This Plan provides that the period of exercisability, following retirement, for

3741

options is (i) the full term of the option for the ~~chief executive officer;~~CEO; (ii) the lesser of five years or the full term of the option for options granted to participants in an executive annual bonus plan or any successor plan; and (iii) the lesser of three years or the full-term of the option for all other optionees.

TRANSACTIONS WITH RELATED ~~PARTY TRANSACTIONS~~PERSONS

One of the Company’s directors, Peter W. Mullin is the chairman, chief executive officer and a director of MC Insurance Services, Inc. (“MC”), Mullin Insurance Services, Inc. (“MINC”) and PWM Insurance Services, Inc. (“PWM”), executive compensation and benefit consultants and insurance agents. Mr. Mullin is also the majority stockholder ~~of MC, MINC and PWM~~in various entities (collectively referred to as the “Mullin Companies”)., which previously provided executive compensation, benefit consulting and insurance agency services. In October 2008, the above described operations of the Mullin Companies’ executive benefit and insurance agency related entities [MC Insurance Agency Services, LLC (“MCIAS”), MullinTBG Insurance Agency Services, LLC (“MullinTBG”), and MullinTBG Advisory Services, LLC (“MullinTBG Advisors”)]Companies were sold to a subsidiary of Prudential Financial, Inc. (“Prudential”). During ~~2008,~~2009, the Company paid premiums to insurance carriers for life insurance originally placed by ~~MC, MINC and PWM in 2008 and in prior years~~the Mullin Companies in connection with various Company employee benefit ~~plans. The~~plans (however, the interests of the Mullin Companies ~~and~~in this insurance were sold to Prudential, ~~have~~in October 2008). Prudential has advised the Company that in ~~2008, they~~2009, Prudential earned commissions from such insurance carriers in an aggregate amount of approximately ~~$450,900~~$426,900 for the placement and renewal of this insurance, in which Mr. Mullin had ~~direct and indirect interests~~an interest of approximately ~~$250,000, approximately 50%~~$91,100, in accordance with the terms of ~~which was allocated to and used by MullinTBG (a previous affiliate of MC and now~~ a wholly-owned affiliate of Prudential) to administer benefit plans and provide benefit statement information to participants under various Company employee benefit plans. During 2008, MullinTBG Advisors provided financial advisory services to participants in certain Company employee benefit plans. MullinTBG Advisors has advised that it earned fees of $154,000 for these services, in whichcommission sharing agreement entered into between Mr. Mullin ~~had direct~~ and ~~indirect interests~~Prudential at the time of ~~approximately $23,000.~~ the sale.

The Mullin Companies own a minority interest in M Financial Holdings, Inc. (“MFH”). Substantially all of the life insurance policies, which the Company ~~has~~originally placed through the Mullin Companies, ~~in 2008 and prior years,~~ are issued by insurance carriers that participate in reinsurance agreements entered into between these insurance carriers and M Life Insurance Company (“M Life”), a wholly-owned subsidiary of MFH. Reinsurance returns earned by M Life are determined annually by the insurance carriers and can be negative or positive, depending upon the results of M Life’s aggregate reinsurance pool, which consists of the insured lives reinsured by M Life. The Mullin Companies have advised that in ~~2008,~~2009, they ~~participated in~~did not receive any distributions of net reinsurance gains ~~(without~~(either in the form of gains without risk of ~~forfeiture)~~forfeiture, or gains subject to risk of ~~M Life, of which approximately $178,800 of such gains were~~forfeiture) ascribed by M Life to the Company’s life insurance policies referred to above, and in which gains, Mr. Mullin had direct and indirect interests of approximately $118,300. In addition, the Mullin Companies have advised that in 2008, they also participated in net reinsurance gains of M Life that are subject to risk of forfeiture, of which approximately $51,700 of such gains were ascribed by M Life to the Company’s life insurance policies, and in which gains, Mr. Mullin had direct and indirect interests of approximately $40,200.above.

VOTING SHARES

Stockholders of record, at the close of business on February ~~23, 2009,~~22, 2010, are entitled to notice of, and to vote at, the Annual Meeting. There were ~~106,285,574~~112,058,162 shares of common stock of the Company outstanding on February ~~23, 2009.~~22, 2010.

Principal Stockholders

Whenever in this proxy statement information is presented as to “beneficial ownership,” please note that such ownership indicates only that the person shown, directly or indirectly, has or shares with others the power to vote (or to direct the voting of) or the power to dispose of (or to direct the disposition of) such shares; such person may or may not have any economic interest in the shares. The reporting of information herein does not constitute an admission that any such person is, for the purpose of Section 13 or 16 of the 1934 Act, the “beneficial owner” of the shares shown herein.

3842

To the knowledge of the Company, the following were the only stockholders that, as of December 31, ~~2008,~~2009, owned beneficially 5% or more of the outstanding common stock of the Company.

Name and Address

Number of Shares

Percent

Number of Shares

Percent

of Beneficial Owner

Beneficially Owned

of Class

Beneficially Owned

of Class

Avery Dennison Corporation
Employee Stock Benefit Trust (“ESBT”)

7,888,953

⁽¹⁾

7.4

%

6,744,845

⁽¹⁾

6.0

%

Wachovia Bank, N.A., Trustee

Executive Benefits Group

One West 4th Street, NC 6251

Winston-Salem, NC 27101

BlackRock, Inc.

9,416,318

⁽²⁾

8.4

%

40 East 52nd Street

New York, NY 10022

Capital Research Global Investors

8,680,000

⁽²⁾

8.2

%

8,063,459

⁽³⁾

7.2

%

333 South Hope Street
Los Angeles, CA 90071

Capital World Investors

8,627,480

⁽³⁾

8.1

%

333 South Hope Street

Los Angeles, CA 90071

T. Rowe Price Associates, Inc.

5,478,546

⁽⁴⁾

5.2

%

100 E. Pratt Street
Baltimore, MD 21202

monitors the services rendered and fees paid to the independent auditors to ensure that such services are within the parameters approved by the Audit Committee.

The Audit Committee considers at least annually whether the provision of non-audit services by PwC is compatible with maintaining auditor independence.

Required Vote for Approval and Recommendation of the Board of Directors

The affirmative vote of a majority of the shares present or represented and entitled to vote at the Annual Meeting is required to ratify the appointment of PwC as the Company’s independent auditors for the current fiscal year, which ends on January ~~2, 2010.~~1, 2011.

Your Board of Directors recommends that you vote FOR approval of this proposal.

4145

AUDIT COMMITTEE REPORT

The following Report of the Audit Committee of the Board of Directors does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates this Report by reference therein.

The Audit Committee of the Company’s Board of Directors (“Audit Committee”) is composed of independent directors set forth below, each of whom meets the independence standards of the ~~New York Stock Exchange.~~NYSE. The Audit Committee has a written charter adopted by the Board of Directors, which is available at the Company’s ~~Web~~web site.

Management is responsible for the Company’s internal controls and the financial reporting process. The independent auditors are responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with auditing standards generally accepted in the United States and to issue an opinion thereon. The Audit Committee’s responsibility is to monitor and oversee these processes. The members of the Audit Committee are not professionally engaged in the practice of auditing or accounting. Members of the Audit Committee rely without independent verification on the information provided to them and the representations made by management and the independent auditors.

Management has represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America. The Audit Committee has reviewed and discussed the consolidated financial statements for the year ended ~~December 27, 2008,~~January 2, 2010, with management and the independent auditors, PricewaterhouseCoopers LLP (“PwC”). The Audit Committee has also discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, “Communication with Audit Committees,” as amended, andRule 2-07 ofRegulation S-X, “Communication with Audit Committees.” The Company’s independent auditors have also provided to the Audit Committee the written disclosures and the letter from the independent auditors pursuant to Rule 3526, “Communications with Audit Committees Concerning Independence,” of the Public Company Accounting Oversight Board. The Audit Committee has discussed independence matters with the independent auditors and management, and, based on its discussion and review, the Audit Committee is satisfied that the provision of non-audit services, described above, is compatible with maintaining PwC’s independence.

Based on the Audit Committee’s discussions with management and the independent auditors and on the Audit Committee’s review of the representations of management and the report of the independent auditors, the Audit Committee has recommended that the Board of Directors include the audited consolidated financial statements in the Company’s Annual Report onForm 10-K for the year ended ~~December 27, 2008,~~January 2, 2010, filed with the ~~Securities and Exchange Commission.~~SEC.

February 25, 2010


		John T. Cardis, Chairman
		Peter K. Barker
		Richard M. Ferry
		Ken C. Hicks
		Kent Kresa

4246

PROPOSAL TO ~~APPROVE~~ELIMINATE
SUPERMAJORITY VOTING REQUIREMENTS AND THE ~~ADOPTION OF~~
~~THE AVERY DENNISON CORPORATION~~
~~SENIOR EXECUTIVE ANNUAL INCENTIVE PLAN~~INTERESTED PERSON STOCK REPURCHASE PROVISION
(Proxy Item 3)

~~General~~Background

Article VI of the Company’s Restated Certificate of Incorporation and Article VIII, Section 1 of the Company’s Amended and Restated Bylaws currently require the vote of the holders of not less than eighty percent (80%) of the total voting power of all shares of stock of the Company entitled to vote in the election of directors, voting together as a single class, in order for the stockholders to make, repeal, alter, amend or rescind the Amended and Restated Bylaws. Additionally, Article XIV of the Restated Certificate of Incorporation currently requires the vote of the holders of not less than eighty percent (80%) of the total voting power of all shares of stock of the Company entitled to vote in the election of directors, voting together as a single class, for the approval or authorization of certain “business combinations” with an entity which beneficially owns, directly or indirectly, more than 10% of the outstanding common stock of the Company. Articles XV and XVI of the Restated Certificate of Incorporation currently require the vote of the holders of not less than eighty percent (80%) of the total voting power of all shares of stock of the Company entitled to vote in the election of directors, voting together as a single class, to repeal or amend in any respect Articles VI [dealing with the alteration of Bylaws of stockholders], VII [dealing with the number of directors], VIII [dealing with the classified board], XI [dealing with the prohibition against stockholder action without meetings] and XIV [dealing with the 80% vote of stockholders required for certain mergers and similar transactions] of the Restated Certificate of Incorporation, or to add an article providing for cumulative voting in the election of directors. These provisions of the Restated Certificate of Incorporation are referred to as the “Supermajority Voting Provisions.”

In addition to the Supermajority Voting Provisions, Article XVIII of the Restated Certificate of Incorporation contains an “Interested Person Stock Repurchase Provision.” This Interested Person Stock Repurchase Provision generally provides that, subject to certain exceptions, a vote of not less than a majority of the total voting power, excluding the voting power of the stock owned by an interested stockholder, shall be required for any direct or indirect purchase by the Company of shares of stock from an interested stockholder for more than the market price of such shares. For purposes of the Interested Person Stock Repurchase Provision, an “interested stockholder” includes a beneficial owner of more than 5% of the voting power of the outstanding voting stock.

On the recommendation of the Nominating and Governance Committee, the Board has approved, and recommends to the stockholders for approval, amendments to the Restated Certificate of Incorporation to eliminate or amend the Supermajority Voting Provisions and the Interested Person Stock Repurchase Provision. In addition, the Board approved, and recommends to the stockholders for approval, an amendment to Article VII to eliminate a cross reference to Article VI.

Text of the Proposed Amendments to the Restated Certificate of Incorporation

The amendments to the Restated Certificate of Incorporation approved by the Board, and recommended for stockholder approval, are substantially in the form as follows:

“ARTICLE VI: [repealed].”

“ARTICLE VII: The number of directors shall be fixed from time to time by a bylaw or amendment thereof duly adopted by the Board of Directors or by the stockholders.”

“ARTICLE XIV: [repealed].”

“ARTICLE XV: [repealed].”

47

“ARTICLE XVI: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred on stockholders herein are granted subject to this reservation.”

“ARTICLE XVIII: [repealed].”

Board Amendment to Bylaws to Eliminate Supermajority Voting Provision

In connection with the proposed amendments to the Restated Certificate of Incorporation, the Board has also adopted an amendment to Article VIII, Section 1 of the Amended and Restated Bylaws to eliminate the supermajority voting provision for stockholders to amend or repeal the Amended and Restated Bylaws of the Company. As amended, Article VIII, Section 1 reads substantially in the form as follows:

“New Bylaws may be adopted or these Bylaws may be amended or repealed by the majority of the votes cast by stockholders, considered for purposes of this Section 1 as one class, provided that a quorum exists as defined by Article II, Section 6 of these Bylaws.”

The effectiveness of this amendment to the Amended and Restated Bylaws is subject to the approval by the stockholders of the amendment to Article VI of the Restated Certificate of Incorporation as provided above and subject to the filing and effectiveness of a certificate of amendment with the Secretary of State of the State of Delaware effecting such amendment to Article VI of the Restated Certificate of Incorporation. The stockholders are not being asked to vote on this amendment to the Amended and Restated Bylaws.

General Effect of Amendments

If the amendments to the Restated Certificate of Incorporation to remove the Supermajority Voting Provisions are approved by the stockholders and become effective, (i) the amendment to the Amended and Restated Bylaws as described above will become effective and new bylaws may be added or repealed or the Amended and Restated Bylaws may otherwise be amended by the stockholders, if a quorum is present, by the majority of the votes cast by stockholders, and (ii) the Restated Certificate of Incorporation may be amended, altered, changed or repealed in the manner prescribed by statute, which, under Delaware General Corporation Law, generally would require a vote of the majority of the outstanding stock entitled to vote thereon, and a majority of the outstanding stock of each class entitled to vote thereon as a class. As a corollary, the voting requirement prescribed by statute will replace the supermajority voting requirement with respect to any repeal or amendment of Articles VI, VII, VIII, XIV, and XV each as described above, and with respect to the addition of an article providing for cumulative voting in the election of directors.

If approved by the stockholders, the proposed amendments to delete the Supermajority Voting Provisions would eliminate Article XIV of the Restated Certificate of Incorporation requiring the vote of the holders of not less than eighty percent (80%) of the total voting power of all shares of stock of the Company entitled to vote in the election of directors, voting together as a single class for the approval or authorization of certain “business combinations” with an entity which beneficially owns, directly or indirectly, more than 10% of the outstanding common stock of the Company. However, the Company would still be subject to Section 203 of the Delaware General Corporation Law which, under certain circumstances, would require a vote of 662/3% of the outstanding voting stock (excluding stock owned by an interested stockholder) for approval of a “business combination” with an interested stockholder. For purposes of Section 203 of the Delaware General Corporation Law, an interested stockholder is a person beneficially owning 15% or more of the outstanding voting stock of the corporation.

If approved by the stockholders, the proposed amendment to delete the Interested Person Stock Repurchase Provision would eliminate the need to obtain a stockholder vote in connection with certain repurchases of stock by the Company from certain persons, including persons beneficially owning more than 5% of the voting power of the voting stock.

48

Reasons for Amendments

The proposal to amend the Restated Certificate of Incorporation to eliminate the Supermajority Voting Provisions and the Interested Person Stock Repurchase Provision is a result of ongoing review of corporate governance matters by the Board. The Board, assisted by the Nominating and Governance Committee, considered the advantages and disadvantages of maintaining the Supermajority Voting Provisions and the Interested Person Stock Repurchase Provision. The Board considered the view of some of the stockholders that the Supermajority Voting Provisions may make it more difficult for one or a few large stockholders to replace important corporate governance rules of the company to further a special interest, or to take control of the Company, and help ensure that important corporate governance rules are not changed without the clear consensus of a substantial majority of the stockholders that such change is prudent and in the best interests of the Company. While the Board recognizes those potential benefits, the Board also recognizes that supermajority voting provisions are disfavored by many of the stockholders and stockholder groups for the same reasons — that is, that they make it more difficult for the stockholders to change important rules relating to the election of directors or other governance matters. In view of the Board’s commitment to include in the 2011 proxy statement to the stockholders a proposal at the 2011 annual meeting of the stockholders for declassification of the Board and replacement of triennial elections with annual elections, the Board believes that maintaining the Supermajority Voting Provisions could provide only marginal benefit, if any.

Accordingly, on the recommendation of the Nominating and Governance Committee, the Board approved the amendments to the Restated Certificate of Incorporation as described above, and now recommends that the stockholders approve them.

Required Vote for Approval and Recommendation of the Board of Directors

With respect to the amendments to Articles VI, VII, XIV, XV and XVI, the affirmative vote of not less than eighty percent (80%) of the total voting power of all shares of stock of the Company entitled to vote in the election of directors, voting together as a single class, shall be required for approval by the stockholders.

With respect to the amendment to Article XVIII, the affirmative vote of a majority of the outstanding shares entitled to vote thereon is required to approve the elimination of the Interested Person Stock Repurchase Provision.

Your Board of Directors recommends that you vote FOR approval to amend the Company’s Restated Certificate of Incorporation to eliminate the Supermajority Voting Provisions and the Interested Person Stock Repurchase Provision.

49

EMPLOYEE STOCK OPTION AND INCENTIVE PLAN, amended and restated
(“Stock Plan”)
(Proxy Item 4)

Upon the recommendation of the Compensation and Executive Personnel Committee (“Committee”), on February 26, 2010, the Board of Directors (“Board”) ratified and the Company has adopted, subject to stockholder approval on April 22, 2010, the Stock Plan, as amended and restated, which includes the following key amendments:

1. an increase of 2.8 million in the total number of shares of common stock authorized for issuance under equity awards to participants under the Stock Plan;

2. as a portion of this total of 2.8 million, an increase of 1.2 million in the number of shares represented by full-value awards (such as restricted stock, restricted stock units, stock payments, performance units and dividend equivalents) that may be granted under the Stock Plan; and

3. the addition of the members of the Company’s Board as eligible participants in the Stock Plan.

In January 1990, the Company’s Board adopted the Stock Plan and in March 1990 the stockholders approved it. In February 1991, January 1994, September 1995, February 2003, February 2005 and February 2008, the Board adopted certain amendments to the Stock Plan, which were approved by the stockholders in March 1991, April 1994, April 1996, April 2003, April 2005 and April 2008, respectively.

The principal purpose of the ~~Avery Dennison Senior Executive Annual Incentive~~Stock Plan ~~(the “Plan”)~~ is to ~~attract~~provide incentives for employees and ~~retain highly qualified individuals as senior executives~~directors of ~~Avery Dennison Corporation (“Avery Dennison” or “Company”); to focus their attention on achieving certain business objectives established for Avery Dennison~~the Company and its ~~business units;~~subsidiaries through granting of stock options and other equity awards, thereby stimulating their personal and active interest in the Company’s development and financial success, and inducing them to remain in the Company’s service.

As of December 31, 2009, there were approximately 1,452,000 full-value awards that are outstanding under the Stock Plan. As of December 31, 2009, a total of approximately 10,130,000 shares were subject to outstanding stock options, of which approximately 6,436,000 were exercisable, and equity awards were held by more than 800 employees. As of December 31, 2009, assuming that all outstanding options are exercised, approximately 3,348,000 shares remained available for the grant of new stock options, including approximately 1,180,000 full value awards, under the Stock Plan. Subject to stockholder approval, as of April 22, 2010, the number of shares deliverable pursuant to awards shall be increased by 2,800,000 under the Stock Plan.

Shares issued under the Stock Plan upon the exercise of stock options and the vesting of other equity awards, may be previously unissued shares, issued shares which have been repurchased by the Company as treasury shares, or former treasury shares that are held in a grantor trust. The Stock Plan provides for appropriate adjustments in the number and kind of shares subject to the Stock Plan and to ~~provide these individuals with incentive compensation that~~outstanding grants thereunder in the event of a stock split, stock dividend or certain other types of recapitalizations or reorganizations.

If any portion of a stock option or other equity award terminates or lapses unexercised, or unvested, or is ~~intended~~canceled, the shares, which were subject to ~~qualify as performance-based compensation~~such option or other equity award, will continue to be available for issuance under the Stock Plan. The Company has not repriced and will not reprice any stock option under the Stock Plan. This Stock Plan has been designed to meet the requirements of Section 162(m) of the Internal Revenue Code, ~~of 1986,~~ as amended (the “Code”).

~~In general, Section 162(m)~~ regarding deductibility of executive compensation. The principal features of the ~~Code imposes a limit on corporate tax deductions for compensation~~Stock Plan, as amended and restated, are summarized herein below, but the summary is qualified in ~~excess of $1 million per year paid~~its entirety by ~~a public company~~reference to ~~its CEO or any~~the Stock Plan itself. Copies of the ~~next four highest paid executive officers~~Stock Plan will be available at the Annual Meeting of Stockholders and can also be obtained by making written request to the Company’s Secretary. A copy of the amended and restated Stock Plan is attached as ~~listed in the proxy statement, other than the principal financial officer. An exception~~Exhibit D to this ~~limitation is provided for performance-based compensation.~~Proxy Statement.

50

~~Dennison as reported~~ in a separate agreement with the ~~Consolidated Statement~~person receiving the award and will indicate the type, terms and conditions of ~~Income as reported or referenced in~~ the ~~Company’s Annual Report onForm 10-K.~~award.

~~Award Determinations~~Nonqualified stock options (“NQSOs”) will provide for the right to purchase common stock at an exercise price equal to at least 100% of fair market value of common stock on the grant date. NQSOs have been granted with a term of ten years.

~~By no later than~~Incentive stock options (“ISOs”),if granted, will be designed to comply with the ~~latest time permitted by Section 162(m)~~provisions of the Code ~~(generally,~~and will be subject to restrictions contained in the Code, including exercise prices equal to at least 100% of fair market value of common stock on the grant date and a ten year restriction on their term, but may be subsequently modified to disqualify them from treatment as an incentive stock option.

Stock appreciation rights may be granted in connection with stock options or other awards, or separately. SARs granted by the Committee in connection with stock options or other awards typically will provide for ~~performance periods of one year or more, no later than 90 days after~~payments to the ~~commencement~~holder based upon increases in the price of the ~~performance period) and while~~Company’s common stock over the ~~performance relating to the performance goal remains substantially uncertain within the meaning of Section 162(m)~~exercise price of the Code, the Committee shall establish the Plan’s Performance Goal for such performance period based upon the Company’s Gross Profit, less Marketing, General and Administrative expense for such performance period.

~~There are currently seven employees who would be eligible to receive~~related option or other awards, ~~under the Plan for 2009,~~ subject to ~~approval of the Plan by the Company’s stockholders. The actual amount of future award payments under the Plan is not presently determinable because~~ such amounts are dependent on the future attainment of the performance goal with respect to such payments. The maximum annual incentive payable to the Chief Executive Officer for any Plan Year, where “Plan Year” is definedrestrictions and requirements as ~~the fiscal year for Avery Dennison, shall~~may be one and a half percent (1.5%) of the Gross Profit, less Marketing, General and Administrative expense for such Plan Year, while the maximum annual incentive payable for any Plan Year to any other Participant who is not the Chief Executive Officer shall be seventy-five hundredths of one percent (0.75%) of the Gross Profit, less Marketing, General and Administrative expense for such Plan Year.

The Committee shall have authority to exercise discretion in determining the amount of the targeted award granted to each Participant at the beginning of a performance period, provided that no such targeted award shall exceed the foregoing maximum award limits, and to exercise discretion to reduce the amount of a targeted award which shall be payable to each Participant at the end of each performance period, subject to the terms, conditions and limits of the Plan and of any other written commitment authorizeddetermined by the Committee. The Committee may at any time establish (and once established, rescind, waive or amend) additional conditions and terms of payment of awards (including but not limited to the achievement of other financial, strategic or individual goals, which may be objective or subjective) as it deems desirable in carrying out the purposes of the Plan and may take into account such other factors as it deems appropriate in administering any aspect of the Plan. However, the Committee shall have no authority to increase the amount of a targeted award granted to any Participant orelect to pay ~~an award under the Plan if the Performance Goal has not been satisfied.~~

The payment of an award to a Participant with respect to a performance period shall be conditioned upon the Participant’s employment by the Company on the last day of the performance period; provided, however, thatSARs in the discretion of the Committee, awards may be paid to Participants who have died or have become disabled or whose employment with the Company has been terminated without cause prior to the last day of the performance period, subject to all other terms and conditions of the Plan.

~~All annual incentive payments under this Plan shall be made in the form of~~ cash or in ~~the form of restricted shares of Avery Dennison~~ common stock, ~~par value $1.00 stock (“Stock”)~~ or ~~restricted stock units with respect to such Stock awarded,~~ in ~~either case, pursuant to the Avery Dennison Employee Stock Option~~a combination of cash and Incentive Plan. The form of any such payment shall be as determined by the Committee in its sole discretion. Such restricted stock or restricted stock units shall vest based on the passage of time or other conditions all as determined by the Committee.common stock.

Restricted stock and restricted stock units may be sold or granted to participants at various prices and made subject to such restrictions and requirements as may be determined by the Committee. Performance units may be granted to participants subject to such restrictions and requirements as may be determined by the Committee. The increase in the total number of shares represented by full-value awards (restricted stock, restricted stock units, stock payments, deferred stock, performance units and dividend equivalents) that may be awarded under the Stock Plan is 1.2 million. Restricted stock, typically, may be repurchased by the Company at the original purchase price if the conditions or restrictions are not met. In general, restricted stock may not be sold, or otherwise transferred or pledged, until restrictions are removed or expire. Purchasers of restricted stock, unlike recipients of options and other equity awards, will have voting rights and will be credited with dividends prior to ~~be valued~~the time when the restrictions lapse. Restricted stock units represent the right to receive, at a specified time or times, a specified number of shares of common stock, as the Committee shall determine. Performance units represent the right to receive, at a specific time or times based on performance criteria established by the Committee, either a specified number of shares of common stock, or a cash payment equal to the fair market value of a specified number of shares of common stock, as the Committee shall determine.

Dividend equivalents may be credited to a participant in the Stock Plan. They represent the value of the dividends per share paid by the Company, calculated with reference to the number of shares covered by options, SARs, restricted stock, RSUs or other awards held by the participant.

Stock atpayments may be granted pursuant to the ~~date the annual incentive~~Stock Plan. A stock payment is ~~made. (Fair market value is defined as~~a payment in the ~~average~~form of shares of the ~~high and the low prices~~Company’s common stock or an option or other right to purchase shares, as part of a ~~share~~bonus, deferred compensation or other arrangement. Stock payments may, but are not required to, be made in lieu of base salary, bonus, fees or other cash compensation otherwise payable to any individual who is eligible to receive awards. The number of shares will be determined by the Committee and may be based upon specific performance criteria determined appropriate by the Committee. Recipients of stock payments will have voting rights.

Deferred stock may be granted pursuant to the Stock Plan. Deferred stock is a right to receive shares of the Company’s common stock. Deferred stock may be awarded to participants and may be linked to any performance criteria determined to be appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the ~~New York Stock Exchange on the date in question.) All annual incentive payments~~Committee. Deferred stock may constitute, or provide for a ~~Plan Year shall be completed no later than March 15~~deferral of compensation, subject to Section 409A of the ~~year following~~Code and there may be certain tax consequences if the ~~end~~requirements of ~~such Plan Year; provided, however, that no payment shall be made under this Plan until and unless~~Section 409A of the ~~Committee has certified in writing that: (a) the Performance Goal~~Code are not met. Please see “Federal Income Tax Consequences” for ~~such Plan Year has been satisfied and the amount has been determined, and (b) the maximum annual incentive limitations described above have not been exceeded.~~more information.

4452

IfMiscellaneous Provisions

Equity agreements may provide for termination of an award in the event the awardee terminates service in violation of an employment or other service agreement or is discharged for cause. Options and other equity awards under the Stock Plan ~~were~~currently provide that, in ~~effect for~~the event of a “change of control”’ (as defined in the Stock Plan) of the Company, all previously unexercisable options and unvested awards will vest immediately. Any options held by a director that are not yet exercisable on the date of such director’s retirement at or after age 72 years will become fully exercisable on that date.

The Stock Plan provides that the period ~~that began on December 30, 2007~~of exercisability, following retirement, for options is (i) the full term of the option for a Level 1 executive; (ii) the lesser of five years or the full term of the option for options granted to a Level 2 through Level 4 executive or director; and ~~ended on December 27, 2008, based on~~(iii) the ~~Performance Measure,~~lesser of three years or the ~~maximum award~~full term of the ~~Participants in the Plan could have received is as follows:~~option for all other optionees.

Name and Position
Dollar Value Number of Units⁽¹⁾

Dean A. Scarborough, President and CEO $ 6,340,000 N/A
Daniel R. O’Bryant, EVP⁽²⁾, Finance and CFO
$ 3,170,000 N/A
Robert G. van Schoonenberg, EVP and Chief Legal Officer⁽³⁾
$ 3,170,000 N/A
Timothy S. Clyde, GVP⁽²⁾, Specialty Materials and Converting
$ 3,170,000 N/A
Robert M. Malchione, SVP⁽²⁾, Corporate Strategy and Technology
$ 3,170,000 N/A

Executive Group $ 19,020,000
Non-Executive Director Group —
Non-Executive Officer Employee Group⁽⁴⁾
$ 9,510,000

No option, SAR or other award granted under the Stock Plan may be assigned or transferred by the awardee, except by will or the laws of intestate succession, or to a properly designated beneficiary or transferee. During the lifetime of the holder of any option or right, the option or right may be exercised only by the holder, his guardian or legal representative, or properly designated transferee.

The Company requires participants to discharge withholding tax obligations in connection with the exercise of any option or other award granted under the Stock Plan or the lapse of restrictions on restricted stock, as a condition to the issuance or delivery of stock or payment of other compensation pursuant thereto. Shares held by or to be issued to a participant as a result of an award may also be used to discharge tax withholding obligations related to exercise of options or receipt of other awards, subject to the discretion of the Committee to disapprove such use.


⁽¹⁾		~~Maximum award is stated in dollar terms. Awards may be made, in whole or part, in the form of restricted stock or restricted stock units at the discretion of the Committee.~~

⁽²⁾		~~“EVP,” “GVP” and “SVP” mean Executive Vice President, Group Vice President and Senior Vice President, respectively.~~

⁽³⁾		~~Mr. van Schoonenberg retired at the end of 2008; he will not be eligible to receive an award under the Plan for 2009.~~

⁽⁴⁾		~~Represents the total of the maximum awards for 3 non-NEO participants.~~

~~Amendment~~Federal Income Tax Consequences

The tax consequences of the Stock Plan under current federal law are summarized in the following discussion, which deals with the general tax principles applicable to the Stock Plan, and is intended for general information only. In addition, the tax consequences described below are subject to the limitation of OBRA. Under OBRA, which became law in August 1993, income tax deductions of publicly-traded companies may be limited to the extent total compensation (including base salary, annual bonus, stock option exercises and nonqualified benefits paid in 1994 and thereafter) for certain executive officers exceeds $1 million (less the amount of any “excess parachute payments” as defined in section 280G of the Code) in any one year. However, under OBRA, the deduction limit does not apply to qualified “performance-based” compensation established by an independent compensation committee, which is adequately disclosed to, and approved by, stockholders. In particular, stock options and stock appreciation rights will satisfy the performance-based exception if the awards are made by a qualifying compensation committee, the Stock Plan sets the maximum number of shares that can be granted to any particular participant within a specified period, and the compensation is based solely on an increase in the stock price after the grant date (i.e., the option exercise price is equal to or greater than the fair market value of the stock subject to the award on the grant date). The Company believes that it has complied with the requirements of the performance-based compensation exclusion under Section 162(m) of the Code for the Stock Plan, including option pricing requirements and requirements governing the administration of the Stock Plan so that deductibility of compensation paid to senior executives thereunder is not expected to be disallowed. Alternative minimum tax and state and local income taxes are not discussed below, and may vary depending on individual circumstances and from locality to locality.

Nonqualified Stock Option. For federal income tax purposes, the recipient of NQSOs granted under the Stock Plan will not have taxable income upon the grant of the option, nor will the Company then be entitled to any deduction. Generally, upon exercise of NQSOs, the optionee will realize ordinary income, and the Company will be entitled to a deduction, in an amount equal to the difference between the option exercise price and the fair market value of the stock on the date of exercise. An optionee’s basis for the stock for the purpose of determining his gain or loss on his subsequent disposition of the shares generally will be the fair market value of the stock on the date of exercise of the NQSO.

53

Incentive Stock Option. There is no taxable income to an employee when an ISO is granted or when that option is exercised; however, the amount by which the fair market value of the shares at the time of exercise exceeds the option price will be an “item of tax preference”’ for the optionee. Gain realized by an optionee upon sale of stock issued on exercise of an ISO is taxable at capital gains rates, and no tax deduction is available to the Company, unless the optionee disposes of the shares within two years after the date of grant of the option or within one year of the date the shares were transferred to the optionee. In such event, the difference between the option exercise price and the fair market value of the shares on the date of the option’s exercise will be taxed at ordinary income rates, and the Company will be entitled to a deduction to the extent the employee must recognize ordinary income. An ISO that is exercised more than three months after an optionee’s retirement from employment, other than by reason of death or disability, will be taxed as an NQSO, with the optionee deemed to have received income upon such exercise taxable at ordinary income rates. The Company will be entitled to a tax deduction equal to the ordinary income, if any, realized by the optionee.

Stock Appreciation Right. No taxable income is realized upon the receipt of a SAR, but upon exercise of the SAR the fair market value of the shares (or cash in lieu of shares) received must be treated as compensation taxable as ordinary income to the recipient in the year of such exercise. The Company will be entitled to a deduction for compensation paid in the same amount that the recipient realized as ordinary income.

Restricted Stock. Unless an election is made under Section 83(b) of the Code, a recipient to whom restricted stock is issued will not have taxable income upon issuance and the Company will not then be entitled to a deduction. However, when restrictions on shares of restricted stock lapse, such that the shares are no longer subject to repurchase by the Company, the recipient will realize ordinary income and the Company will be entitled to a deduction in an amount equal to the fair market value of the shares at the date such restrictions lapse, less the purchase price thereof. If an election is made under Section 83(b), the recipient will realize ordinary income at the date of issuance equal to the difference between the fair market value of the shares at that date less the purchase price thereof and the Company will be entitled to a deduction in the same amount.

Restricted Stock Unit. A recipient, who has been granted a restricted stock unit award, will not realize taxable income until the recipient receives stock or cash pursuant to the award, at which time such recipient will realize ordinary income equal to the full fair market value of the shares delivered or the amount of cash paid. At that time, the Company generally will be allowed a corresponding tax deduction equal to the compensation taxable to the recipient, subject to any other Code restrictions.

Performance Stock or Performance Unit. A recipient, who has been granted a performance stock or performance unit award, will not realize taxable income until the recipient receives stock (or cash) pursuant to the award, at which time such recipient will realize ordinary income equal to the full fair market value of the shares delivered. In the event the receipt of performance units is deferred under a Company deferred compensation Stock Plan, the recipient will realize ordinary income equal to the full fair market value of the performance units when they are converted into shares and are delivered to the recipient. At such time, the Company generally will be allowed a corresponding tax deduction equal to the compensation taxable to the recipient, subject to any other Code restrictions.

Dividend Equivalent. A recipient of a dividend equivalent award will not realize taxable income at the time of grant, and the Company will not be entitled to a deduction at that time. When a dividend equivalent is paid, the participant will recognize ordinary income, and the Company will be entitled to a corresponding deduction.

Stock Payment. A recipient of a stock payment in lieu of a cash payment that would otherwise have been made generally will be taxed as if the cash payment has been received, and the Company will have a deduction in the same amount.

Deferred Stock. A recipient of deferred stock generally will not have taxable income upon the issuance of the deferred stock nor will the Company be entitled to a deduction. However, when deferred stock vests and is issued to the recipient, the recipient will realize ordinary income and the Company will be entitled to a deduction in an

54

amount equal to the difference between the fair market value of the shares at the date of issuance over the purchase price, if any, for the deferred stock. Deferred stock may be subject to Section 409A of the Code, and the failure of any award of deferred stock that is subject to Section 409A of the Code to comply with Section 409A of the Code may result taxable income to the recipient upon the grant or vesting of the award. Furthermore, an additional 20% penalty tax may be imposed pursuant to Section 409A of the Code, and, potentially, certain interest penalties may apply. Please see “Section 409A of the Code” in this section for more information.

Deferred Compensation. Awardees who defer compensation generally will recognize no income, gain or loss for federal income tax purposes when nonqualified stock options or other awards are granted in lieu of amounts otherwise payable, and the Company will not be entitled to a deduction at that time. When and to the extent options are exercised or awards are received, the ordinary rules regarding awards outlined above will apply. When and to the extent stock or cash is received, the ordinary rules outlined above will apply. Such deferred compensation may be subject to the requirements of Section 409A of the Code, as discussed below.

Section 409A of the Code. Certain awards under the Stock Plan may be considered “nonqualified deferred compensation” subject to Section 409A of the Code, which imposes additional requirements on the payment of deferred compensation. Generally, if at any time during a taxable year a nonqualified deferred compensation plan fails to meet the requirements of Section 409A of the Code, or is not operated in accordance with those requirements, all amounts deferred under the nonqualified deferred compensation plan for the current taxable year and all preceding taxable years, by or for any participant with respect to whom the failure relates, are includible in the gross income of the participant for the taxable year to the extent not subject to a substantial risk of forfeiture and not previously included in gross income. If a deferred amount is required to be included in income under Section 409A of the Code, the amount will be subject to income tax at regular income tax rates plus an additional 20 percent tax, as well as potential premium interest tax.

Reasons for the Amended and Restated Stock Plan

The Committee and the Board have determined that it is advisable to continue to provide stock-based incentive compensation to the Company’s directors and employees, thereby continuing to align the interests of such participants with those of the stockholders, and that awards under the Stock Plan are an effective means of providing such compensation. On February 26, 2010, the Board approved and the Company adopted (subject to stockholder approval) the Stock Plan, as amended and restated, including an increase in the number of shares authorized for issuance and an increase in the number of shares for full-value awards that may ~~at any time amend this Plan,~~be issued. In order to continue to grant stock-based incentive compensation in ~~whole or in part, provided that no amendment, which would (a)~~the future, it is requested to increase the ~~maximum~~number of shares available for issuance under the Stock Plan. Therefore, the Board recommends that 2.8 million additional shares of common stock be reserved under the Stock Plan for issuance on exercise of options and other awards, and that the Stock Plan be approved as amended and restated.

Section 162(m) of the Code. Under Section 162(m) of the Code, which became law in August 1993, income tax deductions of publicly-traded companies may be limited to the extent total compensation (including base salary, annual ~~incentive payable to any Participant, or (b) revise the Performance Goal~~bonus, stock option exercises and nonqualified benefits paid in 1994 and thereafter) for ~~determining~~certain executive officers exceeds $1 million (less the amount of any “excess parachute payments” as defined in Section 280G of the ~~annual incentive~~Code) in any one year. However, under Section 162(m) of the Code, the deduction limit does not apply to qualified “performance-based” compensation ~~payable hereunder, shall become effective until approval~~established by an independent compensation committee which is adequately disclosed to, and approved by, stockholders. In particular, stock options and stock appreciation rights will satisfy the performance-based exception if the awards are made by a qualifying compensation committee, the Stock Plan sets the maximum number of shares that can be granted to any particular participant within a specified period, and the compensation is based solely on an increase in the stock price after the grant date (i.e., the option exercise price is equal to or greater than the fair market value of the stock subject to the award on the grant date).

It is the Company’s policy generally to design the Company’s compensation programs to conform with Section 162(m) of the Code so that total compensation paid to any employee will not exceed $1 million in any one

55

year, except as otherwise approved by the ~~affirmative vote of the shares present~~Committee or ~~represented and entitled to vote at an Annual Meeting of Stockholders.~~

~~Compensation Recovery Policy~~

In the case of fraud or other intentional misconduct on the part of a Participant that necessitates a restatement of the Company’s financial results, such Participant will be required to reimburse the Company for ~~any bonus awards or other incentive~~ compensation ~~paid or issued to such Participant~~payments in excess of $1 million that qualify as “performance-based.” However, the ~~amount~~Company may pay compensation that ~~would have been~~is not deductible in certain circumstances. The Company intends to comply with other requirements of the performance-based compensation exclusion under Section 162(m) of the Code, including option pricing requirements and requirements governing the administration of the Stock Plan, so that, upon stockholder approval of the amended and restated Stock Plan, deductibility of compensation paid ~~or issued based on~~to senior executives thereunder is not expected to be disallowed. Accordingly, the ~~restated financial results.~~

~~Other Compensation~~Board is asking stockholders to approve the Stock Plan, as amended and restated.

The proposed amendments will not affect the Federal income tax consequences associated with the Stock Plan, is not exclusive. The Company may and does pay cash, other awards and other compensation to the Participants and to other employees under other authority of the Company’s Board of Directors or applicable law.except as noted above.

In the event that the Company’s stockholders do not approve the Plan, the Participants will not be paid any awards under the Plan. In such event, the Company will consider what other avenues are available to pay compensation to employees who would have participated in the Plan which compensation will be sufficient to properly motivate and retain such employees and which compensation might not be fully tax deductible to the Company.THE FOREGOING SUMMARY DESCRIPTION OF THE PROPOSED AMENDED AND RESTATED STOCK PLAN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE ACTUAL TERMS OF THE STOCK PLAN, WHICH IS ATTACHED TO THIS PROXY STATEMENT AS EXHIBIT D.

Required Vote for Approval and Recommendation of the Board of Directors

The affirmative vote of a majority of the shares present or represented and entitled to vote at the Annual Meeting is required to approve the ~~Plan. A vote in favor of the~~Stock Plan, ~~will also constitute approval of the material terms, including the Performance Goal thereunder, for purposes of Section 162(m) of the Code.~~as amended and restated.

Your Board of Directors recommends that you vote FOR approval of ~~the Plan and the Performance Goal.~~this proposal.

~~THE FOREGOING SUMMARY DESCRIPTION OF THE PROPOSED PLAN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE ACTUAL TERMS OF THE PLAN, WHICH IS ATTACHED TO THIS PROXY STATEMENT AS EXHIBIT D.~~

4556

GENERAL

Stockholder Proposals

Stockholder proposals for presentation at the annual meeting scheduled to be held on April ~~22, 2010,~~28, 2011, must be received at the Company’s principal executive offices on or before November ~~12, 2009.~~19, 2010. The Company’s Bylaws provide that stockholders desiring to nominate persons for election to the Board of Directors or to bring any other business before the stockholders at an annual meeting must notify the Secretary of the Company thereof in writing 90 to 120 days prior to the first anniversary of the preceding year’s annual meeting (or, if the date of the annual meeting is more than 30 days before or more than 7060 days after such anniversary date, 90 to 120 days prior to such annual meeting or within 10 days after the public announcement of the date of such meeting is first made by the Company; or, if the first public announcement of the date of such annual meeting is less than 100 days prior to such annual meeting, the 10th day following the day on which public announcement of such meeting is first made by the Company, or if the number of directors to be elected to the Board of Directors is increased, effective at the annual meeting, and the Company does not make a public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors at least 100 days prior to the first anniversary of the preceding year’s annual meeting, within 10 days after such public announcement is first made by the Company (with respect to nominees for any newly created positions only)). Such notice must include, among other things, (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14 under the 1934 Act, such person’s written consent to be named in the proxy statement as a nominee and to serving as a director if elected, and a description of certain material relationships between such stockholder and beneficial owner (and their associates and affiliates) and each nominee (and their associates and affiliates) as more particularly set forth in the Company’s Bylaws; (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of such business, the text of the proposal or business, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is ~~made,~~made; and (c) the name and record address, and class and number of shares owned beneficially and of record, of such stockholder and any such beneficial ~~owner.~~owner, as well as information relating to security ownership in the Company by such stockholder and such beneficial owner as more particularly set forth in the Company’s Bylaws.

Annual Report

The Company’s ~~2008~~2009 Annual Report to Stockholders is being mailed to all stockholders of record.

ALL STOCKHOLDERS ARE URGED TO VOTE BY TELEPHONE OR ELECTRONICALLY THROUGH THE INTERNET BY FOLLOWING THE INSTRUCTIONS ON THE PROXY CARD, OR TO COMPLETE, SIGN, AND RETURN THE ACCOMPANYING PROXY SOLICITATION/VOTING INSTRUCTION CARD PROMPTLY IN THE ENCLOSED ENVELOPE.

Susan C. Miller

Secretary

Dated: March ~~12, 2009~~19, 2010

4657

EXHIBIT A

AVERY DENNISON CORPORATION

BOARD OF DIRECTORS

INDEPENDENCE STANDARDS

An independent Director is one who the Board of Directors affirmatively determines has no material relationship with Avery Dennison (directly or as a partner, shareholder or officer of an organization that has a relationship with Avery Dennison). The Board has adopted the following categorical standards to assist it in determining each Director’s independence. In the event that a Director has a business or other relationship that does not fit within the described standards and the Director is determined to be independent, the Board will disclose the basis for its determination in the Company’s annual proxy statements or otherwise at least annually.

A Director will be presumed to be independent if the Director:

1) has not been an employee of Avery Dennison for at least five years, other than in the capacity as a former interim Chairman or interim ~~Chief Executive Officer;~~CEO;

2) has not, during the last three years, been affiliated with or employed by a present or former independent auditor of Avery Dennison or of any affiliate of Avery Dennison;

3) has not, during the last three years, been employed as an executive officer by a company for which an executive officer of Avery Dennison concurrently served as a member of such company’s compensation committee;

4) has no immediate family members (i.e., spouse, parents, children, siblings, mothers andfathers-in-law, sons anddaughters-in-law, brothers andsisters-in-law and anyone (other than domestic employees) who shares the Director’s home) who did not satisfy the foregoing criteria during the last three years; provided, however, that with respect to the employment criteria, such Director’s immediate family member may have (i) been affiliated with or employed by a present or former auditor of Avery Dennison or of any affiliate of Avery Dennison other than, in a professional capacity and (ii) served as an employee but not as an executive officer of Avery Dennison during such period;

5) has not received, and has no immediate family member who has received, during the last three years, more than $100,000 in any year in direct compensation from Avery Dennison (other than in his or her capacity as a member of the Board of Directors, or any committee of the Board or pension or other deferred compensation for prior services, provided that such compensation is not contingent in any way on continued service); provided, however, that compensation to such Director’s immediate family member as a non-executive employee shall not be considered in determining independence;

6) has not been during the last three years an executive officer or an employee, and has no immediate family member who, during the last three years, has been an executive officer of a company that made payments to, or received payments from, Avery Dennison for property or services in any of the last three years in an amount which, in any single fiscal year, exceeds the greater of $1 million, or 2% of such other company’s consolidated gross revenues;

7) has not been, and has no immediate family member who has been, an executive officer of a foundation, university, non-profit trust or other charitable organization, for which Avery Dennison and its respective trusts or foundations, account or accounted for more than 2% or $1 million, whichever is greater, of such charitable organizations’ consolidated gross revenues, in any of the last three years;

8) does not serve, and has no immediate family member who has served, as an executive officer or general partner of an entity that has received an investment from Avery Dennison or any of its subsidiaries, unless such investment is less than $1 million or 2% of such entity’s total invested capital, whichever is greater, in any of the last three years; and

47

9) is not otherwise disqualified by applicable ~~Securities and Exchange Commission~~SEC or ~~New York Stock Exchange~~NYSE rules, regulations or listing standards.

58

In addition to the foregoing, a Director will be considered independent for purposes of serving on Avery Dennison’s Audit and Finance Committee only if the Director:

A) has not accepted, directly or indirectly, any consulting, advisory or other compensatory fee from Avery Dennison or any subsidiary of Avery Dennison, other than in the Director’s capacity as a director or committee member or any pension or other deferred compensation for prior service, provided that such compensation is not contingent in any way on continued service; and

B) is not an “affiliated person” of Avery Dennison or any subsidiary of Avery Dennison as defined inRule 10A-3 of the Securities Exchange Act of 1934.

4859

EXHIBIT B

AVERY DENNISON CORPORATION

NON-EMPLOYEE DIRECTOR COMPENSATION SUMMARY FOR 2009⁽¹⁾


Board members
Annual retainer for non-executive Chairman	$	220,000
Annual retainer for other directors	$	55,000
Meeting fees (per meeting)	$	1,500
Annual stock payment (shares of Company stock)		750
Annual stock option grant (stock options)		2,000
(new directors are granted 5,000 options when they join the Board)
Committee Chairman retainer
Audit Committee	$	10,000
Compensation and Executive Personnel Committee	$	10,000
Other Committees	$	5,000
Committee meeting fees (per meeting)
Chairman	$	2,000
Members	$	1,500


⁽¹⁾		~~Effective July 27, 2006~~

4960

EXHIBIT C

AVERY DENNISON CORPORATION

STATEMENT OF STOCK OWNERSHIP POLICY

FOR OFFICERS AND DIRECTORS

Avery Dennison believes that the ownership of Company stock is both a privilege and a responsibility that executive management should be encouraged to exercise. By holding a significant stake in the future of the Company, management demonstrates its commitment to the long-term profitability of the Corporation and better serves the interests of the Company and all of its shareholders.

It is the policy of the Company that each ~~officer~~executive and director ~~should commit to achieving~~shall own and ~~maintaining~~continuously hold a ~~certain level of stock ownership, including stock purchased with employee contributions in the Employee Savings Plan, during tenure with the Company:~~


~~Officers / Directors~~		~~Target~~

~~Chief Executive Officer~~		~~400%~~⁽¹⁾
~~Executive / Senior Corporate Officers~~		~~200%~~⁽¹⁾
~~Certain Division Officers (VPs and Division Officers for the two largest economic value divisions)~~		~~2,000 shares~~
~~Other Officers~~		~~1,000 shares~~
~~Non-Employee Directors~~		~~Number of shares equal to 5 times~~ ~~annual Board retainer fee~~⁽²⁾

Officers and directors should achieve and maintain these levels of ownership. Newly elected or appointed officers and directors should work toward achieving these levels of ownership over a three- to five-year period.

The Company is mindful that each individual’s personal circumstances will affect progress toward the targeted levels of stock ownership. Officers who are unable to achieve or maintain the targeted level of ownership within the prescribed time period should consult with the Senior Vice President, General Counsel and Secretary, who will review the situation with the Senior Vice President and Chief Human Resources Officer, and, in appropriate circumstances, with the President and Chief Executive Officer.


⁽¹⁾		~~Base salary multiplied by ownership target (percentage), divided by market value of stock equals~~ number ~~of target shares.~~

⁽²⁾		~~5 times $55,000 divided by market value of stock at year end equals number of target shares.~~

~~Revised June 1, 2007~~

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	(1)		Title of each class of securities to which transaction applies:

	(2)		Aggregate number of securities to which transaction applies:

	(3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

	(4)		Proposed maximum aggregate value of transaction:

	(5)		Total fee paid:

	(1)		Amount Previously Paid:

	(2)		Form, Schedule or Registration Statement No.:

	(3)		Filing Party:

	(4)		Date Filed:


⁽¹⁴⁾		Ms. Reed joined the Board in October 2009. Includes ~~256,043~~490 stock units designated for Ms. Reed under the DDECP.

⁽¹⁵⁾		Includes 317,974 shares with respect to which Mr. O’Bryant holds options exercisable within 60 days from December 31, ~~2008.~~2009. Also includes ~~33,555~~17,579 shares of restricted stock that are scheduled to vest ~~in two equal installments~~ on ~~April 1, 2009 and~~ August 14, 2012.

⁽¹⁵⁾		~~Includes 337,650 shares with respect to which Mr. van Schoonenberg holds options exercisable within 60 days from December 31, 2008.~~

⁽¹⁶⁾		Includes ~~240,420~~59,443 shares with respect to which Mr. Nolan holds options exercisable within 60 days from December 31, 2009.

⁽¹⁷⁾		Includes 292,829 shares with respect to which Mr. Clyde holds options exercisable within 60 days from December 31, ~~2008.~~2009.

^(17)(18)		Includes ~~270,659~~312,743 shares with respect to which Mr. Malchione holds options exercisable within 60 days from December 31, ~~2008.~~2009.

^(18)(19)		Includes ~~2,359,810~~2,459,449 shares with respect to which all executive officers and directors as a group hold options exercisable within 60 days from December 31, ~~2008.~~2009.


			3-Year
			Cumulative		3-Year
	2008		EVA⁽¹⁾		Cumulative
	EPS		(in millions)		TSR⁽²⁾⁽³⁾

Threshold (70% payout)	$	3.52	$	428		35^th percentile
100% payout	$	4.40	$	535		50^th percentile
150% payout	$	4.58	$	564		60^th percentile
200% payout	$	4.75	$	587		70^th percentile


			3-Year
			Cumulative			3-Year
	2008		EVA			Cumulative			Achievement
	EPS		(in millions)			TSR⁽⁴⁾			Factor

Target	$	4.40	$	535			50.0	%		100	%
Year-end Result	$	2.70	$	351			38.2	%		25	%
Adjustment Items:
Divestitures⁽¹⁾		—	$	(15	)		—			—
Acquisitions⁽²⁾	$	0.38	$	89			—			—
Restructuring and Integration⁽³⁾	$	0.60	$	170			—			92	%

Adjusted Result	$	3.68	$	595			38.2	%		117	%


Check the appropriate box:
o Preliminary Proxy Statement	o	Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))


o		Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12


o		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.


o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.



		Peter K. Barker, age ~~60.~~61. Since September 2009, Mr. Barker ishas been the Chairman of California for JPMorgan Chase & Company, a ~~private investor.~~global financial services firm. From November 1982 through November 1998, Mr. Barker was a partner inwith Goldman Sachs & Company, an investment banking, securities and investment management firm. He is also a director of Fluor Corporation, an engineering, procurement, construction, and maintenance services ~~company, and GSC Investment Company, a business development~~ company. He has been a director of Avery Dennison Corporation since January 2003. During the past five years, Mr. Barker has been a private investor and also served as a director of Ameron International Corporation, Catellus Corporation, GSC Investment Company, and Stone Energy Corporation. Mr. Barker’s qualifications to be a member on our Board include his experience as a chairman, as well as his more than thirty-seven years of experience in the investment banking and investment management profession. His present term expires in 2011.


		~~Rolf Börjesson~~~~, age 66. Since May 2008,~~the defense systems industry. Mr. ~~Börjesson has been~~Kresa will retire at the ~~Retired Chairman of Rexam PLC, a worldwide consumer packaging company~~Annual Meeting in London, United Kingdom. From May 2004 through April 2008, Mr. Börjesson was non-executive Chairman of Rexam. From 1996 through May 2004, Mr. Börjesson served as Chief Executive Officer of Rexam. He is also a director of SCA AB (Svenska Cellulosa Aktiebolaget), a pulp and paper manufacturer based in Stockholm, Sweden and Huhtamäki Oyj, a manufacturer of consumer and specialty packaging based in Espoo, Finland. He has been a director of Avery Dennison Corporation since January 2005. His present term expires in 2010.

		~~Peter W. Mullin~~, age 68. Since November 2008, Mr. Mullin has been Chairman Emeritus of MullinTBG, an executive compensation, benefit planning and corporate insurance consulting firm. From March 2006 through October 2008, Mr. Mullin was Chairman of MullinTBG; prior to March 2006, he was Chairman of Mullin Consulting, Inc.; and prior to July 2003, Mr. Mullin also served as Chief Executive Officer of Mullin Consulting. He has been a director of Avery Dennison Corporation since January 1988. His present term expires in 2010.

		~~Patrick T. Siewert~~~~, age 53. Since April 2007, Mr. Siewert has been a Managing Director for The Carlyle Group, an investment company. From February 2006 through March 2007, Mr. Siewert was a Senior Advisor to TheCoca-Cola~~ ~~Company, a worldwide beverage company. From August 2001 through March 2007, Mr. Siewert was Group President, Asia TheCoca-Cola~~ Company. He is also a director of Computime Group Ltd., a manufacturer of home and commercial control products in Hong Kong. He has been a director of Avery Dennison Corporation since April 2005. His present term expires in 2010.April.


	Sales Growth			EPS

Threshold (50% payout)		2.0	%	$	3.92
100% payout		8.5	%	$	4.35
150% payout		9.0	%	$	4.46
200% payout		9.5	%	$	4.56


	(1/3) Sales					Financial
	Growth			(2/3) EPS		Modifier

Target		8.5	%	$	4.35		100	%
Year-end Result		6.4	%	$	2.70		28	%
Adjustment Items:
Acquisitions⁽¹⁾		(0.6	)%		—		(2	)%
Currency Translation⁽²⁾		(2.7	)%		—		(7	)%

Adjusted Result		3.1	%	$	2.70		19	%


⁽¹⁾		~~Economic value added (“EVA”) is net operating profit after taxes minus a capital charge.~~

⁽²⁾		~~Total shareholder return (“TSR”) is return on the Company’s stock, including the reinvestment of dividends.~~

⁽³⁾		~~The Company’s relative TSR compared to other companies in the S&P 500 Index during the performance period.~~


⁽¹⁾		~~Exclude one-time tax gain on divested operations.~~

⁽²⁾		~~Exclude impact of acquisitions completed after the beginning of the performance period that were not planned for in the performance period.~~

⁽³⁾		~~Exclude restructuring (including asset impairment) charges and acquisition-related integration costs that were not planned for in the performance period.~~

⁽⁴⁾		~~Measured against the companies that were in the S&P 500 Index throughout the performance period.~~


o		Definitive Additional Materials


þ		No fee required.


	•	enhance the link between the creation of stockholder value and long-term incentive compensation

	•	provide an opportunity for increased equity ownership

	•	maintain competitive levels of total direct compensation


⁽⁶⁾		Amounts in the table include the bonuses earned under the Company’s annual bonus plan in ~~2008,~~2009, but paid in ~~2009, and the bonuses that were earned under the LTIP for the2006-2008~~ ~~cycle, but paid in 2009. Under the LTIP, the NEOs have been eligible for a payout every other year.~~


Name	Annual Bonus		2006-2008 LTIP Bonus

Dean A. Scarborough	$	220,000	$	1,105,650
Daniel R. O’Bryant	$	70,200	$	523,973
Robert G. van Schoonenberg	$	66,400	$	544,658
Timothy S. Clyde	$	55,000	$	363,540
Robert M. Malchione	$	54,700	$	448,438

	2010.

⁽⁷⁾		Reflects the increase during ~~2008~~2009 in the actuarial present value of each NEO’s accumulated benefits under the ~~Avery~~ Pension Plan, BRP, and SERP (as applicable), and, with respect to Mr. Scarborough, ~~and Mr. van Schoonenberg,~~ above-market earnings of $3,421 earned in ~~2008~~2009 based on ~~their~~his participation in a legacy deferred compensation plans*plans (which ~~were~~was frozen prior to ~~2008~~2009 and ~~are~~is no longer open for additional Company or executive contributions) ~~of $1,034 and $217,576, respectively. These amounts are~~. This amount is also reported in theAggregate Earnings in Last Fiscal Yearcolumn of the Nonqualified Deferred Compensation table. ~~Above-market~~Above-


⁽¹⁾		Vests in equal installments on the first four anniversaries of the grant date.

⁽²⁾		Vests after year three, four or five following the year of the award (2005), if the Company achieves ~~certain performance objectives.~~ROTC that equals or exceeds the 67th percentile of the ROTC for the market basket of peer group companies.

⁽³⁾		Vests after year three, four or five following the year of the award (2006), if the Company achieves ~~certain~~the performance ~~objectives.~~objective described in footnote 2 above.

⁽⁴⁾		Vests ~~in equal installments~~ on ~~April 1, 2009 and~~ August 14, 2012.

⁽⁵⁾		Cliff-vests three years from grant date.

⁽⁶⁾		Cliff-vests three years from grant date, subject to meeting certain threshold performance ~~objectives (at threshold).~~objectives.

⁽⁷⁾		The closing price of the Company’s common stock on December 31, 2009 was $36.49.


		Number of		Present					Number of		Present
		Years of		Value of		Payments			Years of		Value of		Payments
		Credited		Accumulated		During Last			Credited		Accumulated		During Last
		Service		Benefit⁽¹⁾		Fiscal Year			Service		Benefit⁽¹⁾		Fiscal Year
Name	Plan Name	(#)		($)		($)		Plan Name	(#)		($)		($)

Dean A. Scarborough	Avery Pension Plan		24.83	$	490,648		—	Pension Plan		25.83	$	610,420		—
	Benefit Restoration Plan		14.08	$	1,497,324		—	Benefit Restoration Plan		15.08	$	1,870,845		—
	Supplemental Executive Retirement Plan		3.67	$	3,632,105		—	Supplemental Executive Retirement Plan		4.67	$	5,869,095		—

	Total			$	5,620,077			Total			$	8,350,360

Daniel R. O’Bryant	Avery Pension Plan		17.25	$	303,130		—	Pension Plan		18.25	$	388,662		—
	Benefit Restoration Plan		13.08	$	563,808		—	Benefit Restoration Plan		14.08	$	714,906		—
	Supplemental Executive Retirement Plan		4.00	$	1,201,213		—	Supplemental Executive Retirement Plan		5.00	$	1,285,869		—

	Total			$	2,068,151			Total			$	2,389,437

Robert G. van Schoonenberg	Avery Pension Plan		26.17	$	914,600		—
	Benefit Restoration Plan		14.08	$	1,641,282		—
Donald A. Nolan								Pension Plan		1.83	$	23,186		—
	Supplemental Executive Retirement Plan		4.00	$	1,962,818		—	Benefit Restoration Plan		1.83	$	25,620		—

	Total			$	4,518,700			Total			$	48,806

Timothy S. Clyde	Avery Pension Plan		19.58	$	240,674		—	Pension Plan		20.58	$	315,956		—
	Benefit Restoration Plan		12.08	$	289,153		—	Benefit Restoration Plan		13.08	$	380,624		—

	Total			$	529,827			Total			$	696,580

Robert M. Malchione	Avery Pension Plan		7.50	$	146,759		—	Pension Plan		8.50	$	200,816		—
	Benefit Restoration Plan		7.50	$	347,056		—	Benefit Restoration Plan		8.50	$	445,549		—

	Total			$	493,815			Total			$	646,365


⁽¹⁾		The “Present Value of Accumulated Benefit” for each NEO for each plan is the lump-sum value of the pension benefit earned as of December 31, ~~2008.~~2009. The annual pension benefit for the NEOs is assumed to commence on the earliest retirement age for which there is an


					Aggregate											Aggregate
	Executive		Registrant		Earnings / (Losses)			Aggregate				Executive		Registrant		Earnings		Aggregate
	Contribution in		Contributions in		in Last			Withdrawals /		Aggregate Balance		Contribution in		Contributions in		in Last		Withdrawals /		Aggregate Balance
Name	Last Fiscal Year		Last Fiscal Year⁽²⁾		Fiscal Year⁽³⁾			Distributions		at 12/31/08		Last Fiscal Year		Last Fiscal Year⁽²⁾		Fiscal Year⁽³⁾		Distributions		at 12/31/09

Dean A. Scarborough		—	$	55,325	$	(933,647	)		—	$	2,151,292		—	$	46,398	$	485,055		—	$	2,682,745
Daniel R. O’Bryant		—	$	23,200	$	(547,592	)		—	$	1,075,690		—	$	18,762	$	291,390		—	$	1,385,842
Robert G. van Schoonenberg		—	$	24,503	$	(146,784	)		—	$	5,627,088
Donald A. Nolan													$50,000		—	$	4,853		—	$	54,853
Timothy S. Clyde		—	$	17,218	$	(119,287	)		—	$	216,954		—	$	15,360	$	65,484		—	$	297,798
Robert M. Malchione		—	$	17,153	$	(95,850	)		—	$	180,366		—	$	14,430	$	55,684		—	$	250,480


⁽¹⁾		Participants with balances in variable deferred compensation plans may choose from a group of funds selected by the Company ranging from money market and bond funds to index and other equity/mutual funds. Participants may make fund changes via an online database provided


	•	Payments at the time of retirement are discussed in the Pension Benefits For 2009 and the Nonqualified Deferred Compensation For 2009 sections above.


	•	A lump-sum payment equal to three times (two times in Mr. Nolan’s case) (i) the executive’s highest combined annual base salary and annual bonus during the last three full fiscal years (for the purposes of this severance calculation, ~~2008~~2009 is not considered a full fiscal year) prior to the date of termination.

	•	All stock options would vest upon a change of control, whether or not there is a qualifying termination. The value of this benefit is based on the excess of the closing price of the Company’s stock at year end over the exercise price of the options, multiplied by the number of options vesting upon a change of control.

	•	In the event of a change of control, the benefits under Mr. O’Bryant’s retention agreement would vest. In accordance with Mr. O’Bryant’s retention agreement, he would receive $180,000 for each full fiscal year remaining on the agreement at the time of termination in lieu of foregone annual stock option awards.

	•	All restrictions applicable to restricted stock, RSUs, PUs ~~RSUs,~~ and associated dividend equivalents lapse following a change of control, whether or not there is a qualifying termination (PUs ~~payout~~would be paid out at target). The value of this benefit is the closing price of the Company’s stock multiplied by the number of shares vesting.

	•	~~A lump-sum payment for the2006-2008~~ ~~LTIP cycle, assuming payout at target.~~

	•	Continued equivalent health and welfare benefits (medical, dental, life insurance, and disability) for a period of up to 36 months after termination ~~(with~~(24 months in Mr. Nolan’s case), with the executive bearing any portion


	•	~~Continued~~NEOs, with the exception of Mr. Nolan, would receive perquisite benefits (auto allowance, club dues, office and support staff) for a period of up to 36 months after termination, provided, however, that such benefits would be discontinued to the extent the executive receives similar benefits from a subsequent employer.

	•	Outplacement assistance up to ~~$50,000.~~$50,000 ($25,000 in Mr. Nolan’s case).

	•	AnNEOs, with the exception of Mr. Nolan, would receive an additional retirement benefit equal to the difference between:


	(a)	the benefit payable to the NEOs under the Company’s qualified, excess and supplemental defined benefit retirement plans assuming the NEOs remained employed for an additional 3 years, and


	(b)	the vested benefit earned by the NEOs under the Company’s qualified, excess and supplemental defined benefit retirement plans, if any.


	•	Mr. Scarborough would receive immediate vesting in certain currently unvested interest credits to one of his nonqualified deferred compensation accounts, and Mr. O’Bryant would receive immediate vesting in certain currently unvested benefits in his nonqualified deferred compensation accounts.

	•	If Mr. Nolan’schange-in-control payments triggered an excise tax under IRC Section 280G, he would receive the better of, on an after-tax basis, (i) full benefits under the COC Severance Plan and he would pay the excise tax out of these proceeds, or (ii) his payments would be reduced until the excise tax is no longer triggered.

	•	Agross-up payment to hold the NEOs, with the exception of Mr. Nolan, harmless against the impact, if any, of federal excise taxes imposed on the NEOs as a result of the payments contingent on a change of control.


	—	A“gross-up” under IRC Section 280G is a contract provision under which the Company will pay the excise tax (and associated taxes) with respect to the payments received by the individual in the event of a change of control, such that the individual is left with the full, normally taxable amount of the benefit to which the individual is entitled. The excise tax amount is based on the Company’s estimate of the individual’s liability under IRC Sections 280G and 4999, assuming that a termination under a change of control occurred on December 31, ~~2008.~~2009.


⁽¹⁾		The ESBT and Wachovia Bank, N.A., a Wells Fargo Company, as Trustee, disclaim beneficial ownership of these shares.

⁽²⁾		Based on information contained in the Schedule 13G of ~~Capital Research Global Investors~~BlackRock for the period ending December 31, ~~2008. Capital Research Global Investors~~2009. BlackRock is ~~an advisor,~~a parent holding company or control person, in accordance withSection 240.13d-1(b)(1)(ii)~~(E)~~(G) of the 1934 Act.

⁽³⁾		Based on information contained in the Schedule 13G of Capital ~~World~~Research Global Investors for the period ending December 31, ~~2008.~~2009. Capital ~~World~~Research Global Investors is an investment advisor, in accordance withSection 240.13d-1(b)(1)(ii)(E) of the 1934 Act.

⁽⁴⁾		Based on information contained in the Schedule 13G of T. Rowe Price Associates, Inc. for the period ending December 31, 2008. T. Rowe Price Associates, Inc. is an advisor, in accordance with Section 240.13d-1(b)(1)(ii)(E) of the 1934 Act.


(In millions)	2008		2007		2009		2008

Audit Fees	$	8.8	$	9.1	$	7.7	$	8.8
Audit Related Fees		.3		.9		.3		.3
Tax Fees:
Compliance		3.2		2.5		2.6		3.2
Planning		2.8		2.6		1.1		2.8
Other Fees		—		—		—		—

Total Fees	$	15.1	$	15.1	$	11.7	$	15.1


Name and Position	Dollar Value		Number of Units⁽¹⁾

Dean A. Scarborough, President and CEO	$	6,340,000	N/A
Daniel R. O’Bryant, EVP⁽²⁾, Finance and CFO	$	3,170,000	N/A
Robert G. van Schoonenberg, EVP and Chief Legal Officer⁽³⁾	$	3,170,000	N/A
Timothy S. Clyde, GVP⁽²⁾, Specialty Materials and Converting	$	3,170,000	N/A
Robert M. Malchione, SVP⁽²⁾, Corporate Strategy and Technology	$	3,170,000	N/A

Executive Group	$	19,020,000
Non-Executive Director Group		—
Non-Executive Officer Employee Group⁽⁴⁾	$	9,510,000

2.		~~Ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent auditors for the current fiscal year, which ends on~~ ~~January 2, 2010.~~

3.		~~Approval of the Senior Executive Annual Incentive Plan.~~