UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

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1900 Avenue of the Stars, Suite 2600

Los Angeles, California 90067

 

August 12, 2010

 

Dear Stockholders:

 

It is my pleasure to invite you to attend the 2010 Annual Meeting of Stockholders (the “Annual Meeting”) of Korn/Ferry International. The Annual Meeting will be held on September 14, 2010 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 provide 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 2010 ANNUAL MEETING
To Be Held On September 14, 2010

 

Important Notice Regarding the Availability of Proxy Materials for the
Stockholder Meeting to be Held on September 14, 2010.

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

To the Stockholders:

 

On September 14, 2010, Korn/Ferry International (the “Company”, “we”, “its” and “our”) will hold its 2010 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, 2010 (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 the two directors named in the Proxy Statement accompanying this notice to serve on the Board of Directors (the “Board”) until the 2013 Annual Meeting of Stockholders;

 

2. Ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the Company’s 2011 fiscal year; and

 

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

 

The Board unanimously recommends that you vote “FOR” the approval of each of the two 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 12, 2010. 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 12, 2010

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 the two directors named in this Proxy Statement and the Board for the coming year will be comprised of eight directors. The directors elected at the Annual Meeting will serve as Class 2013 Directors for a term of three years. The nominees for election at the Annual Meeting to serve as Class 2013 Directors are Messrs. Gary Burnison and Edward Miller. 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.” 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.

 

Required Vote

 

Directors are elected by a plurality. Therefore, the two 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.

 

The Audit Committee has approved the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal 2011. 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 Ernst & Young LLP as the Company’s 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 2011.

 

The Board is divided into three classes: (1) Class 2011 Directors, who will serve until the 2011 Annual Meeting of Stockholders; (2) Class 2012 Directors, who will serve until the 2012 Annual Meeting of Stockholders; and (3) Class 2013 Directors, who will serve until the 2013 Annual Meeting of Stockholders. Following the Annual Meeting there will be three Class 2011 Directors, three Class 2012 Directors, and two Class 2013 Directors.

 

The Board believes that the Board, as a whole, should possess a combination of skills, professional experience and diversity of backgrounds necessary to oversee the Company’s business. In addition, the Board believes there are certain attributes every director should possess, as reflected in the Board’s membership criteria discussed below. Accordingly, the Board and the Nominating and Corporate Governance Committee consider the qualifications of directors and director candidates individually and in the broader context of the Board’s overall composition and the Company’s current and future needs.

 

The Nominating and Corporate Governance Committee is responsible for developing and recommending Board membership criteria to the full Board for approval. The criteria, which are set forth in the Company’s Corporate Governance Guidelines include a reputation for integrity, honesty and adherence to high ethical standards, strong management experience, current knowledge and contact in the Company’s industry or other industries relevant to the Company’s business, and the ability to commit sufficient time and attention to Board and committee activities. The Nominating and Corporate Governance Committee seeks a variety of occupational, educational, and personal backgrounds on the Board in order to obtain a range of viewpoints and perspectives and to enhance the diversity of the Board in such areas as professional experience, geography, race, gender, ethnicity and age. While the Nominating and Corporate Governance Committee does not have a formal policy with respect to diversity, the Nominating and Corporate Governance Committee believes that it is essential that Board members represent diverse viewpoints and backgrounds. The Nominating and Corporate Governance Committee periodically evaluates the composition of the Board to assess the skills and experience that are currently represented on the Board, as well as the skills and experience that the Board will find valuable in the future, given the Company’s current situation and strategic plans. This periodic assessment enables the Board to update the skills and experience it seeks in the Board as a whole, and in individual directors, as the Company’s needs evolve and change over time and to assess effectiveness of efforts at pursuing diversity. In identifying director candidates from time to time, the Nominating and Corporate Governance Committee may establish specific skills and experience that it believes the Company should seek in order to constitute a balanced and effective board.

 

In evaluating director candidates, and considering incumbent directors for renomination to the Board, the Nominating and Corporate Governance Committee takes into account a variety of factors. These include each nominee’s independence, financial literacy, personal and professional accomplishments, and experience, each in light of the composition of the Board as a whole and the needs of the Company in general, and for incumbent directors, past performance on the Board. The table below sets forth information about the two nominees for Class 2013 Directors and the directors whose terms of office continue beyond the Annual Meeting, including each such person’s specific experience, qualifications, attributes and skills that led our Board to conclude that such nominee/director should serve on our Board. The process undertaken by the Nominating and Corporate Governance Committee in recommending qualified director candidates is described below under “Corporate Governance— Board Committees — Nominating and Corporate Governance Committee.”

 

The following table sets forth certain information regarding the nominees for Class 2013 Directors.

 

 

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

 

 

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

 

 

The Board held seven meetings during fiscal 2010. Each of the directors attended at least 75% of the Board meetings and the meetings of committees of which they were members in fiscal 2010. Directors are expected to attend each annual meeting of stockholders. All directors attended the 2009 Annual Meeting of Stockholders in person.

 

The Board has determined that as of the date hereof a majority of the Board is “independent” under the independence standards of the New York Stock Exchange (“NYSE”). The Board has determined that the following directors and director-nominees are “independent” under the independence standards of the NYSE: Kenneth Whipple, Edward Miller, Debra Perry, Gerhard Schulmeyer, Harry You, Denise Kingsmill and George Shaheen and that James Barlett, Patti Hart and Ihno Schneevoigt were each “independent” within the independence standards of the NYSE during their term of service on the Board in fiscal 2010. For a director to be “independent”, the Board must affirmatively determine that such director does not have any material relationship with the Company. To assist the Board in its determination, 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.

 

The Company’s Corporate Governance Guidelines provide that the Board is free to select its Chair and CEO in the manner it considers to be in the best interests of the Company and that the role of Chair and CEO may be filled by a single individual or two different persons. This provides the Board with flexibility to decide what leadership structure is in the best interest of the Company at any point in time. Currently, the Board is led by an independent, non-executive Chair, Mr. Kenneth Whipple. The Board has determined that having an independent director serve as Chair of the Board is in the best interests of the Company at this time as it allows the Chair to focus on the effectiveness and independence of the Board while the CEO focuses on executing the Company’s strategy and managing the Company’s business. In the future, the Board may determine that it is in the bests interests of the Company to combine the role of Chair and CEO.

 

The Board plays an active role, both as a whole and also at the committee level, in overseeing management of the Company’s risks. Management is responsible for the Company’s day-to-day risk management activities. The Company, through its internal auditor, has established an enterprise risk framework for identifying, aggregating, quantifying and evaluating risk across the enterprise. The risk framework is integrated with the Company’s annual planning, audit scoping and control evaluation management by its internal auditor. The review of risk management is a dedicated periodic agenda item for the Audit Committee, whose responsibilities include periodically reviewing management’s financial risk assessment and risk management policies, the Company’s major financial risk exposures, and the steps management has taken to monitor and control such exposures. The Company’s other Board committees also consider and address risk during the course of their performance of their committee responsibilities. Specifically, the Compensation and Personnel Committee oversees the Company’s assessment and management of risk related to the Company’s compensation plans, policies and overall philosophy, discussed in more detail below, and the Nominating and Corporate Governance Committee oversees risks associated with operations of the Board and its governance structure. Further, at each Board meeting the General Counsel reports on litigation and other legal risks that may affect the Company. The full Board monitors risks through regular reports from each of the Committee chairs and the General Counsel, and is apprised of particular risk management matters in connection with its general oversight and approval of corporate matters. We believe the division of risk management responsibilities described above provides an effective framework for evaluating and addressing the risks facing the Company, and that our Board leadership structure supports this approach because it allows our independent directors, through the independent committees and non-executive Chair, to exercise effective oversight of the actions of management.

 

Assessment of Risk Related to Compensation Programs.  During fiscal year 2010, the Company completed an inventory of its executive and non-executive compensation programs globally, with particular emphasis on incentive compensation plans and programs. Based on this inventory, the Company evaluated the primary components of its compensation plans and practices to identify whether those components, either alone or in combination, properly balanced compensation opportunities and risk.

 

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 non-employee 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 Messrs. You and Shaheen 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 seven times in fiscal 2010. 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 the Company’s compensation programs, 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 five times during fiscal 2010. 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 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. While the Nominating and Corporate Governance Committee does not have a formal policy with respect to diversity, it also takes into account the diversity of the Board when considering director nominees. 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 six times in fiscal 2010. 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.

 

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 amendments, if any, 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.

 

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 a director 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 473 consultants located in 36 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 and the Company’s overall compensation programs, including its Performance Award Plan and the Amended and Restated 2008 Plan. 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 retained Towers Watson and Pay Governance LLC as compensation consultants to assist in the assessment of the competitiveness of the named executive officers’ compensation taking into consideration the factors discussed below under “Executive Compensation Philosophy.”. In addition to the foregoing, Towers Watson was also engaged by the Company during fiscal 2010 to perform a valuation of our deferred compensation liabilities. The fees for these additional services did not exceed $120,000. Pay Governance LLC was solely engaged for assistance with the assessment of named executive officers’ compensation.

 

Throughout this Proxy Statement, the individuals who served as the Company’s Chief Executive Officer and Chief Financial Officer during fiscal 2010, as well as the other individuals included in the Summary Compensation Table on page 21, 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 executive officer 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 general knowledge of the Compensation and Personnel Committee and its consultant with regard to 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		Towers Watson
Robert Half		Spherion		Hudson Highland Group

 

The peer group is primarily selected based upon criteria such as business lines, operating model, revenue size, customer base and entities with which the Company competes for stockholder investment. The difference between the 2009 and 2010 peer group is that MPS Group was eliminated after its acquisition by Adecco.

 

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 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 473 consultants operating in more than 76 offices in 36 countries.

 

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 and to provide sufficient fixed cash income for retention and recruiting purposes. 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 and its compensation consultants’ 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 and assessed by Towers Watson and Pay Governance LLC. Further, the Compensation and Personnel Committee takes into consideration the results of individual appraisals for each named executive officer and, with respect to the Chief Executive Officer’s direct reports, input from the Chief Executive Officer.

 

In light of the economic environment at the time, effective July 1, 2009, Mr. Burnison requested, and Board agreed to, a temporary salary reduction of $75,000. This temporary reduction expired on April 30, 2010. Based upon the Company’s above market performance in fiscal year 2010, and also taking into consideration competitive data, the Compensation and Personnel Committee increased Mr. Burnison’s base salary from $675,000 to $700,000 effective May 1, 2010.

 

There were no changes to the base salaries of the Company’s other names executive officers during fiscal year 2010 as the Compensation and Personnel Committee determined based on competitive data and general market knowledge that the base salary levels of the other named executive officers were appropriate.

 

Annual bonuses are intended to motivate and reward named executive officers for achieving performance and strategic goals over a one-year period. The Compensation and Personnel Committee determines annual bonus amounts based upon a number of factors including performance goals, strategic objectives, competitive data, individual performance, and the terms of employment contracts. While the Compensation and Personnel Committee does not target a particular position relative to its peer group, in determining the annual bonus awards for each named executive officer, the Compensation and Personnel Committee does consider the range of annual incentives that the peer group provides to similarly situated executives and intends that annual bonuses provided to each named executive officer fall within that range. The annual bonus awards for fiscal year 2010 fell within this range. While the Compensation and Personnel Committee does take into consideration performance against performance goals and strategic objectives for the year, it retains discretion in determining actual bonus payouts. 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 goals with respect to our annual bonus program typically include metrics such as revenue, operating income, earnings per share 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. These various factors are not given specific weights; the Compensation and Personnel Committee retains the ability to consider these

factors as it deems appropriate. 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 officers’ employment contracts.

 

The performance goals for fiscal 2010 were revenues of $425 million and break-even cash-flow. The Company for purposes of this performance goal has defined cash-flow as earnings before interest, taxes, depreciation and amortization adding back non-cash amortization of long term compensation. Actual results for fiscal 2010 were revenues of $572 million and positive cash flow of $50.5 million. These performance goals were chosen by the Compensation and Personnel Committee in light of the extremely challenging macroeconomic environment that existed at the beginning of fiscal year 2010. Revenue and cash flow are considered appropriate and significant metrics for performance due to their importance to investors and as an indication of the performance of the Company. The Compensation and Personnel Committee also took into consideration the need to preserve the revenue generation capability of the Company in setting the performance goals for fiscal 2010.

 

The strategic objectives for fiscal 2010 consisted of maintaining the Company’s position with regard to recruitment and retention of executives and key employees, increasing the productivity of consultants, diversification of Company revenues, maintaining and expanding brand awareness and increasing client satisfaction. Strong performance against these objectives is considered difficult to achieve, and, despite this, the Company performed very well against the strategic objectives in fiscal 2010 in addition to its strong performance against the financial performance goals.

 

Consistent with past practice, in determining annual bonus amounts for fiscal 2010, the Compensation and Personnel Committee considered a number of factors, including performance goals, strategic objectives, competitive data, individual performance, and the terms of employment contracts. In assessing performance against the Company’s performance goals, the Compensation and Personnel Committee noted the Company’s above market performance during fiscal 2010 which surpassed analyst expectations and projections and the Company’s stock price growth, year over year, of 53% (based on the stock price at the close of fiscal year 2009 of $10.59 and the stock price at the close of fiscal year 2010 of $16.21).

 

In determining Mr. Burnison’s and Mr. DiGregorio’s annual bonus for fiscal 2010, the Compensation and Personnel Committee considered the Company’s performance against the Company’s performance goals and its strategic objectives. Noting the Company’s above market performance and the difficulty of the Company’s objectives in the economic environment that existed during 2010, the Compensation and Personnel Committee determined that Mr. Burnison and Mr. DiGregorio performed these objectives well. In addition, in determining Mr. Burnison’s and Mr. DiGregorio’s annual bonus for fiscal 2010, the Compensation and Personnel Committee considered Mr. Burnison’s and Mr. DiGregorio’s individual performances as Chief Executive Officer and Chief Financial Officer, respectively.

 

In addition to the factors discussed above, when determining the amount of Mr. McNabb’s annual bonus amount for fiscal 2010, the Compensation and Personnel Committee considered the performance of Futurestep relative to the strategic objectives established for Futurestep for the fiscal year, the performance of Futurestep, Mr. McNabb’s individual performance, Mr. McNabb’s additional responsibilities for worldwide strategic account management, and the transition of leadership responsibilities for Futurestep to Mr. Mulrooney. The strategic objectives established for Futurestep for fiscal 2010 consisted of maintaining the business unit’s position with regard to recruitment and retention of executives and key employees, increasing the productivity of consultants, diversifying business unit revenues, maintaining and expanding brand awareness and increasing client satisfaction. The Compensation and Personnel Committee, noting in particular the additional responsibilities of Mr. McNabb regarding worldwide strategic account management during fiscal 2010 and the difficulty of the Futurestep objectives in the economic environment that existed during the fiscal year, determined that Mr. McNabb performed these objectives well.

 

In addition to the factors described above, when determining the amount of Ms. Dutra’s annual bonus amount for fiscal 2010, the Compensation and Personnel Committee first considered the performance of the Leadership and Talent Consulting line of business (“LTC”) relative to strategic objectives established for LTC for the fiscal year, the performance of LTC and Ms. Dutra’s individual performance. The strategic objectives established for LTC for fiscal 2010 consisted of recruitment and retention of executives and key employees, increasing the productivity of

consultants, integration of acquisitions, maintaining and expanding brand awareness and increasing client satisfaction. The Compensation and Personnel Committee, noting the difficulty of these objectives in the face of challenging economic conditions, determined that Ms. Dutra performed these objectives well.

 

For Messrs. Burnison, DiGregorio, McNabb, and Ms. Dutra, the Compensation and Personnel Committee awarded annual bonuses as follows: Mr. Burnison $650,000, Mr. DiGregorio $622,500, Mr. McNabb $550,000, and Ms. Dutra $450,000. Mr. Mulrooney did not receive a bonus for fiscal year 2010.

 

Long-term incentives are intended to align the named executive officers’ 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 help 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 A&R 2008 Plan, and the A&R 2008 Plan for awards granted thereafter) and time-based vesting contributions to the Company’s non-qualified deferred compensation plan. In fiscal 2010, the Compensation and Personnel Committee determined to award a mix of time- and performance-based restricted stock. Time-based restricted stock aligns the interests of the named executive officers’ with stockholders as the future value of the award is dependant upon the Company’s performance, but also adds an element of retention as the award is expected to have value even in a difficult economic environment.

 

The Compensation and Personnel Committee determines long-term incentive award amounts based upon a number of factors including competitive data, total overall compensation provided to each named executive officer, Company performance, historic grants, and the terms of employment agreements, if applicable. The various factors are not given specific weights; the Compensation and Personnel Committee retains discretion to consider items as it deems appropriate. While the Compensation and Personnel Committee does not target a particular position relative to its peer group, in determining the long-term incentive awards for each named executive officer the Compensation and Personnel Committee does consider the range of long-term incentives that the peer group provides to similarly situated executives and intends that long-term incentives provided to each named executive officer fall within that range. The awards for fiscal year 2010 fell within this range.

 

Historically and in fiscal year 2010, our Chief Executive Officer received annual equity grants equal to 2x his base salary, paid 50% in performance shares and 50% in time-based restricted stock, which amount falls within the range of long-term incentives provided by the peer group companies. The Compensation and Personnel Committee determined for fiscal 2010 that this was an appropriate level of equity grant to motivate our Chief Executive Officer to meet the Company’s long-term goals.

 

In fiscal year 2010, the Company granted the following long term incentive awards:

 

 

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

 

 

 

 

 

In fiscal year 2011, the Company granted the following long term incentive awards, in part to reward named executive officer performance in fiscal year 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 an automobile allowance, 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.

 

The Company maintains a nonqualified deferred compensation plan, known as the Korn/Ferry International Executive Capital Accumulation Plan (“ECAP”). Pursuant to the 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 21.

 

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, 2010, 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 Messrs. Burnison, DiGregorio and McNabb, 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, 2010 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

 

Gerhard Schulmeyer, Chair

Denise Kingsmill

Edward D. Miller

 

From May 1, 2009 to September 10, 2009, the Compensation and Personnel Committee was comprised of former director Mr. Schneevoigt, and current directors Messrs. Schulmeyer and Whipple and from September 10, 2009 until present, the Compensation and Personnel Committee has been comprised of Messrs. Schulmeyer and Miller, and Baroness Kingsmill. During fiscal 2010, 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 2010, 2009 and 2008.

 

 

 

 

 

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 2010 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, 2010.

 

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.

 

In light of the economic environment at the start of fiscal 2010, Mr. Burnison requested, and the Board agreed to, a temporary salary reduction effective as of July 1, 2009 which was pursuant to a letter agreement dated June 25, 2009. Mr. Burnison’s salary was ratably reduced by $75,000. This salary reduction continued until April 30, 2010. Additionally, in accordance with the Company’s furlough policy, Mr. Burnison forewent approximately an

additional $25,000 of salary during fiscal 2010. The temporary salary reduction had no effect on the calculation of cash and equity awards as well as potential severance and change in control benefits, all of which are be calculated based upon Mr. Burnison’s salary levels prior to the reduction. The Compensation and Personnel Committee increased Mr. Burnison’s base salary from $675,000 to $700,000 effective May 1, 2010.

 

Michael A. DiGregorio.  We entered into an employment agreement (the “DiGregorio Employment Agreement”) with Michael DiGregorio as Executive Vice President and Chief Financial Officer of the Company on May 14, 2009. Pursuant to the terms of the DiGregorio Employment Agreement, Mr. DiGregorio receives an annual base salary of $475,000 and is eligible for an annual target cash incentive award equal to 75% of his annual base salary with the ability to earn additional amounts up to a maximum cash award equal to 150% of his annual base salary. For fiscal year 2010, Mr. DiGregorio was entitled to receive a guaranteed cash incentive award of no less than $225,000, payable in 24 equal semi-monthly installments, subject to Mr. DiGregorio’s continued employment. On June 6, 2009, per the terms of the DiGregorio Employment Agreement, Mr. DiGregorio received an initial one-time stock option award with a target grant value of 75% of his annual base salary which vests in four (4) annual installments from the effective date of grant, in each case subject to Mr. DiGregorio’s continued employment. Commencing with the completion of fiscal year 2010, Mr. DiGregorio is eligible to receive annually at the close of each fiscal year (a) an award of performance shares, with a target grant value of 37.5% of his annual base salary, which will be earned at the end of, and based on the Company’s performance during, a performance period of 3 years; and (b) a grant of restricted stock and/or stock options, with a target grant value of 37.5% of his annual base salary, which will vest in four (4) annual installments from the effective date of grant, in each case subject to Mr. DiGregorio’s continued employment

 

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 of restricted stock to replace equity from her prior employer.

 

Byrne Mulrooney.  We entered into a letter agreement with Byrne Mulrooney on March 29, 2010 that was effective April 5, 2010 (the “Mulrooney Letter Agreement”). The Mulrooney Letter Agreement provides for (1) an annual base salary of $300,000; (2) a monthly cash stipend equal to $8,333; (3) an annual target incentive award (cash and long-term equity) with a value of $400,000; and (4) a recommendation to the Compensation and Personnel Committee to award Mr. Mulrooney $400,000 of restricted stock.

 

The following table sets forth information with respect to named executive officer equity awards outstanding as of April 30, 2010.

 

 

 

 

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, 2010.

 

 

The following table sets forth the pension benefits of the named executive officers as of April 30, 2010.

 

 

 

 

Enhanced Wealth Accumulation Plan

 

The Enhanced Wealth Accumulation Plan (“EWAP”) was established in fiscal 1994. Certain vice presidents elected to participate in a “deferral unit” that required the participant to contribute a portion of their compensation for an eight year period, or in some cases, make an after tax contribution, in return for defined benefit payments from the Company over a fifteen year period generally at retirement age of 65 or later. In June 2003, the Company amended the EWAP so as not to allow new participants or the purchase of additional deferral units by existing participants.

 

The nonqualified defined contributions of the named executive officers as of April 30, 2010 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, 2010 (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 and Mr. Mulrooney are not eligible for severance or change in control benefits.

 

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 the 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.

 

 

 

 

Michael A. DiGregorio.  Under the DiGregorio Employment Agreement, if Mr. DiGregorio’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. DiGregorio’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.

 

Under the DiGregorio Employment Agreement, in the event that Mr. DiGregorio’s employment is terminated by the Company without cause or by Mr. DiGregorio for good reason prior to a change in control or more than 12 months after a change in control occurs, the Company will pay Mr. DiGregorio the following severance payments: (1) his accrued compensation; (2) a pro-rata portion of his annual cash incentive award; (3) a cash payment equal to one time his then current annual base salary to be paid over 12 months; (4) reimbursement of COBRA coverage premiums for Mr. DiGregorio and his covered dependents for up to 18 months; (5) all outstanding stock options and other equity type incentives held by Mr. DiGregorio and all benefits under the Company’s ECAP at the time of termination, except for performance shares, that would have vested in the 12 months following the date of termination will become fully vested as of the date of termination; and (6) a pro-rata number of performance shares based on target performance and the number of days Mr. DiGregorio was employed during the performance period plus an additional year (provided this number of days does not exceed the number of days in the performance period).

 

In the event that Mr. DiGregorio’s employment is terminated by the Company without cause or by Mr. DiGregorio for good reason within 12 months following a change in control, the Company will pay Mr. DiGregorio the following severance payments: (1) his accrued compensation; (2) a pro-rata portion of his annual cash incentive award; (3) a cash payment equal to one and one-half times his then current annual base salary to be paid over 12 months; (4) reimbursement of COBRA coverage premiums for Mr. DiGregorio and his covered dependents for up to 18 months, plus an additional 6 months of health plan premium reimbursement; (5) all outstanding stock options and other equity type incentives held by Mr. DiGregorio and all benefits under the ECAP at the time of termination, except for performance shares, will become fully vested as of the date of termination; (6) a pro-rata number of performance shares based on actual performance and the number of days in the performance period prior to the change in control; and (7) a pro-rata number of performance shares based on target performance and the number of days remaining in the performance period after the change in control.

 

 

 

 

Robert H. McNabb.  The McNabb Employment Agreement, as modified by the McNabb 2006 and 2009 Letter Agreements, 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 during the first two years of the period beginning on October 1, 2009 and ending on September 30, 2012 (the “Renewal Term”), he will receive within 30 days of termination a lump sum payment equal to two times his base salary, and all unvested outstanding stock options and other equity-type incentives that would have vested during the 12 months following termination will automatically vest. If, prior to a change in control, Mr. McNabb’s employment is terminated by the Company without cause during the third year of the renewal term, he will receive within 30 days of termination a lump sum payment equal to two times his base salary, pro rated to reflect the number of months he was employed during the year, and all unvested outstanding stock options and other equity-type incentives that would have vested during the 12 months following termination, will automatically vest. In addition, if, prior to a change in control, Mr. McNabb is terminated without cause he is entitled to the following health benefits: (1) if terminated during the first 18 months of the Renewal Term, 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; and (2) if terminated during the second 18 months of the Renewal Term, for the remainder of the Renewal Term, 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.

 

 

 

 

For purposes of the foregoing employment agreements (as in effect on April 30, 2010), “cause,” “change in control,” “and “good reason,” mean the following:

 

 

 

 

 

 

 

 

The compensation of directors, including all incentive, restricted stock and stock option awards, for fiscal 2010 is set forth in the table below.