UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

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(Name of Registrant As Specified In Its Charter)

KORN/FERRY INTERNATIONAL

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

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Notes:

1900 Avenue of the Stars, Suite 2600
Los Angeles, California 90067

 

August 7, 2009

 

Dear Stockholders:

 

It is my pleasure to invite you to attend the 2009 Annual Meeting of Stockholders (the “Annual Meeting”) of Korn/Ferry International. The Annual Meeting will be held on September 10, 2009 at 10:00 a.m. Pacific time at the Hyatt Regency Century Plaza Hotel in Century City located at 2025 Avenue of the Stars, Los Angeles, California 90067.

 

At the Annual Meeting we will vote on the items of business discussed in the attached notice and give a report on our business operations.

 

We are delighted that you have chosen to invest in Korn/Ferry International and hope that, whether or not you attend the Annual Meeting, you will vote your shares as soon as possible. You may submit a proxy by mail by completing, signing and dating the enclosed proxy card and returning it in the postage prepaid envelope provided. You may also submit a proxy by telephone or via the Internet by following the instructions attached to the proxy card. Your vote is very important, and voting by proxy will ensure your representation at the Annual Meeting. You may revoke your proxy in accordance with the procedures described in the Proxy Statement at any time prior to the time it is voted at the Annual Meeting. If you attend the Annual Meeting, you may vote in person even if you previously provided a proxy by mail, telephone or the Internet.

 

Sincerely,

 

Kenneth Whipple

Chair of the Board

1900 Avenue of the Stars, Suite 2600
Los Angeles, California 90067

 

NOTICE OF 2009 ANNUAL MEETING
To Be Held On September 10, 2009

 

Important Notice Regarding the Availability of Proxy Materials for the
Stockholder Meeting to be Held on September 10, 2009.

The Proxy Statement and accompanying Annual Report to Stockholders are available at http://ir.kornferry.com

To the Stockholders:

 

On September 10, 2009, Korn/Ferry International (the “Company”, “we”, “its” and “our”) will hold its 2009 Annual Meeting of Stockholders (the “Annual Meeting”) at the Hyatt Regency Century Plaza Hotel in Century City located at 2025 Avenue of the Stars, Los Angeles, California 90067. The Annual Meeting will begin at 10:00 a.m. Pacific time.

 

Only stockholders who owned our common stock as of the close of business on July 27, 2009 (the “Record Date”) can vote at the Annual Meeting or any adjournments or postponements thereof. The purposes of the Annual Meeting are to:

 

1. Elect three directors to serve on the Board of Directors (the “Board”) until the 2012 Annual Meeting of Stockholders;

 

2. Approve an amendment and restatement of our 2008 Stock Incentive Plan (the “2008 Plan”) to, among other things, increase the number of shares of common stock that may be delivered pursuant to awards granted under the 2008 Plan by 2,360,000 shares;

 

3. Ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the Company’s 2010 fiscal year; and

 

4. Transact any other business that may be properly presented at the Annual Meeting.

 

The Board of Directors unanimously recommends that you vote “FOR” the approval of each of the three proposals outlined in the Proxy Statement accompanying this notice.

 

A quorum comprised of the holders of a majority of the outstanding shares of our common stock on the Record Date must be present or represented by proxy for the transaction of business at the Annual Meeting. Accordingly, it is important that your shares be represented. Whether or not you plan to attend the Annual Meeting, please vote promptly by mail, telephone or Internet. You may revoke your proxy at any time before it is voted by (1) sending a written revocation to the Corporate Secretary, (2) submitting a later-dated proxy, or (3) attending the Annual Meeting and voting in person.

 

This Proxy Statement is first being mailed to our stockholders on or about August 7, 2009. Please read the proxy materials carefully. Your vote is important and we appreciate your cooperation in considering and acting on the matters presented.

 

By Order of the Board of Directors,

 

Peter L. Dunn

Corporate Secretary and

General Counsel

August 7, 2009

Los Angeles, California

 

TABLE OF CONTENTS

 

 

 

The Board is divided into three classes, with one class elected at each annual meeting of stockholders. Directors of each class are elected to serve for three year terms. At the Annual Meeting, we will elect three directors and the Board for the coming year will be comprised of nine directors. The directors elected at the Annual Meeting will serve as Class 2012 Directors for a term of three years. The nominees for election at the Annual Meeting to serve as Class 2012 Directors are Messrs. Kenneth Whipple and George Shaheen and Baroness Denise Kingsmill. Detailed biographical information regarding each of these nominees, as well as the other members of the Board whose service will continue beyond the Annual Meeting, is provided under the heading “Board of Directors — Nominees for Class 2012 Directors.” We do not expect any of the nominees to become unavailable to stand for election, but should this happen the Board will designate a substitute for each unavailable nominee. Proxies voting for any unavailable nominee will be cast for that nominee’s substitute. Each of the nominees has consented to be named as a nominee in this Proxy Statement. The Company did not receive any stockholder nominations for director. Mr. Ihno Schneevoigt and Ms. Patti Hart, both current members of the Board, will not be standing for re-election at the Annual Meeting. The Company is most grateful for Mr. Schneevoigt’s and Ms. Hart’s valuable service to the Company.

 

Required Vote

 

Directors are elected by a plurality. Therefore, the three nominees who receive the highest number of votes will be elected as directors.

 

Recommendation of the Board

 

The Board unanimously recommends that you vote “FOR” each of the nominees named above for election as a director.

 

On August 22, 2008, the Board adopted the 2008 Plan, which was subsequently approved by the Company’s stockholders on September 23, 2008. In order to continue to provide qualified employees, officers, non-employee directors and other service providers with stock-based incentives, on July 16, 2009, the Board approved, subject to stockholder approval, the Amended and Restated Korn/Ferry International 2008 Stock Incentive Plan (the “A&R 2008 Plan”) to make available 2,360,000 additional shares of the Company’s common stock for stock-based awards (provided that the issuance of full value awards from and after the date of approval of the A&R 2008 Plan (awards other than options and stock appreciation rights) count approximately 1.5 times as much as options and stock appreciation rights against the authorized number of shares issuable under the A&R 2008 Plan). Other than the increase in the number of shares authorized for issuance, and certain administrative changes, the 2008 Plan and the A&R 2008 Plan are identical. The Board is submitting the A&R 2008 Plan to the stockholders for their approval at the Annual Meeting.

 

As of July 27, 2009, an aggregate of 18,844 shares of common stock remained available under the 2008 Plan for the grant of stock-based incentives. The Company believes a compensation policy that includes a balanced mix of cash and equity is the most effective way to attract and retain talented employees whose interests are aligned with stockholders. Without approval of the A&R 2008 Plan, the Company will be constrained in its ability to use equity as a component of its compensation philosophy, a result that would put the Company at a considerable competitive disadvantage to its direct and indirect competitors for high level professional employees who make up the bulk of the Company’s current and prospective employee base.

 

Why You Should Vote For the A&R 2008 Plan

 

The Board unanimously recommends that the Company’s stockholders approve the A&R 2008 Plan. The Company’s ability to grant an appropriate number of equity-based awards continues to be crucial in allowing the Company to effectively compete for key employee talent against other executive search, leadership and consulting firms. It is in the long-term interest of the Company and its stockholders to strengthen the ability to attract, motivate and retain employees, officers, directors, consultants, agents, advisors and independent contractors, and to provide additional incentive for those persons through stock ownership and other incentives to improve operations, increase profits and strengthen the mutuality of interest between those persons and the Company’s stockholders.

 

Equity awards are granted to a significant number of the Company’s current and prospective employees. These long term incentives are aimed at aligning employees’ interests with stockholders and to aid in retention, since long term awards generally vest over a four year period.

 

The Company’s restricted shares and stock options outstanding as of July 27, 2009 represent approximately 8% of the Company’s market capitalization. If the A&R 2008 Plan is approved, the aggregate number of shares underlying outstanding awards under the Company’s existing plans plus the number of shares available for issuance in connection with the grant of awards under the A&R 2008 Plan would increase to approximately 12% of the number of shares of Company common stock outstanding on a fully diluted basis.

 

In order to address potential stockholder concerns regarding the number of options, stock appreciation rights or other awards that the Company intends to grant in a given year, the Board previously committed to the Company’s stockholders, as described in the Company’s Proxy Statement for the 2008 Annual Meeting of Stockholders, that for fiscal years 2009, 2010 and 2011, the Company’s average annual burn rate would not exceed 4.0%. To address similar concerns, if this proposal is approved, the Board will extend this commitment to include fiscal year 2012 as well. For this purpose, the “burn rate” for any fiscal year means the total number of shares of Company common stock issuable upon exercise or payment, as the case may be, of the equity-based awards granted by the Company in that year, divided by the Company’s total number of shares of common stock issued and outstanding as of the end of that particular fiscal year. For purposes of calculating the number of shares granted in a fiscal year, stock awards will count as equivalent to 1.5 option shares.

Promotion of Good Corporate Governance Practices

 

The Board believes the use of equity incentive awards promotes best practices in corporate governance by maximizing stockholder value. By providing participants in the A&R 2008 Plan with a stake in the Company’s success, the interests of the participants are aligned with those of the Company’s stockholders. The A&R 2008 Plan will provide incentives to plan participants to operate the Company in the most efficient way possible.

 

Specific features of the A&R 2008 Plan that are consistent with good corporate governance practices include, but are not limited to:

 

 

Need to Remain Competitive

 

The Board believes the use of incentive equity awards is an integral component of compensation for the Company’s employees. Employees consider equity awards an important part of their total compensation, and they expect these awards when they join the Company. Consequently, the Board believes the Company must continue to award its employees with equity awards to maintain its competitive position.

 

Section 162(m) of the Code

 

The Board continues to believe that it is in the best interests of the Company and its stockholders to provide for an incentive plan under which stock-based and qualifying cash compensation awards made to the Company’s executive officers can qualify for deductibility by the Company for federal income tax purposes. Accordingly, the A&R 2008 Plan has been structured in a manner such that awards under it can satisfy the requirements for “performance-based” compensation within the meaning of Section 162(m) (“Section 162(m)”) of the Internal Revenue Code of 1986, as amended (the “Code”). In general, under Section 162(m), in order for the Company to be able to deduct compensation in excess of $1 million paid in any one year to the Company’s Chief Executive Officer or any of the Company’s three other most highly compensated executive officers (other than the Company’s Chief Financial Officer), such compensation must qualify as “performance-based.” One of the requirements of “performance-based” compensation for purposes of Section 162(m) is that the material terms of the performance goals under which compensation may be paid be disclosed to and approved by the Company’s stockholders. For purposes of Section 162(m), the material terms include (1) the employees eligible to receive compensation, (2) a description of the business criteria on which the performance goal is based and (3) the maximum amount of compensation that can be paid to an employee under the performance goal. With respect to the various types of awards under the A&R 2008 Plan, each of these aspects is discussed below, and stockholder approval of the A&R 2008 Plan will be deemed

to constitute approval of each of these aspects of the A&R 2008 Plan for purposes of the approval requirements of Section 162(m).

 

Summary of the Plan

 

The following is a description of the material features of the A&R 2008 Plan. The description does not purport to be complete and is qualified in its entirety by reference to the full text of the A&R 2008 Plan which is attached to this Proxy Statement as Appendix A and incorporated herein by reference. Stockholders are encouraged to read the text of the A&R 2008 Plan in its entirety.

 

Purpose

 

The purpose of the A&R 2008 Plan is to stimulate the efforts of employees, officers, non-employee directors and other service providers, in each case who are selected to be participants, by heightening the desire of such persons to continue working toward and contributing to the success and progress of the Company.

 

Eligible Participants

 

Any person who is a current or prospective officer or employee of the Company or its subsidiaries, and any non-employee director of the Company or other service provider retained to provide consulting, advisory or other services to the Company or its subsidiaries, is eligible to be considered for the grant of awards under the A&R 2008 Plan. As of July 27, 2009, approximately 700 employees and 8 non-employee directors were eligible to participate in the A&R 2008 Plan.

 

Available Shares

 

Subject to stockholder approval of the A&R 2008 Plan, the maximum number of shares of common stock of the Company that may be issued pursuant to awards granted under the A&R 2008 Plan will be 3,980,000 (which is equal to the 2,360,000 new shares being proposed plus the 1,620,000 shares originally authorized under the 2008 Plan) subject to adjustments to prevent dilution, plus any shares subject to outstanding awards under the Company’s Performance Award Plan as of August 8, 2008 that cease for any reason to be subject to such awards other than by reason of exercise or settlement of the awards to the extent they are exercised for or settled in vested and nonforfeitable shares; provided that (1) any shares granted under options or stock appreciation rights shall be counted against this limit on a one-for-one basis; (2) any shares granted as awards other than options or stock appreciation rights prior to the effective date of the A&R 2008 Plan will be counted against this limit as 1.8 shares for every one share subject to such award; and (3) any shares granted as awards other than options or stock appreciation rights on or after the effective date of the A&R 2008 Plan will be counted against this limit as 1.5 shares for every one share subject to such award. The shares issued pursuant to awards granted under the A&R 2008 Plan may be shares that are authorized and unissued or shares that were reacquired by the Company, including shares purchased in the open market so long as they were not repurchased with the proceeds from the exercise of an option award.

 

For purposes of the foregoing share limit, the aggregate number of shares issued under the A&R 2008 Plan at any time will equal only the number of shares actually issued upon exercise or settlement of an award. Notwithstanding the foregoing, shares subject to an award under the A&R 2008 Plan may not again be made available for issuance under the A&R 2008 Plan if such shares are: (1) shares that were subject to a stock-settled stock appreciation right and were not issued upon the net settlement or net exercise of such stock appreciation right, (2) shares used to pay the exercise price of an option, (3) shares delivered to or withheld by the Company to pay the withholding taxes related an to award, or (4) shares repurchased on the open market with the proceeds of an option exercise. Shares subject to awards that have been canceled, expired, forfeited or otherwise not issued under an award and shares subject to awards settled in cash will not count as shares issued under the A&R 2008 Plan.

 

Tax Code Limitations

 

Subject to changes in the Company’s capitalization, the aggregate number of shares subject to awards granted under the A&R 2008 Plan during any calendar year to any one participant will not exceed 500,000. The aggregate number of shares that may be issued pursuant to the exercise of incentive stock options granted under the A&R 2008

Plan shall not exceed 3,980,000 (which is equal to the 3,980,000 shares being authorized, which number is subject to antidilution adjustment to the extent that such adjustment will not affect the status of any option intended to qualify as an incentive stock option under Section 422 of the Code (“Incentive Stock Options”). The maximum cash amount payable pursuant to that portion of an incentive bonus granted in any calendar year to any participant under the A&R 2008 Plan that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) will not exceed $5,000,000.

 

Non-Employee Director Awards

 

Subject to certain exceptions, the aggregate number of shares subject to options and stock appreciation rights granted under the A&R 2008 Plan during any calendar year to any one non-employee director will not exceed 50,000, and the aggregate number of shares issued or issuable under all awards granted under the A&R 2008 Plan other than options or stock appreciation rights during any calendar year to any one non-employee director will not exceed 25,000.

 

Awards of Acquired Corporations

 

In the event that the Company acquires another corporation and assumes outstanding equity awards of such acquired corporation, the number of shares authorized for issuance under the A&R 2008 Plan will be increased to the extent necessary to satisfy such assumed equity awards and such shares will not reduce the shares otherwise authorized for issuance under the A&R 2008 Plan. In the event that a corporation acquired by the Company, or with which the Company combines, has shares available under a pre-existing plan approved by its stockholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan may be used for awards under the A&R 2008 Plan and will not reduce the shares authorized for issuance under the A&R 2008 Plan; provided that awards using such available shares will not be made after the date awards or grants could have been made under the terms of the pre-existing plan absent the acquisition or combination and will only be made to individuals who were not employees, directors or consultants of the Company immediately before such acquisition or combination.

 

Administration

 

The A&R 2008 Plan is administered by the Compensation and Personnel Committee of the Board, provided, however, that, subject to certain exceptions, the Board may exercise any power of the Compensation and Personnel Committee. The Compensation and Personnel Committee may authorize one or more officers of the Company to perform any or all things that the administrator is authorized and empowered to do or perform under the A&R 2008 Plan. The Compensation and Personnel Committee may delegate any or all aspects of day-to-day administration of the A&R 2008 Plan to one or more officers or employees of the Company or any subsidiary, and/or to one or more agents.

 

Amendments

 

The Board may amend, alter or discontinue the A&R 2008 Plan or any agreement or other document evidencing an award made under the A&R 2008 Plan, but, except as provided pursuant to the anti-dilution adjustment provisions of the A&R 2008 Plan, no such amendment may be made without the approval of the stockholders of the Company if it would:

 

 

 

No amendment may impair the rights of any holder of an award without their consent, provided that no consent is required if the administrator determines in its sole discretion and prior to any change of control of the Company if the amendment is advisable in order for the Company, plan or award to satisfy any law or regulation, or meet the requirements of or avoid adverse financial accounting consequences under any accounting standard.

 

Awards

 

The A&R 2008 Plan authorizes the administrator to grant awards to eligible participants in the form of incentive and nonqualified stock options, stock appreciation rights, restricted stock and restricted stock units, any of which may be performance-based, and for incentive bonuses, which may be paid in cash or stock or a combination thereof.

 

Stock Options

 

The administrator of the A&R 2008 Plan may grant an option to purchase common stock of the Company, from time to time in the discretion of the administrator. Options may be Incentive Stock Options or nonstatutory stock options (“Nonqualified Stock Options”).

 

The exercise price per share of common stock subject to an option granted under the A&R 2008 Plan must equal or exceed 100% of the fair market value of such common stock on the date the option is granted, except that:

 

 

Other than in connection with a change in the Company’s capitalization, the exercise price of an option may not be reduced without stockholder approval (including canceling previously awarded options in exchange for cash, other awards or options or stock appreciation rights with an exercise price that is less than the exercise price of the original award).

 

Unless the administrator provides for a shorter period, the maximum term of an option granted under the A&R 2008 Plan, including any Incentive Stock Options, will be 7 years from the date of grant, except that Incentive Stock Options granted to an individual who, at the time the option is granted to such individual, owns more than 10% of the combined voting power of all classes of stock of the Company will have a term no greater than 5 years from the date of grant. Options granted under the A&R 2008 Plan will vest according to a schedule determined by the administrator.

 

The administrator will determine the acceptable forms of payment of the exercise price of an option, which may include: cash, shares of Company common stock, irrevocable commitment by a broker to pay over the amount from a sale of shares of Company common stock issuable under an option, delivery of previously owned shares of Company common stock, withholding of shares of Company common stock or any combination of the foregoing.

 

Incentive Bonus

 

An incentive bonus award is an award which confers upon the participant the opportunity to earn a future payment tied to the level of achievement with respect to one or more performance criteria established for a specified performance period of not less than one year.

Restricted Stock and Restricted Stock Units

 

Restricted stock is an award or issuance of shares of common stock of the Company under which the grant, issuance, retention, vesting and/or transferability is subject for a specified period of time to such conditions (including continued employment or performance conditions) and terms as the administrator deems appropriate. Restricted stock units are awards denominated in units of shares of common stock of the Company under which the issuance of shares is subject to such conditions (including continued employment or performance conditions) and terms as the administrator deems appropriate. Up to 199,000 shares will be available for issuance to employee participants as awards of restricted stock or restricted stock units having no minimum vesting period. An award of restricted stock or restricted stock units with a vesting schedule that is not at least partially based on performance criteria cannot vest in less than thirty-six months, and an award of restricted stock or restricted stock units with a vesting schedule that is at least partially performance-based cannot vest in less than twelve months from the date of grant, except for awards of restricted stock or restricted stock units to non-employee directors and in the case of the death or disability of a participant or a change of control of the Company. The administrator will determine the extent to which awards of restricted stock and restricted stock units may be settled in cash, shares of common stock of the Company, or a combination of the foregoing. Unless determined otherwise by the administrator, participants receiving restricted stock awards are entitled to the voting and dividend rights of the shares of common stock underlying the awards. Participants receiving restricted stock unit awards are not entitled to the voting rights of the underlying shares of common stock, and are entitled to the dividend rights only to the extent determined by the administrator.

 

Stock Appreciation Rights

 

A stock appreciation right provides the right to the monetary equivalent of the increase in value of a specified number of the shares over a specified period of time after the right is granted. Stock appreciation rights may be granted to participants either in tandem with or as a component of other awards granted under the A&R 2008 Plan (“tandem SARs”) or not in conjunction with other awards (“freestanding SARs”). All freestanding SARs will be granted subject to the same terms and conditions applicable to options as set forth above and in the A&R 2008 Plan and all tandem SARs will have the same exercise price, vesting, exercisability, forfeiture and termination provisions as the award to which they relate. Other than in connection with a change in the Company’s capitalization, the exercise price of a stock appreciation right may not be reduced without stockholder approval (including canceling previously awarded stock appreciation rights in exchange for cash, other awards or options or stock appreciation rights with an exercise price that is less than the exercise price of the original award).

 

Performance Criteria

 

For purposes of the A&R 2008 Plan, qualifying performance criteria means the following criteria, individually, alternatively or in any combination, applied to either the Company as a whole or to a business unit, subsidiary or one or more joint ventures, either individually, alternatively or in any combination, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison group, in each case as specified by the administrator in the award:

 

 

 

Prior to the grant of an award, the administrator will determine whether or not it will appropriately adjust any evaluation of performance under the applicable performance criteria with respect to an award to exclude any of the following events that occur during a performance period:

 

 

Change of Control of the Company

 

The administrator has the discretion to provide, either at the time an award is granted or thereafter, that a change of control of the Company will have such effect as specified by the administrator, or no effect.

Deferral

 

The administrator has the discretion to provide that payment of awards granted under the A&R 2008 Plan may be deferred by the recipient to the extent permitted under Section 409A(a)(1)(B) of the Code.

 

Termination

 

The A&R 2008 Plan will terminate on the tenth anniversary of its approval by the Company’s stockholders, unless the Board terminates it sooner.

 

Federal Income Tax Treatment

 

The following is a brief description of the federal income tax treatment that will generally apply to awards made under the A&R 2008 Plan, based on federal income tax laws currently in effect. The exact federal income tax treatment of awards will depend on the specific nature of any such award and the individual tax attributes of the award recipient. This summary is not intended to be a complete analysis and discussion of the federal income tax treatment of the A&R 2008 Plan, and does not discuss gift or estate taxes or the income tax laws of any municipality, state or foreign country.

 

Incentive Stock Options

 

Options granted under the A&R 2008 Plan may qualify as Incentive Stock Options within the meaning of Section 422 of the Code. If an optionee exercises an Incentive Stock Option in accordance with its terms and does not dispose of the shares acquired within two years from the date of the grant of the Incentive Stock Option or within one year from the date of exercise (the “Required Holding Periods”), an optionee generally will not recognize ordinary income and the Company will not be entitled to any deduction, on either the grant or the exercise of the Incentive Stock Option. An optionee’s basis in the shares acquired upon exercise will be the amount paid upon exercise. Provided an optionee holds the shares as a capital asset at the time of sale or other disposition of the shares, an optionee’s gain or loss, if any, recognized on the sale or other disposition will be capital gain or loss. The amount of an optionee’s gain or loss will be the difference between the amount realized on the disposition of the shares and the optionee’s basis in the shares. The gain or loss will be long-term capital gain or loss if the shares are held for at least one year after exercise of the option; otherwise, it will be short-term.

 

If, however, an optionee disposes of the acquired shares at any time prior to the expiration of the Required Holding Periods, then, subject to certain exceptions, the optionee will recognize ordinary income at the time of such disposition which will equal the excess, if any, of the lesser of (1) the amount realized on such disposition or (2) the fair market value of the shares on the date of exercise, over the optionee’s basis in the shares. The Company generally will be entitled to a deduction in an amount equal to the amount of ordinary income recognized by an optionee. Any gain in excess of such ordinary income amount will be a short-term or long-term capital gain, depending on the optionee’s holding period. If an optionee disposes of such shares for less than the optionee’s basis in the shares, the difference between the amount realized and the optionee’s basis will be short-term or long-term capital loss, depending upon the holding period of the shares.

 

Nonqualified Stock Options

 

In general, there are no tax consequences to the optionee or to the Company on the grant of a Nonqualified Stock Option. On exercise, however, the optionee generally will recognize ordinary income equal to the excess of the fair market value of the shares as of the exercise date over the purchase price paid for such shares, and the Company will be entitled to a deduction equal to the amount of ordinary income recognized by the optionee. Provided the shares received under a Nonqualified Stock Option are held as a capital asset, upon the subsequent disposition of the shares the optionee will recognize capital gain or loss in an amount equal to the difference between the proceeds received upon disposition and his or her basis for the shares. The basis will be equal to the sum of the price paid for the shares and the amount of income realized upon exercise of the option. Any capital gain or loss to the optionee will be characterized as long-term or short-term, depending upon the holding period of the shares.

Stock Appreciation Rights

 

Generally, the recipient of a freestanding SAR will not recognize any taxable income at the time the freestanding SAR is granted. If the employee receives the appreciation inherent in the freestanding SARs in cash, the cash will be taxable as ordinary compensation income to the employee at the time that it is received. If the employee receives the appreciation inherent in the freestanding SARs in stock, the employee will recognize ordinary compensation income equal to the excess of the fair market value of the stock on the day it is received over any amounts paid by the employee for the stock.

 

With respect to tandem SARs, if a holder elects to surrender the underlying option in exchange for cash or stock equal to the appreciation inherent in the underlying option, the tax consequences to the employee will be the same as discussed above relating to freestanding SARs. If the employee elects to exercise the underlying option, the holder will be taxed at the time of exercise as if he or she had exercised a Nonqualified Stock Option (discussed above), i.e., the employee will recognize ordinary income for federal tax purposes measured by the excess of the then fair market value of the shares over the exercise price.

 

In general, there will be no federal income tax deduction allowed to the Company upon the grant or termination of freestanding SARs or tandem SARs. However, upon the exercise of either a freestanding SAR or a tandem SAR, the Company will be entitled to a deduction for federal income tax purposes equal to the amount of ordinary income that the employee is required to recognize as a result of the exercise, provided that the deduction is not otherwise disallowed under the Code.

 

Restricted Stock and Restricted Stock Units

 

Upon grant of restricted stock or restricted stock units, a participant generally will not have taxable income. Instead, he or she will recognize ordinary income in the first taxable year in which his or her interest in the shares underlying the award becomes either freely transferable or no longer subject to substantial risk of forfeiture (e.g., vested). However, a holder of a restricted stock award may elect to recognize income at the time he or she receives the award in an amount equal to the fair market value of the shares underlying the award less any amount paid for the shares on the date the award is granted. The Company generally will be entitled to a deduction at the same time and in the same amount as a participant recognizes ordinary income.

 

Incentive Bonus

 

Receipt of a cash incentive bonus will cause the participant to recognize ordinary income with respect to such award at the earliest time at which the participant has an unrestricted right to receive the amount of the cash payment, and the Company will be entitled to a corresponding deduction.

 

Golden Parachute Provisions

 

The terms of awards granted under the A&R 2008 Plan may provide for accelerated vesting or payment of an award in connection with a change of control of the Company. In that event and depending upon the individual circumstances of the recipient, certain amounts with respect to such awards may constitute “excess parachute payments” under the “golden parachute” provisions of the Code. Pursuant to these provisions, a participant will be subject to a 20% excise tax on any “excess parachute payments” and the Company will be denied any deduction with respect to such payment.

 

Section 162(m)

 

Section 162(m) imposes a $1 million limit on the amount of compensation that may be deducted by the Company in any tax year with respect to the Company’s named executive officers, other than the Company’s Chief Financial Officer, including any compensation relating to an award granted under the A&R 2008 Plan.

 

Compensation that is considered to be performance-based will not have to be taken into account for purposes of the $1 million limitation, and accordingly, should be deductible by the Company without limitation under Section 162(m). Options and other awards granted under the A&R 2008 Plan may, at the administrator’s discretion, be intended to be performance-based compensation that qualifies for the exception from the $1 million limit.

Withholding Taxes

 

The Company will generally be required to withhold applicable taxes with respect to any ordinary income recognized by a participant in connection with awards made under the A&R 2008 Plan. Whether or not such withholding is required, the Company will make such information reports to the Internal Revenue Service as may be required with respect to any income (whether or not that of an employee) attributable to transactions involving awards.

 

Other Information

 

As of July 27, 2009, (1) 3,315,366 shares were covered by stock options granted under the Company’s existing stock incentive plans, at exercise prices ranging from $6.26 to $36.19 per share; (2) 2,632,305 shares were subject to unvested awards of restricted stock granted under the Company’s existing stock incentive plans; and (3) 18,844 shares remained available to support additional awards under the 2008 Plan. In addition, as of July 27, 2009, the Company’s outstanding stock options and SARs had a weighted-average exercise price of $14.69 and a weighted-average contractual life of 3.90 years.

 

Information about stock option and performance share awards granted in fiscal 2009 to the Chief Executive Officer, Chief Financial Officer and the three other most highly compensated executive officers can be found in the table under the heading “Compensation of Directors and Executive Officers — Fiscal Year 2009 Grants of Plan-Based Awards.”

 

Participation in the A&R 2008 Plan is in the discretion of the administrator. Accordingly, future participation by executive officers, other employees and directors under the A&R 2008 Plan is not determinable. In addition, the benefits under the A&R 2008 Plan that would have been received by or allocated to such persons for the last completed fiscal year had it been in effect cannot be determined.

 

The A&R 2008 Plan is not exclusive and does not limit the authority of the Board or the administrator to adopt such other incentive arrangements as they may deem desirable.

 

Required Vote

 

Approval of the A&R 2008 Plan requires the affirmative vote of a majority of those shares present, either in person or by proxy, and entitled to vote.

 

Recommendation of the Board

 

The Board unanimously recommends that you vote “FOR” the approval of the Company’s A&R 2008 Plan.

 

The Audit Committee has approved the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal 2010. Ernst & Young LLP has served as the Company’s independent registered public accounting firm since March 2002. Ernst & Young LLP has unrestricted access to the Audit Committee to discuss audit findings and other financial matters. Neither the Company’s certificate of incorporation nor its bylaws requires that the stockholders ratify the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm. However, we are requesting ratification because we believe it is a matter of good corporate practice. If the Company’s stockholders do not ratify the selection, the Audit Committee will reconsider whether or not to retain Ernst & Young LLP, but may, nonetheless, retain such independent registered public accounting firm. Even if the selection is ratified, the Audit Committee in their discretion may change the appointment at any time if they determine that such change would be in the best interests of the Company and its stockholders. Representatives of Ernst & Young LLP will attend the Annual Meeting to answer appropriate questions and may also make a statement if they so desire.

 

Required Vote

 

Ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm requires the affirmative vote of a majority of those shares present, either in person or by proxy, and entitled to vote.

 

Recommendation of the Board

 

The Board unanimously recommends that you vote “FOR” the ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal 2010.

 

The Board is divided into three classes: (1) Class 2010 Directors, who will serve until the 2010 Annual Meeting of Stockholders; (2) Class 2011 Directors, who will serve until the 2011 Annual Meeting of Stockholders; and (3) Class 2012 Directors, who will serve until the 2012 Annual Meeting of Stockholders. Following the Annual Meeting there will be three Class 2010 Directors, three Class 2011 Directors and three Class 2012 Directors.

 

The following table sets forth certain information regarding the nominees for Class 2012 Directors.

 

 

 

The following table sets forth certain information regarding the Class 2010 Directors.

 

The following table sets forth certain information regarding the Class 2011 Directors.

 

The Board held 7 meetings during fiscal 2009. Each of the directors except for Mr. Schneevoigt attended at least 75% of the Board meetings and the meetings of committees of which they were members in fiscal 2009. Directors are expected to attend each annual meeting of stockholders. All directors attended the 2008 Annual Meeting of Stockholders either in person or by telephone.

 

Director Independence

 

The Board has determined that as of the date hereof a majority of the Board is “independent” under the independence standards of the NYSE. The Board has determined that the following directors and director-nominees are “independent” under the independence standards of the NYSE: Kenneth Whipple, James Barlett, Patti Hart, Edward Miller, Debra Perry, Gerhard Schulmeyer, Ihno Schneevoigt, Harry You, Denise Kingsmill and George Shaheen, and that Frank Cahouet was “independent” within the independence standards of the NYSE during his term of service on the Board in fiscal 2009. For a director to be “independent”, the Board must also affirmatively determine that such director does not have any material relationship with the Company. To assist the Board in determining director independence, the Board reviews director independence in light of the categorical standards set forth in the

NYSE’s Listed Company Manual. Under these standards, a director cannot be deemed “independent” if, among other things:

 

 

The independent directors of the Board meet regularly in executive sessions outside the presence of management. Effective May 1, 2009, the Board appointed Kenneth Whipple non-executive Chair of the Board and in such capacity he presides at executive sessions of the independent directors. Prior to this appointment, Ms. Patti Hart served as lead independent director and presided at executive sessions of the independent directors. In connection with the appointment of Mr. Whipple as non-executive Chair of the Board, the Board eliminated the position of lead independent director.

 

Board Committees

 

Although the full Board considers all major decisions, the Company’s bylaws permit the Board to have the following standing committees to more fully address certain areas of importance: (1) an Audit Committee, (2) a Compensation and Personnel Committee and (3) a Nominating and Corporate Governance Committee. The members of the standing committees as of the date hereof are set forth in the table below:

 

 

Audit Committee.  Among other things, the Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the independent registered public accounting firm, reviews the independent registered public accounting firm’s qualifications and independence, reviews the plans and results of the audit engagement with the independent registered public accounting firm, approves professional services provided by the independent registered public accounting firm, approves financial reporting principles and policies, considers the range of audit and non-audit fees, reviews the adequacy of the Company’s internal accounting

controls and works to ensure the integrity of financial information supplied to stockholders. The Audit Committee is also available to receive reports, suggestions, questions and recommendations from the Company’s independent registered public accounting firm, the Chief Financial Officer and the General Counsel. It also confers with these parties in order to help assure the sufficiency and effectiveness of the programs being followed by corporate officers in the area of compliance with legal and regulatory requirements, business conduct and conflicts of interest. The Audit Committee is composed entirely of outside directors whom the Board has determined are “independent directors” under the applicable listing standards of the NYSE and the applicable rules of the Securities and Exchange Commission (“SEC”). The Board, in its business judgment, has determined that Mr. Barlett and Ms. Hart qualify as “audit committee financial experts” as that term is defined in Item 407(d)(5) of Regulation S-K under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and that Ms. Perry is “financially literate,” under the NYSE rules. The Audit Committee met 8 times in fiscal 2009. The Audit Committee operates pursuant to a written charter adopted by the Board, which is available on the Company’s website at www.kornferry.com in the Corporate Governance section of the Media/Investors webpage and in print to any stockholder that requests it. Any such request should be addressed to Korn/Ferry International, 1900 Avenue of the Stars, Suite 2600, Los Angeles, California 90067, Attention: Corporate Secretary.

 

Compensation and Personnel Committee.  Among other things, the Compensation and Personnel Committee approves and oversees compensation programs of the Company, including incentive and stock option programs provided to members of the Company’s senior management group, including the Company’s Chief Executive Officer, Chief Financial Officer and three other most highly compensated executive officers, reviews the compensation of directors for service on the Board and its committees, and approves or recommends to the Board, as required, specific compensation actions, including salary adjustments, annual cash bonuses, stock option grants and employment contracts for the Chief Executive Officer and other members of the Company’s senior management group. The Compensation and Personnel Committee may, in its discretion, delegate all or a portion of its duties and responsibilities to a subcommittee consisting solely of members of the Compensation and Personnel Committee who are non-employee directors and outside directors. The Board has determined that all members of the Compensation and Personnel Committee are “independent directors” under the applicable listing standards of the NYSE. The Compensation and Personnel Committee met 7 times during fiscal 2009. The Compensation and Personnel Committee operates pursuant to a written charter adopted by the Board, which is available on the Company’s website at www.kornferry.com in the Corporate Governance section of the Media/Investors webpage and in print to any stockholder that requests it. Any such request should be addressed to Korn/Ferry International, 1900 Avenue of the Stars, Suite 2600, Los Angeles, California 90067, Attention: Corporate Secretary.

 

Nominating and Corporate Governance Committee.  Among other things, the Nominating and Corporate Governance Committee recommends criteria to the Board for the selection of nominees to the Board, evaluates all proposed nominees, recommends nominees to the Board to fill vacancies on the Board, and, prior to each annual meeting of stockholders, recommends to the Board a slate of nominees for election to the Board by the stockholders at the annual meeting. The Nominating and Corporate Governance Committee, with the assistance of the Company’s executive search business, identified and recommended to the Board that Baroness Denise Kingsmill and Mr. George Shaheen be nominated as Class 2012 Directors in this Proxy Statement. The Nominating and Corporate Governance Committee also seeks possible nominees for the Board and otherwise serves to aid in attracting qualified nominees to be elected to the Board. In evaluating nominations, the Nominating and Corporate Governance Committee considers a variety of criteria, including business experience and skills, independence, judgment, integrity, the ability to commit sufficient time and attention to Board activities and the absence of potential conflicts with the Company’s interests. The Board has determined that all members of the Nominating and Corporate Governance Committee are “independent directors” under the applicable listing standards of the NYSE. The Nominating and Corporate Governance Committee met 6 times in fiscal 2009. The Nominating and Corporate Governance Committee operates pursuant to a written charter adopted by the Board, which is available on the Company’s website at www.kornferry.com in the Corporate Governance section of the Media/Investors webpage and in print to any stockholder that requests it. Any such request should be addressed to Korn/Ferry International, 1900 Avenue of the Stars, Suite 2600, Los Angeles, California 90067, Attention: Corporate Secretary. Stockholders may recommend director nominees by mailing submissions to Korn/Ferry International, 1900 Avenue of the Stars, Suite 2600, Los Angeles, California 90067, Attention: Corporate Secretary. Any stockholder recommendations for

director are evaluated in the same manner as all other candidates considered by the Nominating and Corporate Governance Committee.

 

Code of Business Conduct and Ethics.  The Board has adopted a Code of Business Conduct and Ethics that is applicable to all directors, employees and officers (including the Company’s Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer). Among other things, the Code of Business Conduct and Ethics requires directors, employees and officers to maintain the confidentiality of all information entrusted to them (except when disclosure is authorized or legally mandated); to deal fairly with the Company’s clients, service providers, suppliers, competitors and employees; to protect Company assets; and for those who have a role in the preparation and/or review of information included in the Company’s public filings, to report such information accurately and honestly. It also prohibits directors, employees and officers from using or attempting to use their position at the Company to obtain an improper personal benefit. The Code of Business Conduct and Ethics is available on the Company’s website at www.kornferry.com in the Corporate Governance section of the Media/Investors webpage and in print to any stockholder that requests it. Any such request should be addressed to Korn/Ferry International, 1900 Avenue of the Stars, Suite 2600, Los Angeles, California 90067, Attention: Corporate Secretary. We intend to post on the Company’s website any amendments to the Code of Business Conduct and Ethics, as well as any waivers thereunder, with respect to our officers as required to be disclosed by the SEC rules.

 

Corporate Governance Guidelines.  The Board has adopted Corporate Governance Guidelines, which among other things, impose limits on the number of directorships each member of the Board may hold (the Chief Executive Officer of the Company may not sit on more than two boards of directors of public companies (other than the Company), while all other directors may not sit on more than six boards of directors of public companies (other than the Company)); specifies the criteria to be considered for directors candidates; and requires non-management directors to meet periodically without management. Additionally, the guidelines require that, when a director’s principal occupation or business association changes substantially during his or her tenure as a director, that director is required to provide written notice of such change to the chair of the Nominating and Corporate Governance Committee, and agree to resign from the Board if the Board determines to accept such resignation. The Nominating and Corporate Governance Committee must then review and assess the circumstances surrounding such change, and recommend to the Board any appropriate action to be taken. The Corporate Governance Guidelines are available on the Company’s website at www.kornferry.com in the Corporate Governance section of the Media/Investors webpage and in print to any stockholder that requests it. Any such request should be addressed to Korn/Ferry International, 1900 Avenue of the Stars, Suite 2600, Los Angeles, California 90067, Attention: Corporate Secretary.

 

The Company is a premier provider of human capital management solutions. It is a leading provider of executive search, leadership consulting services and middle management solutions. The Company helps its clients with their human capital needs by identifying, developing and deploying executives and building leadership teams across the globe. The Company’s access to and influence with key decision makers provides a unique positioning among human capital management companies. The Company’s unique global positioning allows it to maintain enhanced brand visibility and to attract and retain high-caliber consultants.

 

The Company provides its services to a broad range of clients through the expertise of more than 450 consultants located in 37 countries throughout the world. As such, executive officers in the Company need to have the skills and experience to manage and motivate an organization spread over a large number of countries with varying business and regulatory environments. The market for these talented individuals is competitive, and as such, the Company’s compensation philosophy is focused on ensuring the right candidates can be attracted, retained and properly rewarded for their contributions.

 

The Compensation and Personnel Committee of the Board has been delegated authority by the Board for the oversight of compensation for the Company’s senior management. The Compensation and Personnel Committee has direct responsibility for determining the compensation of the “named executive officers,” as defined below. The Compensation and Personnel Committee also has an oversight responsibility for the compensation of senior management and the overall compensation programs of the Company, including its Performance Award Plan and the 2008 Plan.

 

Throughout this Proxy Statement, the individuals who served as the Company’s Chairman, Chief Executive Officer and Chief Financial Officer during fiscal 2009, as well as the other individuals included in the Summary Compensation Table on page 27, are collectively referred to as the “named executive officers.”

 

In establishing and assessing the compensation programs and compensation policies for the named executive officers, the Compensation and Personnel Committee is guided by the following principles:

 

 

Because a number of the Company’s peer organizations are privately-held, precise information regarding the executive officers’ compensation practices among the Company’s competitor group is difficult to obtain. In addition, even when such data is available, meaningful differences in size, complexity and organizational structure among the Company’s competitor group make direct comparisons of compensation practices problematic. In assessing the competitiveness of the Company’s named executive officer compensation, the Compensation and Personnel Committee relies on information obtained from the proxies of publicly-traded competitors, information derived from data obtained from other public sources with respect to competitor organizations, and the Compensation and Personnel Committee’s general knowledge of the market for senior management positions. The Company’s peer group for the purposes of this analysis consists of the following companies:

 

Heidrick & Struggles		Kelly Services		Kforce
True Blue (formerly Labor Ready)		Manpower		MPS Group
Robert Half		Spherion		Watson Wyatt & Company
Hudson Highland Group

 

The Company does not set a relative percentile positioning for total compensation as a target for named executive officer pay levels. Rather, the Company reviews total compensation and the mix of the compensation components relative to the peer group as one of the factors in determining if the compensation is adequate to attract and retain the named executive officers with the unique set of skills necessary to manage and motivate a global human capital management firm with over 450 consultants operating in more than 78 offices in 37 countries.

 

The Compensation and Personnel Committee retained Towers Perrin as compensation consultants to assist in the assessment of the competitiveness of the named executive officers’ compensation taking into consideration the factors noted above and any other factors the Compensation and Personnel Committee deemed appropriate. In addition to the foregoing, Towers Perrin was also engaged by the Compensation and Personnel Committee during fiscal 2009 to perform a valuation of the Company’s performance shares.

 

The Company’s named executive officer compensation program consists of three main elements: (1) base salary, (2) annual incentives and (3) long term incentives. The Company also provides its named executive officers with perquisites and other benefits such as health insurance and retirement benefits. The Company strives to align the mix and level of each compensation element in a manner that is consistent with attracting, retaining and rewarding the best talent available to achieve its strategic objectives.

 

Base salary is intended to compensate named executive officers for services rendered during the fiscal year. Named executive officer base salary levels are reviewed on an annual basis by the Compensation and Personnel Committee. To assess base salary levels, competitive data is compiled for the peer group listed above, and additional data is obtained from other sources with respect to non-public competitor organizations. The Compensation and Personnel Committee also uses its general knowledge of the market for senior management positions in assessing base salary levels. The data gathered regarding the peer group companies is also reviewed by Towers Perrin, which provides the Compensation and Personnel Committee with their assessment. Further, the Compensation and Personnel Committee takes into consideration the results of individual appraisals for the named executive officer and, with respect to the Chief Executive Officer’s direct reports, input from the Chief Executive Officer.

 

Annual bonuses are intended to motivate and reward named executive officers for achieving performance and strategic goals over a one-year period. Each fiscal year, the Company establishes objectives, performance with respect to which is taken into account by the Compensation and Personnel Committee in awarding year-end bonus payments. Annual bonuses are typically not guaranteed and the level of annual bonus varies from year-to-year depending upon the performance of the Company and the individual. Annual bonuses are typically paid in cash, but the Compensation and Personnel Committee has discretion to pay a portion of the annual bonus in equity or other long-term incentives. The performance objectives typically include metrics such as revenue, operating income or earnings per share growth. The Company also typically selects various strategic objectives such as recruiting and retention, productivity of consultants, diversification of revenues, brand awareness and customer satisfaction against which named executive officers are measured. The Compensation and Personnel Committee then compares the achievement of the performance goals and strategic objectives against the target and maximum annual bonus amounts as described in the named executive officer’s employment contracts. The Compensation and Personnel Committee, while taking into consideration performance against the goals and strategic objectives for the year, retains discretion in determining actual bonus payouts. For Mr. McNabb, Ms. Dutra and Mr. Reilly, the Compensation and Personnel Committee awarded annual bonuses as follows: Mr. McNabb, $225,000, Ms. Dutra, $450,000 and Mr. Reilly, $333,333. The foregoing bonus amounts reflect performance for Mr. McNabb and Ms. Dutra, primarily based on business unit performance. For Mr. Reilly, the Compensation and Personnel Committee considered a variety of factors in making its recommendation, including the Company’s financial and strategic performance, Mr. Reilly’s performance as Executive Chairman, and his performance as interim Managing Director of Europe, Middle East and Africa (“EMEA”).

 

In light of current economic conditions, Mr. Burnison recommended to the Compensation and Personnel Committee that he not receive an annual cash bonus for fiscal 2009, and the Compensation and Personnel Committee agreed.

 

As discussed in further detail below under “— Employment Agreements” pursuant to the employment agreement Mr. Giusto entered into on March 17, 2009, Mr. Giusto was guaranteed a cash bonus of $400,000 for the Company’s 2009 fiscal year, which the Compensation and Personnel Committee awarded to Mr. Giusto.

 

Long-term incentives are intended to align the named executive officer’ interests with those of stockholders and encourage the achievement of the long-term goals of the Company. Long-term incentives are also designed to motivate and retain top talent. To accomplish these objectives the Compensation and Personnel Committee has discretion to make grants of options, time-based restricted stock or performance award shares under its equity plans (the Performance Award Plan for awards granted prior to passage of the 2008 Plan, and the 2008 Plan for awards granted thereafter, and the A&R 2008 Plan following the Annual Meeting if it is approved by the stockholders) and time-based vesting contributions to the Company’s non-qualified deferred compensation plan. In fiscal 2009, the Compensation and Personnel Committee determined to award a mix of time- and performance based restricted stock because time-based restricted stock offers retention value while performance-based restricted stock only vests upon the satisfaction of certain criteria and thus aligns the interests of management with those of stockholders.

 

Messrs. Burnison and Giusto received 38,350 and 11,360 shares of restricted stock, respectively, with performance related vesting. The performance shares have a three-year performance period after which the initial award of one-times base salary may increase to two-times base salary or decrease to the point where none of the shares may vest, depending upon the Company’s total shareholder return (the “TSR”) over the three-year performance period relative to the peer group of companies listed above. Such shares are subject to full forfeiture and will only vest if the Company meets certain performance targets at the end of three years from the grant date. If the Company’s TSR is less than zero, then the pay-outs will be modified to reduce the percentage of the target.

 

The table below outlines the vesting of the performance shares relative to the peer group.

 

 

On July 10, 2008, time-based restricted stock grants were awarded to the named executive officers as follows: Gary Burnison, 38,350 shares; Stephen Giusto, 11,360 shares and Robert McNabb, 14,200 shares. The restricted stock awarded vests in four equal annual installments beginning on July 10, 2009. On July 8, 2009, Mr. Burnison received a grant of 41,030 shares of restricted stock in recognition of his performance during fiscal 2009. The restricted stock award vests in 2010.

 

The Company provides named executive officers the same benefits that are provided to all employees including medical, dental and vision benefits, group term life insurance and participation in the Company’s 401(k) plan. In addition, the named executive officers receive benefits provided to all employees at the level of vice president and above including participation in the Company’s nonqualified deferred compensation plan and reimbursement for medical expenses not reimbursed under the group medical plan, typically up to $2,500 per annum.

 

Pursuant to the Executive Capital Accumulation Plan (“ECAP”), the named executive officers, along with all other U.S.-based vice presidents, may defer up to 90% of their salary and/or up to 100% of their annual incentive

award into the ECAP. Participants in the ECAP make elections on how they would like their deemed account “invested” from a set line up of 17 pre-determined mutual funds. At its discretion, the Company may make contributions to the ECAP on behalf of a participant. All Company matching and performance contributions to the ECAP are approved by the Compensation and Personnel Committee including the amounts to the named executive officers disclosed under “All Other Compensation” in the Summary Compensation Table on page 27.

 

To further align the named executive officers’ interests with those of our stockholders in June 2007 the Board and the Nominating and Corporate Governance Committee adopted stock ownership guidelines for the Company. Under the stock ownership guidelines, the Chief Executive Officer is required to own two times his annual salary in common stock of the Company and the Chief Financial Officer is required to own one and one half times his annual salary in common stock of the Company, and all other named executive officers are required to own one time their annual salary in common stock of the Company. Non-employee directors are required to own one time their annual cash retainer received for service on the Board. Stock included for determining satisfaction of the guidelines includes direct stock ownership and does not include unvested restricted stock awards. The named executive officers and directors have five years from the later of effective date of the Company’s stock ownership guidelines and the appointment to such position to meet the ownership requirements. As of April 30, 2009, all the named executive officers met the ownership guidelines or are expected to meet the applicable ownership guidelines within the specified time period.

 

Each of the Company’s named executive officers is covered by an employment agreement that provides for a minimum annual level of salary, cash bonus potential, and stock option and benefit eligibility. The agreements with Mr. McNabb, Mr. Burnison and Mr. Giusto also provide for a severance benefit in the event of a termination of employment without “cause” or, in the case of certain of the named executive officers, for “good reason,” as such terms are defined in the agreements. It is the Compensation and Personnel Committee’s belief that such agreements are necessary from a competitive perspective and also contribute to the stability of the management team.

 

Our change in control benefits for Mr. Burnison include a gross-up payment in connection with Section 280G of the Code (referred to as the “Section 280G gross-up”). The Section 280G tax on “excess parachute payments” is assessed, in part, based on Form W-2 income over the five year period (or lesser period if the executive officer has not been employed with the employer for a full five years) preceding a termination in connection with a change in control. Thus, the amount of tax imposed varies depending on factors such as whether the executive officer elected to defer compensation or to exercise stock options and how long the executive officer has been employed with the Company. The Section 280G gross-up payment is intended to make certain that the payments and benefits actually received by Mr. Burnison, net of tax, are consistent with our compensation decisions and do not vary arbitrarily due to the operation of the tax rules. For these reasons, we believe that the provision of the Section 280G gross-up payment for Mr. Burnison is appropriate. The Company will no longer provide for Section 280G gross-up payments in future employment and/or severance arrangements.

 

Please refer to the “Employment Agreements” and “Potential Payments Upon Termination or Change of Control” for further discussion of these employment agreements.

 

The Company does not currently have a policy requiring a specific course of action with respect to compensation adjustments following later restatements of financial results. Under those circumstances, the Compensation and Personnel Committee would evaluate whether adjustments are appropriate based upon the facts and circumstances surrounding the restatement and existing laws.

 

As one of the factors in the review of compensation matters, the Compensation and Personnel Committee considers the anticipated tax treatment to the Company. The deductibility of some types of compensation for named

executive officers depends upon the timing of a named executive officer’s vesting or exercise of previously granted rights or on whether such plans qualify as “performance-based” plans under the provisions of the tax laws. The Compensation and Personnel Committee usually seeks to satisfy the requirements necessary to allow the compensation of its named executive officers to be deductible under Section 162(m) of the Internal Revenue Code, as amended, but may also approve compensation that is not deductible under Section 162(m).

 

The Compensation and Personnel Committee has reviewed and discussed the Compensation Discussion and Analysis (the “CD&A”) for the fiscal year ended April 30, 2009 with management. In reliance on the reviews and discussions with management relating to the CD&A, the Compensation and Personnel Committee has recommended to the Board, and the Board has approved, that the CD&A be included in this Proxy Statement.

 

Compensation and Personnel Committee

 

Kenneth Whipple, Chair

Edward D. Miller

Ihno Schneevoigt

Gerhard Schulmeyer

 

From May 1, 2008 to September 23, 2008, the Compensation and Personnel Committee was comprised of former director Mr. Cahouet and Messrs. Miller, Schneevoigt, Schulmeyer and Whipple and from September 23, 2008 until present, the Compensation and Personnel Committee has been comprised of Messrs. Miller, Schneevoigt, Schulmeyer and Whipple. During fiscal 2009, at all times, all members of the Compensation and Personnel Committee were “independent”, none were employees or former employees of the Company and none had any relationship with the Company requiring disclosure under Item 404 of Regulation S-K. None of our executive officers served on the compensation committee or board of directors of another entity whose executive officer(s) served on our Compensation and Personnel Committee or Board.

 

The following table sets forth information with respect to the total compensation paid or earned by each of the named executive officers in fiscal 2009, 2008 and 2007.

 

 

 

 

The following table sets forth information with respect to options to purchase shares of the Company’s common stock and all other equity awards granted in fiscal 2009 to the named executive officers.

 

 

Certain elements of compensation set forth in the “Summary Compensation Table” and “Grants of Plan-Based Awards Table” reflect the terms of employment agreements entered into between the Company and each of named executive officers that were in effect as of April 30, 2009. Since the end of the fiscal year, various change have taken place which are summarized below but are not reflected in the tables above.

 

Paul C. Reilly.  Mr. Reilly served as Executive Chairman under the terms and conditions of an employment agreement dated as of April 24, 2007, which subsequently expired and was supplanted by a new employment agreement dated July 14, 2008 (the “Reilly Employment Agreement”). Under the Reilly Employment Agreement, we agreed to provide Mr. Reilly with an annual base salary of $500,000 and a target cash bonus of $750,000. In addition to such target bonus, under the Reilly Employment Agreement, Mr. Reilly could also be considered for an additional bonus amount based upon critical special assignments. In addition to serving as Executive Chairman, during fiscal 2009, Mr. Reilly also served as the interim Managing Director of EMEA. In connection with his position as interim Managing Director EMEA, the Compensation and Personnel Committee approved parameters under which Mr. Reilly could earn a bonus based upon his performance. Mr. Reilly resigned as Executive Chairman and interim Managing Director EMEA effective April 30, 2009.

 

Gary D. Burnison.  We entered into an employment agreement with Mr. Burnison dated April 24, 2007 (the “Burnison Employment Agreement”) pursuant to which Mr. Burnison serves as Chief Executive Officer. Pursuant to the Burnison Employment Agreement, we agreed to provide Mr. Burnison with the following annual compensation: (1) an annual base salary of $575,000; (2) participation in the Company’s annual cash incentive plan with an annual target award of 100% of annual base salary and the ability to earn additional amounts up to a maximum cash award of 200% of annual base salary; and (3) subject to approval of the Board, participation in the Company’s equity incentive program, pursuant to which Mr. Burnison was initially eligible to receive (a) a grant of restricted stock with a target grant value of $900,000; (b) an award of performance shares with a target grant value of 100% of annual base salary; and (c) an annual grant of restricted stock with a target grant value of 100% of annual base salary. Effective July 1, 2008, the Board approved an increase in Mr. Burnison’s annual base salary to $675,000.

 

In light of the current economic environment, Mr. Burnison requested, and the Board has agreed to, a temporary salary reduction effective as of July 1, 2009 which is pursuant to a letter agreement dated June 25, 2009. Mr. Burnison’s salary will be ratably reduced by $75,000. This salary reduction will continue until April 30, 2010. Additionally, in accordance with the Company’s furlough policy, Mr. Burnison will forego an additional $25,000 of salary. The temporary salary reduction will have no effect on the calculation of cash and equity awards as well as severance and change in control benefits, all of which will be calculated based upon Mr. Burnison’s salary levels prior to the reduction.

 

Stephen J. Giusto.  We entered into an employment agreement with Stephen Giusto on October 10, 2007 (the “Giusto Employment Agreement”). The Giusto Employment Agreement provided for (1) an annual base salary of

$400,000; (2) participation in the Company’s annual cash incentive plan with an annual target award of 100% of annual base salary and the ability to earn additional amounts up to an additional maximum cash award of 200% of annual base salary; and (3) participation in the Company’s long-term, equity incentive program, pursuant to which Mr. Giusto was initially eligible to receive (a) a one-time grant of 17,000 shares of restricted stock, (b) an equity award of restricted shares with a value of 100% of base salary and (c) an equity award of performance shares with a value equal to 100% of base salary.

 

On March 17, 2009, the Company and Mr. Giusto entered into a new employment Agreement (the “New Giusto Employment Agreement”) pursuant to which, effective May 1, 2009, Mr. Giusto stepped down as Chief Financial Officer and agreed to serve as Senior Advisor to the CEO. Pursuant to the terms of the New Giusto Employment Agreement, Mr. Giusto will receive an annual base salary of $400,000 and a guaranteed cash bonus for the Company’s 2009 fiscal year of not less than $400,000. Mr. Giusto will also be eligible to receive a bonus for the period of May 1, 2009 through the termination of the New Giusto Employment Agreement (May 31, 2010), at the sole discretion of the Chief Executive Officer, but will not be eligible to receive additional equity awards.

 

Robert H. McNabb.  We entered into an employment agreement (the “McNabb Employment Agreement”) with Robert McNabb as Chief Executive Officer of Futurestep, Inc., and Executive Vice President of the Company on October 1, 2003. The original term of the agreement was from October 1, 2003 until October 1, 2006. On September 29, 2006, we entered into a letter agreement (the “2006 McNabb Letter Agreement”) with Mr. McNabb to extend Mr. McNabb’s employment until September 30, 2009, and on June 25, 2009, pursuant to a letter agreement (the “2009 McNabb Letter Agreement”), the Company exercised its option to extend Mr. McNabb’s employment as Chief Executive Officer of Futurestep, Inc. and Executive Vice President of the Company for an additional 3-year term through September 30, 2012. The 2009 McNabb Letter Agreement provides that Mr. McNabb is to receive the same salary and incentives as provided for in the McNabb Employment Agreement. Pursuant to the McNabb Employment Agreement, Mr. McNabb receives (1) an annual base salary of $450,000; (2) an annual target bonus of 100% of base salary and an annual maximum bonus of 200% of base salary; (3) subject to the discretion and approval of the Board, an annual grant of stock options with a target value of 50% of base salary and a maximum grant value of 100% of base salary; and (4) subject to the discretion and approval of the Board, an annual grant of restricted stock.

 

Ana Dutra.  We entered into a letter agreement with Ana Dutra on January 16, 2008 (the “Dutra Letter Agreement”). The Dutra Letter Agreement provides for (1) an annual base salary of $450,000; (2) an annual target incentive award (cash and long-term equity) with a value of $650,000; (3) for fiscal 2008, a $70,000 cash stipend secured by a promissory note to be forgiven on the third anniversary of Ms. Dutra’s hire date; (4) for fiscal 2009, a minimum guaranteed cash bonus award of $350,000; (5) a recommendation to the Compensation and Personnel Committee to award Ms. Dutra $750,000 of restricted stock; and (6) an additional equity award of $750,000 shares of restricted stock to replace equity from her prior employer. Pursuant to the terms of the Dutra Letter Agreement, on March 3, 2008, the Compensation and Personnel Committee awarded to Ms. Dutra 89,180 shares of restricted stock.

 

The following table sets forth information with respect to options to purchase shares of the Company’s common stock and restricted stock grants to the named executive officers outstanding as of April 30, 2009.

 

 

 

 

 

The following table sets forth information with respect to option exercises and vesting of stock awards for each of the named executive officers during the fiscal year ended April 30, 2009.

 

 

The following table sets forth the pension benefits of the named executive officers as of April 30, 2009.

 

Enhanced Wealth Accumulation Plan

 

We amended the Enhanced Wealth Accumulation Plan (“EWAP”) in 2003 to allow no new participation in the plan. Under the terms of the EWAP designated managing directors and vice presidents were entitled to participate in a “deferral unit” and receive an unfunded defined benefit payment upon attainment of age 65, with a reduced benefit available as early as age 55. Participants are required to contribute a portion of their compensation for an eight year period in exchange for defined benefit payments from the Company equal to their years of service up to a maximum of 15 years of service.

 

The nonqualified defined contributions of the named executive officers as of April 30, 2009 are set forth in the table below.

 

 

 

 

Please see the “Compensation Discussion and Analysis” section for further discussion of the Company’s nonqualified deferred compensation plan.

 

The tables below reflect the amount of compensation that would become payable to each of the named executive officers under existing plans and arrangements if the named executives officer’s employment had terminated on April 30, 2009 (pursuant to their employment agreements then in effect), given the named executive officer’s compensation and service levels as of such date and, if applicable, based on the Company’s closing stock price on that date. These benefits are in addition to benefits available prior to the occurrence of any termination of employment, including benefits under then-exercisable stock options, benefits generally available to salaried employees, such as distributions under the Company’s 401(k) plan and pension plan, and previously accrued and vested benefits under the Company’s nonqualified deferred compensation plans, as described in the tables above. In addition, in connection with any actual termination of employment, the Company may determine to enter into an agreement or to establish an arrangement providing additional benefits or amounts, or altering the terms of benefits described below, as the Compensation and Personnel Committee determines appropriate. The actual amounts that would be paid upon a named executive officer’s termination of employment can be determined only at the time of such named executive officer’s separation from the Company. Due to the number of factors that affect the nature and amount of any benefits provided upon the events discussed below, any actual amounts paid or distributed may be higher or lower than reported below. Factors that could affect these amounts include the timing during the year of any such event, the Company’s stock price and the named executive officer’s age. Changes in severance and change in control arrangements that took place after the end of the fiscal year are described below but are not reflected in the tables below. Ms. Dutra is not eligible for severance or change in control benefits.

Paul C. Reilly.  Mr. Reilly resigned as Executive Chairman and interim Managing Director EMEA effective April 30, 2009. In connection with his resignation, Mr. Reilly will receive, six months following his termination, in lump sum, a previously accrued payment of $1,625,000.

 

Gary D. Burnison.  Under the Burnison Employment Agreement, if Mr. Burnison’s employment terminates due to death or disability, then we will pay him, or his legal representatives: (1) all accrued compensation as of the date of termination; (2) all outstanding stock options, other equity-type incentives (excluding performance shares) and benefits under the ECAP will fully vest; (3) a pro rata portion of his target annual cash incentive award for the fiscal year in which his employment is terminated; (4) the number of performance shares that would have been earned if he had served the Company for the entire performance period and the target performance had been achieved; and (5) reimbursement of COBRA coverage premiums for him and his dependants for as long as such coverage is available under COBRA. If we terminate Mr. Burnison’s employment for cause or he voluntarily terminates his employment without good reason, then we will pay him accrued compensation through the date of termination.

 

Prior to a change in control or more than 12 months after a change in control, if Mr. Burnison’s employment is terminated by us without cause or by Mr. Burnison for good reason, then we will provide him with the following: (1) his accrued compensation; (2) a pro rata portion of his target annual cash incentive award for the year in which his employment is terminated; (3) cash payments equal to one and one-half times his then current annual base salary and one and one-half times his target bonus; (4) for up to 18 months after termination, reimbursement of COBRA coverage premiums for him and his dependants for as long as such coverage is available under COBRA; (5) all outstanding stock options, other equity-type incentives, and all benefits held under the ECAP (excluding performance shares) at the time of termination that would have vested within 12 months of his termination will vest on the date of termination; and (6) a pro rata award of performance shares assuming the Company meets applicable performance targets.

 

If there is a change of control and within 12 months Mr. Burnison’s employment is terminated by us without cause or by Mr. Burnison for good reason, then we will provide him with the following: (1) his accrued compensation; (2) a pro rata portion of his target annual cash incentive award; (3) cash payments equal to the sum of two times his current annual base salary and two times his target bonus; (4) for up to 18 months after termination, reimbursement of COBRA coverage premiums for him and his dependants for so long as such coverage is available under COBRA and six months thereafter, and reimbursement of a portion of the cost of healthcare coverage for him and his dependants; (5) all outstanding stock options, other equity-type incentives, and all benefits under ECAP (excluding performance shares) at time of termination will vest; (6) a pro rata award of performance shares based on the Company’s actual performance; and (7) a pro rata award of performance shares assuming the Company meets applicable performance targets.

 

The Burnison Employment Agreement generally provides for the payment of any excise tax, if applicable, including any interest or penalties, imposed by Section 4999 of the Internal Revenue Code of 1986, as amended.

 

 

 

Stephen J. Giusto.  The New Giusto Employment Agreement provides for the following payments and benefits to Mr. Giusto upon termination. If Mr. Giusto’s employment terminates due to death, we will pay his legal representatives: (1) all accrued compensation as of the date of termination; (2) base salary for the remaining term of the New Giusto Employment Agreement (expires May 31, 2010); (3) all outstanding stock options, other equity-type incentives (excluding performance shares) and benefits under the ECAP will fully vest; and (4) continued participation for Mr. Giusto’s dependants in the Company’s group health plans at the expense of the Company for as long as COBRA is available and, for up to 18 months thereafter, reimbursement of a portion of the cost of healthcare coverage for his dependants. If Mr. Giusto’s employment terminates due to disability, we will pay him: (1) all accrued compensation as of the date of termination; (2) all outstanding stock options, other equity-type incentives (excluding performance shares) and benefits under the ECAP will fully vest; and (3) continued participation for Mr. Giusto’s dependants in the Company’s group health plans at the expense of the Company for as long as COBRA is available. If the Company terminates Mr. Giusto for cause, then we will pay Mr. Giusto accrued compensation through the date of termination. If Mr. Giusto voluntarily terminates his employment, the Company will provide him and his dependants with continued participation in the Company’s group health plans at the expense of the Company for as long as COBRA is available and for up to 36 months thereafter, reimbursement of a portion of the cost of healthcare coverage for him and his dependants. If Mr. Giusto is terminated by the Company without cause (other than due to death or disability), the Company will pay him: (1) all accrued compensation as of the date of termination; (2) base salary for the remaining term of the New Giusto Employment Agreement; (3) all outstanding stock options, other equity-type incentives (excluding performance shares) and benefits under the ECAP that would have vested prior to May 31, 2010 will become fully vested; and (4) continued participation for Mr. Giusto and his dependants in the Company’s group health plans at the expense of the Company for up to 18 months and for up to 36 months thereafter, and reimbursement of a portion of the cost of healthcare coverage for him and his dependants.

 

 

 

 

Robert H. McNabb.  The McNabb Employment Agreement, as modified by the McNabb 2006 Letter Agreement, provides for the following payments and benefits to Mr. McNabb upon termination. If Mr. McNabb’s employment terminates due to death or disability, we will pay him or his legal representatives: (1) all accrued compensation as of the date of termination; (2) all outstanding stock options and other equity-type incentives will fully vest; and (3) continued participation for Mr. McNabb and/or his dependants in the Company’s group health plans at the expense of the Company for as long as COBRA is available. If the Company terminates Mr. McNabb for cause or Mr. McNabb voluntarily terminates his employment without good reason, then we will pay Mr. McNabb within 30 days after the date of such termination accrued compensation through the date of termination.

If, prior to a change in control, Mr. McNabb’s employment is terminated by the Company without cause or by reason of a failure to renew the term of Mr. McNabb’s employment with the Company, we will pay within 30 days of termination: (1) his accrued compensation; (2) one times his base salary; (3) one time his annual target cash bonus; (4) all unvested outstanding stock options and other equity-type incentives held at the time of termination that would have vested during the 12 months following termination will vest on the date of termination; and (5) for up to 18 months after termination, continued participation for Mr. McNabb and his dependants in the Company’s group health plans at the Company’s expense.

 

If, after a change in control and within 12 months, Mr. McNabb’s employment is terminated by the Company without cause or by reason of a failure to renew before Mr. McNabb reaches the age of 65, or by Mr. McNabb for good reason, he will receive: (1) his accrued compensation; (2) one and one-half times his current base salary; (3) one and on-half times the annual target cash bonus for the incentive year in which termination occurs; (4) all outstanding stock options and other equity-type incentives held by Mr. McNabb at termination will become fully vested; and (5) for up to 18 months after termination, continued participation for Mr. McNabb and his dependants in the Company’s group health plans at the Company’s expense.