UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No.)
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International Paper Company
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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6400 Poplar Avenue
Memphis, Tennessee 38197
JOHN V. FARACI
Chairman and Chief Executive Officer
April 5, 20078, 2008
Dear Fellow Shareholder:Shareowners,
It is my pleasureWhen I look back over the past two years, I am pleased by the progress we have made against our transformation objectives. At the end of 2007, we’re right where we thought we’d be back in 2005 when we announced our plan to invite you to attend the 2007 Annual Meeting of Shareholders ofmake International Paper Company. The meetinga more competitive and profitable company.
In 2007, we continued to strengthen our global paper, packaging and distribution businesses and manage our cost structure. We also returned value to shareowners through significant share repurchases and selectively reinvested in Brazil, China and Russia to build capabilities that will be held at Doral Arrowwood Conference Resort, 975 Anderson Hill Road, Rye Brook, New York, 10573, on Monday, May 7, 2007, at 8:30 A.M.improve our global earnings and create shareowner value. We also continue to invest in North America — most recently with our announced acquisition of Weyerhaeuser’s containerboard, packaging and recycling business.
We appreciate the support of our Board of Directors throughout our transformation and were pleased to welcome during the past year Lynn Laverty Elsenhans, executive vice president, global manufacturing, Shell Downstream Inc., Eastern Time.and J. Steven Whisler, retired chairman and chief executive officer, Phelps Dodge Corp., to our board. Their accomplishments and experience will add significant benefit to International Paper.
Attendance atAs we go forward, we’ve got more to do to achieve our goals of producing the meetingNo. 1 return versus our peer companies and generating profits that exceed our cost of capital. As we execute Year 3 of our transformation plan, we will be limitedcontinue to shareholders of record, or their duly appointed proxy holders (notwork very hard to exceed one proxy per shareholder), at the close of business on March 16, 2007. Ifdeliver performance that generates value for you, plan to attend the meeting, please review the procedures described on page 2 under the heading, “How do I attend the annual meeting?”
At the meeting, you will vote on a number of important matters described in the attached proxy statement.
Your vote is very important. Whether you plan to attend the meeting or not, I urge you to vote your shares. Instructions on how to vote are included with your proxy card and this proxy statement.our shareowners.
Sincerely,
John Faraci
NOTICE OF ANNUAL MEETING OF SHAREHOLDERSSHAREOWNERS
To the Owners of Common Stock of
International Paper Company:
Date: | Monday, May | |
12, 2008 | ||
Time: | ||
11:00 a.m. EDT | ||
Place: |
| |
Items of Business: |
—Proposal One: Elect
—Proposal Five: Approve an amendment to Article VII of our Restated Certificate of Incorporation to eliminate supermajority voting provisions. —Proposal Six: Approve an amendment to Article VIII of our Restated Certificate of Incorporation to eliminate supermajority voting provisions relating to business combinations. Shareowner Proposals: —Proposal Seven: Consider a shareowner proposal regarding majority voting. —Proposal Eight: Consider a shareowner proposal regarding sustainable forestry. —Consider any other business properly brought before the | |
Record Date: | Friday, March |
By order of the Board of Directors,
MAURA A. SMITH
Senior Vice President, General Counsel and
Corporate Secretary
April 5, 20078, 2008
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Performance Metrics for Our Incentive Pay | ||
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Index of Tables | ||
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2007 Potential Post-Employment Compensation: Termination Without Cause (Excluding Change in Control) | 58 | |
2007 Potential Post-Employment Compensation: Change in Control | 61 | |
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2007 Potential Post-Employment Compensation: Payments Upon Retirement | 80 | |
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Important Notice Regarding the Availability of Proxy Materials for the May 12, 2008 Annual Meeting of Shareowners:
This proxy statement, a form of proxy and our annual report to shareowners is available for viewing and printing at the following Web site:
http://ww3.ics.adp.com/streetlink/IP
PROXY STATEMENT
INTERNATIONAL PAPER COMPANY2008 Annual Meeting of Shareowners
6400 Poplar AvenueInformation About Our Annual Meeting
Memphis, Tennessee 38197
(901) 419-9000
This proxy statement is furnished in connection with the solicitation of proxies by International Paper Company on behalf of the Board of Directors for the 20072008 Annual Meeting of Shareholders.Shareowners. Distribution of this proxy statement and proxy form is scheduled to begin on or about April 5, 2007.8, 2008.
We provide information about ourAt the 2008 Annual Meeting, below in the form of a series of questions and answers. If you still have questions, please contact Ms. Maura A. Smith, our corporate secretary, in writing at the above address, by email atmaura.abelnsmith@ipaper.com, or by telephone at (901) 419-3829.
VOTING PROCEDURESAND ANNUAL MEETING ATTENDANCE
The Board of Directors of International Paper Company is soliciting your vote for our 2007 annual meeting.
Whatshareowners will I vote on and how does our Board recommendI vote?
At the annual meeting, you will be asked to vote on the following matters. Our Board recommends that you votematters:
FORCompany Proposals: each of the matters listed below:
the election of fourProposal One: Elect three directors to serve on our Board for a three-year term;term and one director for a one-year term. The Board recommends a voteFOR this proposal.
Proposal Two: Ratify the ratificationselection of Deloitte & Touche LLP as our independent registered public accounting firm for 2007; and2008. The Board recommends a voteFOR this proposal.
Proposal Three: Approve an amendment to Article VII of our Restated Certificate of Incorporation to approve majority voting of directors in non-contested elections. The Board recommends a voteFOR this proposal.
Proposal Four: Approve an amendment to Article VII of our Restated Certificate of Incorporation to elect directors annually. The Board recommends a voteFOR this proposal.
Proposal Five: Approve an amendment to Article VII of our Restated Certificate of Incorporation to eliminate supermajority voting provisions. The Board recommends a voteFOR this proposal.
Proposal Six: Approve an amendment to Article VIII of our Restated Certificate of Incorporation to eliminate supermajority voting provisions relating to business combinations. The Board recommends a voteFOR this proposal.
Shareowner Proposals:
Proposal Seven: Consider a shareowner proposal regarding majority voting. The Board recommends a voteAGAINST this proposal.
Proposal Eight: Consider a shareowner proposal regarding sustainable forestry. The Board recommends a voteAGAINST this proposal.
Consider any other business properly brought before the meeting.
one shareholder proposal described on pages 65 through 66, which we endorse.
Who is entitledVote by Telephone
If you choose to vote atby telephone, you may call the toll-free number on your proxy card. You will need to have the 12-digit control number printed on your proxy card.
Vote on the Internet
If you choose to vote via the Internet, follow the instructions for accessing the Web site on your proxy card. You will need to have the 12-digit control number printed on your proxy card.
Vote by Mail
If you choose to vote by mail, simply mark, sign and date your proxy card and return it in the postage prepaid envelope that was included with the proxy card.
Information about these proposals may be found beginning on page 8 of this proxy statement.
The Board has designated John V. Faraci, our chairman and chief executive officer, Tim S. Nicholls, our senior vice president and chief financial officer, and Maura A. Smith, our senior vice president, general counsel and corporate secretary, as proxies in connection with the 2008 Annual Meeting. With respect to any other matter that properly comes before the annual meeting?meeting, these proxies will vote as recommended by the Board, or, if no recommendation is given, at their discretion.
ShareholdersShareowners of record of International Paper common stock, or their duly authorized proxies, at the close of business on Friday, March 16, 2007,14, 2008, the record date, are entitled to vote on each matter submitted to a vote at the annual meeting and at any adjournment or postponement of the annual meeting. There were 427,775,172 common shares outstanding on March 14, 2008.
A list of shareholdersshareowners as of the record date will be available for inspection and review upon request of any shareholdershareowner to Ms. Maura A. Smith corporate secretary, International Paper Company, 6400 Poplar Avenue, Memphis, TN 38197.at the address on page 5. We will also make the list available at the annual meeting.
Voting Procedures and Annual Meeting Attendance
How many shares of stock are outstanding and may be voted by our shareholders?
As of the record date, a total of 448,320,767 shares are outstanding. Therefore,448,320,767 votes may be cast, consisting of one vote for each share of our common stock, par value $1.00 per share.
How many votes must be present to hold the annual meeting?
A majority of the votes that may be cast or at(at least 224,160,384 votes,213,887,587 votes), present in person or represented by proxy, is needed to hold the annual meeting. We urge you to vote by proxy even if you plan to attend the meeting. That will help us to know as soon as possible that we have enough votes to hold the meeting.
You may vote at the annual meeting by proxy or in person.
If you are a holder of record (that is, if your shares are registered in your own name with our transfer agent), you have several options. You may vote by mail using the enclosed proxy card, by telephone, on the Internet or by attending the meeting and voting in person. In addition, you may vote by mail using the enclosed proxy card.
Vote by Mail
Vote by Telephone
Vote on the Internet
If you hold your shares in street name (that is, if you hold your shares through a broker, bank or other holder of record), you will receive a voting instruction form from your broker, bank or other holder of record. This form will explain which voting options are available to you. If you want to vote in person at the annual meeting, you must obtain an additional proxy card from your broker, bank or other holder of record authorizing you to vote. You must bring this proxy card to the meeting.
How do I attend the annual meetingmeeting??
All shareholders,shareowners, or their proxy holders, as of the record date, Friday, March 16, 2007,14, 2008, are welcome to attend the annual meeting. If you plan to attend the meeting or appoint someone to attend as your proxy, please check the box on your proxy card. If you are voting by mail, by telephone or via the Internet, but still wish to attend the meeting, follow the instructions on your proxy card or via the Internet
(www.investorconnect.com) to tell us that you plan to attend. When you arrive at the meeting, please look for the “Shareholders’“Shareowners’ Welcome Desk,” where you will be asked for photo identification in order to receive your admittance card.
If you have not told us prior to the annual meeting that you will attend, but you decide to attend, please go to the “Shareholders’“Shareowners’ Welcome Desk” and provide proof of ownership of your shares as well as your photo identification in order to obtain an admittance card.
What happens if the annual meeting is postponed or adjourned?
Your proxy will still be valid and may be voted at the postponed or adjourned meeting. You will still be able to change or revoke your proxy until it is voted.
If I hold shares in an International Paper employee benefit plan, how do I vote my shares?
International Paper employees may hold shares of Company common stock in one of our employee benefit plans, including the:
International Paper Company Salaried Savings Plan;
— | International Paper Company Salaried Savings Plan; |
International Paper Company Hourly Savings Plan; or
— | International Paper Company Hourly Savings Plan; or |
International Paper Company Long-Term Incentive Compensation Plan (“LTICP”).
— | International Paper Company Long-Term Incentive Compensation Plan (“LTICP”). |
If you hold shares in our Salaried Savings Plan or Hourly Savings Plan, you may instruct State Street Bank and Trust Company, the trustee for these plans, to vote your shares in the Company Stock Fund by returning the proxy/voting instruction card included with this mailing or by providing voting instructions by telephone or on the Internet as explained on the voting instruction card. If you do not provide voting instructions, or if your instructions are unclear or incomplete, the trustee will vote your shares at its discretion.
Employees who received shares of restricted stock under our LTICP may also vote their shares. The process for voting shares of restricted stock is the same as the process for voting shares of common stock, described above. However, if you do not vote your shares, they will not be counted as there is no trustee for the LTICP to vote the shares on your behalf.
How many votes will be required to elect directors?
We have nominated four directors for election at the annual meeting, and there are no other nominees competing for their seats on our Board. This means we have a non-contested election, and under a By-law amendment adopted by our Board in 2006, directors are now elected by majority vote. In other words, each director must receive a greater number of votes “for” his or her election than votes “withheld.” If a director receives a greater number of votes “withheld” than votes “for” his or her election, he or she must submit his or her resignation, and the Board, acting through its Governance Committee, will decide whether to accept the resignation. More information about majority voting may be found on pages 65 through 66.
How many votes will be required to ratify the selection of the independent registered public accounting firm?
To ratify the selection of our independent registered public accounting firm or approve any other matters properly raised at the meeting, a majority of the votes cast is required.
How many votes will be required to approve the shareholder proposal?
The shareholder proposal requests us to adopt majority voting in our certificate of incorporation, which we endorse. We have previously adopted a majority voting standard in our By-laws. While this shareholder proposal is not binding on the Company, the Board intends to propose an amendment to our certificate of incorporation for vote by our shareholders at the 2008 annual meeting.
What if I abstain from voting or I withhold my vote?
In connection with the proposal to ratify the selection of our independent registered public accounting firm and the shareholder proposal, you may vote“for” or“against,” or you may“abstain” from voting.“Abstentions” will not affect the vote on the selection of our independent registered public accounting firm or the shareholder proposal.
In the election of directors, you can vote “for” a nominee named on the proxy card, or you can indicate that you are “withholding” your vote from a nominee named on the proxy card.
Since we do not have cumulative voting, you may not cast all of your votes “for” a single director nominee.
Can I change or revoke my proxy?
Yes, you may change your vote or revoke your proxy at any time before it is exercised.the annual meeting. If you are a holder of record, prior to the annual meeting you may:
send in a new proxy card with a later date;
— | Cast a new vote by telephone or the Internet; |
send a written revocation to Ms. Maura A. Smith, corporate secretary; or
— | Send a written revocation to Ms. Maura A. Smith at the address on page 5; or |
— | Send in a new proxy card with a later date. |
cast a new vote by telephone or the Internet.
A new proxy card or written revocations of a prior vote must be sent by mail to Ms. Maura A. Smith corporate secretary, International Paper, 6400 Poplar Avenue, Memphis, TN 38197 and received prior to the annual meeting. If you attend the annual meeting, your vote in person at the annual meeting will revoke any previously submitted proxy.
If you hold your shares in street name, you may change your voting instructions by contacting your broker, bank or other holder of record.
What if I do not indicate my vote for one or more of the matters on my proxy card?
If you return a signed proxy card without indicating your vote, your shares will be votedFOR all the matters to be voted on at the annual meeting. as follows:
— | for the election of the four directors named under the heading “Item 1 – Election of Directors”; |
— | for the ratification of the selection of our independent registered public accounting firm; |
— | for the four Company proposals to amend our Restated Certificate of Incorporation; and |
— | against the two shareowner proposals concerning majority voting and sustainable forestry. |
What happens if I do not vote?
If you do not vote shares held in your name, your shares will not be voted.
If your shares are held through the Company’s Salaried Savings Plan or the Company’s Hourly Savings Plan, and you do not provide instructions, the trustee for the plan will vote your shares inat its discretion.
If your shares are held through a broker and you do not give your broker instructions on how to vote, one of two things can happen, depending upon the type of proposal. First, for all of the election of directors and ratification of our independent registered public accounting firm,Company’s proposals (Items 1 through 6), the broker may vote your shares inat its discretion. For the shareholder proposal,shareowner proposals (Items 7 and 8), absent instructions from you, the broker may not vote your shares at all. When that happens, it is called a “broker non-vote.”
The New York Stock Exchange (“NYSE”) has proposed Please refer to eliminate broker discretionary voting for the election of directors. This proposal has no effect on the 2007 annual meeting. For future annual meetings, if broker discretionary voting is eliminated, it will be necessary for you to vote your proxy card in order for your vote“Matters to be counted towardActed Upon at the election2008 Annual Meeting” for a discussion of directors.the effect of a “broker non-vote” on each proposal.
Yes. Your vote is confidential and will not be disclosed to our directors or employees.
What if I do not attend the annual meeting and there is voting on other matters?
At our annual meeting, we will not consider any shareholder proposals other than the one referred to above. Under our By-laws, a shareholder must provide us with written notice in advance of the meeting if he or she would like to raise matters for consideration and voting at the meeting. We have not received any such notices, and the deadline for submitting a notice established by our By-laws has passed. If other matters properly arise at the meeting for consideration, the persons named in the proxy, namely, Mr. John V. Faraci, our chief executive officer, Ms. Marianne M. Parrs, our executive vice president and chief financial officer, and Ms. Maura A. Smith, our senior vice president, general counsel and corporate secretary, will be entitled to vote your shares on those matters for you. If you wish to submit a proposal for the 2008 annual meeting, please go to page 6 of this proxy statement for instructions, under the heading “How do I submit a shareholder proposal for consideration at the 2008 annual meeting?”
Will the Company’s independent registered public accounting firm be present at the annual meeting?
Yes, representatives of Deloitte & Touche LLP will attend the meeting. They will be available during the meeting to answer your questions and they will have the opportunity to make a statement, if they desire to do so. The Audit and Finance Committee of our Board and our fullentire Board have approved the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the 20072008 fiscal year, subject to ratification by a majority of votes cast at the annual meeting.
Still have questions or need directions to the meeting?
Please contact
Ms. Maura A. Smith
Senior Vice President, General Counsel & Corporate Secretary
in writing:
International Paper Company
6400 Poplar Avenue,
Memphis, TN 38197
by e-mail:
maura.abelnsmith@ipaper.com
or by telephone:
(901) 419-3829
Need to change future proxy delivery options?
If you wish to receive separate copies of future annual reports and proxy statements or if you currently receive multiple copies of our annual report and proxy statement and would like to receive a single copy, please send your written request to:
Broadridge Financial Solutions, Inc. Householding Dept.
51 Mercedes Way
Edgewood, NY 11717
or call (800) 542-1061
Will our directors attend the annual meeting?
Yes. The Company’sCorporate Governance Principles state that directors are expected to attend our annual meeting.
What happens if the annual meeting is postponed or adjourned?
Your proxy will still be valid and may be voted at the postponed or adjourned meeting. You will still be able to change or revoke your proxy until it is voted.
Do any shareholdersshareowners beneficially own more than 5%5 percent of our common stock?
Yes. According to public filings, there are four entities that beneficially own more than 5%5 percent of our common stock:
Capital Research and Management Company, as discretionary adviser to third party investment companies;
— | Morgan Stanley, as the parent holding company of Van Kampen Asset Management, an investment adviser to third parties; |
T. Rowe Price Associates, Inc., as investment adviser to third parties;
State Street Bank and Trust Company, as trustee of various International Paper employee benefit plans and a trustee and discretionary adviser to third-party trusts and employee benefit plan related accounts; and
— | Capital World Investors (a division of Capital Research and Management Company), as investment adviser to various investment companies; |
— | T. Rowe Price Associates, Inc., as investment adviser to third parties; and |
Morgan Stanley, as the parent holding company of Van Kampen Asset Management, an investment adviser to third parties.
— | State Street Bank and Trust Company, as trustee of various International Paper employee benefit plans and as trustee and discretionary adviser to third party trusts and employee benefit plan related accounts. |
For further information about these shareholders,shareowners, please see “Ownership of Company Stock” on page 62 of this proxy statement.Stock.”
Who will be soliciting proxies on our behalf?
The Company pays the cost of preparing proxy materials and soliciting your vote. Proxies may be solicited on our behalf by our directors, officers or employees by telephone, electronic or facsimile transmission or in person. We have hired Georgeson, Inc. to solicit proxies for an estimated fee of $24,000,$21,000, plus fees and expenses.
COMMUNICATINGWITHTHE BOARDWhat is householding?
We have adopted “householding,” a procedure under which shareowners of record who have the same address and last name and do not receive proxy materials electronically will receive only one copy of our annual report and proxy statement unless one or more of these shareowners notifies us that they wish to continue receiving individual copies. This procedure saves us printing and mailing costs. Shareowners will continue to receive separate proxy cards.
We will deliver promptly, upon written or oral request, a separate copy of this proxy statement and our 2007 annual report to a shareowner at a shared address to which a single copy of the documents was delivered. To request a separate copy, please send your written request toInvestor Relations, International Paper, 6400 Poplar Avenue, Memphis, TN 38197, or call (800) 332-8146 or on our Web site,www.internationalpaper.com under the “Investors” tab at the top of the page and then under the “Financial Requests” link in the menu on the left.
Direct all Board correspondence to:
Maura A. Smith
Corporate Secretary
International Paper Company
6400 Poplar Avenue
Memphis, TN 38197
To submit a shareowner proposal for the 2009 Annual Meeting:
ü Proposal must be submitted in writing to Ms. Smith at the address below
ü Proposals must be received by Dec. 9, 2008 for inclusion in the proxy statement
ü Proposals must be received between Jan. 11, 2009 and Feb. 10, 2009 to be presented at the annual meeting
How do I communicate with the Board?
You may communicate with our fullentire Board, the independent directors as a group, the chair of the Governance Committee, who serves as the presiding director at executive sessions of our Board, or any one of the directors by writing to Ms. Maura A. Smith, corporate secretary, International Paper, 6400 Poplar Avenue, Memphis, TN 38197.Smith. Ms. Smith will forward all communications involving the interest of the Company or its shareholders,shareowners, other than business solicitations, advertisements, job inquiries or similar communications, directly to the intended director(s).
In addition, as described in detail on page 16 of this proxy statement, we have anunder “Information About Our Corporate Governance,” our Office of Ethics and Business Practice, led by Mr. James D. Berg, directorDirector of Ethics and Business Practice, andhas aHelpline that is available 24 hours a day, seven days a week, to receive calls, e-mails, and letters to report a concern or complaint, anonymous or otherwise.
All contacts that raise concerns or allegations of impropriety relating to our accounting, internal controls or other financial or audit matters are immediately forwarded by Mr. Berg to the chair of our Audit and Finance Committee. All such matters are investigated and responded to in accordance with the procedures established by our Audit and Finance Committee.
How do I submit a shareholdershareowner proposal for consideration at the 2008 annual meeting?2009 Annual Meeting?
Our 2008 annual meeting2009 Annual Meeting is currently scheduled for May 12, 2008.11, 2009. If you wish to submit a proposal to be included in the 20082009 proxy statement, you must submit your proposal in writing so that we receive it by December 7, 2007.9, 2008. Proposals should be sent to Ms. Maura A. Smith, corporate secretary, International Paper, 6400 Poplar Avenue, Memphis, TN 38197.Smith.
If you would like to present your proposal at the 2008 annual meeting,2009 Annual Meeting, but you do not meet the deadline for inclusion in the proxy statement, our By-laws require that you notify us of your proposal between January 13, 200811, 2009 and February 12, 2008.10, 2009. Your notice should be sent to Ms. Smith at the above address.
For your information, youYou must be a shareholdershareowner of record on the date you submit your proposal and on the record date for determining shareholdersshareowners entitled to vote at the 2008 annual meeting.2009 Annual Meeting. You must also meet the minimum share ownership requirements set forth by the Securities and Exchange Commission in order to be eligible to submit a shareholdershareowner proposal. Your proposal must conform to the notice requirements in Article I, Section 7 of our By-laws, which are available atwww.internationalpaper.com under the “Investors”“Our Company” tab at the top of the page and then under the “Governance” link in the menu on the right.
A paper copy of our By-laws is available at no cost by written request to Ms. Maura A. Smith, corporate secretary, International Paper, 6400 Poplar Avenue, Memphis, TN 38197.Smith.
How do I nominate a candidate for director at the 2008 annual meeting?2009 Annual Meeting?
ShareholderShareowner nominations for directors may be submitted to our Board of Directors, to the attention of our Governance Committee, in care of Ms. Maura A. Smith, corporate secretary, at the above address.Smith. Our By-laws require that the director nomination be received between January 13, 200811, 2009 and February 12, 2008.10, 2009. At our 2008 Annual Meeting, the Company is proposing an amendment to our Certificate of
To nominate a director for the 2009 Annual Meeting:
Submit nominations between Jan. 11, 2009 and Feb. 10, 2009.
Nominations and proposals must be submitted in writing to theBoard of Directors, Governance Committee, care of Ms. Maura A. Smith, Corporate Secretary, 6400 Poplar Avenue, Memphis, TN 38197
Incorporation that would phase in the annual election of directors beginning in 2009. If this proposal is approved by our shareowners, a director who is nominated and stands for election at the 2009 Annual Meeting will serve a one-year term.
As in the case of submitting a shareholdershareowner proposal, you must be a shareholdershareowner of record on the date you submit your nomination and on the record date for determining shareholdersshareowners entitled to vote at the 2008 annual meeting.2009 Annual Meeting. You must also meet the minimum share ownership requirements set forth by the Securities and Exchange Commission in order to be eligible to nominate a director candidate. Your director nomination must conform to the notice requirements in Article II, Section 9 of our By-laws, which are available atwww.internationalpaper.com under the “Investors”“Our Company” tab at the top of the page and then under the “Governance” link in the menu on the right.
As discussed above, a paper copy of our By-laws is available at no cost by written request to Ms. Smith.
Note: If the Company’s proposed amendment to our Restated Certificate of Incorporation described under Item 4, below, is approved by shareowners at the 2008 Annual Meeting, we will phase in annual elections of directors upon the expiration of the term of our current classes of directors. Please see Item 4 for additional information about the Company’s proposal.
Majority Vote of Directors:
Each director must receive a greater number of votes “for” his or her election than votes “withheld.”
If a director receives a greater number of votes “withheld” than votes “for” his or her election, he or she must submit a resignation, and the Board, through its Governance Committee, will decide whether to accept the resignation.
For more information about the nominees, refer to pages 22 through 25.
Majority of votes cast:
More than 50 percent of the total votes shareowners submit on this item must be voted “for” the proposal.
Matters to be Acted Upon at the 2008 Annual Meeting
Item 1 — Election of Directors
Four of our 11 directors have been nominated by the Board for election by our shareowners at the 2008 Annual Meeting. Of those four, three will hold office until 2011, and the fourth will hold office until 2009, or until his successor has been elected and has qualified or until his earlier death, resignation or retirement. There are no other nominees competing for their seats on the Board. This means we have a non-contested election.
Under our By-laws, directors in non-contested elections are elected bymajority vote.
You can vote “for” a nominee named on the proxy card, or you can indicate that you are “withholding” your vote from a nominee named on the proxy card. Since we do not have cumulative voting, you may not cast all of your votes “for” a single director nominee.
New directors elected by the Board serve until the first annual meeting following their election and are then assigned to a class for election by shareowners. One of the four directors nominated for election at the 2008 Annual Meeting, Mr. J. Steven Whisler, is a new director.
We do not know of any reason why any nominee would be unable to serve as a director if elected. If, prior to the election, a nominee is unable to serve, the shares represented by all valid proxies will be voted for the election of such other person as the Board may nominate.
Our Board of Directors unanimously recommends that you vote FOR each of the following nominees:
— | Samir G. Gibara – Class II |
— | John F. Turner – Class II |
— | Alberto Weisser – Class II |
— | J. Steven Whisler – Class III |
Item 2 — Ratification of Deloitte & Touche LLP as our Independent Registered Public Accounting Firm for 2008
Our Board of Directors, upon the recommendation of the Audit and Finance Committee, has ratified the selection of Deloitte & Touche LLP (“Deloitte & Touche”) to serve as our independent registered public accounting firm for 2008, subject to ratification by our shareowners.
To ratify the selection of our independent registered public accounting firm, amajority of votes cast “for” the proposed amendment is required.
You may vote “for” or “against” the ratification of the selection of our independent registered public accounting firm, or you may “abstain” from voting. “Abstentions” will have no effect on the vote.
For more information about Deloitte & Touche:
Refer to the “Audit and Finance Committee Report” on page 38 and the “Independent Auditor Fees” section on page 39.
Majority of all outstanding shares:
More than 50 percent of all of International Paper’s common stock must be voted “for” the proposal.
Although ratification is not required by our By-laws or otherwise, the Board is submitting the selection of Deloitte & Touche LLP to our shareowners for ratification because we value our shareowners’ views on the Company’s independent registered public accounting firm and as a matter of good corporate practice. Our Audit and Finance Committee will consider the outcome of this vote in its decision to appoint an independent registered public accounting firm, but is not bound by the shareowners’ vote. Even if the selection of Deloitte & Touche is ratified, the Audit and Finance Committee may change the appointment at any time during the year if it determines that a change would be in the best interest of the Company and our shareowners.
Our Board of Directors unanimously recommends that you vote FOR the ratification of Deloitte & Touche as our independent registered public accounting firm for 2008.
Item 3 — Company Proposal to Amend Article VII of Our Restated Certificate of Incorporation to Approve Majority Voting for Election of Directors in Non-Contested Elections
To approve this amendment to our Restated Certificate of Incorporation, amajority of all outstanding shares must be voted “for” the proposed amendment.
You may vote“for” or“against” the Company proposal, or you may“abstain” from voting. An“abstention” will have the same effect as a vote“against” the Company’s proposal to amend our Certificate of Incorporation.
The Board of Directors recommends that shareowners approve an amendment to Article VII of the Company’s Restated Certificate of Incorporation to approve majority voting for the election of directors in non-contested elections.
Background
New York business corporation law provides that, unless otherwise specified in a company’s certificate of incorporation, a director is elected by a plurality of the votes cast. The Company’s Restated Certificate of Incorporation does not specify the voting standard required in director elections, so our directors are currently elected by a plurality vote; that is, a director nominee who receives the highest number of affirmative votes cast is elected, whether or not such votes constitute a majority, including withheld votes.
In 2006, the Company adopted a form of majority voting for non-contested director elections, implementing the voting standard through a By-law amendment. Under the majority voting standard, directors continue to be elected by a plurality vote, but the By-law requires that a director nominee who receives a greater number of “withheld” votes than “for” votes must immediately tender his or her resignation from the Board. The Board then would decide, through a process managed by the Governance Committee and excluding the nominee in question, whether to accept the resignation. Unless the Board determines in its judgment that it is in the best interest of the Company for the director to remain on the Board, the Board will accept the
The text of the proposed amendment to Article VII of our Restated Certificate of Incorporation to approve majority voting of directors is attached asAppendix 1.
resignation. The Board’s explanation of its decision would be promptly disclosed in a Form 8-K report filed with the Securities and Exchange Commission.
Proposal
To further strengthen this majority voting approach, the Board has authorized, and recommends that shareowners approve, an amendment to the Company’s Restated Certificate of Incorporation that would specify that director nominees in a non-contested election would be elected by a majority vote. Under this provision, each vote is specifically counted “for” or “against” the director’s election, and will further enhance the accountability of each director to the Company’s shareowners. An affirmative majority of the total number of votes cast “for” a director nominee will be required for election. Shareowners will also be entitled to abstain with respect to the election of a director. In accordance with New York law, abstentions will have no effect in determining whether the required affirmative majority vote has been obtained. Director nominees in contested elections would continue to be elected by plurality vote. An election is considered contested if there are more nominees for election than positions on the Board to be filled.
Next Steps
Under New York law, shareowners must approve an amendment to the Company’s Restated Certificate of Incorporation to change the voting standard in director elections. This amendment, if approved, will become effective upon the filing of an appropriate certificate of amendment with the New York Department of State.
If the proposed amendment is approved, a new paragraph will be added to Article VII of our Restated Certificate of Incorporation. The text of Article VII of our Restated Certificate of Incorporation, as marked to reflect the proposed amendment, is attached to this proxy statement asAppendix 1.
Upon approval of this proposal and the filing of the certificate of amendment, the Board will also amend the Company’s By-laws to conform its director resignation policy to the majority vote standard contained in our Restated Certificate of Incorporation, so that an incumbent director who did not receive the requisite affirmative majority of the votes cast for his or her re-election must tender his or her resignation to the Board. The Board will decide whether to accept the resignation in a process similar to the one the Board currently uses pursuant to the existing policy.
Our Board of Directors unanimously recommends that you vote FOR the proposal to approve majority voting for the election of directors in non-contested elections.
Item 4 — Company Proposal to Amend Article VII of Our Restated Certificate of Incorporation to Elect Directors Annually
To approve this amendment to our Restated Certificate of Incorporation,at least 80 percent of the outstanding shares of the Company must be voted “for” the proposed amendment.
Classified Board:
In our current classified board structure, directors are divided into three classes. Each class of directors is elected to staggered three-year terms.
Annual Elections:
If approved, this proposal will allow the company to phase out its classified board and phase in annual elections of directors. In annual elections, directors come up for election each year and are elected to one-year terms.
The text of the proposed amendment to Article VII of our Restated Certificate of Incorporation to elect directors annually is attached asAppendix 2.
You may vote “for” or “against” the Company proposal, or you may “abstain” from voting. An “abstention” will have the same effect as a vote “against” the Company’s proposal to amend our Certificate of Incorporation.
Our Board of Directors has adopted and now recommends for your approval a proposal to amend Article VII of our Restated Certificate of Incorporation to eliminate the classification of our Board of Directors. Our Restated Certificate of Incorporation permits an amendment to, or repeal of, this provision of Article VII only upon the vote of at least 80 percent of the shares outstanding.
Background
Our Restated Certificate of Incorporation currently divides our Board into three classes, with each class of directors elected to serve staggered three-year terms. Our Board has adopted, and recommends that you approve, a proposal to amend our Restated Certificate of Incorporation to phase out the classified Board and phase in the annual election of directors.
The Company and our Board are committed to good corporate governance, which is why our Board has made developing and implementing corporate governance best practices one of its fundamental goals. Board efforts in this regard are working; we have been repeatedly recognized as a global corporate governance leader.
Over the past two years, our Board, through its Governance Committee, has reviewed the classified board structure. Our Board acknowledges the growing sentiment among shareowners in favor of annual elections. Our Board further recognizes that annual elections are in line with emerging best practices in the area of corporate governance.
Proposal
As a result of its most recent review of the classified board structure, our Board, on the recommendation of its Governance Committee, has decided to propose declassifying our Board. If approved, declassification will be phased in over a three-year period, beginning at the 2009 Annual Meeting, as follows:
— | Class III directors will serve out their current term in full and stand for re-election at the 2009 Annual Meeting for a one-year term thereafter. |
— | Class I directors, whose term will end in 2010, will serve out their current term in full and stand for re-election at the 2010 Annual Meeting for a one-year term thereafter. |
— | Class II directors, whose term will end in 2011, will serve out their term in full and stand for re-election for a one-year term thereafter. |
This proposal will not affect the election of Class II directors at this 2008 Annual Meeting. Beginning with the 2011 Annual Meeting, if this proposal is approved, all directors will stand for election for one-year terms.
Next steps
If Item 4 is approved, we will amend the text of Article VII of our Restated Certificate of Incorporation, as shown inAppendix 2. The amendment will become effective upon the filing of an appropriate certificate of amendment with the New York Department of State.
Our Board of Directors unanimously recommends that you vote FOR the approval of an amendment to Article VII of our Restated Certificate of Incorporation to elect directors annually.
Item 5 – Company Proposal to Amend Article VII of Our Restated Certificate of Incorporation to Eliminate Supermajority Voting Provisions
To approve this amendment to our Restated Certificate of Incorporation,at least 80 percent of the outstanding shares of the Company must be voted “for” the proposed amendment.
You may vote “for” or “against” the Company proposal, or you may “abstain” from voting. An “abstention” will have the same effect as a vote “against” the Company’s proposal to amend our Restated Certificate of Incorporation.
Background
Our Board of Directors, in its continuing review of best practices in corporate governance, has evaluated the need for the supermajority voting provisions contained in Article VII of our Restated Certificate of Incorporation. Our Board has adopted and now recommends for your approval a proposal to amend Article VII of our Restated Certificate of Incorporation to eliminate supermajority voting provisions.
Proposal
One provision in Article VII of our Restated Certificate of Incorporation requires an 80 percent vote to approve the removal of a director for cause. The Company proposes to eliminate this 80 percent vote requirement and replace it with a majority vote requirement.
Another provision in Article VII of our Restated Certificate of Incorporation requires that any modification or repeal of any of the following sections be approved by an 80 percent vote:
Governance Structure | Article VII | |
1. Remove directors for cause | Directors of any class “may not be removed prior to the expiration date of their terms of office, except for cause and by an affirmative vote of the holders of at least 80 percent (80%) of the outstanding shares entitled to vote.” | |
2. Board vacancies | …”[a]ny vacancy on the Board of Directors that results from an increase in the number of Directors and any other vacancy on the Board may be filled only by the Board….” | |
3. Board size | The size of the Board is currently set at a minimum of 9 and a maximum of 18 directors. The Board has authority to designate the specific number of directors from time to time. | |
4. Board classification | Pending the approval by shareowners of Item 4, our directors currently serve three-year terms. See “Special note regarding the Company’s proposal in Item 4” below. |
The Company proposes to eliminate the requirement that the repeal or modification of these provisions must be approved by an 80 percent vote and replace it with a majority vote requirement.
The text of the proposed amendment to Article VII of our Restated Certificate of Incorporation to eliminate supermajority voting provisions is attached asAppendix 3.
Next steps
If this proposal is approved, we will amend the text of Article VII of our Restated Certificate of Incorporation, as shown inAppendix 3. The amendment will become effective upon the filing of an appropriate certificate of amendment with the New York Department of State.
Special note regarding the Company’s proposal in Item 4:
Under Item 4, above, the Company has proposed to amend Article VII of our Restated Certificate of Incorporation to phase-in the annual election of directors. The amendment proposed under Item 4 requires approval by 80 percent of our outstanding shares. If Item 4 is not approved at this 2008 Annual Meeting, but Item 5 is approved at this Annual Meeting, then any future changes to our Restated Certificate of Incorporation relating to the length of a director’s term in office will require approval by only a majority of the shares outstanding rather than the supermajority vote currently required.
Our Board of Directors unanimously recommends that you vote FOR the approval of the amendment to Article VII of our Restated Certificate of Incorporation to eliminate supermajority voting provisions.
Item 6 – Company Proposal to Amend Article VIII of Our Restated Certificate of Incorporation to Eliminate Supermajority Voting Provisions Relating to Business Combinations
To approve this amendment to our Restated Certificate of Incorporation,a majority of outstanding shares voted “for” the proposed amendment is required.
You may vote “for” or “against” the Company proposal, or you may “abstain” from voting. An “abstention” will have the same effect as a vote “against” the Company’s proposal to amend our Certificate of Incorporation.
Background
Article VIII of our Restated Certificate of Incorporation contains a provision that applies to certain business combinations. Under this provision, any merger or business combination with an“Interested Stockholder” (defined as the beneficial owner of 10 percent or more of the Company’s outstanding voting stock or an affiliate or associate of the Company who was a 10 percent beneficial owner within the two years preceding the transaction) requireseither:(i) affirmative approval by 80 percent of the outstanding shares entitled to vote;or (ii) approval by a majority of votes entitled to be cast by disinterested shareownersand either (x) approval by our Board at a time when the majority of the directors are disinterested directors, or (y) the consideration received meets an articulated “fair price” test.
An amendment of Article VIII must be approved by 80 percent of the outstanding shares entitled to vote,unless the change has been recommended by our Board of Directors and, at the time of the change, disinterested directors constitute a majority of the entire Board, in which case this amendment of Article VIII requires the affirmative vote of a majority of outstanding shares.
The text of the proposed amendment to Article VIII of our Restated Certificate of Incorporation to eliminate supermajority voting provisions relating to business combinations is attached asAppendix 4.
For more information:
The name, address and share holdings of the proponent will be provided at no cost upon written request to Ms. Maura A. Smith, corporate secretary,Corporate Secretary, International Paper, 6400 Poplar Avenue, Memphis, TN 38197.
For this Item 7, a broker non-vote will have no effect on the vote.
We have adopted “householding,”Our Board, in its continuing review of best practices in corporate governance, has evaluated the need for these 80 percent vote requirements relating to business combinations. Our Board, which is comprised of a procedure under which shareholdersmajority of record who have the same addressdisinterested directors, has determined that these provisions should be eliminated, and last name and do not receive proxy materials electronically will receive only one copyis recommending a proposal to amend Article VIII of our annual reportRestated Certificate of Incorporation to eliminate the 80 percent vote requirement and proxy statement unless one or morereplace it with a majority vote requirement.
Next steps
If this proposal is approved, we will amend the text of these shareholders notifies usArticle VIII of our Restated Certificate of Incorporation, as shown inAppendix 4. The amendment will become effective upon the filing of an appropriate certificate of amendment with the New York Department of State.
Our Board of Directors unanimously recommends that they wishyou vote FOR the approval of the amendment to continue receiving individual copies. This procedure saves us printing and mailing costs. Shareholders will continueArticle VIII of our Restated Certificate of Incorporation to receive separate proxy cards.eliminate supermajority voting provisions relating to business combinations.
Proposals Submitted by our Shareowners
Item 7 — Shareowner Proposal Concerning Majority Voting
We expect the following shareowner proposal to be presented at the annual meeting.
The shareowner proposal is considered passed if a majority of the votes cast are “for” the proposal. You may vote “for” or “against” the shareowner proposal, or you may “abstain” from voting. “Abstentions” will deliver promptly,have no effect on the vote for the shareowner proposal.
“RESOLVED, Shareowners urge our company to take all steps necessary, in compliance with applicable law, to fully adopt simple majority vote requirements in our Charter and By-laws. This includes any special solicitations needed for adoption.
Simple majority vote will facilitate the adoption of annual election of each director. Annual election of each director won our overwhelming 79 percent-support at our 2006 annual meeting. The Council of Institutional Investorswww.cii.org recommends adoption of shareholder proposals upon receiving their first majority vote.
These directors received large withhold votes in part because the annual election of each director proposal was not adopted after our 79 percent-supporting vote:
Ms. Brooks | 26%-withhold | |
Mr. Townsend | 38%-withhold |
Simple majority vote won a remarkable 72 percent yes-vote average at 24 major companies in 2007. Currently a 1 percent-minority can frustrate the will of our 79 percent-shareholder majority under our multiple supermajority provisions of 80 percent. Also our supermajority vote requirements can be almost impossible to obtain when one considers abstentions and broker non-votes.
For example, Goodyear (GT) proposal for annual election of each director failed to pass even though 90 percent of votes cast were yes-votes. While companies often state that the purpose of supermajority requirements is to protect minority shareholders, supermajority requirements are arguably most often used to block initiatives opposed by management but supported by most shareowners. The Goodyear vote is a perfect illustration.
William Steiner, Piermont, NY, said the merits of adopting this proposal should also be considered in the context of our company’s overall corporate governance structure and individual director performance. For instance, in 2007 the following structure and performance issues were identified (and certain concerns are noted):
— | We had no Independent Chairman or Lead Director – Independent oversight concern. |
— | Shareholders were only allowed to vote on individual directors once in 3-years – Accountability concern. |
— | And one yes-vote from our 400 million shares could elect a director for 3-years under our obsolete plurality system. |
— | An awesome 80 percent shareholder vote was required to make certain key changes – Entrenchment concern. |
— | Our directors still had a $1 million death gift program – Independence concern. |
— | We had no shareholder right to: |
1) Cumulative voting.
2) Act by written or oral request,consent.
3) Call a separate copyspecial meeting.
Additionally:
— | Four of our directors also served on boards rated D or F by The Corporate Library: |
1) Mr. Faraci | United Technologies (UTX) | |
2) Mr. Turner | Ashland Inc. (ASH) | |
3) Mr. Gibara | Dana (DCNAQ) | |
4) Mr. McHenry | Coca-Cola (KO) |
— | Six of our directors were designated “Accelerated Vesting” directors by The Corporate Library due to service on a board that sped up the stock option vesting to avoid recognizing the related cost: |
Ms. Brooks
Mr. McHenry
Mr. Walter
Mr. Faraci
Mr. Gibara
Mr. Turner
The above concerns show there is room for improvement and reinforces the reason to take one step forward to encourage our board to respond positively to this proposal:
Adopt Simple Majority Vote –
Yes on [7]
The above shareholder proposal text is subject to a more independent vetting process for accuracy and truthfulness than the management comments that follow.”
[End of Shareowner Proposal]
Position of Your Company’s Board of Directors
The Company agrees with the concept of majority voting, as evidenced by the Company’s proposals in this proxy statement and recent governance changes. However, the Company believes the proponent’s non-binding proposal is vague and confusing, and does not offer specific, constructive suggestions. The Company has decided to take a proactive approach, as reflected by the Company’s proposals in Items 3, 5 and 6 that, if approved by shareowners, will adopt majority voting in our 2006 annual report to a shareholder at a shared address to which a single copyRestated Certificate of Incorporation.
Much of the documents was delivered. To request a separate copy, please send yoursupporting statement in the proponent’s non-binding shareowner proposal attempts to criticize the Company’s overall corporate governance practices. The Board believes this criticism is unfounded based on the following corporate governance steps the Company has taken:
Board Actions Taken Prior to this Annual Meeting
— | In 2006, amended our By-laws to implement majority voting in non-contested director elections – see page 9 of this proxy statement; |
— | In 2007, adopted enhanced policies and procedures for the disclosure, review and action relative to related-party transactions – see page 42 of this proxy statement; |
— | In 2007, adopted enhanced director qualification and independence standards – see page 33 of this proxy statement; |
— | In 2007, codified our director stock ownership requirements; and |
— | In 2008, approved four (4) amendments to our Restated Certificate of Incorporation, which our Board is recommending that shareowners approve at the 2008 Annual Meeting: |
1. | An amendment to Article VII of the Restated Certificate of Incorporation to implement majority voting in non-contested director elections –see Item Number 3 above; |
2. | An amendment to Article VII of the Restated Certificate of Incorporation to eliminate classes of directors and elect each director annually –see Item Number 4 above; |
3. | An amendment to Article VII of the Restated Certificate of Incorporation to replace the supermajority voting provisions relating to certain Board of Directors matters with a majority vote standard –seeItem Number 5 above; and |
For more information:
The name, address and share holdings of the proponent will be provided at no cost upon written request to Investor Relations,Ms. Maura A. Smith, Corporate Secretary, International Paper, 6400 Poplar Avenue, Memphis, TN 38197,38197.
For this Item 8, a broker non-vote will have no effect on the vote.
4. | An amendment to Article VIII of the Restated Certificate of Incorporation to replace the supermajority voting provisions relating to business combinations with a majority vote standard –see Item Number 6 above. |
As explained above in Items 3, 5 and 6, the Board has adopted and now recommends for your approval three binding proposals to implement a majority vote standard.
Our Board of Directors unanimously recommends that you vote AGAINST this proposal.
Item 8 — Shareowner Proposal Concerning Sustainable Forestry
We expect the following shareowner proposal to be presented at the annual meeting.
The shareowner proposal is considered passed if a majority of the votes cast are “for” the proposal. You may vote “for” or call (800) 332-8146.“against” the shareowner proposal, or you may “abstain” from voting. “Abstentions” will have no effect on the vote for this shareowner proposal.
If“Whereas:
As a global forest products, paper and packaging company, forests provide significant raw materials for International Paper’s (IP) products. Forests are rapidly declining at a rate of 33 soccer fields per minute according to the United Nations and only about 20 percent of the world’s original forests remain undisturbed.
Forests store extensive amounts of carbon, critical to mitigating the effects of climate change. Forests store the equivalent of 175 years of global fossil fuel emissions and forest loss is responsible for 20-25 percent of total CO2 emissions globally.
The Intergovernmental Panel on Climate Change (IPCC), the leading international network of climate scientists, has concluded that global warming is “unequivocal.” The Stern Review on the Economics of Climate Change states greenhouse gas emissions from deforestation are greater than emissions from the global transportation sector. “Action to preserve the remaining areas of natural forest is needed urgently,” is one of the report’s conclusions. A 2006 study inEcological Economics found that natural forests in the Southern US – IP’s primary wood sourcing region – store and sequester more carbon than fast-growing tree plantations and continued loss of natural forests to tree plantations could contribute to future carbon emissions.
Climate change impacts from deforestation can be reduced by increasing the use of recycled fiber and purchasing virgin fiber that it is harvested according to independent and internationally recognized sustainable forestry standards.
Credibility is the most important criterion for the selection of any certification scheme. Our company relies upon the Sustainable Forestry Initiative (SFI) and CERFLOR certification schemes. Both were developed by the forestry
industry. The Forest Stewardship Council (FSC) is the only independent certification system in the world accepted by the conservation, aboriginal and business communities. FSC is the world’s largest and fastest growing certification system, by hectares.
Our company can ensure it is purchasing sustainably harvested fiber by purchasing FSC certified fiber. IP customer companies such as Staples, Office Depot, Corporate Express and FedEx/Kinko’s, already have FSC-certified paper procurement preferences. Large IP paper packaging customers are adopting environmental paper procurement policies. Though IP has recently initiated steps to provide FSC products, we believe that continued reliance on non-FSC certification systems may threaten IP’s future positioning in the marketplace relative to competitors that are embracing FSC on a large scale.
RESOLVED: Shareholders request the Board to prepare a report, at reasonable cost and omitting proprietary information, by November 30, 2008, assessing the feasibility of phasing out our company’s use of non-FSC certified fiber and increasing the use of postconsumer recycled fiber as a means to reduce our company’s impact on greenhouse gas emissions.
Supporting Statement:
The study should discuss the Company’s goals and timeframes with respect to:
— | Increasing the use of FSC-certified fiber with the goal of phasing out virgin fiber certified by less credible certification schemes; |
— | Increasing the use of recycled fiber as a means to reduce reliance on virgin materials; and |
— | Estimating avoided greenhouse gas emissions from these activities.” |
[End of Shareowner Proposal]
Position of Your Company’s Board of Directors
Our Board of Directors recognizes that forests and sustainable forestry practices provide environmental, social and economic benefits to the Earth and to the communities in which we live and operate our facilities. Our Board is particularly concerned about the adverse consequences of illegal logging, deforestation and the accompanying loss of biodiversity in some regions of the world. In fact, International Paper has been and will continue to be a leader in promoting sustainable forestry practices and certification requirements globally. The Company is also committed to using fiber from sustainable sources to make its paper and packaging products.
As a global organization, International Paper relies on third-party certification, chain of custody and internationally recognized forest certification standards for fiber procurement. Our use of a particular standard, dual-certification, or multi-certification, will depend upon the region of the world in which we are procuring fiber, and the availability of certified fiber.
What is Sustainable Forestry?
Simply put, “sustainable forestry” means ensuring that the trees used to make paper products are replaced through reforestation or natural regeneration.
International Paper certifies annually that its fiber procurement system complies with the following internationally recognized independent standards:
Sustainable Forestry Initiative ISO 14001 Programme for the Endorsement of Forest Certification
Forest Stewardship Council* (*Ticonderoga, N.Y. only)
The proponent’s request is impractical and unnecessary for the following reasons:
1. | The Company Publishes Sustainability and Stewardship Reports. Information about the Company’s environmental practices and positions is available at our Web site atwww.internationalpaper.com and in reports published periodically, including our 2004-2006 Sustainability Update, our 2007 Forestry Facts and our forthcoming 2008 Stewardship Report. |
2. | The Company is Committed to Sustainable Forestry. The Company strives to ensure that a standard exists that will enable us to certify that our procurement practices: |
a. | meet the highest ethical standards of sustainability and environmental stewardship; |
b. | meet the needs of our customers; and |
c. | are balanced from an economic, social and environmental perspective. |
3. | The Company Recognizes Multiple Certification Standards. International Paper recognizes the following certification standards in our global operations: |
a. | The Programme for the Endorsement of Forest Certification (PEFC), a global umbrella organization that certifies national certification standards and supports the promotion of sustainable forest management and chain of custody. |
b. | The Forest Stewardship Council (FSC), a globally recognized system that uses regionally developed forest management standards and includes chain of custody. |
c. | The Sustainable Forestry Initiative (SFI), a North American standard which includes provisions for forest management, fiber procurement and chain of custody, and is recognized by PEFC. |
d. | Cerflor,the Brazilian Program of Forest Certification, a Brazilian national standard that includes forest management and chain of custody, and is recognized by PEFC. |
e. | In countries or regions of the world that do not have established certification standards, the Company implementsInternational Standards of Organization (ISO) 14001 environmental management systems on the wood or fiber procurement systems for its facilities. |
Since only 10 percent of the world’s industrial forestlands are certified to any sustainability standard, there is still important advocacy work to do. While the proponent disputes the value of SFI certification, SFI is recognized by PEFC, and other PEFC-endorsed forest certification programs around the world. More than 480 million acres of forestland have been certified under SFI—more than any other certification program, and only 229 million acres in 78 countries are certified according to FSC requirements. International Paper is committed to procuring fiber from certified sources.
4. | The Company is Committed to Recycling.Our environmental stewardship and dedication to sustainability are also reflected in our commitment to recycling. We are active in the National Recycling Coalition, and have teamed with customers and other organizations on community projects aimed at raising public awareness about the value of recycling paper products. We have various post-consumer fiber re- pulping facilities and recycled products, including the ecotainer™ paper cup. We are a leader in supporting recovery of fiber for reuse. Recent examples include a partnership with the National Parks Foundation to increase waste recovery and promote composting in our national parks, and our partnership with the City of Memphis, the location of our global headquarters, to improve recovery and recycling programs for packaging. |
Our Company is committed to increased use of recycled fiber in our products where practical and economical. How much recycled fiber can and should be used to make our products depends on many factors, including the availability of recycled fiber, and the costs and environmental impact of transporting and collecting it. To better understand the impacts of our products, we have begun to employ a Life Cycle Assessment (LCA) tool that provides a detailed environmental analysis of our products and will help us improve our products. This tool will also help us take into account the benefits of using recycled fiber as well as the potential inefficiencies and negative environmental impacts that may be associated with the collection, transportation and processing of recycled fiber. International Paper optimizes its reliance on this renewable resource for the benefit of the Company, our customers, our shareowners and society. |
5. | The Company Created the Office of Sustainability. In keeping with the Company’s commitment to forest stewardship and continued improvement in the sustainability arena, in 2007, we created the Office of Sustainability, led by a Company vice president. The Office of Sustainability is responsible for developing and implementing policies that support our sustainability objectives, and for marshalling the resources and expertise of our business and staff leaders globally. Our sustainability policy is directed by a Sustainability Leadership Council comprised of senior business and staff leaders. The Office of Sustainability champions Company-wide conservation and natural resource stewardship strategies to support the environmental goals of our customers. It focuses its attention on the many issues surrounding sustainable wood fiber procurement, air and water quality, habitat conservation, product life-cycle analysis, and other natural resource issues as they pertain to the needs of our customers. The Office of Sustainability is also charged with raising the awareness of sustainability issues and assisting with obtaining third-party certification for our products. It builds upon our more than 30 years of work on the Company’s sustainability initiatives and innovative partnerships with conservation groups, such as Environmental Defense, the Conservation Fund, the Nature Conservancy, National Audubon Society and NatureServe. |
For all of these reasons, the reports requested in the shareowner proposal are duplicative, unnecessary, and a waste of shareowner assets.
Our Board of Directors unanimously recommends that you wish to receive separate copies of future annual reports and proxy statements or if you currently receive multiple copies of our annual report and proxy statement and would like to receive a single copy, please send your written request to ADP Investor Services at ADP-ICS, Householding Department, 51 Mercedes Way, Edgewood, NY, 11717, or call (800) 542-1061.
OUR BOARDOF DIRECTORSOur Board of Directors
Class I Directors– Nominated for Election at this Annual Meeting – Term Expiring in 2010
The following four directors are nominated for election at the 2007 annual meeting. Each of these directors is standing for election to serve a term that will expire in 2010. See page 64 of this proxy statement for more information on the election of directors.
David J. Bronczek, | ||||||||
Martha F. Brooks, | ||||||||
Lynn Laverty Elsenhans, | ||||||||
John L. Townsend, III, | ||||||||
Class II Directors – Term Expiring in 2011
The following three directors are nominated for election at the 2008 Annual Meeting. Each of these directors is standing for election to serve a term that will expire in 2011.
Samir G. Gibara, | ||||||||
John F. Turner, | ||||||||
Alberto Weisser, |
Class III Directors – Term Expiring in 2009
William G. Walter, |
Compensation Comparator Group (CCG):
A group of companies against which International Paper evaluates its compensation programs.
Please see page 46 for a list of companies in our 2007 CCG.
COMPENSATION PHILOSOPHYDirector Compensation
Our compensation program for our non-employee directors is guided by two principles: first, it should be competitive to attract highly qualified candidates to serve onthe following principles. We believe our Board, and second, it should aligncompensation program should:
— | Provide total compensation comprising both cash and equity that targets the median level of compensation paid by our Compensation Comparator Group; |
— | Align the interests of our directors with the interests of our executives and shareowners; |
— | Attract and retain top director talent; |
— | Focus on stewardship rather than attendance; and |
— | Be flexible to meet the needs of a diverse group of directors. |
In May 2007, we transitioned the oversight of our directors withdirector compensation program from the interestsManagement Development and Compensation Committee to the Governance Committee. Each element of director compensation discussed below is recommended by the Governance Committee and approved by our shareholders.Board.
In order to align the long-term financial interests of our directors with those of our shareholders,Our directors are required to own a significant equity stake in the Company of at least 10,000 shares of common stock, or deferred stock units. Directors have five years fromuntil March 2006,2011, or, in the case of newly elected directors, five years from the date of their election, to meet the ownership requirement. We believe this helps align the interests of our directors with the interests of our shareowners.
Elements of Our Director Compensation Program
CompensationFor 2007, compensation for our non-employee directors consists of:
an
— | An annual retainer fee that is a mix of cash and equity; |
— | Committee chair fees and Audit and Finance Committee member fees, if applicable; |
— | Life, business travel accident, and liability insurance; and |
— | Matching contributions by the Company on the director’s behalf to educational institutions up to $5,000 per year. |
We evaluate the reasonableness and appropriateness of cash and equity;
life, business travel accident, and liability insurance; and
participation in a charitable giving program.
Each of these elements, described in more detail below, is recommended by the Management Development and Compensation Committee and approved by our Board. Management conducts a study comparingtotal compensation paid to our directors compensation programin comparison to peer companies who comprise our Compensation Comparator Group, or CCG, which is describedlisted on page 3346 of this proxy statement. Our practice is to target our director compensation at the median of our CCG so that we can effectively compete for top director talent.
An employee-director receives noOur pay study for director compensation conducted in 2007 showed that our total board fees were 18 percent below the CCG median, causing the Company to rank 15th out of the 21 companies in our CCG for director pay. Accordingly, the Board approved an increase in annual cash or equity compensation for services as a director.retainer fees and committee chair fees, and the payment of an additional fee to members of the
Audit and Finance Committee. The 2007-2008 director fees are shown in the table below.
Annual compensation includes a cash retainer fee of $60,000, paidfees for both the 2006 and 2007 performance years (May to April) are shown below. The actual amounts received by our directors monthly, and an annual equity award offor the Company’s common stock2007 calendar year are shown in the amount of $100,000, described in more detail below. The chairs of each committee receive an additional $10,000, with the exception of the Audit and FinanceDirector Compensation Table.
Board & Committee chair, who receives an additional $20,000 fee.Fees
With respect to the $60,000 cash retainer fee, each director may elect to convert his or her cash retainer fee (but not committee chair fee) into Company common stock, with a 20% premium in additional shares of common stock for making that election. If a director makes this election, he or she will receive the equivalent of $72,000 in Company common stock, based on the closing stock price the day preceding the annual meeting held in May of each year. This election must be made prior to the end of each calendar year for the upcoming May to April performance year.
The equity portion of a director’s annual compensation is in the form of Company common stock with a fixed dollar value of $100,000. For directors who join the Board or retire from the
Board during the year, their award is prorated. To calculate the number of shares to be awarded for the annual retainer, we use the grant price for our most recent annual grant to our employees under our Performance Share Plan, which is described beginning on page 38 of this proxy statement.
A director’s ownership in shares of Company common stock that have been awarded under our current compensation plan vests one year after the shares are awarded, at which time directors are free to sell their shares, provided they have met their director stock ownership requirements. For information on these ownership requirements, please see page 11 of this proxy statement. Two of our directors hold shares of Company common stock that were awarded under our previous compensation plan and may not sell those shares until their retirement, disability or death.
Directors earn dividends on their shares of stock, which they may elect to receive either as cash or in the form of additional shares of stock.
Directors also have the option to defer all or a part of their annual retainer fee under our Restricted Stock and Deferred Compensation Plan for Non-Employee Directors. Amounts that are deferred are held as restricted stock units, or RSUs. In January following a director’s retirement, disability or death, we pay the value of the RSUs and dividends in a lump sum. We calculate the amount to be paid by multiplying (i) the number of RSUs and dividends credited to the director’s account by (ii) the closing price of our common stock on the last business day of the prior year.
Type of Fee | 2006-2007 Fee Amount | 2007-2008 Fee Amount | ||||
Board Fees | ||||||
Cash Retainer | $ | 60,000 | $ | 80,000 | ||
Equity Retainer | $ | 100,000 | $ | 120,000 | ||
Committee Fees | ||||||
Audit and Finance Committee Chair | $ | 20,000 | $ | 25,000 | ||
Audit and Finance Committee Member | None | $ | 10,000 | |||
Management Development and Compensation Committee Chair | $ | 10,000 | $ | 15,000 | ||
Governance Committee Chair | $ | 10,000 | $ | 15,000 | ||
Public Policy and Environment Chair | $ | 10,000 | $ | 10,000 |
Charitable GivingAnnual Matching Gift Program
All of our directors participate in the International Paper Company Charitable Award Program for Education in Honor of its Directors, referred to as the Charitable Award Program, which was established in 1995. The Charitable Award Program supports our commitment to education by offering each of our directors an opportunity to recommend that the Company make an aggregate donation of $1,000,000 to one or more, but not more than four, eligible tax-exempt institutions. A director’s designated institution(s) will receive a legacy gift to be paid in 10 equal annual installments following the director’s death.
To vest in this benefit, a non-employee director must (i) serve on our Board for at least 10 years or (ii) retire from our Board at the mandatory retirement age or become permanently disabled or die while on our Board. An employee-director must (i) serve on our Board for at least five years and (ii) retire at or after age 62 or become permanently disabled or die while on our Board. The Management Development and Compensation Committee oversees this program and may, in its discretion, amend or rescind certain provisions of the program, including the vesting requirements, or may terminate the program without the consent of participating directors.
Our annual expense for the program is approximately $1,041,000, of which $493,000 is attributable to directors who served in 2006. While the program does not provide any monetary compensation or direct financial benefit to our directors, we have reflected a ratable portion of the expense for each director who served in 2006 in the “All Other Compensation” column of the Non-Employee Director Compensation Table on page 14 of this proxy statement, and, for Mr. Faraci, our employee-director, in the “All Other Compensation” column of the Summary Compensation Table on page 50.
We pay the cost of and are the beneficiary of life insurance policies which partially offset the costs of the program, and we expect to receive an income tax deduction when we make the designated charitable awards.
Our directors are also eligible to participate in our matching gift program, which is available generally to all our employees. Under this program, we match our employees’ and directors’ charitable gifts to eligible educational institutions up to $5,000 per year per person.
Legacy Director Charitable Award Program
Directors who joined our Board on or before July 1, 2007, are eligible to participate in our legacy charitable award program. Under this program, the Company will make a charitable donation of $1 million in the director’s name, in 10 equal annual installments following the director’s death, to the eligible college or university selected by the director.
Insurance and Indemnification Contracts
We provide life insurance in the amount of $10,500 each to our non-employee directors, and travel accident insurance in the amount of $500,000 that covers a director if he or she dies or suffers certain injuries while traveling on business for us. The cost of this insurance is less than $50 per year per director because our directors are insured as part of our Company-wide insurance program for our employees.
We provide liability insurance for our directors, officers and certain other employees at an annual cost of approximately $6.7 million, including approximately $1.2 million for a fiduciary liability policy that covers any employee who acts in a fiduciary capacity.$5.8 million. The principal underwriters of coverage, which was renewed in 20062007 and extends to June 15, 2007,2008, are Federal Insurance Company and XL Specialty Insurance Company.
Our By-laws provide for standard indemnification of our directors and officers in accordance with New York law. We also have contractual
arrangements with our directors that indemnify them in certain circumstances for costs and liabilities incurred in actions brought against them while acting as our directors.
We believe that our director compensation program effectively rewards our directors for their time and commitment to the Company, and is consistent with our compensation philosophy as shown below.
Our Director Pay Principles | Our 2007 Director Pay Policies and Practices | |
þ Target compensation at median of CCG | — Conducted benchmarking survey of CCG during 2007 to evaluate director compensation — Increased fees and added member fee where appropriate to maintain competitiveness — Maintained mix of cash and equity that is in line with CCG | |
þ Align the interests of our directors with the interests of our executives and shareowners | — Paid 60 percent of compensation in the form of equity so that directors, like shareowners, have a personal stake in the Company’s financial performance | |
þ Attract and retain top director talent | — Compensated directors competitively, based on a cross-section of similar companies (CCG) | |
þ Focus on stewardship rather than attendance | — Continued to pay annual retainer rather than per-meeting fees | |
þ Maintain flexibility to meet the needs of a diverse group of directors | — Continued to allow directors to choose between cash and equity and elect to defer their fees until retirement |
Non-Employee Director Compensation Table
The following table provides information on 20062007 compensation for non-employee directors. This table shows fiscal year 20062007 compensation in accordance withbased on the Securities and Exchange Commission’s compensation disclosure requirements. Since we pay our directors on a May to AprilMay-to-April performance year, the amounts reported in the tabular disclosuretable below show differences among directors based onbecause (i) aneach director makes individual director’s elections as to receive his or her fees in the form of compensation (cash, equity,cash or some combination of the two);equity; (ii) aneach director makes individual director’s deferral elections;elections to defer compensation; (iii) additionalcertain directors receive committee chair fees paid to our committee chairs;and/or member fees; and (iv) the date the director joined our Board. Ms. Elsenhans, who joineddirectors may join our Board effective March 15, 2007,on different dates, so their compensation is not included inprorated for the table below.year.
The value of equity awards in the “Stock Awards” column is based on Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123 (revised 2004),Share-Based Payment (“SFAS No. 123(R)”), as required by the Securities and Exchange Commission. As a result, this value may include amounts from awards granted in and prior to 2006,2007, and not the amount actually paid to the director in 2006. We do not provide2007.
2007 Non-Employee Director Compensation
Name of Director | Fees Earned or ($) (1) | Stock ($) (2) | All Other ($) (3) | Total ($) | ||||||||
David J. Bronczek | — | 212,217 | 35,976 | 248,193 | ||||||||
Martha F. Brooks | — | 183,228 | 53,484 | 236,712 | ||||||||
Lynn Laverty Elsenhans | — | 162,578 | 34,152 | 196,730 | ||||||||
Samir G. Gibara | 87,500 | 108,074 | 47,422 | 242,996 | ||||||||
Donald F. McHenry | 86,250 | 108,074 | 66,555 | 260,879 | ||||||||
John L. Townsend, III | 87,917 | 126,511 | 37,416 | 251,844 | ||||||||
John F. Turner | 83,333 | 126,511 | 35,731 | 245,575 | ||||||||
William G. Walter | — | 200,087 | 44,769 | 244,856 | ||||||||
Alberto Weisser | — | 188,244 | 39,601 | 227,845 | ||||||||
J. Steven Whisler | — | 17,032 | 658 | 17,690 |
(1) Directors may elect to convert their $80,000 cash retainer fee into shares of Company stock. In order to encourage director stock ownership, a retirement plan for our directors.
Whiledirector who makes this election receives a 20 percent premium in additional shares of stock, thereby receiving the total annual expenseequivalent of $96,000 in Company stock, based on the closing stock price of the Charitable Award Program has been determined by using assumptions relatedCompany’s common stock on the day preceding our annual shareowners meeting in May. This election must be made prior to the end of each current and retired director who participates incalendar year for the program, the expense shown in the “All Other Compensation” column only relates to non-employee directors who served in 2006.
NON-EMPLOYEE DIRECTOR COMPENSATION TABLE FOR 2006
Fees Paid in Cash | Stock Awards | All Other Compensation | Total | |||||||||||
($) | ($) | ($) | ($) | |||||||||||
Directors at December 31, 2006 | (1) | (2) | (3) | |||||||||||
David J. Bronczek | $ | - | $ | 44,494 | $ | 12,324 | $ | 56,818 | ||||||
Martha F. Brooks | $ | - | $ | 163,533 | $ | 49,295 | $ | 212,828 | ||||||
Samir G. Gibara | $ | 80,000 | $ | 104,490 | $ | 49,295 | $ | 233,785 | ||||||
Donald F. McHenry | $ | 60,000 | $ | 138,106 | $ | 49,295 | $ | 247,401 | ||||||
John L. Townsend, III | $ | 48,065 | $ | 88,926 | $ | 36,971 | $ | 173,962 | ||||||
John F. Turner | $ | 60,000 | $ | 99,760 | $ | 49,295 | $ | 209,055 | ||||||
William G. Walter | $ | - | $ | 174,092 | $ | 49,295 | $ | 223,387 | ||||||
Alberto Weisser | $ | - | $ | 164,128 | $ | 49,295 | $ | 213,423 | ||||||
Retired Directors | ||||||||||||||
James A. Henderson | $ | 70,000 | $ | 128,341 | $ | 49,295 | $ | 247,636 | ||||||
W. Craig McClelland | $ | - | $ | 182,639 | $ | 49,295 | $ | 231,934 |
(1) Certainupcoming performance year. Because certain directors have elected to receive restricted stockshares in lieu of a cash, retainer fee; accordingly, thesecertain directors did not receiveshown above received no cash compensation in 2006.during 2007.
(2) The value of stock awards shown in the “Stock Awards” column is based on SFAS No. 123(R) as required by the Securities and Exchange Commission. A discussion
Directors who elect to defer their restricted stock until death, disability or retirement receive restricted stock units, or RSU’s, rather than restricted stock. RSU’s are accounted for as liability awards rather than equity awards. For 2007, the grant date fair value of the assumptions usedequity awards shown in calculating these values may be found in Note 17the “Stock Awards” column is based on the closing price of the Company’s common stock on May 4, 2007, which is the day prior to the effective date of the grant, and were as follows: $230,086 for Mr. Bronczek and $134,074 for Mr. Townsend and Mr. Turner, each of whom received shares of restricted stock rather than RSU’s. All other directors selected RSU’s, which are valued at the closing price of the Company’s stock on December 31, 2007.
Restrictions on shares awarded to our audited financial statements on page 85directors under our current compensation plan lapse one year from issuance, and then are freely transferable, subject to our director stock ownership requirement and securities regulations. Two of our annual report on Form 10-K filed withdirectors hold shares of Company stock that were awarded under our previous compensation plan and may not sell those shares until their retirement, disability or death. RSU’s are not transferable until a director’s retirement from the Securities and Exchange Commission on February 28, 2007.Board, death or disability. The value of his or her RSU’s are paid in cash in January following retirement, death or disability.
The following table shows the aggregate number of unvested shares held by our directors onoutstanding as of December 31, 2006.2007 for each non-employee director.
NON-EMPLOYEE DIRECTOR STOCK OWNERSHIP AT DECEMBERAggregate Number of Unvested Shares Outstanding as of December 31, 20062007
Aggregate Number of Unvested Shares | |||
David J. Bronczek | |||
Martha F. Brooks | |||
| |||
| |||
Donald F. McHenry | 47,267 | ||
John L. Townsend, III | |||
John F. Turner | |||
William G. Walter | |||
Alberto Weisser | |||
| |||
| |||
| |||
|
(3) A breakdown of the amounts shown in the “All Other Compensation” column for 2007 for each non-employee director is set forth in the following table:
2007 All Other Compensation
Company Matching ($) (a) | Annual ($) (b) | Dividends Earned ($) (c) | TOTAL All Other ($) (d) | |||||||||
David J. Bronczek | — | 29,033 | 6,943 | 35,976 | ||||||||
Martha F. Brooks | 5,000 | 29,033 | 19,451 | 53,484 | ||||||||
Lynn Laverty Elsenhans | 5,000 | 24,194 | 4,958 | 34,152 | ||||||||
Samir G. Gibara | 5,000 | 29,033 | 13,389 | 47,422 | ||||||||
Donald F. McHenry | 5,000 | 29,033 | 32,522 | 66,555 | ||||||||
John L. Townsend, III | 5,000 | 29,033 | 3,383 | 37,416 | ||||||||
John F. Turner | — | 29,033 | 6,698 | 35,731 | ||||||||
William G. Walter | — | 29,033 | 15,736 | 44,769 | ||||||||
Alberto Weisser | — | 29,033 | 10,568 | 39,601 | ||||||||
J. Steven Whisler | — | — | 658 | 658 |
(a) Under the Company’s matching gifts program, contributions in 2007 by Ms. Brooks, Ms. Elsenhans, Mr. Bronczek,Gibara, Mr. McHenry and Mr. Townsend and Mr. Weisser joined our Board in 2006, and will be required to hold 10,000 shareswere matched by the fifth anniversaryCompany up to a maximum amount of their respective dates of election$5,000. The Company matched Mr. Gibara’s 2007 gift in 2011; Messrs. Turner and Walter joined our Board in 2005 and will be required2008.
(b) With regard to hold 10,000 shares by 2010. Ms. Elsenhans joined our Board on March 15, 2007, and is therefore not listed on this table reflecting ownership of stock by our directors as of December 31, 2006. She will be required to meet our stock ownership requirements by March 2012. All other directors meet our director stock ownership requirement.
(3) Reflects the annual expense incurred by the Company for the Charitable Award Program attributable to non-employee directors who served in 2006. Weof our legacy charitable award program, we determine the total annual expense to the Company of approximately $1,041,000 by using assumptions related to each current and retired director who participates in the program. We take into account each director’s age, years of service on our Board, and mandatory retirement age. We make a standard mortality assumption for all directors and use a discount rate of 6%.6 percent. For directors who served in 2006,2007, the Company incurred ana non-cash expense of $493,000, and$285,488 that amount was allocated ratably to those directors based on the number of months each served. Non-employee directors vest in the program upon serving on our Board for at least 10 years, retiring from our Board at the mandatory retirement age, or in the event of disability or death. Directors derive no
financial benefit from our charitable award program. We finance the program in part through life insurance policies, of which we are the beneficiary. We expect to receive an income tax deduction when we make the designated charitable awards.
(c) Directors earn dividends on their shares of stock and RSU’s, which they may elect to receive either as cash or in the form of additional shares of stock or RSU’s. The amount shown represents the value of dividends earned, whether in cash or in stock. Directors who have accumulated a greater number of shares or RSU’s will earn a greater number of dividends.
(d) The total column represents the sum of columns (a) through (c), and is shown in column (3) of the 2007 Director Compensation Table, above. The amount shown does not include thede minimis cost for each director of a $10,500 life insurance policy and a $500,000 business travel accident policy.
Helpline Contact Information:
On the Web:
www.internationalpaper.com
Within the US:
(800) 443-6308
Outside the US:
(877) 319-0263
OUR COMMITMENTTO SOUND CORPORATE GOVERNANCE PRINCIPLESInformation About Our Corporate Governance
Our Commitment to Sound Corporate Governance Principles
We believe that good corporate governance is critical to achieving business success. Our Board has adoptedCorporate Governance Principles that reflect its commitment to sound governance practices. In addition, each of our Board committees has its own charter to assure that our Board fully discharges its responsibilities to our shareholders.shareowners. Our Board regularly reviews itsCorporate Governance Principles and committee charters and makes changes from time to time to reflect developments in the law and the corporate governance area.
OurCorporate Governance Principles and our Board committee charters are published on our websiteWeb site atwww.internationalpaper.com under the “Investors”“Our Company” tab at the top of the page and then under the “Governance” link in the menu on the right. This section of our websiteWeb site contains all of our corporate governance materials, and amaterials. A paper copy of these materials is available at no cost upon written request to Ms. Maura A. Smith, corporate secretary,Corporate Secretary, International Paper, 6400 Poplar Avenue, Memphis, TN 38197.
In each of the areas discussed below, we have embraced sound principles, policies and procedures to ensure that our Board and our management goals are aligned with our shareholders’shareowners’ interests.
Our Board has adopted aCode of Business Ethics that applies to our directors, officers and all employees to ensure that we conduct business in a legal and ethical manner. Our revisedCode of Business Ethics, which became effective on January 31, 2008, can be found on our websiteWeb site atwww.internationalpaper.com by clicking on the “Our Company” tab at the top of the page and then on the “Ethics and Business Practice” link. This updatedCode of Business Ethics reflects the increasingly global nature of our business and addresses many global compliance issues. A paper copy is available at no cost upon written request to Ms. Maura A. Smith, Corporate Secretary, International Paper, 6400 Poplar Avenue, Memphis, TN 38197.
We have established anOur Office of Ethics and Business Practice, located at our global headquarters in Memphis, Tennessee, is led by Mr. James D. Berg, directorDirector of Ethics and Business Practice. If an employee, customer, vendor or shareholdershareowner has a concern about ethics or business practices of the Company or any of its employees or representatives, he or she may contact Mr. Berg in person by going to his office or by communicating with him via mail, e-mail, facsimile or telephone. OurCode of Business Ethics explains that there are multiple channels for an employee to report a concern, including to his or her manager, assigned human resource professional or legal counsel or to our internal audit department.
We have also established aOurHelpline,is available 24 hours a day, seven days a week, to receive calls from anyone wishing to report a concern or complaint, anonymous or otherwise.Helpline contact information can be found on our websiteWeb site at
Our Independent Directors:
David J. Bronczek
Martha F. Brooks
Lynn Laverty Elsenhans
Samir G. Gibara
Donald F. McHenry
John L. Townsend, III
John F. Turner
William G. Walter
Alberto Weisser
J. Steven Whisler
www.internationalpaper.com underby clicking on the “Our Company” tab at the top of the page. Clickpage, then on the “Ethics and Business Practice” andlink, then click onunder “How to Contact Us” on the left scroll-down menu. You may also call (800) 443-6308 if you are calling from anywhere in North America, or call (877) 319-0263 via AT&T Direct if you are calling from outside North America, or you may send an e-mail to ethics@ipaper.com for assistance.
AllHelpline contacts are provided to Mr. Berg for further action and, if possible, for a response to the person making the contact. Any report to any one of our multiple channels for
reporting concerns that raises a concern or allegation of impropriety relating to our accounting, internal controls or other financial or audit matters is immediately forwarded to Mr. Berg, who is then responsible for reporting such matters, unfiltered, to the chair of our Audit and Finance Committee. All such matters are investigated and responded to in accordance with the procedures established by the Audit and Finance Committee to ensure compliance with the Sarbanes-Oxley Act of 2002.
Our certificate of incorporation permits the size of our Board to be anywhere from nine to 18 members. Currently, the size of our Board is 10.11. During 2006, Messrs. Bronczek, Townsend and Weisser joined our Board and, in 2007, Ms. Lynn Laverty Elsenhans wasand Mr. J. Steven Whisler were elected effective March 15, 2007. We have had a number of retirements over the last three years as directors reachedto our mandatory retirement age, including, most recently, Messrs. Henderson and McClelland. Both retired from our Board on December 31, 2006, each after seven years of dedicated service. Our director retirement policy is more fully described on page19 of this proxy statement.Board.
Director Qualification Criteria and Independence Standards
OurIn March 2007, our Board has adopted director qualification criteria,Director Qualification Criteria and Independence Standards, which it uses to evaluate incumbent directors being considered for election at each annual meeting, as well as to evaluate director-candidates. The director qualification criteria are attached asAppendix A to this proxy statement, orDirector Qualification Criteria and Independence Standards may be found on our websiteWeb site atwww.internationalpaper.com under the “Investors”“Our Company” tab at the top of the page and then under the “Governance” link in the menu on the right. We discuss below some of the more important considerations that qualify our directors for service on our Board.
It is the policy of our Board that a majority of its members be independent from the Company, its management and its independent registered public accounting firm. Based on the Governance Committee’s review of our current directors, our Board has determined that all of our non-employee directors are independent. We have one employee-director, our chairman, Mr. Faraci, who is not independent.
Director Independence Determination Process and Standards
Annually, our Board determines the independence of directors based on a review conducted by the Governance Committee and Ms. Smith. The Governance Committee and the Company’s senior vice president, general counselBoard evaluate and corporate secretary. As in prior years, our Board evaluated and determineddetermine each director’s independence under theNYSEListing Manual’s independence standards. See Section 303A.02(b) ofstandards and theNYSE Listing Manual for a description of these standards. In addition, for 2007, our Governance Committee recommended to the Board that it adopt categorical independence standards that are consistent with, but more rigorous than the NYSE standards. In March 2007, the Board adopted categorical standards that, together with our director qualification criteria, are attached asAppendix A to this proxy statement or may be found on our website atwww.internationalpaper.com under the “Investors” tab at the top of the page Company’s Director Qualification and then under the “Governance” link in the menu on the right.Independence Standards.
In accordance with recentUnder Securities and Exchange Commission rule changes,rules, the Governance Committee is required to analyze and describe any transactions, relationships or arrangements
not specifically disclosed in this proxy statement that were considered in determining our directors’ independence. To facilitate this process, the Governance Committee reviewedreviews directors’ responses to our annual Directors’ and Officers’ Questionnaire, which requires disclosure of
each director’s and his or her immediate family’s relationships to the Company, as well as any potential conflicts of interest.
In this context, the Governance Committee considered the employment of Mr. Bronczek with FedEx Express, a subsidiary of Federal Express. We are both a customer of and a supplier to Federal Express, but the aggregate payments by the Company to and from Federal Express did not exceed 1.75%following relationships. Based on its analysis of the other entity’s consolidated gross revenues, which is the percentage we established underrelationships and our categorical independence standards, for evaluating such relationships.
The Governance Committee also considered the employment of three other directors: Ms. Brooks at Novelis Inc., Mr. Walter at FMC Corporation and Mr. Weisser at Bunge Limited, and determined that the commercial relationships between our Company and these companies were not material under our categorical independence standards. Further, the Committee considered the service by Mr. Weisser on the North American Agribusiness Advisory Board sponsored by Rabobank Nederland because Rabobank Nederland is an entity to which the Company is indebted. Mr. Weisser does not serve as an executive officer of Rabobank Nederland, nor did he receive compensation from Rabobank Nederland. The Committee also considered the other affiliations of our directors, but none of the directors serve as an executive officer of any organization to which we make charitable contributions.
Based on this analysis, the Governance Committee concluded and recommended to our Board that none of these relationships impaired any of our directors’ independence. Accordingly, our Board determined that all of our non-employee directors, listed below, are independent under the NYSE standards and under our independence standards.
— | The employment of our directors with the following employers with whom we may do business: Mr. Bronczek at FedEx Express, a subsidiary of Federal Express; Ms. Brooks at Novelis Inc.; Ms. Laverty Elsenhans at Shell Downstream Inc., a subsidiary of Royal Dutch Shell plc; Mr. Walter at FMC Corporation; and Mr. Weisser at Bunge Limited. The Governance Committee determined that the commercial relationships between International Paper and these companies were not material under our categorical independence standards. |
— | The service by Mr. Weisser on the North American Agribusiness Advisory Board sponsored by Rabobank Nederland. Rabobank Nederland is an entity to which International Paper is indebted. Mr. Weisser does not serve as an executive officer of Rabobank Nederland, nor did he receive compensation from Rabobank Nederland. |
— | ||||||
Non-profit and charitable organization affiliations of our directors. None of our directors serve as an executive officer of any organization to which we make charitable contributions. |
In addition, the Governance Committee also recommended, and the Board determined, that Messrs. Henderson and McClelland qualified as independent directors during their tenure on the Board in 2006 until their retirement at year-end in accordance with our mandatory retirement policy. Finally,Further, the Governance Committee recommended, and our Board determined, that all of our non-employee directors meet the independence requirements for service on our Audit and Finance Committee, the Management Development and Compensation Committee, and the Governance Committee.
Board of Directors’ Policies and Practices
Director Resignation Policy
If a director’s principal occupation changes substantially, he or she is required to tender his or her resignation for consideration by the Governance Committee. The Governance Committee then
recommends to the Board whether or not to accept the resignation. None of our directors tendered his or her resignation as a result of a substantial change in principal occupation in 2006.2007.
In relation to election of directors by shareholders,2006, we have adopted majority voting of directors pursuant to a By-law amendment. IfAccordingly, a director nominee who receives a greater number of votes“withheld” than votes“for” his or her election he or she must submit his or her resignation, and the Board, working through the Governance Committee, will determine whether or not to accept the resignation.
At this 2008 Annual Meeting, we are offering a proposal to amend our Restated Certificate of Incorporation to further provide for majority of voting of directors in non-contested elections. If the Company’s proposed amendment is approved by our shareowners, each vote (other than
abstentions) would be counted “for” or “against” each director nominee. We would amend our By-laws to conform our director resignation policy so that it continues to apply under the majority voting standard adopted in our Restated Certificate of Incorporation.
Director Mandatory Retirement Policy
A director is required to retire from our Board on December 31 of the year in which he or she attains the age of 70 (ifif the director was elected or appointed to the Board for the first time after July 13, 1999)1999, or December 31 of the year in which the director attains the age of 72 for directors appointed prior to that date. In 2006, twoNo directors retired under this policy during 2007. Two of our current directors, Messrs. HendersonMr. McHenry and McClelland retired pursuant toMr. Gibara, must retire at age 72, and all other directors must retire at age 70. Mr. McHenry will retire under this policy.policy on December 31, 2008.
Director Orientation and Continuing Education
Our new directors participate in a director orientation that includes written materials and presentations by subject matter experts, as well as meetings with senior management, our independent registered public accounting firm and both the Company’s and the Management Development and Compensation Committee’s compensation consultants. New directors visit several of our facilities and meet with employees. Continuing education occurs at every Board and committee meeting,meetings, with specific topics of interest covered by management or outside experts. Directors are also offered the opportunity to attend director education programs provided by third parties. On a regular basis, our Board visits a facility or significant operation and, at each Board meeting, meets informally with members of senior management.
Board, Committee and Annual Meeting Attendance
The Board met 11nine times during 20062007 with an average attendance rate of 96%.99 percent. Each director attended 75%75 percent or more of the aggregate number of meetings of the Board and committees on which he or she served. As required by ourCorporate Governance Principles, all those who were directors at the time of the 2006 annual meeting2007 Annual Meeting were in attendance at the 2006 annual meeting.2007 Annual Meeting.
Executive Sessions of Non-Management Directors
Non-management directors of our Board meet in regularly scheduled executive sessions without management present following our regularly scheduled Board meetings. In 2006,2007, executive sessions were held after every regularly scheduled Board meeting. The chair of the Governance Committee is the presiding director for these executive sessions. The duties of the presiding director include:
— | Leading both the annual performance assessment of the chief executive officer and the annual Board self-assessment, described below; |
— | Ensuring that the Board holds executive sessions; |
— | Overseeing and managing how the Company provides information to the Board, including establishing and assessing communication channels, and the timeliness and quality of information received; and |
Governance Committee
Current Members
Donald F. McHenry (Chair)
David J. Bronczek
Samir G. Gibara
John L. Townsend, III
John F. Turner
J. Steven Whisler
Five Meetings in 2007
Meeting Attendance Rate
96 percent
All members are independent
— | Regularly reviewing and assessing the Company’sCorporate Governance Principles. |
Independent directors have unlimited access to independent legal, financial, accounting and other advisors as they may deem appropriate, without obtaining management approval.
Annual Board and Committee Self-Assessment
In accordance with a procedure established by the Governance Committee, theour Board conducts an annual self-assessment of its own and the Boardits committees’ performance. The assessment is based on individual interviews with all directors,each independent director, conducted by the Company’s senior vice president, general counsel and corporate secretary, Ms. Maura A. Smith. An
Separately, an assessment of individual board members is conducted by the Governance Committee and the chairman of the Board prior to his or her nomination for election by shareholders,shareowners, in accordance with the director qualification criteria discussed above.
OUR BOARD COMMITTEESOur Board Committees
In order to fulfill its responsibilities, the Board has delegated certain authority to its committees. There are four standing committees and one executive committee. Our four standing committees are: (i) Audit and Finance; (ii) Governance; (iii) Management Development and Compensation; and (iv) Public Policy and Environment. The Executive Committee meets only if a quorum of the full Board cannot be convened and there is an urgent need to meet.
Each committee has its own charter, and each charter is reviewed annually by each committee to assure ongoing compliance with applicable law and sound governance practices. The Governance Committee assesses the Executive Committee charter. Committee charters may be found on our websiteWeb site atwww.internationalpaper.com under the “Investors”“Our Company” tab at the top of the page and then under the “Governance” link in the menu on the right. Paper copies are available at no cost by written request to Ms. Maura A. Smith, corporate secretary,Corporate Secretary, International Paper, 6400 Poplar Avenue, Memphis, TN 38197.
Board members are assigned to one or more committees, and those assignments are reviewed at least annually by the chairman of the Board, Mr. Faraci, and thecommittees. The Governance Committee which recommends any changes in assignments to the full Board. In most cases, Board members rotate off committees afterCommittee chairs are rotated periodically, usually every three to four years of service, taking into account the need for both continuity and change.
Upon the retirement of Mr. McClelland, the Board appointed Mr. Turner as chair of our Public Policy and Environment Committee. And, upon the retirement of Mr. Henderson, the Board appointed Ambassador McHenry as chair of our Governance Committee. In 2006, Mr. Weisser rotated off of the Governance Committee and is now serving on the Management Development and Compensation Committee. Ms. Elsenhans, elected to the Board as of March 15, 2007, will be assigned to one or more committees when the Governance Committee meets immediately following the annual meeting in May.five years.
Meetings. TheMeeting agendas for the upcoming year’s meetings are developed in consultation with committee members. The final agenda for each committee meeting is determined by the Governance Committee chair togetherin consultation with our chairmancommittee members and chief executive officer, Mr. Faraci.senior management, who regularly attend the meetings. The Governance Committee meetingschair also serves as the presiding director for all non-management sessions of the Board, as described above.
Audit and Finance Committee
Current Members
John L. Townsend, III (Chair)
Lynn Laverty Elsenhans
Samir G. Gibara
William G. Walter
Alberto Weisser
Nine Meetings in 2007
Meeting Attendance Rate
100 percent
Each member is an “Audit Committee Financial Expert” under the SEC’s definition
All members are regularly attended by Mr. Faraci and Ms. Smith. Our corporate legal department provides support to the committee by preparing materials and fulfilling administrative tasks.independent
Responsibilities. The Governance Committee is responsible for identifying and recommending individuals qualified to become Board members. The committee is also responsible for ongoing monitoring and oversight of our governance practices, including the Company’sCorporate Governance Principles, and reviewing conflicts of interest, including related person transactions under our Related Person Transaction Policy. The committee is also responsible for recommending non-employee director compensation, and for nomination of director-candidates and incumbent directors for election by our shareholders. The table below provides additional information aboutassisting the committee. All of the members of the Governance Committee meet our director independence standards.Board in its annual self-assessment.
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Director Nomination Procedures
During 2006,2007, there have been no changes to the procedures by which shareholdersshareowners may recommend Board nominees. For more information on nominating a candidate for director at our next annual meeting, please see page 7 of this proxy statement. The Committee did not receive any recommended nominees from a shareholdershareowner or group of shareholdersshareowners that beneficially own more than 5%5 percent of our common stock.
The Governance Committee is responsible for recommending director-candidates to the full Board for consideration and approval. The Board has developed director qualification criteria that are designed to describe the qualities and characteristics that are important to the Board as a whole. These criteria are attached asAppendix A to this proxy statement. In addition, no members of our Board serve on the board of directors of more than two other public companies.
Our Board applies the same criteria in evaluating candidates nominated by shareholdersshareowners as well as in evaluating those recommended by other sources. The Committee has engaged Egon Zehnder International, a business leadership recruiting firm, to identify potential director-candidates to the Board. Through this recruiting firm’s efforts, Ms. Lynn Laverty Elsenhans and Mr. Bronczek and Ms. ElsenhansJ. Steven Whisler were identified as potential Board candidates.
Section 16(a) Beneficial Ownership Reporting Compliance
The Governance Committee recommends to the Board for its approval the officers who are required to comply with Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Section 16(a) of the Exchange Act requires our directors, certain officers, and persons who own more than 10% of our common stock to file initial reports of beneficial ownership on Form 3, and reports of subsequent changes in beneficial ownership on Forms 4 or 5 with the Securities and Exchange Commission.
Based solely on our review of copies of these forms, we believe that all officers, directors, and holders of more than 10% of our common stock complied with the filing requirements applicable to them for the fiscal year ended December 31, 2006, except as follows: on May 30, 2006, as a result of an administrative error, we filed an untimely Form 4 for our senior vice president, internal audit, Mr. Andrew R. Lessin.
Meetings. TheMeeting agendas for the upcoming year’s meetings are developed in consultation with committee members. The final agenda for each committee meeting is determined by the chair of the Audit and Finance Committee togetherchair in consultation with Mr. Faraci. They are assisted by our executive vice presidentcommittee members and chief financial officer, Ms. Parrs, our vice president and controller, Mr. Robert J. Grillet, Mr. Lessin and Ms. Smith,senior management, who provides legal advice toregularly attend the committee. Committee meetings are regularly attended by Mr. Faraci, Ms. Parrs, Ms. Smith, Mr. Lessin, Mr. Grillet, and such other senior financial staff as may be required from time to time.meetings. On a regular basis, the committee holds an executive session without members of management, and it also meets privately with representatives from our independent registered public registered accounting firm, and separately with each of Ms. Parrs,our chief financial officer, Mr. Tim Nicholls, our senior vice president, general counsel and corporate secretary, Ms. Smith, and Mr. Lessin. At the Board of Directors meeting that immediately follows committee meetings, the chair of the Audit and Finance Committee reports on the matters approved or endorsed at the meeting. Our corporate finance and corporate legal departments provide support by preparing materials and fulfilling administrative tasks.our vice president, internal audit, Ms. Terri L. Herrington.
Responsibilities. The Audit and Finance Committee assists our Board in monitoring the integrity of our financial statements and financial reporting procedures and overseeing the independent registered public registered accounting firm’s qualifications and independence, the performance of our internal audit function and independent registered public registered accounting firm, and our compliance with legal and regulatory requirements. The committee is also responsible for monitoring the use and development of our financial resources, the risk of financial fraud involving management and ensuring that controls are in place to prevent, deter and detect fraud by management, and such other matters as directed by our Board or the committee’s charter.
Each member of the Audit and Finance Committee has appropriate financial expertise to serve on the committee and has been designated as an “audit committee financial expert” as defined in applicable Securities and Exchange Commission regulations.
The table below provides additional information about the committee. All of the members of the Audit and Finance Committee meet our director independence standards.
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Audit and Finance Committee Report
The following is the report of the Audit and Finance Committee with respect to the Company’s audited financial statements for the fiscal year ended December 31, 2006.2007.
The Audit and Finance Committee assists the Board of Directors in its oversight of the Company’s financial reporting process and implementation and maintenance of effective controls to prevent, deter and detect fraud by management. The Audit and Finance Committee’s responsibilities are more fully described in its charter, which is accessible on the Company’s websiteWeb site atwww.internationalpaper.com under the Investors“Our Company” tab at the top and then the Governance tab“Governance” link on the right. Paper copies of the Audit and Finance Committee charter may be obtained, without cost, by written request to Ms. Maura A. Smith, corporate secretary,Corporate Secretary, International Paper Company, 6400 Poplar Avenue, Memphis, TN 38197.
In fulfilling its oversight responsibilities, the Audit and Finance Committee has reviewed and discussed the Company’s annual audited and quarterly consolidated financial statements for the 20062007 fiscal year with management and Deloitte & Touche LLP (“Deloitte & Touche”), the Company’s independent registered public accounting firm. The Audit and Finance Committee has discussed with Deloitte & Touche the matters required to be discussed by the Statement on Auditing Standards No. 61, as amended (AICPA,Professional Standards, Vol. 1.AU. section 380), as adopted by the Public Company Accounting Oversight Board (United States) in Rule 3200T. The Audit and Finance Committee has received the written disclosures and the letter from Deloitte & Touche required by Independence Standards Board Standard No. 1 (Independence Standards Board Standard No. 1,Independence Discussions with Audit Committees), as adopted by the Public Company Accounting Oversight Board (United States) in Rule 3600T, and has discussed with Deloitte & Touche its independence from the Company and its management. The Audit and Finance Committee has also considered whether the provision of non-audit services by Deloitte & Touche is compatible with maintaining the auditors’ independence.
The Board has determined that the following members of our Audit and Finance Committee are audit committee financial experts as defined in Item 407(d)(5)(ii) of Regulation S-K: Martha F. Brooks,Lynn Laverty Elsenhans, Samir G. Gibara, John L. Townsend, III, William G. Walter, and Alberto Weisser. The Board has determined that each of these audit committee financial experts meets the independence requirements set forth under the listing standards of the NYSE and our independence standards.
Based on the review and discussions referred to above, the Audit and Finance Committee recommended to the Company’s Board of Directors that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006.2007.
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For more information:
For a complete copy of International Paper’s “Guidelines of International Paper Company Audit and Finance Committee for Pre-Approval of Independent Auditor Services”, visit us on the Web at:
www.internationalpaper.com
Click the “Our Company” tab, then the “Governance” link,
or write to:
Ms. Maura A. Smith,
Corporate Secretary,
International Paper
6400 Poplar Avenue
Memphis, TN 38197
The Audit and Finance Committee has selected, and the Board of Directors has approved, subject to shareholdershareowner ratification, the appointment of the Company’s independent auditors.
Audit and Finance Committee
Samir G. Gibara, Chairman
Martha F. Brooks
John L. Townsend, III
William G. Walter
Alberto Weisser
Audit and Finance Committee | ||
John L. Townsend, III, Chairman | William G. Walter | |
Lynn Laverty Elsenhans | Alberto Weisser | |
Samir G. Gibara |
The Company’s Independent Registered Public Accounting Firm
The Audit and Finance Committee is responsible for recommendingengaging the Company’s independent registered public accounting firm, and has evaluated the qualifications, performance and independence of Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates. Based on this evaluation, the Audit and Finance Committee has recommended,approved and selected, and the Board has approved,ratified, Deloitte & Touche as the Company’s independent registered public accounting firm for 2007, subject to shareholder ratification.2008.
Deloitte & Touche’s reports on the consolidated financial statements for each of the three fiscal years in the period ended December 31, 2006,2007, did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles.
Independent Auditor Fees
The BoardAudit and Finance Committee engaged Deloitte & Touche to perform an annual integrated audit of the Company’s financial statements, which includes an audit of the Company’s internal controls over financial reporting, for the years ended December 31, 20052006 and 2006.2007. The total fees and expenses paid to Deloitte & Touche are as follows (in thousands):
2005 | 2006(1) | |||||
Audit Fees | $ | 19,879 | $ | 17,789 | ||
Audit-Related Fees | 2,960 | 2,193 | ||||
Tax Fees | 1,393 | 229 | ||||
All Other Fees | 48 | 14 | ||||
Total Fees | $ | 24,280 | $ | 20,225 |
(1) Out-of-pocket expenses paid to Deloitte & Touche are included in the 2006 fees. For comparative purposes, out-of-pocket expenses of $633,000 were paid to Deloitte & Touche in 2005 that are not included in the 2005 fees shown above.
2006 ($) | 2007 ($) | |||
Audit Fees | 17,789 | 14,646 | ||
Audit-Related Fees | 2,193 | 2,973 | ||
Tax Fees | 229 | 189 | ||
All Other Fees | 14 | 10 | ||
Total Fees | 20,225 | 17,818 |
Services Provided by the Independent Auditors
All services rendered by Deloitte & Touche are permissible under applicable laws and regulations, and are pre-approved by the Audit and Finance Committee. Pursuant to rules adopted by the Securities and Exchange Commission, the fees paid to Deloitte & Touche for services provided are presented in the table above under the following categories:
1. | Audit Fees—These are fees for professional services performed by Deloitte & Touche for the audit and review of our annual financial statements that are normally provided in connection with statutory and regulatory filings or engagements, comfort letters, consents and other services related to Securities and Exchange Commission matters. Audit |
Public Policy and Environment Committee
Current Members
John F. Turner (Chair)
David J. Bronczek
Martha F. Brooks
Lynn Laverty Elsenhans
Donald F. McHenry
Four Meetings in 2007
Attendance Rate
94 percent
All members are independent
fees in both years include amounts related to the audit of the effectiveness of internal controls over financial |
2. | Audit-Related Fees—These are fees for assurance and related services performed by Deloitte & Touche that are reasonably related to the performance of the audit or review of our financial statements. This includes employee benefit and compensation plan audit, accounting consultations on divestitures and acquisitions, attestations by Deloitte & Touche that are not required by statute or regulation, consulting on financial accounting and reporting standards, and consultations on internal controls and quality assurance audit procedures related to new or changed systems or work processes. |
3. | Tax Fees—These are fees for professional services performed by Deloitte & Touche with respect to tax compliance, tax advice and tax planning. This includes consultations on preparation of original and amended tax returns for the Company and its consolidated subsidiaries, refund claims, payment planning, and tax audit assistance. Deloitte & Touche has not provided any services related to tax shelter transactions, nor has Deloitte & Touche provided any services under contingent fee arrangements. |
4. | All Other Fees—These are fees for other permissible work performed by Deloitte & Touche that do not meet the above category descriptions. The services relate to various engagements that are permissible under applicable laws and regulations, which are primarily related to assistance with, and development of, training materials. |
The Audit and Finance Committee has adopted “Guidelines of International Paper Company Audit and Finance Committee for Pre-Approval of Independent Auditor Services,” which are available on our websiteWeb site atwww.internationalpaper.com under the “Investors”“Our Company” tab at the top of the page and then under the “Governance” link in the menu on the right. A paper copy may be obtained at no cost by written request to Ms. Maura A. Smith, corporate secretary,Corporate Secretary, International Paper, 6400 Poplar Avenue, Memphis, TN 38197.
Public Policy and Environment Committee
Meetings. TheMeeting agendas for the upcoming year’s meetings are developed in consultation with committee members. The final agenda for each committee meeting is determined by the chair of the Public Policy and Environment Committee togetherchair in consultation with Mr. Faraci. They are assisted bycommittee members and senior management, who regularly attend the corporate legal department and other staff departments. Committee meetings are regularly attended by Mr. Faraci, Ms. Smith, and other members of management of the Company with functional responsibility for matters that properly come before the committee.meetings.
Responsibilities. The Public Policy and Environment Committee has overall responsibility for the review of contemporary and emerging public policy legal,issues, as well as technology issues pertaining to the Company. The committee reviews the Company’s health and safety environmental and technology issues pertinent to our Company and its global operations, as well as for assessment of our various compliance policies and programs.environmental policies to ensure continuous improvement and compliance. The committee also reviews the Company’s policies and procedures for complying with its legal and regulatory obligations, including theCode of Ethics.
The table below provides additional information about the committee.
Executive Committee
Current Members
John V. Faraci (Chair)
Donald F. McHenry
John L. Townsend III
John F. Turner
William G. Walter
No Meetings in 2007
Management Development and Compensation Committee | ||||
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Current Members
William G. Walter (Chair)
Martha F. Brooks
Samir G. Gibara
Donald F. McHenry
Alberto Weisser
Seven Meetings in 2007
Attendance Rate
97 percent
All members are independent
The Executive Committee may act for our Board, to the extent permitted by law, if Board action is required and a quorum of our full Board cannot be convened on a timely basis in person or telephonically. The chairman of our Board and the chair of each Board committee is a member of the Executive Committee.
The table below provides additional information about the committee.
Management Development and Compensation Committee
The Management Development and Compensation Committee assists our Board in discharging its responsibilities relating to overseeing our overall compensation programs and determining compensation of our directors and persons in positions of senior vice presidentpresidents and above.above (other than the chief executive officer). The committee is also responsible for discussing with our management the Compensation Discussion and Analysis that is prepared as part of this proxy statement and for recommending that it be included in our proxy statement. The committee has general responsibility for ensuring that we have in place policies and programs for the development of senior management and senior management succession. The committee acts as the oversight committee with respect to our retirement and benefit plans for senior officers and must approve significant changes to the retirement and benefit plans for our employees generally.employees. With respect to those plans, the committee may delegate authority for both day-to-day administration and interpretation of the programs, except as it may impact our senior vice presidents and above.
The table below provides additional information about the committee. All of the members of the Management Development and Compensation Committee meet our director independence standards.
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Management Development and Compensation Committee Processes and Procedures
Meetings. TheMeeting agendas for the upcoming year’s meetings are developed in consultation with committee members. The final agenda for each committee meeting is determined by the chair of the Management Development and Compensation Committee togetherchair in consultation with Mr. Faraci. Mr. Carter, ourcommittee members and senior vice president, human resources and communications, provides support and Ms. Smith provides legal advice tomanagement, who regularly attend the committee. Committee meetings are regularly attended by Mr. Faraci, Mr. Carter and Ms. Smith. Ms. Parrs or other senior financial staff may attend meetings as required in order tomeetings. An executive session without management present financial information. is held at each meeting.
The committee’s independent consultant, James F. Reda & Associates, LLC (“James F. Reda”), also regularly attends meetings and, from time to time, the Company’s compensation consultant, Towers Perrin, may attend. An executive session without management present is held at each meeting. Following each meeting, the chair reports to the Board on the matters approved or endorsed at the meeting. Our human resources department and our corporate legal department provide support by preparing materials and fulfilling administrative tasks.
Role of Independent ConsultantConsultants. The committee has authority to retain, terminate and approve fees and other terms of engagement for consultants to assist in the evaluation of the compensation for non-employee directorssenior vice presidents and senior officers.above. The performance of, and fees
paid to, the consultant are reviewed annually by the committee. The committee has retained James F. Reda & Associates has served as the independent consultant to the committee since early 2004. The consultant reports directly to the committee, and does not provide services to management of the Company.
The consultant is expected to achieve the following objectives:
attend meetings of the Management Development and Compensation Committee as requested;
acquire adequate knowledge and understanding of our compensation philosophy and rewards programs;
provide advice on the direction and design of our executive compensation programs;
— | Attend meetings of the Management Development and Compensation Committee as requested; |
Acquire adequate knowledge and understanding of our compensation philosophy and rewards programs; |
— | Provide advice on the direction and design of our executive compensation programs; |
— |
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facilitate open communication between our management and the Management Development and Compensation Committee, assuring that both parties are aware and knowledgeable of on-going issues.
— | Facilitate open communication between our management and the Management Development and Compensation Committee, assuring that both parties are aware and knowledgeable of ongoing issues. |
Role of Executive Officers and Management in Compensation Decisions. The committee works closely with Mr. Faraci, who makes recommendations concerning the strategic direction of our compensation programs. Mr. Faraci is assisted by Mr. Carter, who is responsible for program design, and by Ms. Smith, who provides legal advice. The
Each year, the chief executive officer provides an annual performance assessment and compensation recommendation to the committee for each senior vice president and above. Following a review of these recommendations, the committee either approves or modifies the compensation recommendation as they deem appropriate. The compensation of the chief executive vice president. Those recommendations are then consideredofficer is recommended by the committee and either approved or modified, withfor approval by the assistanceindependent members of its compensation consultant. Company management is not present for the executive sessions or for any discussion of their compensation.Board.
Compensation Committee Interlocks and Insider Participation
No member of the Management Development and Compensation Committee was, during the fiscal year, an officer or employee of the Company or was formerly an officer of the Company, or had any relationship requiring disclosure by us under Item 404 of Regulation S-K of the Exchange Act. Please refer to “Transactions with Related Persons,” below, for additional information. None of our executive officers served as a member of the compensation committee (or its equivalent) of another entity or as a director of another entity, one of whose executive officers served on our Management Development and Compensation Committee. None of our executive officers served as a member of the compensation committee (or its equivalent) of another entity, one of whose executive officers served as one of our directors.
TRANSACTIONSWITH RELATED PERSONSTransactions With Related Persons
Transactions Covered. Our Board has adopted a written policy and procedures for review and approval or ratification of transactions involving the Company and “related persons” (directors and executive officers and their immediate family members or shareholdersshareowners owning 5%5 percent or greater of our outstanding common stock)stock and their immediate family members). The policy covers any related person transaction that meets the minimum threshold for disclosure in the proxy statement under the Securities and Exchange Commission’s rules (specifically, any transaction involving us in which (i) the amount involved exceeded $120,000 and (ii) a related person had a direct or indirect material interest). A copy of our procedures may be found on our websiteWeb site atwww.internationalpaper.com under the “Investors”“Our Company” tab at the top of the page and then under the Governance link.
Transactions Not Covered. Under our policy, certain types of transactions are deemed not to be related person transactions;“Governance” link in particular, Company-matching contributions to charitable organizations under our established charitable donations policy; use of Company property for business purposes; use of Company property for personal purposes, provided that such use has been approved by the Management Development and Compensation Committee or bymenu on the Board; reimbursement for business expenses in accordance with our customary practices; compensation to non-employee directors approved by the Board; and compensation to executive officers approved by the Management Development and Compensation Committee or by the Board that is reported under the Securities and Exchange Commission’s compensation disclosure rules or would be reportable if the related person were a named executive officer.right.
Related Person Transaction Policy.Review Procedures. TheRelated person transactions must be approved in advance by the Governance Committee is charged with reviewing allwhenever
possible, or must be ratified as promptly as possible thereafter. We will disclose in our proxy statement any transactions that are found to be directly or indirectly material to a related person.
Prior to entering into a transaction, a related person transactions, other than those involvingmust provide the details of the transaction to the general counsel, including the relationship of the person to the Company, the dollar amount involved, and whether the related person or his or her family member has or will have a direct or indirect interest in the transaction. The general counsel evaluates the transaction to determine if the Company or the related person has a direct or indirect material interest in the transaction. If so, then the general counsel notifies the chief executive officer which are reviewed by the independent members of the Board. A related person transaction may only be approved if (i) the review procedures described below have been followed, (ii) the related person transaction has been determined by the Governance Committee not to be detrimental to us and not to violate our conflicts of interest policy, and (iii) no member of the Governance Committee participated in the review of any transaction if he or she was the related person with respect to the transaction.
Related Person Transaction Procedures. With regard to transactions disclosed in the Directors’ and Officers’ Questionnaires, the general counsel will bring the transaction to the attention of the Governance Committee for review. In the event that a completed transaction has not been previously approved during the course of the year, and is disclosed in the questionnaire, the Governance Committee will review such transaction and either (i) ratify the transaction or (ii) require that the transaction be terminated.
With regard to transactions that occur during the year, the related person who proposes the transaction must initiate review and presentsubmits the facts of the transaction to the general counsel before entering into it.Governance Committee for its review. The general counsel will bring theGovernance Committee may approve a transaction to the attention ofonly if these review procedures have been followed, and the Governance Committee for review at its next regularly scheduled meeting, or earlier if necessary.determines that the transaction is not detrimental to the Company and does not violate the Company’sConflict of Interest Policy.
Related Person Transactions in 2006.2007. Other than transactionsa transaction with certain of ourone executive officersofficer pursuant to our standard relocation program, we had no related person transactions in 2006.2007. Our relocation program is available to all current U.S. employees and is administered by Hewitt Relocation Services, Inc., a business within Hewitt Associates LLC (“Hewitt”). We typically relocate several hundred employees each year for career development and business needs.
In 2005, we announced that we were relocatingconnection with the relocation of our Company headquarters from Stamford, Connecticut to Memphis, Tennessee. Among the employees who moved to Memphis were three of our named executive officers: Mr. Faraci, Ms. Parrs, and Ms. Smith. For more information regarding these executives, please refer to page 49 of this proxy statement. Also, two other senior executives, Mr. Carter and Mr. Lessin relocated from the Connecticut area to Memphis.Tennessee announced in 2005, Ms. Smith and Mr. Carter relocated in late 2005; and, Mr. Faraci, Ms. Parrs and Mr. Lessin each relocated in 2006.
Our U.S.under our employee relocation program has numerous features but principally offers an employee the opportunity to sell his oradministered by Hewitt. Hewitt sold her home to Hewitt, as agent for the Company, based on an arm’s-length appraisal process. The sale may occur only after the employee has made reasonable efforts for 60 days following listing with a realtor to sell the home to a third party. The purchase price paid by Hewitt is based on the average of two appraisals performed by independent, qualified relocation appraisers recommended by Hewitt (or three appraisals in the event of a variance between the two appraisals of greater than 5%). Following Hewitt’s home purchase, Hewitt engages and oversees a realtor who sells the home on our behalf. Once Hewitt purchases the relocating employee’s home, the Company is charged by Hewitt for its net expenses, including any gain or loss on the saleresidence to a third party carrying costs and other related expenses.
The Company also reimburses an employee for the expenses of purchasing a homebuyer in the new location, as well as for moving expenses. Our policy offers reimbursement of closing costs and interest paid by an employee for an equity advance secured by the employee through a third party lending institution, as well as reimbursement for duplicate housing expenses for up to 60 days. Our policy does not permit the Company to make loans to employees for any reason.
2007. For our three named executive officers who relocated in the past two years,this reason, we have included in Ms. Smith’s compensation disclosure for 2007 certain relocation expenses underamounts attributable to the column “All Other Compensation” in the Summary Compensation Table on page 50sale of this proxy statement.her home during 2007. The expenses we have included relate to the direct benefits that each executiveMs. Smith received under our relocation policy. Since the Company bears any economic loss or retains any profit from the sale of the employee’s home, we have not included in our named executive officers’Ms. Smith’s compensation any profit or loss on the sale to a third party, nor have we included amounts attributable to the carrying costs incurred by the Company.
In 2006,2007, in connection with our U.S. relocation program, we incurred a total cost of about $24$12.5 million in expenses related to relocation transactions involving approximately 700611 employees.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) requires our directors, certain officers, and persons who own more than 10 percent of our common stock to file initial reports of beneficial ownership on Form 3, and reports of subsequent changes in beneficial ownership on Forms 4 or 5 with the Securities and Exchange Commission. Based solely on our review of copies of these forms, we believe that all officers, directors, and persons who own more than 10 percent of our common stock complied with the filing requirements applicable to them for the fiscal year ended December 31, 2007, except as follows: (i) on February 14, 2007, we filed all of the Forms 4 in connection with the payment of awards under our Performance Share Plan, however, due to a technical processing issue, the filing for Ms. Carol Roberts, senior vice president – packaging solutions, was dated February 15, 2007; (ii) on February 26, 2007, we filed an untimely Form 5 with regard a gift of shares during 2007 by Ms. Marianne Parrs; and (iii) due to a coding error on the part of the third party administrator for our Deferred Compensation Savings Plan, we reported on December 11, 2007, the contributions by Mr. John Faraci to the Deferred Compensation Savings Plan, which should have been reported monthly for the prior six-month period.
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COMPENSATION DISCUSSIONAND ANALYSISExecutive Compensation
Compensation Discussion and Analysis
International Paper Company is a global paper and packaging company that is complemented by an extensive North American merchant distribution system, with primary markets and manufacturing operations in the United States, Europe, South America and Asia. The Company’s goal is to be one of the best industrial companies in the world—as measured by our employees, our customers, our communities and our shareholders. To achieve this goal, we are focused on improving our return on investment and creating lasting shareholder value.
Our compensation programs are designed to pay for performance. We evaluate our performance against two metrics: return on investment (“ROI”) and total shareholder return (“TSR”), and compare our performance to the performance of comparable companies in the manufacturing and basic materials industries.
In thisThis Compensation Discussion and Analysis, we will first provide you with an overview of ouror CD&A, describes the overall compensation programs, explaining our philosophypractices at International Paper, and objectives. We then discuss how we design our executive compensation programs and explain the important compensation decisions we have made to achieve our objectives.
We then explain in more detail the elements of our compensation programs (i.e., base salary, incentive compensation including cash and equity awards, as well as other types of compensation) and why we believe our programs and our decisions achieve our goal—to pay for performance. Beginning on page 49 of this proxy statement under the heading “Additional Information Regarding Executive Compensation,” we present a series of tables containing specific information aboutspecifically describes the compensation earned or paid in 2006 tofor the following individuals who make up our named executive officers:
our chairman and chief executive officer, Mr. John V. Faraci;
— | John V. Faraci, Chairman and CEO |
our executive vice president and chief financial officer, Ms. Marianne M. Parrs;
— | Marianne M. Parrs, Executive Vice President and CFO (retired as of December 31, 2007) |
our executive vice president, manufacturing and technology, Mr. Newland A. Lesko;
— | Tim S. Nicholls, Senior Vice President and CFO |
our senior vice president, strategic initiatives, Mr. Paul Herbert; and
— | Maura A. Smith, Senior Vice President, General Counsel and Corporate Secretary |
— | Newland A. Lesko, Executive Vice President – Manufacturing and Technology |
our senior vice president, general counsel and corporate secretary, Ms. Maura A. Smith.
We discuss our compensation programs for non-employee members of our Board of Directors under the heading “Director Compensation” on page 11 of this proxy statement.
— | H. Wayne Brafford, Senior Vice President – Printing and Communication Papers |
Compensation Philosophy and Objectives
The Management Development and Compensation Committee of the Board, referred to in this section as the Committee, believes that the Company must maintain its ability to attract and retain superior employees in key positions in order to compete effectively and create lasting shareholder value. The Committee has embraced a pay-for-performance philosophy and has adoptedOur compensation programs that are competitive relative to compensation paid to executives in similar businesses with similar responsibilities. The Committee believes that our
executive compensationbuilt around two primary components: pay-for-performance and pay at risk. Our programs should reward performance when our executives and the Company achieve specific goals that improve the Company’s financial performance and drive strategic initiatives to ensure a profitable future. To assure thatfuture, which includes executing on our executives are aligned with these goals, our compensationtransformation plan. Our programs also place greater emphasis on at-risk compensation that is paid only if the Company achieves certain performance levels. Additionally, we strive to maintain our ability to attract and retain superior employees in key positions in order to compete effectively, execute on our transformation plan, and create lasting shareowner value.
How We Design Our Executive Compensation Programs
Our Board of Directors bears the ultimate responsibility for approving our compensation programs. The Management Development and Compensation Committee, referred to in this section as the Committee, assists the Board in discharging its responsibilities. Information about
Compensation Consultants. As discussed on page 41, the Committee has retained James F. Reda as its members, responsibilities,independent compensation consultant to provide advice and processes can be foundunderongoing recommendations concerning our executive compensation programs. Separately, the heading “Management DevelopmentCompany utilizes Towers Perrin for executive compensation consulting. Towers Perrin provides other services to the Company, including health and Compensation Committee” on page 27welfare consulting, benefits accounting consulting, pension consulting and certain pension administration processes. No member of this proxy statement.Towers Perrin’s executive compensation practice who consults to us will have his or her compensation directly influenced by any expansion of other Towers Perrin consulting services to us.
Benchmarking.Compensation Comparator Group. Each year, the Committee considers the compensation levels, programs and practices of certain other companies to assure that our programs are market-competitive. These other companies, referred to as our Compensation Comparator Group, or CCG, are 20 comparably sized industrial companies. Our 2007 CCG is developed with the assistanceconsisted of the Committee’s compensation consultant, James F. Reda & Associates, and Towers Perrin, the Company’s compensation consultant. Composition of our CCG is reviewed annually by the Committee and its consultant, and any changes to its membership must be approved by the Committee. CCG companies are selected because they have comparable annual revenue, geographic presence and complexity, draw executive talent from similar labor markets, and are publicly traded. Our Compensation Comparator Group for 2006 is listedshown below.1
2007 Compensation Comparator Group
3M Company
Alcoa Inc.
— | 3M Company |
— | The Boeing Company |
— | Conagra Foods Inc. |
— | E.I. DuPont de Nemours |
— | FedEx Corporation |
— | Honeywell International Inc. |
— | Kimberly-Clark Corporation |
— | Raytheon Company |
— | United States Steel Corporation |
— | Weyerhaeuser Company |
— | Alcoa Inc. |
— | Caterpillar Inc.
|
— | The Dow Chemical Company
|
— | Emerson Electric
|
— | The Goodyear Tire & Rubber Company
|
— | Johnson Controls, Inc.
|
— | Marathon Oil Corporation
|
— | Texas Instruments
|
— | United Technologies Corporation
|
— | Xerox Corporation |
CCG companies are selected because they have comparable annual revenue, geographic presence and complexity, draw executive talent from similar labor markets, and are publicly traded. Our CCG is reviewed annually by the Committee and its consultant, and any changes must be approved by the Committee.
Benchmarking.On a periodic basis, the Company benchmarks itself against the pay levels and practices of our CCG to ensure we are competitive in the marketplace and to evaluate market trends that may warrant adjustments to our current program. Towers Perrin conducts the study and presents it to the Committee.
The study guides us in setting target compensation based on target performance. We target compensation levels for our total direct compensation (base salary, short-term and long-term incentive compensation) at the median (50th percentile) of the CCG. In the study utilized for 2007 pay, targeted total direct compensation of the named executive officers was within approximately 20 percent (above or below) of the CCG median.
How We Assess Performance. We consider both individual and Company performance when determining the compensation of our executives. With respect to Company performance, the Management Development and Compensation Committee continues to believe that a significant portion of our senior executives’ total compensation should be at-risk compensation to align their interests with those of shareowners. That is why our short-term incentive compensation plan (Management Incentive Plan or “MIP”) is tied to the Company’s Return on Investment (“ROI”) performance, and our long-term incentive compensation plan (Performance Share Plan or “PSP”) is tied to both ROI and Total Shareholder Return (“TSR”) performance. From time to time, the Committee evaluates the appropriateness of these metrics and the award scales, and may make adjustments.
Individual performance is measured against pre-established written objectives based on high-level goals that demonstrate leadership and fulfill key strategic goals of the Company. Described below are the 2007 objectives for each of our named executive officers.
Chairman and Chief Executive Officer Compensation Decisions
We utilize the same methodology for determining compensation of our chief executive officer as we do with the other named executive officers, applying our compensation policies consistently for all senior executives. As with all our senior executives, the chief executive officer’s compensation is determined based on targets developed through our benchmarking, and actual payouts are based on an assessment of both the Company’s and the chief executive officer’s performance.
The chief executive officer’s performance is assessed by the independent members of our Board during a mid-year and year-end review of his performance against pre-established annual objectives. The Management Development and Compensation Committee relies on those assessments when recommending his base salary and incentive compensation to the Board for approval. Some of the significant 2007 objectives that were considered by the Committee are listed below.
— |
|
— | Achieving improved financial performance, including earnings before interest and taxes (“EBIT”), earnings per share (“EPS”) and ROI goals. |
— | Successfully integrate non-U.S. investments and achieve earnings targets. |
Ensure continuity of leadership, including succession planning and recruitment of independent directors. |
Other NEOs’ Compensation Decisions
Individual performance for our senior vice presidents and above (other than the chief executive officer) is assessed annually against objectives established at the beginning of the year through individual discussions with the chief executive officer. Based on those assessments, the chief executive officer, in consultation with the senior vice president, human resources and communications, recommends to the Committee the annual incentive compensation and base salary merit increases for these senior executives. Some of the objectives considered for our other named executive officers are listed below.
Marianne M. Parrs, Executive Vice President and Chief Financial Officer
— | Provide effective oversight to the |
— | Strengthen and recruit new leaders in the Finance Department to |
Tim S. Nicholls, Senior Vice President and Chief Financial Officer
— | Successful transition and strong leadership in role of chief financial officer beginning in December 2007. |
Maura A. Smith, Senior Vice President, General Counsel and Corporate Secretary
— | Continued reduction in legal costs while maintaining the highest quality legal services, and advice to the
|
— | Act as advisor and subject matter expert on matters before the Board of |
— |
|
Newland A. Lesko, Executive Vice President, Manufacturing and Technology
— | Achieve budgeted operations improvement goals, with excellent manufacturing performance in the Company’s mills, as well as achieve budgeted returns on |
— | Provide ongoing support and leadership within manufacturing and supply chain initiatives. |
— |
|
H. Wayne Brafford, Senior Vice President, Printing and Communication Papers
— | Achieve improved financial performance and |
— | Achieve improvements in manufacturing, supply chain and |
Due to the nature of these position-specific objectives, an evaluation of how well each executive achieved his or her respective goals is both objective and subjective. In this way, individual performance differs from the quantifiable performance metrics used to assess Company performance. The chief executive officer is best suited to evaluate our executive officers’ performance. Ultimately, it is the Committee’s evaluation of the chief executive officer’s assessment along with competitive market data that determines each executive’s total compensation.
2007 Named Executive Officer Compensation Mix
The significance we place on at-risk, performance-based compensation is illustrated in the graphs that follow, which represent the mix of total targeted direct compensation for 2007. These graphs show how 2007 actual compensation (base salary, 2007 short-term incentive compensation and 2005-2007 long-term incentive compensation) paid to the named executive officers compared with the 2007 targeted compensation based on each officer’s position level.
The graphs demonstrate our belief that, as executives achieve higher levels of seniority, a greater percentage of their pay should be at-risk, with base salary representing a lower percentage of total direct compensation as position levels increase.
The targeted compensation shown for Mr. Nicholls is the structure applicable to his December 2007 promotion to chief financial officer, while the actual compensation paid reflects amounts paid for 11 months prior to, and one month after, his promotion.
Actual amounts represented for long-term and short-term incentive compensation were paid in February 2008.
2007 Targeted Total Direct Compensation versus 2007 Actual Compensation Paid by Position Level
2 For purposes of the incentive compensation plans discussed here, return on investment is calculated as after-tax operating earnings, including both earnings from continuing and discontinued operations (up through the date of sale), and before the impact of special items divided by average capital employed. Capital employed is total assets, less short-term, non-interest-bearing liabilities. The Company’s ROI metric excludes the impact of special items, such as gains or losses associated with asset sales, restructuring costs, changes in pension funding, and significant out-of-period or “one-off” items.
3 For purposes of the incentive compensation plans discussed here, total shareholder return is calculated as the change in the Company’s common stock price during the performance period plus the impact of any dividends paid and reinvested during the performance period. For all companies in our CCG, both the beginning and ending common stock prices used are the average closing price of the 20 trading days immediately preceding the beginning and ending of the performance period.
TSR reflects share price appreciation and dividends paid to show the total return to shareholders. TSR can be used to compare the performance of different companies’ stocks over time. Our relative TSR position or rank reflects how our stock performed during a specific interval in generating returns to our shareholders versus our industry, basic materials peer companies, the Standard & Poor (“S&P”) Materials Index and the S&P 100 Index.
We measure our performance in both ROI and TSR against defined peer groups as shown below. Because these companies compete in industries similar to ours, we compare our ROI and TSR performance against their performance, recognizing that these companies face similar business environments over time. Each group, the ROI Peer Group and the TSR Peer Group, consists of companies in comparable industry and business segments. The TSR Peer Group is a broader cross-section of comparable companies, including companies engaged in global manufacturing and capital-intensive industrial businesses, as well as the composite performance of companies included in the S&P 100 Index and the S&P Materials Index. The companies listed in italics appear in both our ROI Peer Group and TSR Peer Group.
ROI PEER GROUP
Bowater Incorporated
Domtar Inc.
MeadWestvaco Corporation
M-Real Corporation
Packaging Corporation of America
Sappi Limited
Smurfit-Stone Container Corporation
Stora Enso Corporation
UPM-Kymmene Corp.
Weyerhaeuser Company
TSR PEER GROUP
Alcan Inc.
Alcoa Inc.
Bowater Incorporated
Domtar Inc.
Dow Chemical Company
E.I. DuPont de Nemours
MeadWestvaco Corporation
M-Real Corporation
Packaging Corporation of America
S&P 100 Index
S&P Basic Materials Index
Sappi Limited
Smurfit-Stone Container Corporation
Stora Enso Corporation
UPM-Kymmene Corporation
Weyerhaeuser Company
| ||||||
ELEMENTSOF OUR EXECUTIVE COMPENSATION PROGRAMS
We will now explain in more detail the elements of and rationale for the total direct compensation paid to our executives, plus limited perquisites and other benefits.
Performance Metrics for Our Incentive Pay Plans
We recognize that our shareowners have the opportunity to invest in many companies, and that we are competing for investment dollars. As a result, our peer groups include our direct industry global competitors as well as other industrial basic materials companies. Our short- and long-term incentive programs are designed to reward performance against well-recognized and readily discernable metrics: ROI1 and TSR2. We also measure our performance in both metrics against defined peer groups shown below.
ROI measures a company’s profitability, which is useful information for shareowners who expect to earn a certain return on their investment. ROI is an indicator of a company’s ability to use its assets and resources to generate earnings. The concept of ROI is well understood within the Company and by our shareowners, and it is also relevant as a common measure of profitability among our industry specific global competitors.
TSR reflects share price appreciation and dividends paid to show the total return to shareowners. TSR can be used to compare the performance of different companies’ stocks over time. Our relative TSR position or rank reflects how our stock performed during a specific interval in generating returns to our shareowners versus our industry, basic materials peer companies, the S&P Basic Materials Index and the S&P 100 Index.
Our 2007 ROI and TSR Peer Groups are shown as listed. Our ROI Peer Group consists of global companies in our industry. All ROI peer group members are also included in the TSR peer group. The TSR Peer Group is a broader cross-section of comparable companies, including companies engaged in global manufacturing and capital-intensive industrial businesses, as well as the composite performance of companies included in the S&P 100 Index and the S&P Basic Materials Index. Our peer groups are reviewed and approved by the Management Development and Compensation Committee.
1 For purposes of the incentive compensation plans discussed here, ROI is calculated as after-tax operating earnings (including both earnings from continuing and discontinued operations up through the date of sale) before the impact of special items, divided by average capital employed. Capital employed is total assets, less short-term, non-interest-bearing liabilities. Special items that may be excluded include but are not limited to, gains or losses associated with asset sales, asset impairments, restructuring costs, and other significant out-of-period or “one-off” items. We calculate International Paper’s ROI and our peer companies’ ROI using the same methodology.
2 For purposes of the incentive compensation plans discussed here, TSR is calculated as the change in the Company’s common stock price during the performance period plus the impact of any dividends paid and reinvested during the performance period. For all companies in our TSR Peer Group, both the beginning and ending common stock prices used are the average closing price of the 20 trading days immediately preceding the beginning and ending of the performance period. We calculate International Paper’s TSR and our peer companies’ TSR using the same methodology.
Elements of Our Executive Compensation Programs
We will now explain in more detail the elements of and rationale for the total direct compensation paid to our executives.
Base salaries represent the only fixed portion of our executives’ compensation. Factors considered when setting base salary for the named executive officers include competitive compensation levels compared to our CCG, position level and job responsibilities, individual and business performance (if applicable), and reasonableness and fairness when compared to other similar positions of responsibility within the Company. Base salary for service in 2007 is shown in the “Salary” column of the Summary Compensation Table.
Overview
The Company does not pay guaranteed annual bonuses to our executives or to employees at any level because our philosophy is rooted in pay-for-performance. The MIP is a performance-based annual cash incentive plan available to approximately 2,600 management employees in 2007, including our named executive officers.
The MIP is designed to motivate and reward employees for achieving performance of annual targets in our most critical short-term goals needed to improve our business performance.
Base salaries for our executives are established taking into account competitive compensation levels of our CCG, coupled with reasonableness within the Company, and allow us to attract and retain superior executives. Base salaries for our named executive officers are determined for each executive based on his or her position level and job responsibilities, using market data
from our senior management pay study. During its annual review of base salaries, the Committee considers the individual performance of the executive, as well as market data.
In March 2006, our named executive officers were awarded base salary merit increases ranging from 2.0% to 5.8%, effective April 1, 2006. These base salary amounts are shown in the “Salary” column of our Summary Compensation Table. The Company’s average base salary increase in 2006 for all U.S.-based salaried employees was 3.6%.
Overview
The Company does not pay guaranteed annual bonuses to our executives or to employees at any level. The Management Incentive Plan, or MIP, is a pay-for-performance annual cash incentive plan that is available to a broad group of management employees, approximately 2,600 employees in 2006, including our named executive officers. The program is designed to motivate employees to continuously improve our business performance and to promote a results-oriented Company culture. Unlike our long-term incentive compensation program, described below, the MIP is designed to reward performance for attaining defined annual targets.
MIP Performance Metrics and Objectives
The Committee established the following2007 MIP performance metrics and target performance objectives forestablished by the Company for 2006:Committee are shown below. The Company’s performance achievement is approved by the Committee after year-end results are finalized.
MIP Performance Metrics & Objectives
2007 MIP Performance Metric | Weighted Percentage | Target Performance Objective | |||||
ROI rank against ROI Peer Group | 50 | % | |||||
| |||||||
ROI improvement over prior year | % | Improve | |||||
% | Achieve measured improvement |
MIP Award Pool Calculation
After year-end results are finalized, the Company’s performance achievement is determined by management and presented to the Committee for its review and approval. The Committee approves the totalBased on market data, each MIP award pool based on the Company’s performance achievement against the objectives. If we do not achieve the minimum performance in at least one of the performance metrics, no MIP award pool is established.
The Committee does not have discretion to adjust the award pool upward but may adjust the pool downward. At the February 2007 meeting, the Committee approved the MIP award pool for performance in 2006 not to exceed $108,300,000.
Once the MIP award pool is determined, the chief executive officer’s award is approved by the independent members of the Board based on the recommendation of the Committee. Awards for our senior vice presidents and above are recommended to the Committee for approval based on an assessment by the chief executive officer, in consultation with the senior vice president, human resources and communications, of the executive’s achievement of his or her annual, agreed-upon performance objectives. The MIP awards approved in February 2007 for
performance in 2006 for our named executive officers are shown under the “Non-Equity Incentive Plan Compensation” column in the Summary Compensation Table on page 50.
The chief executive officer determines the allocation of MIP awards among each business unit and staff organization. Each business is allocated an MIP pool based 50% on business performance and 50% on Company performance. Staff organizations are allocated an MIP pool equal to the performance percentage achieved by the Company asparticipant has a whole. Each of the business and staff leaders then make awards to their respective MIP-eligible employees. MIP participants each have an MIP target award expressed as a percentage of the midpoint of a defined salary range for his or her position level. The total amount of the MIP award pool is the sum of the target awards, multiplied by the percentage of the Company’s overall performance achievement against the three metrics listed above. In addition, we have incorporated into the MIP an individual’s award isinternal stretch goal based on his or her business or function’sabsolute financial performance as well as on his or her individual performance.
Total awards paid underthat, if achieved, would add 50 percentage points to the MIP for 2006 were approximately 96%achievement of the full award pool. Withrelative ROI metric, resulting in a portionmaximum MIP payout of 200 percent.
Senior management makes awards to MIP-eligible employees based on the performance of the unused pool,Company, the chief executive officer has established a specialbusiness (if applicable) and the individual.
The Committee does not have discretion to adjust the award pool to reward individuals who do not participate inupward but may adjust the MIP for extraordinary individual performance during 2007. The amount allocated under MIP and for special awards may not exceedpool downward. At its February 2008 meeting, the Committee approved the total approved MIP award pool.pool for performance in 2007 not to exceed $83,700,000, and the total MIP award pool was paid.
Overview
The cornerstoneA key element of our pay-for-performance philosophy is our reliance on performance-based equity awards, which providereward employees with shares of stockequity only if specified performance goals are achieved. This program aligns employees’ and shareholders’shareowners’ interests and providesby providing employees with an ownership stake in the Company.
Performance sharesPerformance-based restricted stock awards are granted annually under our Performance Share Plan, or PSP andto eligible employees. Satisfactory individual performance is a condition to receiving an award. Shares are earned only if the Company meets or exceeds pre-determined relative performance goals over athe applicable three-year performance period. Satisfactory individual performance is a condition
Annual PSP Grants
Annual PSP grants are approved by the Committee in December to receiving an award. The PSP was expanded when the Company, with the Committee’s approval, decided to discontinue our stock option program in 2004 for our executive officers and in 2005 for all other eligible U.S. employees.
The Committee makes a PSP grantapproximately 900 participants for the upcoming three-year period to all eligible employees (approximately 1,000 employees), including the named executive officers, except Mr. Faraci, at its regularly scheduled Committee meetingperformance period. The effective date of each December. Mr. Faraci’s PSP grant is made at the same time by the Board of Directors in conjunction with its December meeting. The Committee approves the target number of shares to each participant based on his or her position level. The grants, made effective on the first business day of the following January,January. The Committee approves specific grants to the senior vice presidents and above (except for the chief executive officer, whose grant is approved by the Board). Target award levels for all participants, including senior vice presidents and above, are made at this time as part of the overall performance evaluation process.based on market data.
PSP TargetsPerformance Metrics and Payout CalculationObjectives
Possible payouts underThe 2007 PSP performance metrics and target performance objectives established by the Committee are shown below.
PSP range from 0% to 250% of each participant’s target award amount, depending on the Company’s ROI and TSR ranking against our respective ROI and TSR Peer Groups. To achieve target for the 2006-2008 Performance Metrics & Objectives
2007 PSP Performance Metric | Senior Lead Team Weighted Percentage | All Other Employees Weighted Percentage | Target Performance Objective | |||||
ROI rank against ROI Peer Group | 50 | % | 75 | % | Rank of 4thof 11 | |||
TSR rank against TSR Peer Group | 50 | % | 25 | % | Rank of 8th of 17 |
PSP we must rank fifth in our ROI Peer Group and eighth in our TSR Peer Group.Segmented Awards
The Company’s relative performance achievement in both ROI and TSR against our ROI and TSR Peer Groups, respectively, is measured using a segmented approach. There are four separate
performance measurement periods within the three-year performance period: three one-year periods and one three-year period. One-quarter of each award is “banked” based on performance achievement of our ROI and TSR rankingsapproved by the Committee for each segmented measurement period. The “banked” shares remain unvestedare not paid until the end of the full three-year performance period. This segmented approach is shown graphically below:below.
PSP Segmented Awards and& Banking Schedule
We use thisUsing a segmented approach because it allows usrequires superior performance in all four periods to better align the award in each of the three years with actual performance of the Company over the three-year period and in each year.achieve above target awards.
Performance is measured on a weighted basis of 75% for50 percent ROI and 25% for50 percent TSR for senior executives. This weighting is intended to provide an equal emphasis on building shareowner value (as measured by relative TSR) and achieving a higher ROI than our peer companies (as measured by relative ROI). For all other participants, performance is measured on a weighted basis of 75 percent ROI and 25 percent TSR.
PSP Payout Calculation
Possible payouts under the 2007 PSP range from 0 percent to 225 percent of the target award amount, depending on the Company’s relative rank in ROI and TSR. In addition, we have incorporated into the 2007 PSP except for a specific groupan internal stretch goal based on absolute financial performance that, if achieved, would add 50 percentage points to the achievement of senior officers, referred to as the senior management subgroup, for whom the awardrelative ROI metric (which is weighted 50% ROI and 50% TSR. 50 percent for senior officers), resulting in a maximum payout of 250 percent.
At the end of 2006, the senior management subgroup consisted of Mr. Faraci, Ms. Parrs, Ms. Smith, Mr. Carter, and Mr. Newland Lesko, our executive vice president, manufacturing and technology. The senior management subgroup was expanded in 2007, as described on page 48 of this proxy statement under the heading, “2007 Compensation Decisions.”
Annually in mid-February, the Committee reviews the rank we have achieved in our ROI and TSR Peer Groups as determined by management. At its February meeting,three-year performance period, the Committee approves payment of PSP payouts for ourawards to senior vice presidents and above and recommends PSP payouts(except for our chief executive officer for approval by the Board. The value of the PSP payout is based on the closing price of our common stock on the business day prior to the date the Board approves the payout. Upon payout, federal income taxes are withheld at rates required by the Internal Revenue Service (“IRS”) for all participants through the withholding of shares. Our senior executives may elect to have additional shares withheld, up to a total of 85% of the amount earned. Please see “Accounting for Stock-Based Compensation” on page 47 of this proxy statement for a discussion of the accounting treatment of awards subject to this
additional tax withholding. The Committee’s February review date is set as part of the Committee’s annual meeting schedule and agenda. The Committee may change the conditions imposed on awards. At the February 2007 meeting, upon the recommendation of the chief executive officer whose payment is approved by the Committee banked the three 2006 segments at a reduced performance achievement for those senior executives not in the senior management subgroup.Board).
OTHER LONG-TERM INCENTIVESOther Long-Term Incentives
Service-Based Restricted Stock Awards
The Committee believes that in certain circumstances, it may be appropriate to make service-based restricted stock awards to retain key employees, recruit new senior-level employees, or recognize a significant promotion. Currently only 39 employees have outstanding service-based restrictedRestricted stock awards. Noawards are used infrequently, and no restricted stock awards have been granted to our senior executivesnamed executive officers since 2004.2003.
Discontinued Stock Option Program
Our stock option program was terminated in 2004 for executives and for all employees in 2005. Under the plan in effect from 1989 to 2005, stock options were awarded annually or semi-annually by the Committee, with an exercise price equal to the closing price of our common stock on the date immediately preceding the date the grant was approved.
Employees, including theThe named executive officers and other eligible participants continue to hold previously awarded outstanding stock options as shown on the Outstanding Equity Awards Table on page 54 of this proxy statement.Table. Options remain exercisable for their full 10-year term, unless an employee is terminated or voluntarily leaves, in which case the options expire immediately or within 90 days of termination, depending upon the year the stock options were granted. There are no holding requirements on stock acquired through the exercise of options.
Although no new stock options have been granted since 2005, the stock option program allows for reloads, with certain restrictions. Reloads are a benefit in which new stock options are granted each time a participant exercises stock options, up to a maximum of four reloads per grant. For stock options granted prior to July 1, 2000, reloads are available on the entire grant upon exercise using any of the four available exercise methods (cashless sell, cashless hold, cash exercise or stock swap). For stock options granted after July 1, 2000, reloads are available upon exercise using the stock swap method, where previously held shares are delivered as payment for the exercise price and only on the number of shares tendered to cover the purchase price.
The grant price of the new option acquired upon a reload is automatically based on the value of the stock at the time the options are exercised. For example, if a participant exercises an option with a grant price of $35.00$30.00 to purchase Company common stock valued at $40.00$35.00 per share, the reload options will have a grant price of $40.00$35.00 per share.
No executive continuity award has been granted since 2000.2000 and we no longer grant these awards. We previously awarded executive continuity awards to encourage continued employment of key senior executives. Our chief executive officer holds the only outstanding executive continuity awards, and the terms of those awards are described in footnote 4 to the Outstanding Equity Awards Table on page 55 of this proxy statement.
The Company provides perquisites and other personal benefits that the Company and the Committee believe are reasonable and consistent with the nature of the individual’s responsibilities in order to provide a competitive level of total rewards to our executives. The Committee annually reviewsCertain perquisites and other personal benefits providedare available to senior executives. The Board approves perquisites and other personal benefits of the chief executive officer.
Senior executives are provided with an annual financial planning assistance allowance and supplemental life insurance, and several executive officers, including two of the named executive officers, are provided with limited club membership dues. In addition, the chief executive officer is required to useall our employees, such as the Company’s automobilesprograms that match employee contributions to educational institutions and aircraft for businessto the United Way of America, a national network of more than 1,300 locally governed organizations that work to create lasting positive changes in communities and personal trips whenever feasible. people’s lives.
Additional information about the perquisites we provide to our named executive officers may be found in footnote 3 to ourthe Summary Compensation Table on page 50 of this proxy statement.Table.
DEFERRED COMPENSATIONDeferred Compensation
Our unfunded, non-qualified Deferred Compensation Savings Plan or DCSP,(“DCSP”) allows employees, including the named executive officers, to defer up to 85%85 percent of compensation, including base salary and MIP, beyond the deferralcontribution limits set by the IRSInternal Revenue Service (“IRS”) for our Salaried Savings Plan, which is our tax-qualified 401(k) plan. The DCSP permits participants to defer the obligation to pay taxes on certain elements of compensation. Deferred amounts are credited with Company-matchingCompany matching contributions equal to 70%70 percent of the participant’s contributions up to 4%4 percent of compensation, plus 50%50 percent of contributions up to an additional 4%4 percent of compensation. Amounts deferred earn returns based on investment options modeled after the investment funds in the 401(k) plan, as elected by the participant. Additional details regarding our DCSP follow the Non-Qualified Deferred Compensation Table beginning on page 60 of this proxy statement.Table.
RETIREMENTAND HEALTH BENEFITSRetirement and Health Benefits
The Committee believes that providing attractive retirement and health benefits to the Company’s executives and employees helps us remain competitive in the market for top talent. We provide retirement benefits to our salaried employees, including the named executive officers, hired prior to July 1, 2004, under the Retirement Plan and the Pension Restoration Plan to employees hired prior to July 1, 2004.Plan. Employees hired on or after July 1, 2004, are eligible for a Company-funded retirement savings account through our 401(k) plan. We offer the Pension Restoration Plan to supplement the Retirement Plan for employees whose compensation is greater than the limits set by the IRS for qualified retirement plans. Absent this plan, certain employees would not achieve a retirement benefit commensurate with their earnings during the course of their careers with us.
Certain senior executives also have an opportunity to receive their pension under an alternative plan, called the Unfunded Supplemental Retirement Plan for Senior Managers, or SERP. TheThere are 17 participants in the SERP who are senior vice presidents or above; two participants who are vice presidents and were grandfathered into the program; and three participants who have been
designated as participants by the chief executive officer designates SERP participants, generally senior vice presidents and above. because they joined the Company late in their career or through an acquisition.
The SERP is designed to provide retirement benefits determined under
one of three SERP formulas based on the participant’s date of hire and date of eligibility for SERP participation. A description of how benefits are calculated in each of these plans follows ourthe Pension Benefits Table on page 57 of this proxy statement.Table.
We have offered the SERP since 1983, when it was established to recruit a chief executive officer to the Company, and has been used since that time to recruit other senior and midcareermid-career executives. Following the Committee’s review of the SERP in 2005, the benefit formula was reduced for all new entrants into the program after June 30, 2004. Additional information regarding the formulas may be found following the Pension Benefit Table. The Committee continues to review the market competitiveness of the formula for new entrants into the SERP.
Health benefits are provided to all employees, with a variety of options. The Company pays a significant portion of the premiumscost of benefits for our employees, although more highly compensated employees pay a greater portion of their share of the premiumscost than employees at lower compensation levels. We do not offer any supplemental health care benefits to our executive officers.
PAYMENTSUPON DISABILITYOR DEATHPayments Upon Disability or Death
In the event of termination for disability, the named executive officers are eligible for benefits in disability programs generally available to our U.S. salaried employees. These include a long-term disability income benefit of 60%60 percent of base salary, continuation of medical and life insurance coverage applicable to active employees while disabled, and continuation of pension benefit accruals. Upon reaching age 65, the disabled individual is covered under our retirement programs, as described above.
In the event of termination of employment for death, the named executive officers’ beneficiaries will receive benefits under the programs generally available to our U.S. salaried employees, with two additional benefits. First, the named executive officers are covered by our executive supplemental life insurance program, which is described in footnote 3 to ourthe Summary Compensation Table on page 50 of this proxy statement.Table. Second, if the named executive officer is a participant in the SERP, which is a plan not generally available to the majority of our salaried employees, the surviving spouse benefit in the event the executive dies while employed would be calculated under the SERP.
In the event of disability or death, equity awards under the PSP are prorated based upon the number of months that the participant worked during the performance period, and are paid at the end of the three-year performance period based on actual Company performance. Service-based restricted stock awards, including executive continuity awards, also become vested upon death or disability.
SEVERANCE PLANAND BOARD SEVERANCE POLICYSeverance Plan and Board Severance Policy
The Company has a Severance Plan for all salaried employees, which provides two weeks’ salary for every year or partial year of service.service, provided the employee signs a termination agreement acceptable to the Company. The Committee believes that the Severance Plan is consistent with the practices of the companies in our CCG.
Under some circumstances, the Committee or the Board may elect to increase a severance payment above what is provided under the Severance Plan, but this severance payment is limited by the Board policy adopted
in 2005 that applies to severance payments to our chief executive officer, executive vice presidents, senior vice presidents and controller in the event of an involuntary termination of employment without cause, absent a change in control.
Under this 2005 Board severance policy, the maximum severance that may be paid is limited to an amount, which, when combined with the severance payments under the Severance Plan described above, would not exceed two times the executive’s current (i) base salary plus (ii) target MIP for the year of termination,termination. This does not includinginclude other earned benefits that may be payable, in accordance with their term, such as restricted stock under the PSP or retirement or other post-terminationbenefits. It also does not include benefits (e.g., continuation of medical and dental coverage) that are generally available to a larger class of employees. employees, such as post-termination benefits like continuation of medical and dental coverage.
Any severance amount greater than thisthe amount described above must be approved in advance by our shareholders.shareowners.
Potential Severance Payments to ourOur Named Executive Officers
The following table represents amounts that would be payable to our named executive officers assuming they are terminated without cause asunder our standard Severance Plan, with the exception of Ms. Parrs who retired on December 31, 2006, given their years2007. The amounts shown are based on the Severance Plan formula of service and participation in our employee benefit plans. It further assumes thattwo weeks for every year (or partial year) of service. This table does not apply to a termination following a change in control did not cause the termination andcontrol. This table assumes that neither ourthe Board nor the Management Development and Compensation Committee approved any amounts in excesspayment of ourseverance above the standard severance policy.Severance Plan.
POTENTIAL SEVERANCE PAYMENTS: TERMINATION2007 Potential Post-Employment Compensation: Termination Without Cause (Excluding Change in Control)
WITHOUT CAUSE, NO CHANGE IN CONTROL
Name | Lump Sum ($) | Benefits or ($) | Value of ($) | Lump Sum ($) | TOTAL Benefit at ($) | Annual ($) | Years of (#) | Lump ($) (1) | Benefits or ($) (2) | Value of ($) (3) | Lump ($) (4) | TOTAL ($) (5) | Annual ($) (6) | |||||||||||||||||||
(1) | (2) | (3) | (4) | (5) | (6) | |||||||||||||||||||||||||||
John V. Faraci | $ | 3,085,047 | $ | 128,548 | $ | 7,760,026 | $ | - | $ | 10,973,621 | $ | 912,158 | 34 | 3,611,140 | 135,634 | 8,106,463 | — | 11,853,237 | 1,175,837 | |||||||||||||
Marianne M. Parrs | $ | 1,326,181 | $ | 65,420 | $ | 1,674,570 | $ | 5,997,030 | $ | 9,063,201 | $ | 100,548 | ||||||||||||||||||||
Tim S. Nicholls | 17 | 703,107 | 55,555 | 543,175 | — | 1,301,837 | 49,040 | |||||||||||||||||||||||||
Maura A. Smith | 5 | 593,575 | 63,865 | 1,807,516 | — | 2,464,956 | — | |||||||||||||||||||||||||
Newland A. Lesko | $ | 1,443,590 | $ | 66,921 | $ | 1,730,226 | $ | 7,721,056 | $ | 10,961,793 | $ | 125,665 | 41 | 1,523,031 | 71,022 | 1,807,516 | 8,088,941 | 11,490,510 | 131,643 | |||||||||||||
Paul Herbert | $ | 699,498 | $ | 55,821 | $ | 1,621,522 | $ | - | $ | 2,376,841 | $ | 145,903 | ||||||||||||||||||||
Maura A. Smith | $ | 555,740 | $ | 61,432 | $ | 1,674,570 | $ | - | $ | 2,291,742 | $ | - | ||||||||||||||||||||
H. Wayne Brafford | 33 | 1,135,353 | 59,722 | 1,489,480 | — | 2,684,615 | 332,768 |
(1) Amounts shown in this column reflect estimated amounts that may be paid to an individual eligible for severance under the International Paper Severance Plan which includes (i) two weeks’ salary for each year or partial year of service; (ii)service. Amounts shown also include the following benefits to which the employee would be entitled: (i) unused current year vacation pay; (iii) accrued vacation/holiday benefits for the upcoming year;(ii) special vacation pay, if retirement eligible; and (iv)(iii) prorated target MIP award for 2006.2007. We do not gross up standard severance benefits.
(2) Amounts shown in this column reflect the cost of (i) six months’ continued medical, dental and Employee Assistance Program coverage and (ii) the value of executive outplacement services based on a percentage of the executive’s salary.
(3) Under our PSP, employees who are involuntarily terminated receive a prorated PSP award for the number of months employed in the three-year performance period based on actual Company performance. The amount is paid at the end of the three-year period. Amounts shown in this column reflect the dollar value, based on the closing price of our common stock on December 29, 2006,31, 2007, of the vesting of outstanding 2005-20072006-2008 and 2006-20082007-2009 PSP awards,shares, including reinvested dividends, based on actual Company performance, prorated for the number of months employed, which is payable at the end of the applicable three-year performance period.named executive officer would be entitled to receive. In addition, the named executive officer would receive the 2004-20062005-2007 PSP award, which has a performance period ending on December 29, 2006, but31, 2007, which is not included inshown here because the amount shown because itvesting is not accelerated.
(4) Amounts shown in this column are the lump sum benefits payable under the Pension Restoration Plan and the SERP for Ms. Parrs and Mr. Lesko, who areis the only two named executive officersofficer eligible for a lump sum payment as of December 31, 2006.2007. The methodology used to calculate lump sum benefits can be found in footnote 1 to the 2007 Potential Post-Employment Compensation: Payments Upon Retirement Table on page 60 of this proxy statement.Table.
(5) Amounts shown in this column reflect the sum of columns (1) through (4).
(6) Amounts shown in this column are the annual annuity benefits payable from the tax-qualified Retirement Plan and any annual annuity benefit payable from the Pension Restoration Plan, if applicable. The amount shown as an annuity for Mr. Lesko includes only the tax-qualified Retirement Plan. Because Mr. Lesko is vested in the SERP, his benefit is payable as a lump sum and is therefore included in column (4).
CHANGEIN CONTROL AGREEMENTSChange in Control Agreements
The
Our Board believes that maintaining change in control agreements with our officerssenior leaders is a sound business decision that protects shareholdershareowner value prior to and after a change in control. control, and allows us to recruit and retain top executive talent.
At its February 2008 meeting, the Committee reviewed our change in control program and concluded that the Company would be best served by limiting the program to senior vice presidents and above going forward. Current participants who are vice presidents will continue to participate, however, no new vice presidents will be added to the program unless specific circumstances warrant an exception.
We have a Tier Ione form of agreement that covers our chief executive officer, one executive vice presidents,president, and all senior vice presidents andpresidents. We have a Tier IIsecond form of agreement that covers our current vice presidents. Described below are the benefits under the change in control agreement that covers the named executive officers.
UponDefinition of Change in Control
A “change in control” of the Company occurs in any of the following scenarios:
— | Acquisition of 20 percent or more of the Company’s stock; |
— | Change in the majority of the Board of Directors within two consecutive years, unless two-thirds of the directors in office at the beginning of the period approved the nomination or election of the new directors; |
— | Merger or similar business combination; |
— | Sale of substantially all of the Company’s assets; or |
— | Complete liquidation or dissolution of the Company. |
If a change in control occurs, the following describes what our named executive officersbenefits are entitled to receive,triggered, whether or not they are terminated asthe executive’s employment is terminated. These benefits, payable immediately upon a result of the change in control:control, are referred to as “single trigger” benefits.
PSP awards would be fully vested and exercisable, based on actual Company performance for completed periods and based on achieving targeted PSP performance for incomplete periods;
— | PSP shares vest and are paid at actual (for banked segments) or target (for open periods); |
any restrictions with respect to service-based restricted stock awards, including executive continuity awards, would lapse and all such awards would be fully vested and exercisable; and
— | Service-based restricted stock (including executive continuity awards) vests and becomes unrestricted; and |
— | SERP benefits vest and the minimum benefit increases from 25 percent of compensation to 50 percent of compensation for those SERP participants who were in the SERP prior to July 1, 2004. |
enhanced retirement benefits under the SERP (described more fully below) would be fully vested.Double Trigger Benefits
In the event a senior executive is terminated or leaves for good reason withinWithin two years after a change in control, heif an executive’s employment is terminated (other than by reason of death, disability or she would also be entitled toretirement, or other than for “cause) or if an executive leaves for “good reason” (defined below), then the following severance benefits:benefits are payable, provided the executive signs an
all unpaid base salary through the termination date, the valueirrevocable release of any earned but unused vacationemployment-related claims. These benefits, payable only upon a termination of employment, are referred to as “double trigger” benefits.
— | Prorated MIP award for the year of termination at target; |
— | Three times (3X) the sum of (i) base salary plus (ii) target MIP; |
— | For participants in the SERP prior to July 1, 2004, an enhanced SERP benefit equal to the higher of (i) 50 percent of compensation, or (ii) the SERP benefit that would be paid absent a change in control but with three additional years of service and age. For participants in the SERP after July 1, 2004, a Pension Restoration Plan benefit that would be paid absent a change in control but with three additional years of service and age. |
— | Medical and dental insurance for three years, and retiree medical coverage, if eligible; and |
— | “Excise tax gross up.” The Company will reimburse the executive for the federal excise tax of 20 percent imposed on his/her aggregate change in control payment pursuant to Section 4999 of the Internal Revenue Code (the “Code”). However, our plan is designed to avoid triggering payment of this excise tax (and the Company’s obligation to pay this gross up to the executive) by automatically reducing the amount an executive will receive to the Code’s statutory maximum of three times base and bonus (five year average) when payment is less than 115 percent of this statutory maximum. |
The agreements define “good reason” as any of the following actions, if not already paid, his or her MIP award fortaken by the prior year;Company without the executive’s consent.
a lump sum payment equal to the value of his or her MIP award for the year in which the termination occurs, prorated for the number of days worked during the year, based on achieving targeted MIP performance;
— | Inconsistent duties or a substantial decrease in responsibilities; |
a lump sum payment equal to three times the sum of (i) annualized base salary plus (ii) target MIP for the year in which termination occurs;
— | Reduced annual base salary; |
— | Elimination of material compensation plan or change in executive’s participation on substantially the same basis; |
— | Elimination of substantially similar pension or welfare plans (except for across-the-board reductions of such benefits for executives), or material reduction of any fringe benefit, or failure to provide the same number of vacation days; |
— | Successor does not assume the change in control agreement; |
— | Any other termination without sufficient notice; or |
— | Relocation more than 50 miles from place of work. |
enhanced benefits under
Potential Payments to Our Named Executive Officers Following a Change in Control
The following table represents amounts that would be payable to our named executive officers, with the Company’s retirement plans, whichexception of Ms. Parrs who retired on December 31, 2007, assuming they are payable based on an amount equal to the higherterminated without cause as of (i) 50% of all eligible compensation under the SERP, or (ii) the benefit under the SERP calculated as if noDecember 31, 2007, following a change in control had occurred andof the executive had retired with three additional years of service and was three years older;Company.
medical and dental insurance, which would continue to be paid for the executive for up to three years following termination, and retiree medical coverage, which would be provided if the executive would have been entitled to such coverage under the Company’s programs; and
a lump sum equal to the amount needed to offset any federal excise tax imposed under Internal Revenue Code Section 280G on payments received under the change in control agreement and any other taxes imposed on this additional amount, unless the aggregate value of such payments is less than 115% of his or her base salary multiplied by three, in which case the lump sum payment will be reduced to avoid any such excise tax.
POTENTIAL CHANGE IN CONTROL PAYMENTS TO OUR NAMED EXECUTIVE OFFICERS2007 Potential Post-Employment Compensation: Change in Control
Name | Lump Sum ($) | Benefits or ($) | Value of Awards ($) | Lump Sum ($) | Gross-up ($) | TOTAL Pre-Tax ($) | Annual ($) | Lump ($) (1) | Benefits or ($) (2) | Value of ($) (3) | Lump Sum ($) (4) | Gross-up ($) (5) | TOTAL ($) (6) | Annual ($) (7) | |||||||||||||||||||||
(1) | (2) | (3) | (4) | (5) | (6) | (7) | |||||||||||||||||||||||||||||
John V. Faraci | $ | 7,426,200 | $ | 20,844 | $ | 17,184,391 | $ | 17,130,745 | $ | 12,239,109 | $ | 54,001,289 | $ | 81,008 | 7,944,000 | 20,088 | 16,206,004 | 21,490,112 | 10,064,119 | 55,724,323 | 89,801 | ||||||||||||||
Marianne M. Parrs | $ | 3,069,300 | $ | 12,551 | $ | 3,249,559 | $ | 6,694,460 | $ | 2,595,225 | $ | 15,621,095 | $ | 100,548 | |||||||||||||||||||||
Tim S. Nicholls | 2,526,600 | 20,088 | 711,194 | 314,994 | 1,261,750 | 4,834,626 | 42,684 | ||||||||||||||||||||||||||||
Maura A. Smith | 3,111,300 | 20,088 | 3,170,034 | 4,817,522 | 3,783,425 | 14,902,369 | — | ||||||||||||||||||||||||||||
Newland A. Lesko | $ | 2,998,797 | $ | 20,844 | $ | 3,319,523 | $ | 8,444,331 | $ | 2,629,777 | $ | 17,413,272 | $ | 125,665 | 3,111,300 | 19,908 | 3,170,034 | 8,827,539 | 2,166,865 | 17,295,646 | 131,643 | ||||||||||||||
Paul Herbert | $ | 2,477,850 | $ | 20,844 | $ | 2,421,970 | $ | 5,405,720 | $ | 3,108,059 | $ | 13,434,443 | $ | 36,254 | |||||||||||||||||||||
Maura A. Smith | $ | 2,963,100 | $ | 21,168 | $ | 3,249,559 | $ | 4,536,751 | $ | 4,167,992 | $ | 14,938,570 | $ | - | |||||||||||||||||||||
H. Wayne Brafford | 2,526,600 | 20,088 | 2,452,817 | 5,478,897 | 2,484,746 | 12,963,148 | 81,016 |
(1) Amounts shown in this column reflect three times the sum of (i) base salary and (ii) target MIP for 2006.2007.
(2) Amounts shown in this column reflect the cost of continued medical and dental benefits for three years following termination of employment.
(3) Amounts shown in this column reflect the dollar value, based on the closing price of our common stock on December 29, 2006,31, 2007, of the vesting of (i) outstanding 2005-20072006-2008 and 2006-20082007-2009 PSP awards, including reinvested dividends, based on actual Company performance for completed periods and based on target for incomplete periods and (ii) outstanding grants of service-based restricted stock. In addition, the named executive officer would receive the 2004-20062005-2007 PSP award, which has a performance period ending on December 29, 2006,31, 2007, but is not included in the amount shown because it is not accelerated.
(4) Amounts shown in this column reflect the enhanced lump sum benefit payable under the Pension Restoration Plan for each of the named executive officers, other than Mr. Herbert and Ms. Smith and Mr. Nicholls, whose benefits are attributable to amounts under both the SERP and Pension Restoration Plan.
(5) Amounts shown in this column reflect the amount payable to the named executive officer to offset any excise tax imposed under Internal Revenue Code Section 280G on payments received under the change in control agreement and any other taxes imposed on this additional amount. The gross-up payment shown for Ms. Smith is higher than the payment for the other named executive officers, except for Mr. Faraci, because a greater portion of the lump sum pension benefit payable to her upon a change in control accelerates upon the change in control and is therefore subject to excise tax under Section 280G.
(6) Amounts shown in this column reflect the sum of columns (1) through (5).
(7) Amounts shown in this column are the annual annuity benefits payable from the Retirement Plan. As of December 31, 2006,2007, Ms. Smith is not vested in the Retirement Plan because she has fewer than five years of service as of that date.
OTHER COMPENSATION-RELATED MATTERSOther Compensation-Related Matters
Our Long-Term Incentive Compensation Plan contains a claw back provision relating to our long-term equity awards: stock options, service-based restricted stock awards, and performance-based restricted stock awards. Under this claw back provision, if our financial statements are required to be restated as a result of errors, omission, or fraud, the Committee may, in its discretion, based on the facts and circumstances surrounding the restatement, direct that we recover all or a portion of an equity award from one or more executives with respect to any fiscal year in which our financial results are negatively affected by such restatement. To do this, we may pursue various ways to recover from one or more executives: (i) seek repayment from the executive; (ii) reduce the amount that would otherwise be payable to the executive under another Company benefit plan; (iii) withhold future equity grants, bonus awards, or salary increases; or (iv) take any combination of these actions.
In 2006,2007, the Company updated itsrestated our historical financial statements to reflect the required accounting treatment of certain divested businesses as discontinued operations; this in no way was not the result of errors, omissions or fraud by the Company or itsour management.
Officer Stock Ownership Requirements
In order to further align the long-term financial interests of our senior management with those of our shareholders,shareowners, all of our officers are expected to hold a minimum number of shares of our common stock with a minimum market value based on a multiple of base pay:
Chief Executive Officer | 5x base pay | |
Executive Vice President | 3x base pay | |
Senior Vice President | 2x base pay | |
Vice President | 1x base pay |
For purposes of calculating each officer’s total stock holdings, we include the following:
shares acquired through stock option exercises;
— | Shares acquired through stock option exercises; |
shares awarded under the PSP that are vested;
— | Shares awarded under the PSP that are vested; |
shares awarded under the PSP that are “banked”;
— | Shares awarded under the PSP that are “banked;” |
shares held in our tax-qualified Salaried Savings Plan;
— | Shares held in our tax-qualified Salaried Savings Plan; |
share equivalents held in our non-qualified Deferred Compensation Savings Plan;
— | Share equivalents held in our non-qualified Deferred Compensation Savings Plan; |
shares purchased on the open market; and
— | Shares purchased on the open market; and |
indirect ownership of shares held by the officer’s spouse or children residing with the officer.
— | Indirect ownership of shares held by the officer’s spouse or children residing with the officer. |
An officer may not sell any shares without Committee approval until he or she reaches the applicable minimum holding requirement and, thereafter, may not sell more than 20%20 percent of his or her shares, excluding the cashless exercise of stock options in any one calendar year, without the prior approval of the chief executive officer and, in the case of executive and senior vice
presidents, without Committee approval. The Board must approve any such exception for the chief executive officer. Discretion to grant an exception to the stock ownership requirement or disposition limit might be exercised in the case of personal or
financial hardship or other specific emergency need. These restrictions do not apply to an officer in the 12-month period preceding his or her planned retirement.
An officer isOfficers were expected to meet these ownership requirements by January 1, 2007, or within four years of his or her election, appointment, or promotion. Each officer’s stock ownership is reviewed annually by the Committee to assure compliance. As of February 11, 2008, all officers required to meet the ownership levels were in compliance.
Consideration of Accounting and Tax Implications
Deductibility of Executive Compensation. The Committee considers the provisions of Code Section 162(m) of the Internal Revenue Code (the “Code”) whichthat allows the Company to take an income tax deduction for compensation up to $1 million and for certain compensation exceeding $1 million paid in any taxable year to a “covered employee” as that term is defined in the Code. The Company believes that compensation paid under our PSP and stock option programs, both of which have been approved by shareholders,shareowners, is not subject to the $1 million limitation and is generally fully deductible under Code Section 162(m) for federal income tax purposes. However, sinceawards under our MIP awards are discretionary and have not been approved by shareholders, awards under that program for covered employees are subject to the $1 million limitation and must be considered with other compensation in applying the deduction limitation under Code Section 162(m). The total of the MIP award, base salary, imputed income and other compensation (excluding PSP awards, but including equity awards that are earned over time without regard to the Company’s performance, such as restricted stock or executive continuity awards, if any) paid to a covered employee is deductible up to the $1 million limit. Any amount in excess of $1 million is not deductible by the Company.
Non-Qualified Deferred Compensation. The American Jobs Creation Act of 2004 revised the tax laws applicable to non-qualified deferred compensation plans or arrangements. This law affects the Pension Restoration Plan, the SERP and the Deferred Compensation Savings Plan. Although final regulations have not yet been issued, weWe believe we are operatinghave operated these plans in good faith compliance with the statutory provisions in effect since January 1, 2005. Additional information about our non-qualified deferred compensation is found under the heading “Non-Qualified Deferred Compensation in 2006” on page60 of this proxy statement.regulations.
Accounting for Stock-Based Compensation. On January 1, 2006, we began accounting for stock-based payments, including our PSP and service-based restricted stock awards, in accordance with the requirements of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123 (revised 2004),Share-Based Payment (“SFAS No. 123(R)”) as required by the Securities and Exchange Commission.
The Company withholds 25% of the PSP shares payable to a participant at the statutory withholding rate to pay the participant’s federal income tax. Our seniorSenior executives may elect to have the Company withhold upadditional shares withheld (up to an additional 60%85 percent of the PSP award earned award) for payment of taxes. Because we offer this option to our senior executives, their PSP awards are considered “liability” awards for accounting purposes. This means that we remeasure the amount of the PSP liability at fair market value at each balance sheet date with the resulting income or expense recorded in the quarter.
2008 Compensation Comparator Group
3M Company
Alcoa Inc.
Bunge Limited
Caterpillar Inc.
Dow Chemical Company
E.I. DuPont de Nemours
Emerson Electric Company
FedEx Corporation
Goodyear Tire & Rubber
Hess Corporation
Honeywell International Inc.
Johnson Controls, Inc.
Kimberly-Clark Corp.
Lockheed Martin Corp.
Lyondell Chemical Co.
Occidental Petroleum
Schlumberger Limited
U.S. Steel Corporation
Weyerhaeuser Company
Xerox Corporation
The following companies in the 2007 CCG have been removed for 2008:
The Boeing Company
ConAgra Foods
Marathon Oil Corp.
Raytheon Co.
Texas Instruments Inc.
United Technologies Corp.
The accounting treatment of stock-based compensation is not determinative of the type, timing, or amount of any particular grant made to our employees.
2007 COMPENSATION DECISIONSEquity Grant Practices
Our policy is that annual PSP grants (includingpro rata grants for promotions and newly hired employees) are approved at the December meeting of the MDCC each year. The MDCC chose December as the grant time for annual awards because the awards are designed to drive improved financial performance over the following three-year period.
Service-based restricted stock awards are used infrequently, and may be granted anytime during the year by the senior vice president, human resources, as required, with the approval of the chief executive officer. We no longer grant executive continuity awards or stock options.
The Company does not plan to time, and has not timed, its release of material non-public information for the purpose of affecting the value of executive compensation. The Company does not have any programs, plans or practices of awarding equity or valuing equity based on the price of our common stock price on a date other than the date immediately preceding the actual grant date.
In March 2007, the Committee undertook its annual review of the senior management pay study. At that time,2008, the Committee awarded base salary merit increases to four of our named executive officers ranging from 2.0%two percent to 6.0%.four percent. Accordingly, effective April 1, 2007,2008, base salaries for our named executive officers were approved as follows: Mr. Faraci, $1,261,400;$1,311,900; Mr. Nicholls, $507,800; Ms. Parrs $603,400;Smith, $593,000; Mr. Lesko, $592,600$604,500; and Ms. Smith $578,500.Mr. Brafford, $515,000.
Throughout 2007, the Committee conducted an extensive review of all of the various elements of our executive compensation programs with the assistance of the Committee’s compensation consultant. Several changes were made to the various programs described below. Most of these changes will become effective in 2008.
Compensation Comparator Group. Our revised CCG is shown as listed. For 2008, it includes 20 industrial companies where International Paper’s revenue ranks at about the median, representing peers from a broad range of industries that reflect the labor market in which the Company competes for executive talent. Companies that have been added are shown in bold and the companies that were removed are shown separately.
ROI Peer Group.The Committee alsoreplaced three companies in our ROI Peer Group with companies that are more direct competitors to International Paper shown below:
ROI Peer Companies Eliminated | ROI Peer Companies Added | |
Weyerhaeuser Company | Smurfit Kappa Group | |
AbitibiBowater | Mondi Group | |
Sappi Limited | Temple-Inland, Inc. |
TSR Peer Group. Our TSR Peer Group will be a broader industrial group that includes companies outside the paper and packaging industry, as well as two indices. The companies added are shown below:
TSR Peer Companies Added | ||
United States Steel Corporation | Mondi Group | |
Svenska Cellulosa Aktiebolaget (SCA) | Norske Skog | |
Smurfit Kappa Group | Temple-Inland, Inc. |
2008 Management Incentive Plan Changes
For 2008, the MIP award pool will be based entirely on financial performance in ROI:
— | 60 percent based on relative ROI against our ROI Peer Group; and |
— | 40 percent based on achievement of internal ROI targets. |
In addition, we will incorporate into the 2008 MIP an internal stretch goal based on absolute financial performance that, if achieved, will add 30 percentage points to the overall achievement of the plan, thereby increasing the maximum payout to 215 percent.
Separately, for officers of the Company, individual performance achievement will determine 30 percent of the officer’s award. Individual performance goals are approved 2007 objectives under ourfor each officer by senior management.
2008 MIP andAward Scale for Officers
Weight | Weighted Payout Range | |||
Financial Performance Objectives — ROI to Plan — ROI to Peers | 70% | 0 – 160% | ||
Individual Performance Achievement — Approved by senior management | 30% | 0 – 55% | ||
Individual Award Payout Range | 100% | 0 – 215% |
2008 Performance Share Plan Changes
Beginning in 2008, the PSP programs in early 2007. As an additional change to our PSP program, beginning with the 2007 segmented measurement periods, awardsaward for all seniorCompany vice presidents and above will be weighted equally 50% for ROI and 50%50 percent for TSR and 50 percent for ROI. Further, to further alignbring the entire senior executive teamplan more into compliance with our TSR objectives.market prevalence, the Committee adjusted the PSP award scale so that the payout range is zero to 230 percent as explained below.
2008 PSP Award Scale for Officers
Weight | Weighted Payout Range | |||
Relative ROI Rank against ROI Peer Group | 50% | 0 – 100% | ||
Relative TSR Rank against TSR Peer Group | 50% | 0 – 100% | ||
PSP Award Payout Range | 100% | 0 – 200% |
In addition, we will incorporate into the 2008 PSP an internal stretch goal based on absolute financial performance that, if achieved, will add 30 percentage points to the overall achievement of the plan, thereby resulting in a maximum payout of 230 percent.
COMPENSATION COMMITTEE REPORT2008 Perquisites
Effective in 2008, the Committee reviewed the perquisites offered to senior executives and made the following changes:
Executive Benefit | Available in 2007 | Available in 2008 | ||
Annual financial counseling (capped at $7,500 for senior vice presidents and above) | ü | ü (to be discontinued in 2009) | ||
Executive supplemental life insurance | ü | Current participants only. Closed to new participants. | ||
Tax reimbursement (gross-up) on perquisites available to senior executives | ü | No | ||
Country club memberships | ü | No |
Compensation Committee Report
On behalf of the Board of Directors, the Management Development and Compensation Committee of the Board of Directors, referred to as the Committee, oversees the Company’s compensation programs. In fulfilling its oversight responsibilities, the Committee has reviewed and discussed the Compensation Discussion and Analysis included in this proxy statement with management.
Based on the review and discussions referred to above, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006,2007, and its proxy statement on Schedule 14A filed in connection with the Company’s 20072008 Annual Meeting of Shareholders.Shareowners.
This report shall not be deemed to be incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, and shall not otherwise be deemed filed under such laws.
Management Development and Compensation Committee
William G. Walter, Chairman | Donald F. McHenry | |
Martha F. Brooks | Alberto Weisser | |
Samir G. Gibara |
66
Martha F. Brooks
Samir G. Gibara
Donald F. McHenryAdditional Information About Our Executive Compensation
Alberto Weisser
ADDITIONAL INFORMATION ABOUT OUR EXECUTIVE COMPENSATION
The following tables provide detailed information regarding compensation for 2006 for our named executive officers. In the tables, we refer to our chief“principal executive officer, as” two executives who served in the “Principal Executive Officer”position of “principal financial officer” during 2007, and our chief financial officer as the “Principal Financial Officer.” This convention is required by the rules of the Securities and Exchange Commission. The other three named executive officers were selected for the table because they were our next three most highly compensated executive officers in 2006.officers. Mr. Nicholls became our chief financial officer on December 1, 2007, upon Ms. Parrs’ retirement from this position.
The table below provides information concerning five elements ofshows cash and non-cash compensation in summary form, for each of our named executive officers for the yearyears ended December 31, 2006. None of our named executive officers has an employment agreement, other than the change in control agreements described on page 44 of this proxy statement. The named executive officers were not eligible for any payments that would be considered “Bonus” payments for the year ended2006 and December 31, 2006. Amounts listed in the “Non-Equity Incentive Plan Compensation” column were awarded in February 2007 for performance in the year 2006 under our Management Incentive Plan, or MIP, which is described on page372007.
Explanation of this proxy statement.Stock-Awards Column
The value of equity awards in the “Stock Awards” column is based on SFAS No. 123(R) as required by the Securities and Exchange Commission.. As a result, this amount does not reflect what was paid to our executives, rather itvalue reflects the amount we must include as an expense on our financial statements for the 2006 performance achievement in each three-year PSP award with a 2006 segment, that is, the 2004-2006 PSP, the 2005-2007 PSP and the 2006-2008 PSP.calendar year. The value also includes awards under the Performance Share Plan for the named executive officers and, for Mr. Faraci, also includes an expense for the incremental value of the restricted stock awards and executive continuity awards that will vest in future periods;periods.
Explanation of Non-Equity Incentive Compensation Column
The named executive officers were not eligible for Ms. Parrs, an expenseany payments that would be considered “Bonus” payments. Rather, our executives participate in the performance-based Management Incentive Plan. The amounts listed in the “Non-Equity Incentive Plan Compensation” column were paid under the Management Incentive Plan in February 2008 for the incremental valueperformance during 2007.
Explanation of an executive continuity award that vested in 2006; and for Ms. Smith, an expense for the incremental value of a restricted stock award that vested in 2006.
Another column, the “ChangeChange in Pension Value Column
Amounts shown in this column represent the change in accruals under our Retirement Plan, Pension Restoration Plan, and Non-Qualified Deferred Compensation Earnings,” represents accruals in each executive’s pension only, as executives do not participate in deferred compensation plans with preferential earnings.SERP. Importantly, the change in pension value is not currently paid to an executive as compensation, but is a measurement of the change in value of the pension from the prior year.
SUMMARY COMPENSATION TABLE2006 and 2007 Summary Compensation Table
Name and Principal Position | Year | Salary ($) | Stock ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Non-Qualified Deferred | All Other
| Total ($) | |||||||||||||||||
(1) | (2) | (3) | ||||||||||||||||||||||
John V. Faraci Chairman of the Board and Chief Executive Officer (Principal Executive Officer) | 2006 | $ | 1,173,750 | $ | 8,660,269 | $ | 2,250,000 | $ | 720,598 | $ | 924,053 | $ | 13,728,670 | |||||||||||
Marianne M. Parrs Executive Vice President and Chief Financial Officer (Principal Financial Officer) | 2006 | $ | 588,700 | $ | 1,828,509 | $ | 610,000 | $ | 49,732 | $ | 93,989 | $ | 3,170,930 | |||||||||||
Newland A. Lesko Executive Vice President, Manufacturing and Technology | 2006 | $ | 563,296 | $ | 1,824,151 | $ | 800,000 | $ | 1,559,193 | $ | 37,433 | $ | 4,784,073 | |||||||||||
Paul Herbert Senior Vice President, Strategic Initiatives | 2006 | $ | 485,688 | $ | 1,712,512 | $ | 550,000 | $ | 624,238 | $ | 544,487 | $ | 3,916,925 | |||||||||||
Maura A. Smith Senior Vice President, General Counsel and Corporate Secretary | 2006 | $ | 552,150 | $ | 1,746,663 | $ | 610,000 | $ | 81,597 | $ | 142,184 | $ | 3,132,594 |
Name and Principal Position | Year | Salary ($) | Stock Awards ($) (1) | Non-Equity Incentive Plan Compensation ($) | Change in Value ($) (2) | All Other Compensation ($) (3) | Total ($) | ||||||||||||||
John V. Faraci Chairman of the Board and Chief Executive Officer (Principal Executive Officer) | 2007 | 1,243,550 | 9,463,233 | 1,986,000 | 2,260,536 | 390,160 | 15,343,479 | ||||||||||||||
2006 | 1,173,750 | 8,660,269 | 2,250,000 | 720,598 | 924,053 | 13,728,670 | |||||||||||||||
Marianne M. Parrs Executive Vice President and Chief Financial Officer (Principal Financial Officer) | 2007 | 600,450 | 1,996,077 | 454,600 | — | 152,248 | 3,203,375 | ||||||||||||||
2006 | 588,700 | 1,828,509 | 610,000 | 49,732 | 93,989 | 3,170,930 | |||||||||||||||
Tim S. Nicholls Senior Vice President and Chief Financial Officer (Principal Financial Officer) | 2007 | 306,925 | 807,131 | 327,700 | 114,645 | 514,589 | 2,070,990 | ||||||||||||||
Maura A. Smith Senior Vice President, General Counsel and Corporate Secretary | 2007 | 572,925 | 1,992,321 | 501,500 | — | 198,191 | 3,264,937 | ||||||||||||||
2006 | 552,150 | 1,746,663 | 610,000 | 81,597 | 142,184 | 3,132,594 | |||||||||||||||
Newland A. Lesko Executive Vice President, Manufacturing and Technology | 2007 | 586,475 | 2,015,033 | 606,500 | — | 53,696 | 3,261,704 | ||||||||||||||
2006 | 563,296 | 1,824,151 | 800,000 | 1,559,193 | 37,433 | 4,784,073 | |||||||||||||||
H. Wayne Brafford Senior Vice President Printing and Communication Papers | 2007 | 497,313 | 1,458,474 | 507,000 | 279,632 | 75,167 | 2,817,586 |
(1) The amounts shown in this column represent the dollar amounts recognized for financial statement reporting purposes in fiscal year 2006 with respect to stock awards, as determined pursuant to SFAS No.123(R). A discussion of the assumptions used in calculating these values for the 2007 fiscal year may be found in Note 17 to our audited financial statements beginning on page 8586 of our annual report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2007.29, 2008.
(2) Amounts in this column show the changeThree of our named executive officers experienced a decrease in pension value from 2006 to 2007 in the following amounts, which are not included in the Summary Compensation Table under our Retirement Plan, Pension Restoration Plan,the Securities and SERP. Additional information regarding these plans follows our Pension Benefits Table. No named executive officer received above-market orExchange Commission’s rules: Ms. Parrs ($41,105), Ms. Smith ($2,973) and Mr. Lesko ($19,146). As noted above, executives do not receive preferential earnings on non-qualified deferred compensation under our deferred compensation plans. Additional information regarding our Deferred Compensation Savings Plan follows our Non-Qualified Deferred Compensation Table.compensation.
(3) A breakdown of the “All Other Compensation” amounts shown in this column for 2006 for each named executive officer2007 is set forthshown in the following table:
401(k) Match | Executive (a) | Personal Use of (b) | Club (c) | Tax Gross Up (d) | One-Time Expenses (e) | Directors’ Program | Group Life | Executive Financial Counseling (h) | Amounts Related to Overseas Assignment (i) | TOTAL All Other | ||||||||||||||||||||||||||||||||
John V. Faraci | $ | 10,560 | $ | 36,684 | $ | 79,688 | $ | 26,266 | $ | 69,185 | $ | 637,605 | $ | 49,295 | $ | 6,620 | $ | 8,150 | $ | - | $ | 924,053 | ||||||||||||||||||||
Marianne M. Parrs | $ | 10,560 | $ | 12,415 | $ | - | $ | - | $ | 14,781 | $ | 48,410 | $ | - | $ | 3,323 | $ | 4,500 | $ | - | $ | 93,989 | ||||||||||||||||||||
Newland A. Lesko | $ | 5,333 | $ | 18,378 | $ | - | $ | - | $ | 10,541 | $ | - | $ | - | $ | 3,181 | $ | - | $ | - | $ | 37,433 | ||||||||||||||||||||
Paul Herbert | $ | 8,000 | $ | 24,571 | $ | - | $ | 6,764 | $ | 21,174 | $ | - | $ | - | $ | 2,742 | $ | - | $ | 481,236 | $ | 544,487 | ||||||||||||||||||||
Maura A. Smith | $ | 10,560 | $ | 13,903 | $ | - | $ | - | $ | 7,974 | $ | 97,379 | $ | - | $ | 3,118 | $ | 9,250 | $ | - | $ | 142,184 |
Name
| 401(k) ($) | Group ($)(a) | Financial ($) (b) | ESIP ($) (c) | Corporate ($) (d) | Club ($) (e) | Tax-Gross ($) (f) | Directors’ Charitable | Charitable Matching ($) (h) | One-Time ($) (i) | Amount Related to Overseas Assignment ($)(j) | Total ($) | ||||||||||||||||||||||||
John V. Faraci | 10,800 | 6,570 | 11,900 | 40,623 | 229,894 | 28,792 | 24,048 | 29,033 | 8,500 | — | — | 390,160 | ||||||||||||||||||||||||
Marianne M. Parrs | 10,800 | 3,173 | 2,500 | 13,698 | — | — | 7,857 | — | 7,000 | 107,220 | — | 152,248 | ||||||||||||||||||||||||
Tim S. Nicholls | 10,800 | 1,534 | — | — | — | — | 25,978 | — | 6,000 | — | 470,277 | 514,589 | ||||||||||||||||||||||||
Maura A. Smith | 10,800 | 3,028 | 9,275 | 14,920 | — | — | 8,558 | — | 6,000 | 145,610 | — | 198,191 | ||||||||||||||||||||||||
Newland A. Lesko | 10,800 | 3,099 | — | 21,478 | — | — | 12,319 | — | 6,000 | — | — | 53,696 | ||||||||||||||||||||||||
H. Wayne Brafford | 8,200 | 2,631 | 7,725 | 21,046 | — | 7,494 | 12,071 | — | 16,000 | — | — | 75,167 |
(a) Represents the Company’s annual premium payment for the group life insurance benefit for the named executive officer.
(b) Represents the amount paid by the Company for the named executive officer’s financial counseling assistance benefit. Includes amounts over the annual allowance for Mr. Faraci, Ms. Smith and Mr. Brafford because we paid amounts in 2007 for financial counseling assistance actually rendered at the end of 2006 that was not billed by the provider until 2007. Mr. Lesko did not incur any expense for financial counseling assistance in 2007. Mr. Nicholls was not eligible for this benefit until becoming a senior vice president on December 1, 2007.
(c) The ESIP is an executive supplemental life insurance that provides an individually owned, permanent life insurance policy with a pre-retirement death benefit equal to two times annual salary, or a post-retirement death benefit equal to one times final salary. Participants are permitted to make voluntary premium contributions to pre-fund additional post-retirement coverage. The death benefit remains in effect until age 95 unless altered or cancelled by the participant.
(b) Includes (i) $26,510 attributable(d) Represents the aggregate incremental cost to the Company of personal travel on Company aircraft and personal use of a Company vehicle and (ii) $53,178 attributable to the personal use of a Company aircraft. The calculation ofdriver by Mr. Faraci, primarily for commuting. We calculate the incremental cost for personal use of a Company
vehicle includes the percentage of the total cost of annual lease payments, gas, tolls, and other expenses, and the driver’s total wages that are attributable to Mr. Faraci’s personal use of the vehicle. The value of personal use of Company aircraft is determined based upon the per mile variable cost of operating the aircraft.aircraft multiplied by the number of miles flown for personal travel by Mr. Faraci and members of his family traveling with him. The variable operating costs include fuel, maintenance, airway fees, user fees, communication, crew expenses, supplies and catering. We calculate the incremental cost of personal use of the Company vehicle and driver based upon annual lease payments, fuel, and the driver’s total wages multiplied by the percentage of miles driven for personal use by Mr. Faraci, primarily for commuting.
(c)(e) Represents the amount paid by the Company for social or country club membership dues fordues. Commencing in 2008, the named executive officer in 2006.Company will no longer pay these expenses.
(d)(f) Represents tax gross upsreimbursement on the following benefits: (i) premiums paid by usthe Company for executive supplemental life insurance, (ii) standard relocation benefits includedthe ESIP described in income, (iii)footnote (c), above. Commencing in 2008, the Company will no longer reimburse taxes on ESIP premiums paid by the Company. The Company discontinued tax reimbursement for personal use of Company-providedCompany aircraft andor vehicle included in income, and (iv) tax equalization payments related to an overseas assignment in accordance with our Global Mobility Policy.2007.
(e) In connection with the relocation of the Company’s headquarters to Memphis, TN, we incurred the following one-time expenses: (a) installation of a home security system for our chief executive officer as approved by the Board in the amount of $52,000 and (b) standard relocation benefits for Mr. Faraci, Ms. Parrs and Ms. Smith. The amount attributable to Mr. Faraci includes expenses for shipment of household goods and vehicles, household goods insurance, normal and customary closing costs and other miscellaneous expenses. The amount also includes closing costs and interest paid for an equity advance secured through a private lending institution and duplicate housing expenses for up to 60 days, both of which were paid in accordance with our standard relocation policy.
The amount attributable to Ms. Parrs reflects standard expenses for shipment of household goods and home purchase costs; there was no home sale transaction.
The amount attributable to Ms. Smith reflects the standard expenses for shipment of household goods and vehicles, and household goods insurance, which were incurred in 2005 and paid in 2006. Her home sale transaction occurred in 2005.
(f)(g) Represents a ratable share of the Company’s total annual non-cash expense attributable to directors who served in 2006 for the Charitable Award Programfiscal year of the legacy director charitable award program described under Charitable Giving on page 12 of this proxy statement.“Director Compensation.” Mr. Faraci is eligible to participate in this program as a member of our Board. Mr. Faraci does not receive any other compensation as a member of our Board. The legacy director charitable award program was closed to new directors as of July 1, 2007.
(g) Represents the Company’s annual premium payment for the group life insurance benefit for the named executive officer.
(h) Represents the Company’s 100 percent match of the named executive officer’s donation to one or more tax-exempt educational institutions of his or her choice up to the aggregate annual limit of $5,000, in addition to the Company’s 60 percent match of contributions to the United Way of America as part of a Company-wide campaign.
(i) Represents a one-time expense incurred by the Company for Ms. Parrs in connection with amounts for earned vacation payable upon her retirement on December 31, 2007. With regard to Ms. Smith, the amount represents a one-time expense in connection with the relocation of the Company’s headquarters from Stamford, Conn. to Memphis, Tenn. The amount attributable to Ms. Smith includes the normal and customary closing costs, realtors’ commission, and other miscellaneous expenses paid by the Company upon the sale of Ms. Smith’s home to a third party buyer during 2007. Ms. Smith’s home sale transaction to the Company occurred in 2006 for the named executive officer’s financial counseling assistance benefit. Includes the annual allowance (generally $7,500) plus amounts billed by the provider in 2006 for 2005 services. Mr. Lesko and Mr. Herbert did not incur any expense for financial counseling assistance in 2006.
(i) Includes amounts paid for taxes on the named executive officer’s behalf in Belgium and Germany in connection with his overseas assignment pursuant to the Company’s relocation policy for our employees.
(j) Represents amounts attributable to Mr. Nicholls’ position in Brussels payable under our Global Mobility Policy.
Grants of Plan-Based Awards During 20062007
The table below shows payout ranges for our named executive officers under the 20062007 MIP and 2006-20082007-2009 PSP. These programs are described in our Compensation Discussion and Analysis. The actual MIP award for 2006 that was paid in 2007 is reflected inThere were no other equity awards granted to the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table.named executive officers during 2007.
GRANTS OF PLAN-BASED AWARDS DURING 20062007 Grants of Plan-Based Awards
Name | Committee Action Date (1) | Grant Date | Estimated Possible Payouts Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: of Shares | All Other Awards: Number of Securities Options (#) | Exercise Price of | Grant Date Fair of Stock and Awards | Grant Date | Committee Action Date (1) | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | Grant Date Fair Value of Stock ($) (2) | ||||||||||||||||||||||||||||||||||||||||||||||||
Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | ||||||||||||||||||||||||||||||||||||||||||||||||||
John V. Faraci | 12/12/2005 | 1/3/2006 | $ | - | $ | 1,285,400 | $ | 2,570,800 | - | 209,000 | 522,500 | - | - | $ | - | $ | 6,916,855 | — | 1,324,000 | 2,648,000 | — | — | — | — | |||||||||||||||||||||||||||||||||||||
John V. Faraci | 1/2/2007 | 12/11/2006 | — | — | — | — | 209,000 | 522,500 | 7,098,424 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
12/12/2005 | 1/3/2006 | $ | - | $ | 431,500 | $ | 863,000 | - | 50,267 (3) | 125,668 | - | - | $ | - | $ | 1,665,475 | — | 444,500 | 889,000 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Marianne M. Parrs | 1/2/2007 | 12/11/2006 | — | — | — | — | 46,600 | 116,500 | 1,582,711 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
— | 346,800 | 693,600 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tim S. Nicholls | 1/2/2007 | 12/11/2006 | — | — | — | — | 9,800 | 24,500 | 333,512 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
— | 444,500 | 889,000 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Maura A. Smith | 1/2/2007 | 12/11/2006 | — | — | — | — | 46,600 | 116,500 | 1,582,711 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
12/12/2005 | 1/3/2006 | $ | - | $ | 431,500 | $ | 863,000 | - | 46,600 | 116,500 | - | - | $ | - | $ | 1,542,227 | — | 444,500 | 889,000 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Paul Herbert | 12/12/2005 | 1/3/2006 | $ | - | $ | 336,700 | $ | 673,400 | - | 34,000 | 85,000 | - | - | $ | - | $ | 1,133,985 | ||||||||||||||||||||||||||||||||||||||||||||
Maura A. Smith | 12/12/2005 | 1/3/2006 | $ | - | $ | 431,500 | $ | 863,000 | - | 50,267 (4) | 125,668 | - | - | $ | - | $ | 1,665,475 | ||||||||||||||||||||||||||||||||||||||||||||
Newland A. Lesko | 1/2/2007 | 12/11/2006 | — | — | — | — | 46,600 | 116,500 | 1,582,711 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
— | 346,800 | 693,600 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
H. Wayne Brafford | 1/2/2007 | 12/11/2006 | — | — | — | — | 34,000 | 85,000 | 1,154,768 |
(1) The 2007-2009 PSP grant is approved by the MDCC prior to the grant date. Mr. Faraci’s award is approved by the Board.full Board on the same date.
(2) The amounts shown in this column reflect the grant date fair value of the 2006-20082007-2009 PSP grants awardedawards at target to each of the named executive officers.target. The grant date fair value is determined pursuant to SFAS No. 123(R), as described in greater detail in the narrative following this table.
(3) Includes an additional prorated award underNarrative to the 2005-2007 PSP of 3,667 shares awarded to Ms. Parrs as a result of her promotion to executive vice presidentSummary Compensation Table and chief financial officer in 2005.
(4) Includes an additional prorated award under the 2005-2007 PSP of 3,667 shares awarded to Ms. Smith as a result of her promotion in 2005.
Narrative to Grants of Plan-Based Awards Table
Estimated Possible Payouts Under Non-Equity Incentive Plan AwardsAwards.
The “Estimated Possible Payouts Under Non-Equity Incentive Plan Awards”These columns show the range of estimated possible payouts to our named executive officers under the 20062007 MIP. The actual amount paid is shown in the Summary Compensation Table.
The “threshold” amount shown in this table is zero. If we had achieved less than the minimum performance level for all three objectives, which is 70% or less of ROI improvement, a rank of sixth or lower in our ROI Peer Group, and 70% or less of non-financial objectives (People, Customers, and Operational Excellence), the MIP award payout would be zero. The minimum level of performance in at least one objective is required in order to fund the MIP award pool. The minimum objectives required to be met were: (i) a rank of fifth in our ROI Peer Group; (ii) 70 percent of ROI improvement based on our internal targets; and (iii) 50 percent of non-financial objectives (improved diversity in the workforce and improved scores on our Global Employee Engagement survey).
The “target” award shown is the possible payout if we achieved 100%100 percent of each performance objective or some combination of the objectives. The targets are discussed in our Compensation Discussion and Analysis.
The “maximum” award, which is capped at 200%200 percent of the participant’s targeted amount, is the possible payout if we achieved 225%(i) a rank of bothfirst in our ROI Peer Group, including achievement of our internal stretch goal based on absolute financial targets (ROI rankingperformance, which adds 50 percent to the relative ROI performance achievement; (ii) 175 percent of ROI improvement based on our internal targets; and ROI improvement), and 100%(iii) 100 percent of our non-financial objectives (People, Customers, and Operational Excellence).objectives.
Estimated Future Payouts Under Equity Incentive Plan Awards
The “Estimated Future Payouts Under Equity Incentive Plan Awards”. These columns show the range of estimated future payouts of stock awards (in the form of restricted stock) to our named executive officers under the 2006-20082007-2009 PSP.
The “threshold” amount shown is zero. If we had achieved less than the minimum performance level for both objectives, which is a rank of sixth or lower in our ROI Peer Group and a rank of 10 or lower in our TSR Peer Group,the PSP award payout would be zero. The minimum objectives required to be met in order to receive a payout under either objective are: (i) a rank of fifth in our ROI Peer Group; and (ii) a rank of tenth in our TSR Peer Group.
The “target” number of shares shown is the estimated payout if we achieved 100%100 percent of target against our ROI and TSR Peer Groups, respectively. The targets are discussed in our Compensation Discussion and Analysis.
The “maximum” number of shares is the estimated payout if we achieved 250%(i) a rank of target.first in our ROI Peer Group including achievement of our internal stretch goal based on absolute financial performance, which adds 50 percent to the relative ROI performance achievement; and (ii) achieved a rank of first in our TSR Peer Group.
Grant Date Fair Value of Stock and Option AwardsAwards.
The fair value shown of the target awards granted to each named executive officer under the 2006-20082007-2009 PSP is based on the accountingfair value used to expense the awards in our financial statements.at grant per SFAS No. 123(R). The fair value is based on the closing stock price of our common stock on the date immediately preceding the date the grant was approveddate for the ROI component of the award. Valuing TSR is more complicated because the value must take into account the probable expense of the 2006-20082007-2009 PSP based on our expected future performance relative to the other companies in our TSR Peer Group. ThisThe market value of the TSR component is strictly an accounting methodology. based on a Monte Carlo simulation as prescribed by SFAS No. 123(R).
The amount ultimately paid to PSP participants may or may not be the same amount as the value shown does not dictate what is ultimatelyin the table due to two factors: (1) the ultimate number of shares paid to our PSP participants atwill vary based on the endrelative performance of the performance period, nor does it reflectCompany to the other companies in our TSR and ROI Peer Groups; and (2) the value of the shares atreceived by each participant is based on the timefair value of the Company’s stock as of the date the shares may be delivered.
There were no stock options granted during 2007.
Outstanding Equity Awards at December 31, 20062007
The following table shows the outstanding equity awards held by our named executive officers as of December 31, 2006.2007. Please refer to the chart entitled “PSP Segmented Awards & Banking Schedule” on page 53 for additional information regarding how shares are “banked” and paid under our PSP.
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 20062007 Outstanding Equity Awards
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||||||||
Name | Number of (#) | Option ($) | Option Expiration Date | Number of Shares Stock That Have Not Vested (#) | Market Value Stock That Have Not ($) | Equity Incentive or Other Rights That (#) | Equity Incentive of Unearned or Other Rights Not Vested ($) | Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
(1) | (2) | (3) | ||||||||||||||||||||||||||||||||||||||||||
Name
| Number of Securities Underlying Unexercised Options Exercisable (#)(1) | Option Exercise Price ($) | Option Expiration Date | Number Shares Units of That Vested (#) | Market of Shares Units of That Have Vested ($)(2) | Equity Plan Number Unearned Shares, Other That Vested (#) | Equity Plan Market or Payout of Shares, Other That Vested ($)(3) | |||||||||||||||||||||||||||||||||||||
522,402 | (4) | 16,915,386 | 261,250 | (5) | 8,449,870 | |||||||||||||||||||||||||||||||||||||||
John V. Faraci | 1,793 | 41.9375 | 1/13/2008 | — | — | — | — | |||||||||||||||||||||||||||||||||||||
11,000 | $ | 42.8750 | 1/14/2007 | 469,616 (4) | $ | 16,013,906 | 261,250 (5) | $ | 8,634,574 | 9,207 | 51.0000 | 4/14/2008 | — | — | — | — | ||||||||||||||||||||||||||||
1,793 | $ | 41.9375 | 1/13/2008 | - | $ | - | - | $ | - | 11,000 | 46.0000 | 1/12/2009 | — | — | — | — | ||||||||||||||||||||||||||||
9,207 | $ | 51.0000 | 4/14/2008 | - | $ | - | - | $ | - | 27,000 | 61.7500 | 1/11/2010 | — | — | — | — | ||||||||||||||||||||||||||||
11,000 | $ | 46.0000 | 1/12/2009 | - | $ | - | - | $ | - | 37,000 | 29.3125 | 10/10/2010 | — | — | — | — | ||||||||||||||||||||||||||||
27,000 | $ | 61.7500 | 1/11/2010 | - | $ | - | - | $ | - | 9,000 | 35.0500 | 4/10/2011 | — | — | — | — | ||||||||||||||||||||||||||||
37,000 | $ | 29.3125 | 10/10/2010 | - | $ | - | - | $ | - | 14,000 | 35.0000 | 10/9/2011 | — | — | — | — | ||||||||||||||||||||||||||||
9,000 | $ | 35.0500 | 4/10/2011 | - | $ | - | - | $ | - | 37,500 | 41.4000 | 4/9/2012 | — | — | — | — | ||||||||||||||||||||||||||||
14,000 | $ | 35.0000 | 10/9/2011 | - | $ | - | - | $ | - | 37,500 | 32.5400 | 10/8/2012 | — | — | — | — | ||||||||||||||||||||||||||||
37,500 | $ | 41.4000 | 4/9/2012 | - | $ | - | - | $ | - | 53,000 | 34.9600 | 4/8/2013 | — | — | — | — | ||||||||||||||||||||||||||||
37,500 | $ | 32.5400 | 10/8/2012 | - | $ | - | - | $ | - | 48,000 | 39.1400 | 10/14/2013 | — | — | — | — | ||||||||||||||||||||||||||||
53,000 | $ | 34.9600 | 4/8/2013 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||||||||
48,000 | $ | 39.1400 | 10/14/2013 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||||||||
Marianne M. Parrs | 17,000 | $ | 42.8750 | 1/14/2007 | 82,577 (6) | $ | 2,815,876 | 57,792 (7) | $ | 1,909,603 | 100,828 | (6) | 3,264,817 | 58,250 | (7) | 1,884,038 | ||||||||||||||||||||||||||||
7,000 | $ | 41.0000 | 1/29/2007 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||||||||
3,904 | $ | 41.9375 | 1/13/2008 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||||||||
13,096 | $ | 51.0000 | 4/14/2008 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||||||||
17,000 | $ | 46.0000 | 1/12/2009 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||||||||
27,000 | $ | 62.8125 | 1/11/2010 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||||||||
32,000 | $ | 29.3125 | 10/10/2010 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||||||||
11,500 | $ | 35.0500 | 4/10/2011 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||||||||
11,500 | $ | 35.0000 | 10/9/2011 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||||||||
27,500 | $ | 41.4000 | 4/9/2012 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||||||||
27,500 | $ | 32.5400 | 10/8/2012 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||||||||
27,500 | $ | 34.9600 | 4/8/2013 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||||||||
27,500 | $ | 39.1400 | 10/14/2013 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||||||||
Newland A. Lesko | 6,000 | $ | 42.8750 | 1/14/2007 | 89,641 (8) | $ | 3,056,758 | 58,250 (9) | $ | 1,925,221 | ||||||||||||||||||||||||||||||||||
3,000 | $ | 41.0000 | 1/29/2007 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||||||||
361 | $ | 41.9375 | 1/13/2008 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||||||||
5,639 | $ | 51.0000 | 4/14/2008 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||||||||
8,000 | $ | 46.0000 | 1/12/2009 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||||||||
32,000 | $ | 60.4375 | 1/11/2010 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||||||||
32,000 | $ | 29.3125 | 10/10/2010 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||||||||
6,500 | $ | 35.0500 | 4/10/2011 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||||||||
11,500 | $ | 35.0000 | 10/9/2011 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||||||||
27,500 | $ | 41.4000 | 4/9/2012 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||||||||
27,500 | $ | 32.5400 | 10/8/2012 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||||||||
30,000 | $ | 34.9600 | 4/8/2013 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||||||||
32,500 | $ | 39.1400 | 10/14/2013 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||||||||
Marianne M. Parrs | 3,904 | 41.9375 | 1/13/2008 | — | — | — | — | |||||||||||||||||||||||||||||||||||||
13,096 | 51.0000 | 4/14/2008 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
17,000 | 46.0000 | 1/12/2009 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
27,000 | 62.8125 | 1/11/2010 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
32,000 | 29.3125 | 10/10/2010 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
11,500 | 35.0500 | 4/10/2011 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
11,500 | 35.0000 | 10/9/2011 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
27,500 | 41.4000 | 4/9/2012 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
27,500 | 32.5400 | 10/8/2012 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
27,500 | 34.9600 | 4/8/2013 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
27,500 | 39.1400 | 10/14/2013 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
30,885 | (8) | 1,174,193 | 12,250 | (9) | 416,825 | |||||||||||||||||||||||||||||||||||||||
Tim S. Nicholls | 3,300 | 58.5000 | 1/11/2010 | — | — | — | — | |||||||||||||||||||||||||||||||||||||
2,500 | 35.0500 | 4/10/2011 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
2,500 | 35.0000 | 10/9/2011 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
5,375 | 41.4000 | 4/9/2012 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
9,000 | 39.1400 | 10/14/2013 | — | — | — | — |
Name
| Option Awards | Stock Awards | ||||||||||||||||||||||||||||||||||||||
Number of Securities Underlying Unexercised Options Exercisable (#)(1) | Option Exercise Price ($) | Option Expiration Date | Number Shares or Units of That Vested (#) | Market of Shares Units of That Vested ($)(2) | Equity Plan Number Unearned Shares, Other That Vested (#) | Equity Plan Market or Payout of Shares, Other That Vested ($)(3) | ||||||||||||||||||||||||||||||||||
Maura A. Smith | 100,828 | (6) | 3,264,817 | 58,250 | (7) | 1,884,038 | ||||||||||||||||||||||||||||||||||
20,000 | 33.8000 | 3/31/2013 | — | — | — | — | ||||||||||||||||||||||||||||||||||
Option Awards | Stock Awards | 22,500 | 34.9600 | 4/8/2013 | — | — | — | — | ||||||||||||||||||||||||||||||||
Name | Number of (#) | Option ($) | Option Expiration Date | Number of Shares Stock That Have Not Vested (#) | Market Value Stock That Have Not ($) | Equity Incentive or Other Rights That (#) | Equity Incentive of Unearned or Other Rights Not Vested ($) | |||||||||||||||||||||||||||||||||
(1) | (2) | (3) | 22,500 | 39.1400 | 10/14/2013 | — | — | — | — | |||||||||||||||||||||||||||||||
Paul Herbert | 4,000 | $ | 42.8750 | 1/14/2007 | 87,666 (10) | $ | 2,989,411 | 42,500 (11) | $ | 1,426,959 | ||||||||||||||||||||||||||||||
Newland A. Lesko | 102,786 | (10) | 3,328,211 | 58,250 | (7) | 1,884,038 | ||||||||||||||||||||||||||||||||||
2,000 | $ | 41.0000 | 1/29/2007 | - | $ | - | - | $ | - | 361 | 41.9375 | 1/13/2008 | — | — | — | — | ||||||||||||||||||||||||
4,000 | $ | 53.0000 | 4/14/2008 | - | $ | - | - | $ | - | 5,639 | 51.0000 | 4/14/2008 | — | — | — | — | ||||||||||||||||||||||||
6,000 | $ | 46.0000 | 1/12/2009 | - | $ | - | - | $ | - | 8,000 | 46.0000 | 1/12/2009 | — | — | — | — | ||||||||||||||||||||||||
13,000 | $ | 62.5625 | 1/11/2010 | - | $ | - | - | $ | - | 32,000 | 60.4375 | 1/11/2010 | — | — | — | — | ||||||||||||||||||||||||
17,500 | $ | 41.4000 | 4/9/2012 | - | $ | - | - | $ | - | 32,000 | 29.3125 | 10/10/2010 | — | — | — | — | ||||||||||||||||||||||||
19,500 | $ | 32.5400 | 10/8/2012 | - | $ | - | - | $ | - | 6,500 | 35.0500 | 4/10/2011 | — | — | — | — | ||||||||||||||||||||||||
22,500 | $ | 34.9600 | 4/8/2013 | - | $ | - | - | $ | - | 11,500 | 35.0000 | 10/9/2011 | — | — | — | — | ||||||||||||||||||||||||
22,500 | $ | 39.1400 | 10/14/2013 | - | $ | - | - | $ | - | 27,500 | 41.4000 | 4/9/2012 | — | — | — | — | ||||||||||||||||||||||||
27,500 | 32.5400 | 10/8/2012 | — | — | — | — | ||||||||||||||||||||||||||||||||||
Maura A. Smith | 20,000 | $ | 33.8000 | 3/31/2013 | 81,704 (12) | $ | 2,786,106 | 57,792 (13) | $ | 1,909,603 | ||||||||||||||||||||||||||||||
22,500 | $ | 34.9600 | 4/8/2013 | - | $ | - | - | $ | - | 30,000 | 34.9600 | 4/8/2013 | — | — | — | — | ||||||||||||||||||||||||
22,500 | $ | 39.1400 | 10/14/2013 | - | $ | - | - | $ | - | 32,500 | 39.1400 | 10/14/2013 | — | — | — | — | ||||||||||||||||||||||||
H. Wayne Brafford | 92,957 | (11) | 3,009,961 | 39,667 | (12) | 1,278,924 | ||||||||||||||||||||||||||||||||||
437 | 41.9375 | 1/13/2008 | — | — | — | — | ||||||||||||||||||||||||||||||||||
3,563 | 51.0000 | 4/14/2008 | — | — | — | — | ||||||||||||||||||||||||||||||||||
4,000 | 46.0000 | 1/12/2009 | — | — | — | — | ||||||||||||||||||||||||||||||||||
10,000 | 62.4375 | 1/11/2010 | — | — | — | — | ||||||||||||||||||||||||||||||||||
15,000 | 29.3125 | 10/10/2010 | — | — | — | — | ||||||||||||||||||||||||||||||||||
8,700 | 35.0500 | 4/10/2011 | — | — | — | — | ||||||||||||||||||||||||||||||||||
5,500 | 35.0000 | 10/9/2011 | — | — | — | — | ||||||||||||||||||||||||||||||||||
12,500 | 41.4000 | 4/9/2012 | — | — | — | — | ||||||||||||||||||||||||||||||||||
14,500 | 32.5400 | 10/8/2012 | — | — | — | — | ||||||||||||||||||||||||||||||||||
13,500 | 34.9600 | 4/8/2013 | — | — | — | — | ||||||||||||||||||||||||||||||||||
22,500 | 39.1400 | 10/14/2013 | — | — | — | — |
(1) The stock option program was discontinued for executive officers in 2004. All outstanding unvested options were vested by the Company on July 12, 2005, upon termination of the Company’s stock option program. No2005. Therefore, no named executive officer had any unearned or unexercisable options as of December 31, 2006.2007.
(2) The market value is calculated based on the closing price of our common stock on December 29, 2006,31, 2007 of $34.10. However, at$32.38 for Mr. Faraci, Ms. Parrs, Ms. Smith and Mr. Brafford, all of whom have liability awards. For Mr. Nicholls, the market value is based on the closing price of our common stock on the day prior to the grant date for ROI and a Monte Carlo simulation as of the grant date for TSR.
At the end of the applicable performance period, there is an adjustment based on the Company’s actual ROI and TSR performance.
(3) The market value for completed periodsthe ROI component is calculated based on the closing price of our common stock on December 29, 2006,31, 2007 of $34.10$32.38 for Mr. Faraci, Ms. Parrs, Ms. Smith and for future periods,Mr. Brafford, all of whom have liability awards. For Mr. Nicholls, the market value is based on the closing price of our common stock on the day prior to the grant date for ROI and a Monte Carlo simulation as prescribed by SFAS No. 123(R). The Monte Carlo simulation produces a lower price per share value than $34.10. Consequently, using a $34.10 priceof the grant date for all periods would result in a higher value than the amount shown in the column.TSR.
(4) Includes (i) 14,0007,000 shares of restricted stock and 1,287862 reinvested dividends, 50% of which vest on each of November 1, 2007 and November 1, 2008, and (ii) an executive continuity award of 40,000 shares and 12,056 reinvested dividendsof restricted stock awarded for retention purposes that vest as follows: 20,000 shares will vest on February 16, 2008; 4,000 shares will vest on February 16, 2010; and 16,000 shares will vest on February 16, 2013, based on attaining the age and service requirements.requirements, and 13,547 reinvested dividends on those shares. The executive continuity award program provides for a tandem grant of stock options and restricted stock in a 5:1 ratio (five options to one share). Upon vesting, the values of both the restricted shares and the stock options awarded under the executive continuity award program are calculated and Mr. Faraci is then entitled to receive either the shares or the options.
The amount shown also includes (i) 364,898434,563 shares of restricted stock awarded under the PSP that have been “banked” for 2004, 2005, 2006 and 2006,2007, but remain unvestedunpaid until the end of the applicable, full three-year performance period, and (ii) 37,37526,430 shares acquired in respect of reinvested dividends.
(5) The amount shown includes the following shares of restricted stock that remain subject to open PSP performance periods: (i) 104,500 shares of restricted stock awarded under the 2005-20072006-2008 PSP and (ii) 156,750 shares awarded under the 2006-20082007-2009 PSP.
(6) Includes (i) 74,95395,213 shares of restricted stock awarded under the PSP that have been “banked” for 2004, 2005, 2006 and 2006,2007, but remain unvestedunpaid until the end of the applicable, full three-year performance period, and (ii) 7,6245,615 shares acquired in respect of reinvested dividends.
(7) The amount shown includes the following shares of restricted stock that remain subject to open PSP performance periods: (i) 22,84223,300 shares awarded under the 2005-20072006-2008 PSP and (ii) 34,950 shares awarded under the 2006-20082007-2009 PSP.
(8) Includes (i) 81,31229,646 shares of restricted stock awarded under the PSP that have been “banked” for 2004, 2005, 2006 and 2006,2007, but remain unvestedunpaid until the end of the applicable, full three-year performance period, and (ii) 8,3291,239 shares acquired in respect of reinvested dividends.
(9) The amount shown includes the following shares of restricted stock that remain subject to open PSP performance periods: (i) 23,300 shares awarded under the 2005-2007 PSP and (ii) 34,9504,900 shares awarded under the 2006-2008 PSP and (ii) 7,350 shares awarded under the 2007-2009 PSP.
(10) Includes (i) 81,58596,893 shares of restricted stock awarded under the PSP that have been “banked” for 2004, 2005, 2006 and 2006,2007, but remain unvestedunpaid until the end of the applicable, full three-year performance period, and (ii) 6,0815,893 shares acquired in respect of reinvested dividends.
(11) Includes (i) 88,658 shares of restricted stock awarded under the PSP that have been “banked” for 2005, 2006 and 2007, but remain unpaid until the end of the applicable, full three-year performance period, and (ii) 4,299 shares acquired in respect of reinvested dividends.
(12) The amount shown includes the following shares of restricted stock that remain subject to open PSP performance periods: (i) 17,00014,167 shares awarded under the 2005-20072006-2008 PSP and (ii) 25,500 shares awarded under the 2006-20082007-2009 PSP.
(12) Includes (i) 74,195 shares of restricted stock awarded under the PSP that have been “banked” for 2004, 2005 and 2006, but remain unvested until the end of the applicable full three-year performance period and (ii) 7,509 shares acquired in respect of reinvested dividends.
(13) The amount shown includes the following shares of restricted stock that remain subject to open PSP performance periods: (i) 22,842 shares awarded under the 2005-2007 PSP and (ii) 34,950 shares awarded under the 2006-2008 PSP.
Stock Option Exercises and Stock Vested in 20062007
The following table shows the valueamounts received upon exercise of shares that vestedstock options and vesting in 2006 and that were2007 of shares previously awarded under the PSP or our other restricted stock programs as described in our Compensation Discussion and Analysis. No named executive officer exercised stock options in 2006.
STOCK VESTED IN 20062007 Stock Option Exercises and Stock Vested
Stock Awards | ||||||||||||||
Name | Option Awards | Stock Awards | ||||||||||||
Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | Number of (#) | Value ($) | Number of (#)(1) | Value ($) | |||||||||
John V. Faraci | 59,978 | $ | 1,966,225 | — | — | 225,212 | 8,173,806 | |||||||
Marianne M. Parrs | 64,972 | $ | 2,268,209 | — | — | 42,792 | 1,534,093 | |||||||
Newland A. Lesko (3) | 16,461 | $ | 538,291 | |||||||||||
Paul Herbert (4) | 12,727 | $ | 416,162 | |||||||||||
Maura A. Smith (5) | 19,474 | $ | 647,284 | |||||||||||
Tim S. Nicholls | 14,050 | 54,357 | 15,273 | 547,537 | ||||||||||
Maura A. Smith | — | — | 41,931 | 1,503,226 | ||||||||||
Newland A. Lesko | — | — | 48,425 | 1,736,036 | ||||||||||
H. Wayne Brafford | — | — | 48,581 | 1,741,629 |
(1) Includes (i) 52,389Amounts shown represent shares of restricted stock and shares acquired in respect of reinvested dividends awarded under the PSP that vested on February 13, 2006, and (ii) 7,58912, 2007.
(2) Mr. Faraci’s amount also includes 7,804 shares and shares acquired in respect of reinvested dividends under thea restricted stock award program that vested on November 1, 2006.2007.
(2) Includes (i) 14,927 shares and shares acquired in respect of reinvested dividends awarded under the PSP that vested on February 13, 2006, and (ii) 50,045 shares and shares acquired in respect of reinvested dividends awarded under the executive continuity award program that vested on March 17, 2006.
(3) Includes shares and shares acquired in respect of reinvested dividends awarded under the PSP that vested on February 13, 2006.
(4) Includes shares and shares acquired in respect of reinvested dividends awarded under the PSP that vested on February 13, 2006.
(5) Includes (i) 14,065 shares and shares acquired in respect of reinvested dividends awarded under the PSP that vested on February 13, 2006, and (ii) 5,409 shares and shares acquired in respect of reinvested dividends awarded under the Restricted Stock Award program that vested on March 31, 2006.
The following table shows the present value of benefits payable under our Retirement Plan, Pension Restoration Plan and, for three of our named executive officers, under the SERP at December 31, 20052006 and December 31, 2006.2007. The change in the present value of the accrued benefit is shown in the “Change in Pension Value and Non-Qualified Deferred Compensation Earnings”Value” column of the Summary Compensation Table on page 50 of this proxy statement.Table.
All of our named executive officers are eligible for a benefit calculated under either the Retirement Plan and Pension Restoration Plan, or the SERP Formula A.SERP. Long-service employees (in most cases, those with more than 30 years of service) will receive their benefits from the Retirement Plan and the Pension Restoration Plan, but not from the SERP.service, including Mr. Faraci, Ms. Parrs, Mr. Lesko, and Ms. Parrs, both of whomMr. Brafford) will have more than 30 years of service, will receive their entire pension benefitscalculated under the Retirement Plan and the Pension Restoration Plan, with no additional benefit amount fromrather than the SERP. Mr. Faraci will likely also receive his pension benefits from the Retirement Plan and the Pension Restoration Plan. Mr. Herbert and Ms. Smith, with fewer years of service, areis the typical beneficiariesbeneficiary of a SERP that is designed to provide benefits to senior executives who were hired mid-career by the Company. Mr. Nicholls, who became eligible for the SERP upon his election to senior vice president during 2007, is eligible for a pension benefit calculated under the SERP Formula B, applicable to participants in the SERP who were employed by the Company but became eligible to participate after July 1, 2004, as described in detail following the table.
No named executive officer received payment of a retirement benefit in 2006.2007; however, Ms. Parrs will receive retirement benefits beginning in 2008.
PENSION BENEFITS IN 20062007 Pension Benefits
Name | Plan Name | Number of (#) | 12/31/2005 Value of ($) (1) | 12/31/06 Value of ($) (2) | |||||||||
John V. Faraci | Retirement Plan | 32.33 | $ | 901,116 | $ | 956,794 | |||||||
Pension Restoration Plan | 32.33 | $ | 8,867,589 | $ | 12,945,790 | ||||||||
Unfunded Supplemental Retirement Plan for Senior Managers | 32.33 | $ | 4,279,902 | $ | 866,621 | ||||||||
Total | $ | 14,048,607 | $ | 14,769,205 | |||||||||
Marianne M. Parrs | Retirement Plan | 32.25 | $ | 1,197,084 | $ | 1,204,123 | |||||||
Pension Restoration Plan | 32.25 | $ | 5,306,785 | $ | 6,045,950 | ||||||||
Unfunded Supplemental Retirement Plan for Senior Managers | 32.25 | $ | 696,472 | $ | - | ||||||||
Total | $ | 7,200,341 | $ | 7,250,073 | |||||||||
Newland A. Lesko | Retirement Plan | 39.50 | $ | 1,436,019 | $ | 1,462,834 | |||||||
Pension Restoration Plan | 39.50 | $ | 6,588,787 | $ | 8,121,165 | ||||||||
Unfunded Supplemental Retirement Plan for Senior Managers | 39.50 | $ | - | $ | - | ||||||||
Total | $ | 8,024,806 | $ | 9,583,999 | |||||||||
Paul Herbert | Retirement Plan | 14.42 | $ | 356,693 | $ | 398,134 | |||||||
Pension Restoration Plan | 14.42 | $ | 1,168,900 | $ | 1,577,509 | ||||||||
Unfunded Supplemental Retirement Plan for Senior Managers | 14.42 | $ | 2,196,689 | $ | 2,370,877 | ||||||||
Total | $ | 3,722,282 | $ | 4,346,520 | |||||||||
Maura A. Smith | Retirement Plan | 3.83 | $ | 57,543 | $ | 79,570 | |||||||
Pension Restoration Plan | 3.83 | $ | 275,089 | $ | 417,601 | ||||||||
Unfunded Supplemental Retirement Plan for Senior Managers | 3.83 | $ | 1,634,273 | $ | 1,551,331 | ||||||||
Total | $ | 1,966,905 | $ | 2,048,502 |
Number of (#) 12/31/2006 ($)(1) 12/31/2007 Present Value ($)(2)Name Plan Name
Years Credited
Service
Present Value
of Accumulated
Benefit
of Accumulated
Benefit John V. Faraci Retirement Plan 33.33 956,794 1,013,573 Pension Restoration Plan 33.33 12,945,790 16,016,168 SERP 33.33 866,621 — Total 14,769,205 17,029,741 Marianne M.
Parrs Retirement Plan 33.25 1,204,123 1,194,993 Pension Restoration Plan 33.25 6,045,950 6,013,975 SERP 33.25 — — Total 7,250,073 7,208,968 Tim S. Nicholls Retirement Plan 16.25 236,175 246,196 Pension Restoration Plan 16.25 255,336 258,855 SERP 16.25 — 101,105 Total 491,511 606,156 Maura A. Smith Retirement Plan 4.83 79,570 99,119 Pension Restoration Plan 4.83 417,601 521,643 SERP 4.83 1,551,331 1,424,767 Total 2,048,502 2,045,529 Newland A. Lesko Retirement Plan 40.50 1,462,834 1,443,838 Pension Restoration Plan 40.50 8,121,165 8,121,015 SERP 40.50 — — Total 9,583,999 9,564,853 H. Wayne Brafford Retirement Plan 32.50 854,361 899,725 Pension Restoration Plan 32.50 3,112,578 3,662,938 SERP 32.50 316,092 — Total 4,283,031 4,562,663
(1) The calculation of the present value of accumulated benefits as of December 31, 2005,2006, assumes a discount rate of 5.5%5.75 percent for annuity payments and 3.0%3.25 percent for lump sum payments. BenefitThe calculation further assumes benefit commencement at the earliest age at which the named executive officer would be entitled to an unreduced benefit (the earlier of age 61 and completion of 20 years of service or age 62 and completion of 10 years of service). For individuals who haveare already attained age 61 and completed 20 years of service,eligible for an unreduced benefit, we use their age as of the end of the fiscal year.
(2) The calculation of the present value of accumulated benefits as of December 31, 2006,2007, assumes a discount rate of 5.75%6.20 percent for annuity payments and 3.25%3.70 percent for lump sum payments. The assumptions regarding the benefit commencement date are the same as described in footnote (1).
Narrative to Pension Benefits Table
TheRetirement Plan of International Paper Company Retirement Plan. Our Retirement Plan is a funded, qualifiedtax-qualified plan that covers all salaried employees hired prior to July 1, 2004. Employees hiredonhired on or after July 1, 2004, are eligible for a Company-paid retirement savings account in our401(k)our 401(k) plan and our non-qualified deferred compensation plan in lieu of participation in theRetirementthe Retirement Plan. All of our named executive officers were hired prior to July 1, 2004, and are eligible to participate in the Retirement Plan.
We calculate the benefit under the Retirement Plan at the rate of 1.67%1.67 percent of the participant’s average pensionable earnings received over the highest five consecutive calendar years of the last 10 calendar years, multiplied by his or her years of service, then reduced by a portion of Social Security benefits. We include as pensionable earnings the participant’s base salary plus MIP awards that were not deferred, up to the maximum limit set by the IRS.
The International Paper Company Pension Restoration Plan for Salaried Employees. Our supplemental retirement plan for our salaried employees is an unfunded, non-qualified plan that covers all salaried employees hired prior to July 1, 2004. This plan augments our Retirement Plan by providing retirement benefits based on compensation that is greater than the limits set by the IRS. We include as eligible compensation under this plan the participant’s base salary plus MIP awards, including amounts deferred. All of our named executive officers were hired prior to July 1, 2004, and are eligible to participate in the Pension Restoration Plan.
We calculate the benefit under the Pension Restoration Plan atin the same ratemanner as the Retirement Plan, then reduce the benefit by the amount payable under the Retirement Plan.
The International Paper Company Unfunded Supplemental Retirement Plan for Senior Managers. Our SERP is an alternative retirement plan available to thosecertain senior vice presidents and above who have been designated by the chief executive officer as participants in the plan.executives.
We calculate benefits under the SERP under one of three formulas based on the participant’s date of hire and date of eligibility for SERP participation.
Participants eligible to participate prior to July 1, 2004 (Formula A). We calculate benefits under this formula as the |
In calculating benefits under (ii) and (iii) above, we include as compensation the sum of (a) the participant’s highest annual base salary during any of the three calendar years prior to retirement and (b) the participant’s target MIP for the year of retirement. This benefit vests once the participant reaches age 62 and has completed five years of service with us or once the participant reaches age 61 and has completed 20 years of service. The Committee has discretion to vest a participant in the SERP portion of his or her benefit if the participant has reached age 55 and has completed five years of service, however the participant may not receive payment prior to his or her retirement date.
Participants hired prior to July 1, 2004, and first eligible to participate on or after July 1, 2004 (Formula B): We calculate benefits under this formula at the same rate as our Retirement Plan and Pension Restoration Plan. |
Participants hired and eligible to participate on or after July 1, 2004 (Formula C): We calculate benefits under this formula at the same rate as our Retirement Plan and Pension Restoration Plan, as though the participant is eligible to participate in those plans, offset by the participant’s Company-provided retirement savings account balance in the 401(k) plan and |
five years of service with us. The |
Impact |
Eligibility for Early Retirement Benefits
With regard to our Retirement Plan and Pension Restoration Plan, participantsThe named executive officers are eligible for early retirement under the Retirement Plan and the Pension Restoration Plan once they reach age 55 and have completed 10 years of service with us. The accrued benefit is reduced by 4%4 percent for each year that the participant retires before reaching age 62. Participants are eligible for an unreduced benefit once they reach age 61 and have completed at least 20 years of service with us.
With regard to our SERP, participantsMr. Faraci and Mr. Brafford are eligible for early retirement once they reach age 62 and have completed five years of service with us, or once they reach age 61 and have
completed 20 years of service. If the Committee approves early retirement after the participant reaches age 55 but before the participant meets these age and service requirements for early retirement, the participant’s benefit is reduced in the same manner as described above.
Mr. Faraci and Mr. Herbert are eligible for early retirement under our Retirement Plan and Pension Restoration Plan;retirement; however, they would receive a reduced benefit from these plans. They are not currently vested in the SERP benefit. In order to obtain a benefit under the SERP, Mr. Faraci would require Board approval, and Mr. Herbert would require Management Development and Compensation Committee approval.
Ms. Parrs and Mr. Lesko areis currently eligible for an unreduced early retirement benefit under the Retirement Plan and Pension Restoration Plan, or the SERP. No Board or Management Development and Compensation Committee approvals are required for them to receive benefits under the SERP.benefit.
Ms. Parrs retired on December 31, 2007.
Ms. Smith will not be vested in the retirement plans until 2008.March 2008, and will not be eligible for early retirement until 2013.
Mr. Nicholls is currently vested in the retirement plans, but he will not be eligible for early retirement until 2016.
The following table presents the potential payments to our named executive officers, assuming that they retired at the end of 2006.2007.
POTENTIAL PAYMENTS UPON RETIREMENT AS OF DECEMBER 31, 2006(1)2007 Potential Post-Employment Compensation: Payments Upon Retirement
Name | Retirement Plan ($) | Pension Restoration Plan ($) | TOTAL Annuity ($) | Pension Restoration Plan Lump ($) | SERP ($) | TOTAL Lump Sum ($) | Retirement Annuity ($) | Pension Annuity ($) | TOTAL ($) | Lump Payment ($)(1) | ||||||||||||||||||||
John V. Faraci | $ | 81,008 | $ | 831,150 | $ | 912,158 | $ | – | $ | – | $ | – | 89,801 | 1,086,036 | 1,175,837 | — | ||||||||||||||
Marianne M. Parrs | $ | 100,548 | $ | – | $ | 100,548 | $ | 5,997,030 | $ | – | $ | 5,997,030 | 105,858 | — | 105,858 | 6,013,975 | ||||||||||||||
Tim S. Nicholls | 20,807 | 28,233 | 49,040 | — | ||||||||||||||||||||||||||
Maura A. Smith | — | — | — | — | ||||||||||||||||||||||||||
Newland A. Lesko | $ | 125,665 | $ | – | $ | 125,665 | $ | 7,721,056 | $ | – | $ | 7,721,056 | 131,643 | — | 131,643 | 8,088,941 | ||||||||||||||
Paul Herbert | $ | 36,254 | $ | 109,649 | $ | 145,903 | $ | – | $ | – | $ | – | ||||||||||||||||||
Maura A. Smith | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | ||||||||||||||||||
H. Wayne Brafford | 81,016 | 251,752 | 332,768 | — |
(1) Lump sum payment calculations are based on a 3.83%3.90 percent estimated lump sum discount rate as of December 29, 2006,31, 2007, or the lock-in rate elected by the named executive officer if eligible to make this election under the SERP. Additional information regarding the calculation of benefits may be found following the Pension Benefit Table.
Policies with Regard to Granting Additional Years of Service
Other than the provision in our change in control agreements described in our Compensation Discussion and Analysis that adds three years of age and service to the calculation of retirement benefits in the event of termination of employment following a change in control, we have no other provision for granting additional years of service under our retirement plans.
Non-Qualified Deferred Compensation in 20062007
The following table shows contributions in 20062007 by us and each of our named executive officers to the Deferred Compensation Savings Plan (“DCSP”),DCSP, which is our non-qualified deferred compensation plan, and each named executive officer’s DCSP account balance as of December 31, 2006.2007. The account balance includes amounts deferred by the named executive officer in December 2006,2007, which were actually credited to his or her account in January 2007.
NON-QUALIFIED DEFERRED COMPENSATION IN 20062007 Non-Qualified Deferred Compensation
Name | Executive ($)
(1) | Registrant ($) | Aggregate ($ ) | Aggregate Distributions in 2006 ($) | Aggregate at | Executive Contributions in Last FY ($)(1) | Registrant Contributions in Last FY ($) | Aggregate Earnings in Last FY ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last ($)(2) | ||||||||||||||||||||||||
John V. Faraci | $ | 165,556 | $ | 99,334 | $ | 66,549 | $ | – | $ | 1,392,774 | 261,484 | 156,890 | 121,537 | — | 1,932,686 | |||||||||||||||||||
Marianne M. Parrs | $ | 59,456 | $ | 35,674 | $ | 242,926 | $ | – | $ | 1,767,629 | 78,836 | 47,302 | 42,564 | — | 1,936,331 | |||||||||||||||||||
Tim S. Nicholls | — | — | (2,757 | ) | — | 103,715 | ||||||||||||||||||||||||||||
Newland A. Lesko | $ | 162,303 | $ | 43,281 | $ | 208,897 | $ | – | $ | 2,049,186 | 209,065 | 55,751 | 95,688 | — | 2,409,690 | |||||||||||||||||||
Paul Herbert | $ | 71,631 | $ | 28,652 | $ | 31,718 | $ | – | $ | 834,617 | ||||||||||||||||||||||||
Maura A. Smith | $ | – | $ | – | $ | – | $ | – | $ | – | — | — | — | — | — | |||||||||||||||||||
H. Wayne Brafford | 105,178 | 42,071 | 27,894 | (15,000 | ) | 1,144,658 |
(1) These amounts are included in the “Salary” column of the Summary Compensation Table for 20062007 for each of the named executive officers.
(2) Of the amounts shown in this column, the following amounts were included in the “Salary” column of the Summary Compensation Table for prior years as follows: Mr. Faraci: $668,535 was included for the period 2001-2006; Ms. Parrs: $163,402 was included for the period 2004-2006 and $291,477 was included for the years 1999 and 2000; and Mr. Lesko: $460,626 was included for the period 2004-2006.
Narrative to Non-Qualified Deferred Compensation Table
Our DCSP allows participants to save for retirement by deferring up to 85%85 percent of eligible cash compensation, which includes base salary and MIP awards. Participants may contribute to the DCSP after deferring either the maximum pre-tax amount, or total pre-tax and after-tax amount to the 401(k) plan. The Company credits matching contributions equal to 70%70 percent of the participant’s contributions up to 4%4 percent of compensation, plus 50%50 percent of contributions up to an additional 4%4 percent of compensation. Mr. Faraci and Ms. Parrs contribute 8%contributed 8 percent of compensation, Mr. Lesko contributed 18 percent, and Messrs. Lesko and Herbert contribute more than 8%.Mr. Brafford contributed 12 percent. As a result, the actual amounts deferred and the Company’s resulting matching contribution will vary. Ms. Smith and Mr. Nicholls did not contribute to the DCSP in 2007.
Participant contributions are credited with earnings based on the participant’s choice of investment fund equivalents. Fifty percent of our matching contributions are credited with earnings based on an equivalent to the Company Stock Fund in the 401(k) plan, and the balance may be invested by the participant in any of the investment fund equivalents. Investment elections may be changed daily. Investment fund equivalents match the investment returns of the funds available in the 401(k) plan. Differences in earnings reported above are based on the individual participant’s investment elections. The earnings on the funds available under the DCSP are shown below.
2007 DCSP Fund Return
Available Fund | 2007 Fund Return | ||
Conservative Fund | 4.2 | % | |
Moderate Fund | 6.0 | % | |
Aggressive Fund | 7.3 | % | |
Stable Value Fund | 5.1 | % | |
U.S. Bond Fund | 5.3 | % | |
High Yield Bond Fund | 3.7 | % | |
Emerging Market Bond Fund | 5.7 | % | |
Large Cap Stock Fund | 4.6 | % | |
Mid Cap Stock Fund | 4.8 | % | |
Small Cap Stock Fund | 3.9 | % | |
International Stock Fund | 3.3 | % | |
Emerging Market Stock Fund | 36.9 | % | |
Company Stock Fund | -2.6 | % |
Participants are fully vested in their contributions at all times. Amounts contributed by the Company become vested upon completing three years of service, reaching age 65, death, disability, or termination of employment as a result of the permanent closing of the participant’s facility.
Participant accounts are divided into post-2004 contribution accounts for amounts deferred prior to January 1, 2005, and pre-2005 contribution accounts.accounts for amounts deferred after January 1, 2005. Distributions of amounts contributed on or after December 31, 2004,January 1, 2005, may only be made in the event of termination of employment, death or disability. Participants must elect their distribution form of payment in an initial deferral election, which may not be changed. In the event no election has been made, the participant will receive a lump sum form of payment. In-service withdrawals are limited to unforeseeable emergencies.
Security Ownership of Certain Beneficial Owners
The following table shows,sets forth information concerning beneficial ownership of our common stock by persons known to us to own more than 5 percent of our common stock outstanding as of March 16, 2007,14, 2008.
Beneficial Ownership (>5 percent)
Name and Address of Beneficial Owner | Shares of Stock Beneficially Owned | % of Common Stock Outstanding | ||||
Morgan Stanley/Van Kampen Asset Management (1) | 39,889,642 | 9.3 | % | |||
Capital World Investors (a division of Capital Research and Management Company) (2) | 36,657,820 | 7.9 | % | |||
T. Rowe Price Associates, Inc. (3) | 32,830,688 | 7.6 | % | |||
State Street Bank and Trust Company (4) | 26,078,577 | 6.0 | % |
(1) The address of Morgan Stanley is 1585 Broadway, New York, NY 10036. The address of Van Kampen Asset Management is 522 Fifth Avenue, New York, NY 10036. We have relied on information supplied jointly by Morgan Stanley and Van Kampen Asset Management in a Schedule 13G furnished to us reporting information as of December 31, 2007. According to the Schedule 13G, Morgan Stanley had sole voting power over 38,649,818 shares and shared voting power over 22,123 shares, and sole dispositive power over 39,889,642 shares. Van Kampen Asset Management had sole voting and sole dispositive power over 27,480,875 shares. The securities being reported upon by Morgan Stanley as a parent holding company are owned, or may be deemed to be beneficially owned, by Van Kampen Asset Management, an investment adviser. Van Kampen Asset Management is a wholly owned subsidiary of Morgan Stanley.
(2) The address of Capital World Investors is 333 South Hope Street, Los Angeles, CA 90071. We have relied upon information supplied by Capital World Investors in a Schedule 13G furnished to us reporting information as of December 31, 2007. According to the Schedule 13G, Capital World Investors had sole voting power over 2,817,000 shares and sole dispositive power over 33,840,820 shares. Capital World Investors serves as the investment adviser to various investment companies registered under Section 8 of the Investment Company Act of 1940.
(3) The address of T. Rowe Price Associates, Inc. (“Price Associates”) is 100 E. Pratt Street, Baltimore, MD 21202. We have relied upon information supplied by Price Associates in a Schedule 13G furnished to us reporting information as of December 31, 2007. According to the Schedule 13G, Price Associates had sole voting power over 6,853,420 shares and sole dispositive power over 32,830,688 shares. The securities are owned by various individual and institutional investors, which Price Associates serves as investment adviser with power to direct investments and/or sole power to vote the securities. For purposes of the reporting requirements of the Securities Exchange Act of 1934, Price Associates is deemed to be a beneficial owner of such securities; however, Price Associates expressly disclaims that it is, in fact, the beneficial owner of such securities.
(4) The address of State Street Bank and Trust Company is State Street Financial Center, One Lincoln Street, Boston, MA 02111. We have relied upon information supplied by State Street Bank and Trust in a Schedule 13G furnished to us reporting information as of December 31, 2007. According to the Schedule 13G, State Street had sole voting power over 13,174,983 shares and shared voting power over 12,903,594 shares, and shared dispositive power over 26,078,577 shares. State Street held shares of common stock of the Company as independent trustee in trust funds for employee savings, thrift and similar employee benefit plans of the Company and its subsidiaries (“Company Trust Funds”). In addition, State Street is trustee for various third party trusts and employee benefit plans. The common stock held by the Company Trust Funds is allocated to participants’ accounts and such stock or the cash equivalent will be distributed to participants upon termination of employment or pursuant to withdrawal rights.
Security Ownership of Management
The following table sets forth the number of shares of Companyour common stock beneficially owned as of March 14, 2008, the record date for our 2008 Annual Meeting of Shareowners, by each director, eachof our directors and executive officers named executive officer included in the Summary Compensation Table beginning on page 49 of this proxy statement, and by all of our directors and executive officers of the Company as a group. To
Security Ownership of Management
Amount and Nature of Beneficial Ownership | |||||||||
Name of Beneficial Owner | Shares of Common Stock Held (#)(2) | Stock Units Owned (#)(3) | Percent of Class | ||||||
Non-Employee Directors | |||||||||
David. J. Bronczek | 9,144 | — | * | ||||||
Martha F. Brooks | — | 22,839 | * | ||||||
Lynn Laverty Elsenhans | 504 | 7,298 | * | ||||||
Samir G. Gibara | 5,316 | 15,559 | * | ||||||
Donald F. McHenry | 11,361 | 36,507 | * | ||||||
John L. Townsend, III | 6,911 | — | * | ||||||
John F. Turner | 8,761 | — | * | ||||||
William G. Walter | — | 19,109 | * | ||||||
Alberto Weisser | — | 13,233 | * | ||||||
J. Steven Whisler | 1,000 | 2,630 | * | ||||||
Named Executive Officers | * | ||||||||
H. Wayne Brafford | 282,173 | 8,186 | * | ||||||
John V. Faraci | 1,372,650 | 2,057 | * | ||||||
Newland A. Lesko | 427,551 | 8,157 | * | ||||||
Tim S. Nicholls | 128,237 | 3,222 | * | ||||||
Marianne M. Parrs (1) | 445,374 | 8,923 | * | ||||||
Maura A. Smith | 262,364 | — | * | ||||||
All directors and executive officers as a group (27 persons) | 4,653,117 | — | 1.1 | % |
* Indicates less than 1 percent.
(1) Represents ownership of Ms. Parrs at December 31, 2007, upon her retirement from the best of our knowledge,Company. We have not included Ms. Parrs in the aggregate numbers, which are shown as of December 29, 2006, no person or group beneficially owned more than 5% of our common stock except as set forth in the table below.
Name of Beneficial Owner | Shares of Common Stock (1) | Stock Units (2) | Percent | ||||
David J. Bronczek | 2,913 | — | * | ||||
Martha F. Brooks | — | 16,315 | * | ||||
Lynn Laverty Elsenhans | 504 | 840 | * | ||||
John V. Faraci | 1,241,233 | 13,405 | * | ||||
Samir G. Gibara | 5,316 | 11,710 | * | ||||
Paul Herbert | 259,930 | 24,952 | * | ||||
Newland A. Lesko | 417,392 | 7,628 | * | ||||
Donald F. McHenry | 11,361 | 32,212 | * | ||||
Marianne M. Parrs | 472,302 | 8,459 | * | ||||
Maura A. Smith | 247,881 | — | * | ||||
John L. Townsend, III | 3,392 | — | * | ||||
John F. Turner | 5,058 | — | * | ||||
William G. Walter | — | 12,005 | * | ||||
Alberto Weisser | — | 6,649 | * | ||||
All directors and executive officers as a group (26 persons) | 4,913,331 | 1.1 | % | ||||
Owners of More than 5% | |||||||
Capital Research and Management Company(3) | 49,657,560 | N/A | 10.9% | ||||
T. Rowe Price Associates, Inc.(4) | 32,820,155 | N/A | 7.2% | ||||
State Street Bank and Trust Company(5) | 28,504,264 | N/A | 6.3% | ||||
Morgan Stanley/Van Kampen Asset Management(6) | 33,586,243 | N/A | 7.4% |
*No named executive officer or director individually beneficially owns more than 1% of our outstanding common stock.March 14, 2008.
(1)(2) Includes securities over which the individual has, or, with another shares, directly or indirectly, voting or investment power, including ownership by certain relatives and ownership by trusts for the benefit of such relatives. Includes shares that may be acquired by exercise of stock options, regardless of whether the exercise
price of such options exceed the current market price, as follows: 285,000109,763 shares for Mr. Brafford; 282,307 shares for Mr. Faraci; 105,000213,139 shares for Mr. Herbert; 213,500Lesko; 22,765 shares for Mr. Lesko;Nicholls; 226,000 shares for Ms. Parrs; 65,000 shares for Ms. Smith; and 1,848,8821,460,601 for all directors and executive officers as a group.
(2)(3) Includes stock equivalent units owned by our named executive officers under the International Paper Company Deferred Compensation Savings Plan or by our directors under the Restricted Stock and Deferred Compensation Plan for Non-Employee Directors. These units will be paid out in cash and are not convertible into shares of common stock. Accordingly, these units are not included as shares of common stock beneficially owned.
(3) The address of Capital Research and Management Company is 333 South Hope Street, Los Angeles, CA 90071. According to its Schedule 13G filed on February 12, 2007, for the period ending December 31, 2006, Capital Research and Management Company is the record holder of 49,657,560 shares of common stock of the Company as a result of acting as investment adviser to various investment companies registered under Section 8 of the Investment Company Act of 1940. Capital Research and Management Company had sole voting power over 12,920,500 shares
(4) The address of T. Rowe Price Associates, Inc. is 100 East Pratt Street, Baltimore, MD 21202. According to its Schedule 13G filed on February 14, 2007, for the period ending December 31, 2006, T. Rowe Price is an investment adviser registered under the Investment Advisers Act of 1940, which is the record holder of 32,820,155 shares of common stock of the Company. T. Rowe Price had sole voting power over 6,546,053 shares and sole dispositive power over 32,820,155 shares of common stock of the Company. These securities are owned by various individual and institutional investors, which T. Rowe Price Associates, Inc. serves as investment adviser with power to direct investments and/or sole power to vote the securities. For purposes of the reporting requirements of the Exchange Act, T. Rowe Price Associates, Inc. is deemed to be a beneficial owner of such securities; however, T. Rowe Price Associates, Inc. expressly disclaims that it is, in fact, the beneficial owner of such securities.
(5) The address of State Street Bank and Trust Company is 225 Franklin Street, Boston, MA 02111. According to its Schedule 13G filed on February 12, 2007, for the period ending December 31, 2006, State Street held shares of common stock of the Company as independent trustee in trust funds for employee savings, thrift, and similar employee benefit plans of the Company and its subsidiaries (“Company Trust Funds”). In addition, State Street Bank and Trust Company is trustee for various third party trusts and employee benefit plans and is a registered investment adviser. As a result of its holdings, in all capacities, State Street is the record holder of 28,504,264 shares of common stock of the Company. State Street Bank and Trust had sole voting power over 12,424,227 shares, shared voting power over 16,080,037 shares and shared dispositive power over 28,504,264 shares. The common stock held by the Company Trust Funds is allocated to participants’ accounts and such stock or the cash equivalent will be distributed to participants upon termination of employment or pursuant to withdrawal rights. The trustee votes the shares of common stock held in the Company Trust Funds in accordance with the instructions of the participants; shares for which no instructions are received are voted in the trustee’s discretion.Equity Compensation Plan Information
(6) The address of Morgan Stanley is 1585 Broadway, New York, NY 10036. The address of Van Kampen Asset Management is 1221 Avenue of the Americas, New York, NY 10020. According to its Schedule 13G filed on February 14, 2007, for the period ending December 31, 2006, Morgan Stanley is the record holder of 33,586,243 shares of common stock of the Company. Morgan Stanley had sole voting power over 33,586,243 shares and sole dispositive power over 32,540,774 shares of common stock of the Company. The securities being reported upon by Morgan Stanley as a parent holding company are owned, or may be deemed to be beneficially owned, by Van Kampen Asset Management, an investment adviser in accordance with Rule 13d-1(b)(1)(ii)(E) as amended. Van Kampen Asset Management is a wholly-owned subsidiary of Morgan Stanley.
The following table gives information about outstanding equity awards and the number of securities available for future issuance under our Long-Term Incentive Compensation Plan and our Restricted Stock and Deferred Compensation Plan for Non-Employee Directors.
Equity Compensation Plan Information
(a) | (b) | (c) | ||||||
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||||
Equity compensation plans approved by security holders | 35,982,698 | (1) | $ | 39.52 | 24,567,182 |
(a) | (b) | (c) | ||||||||
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||||||
Equity compensation plans approved by security holders | 28,013,735 | (1) | $ | 39.81 | 27,358,185 |
(1) Amount does not include 52,14235,955 shares to be issued under the plan of an acquired company. No additional shares may be granted under this plan.
ITEM 1 —ELECTIONOF DIRECTORSAppendices
Four of our 10 directors have been nominated by the Board for election by our shareholders at the 2007 annual meeting. Each director who is elected by our shareholders at the 2007 annual meeting will hold office until 2010, or until his or her successor has been elected and has qualified or until his or her earlier death, resignation or retirement.
New directors elected by the Board serve until the first annual meeting following their election and are then assigned to a class for election by shareholders. Two of the four directors who have been nominated for election at the 2007 annual meeting, Mr. Bronczek and Ms. Elsenhans, are new directors.
In 2006, we adopted majority voting pursuant to a By-law amendment. If a director receives more “withheld” votes than “for” votes, he or she must submit his or her resignation for consideration by our Board, and the Board, working through the Governance Committee, will determine whether or not to accept the resignation.
We do not know of any reason why any nominee would be unable to serve as a director if elected. If, prior to the election, a nominee is unable to serve, the shares represented by all valid proxies will be voted for the election of such other person as the Board may nominate.
The Board recommends that you voteFOR each of the following nominees:Appendix 1
David J. Bronczek - Class I
Martha F. Brooks - Class I
Lynn Laverty Elsenhans - Class I
John L. Townsend, III - Class I
Biographical information about these nominees may be found on page 8Related to “Item 3 — Company Proposal to Amend Article VII of this proxy statement.
THE PARAGRAPH BELOW THAT IS UNDERLINED AND IN BRACKETS WOULD BE ADDED TO THE END OF ARTICLE VII OF OUR CERTIFICATE OF INCORPORATION.
ITEM 2 — RATIFICATIONOF DELOITTE & TOUCHE LLPAS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2007ARTICLE VII.
Our The number of Directors of the Corporation constituting the entire Board of Directors upon the recommendation of the Audit and Finance Committee, has approved the selection of Deloitte & Touche LLP (“Deloitte & Touche”) to serve as our independent registered public accounting firm for 2007, subject to ratification by our shareholders.
Our By-laws doshall not require that our shareholders ratify the selection of Deloitte & Touche as the independent registered public accounting firm. Our Board will consider the outcome of this vote in its decision to appoint an independent registered public accounting firm next year but is not bound by the shareholders’ vote. Even if the selection of Deloitte & Touche is ratified, the Board may change the appointment at any time during the year if it determines that a change would be in the best interest of the Company and our shareholders.
For information concerning the selection of Deloitte & Touche, please refer to the “Audit and Finance Committee Report” on page 23 of this proxy statement. For information concerning fees paid to Deloitte & Touche, please refer to “Independent Auditor Fees” on page 25 of this proxy statement.
Ourless than nine or more than eighteen. The Board of Directors unanimously recommends that you vote FORshall determine from time to time the ratificationnumber of Deloitte & Touche as our independent registered public accounting firm for 2007.
ITEM 3 — SHAREHOLDER PROPOSAL CONCERNING MAJORITY VOTING
We expectDirectors who shall constitute the following shareholder proposal to be presented at the annual meeting. The name, address and share holdingsentire Board of the proponent will be provided at no cost upon written request to Ms. Maura A. Smith, corporate secretary, International Paper, 6400 Poplar Avenue, Memphis, TN 38197.
“RESOLVED: The shareholders of International Paper Company (“Company”) hereby request thatDirectors. Any such determination made by the Board of Directors initiate the appropriate process to amend the Company’s governance documents (certificate of incorporation or bylaws) to provide that director nominees shall be electedcontinue in effect unless and until changed by the affirmative vote of the majority of votes cast at an annual meeting of shareholders, with a plurality vote standard retained for contested director elections, that is, when the number of director nominees exceeds the number of Board seats.”
[End of Shareholder Proposal]
Positionof Your Company’s Board of Directors
Our Board of Directors endorses this proposal. Our Board amended our By-laws in October 2006 to implement majority voting and plans to propose an amendment to our certificate of incorporation to be submitted to our shareholders for a vote at the 2008 annual meeting. Until such time as an amendment to our certificate of incorporation is approved by shareholders and is effective, our By-law amendment, which includes a post-election director resignation provision, will continue to be effective. The full text of our By-law amendment is as follows:
“In any non-contested election of directors, any director nominee who receives a greater number of votes ‘withheld’ from his or her election than votes ‘for’ such election, of the votes cast by ballot or by proxy by the holders of the Common Stock
at such election, shall immediately tender his or her resignation, and the Board of Directors, will decide, through a process managed bybut no such changes shall affect the Governance Committee and excludingterm of any Director then in office. Directors need not be stockholders.
Commencing at the nomineeAnnual Meeting of stockholders held in question, whether to accept1985, the resignation at its next regularly scheduled Board meeting. Unless the Board determines in its judgment that it is in the best intereststerms of the Company for the director to remain on the Board, the Board shall accept the resignation. The Board explanationoffice of its decision shall be disclosed on Form 8-K filed with the Securities and Exchange Commission.”
The voting standard, which we will incorporate into our certificate of incorporation, and the standard already adopted under our amended By-laws, will produce the same result.
Our Board of Directors unanimously recommends that you voteFOR this proposal.
DIRECTOR QUALIFICATION CRITERIA & INDEPENDENCE STANDARDS
I. DIRECTOR QUALIFICATION CRITERIA
The Company’s Certificate of Incorporation provides that the Board of Directors (the “Board”) of International Paper Company (“IP”) mustshall be composed of between ninedivided into three classes, Class I, Class II and 18 members. It also provides thatClass III, as shall be determined by the Board shall consist of three classes and that theDirectors. All classes shall be as nearly equal in number as possible. Within those parameters,possible, and no class shall include less than three nor more than six Directors. Any vacancy on the Board determinesof Directors that results from an increase in the sizenumber of Directors and compositionany other vacancy on the Board may be filled only by the Board, provided that a quorum is then in office and present, or only by a majority of the Board.Directors then in office, if less than a quorum is then in office, or by a sole remaining Director. Directors elected to fill a newly created directorship or other vacancies shall be classified and hold office as provided by statute.
The Governance Committee (the “Committee”) is responsible for evaluatingterms of office of the qualificationsDirectors initially classified shall be as follows:
(1) that of each director candidate andClass I shall expire at the Annual Meeting of those Board members who arestockholders to be nominated for election by shareholdersheld in 1986; (2) that of Class II shall expire at the next Annual Shareholders’ Meeting of stockholders to be held in 1987; and for recommending(3) that of Class III shall expire at the Annual Meeting of stockholders to be held in 1988. At each Annual Meeting of stockholders after the aforementioned initial classification, the successors to Directors whose terms shall then expire shall be elected to serve from the time of election and qualification until the third Annual Meeting following election and until a successor shall have been duly qualified nomineeselected and shall have qualified.
The Directors of any class of Directors of the Corporation may not he removed prior to the full Boardexpiration date of their terms of office, except for election. The qualification criteria set forth herein are designedcause and by an affirmative vote of the holders of at least eighty percent (80%) of the outstanding shares of all classes of capital stock of the Corporation entitled to describe the qualities and characteristics desiredvote for the Board as a whole andof Directors at the Annual Meeting of stockholders, or at any Special Meeting of stockholders called by the Board of Directors or by the Chairman of the Board or by the President for Board members individually.this purpose.
A determinationNotwithstanding any other provisions of each director’s qualificationsthis Certificate of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that a lesser percentage or separate class vote may he specified by law, this Certificate of Incorporation, the By-Laws of the Corporation or otherwise), any proposal to serveamend, alter, repeal or adopt any provisions inconsistent with this or the preceding paragraphs of this Article VII, shall require the affirmative vote of not less than eighty percent (80%) of the outstanding shares entitled to vote thereon.
Notwithstanding the foregoing, whenever the holders of any one or more classes or series of preferred stock issued by the Corporation shall have the right, voting separately by class or series, to elect Directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall he governed by the terms of this Certificate of Incorporation applicable thereto, and such Directors so elected shall not be divided into classes pursuant to this Article VII unless expressly provided by such terms.
No contract or other transaction entered into by the Corporation shall be affected by the fact that any Director of the Corporation is in any way interested in or connected with any party to such contract or transaction or himself is a party to such contract or transaction, provided that such contract or transaction shall be approved by a majority of the Directors present at the meeting authorizing or confirming such contract or transaction, which majority shall consist of Directors not so interested or connected.
Each Director of the Corporation shall be indemnified by the Corporation against expenses actually and necessarily incurred by him in connection with the defense of any action, suit or proceeding in which he is made a party by reason of his being or having been a Director of the Corporation, except in relation to matters as to which he shall be adjudged in such action, suit or proceeding to be liable for negligence or misconduct in the performance of his duties as such Director; provided that such right of indemnification shall not be deemed exclusive of any other rights to which a Director of the Corporation may be entitled, under any by-law, agreement, vote of stockholders or otherwise.
[The vote required for election of a director by the shareholders shall, except in a contested election, be the affirmative vote of a majority of the votes cast in favor of or against the election of a nominee at a meeting of shareholders. In a contested election, directors shall be elected by a plurality of the votes cast at a meeting of shareholders by the holders of shares entitled to vote in the election. An election shall be considered contested if, as of the record date, there are more nominees for election than positions on the board of directors to be filled by election at the meeting.]
Related to “Item 4 — Company Proposal to Amend Article VII of Our Restated Certificate of Incorporation to Elect Directors Annually”
WORDS THAT ARE UNDERLINED AND IN BRACKETS WILL BE ADDED AND WORDS THAT ARE CROSSED OUT WILL BE DELETED FROM OUR CERTIFICATE OF INCORPORATION.
ARTICLE VII. The number of Directors of the Corporation constituting the entire Board of Directors shall not be less than nine or more than eighteen. The Board of Directors shall determine from time to time the number of Directors who shall constitute the entire Board of Directors. Any such determination made by the Board upon the recommendation of the Committee, annually at the time the Board approves director nominees for election to be included in IP’s annual proxy statement. In addition, with respect to each director candidate considered for election to the Board between annual meetings, prior to such election, the Governance Committee shall evaluate each director candidate and recommend to the Board any duly qualified director candidates for election to the Board.
The Governance Committee shall evaluate each potential director candidate and each Director eligible for election by shareholders at the next annual meeting of shareholders pursuant to the Director Qualification Criteria set forth herein and will recommend those Directors and candidates to the Board for nomination for election that the Committee determines meet the qualification criteria.
The Board has not established specific minimum age, education, years of business experience or specific types of skills for Board members, but, in general, expects qualified directors to have ample experience and a proven record of professional success, leadership and the highest level of personal and professional ethics, integrity and values.
In its evaluation, the Committee shall consider the Board size and composition of the Board according to the following guidelines:
The Governance Committee (the “Committee”) shall also consider whether each director candidate and each Director possesses the following:
1 “Audit committee financial experts” must meet the following criteria:
- An understanding of GAAP, financial statements, internal controls and procedures, and audit committee responsibilities;
- An ability to assess general application of GAAP in accounting for estimates, accruals and reserves;
- Experience preparing, auditing, analyzing, or evaluating financial statements comparable in breadth & complexity to IP’s, or actively supervising persons who did;
- Principal financial or accounting officer, controller, public accountant, auditor, or similar position;
- Active supervision of financial officers, etc.;
- Oversight role for companies or accountants in preparing, auditing or evaluating financial statements;
- Other relevant experience—such as Chief Executive Officer or similar position.
The Committee shall also consider its policies with respect to mandatory retirement age, change in employment status, as well as all other relevant facts and circumstances in making its recommendations to the Board.
II. INDEPENDENCE STANDARDS
The Board has established the following independence review procedures and criteria to assist it and the Committee in evaluating the independence of Directors for nominationshall continue in effect unless and election at the next annual meeting and director candidates for nomination and election.2 A Director is independent if the Board affirmatively determines that the Director does not have a direct or indirect material relationship with IP, including its affiliates3 or any member of senior management of IP. These Standards, which conform to or are more exacting than the independence requirements in the NYSE Rules, shall be used in the determination of a Director’s independence. In addition to applying these guidelines, the Board will consider all relevant facts and circumstances in making its determination relative to a director’s independence.
Determinations of director independence will be madeuntil changed by the Board for each Director on an annual basis uponof Directors, but no such changes shall affect the recommendationterm of the Committee after the Committee’s review of each Director’s completed Director & Officer Questionnaire.
If a director nominee is considered for election to the Board between annual meetings, a determination of independence, upon the recommendation of the Committee, shall be made by the Board prior to such appointment.
All determinations of independence shall be made on a case-by-case basis for each director after consideration of all the relevant facts and circumstances and the standards set forth herein. The Board reserves the right to determine that any Director isthen in office. Directors need not independent even if satisfying the criteria set forth in Paragraphs 1 and 2 below.
A determination of whether a Director is independent shall be made only by those members of the Board who are themselves independent in accordance with Rule 303A.02 of the NYSE Rules.
2 As set forth in Paragraph I.B “General Director Qualification Criteria”, with respect to Board composition as whole, the Board will maintain a majority of directors who qualify as “independent” pursuant to applicable rules and these Independence Standards.stockholders.
3 “Affiliate” means any corporation or other entity that controls, is controlled by, or is under common control with IP, evidenced byCommencing at the power to elect a majorityAnnual Meeting of stockholders held in 1985, the terms of office of the Board of Directors or comparable governing body of such entity.
Each director has an affirmative obligation to notify the Governance Committee of any change in circumstances that may put his or her independence at issue. If so notified, the Committee shall reevaluate such director’s independence,be divided into three classes, Class I, Class II and Class III, as promptly as practicable, and make a recommendation to the Board with respect to the Director’s independence.
1. A Directorwillnotshall be independent if, during the 36 months preceding the determination:
2. The following relationshipsshallnotbe considered material relationships that impair a Director’s or director candidate’s independence, unless otherwise determined by the Governance CommitteeBoard of Directors. All classes shall be as nearly equal in number as possible, and no class shall include less than three nor more than six Directors. [Except as otherwise provided by law or the Certificate of Incorporation of the Corporation, Directors shall be elected at the annual meeting of stockholders to serve one-year terms and until their successors shall have been duly elected and shall have qualified; provided, however, that Directors serving on the date of the annual meeting of stockholders in 2008, including those elected at such meeting, shall continue to serve the remainder of their elected terms.] Any vacancy on the Board of Directors that results from an increase in the number of Directors and any other vacancy on the Board may be filled only by the Board, provided that a quorum is then in office and present, or only by a majority of the Directors then in office, if less than a quorum is then in office, or by a sole remaining Director. Directors elected to fill a newly created directorship or other vacancies shallbe classified and hold office as provided by statute.
The terms of office of the Directors initially classified shall be as follows:
(1) that of Class I shall expire at the Annual Meeting of stockholders to be held in 1986; (2) that of Class II shall expire at the Annual Meeting of stockholders to be held in 1987; and (3) that of Class III shall expire at the Annual Meeting of stockholders to be held in 1988. At each Annual Meeting of stockholders after consideringthe aforementioned initial classification, the successors to Directors whose terms shall then expire shall be elected to serve from the time of election and qualification until the third Annual Meeting following election and until a successor shall have been duly elected and shall have qualified.
The Directors ofany class of Directors of the Corporation may not be removed prior to the expiration date of their terms of office, except for cause and by an affirmative vote of the holders of at least eighty percent (80%) of the outstanding shares of all relevant facts and circumstances:classes of capital stock of the Corporation entitled to vote for the Board of Directors at the Annual Meeting of
4 For purposesstockholders, or at any Special Meeting of these standards, “immediate family member” means a person’s spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and sisters-in-law, and anyone else sharingstockholders called by the Director’s home (other than domestic employees); provided, that any such persons who no longer have any such relationship asBoard of Directors or by the Chairman of the relevant measurement date asBoard or by the President for this purpose.
Notwithstanding any other provisions of this Certificate of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that a resultlesser percentage or separate class vote may he specified by law, this Certificate of legal separation, divorce, deathIncorporation, the By-Laws of the Corporation or incapacitationotherwise), any proposal to amend, alter, repeal or adopt any provisions inconsistent with this or the preceding paragraphs of this Article VII, shall require the affirmative vote of not less than eighty percent (80%) of the outstanding shares entitled to vote thereon.
Notwithstanding the foregoing, whenever the holders of any one or more classes or series of preferred stock issued by the Corporation shall have the right, voting separately by class or series, to elect Directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall he governed by the terms of this Certificate of Incorporation applicable thereto, and such Directors so elected shall not be .considered immediate family members.divided into classes pursuant to this Article VII unless expressly provided by such terms
5 For purposes of calculating the amount of payments receivedNo contract or other transaction entered into by the Corporation shall be affected by the fact that any Director or his immediate family members,of the following items may be disregarded: (a) director and committee fees, (b) pension or other deferred compensation for prior service (provided that such compensation was not contingentCorporation is in any way on continued service) and (c) compensation receivedinterested in or connected with any party to such contract or transaction or himself is a party to such contract or transaction, provided that such contract or transaction shall be approved by an immediate family member for service as an employeea majority of IP (other than as an executive officer).
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Any relationship not described in Paragraph 2(a)-(f) above will be presumed immaterial to the Director’s independence unless: (i) the relationship was not entered into on terms substantially similar to those that would be offered to non-affiliated persons or entities in comparable circumstances; (ii) with respect to any extension of creditindemnified by the Corporation against expenses actually and necessarily incurred by him in connection with the defense of any action, suit or proceeding in which he is made a party by reason of his being or having been a Director of the Corporation, except in relation to matters as to which he shall be adjudged in such action, suit or proceeding to be liable for negligence or misconduct in the performance of his duties as such Director; provided that such right of indemnification shall not be deemed exclusive of any other rights to which a Director of the Corporation may be entitled, under any by-law, agreement, vote of stockholders or otherwise.
Related to “Item 5 — Company Proposal to Amend Article VII of Our Restated Certificate of Incorporation to Eliminate Supermajority Voting Provisions”
WORDS THAT ARE UNDERLINED AND IN BRACKETS WILL BE ADDED AND WORDS THAT ARE CROSSED OUT WILL BE DELETED FROM OUR CERTIFICATE OF INCORPORATION.
ARTICLE VII. The number of Directors of the Corporation constituting the entire Board of Directors shall not be less than nine or onemore than eighteen. The Board of its subsidiaries,Directors shall determine from time to time the number of Directors who shall constitute the entire Board of Directors. Any such extensiondetermination made by the Board of credit wasDirectors shall continue in effect unless and until changed by the Board of Directors, but no such changes shall affect the term of any Director then in office. Directors need not madebe stockholders.
Commencing at the Annual Meeting of stockholders held in compliance with applicable law, including Regulation O1985, the terms of office of the Board of GovernorsDirectors shall be divided into three classes, Class I, Class II and Class III, as shall be determined by the Board of Directors. All classes shall be as nearly equal in number as possible, and no class shall include less than three nor more than six Directors. Any vacancy on the Board of Directors that results from an increase in the number of Directors and any other vacancy on the Board may be filled only by the Board, provided that a quorum is then in office and present, or only by a majority of the Federal Reserve SystemDirectors then in office, if less than a quorum is then in office, or by a sole remaining Director. Directors elected to fill a newly created directorship or other vacancies shall be classified and Section 13(k)hold office as provided by statute.
The terms of office of the Securities Exchange ActDirectors initially classified shall be as follows:
(1) that of 1934;Class I shall expire at the Annual Meeting of stockholders to be held in 1986; (2) that of Class II shall expire at the Annual Meeting of stockholders to be held in 1987; and (3) that of Class III shall expire at the Annual Meeting of stockholders to be held in 1988. At each Annual Meeting of stockholders after the aforementioned initial classification, the successors to Directors whose terms shall then expire shall be elected to serve from the time of election and qualification until the third Annual Meeting following election and until a successor shall have been duly elected and shall have qualified.
The Directors of any class of Directors of the Corporation may not he removed prior to the expiration date of their terms of office, except for cause and by an affirmative vote of the holders of at least [a majority]eighty percent (80%) of the outstanding shares of all classes of capital stock of the Corporation entitled to vote for the Board of Directors at the Annual Meeting of stockholders, or (iii)at any Special Meeting of stockholders called by the Board of Directors or by the Chairman of the Board or by the President for this purpose.
Notwithstanding any other provisions of this Certificate of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that a lesser
percentage or separate class vote may he specified by law, this Certificate of Incorporation, the By-Laws of the Corporation or otherwise), any proposal to amend, alter, repeal or adopt any provisions inconsistent with this or the preceding paragraphs of this Article VII, shall require the affirmative vote of [a majority]not less than eighty percent (80%) of the outstanding shares entitled to vote thereon.
Notwithstanding the foregoing, whenever the holders of any one or more classes or series of preferred stock issued by the Corporation shall have the right, voting separately by class or series, to elect Directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall he governed by the terms of this Certificate of Incorporation applicable thereto, and such Directors so elected shall not be divided into classes pursuant to this Article VII unless expressly provided by such terms.
No contract or other transaction entered into by the Corporation shall be affected by the fact that any Director of the Corporation is in exercising its judgmentany way interested in lightor connected with any party to such contract or transaction or himself is a party to such contract or transaction, provided that such contract or transaction shall be approved by a majority of the Directors present at the meeting authorizing or confirming such contract or transaction, which majority shall consist of Directors not so interested or connected.
Each Director of the Corporation shall be indemnified by the Corporation against expenses actually and necessarily incurred by him in connection with the defense of any action, suit or proceeding in which he is made a party by reason of his being or having been a Director of the Corporation, except in relation to matters as to which he shall be adjudged in such action, suit or proceeding to be liable for negligence or misconduct in the performance of his duties as such Director; provided that such right of indemnification shall not be deemed exclusive of any other rights to which a Director of the Corporation may be entitled, under any by-law, agreement, vote of stockholders or otherwise.
Related to “Item 6 — Company Proposal to Amend Article VIII of Our Restated Certificate of Incorporation to Eliminate Supermajority Voting Provisions Relating to Business Combinations”
WORDS THAT ARE UNDERLINED AND IN BRACKETS WILL BE ADDED AND WORDS THAT ARE CROSSED OUT WILL BE DELETED FROM OUR CERTIFICATE OF INCORPORATION.
Paragraphs B of Article VIII will be revised as follows:
B. In addition to any affirmative vote required by law, this Certificate of Incorporation, the By-Laws of the Corporation or otherwise, and except as otherwise expressly provided in Section C of this Article VIII, the Corporation shall not engage, directly or indirectly, in any Business Combination with, or proposed by or on behalf of, an Interested Stockholder or an Affiliate or Associate of an Interested Stockholder without the affirmative vote of (i) not less thaneighty percent (80%) [a majority] of the votes entitled to be cast by the holders of all the applicable factsthen outstanding shares of Voting Stock voting together as a single class, and circumstances,(ii) not less than a majority of the votes entitled to be cast by the holders of all the then outstanding shares of Voting Stock, excluding Voting Stock beneficially owned by such Interested Stockholder and its Affiliate and Associates, voting together as a single class. Such affirmative vote shall he required notwithstanding the fact that no vote may be required, or that a lesser percentage or separate class vote may be specified, by law, in any agreement with any national securities exchange or otherwise.
Paragraphs G of Article VIII will be revised as follows:
G. Notwithstanding any other provisions of this Certificate of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that a lesser percentage or separate class vote maybe specified by law, this Certificate of Incorporation, the By-Laws of the Corporation or otherwise), any proposal to amend, alter, or repeal or adopt any provision of this Certificate of Incorporation inconsistent with this Article VIII which is proposed by or on behalf of an Interested Stockholder or an Affiliate or Associate of an Interested Stockholder shall require the affirmative vote of (i) not less than eighty percent (80%)a majority of the votes entitled to be cast by the holders of all outstanding shares of Voting Stock voting together as a single class, and (ii) not less than a majority of the votes entitled to be cast by the holders of all the then outstanding shares of Voting Stock (excluding Voting Stock beneficially owned by such Interested Stockholder and its Affiliates and its Associates) voting together as a single class;provided, however,that this Section G shall not apply to, and such special votes shall not be required for, any amendment, repeal or adoption recommended by the Board determines thatof Directors at a time when Disinterested Directors constitute a majority of the relationship should be considered material.
Additional independence standards shall be applied for the following committees:
With respect to Audit and Finance Committee composition all members must be “independent” pursuant to applicable SEC regulations.6
With respect to Management Development and Compensation Committee composition, all members must qualify as “independent” pursuant to applicable IRS regulations.7
The Board’s independence determinations will be disclosed in IP’s proxy statement, and a specific explanation will be providedentire Board of any determination of independence for a director the Board determines satisfies the NYSE rules as independent even though he or she does not satisfy all of IP’s independence guidelines. Any determination of independence for a director who does not meet the criteria set forth in Paragraph 2(a)—(g) of these Independence Standards must be specifically explained in IP’s next annual proxy statement.
6Directors. SEC regulations define “independent” directors for purposes of audit committee members as restricting the following:
-No consulting, advisory or other compensatory fees from IP (excluding director fees);
-May not provide IP accounting, consulting, legal, investment banking, financial or other advisory services;
-May not be owner, director, officer, partner or employee of an “affiliate” of IP; and
-May not be owner, director, officer, partner or employee of an entity that “controls” IP (excluding service as director of IP).
7 IRS regulations restrict compensation committee membership as follows:
-No IP current employees;
-No former IP officers (including acquired company officers);
-No former employees who receive compensation from IP other than pension; and
-No one who receives remuneration from IP other than director fees (i.e., consultants).
6400 Poplar Avenue
Memphis, Tennessee 38197
Printed on Accent® Opaque 40# Smooth Finish, made by our employees at the Ticonderoga Mill.
INTERNATIONAL PAPER COMPANY
C/O BNY MELLON INVESTORSHAREOWNER SERVICES
P.O. BOX 3500
SOUTH HACKENSACK, NJ 07606-3500
VOTE BY INTERNET - www.proxyvote.com
You may use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time,time, May 6, 2007,11, 2008, except that participants in the International Paper Company Salaried Savings Plan or International Paper Company Hourly Savings Plan must provide voting instructions on or before 11:59 P.M. Eastern Time,time, May 3, 2007.8, 2008. Have your proxy card in hand when you access the web site and follow the instructions on that site.
ELECTRONIC DELIVERY OF FUTURE SHAREHOLDERSHAREOWNER COMMUNICATIONS
If you would like to reduce the costs incurred by International Paper Company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access shareholdershareowner communications electronically in future years.
VOTE BY PHONE 1-800-690-6903
You may use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time,time, May 6, 2007,11, 2008, except that participants in the International Paper Company Salaried Savings Plan or International Paper Company Hourly Savings Plan must provide voting instructions on or before 11:59 P.M. Eastern Time,time, May 3, 2007.8, 2008. Have your proxy card in hand when you call and then follow the instructions the “Vote Voice” provides you.
VOTE BY MAIL
Please mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to International Paper Company, c/o ADP,Broadridge Financial Solutions, Inc., 51 Mercedes Way, Edgewood, NY 11717 so that it is received by May 6, 2007.11, 2008. Voting instructions provided by participants in the International Paper Company Salaried Savings Plan or International Paper Company Hourly Savings Plan must be received by May 3, 2007.8, 2008.
If you or your duly appointed proxy holder are planning to attend the annual meeting of shareholdersshareowners on May 7, 2007,12, 2008, please check the box in the space indicated on the proxy card below, or so indicate when you vote by Internet or phone, and an admittance card will be held for you at the meeting.
TO VOTE BY MAIL, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:x
KEEP THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY/VOTING INSTRUCTION CARD IS VALID ONLY WHEN SIGNED AND DATED.
INTERNATIONAL PAPER COMPANY
The Board of Directors recommends a vote“ | ||||||||
Item 1 – Election of | For All | Withhold All | For All Except | To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. | ||||
Nominees: | ||||||||
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02) John F. Turner (Class II) | ||||||||
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The Board of Directors recommends a vote“ | For | Against | Abstain | |||||
Item 2 – Ratification of Deloitte & Touche LLP as the Company’s Independent Registered Public Accounting Firm for | ¨ | ¨ | ¨ | |||||
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Item 5 – Company Proposal to Remove Supermajority Voting Provisions (Article VII). | ¨ | ¨ | ¨ | |||||
Item 6 – Company Proposal to Remove Supermajority Voting Provisions (Article VIII). | ¨ | ¨ | ¨ | |||||
The Board of Directors recommends a vote “ | ||||||||
Item | ¨ | ¨ | ¨ | |||||
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In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting. This proxy/voting instruction card, when properly executed, will be voted in the manner directed herein by the undersigned | ||||||||
For address changes and/or comments, please check this box and write them on the back where | ¨ | |||||||
Please indicate if you plan to attend this | Yes ¨ | No ¨ |
Please sign exactly as your name appears on this proxy. When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give your full title. If a corporation, please sign in full corporate name by authorized officer. If a partnership or LLC, please sign in firm name by authorized partner or member.
Please sign exactly as your name appears on this proxy. When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give your full title. If a corporation, please sign in full corporate name by authorized officer. If a partnership or LLC, please sign in firm name by authorized partner or member. |
Signature (PLEASE SIGN WITHIN BOX)/DATE | SIGNATURE(Joint Owners)/Date |
Important Notice Regarding Internet Availability of Proxy Materials for the Annual Meeting:A Form of Proxy, the Proxy Statement and Annual Report are Available at http://ww3.ics.adp.com/streetlink/IP
INTERNATIONAL PAPER COMPANY
SHAREHOLDERSHAREOWNER PROXY AND CONFIDENTIAL VOTING INSTRUCTION CARD
ANNUAL MEETING OF SHAREHOLDERSSHAREOWNERS – MONDAY, MAY 7, 200712, 2008
THIS PROXY/VOTING INSTRUCTION CARD IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF INTERNATIONAL PAPER COMPANY AND BY THE TRUSTEES OF THE PLANS LISTED BELOW. THIS MAY ONLY BE USED AT THE ANNUAL MEETING OF SHAREHOLDERS,SHAREOWNERS, TO BE HELD ON MAY 7, 2007,12, 2008, AND AT ANY ADJOURNMENT THEREOF.
If you are a registered shareholder,shareowner, by submitting this proxy you are appointing John V. Faraci, Marianne M. ParrsTim S. Nicholls and Maura A. Smith, jointly or individually, as proxies with power of substitution, to vote all shares you are entitled to vote at the Annual Meeting of ShareholdersShareowners on May 7, 2007,12, 2008, and any adjournment thereof. If no direction is made on the reverse side, this proxy will be voted FOR all nominees in Item 1, election of three Class III Directors and one Class III Director, FOR Item 2, ratification of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for 2007, and2008, FOR Item 3, shareholderCompany proposal concerning majority voting.voting in non-contested director elections, FOR Item 4, Company proposal concerning annual election of directors, FOR Item 5, Company proposal concerning supermajority voting (Article VII), FOR Item 6, Company proposal concerning supermajority voting (Article VIII), AGAINST Item 7, shareowner proposal concerning majority voting and AGAINST Item 8, shareowner proposal concerning sustainable forestry. The proxies are authorized to vote upon such other business as may properly come before the meeting.
If you are a participant in either the International Paper Salaried Savings Plan or the International Paper Hourly Savings Plan, by signing this proxy/voting instruction card, you are instructing your Trustee to vote the shares of common stock in accordance with your voting instructions. The Trustees under each of the plans has authorized Automatic Data ProcessingBroadridge as an agent to tabulate the votes. Any shares held by the Trustee for which it has not received voting instructions by Internet, phone or mail by 11:59 P.M. Eastern Time,time, May 3, 2007,11, 2008, will be voted by the Trustee in its discretion. Plan participants may attend the meeting but may only vote these shares by submitting voting instructions by Internet, phone or mail by 11:59 P.M. Eastern Time,time, May 3, 2007.8, 2008.
The proxies are instructed to vote as indicated on the reverse side. This proxy revokes all prior proxies given by you. Please sign on the reverse side exactly as your name or names appear(s) there. When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give your full title. If a corporation, please sign in full corporate name by authorized officer. If a partnership or LLC, please sign in firm name by authorized partner or member.
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(If you noted any address changes/comments, please mark corresponding box on the reverse side). |