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)

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Notes:

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

 

August 29, 2008

 

Dear Stockholders:

 

It is my pleasure to invite you to attend the 2008 Annual Meeting of Stockholders (the “Annual Meeting”) of Korn/Ferry International. The Annual Meeting will be held on September 23, 2008 at 10:00 a.m. Pacific time at the Intercontinental Hotel in Century City located at 2151 Avenue of the Stars, Los Angeles, California 90067.

 

At the Annual Meeting we will discuss 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 as soon as possible by completing, signing, dating and returning the enclosed proxy card in the envelope provided. Your vote is important, and voting by written 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. If you attend the Annual Meeting, you may vote in person even if you previously mailed your proxy card.

 

Sincerely,

 

Paul C. Reilly

Chairman of the Board

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

 

NOTICE OF 2008 ANNUAL MEETING
To Be Held On September 23, 2008

 

Important Notice Regarding the Availability of Proxy Materials for the

Stockholder Meeting to be Held on September 23, 2008

The Proxy Statement and accompanying Annual Report to Stockholders are available at www.kornferry.com

 

To the Stockholders:

 

On September 23, 2008, Korn/Ferry International (the “Company”, “we”, “its” and “our”) will hold its 2008 Annual Meeting of Stockholders (the “Annual Meeting”) at the Intercontinental Hotel in Century City located at 2151 Avenue of the Stars, Los Angeles, California 90067. The meeting will begin at 10:00 a.m. Pacific time.

 

Only stockholders who owned our common stock at the close of business on July 25, 2008 can vote at this meeting or any adjournments or postponements that may take place. The purposes of the Annual Meeting are to:

 

1. Elect three directors to serve on the Board of Directors (the “Board”) until the 2011 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 2009 fiscal year;

 

3. Approve the Korn/Ferry International 2008 Stock Incentive Plan; and

 

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

 

The Board of Directors 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 for the transaction of business. Accordingly, it is important that your shares be represented at the Annual Meeting. Whether or not you plan to attend the Annual Meeting, please complete, date and sign the enclosed proxy card and return it in the envelope provided. You may revoke your proxy at any time prior to the time it is voted by (1) notifying the Corporate Secretary in writing; (2) returning a later-dated proxy card; or (3) attending the Annual Meeting and voting in person.

 

This Proxy Statement is first being mailed to our stockholders on or about August 29, 2008. 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 29, 2008

Los Angeles, California

TABLE OF CONTENTS

 

 

QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING

 

 

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 composed of ten directors. The Board’s nominees for election as directors will be elected to serve as Class 2011 Directors for a term of three years. The nominees for election at the Annual Meeting to serve as Class 2011 Directors are Gerhard Schulmeyer, Harry You and Debra Perry. Detailed information regarding each of these nominees is provided on pages 16-17 of this Proxy Statement. 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

 

The Board’s nominees will become directors so long as they receive a plurality of “FOR” votes. If, however, any additional nominees for director are properly brought before the stockholders for consideration, only the nominees who receive the highest number of “FOR” votes will become directors.

 

Recommendation of the Board

 

The Board unanimously recommends that you vote “FOR” each of the nominees named above for election as a director. Proxies will be voted “FOR” each of the nominees named above unless you otherwise specify on your proxy card.

 

The Audit Committee has approved the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal 2009. 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. 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 during the year 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.

The following table sets forth fees for services Ernst & Young LLP provided during fiscal 2007 and 2008:

 

 

 

 

Audit Committee’s Pre-Approval Policies and Procedures

 

The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the work of the independent registered public accounting firm. As part of this responsibility, the Audit Committee is required to pre-approve the audit and non-audit services performed by the independent registered public accounting firm in order to help assure that they do not impair the registered public accounting firm’s independence from the Company. The Audit Committee may either approve the engagement of the independent registered public accounting firm to provide services or pre-approve services to be provided on a case by case basis. The Audit Committee believes the combination of these two approaches will result in an effective and efficient procedure to pre-approve services performed by the independent registered public accounting firm. The Audit Committee will also consider whether the independent registered public accounting firms is best positioned to provide the most effective and efficient service, for reasons such as its familiarity with the Company’s business, people, culture, accounting systems, risk profile and other factors, and whether the service might enhance the Company’s ability to manage or control risk or improve audit quality. All such factors will be considered as a whole, and no one factor is determinative. The Audit Committee requires the rotation of its independent registered public accounting firm’s audit partners as required by the Sarbanes-Oxley Act and the related rules of the Securities and Exchange Commission (“SEC”).

 

All requests or applications for Ernst & Young LLP services are submitted to the Internal Audit Director and include a detailed description of services to be rendered. The detailed descriptions are then reviewed against a list of approved services, re-confirmed with the Vice President of Finance and sent to the Audit Committee for final approval. All requests or applications for Ernst & Young LLP services receive approval from the Internal Audit Director and the Vice President of Finance, prior to the Audit Committee’s review and approval.

 

Required Vote

 

Ratification of the approval of the independent registered public accounting firm will require affirmative “FOR” votes from a majority of those shares present, either in person or by proxy, and entitled to vote at the Annual Meeting.

 

Recommendation of the Board

 

The Board unanimously recommends that you vote “FOR” the ratification of Ernst & Young LLP’s appointment as the Company’s independent registered public accounting firm for fiscal 2009. Proxies solicited by the Board will be so voted unless stockholders specify otherwise on their proxy cards.

 

In order to continue to provide qualified employees, officers, non-employee directors and other service providers with stock-based incentives, the Board approved, subject to stockholder approval, the Korn/Ferry International 2008 Stock Incentive Plan (the “2008 Plan”) on August 22, 2008, to make available 1,620,000 additional shares of the Company’s common stock for stock-based awards (provided that the issuance of full value awards (awards other than options and stock appreciation rights) count approximately 1.8 times as much as options and stock appreciation rights against the authorized number of shares issuable under the 2008 Plan). The Board is submitting the 2008 Plan to the stockholders for their approval at the Annual Meeting.

 

As of July 25, 2008, an aggregate of 240,531 shares of common stock remained available under the Company’s existing equity plan, the Performance Award Plan, for the grant of stock-based incentives. In addition, as of such date, awards covering 6,122,956 shares were outstanding under the Company’s Performance Award Plan. However, the Performance Award Plan expired on August 8, 2008, and no awards may be granted under the existing incentive plan after this date.

 

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. After the expiration of the existing incentive plan on August 8, 2008, without approval of the 2008 Plan, the Company will not have the 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 2008 Plan

 

The Board unanimously recommends that the Company’s stockholders approve the 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.

 

The Company believes that its compensation philosophy, including the balanced use of equity-based rewards, has contributed to the Company’s growth and profitability. Since fiscal 2004, the Company’s fee revenues have improved from $326 million to $791 million in fiscal 2008, a compound average growth rate of 25%. Over the same period, its earnings per share have improved from $0.35 in fiscal 2003 to $1.46 in fiscal 2008, a compound average growth rate of 43%. During that period, the size of the Company’s professional headcount has grown from 1,163 to 1,894. 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 currently outstanding as of July 25, 2008 represent approximately 9.8% of the Company’s market capitalization. If the 2008 Plan is approved, the plan participants’ interest would increase to approximately 11%. This compares favorably to the peer group of companies listed on page 21, whose stockholder value transfer ranges from 5% to 24%, with the Company’s primary public competitor at the top of that range.

 

For purposes of determining recommended stockholder value transfer metrics, the Company understands corporate governance companies use peer companies as defined by GIC codes established by Standard and Poors. Standard and Poors currently includes the Company in a broad GIC category called Commercial Service and Supplies. Many of the companies in this broad category are not, in management’s opinion, comparable to the Company: the sector includes, for example, printing companies, waste management companies, and office service and supplies companies. It also includes companies with substantially larger market capitalization than the Company. These types of companies do not generally compete with the Company for employees, and they tend not to use equity as a significant component of their compensation philosophy. Standard and Poors is in the process of

redefining subsets of the Commercial Services and Supplies GIC code which is expected to result in the creation of a subsidiary category of companies called Professional Services. This new categorization is expected to be put into effect in August 2008. The Company anticipates that it will be included in this subsidiary category in the future, and that the other companies to be included in this subsidiary category will more closely parallel the Company’s past and prospective use of equity compensation. The Company also believes that when this category is established, the corporate governance companies’ recommended amount of stockholder value transfer for companies in this subsidiary category may be greater than that recommended for the broad Commercial Services and Supplies sector.

 

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 commits to the Company’s stockholders, subject to discretion for special circumstances (such as an acquisition, reorganization or group hires) that might lead the Company to determine that additional awards are in the best interests of the stockholders, that for fiscal years 2009, 2010 and 2011, the Company’s average annual burn rate for the aforementioned three fiscal years will not exceed 4.0%. 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 under the 2008 Plan 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 2.0 option shares.

 

The Company is also committed to returning capital to stockholders. The Board has authorized the Company to repurchase up to $175.0 million of the Company’s outstanding shares of common stock pursuant to issuer repurchase programs. Over the last two and a half years, the Company has repurchased 6.5 million shares in the open market, an aggregate return of capital of $131.5 million. The Company has approximately $43 million remaining under the Board’s approved stock repurchase plan. Although the timing of completing the approved repurchases and of subsequent additional plans for returning capital to stockholders depends on many factors, among which are the safety and soundness of the Company’s balance sheet and availability of capital for strategically relevant acquisitions, the Board and management of the Company are committed to consistently returning excess capital to stockholders.

 

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 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 2008 Plan will provide incentives to plan participants to operate the Company in the most efficient way possible.

 

Specific features of the 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 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) of the Code (“Section 162(m)”). 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 (i) the employees eligible to receive compensation, (ii) a description of the business criteria on which the performance goal is based and (iii) 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 2008 Plan, each of these aspects is discussed below, and stockholder approval of the 2008 Plan will be deemed to constitute approval of each of these aspects of the 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 2008 Plan. The description does not purport to be complete and is qualified in its entirety by reference to the full text of the 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 2008 Plan in its entirety.

 

Purpose

 

The purpose of the 2008 Plan is to enable the Company and its subsidiaries to attract, retain and motivate their directors, officers, employees and service providers, and to further align the interests of such persons with those of the stockholders of the Company by providing for or increasing the proprietary interest of such persons in 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 2008 Plan. As of July 25, 2008, approximately 830 employees and 9 non-employee directors were eligible to participate in the 2008 Plan.

 

Available Shares

 

The maximum number of shares of common stock of the Company that may be issued pursuant to awards granted under the 2008 Plan will be 1,620,000 (subject to adjustments to prevent dilution), plus any shares subject to

outstanding awards under the Performance Award Plan as of July 25, 2008 that on or after such date 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). No awards will be made under the Performance Award Plan after August 8, 2008. The aggregate number of shares issued under the 2008 Plan will equal only the number of shares actually issued upon exercise or settlement of an award and will not include shares subject to awards that have been canceled, expired or forfeited.

 

Tax Code Limitations

 

The aggregate number of shares subject to awards granted under the 2008 Plan during any calendar year to any one participant shall not exceed 500,000. The aggregate number of shares that may be issued pursuant to the exercise of incentive stock options granted under the 2008 Plan shall not exceed 1,620,000 (which is equal to the 1,620,000 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 Code Section 422. The maximum cash amount payable pursuant to that portion of an incentive bonus granted in any calendar year to any participant under the 2008 Plan that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code shall not exceed $5,000,000.

 

Administration

 

The 2008 Plan is administered by the Compensation and Personnel Committee of the Board, provided, however, that the Board may exercise any power of the Compensation and Personnel Committee, except to the extent that the grant or exercise of any such authority by the Board would cause any award or transaction to become subject to Section 16 of the Securities Exchange Act of 1934 or cause an award designated as a performance award not to qualify for treatment as performance-based compensation under Section 162(m) of the Code. To the extent that any action taken by the Board conflicts with the action taken by the Compensation and Personnel Committee, the Board’s action shall control. The Compensation and Personnel Committee may delegate any or all aspects of day-to-day administration of the 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 2008 Plan or any agreement or other document evidencing an award made under the 2008 Plan, but, except as provided pursuant to the anti-dilution adjustment provisions of the 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 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 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 that qualify under Code Section 422 (“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 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:

 

 

In no event will the exercise price per share of common stock subject to an option that is intended to qualify as “performance based compensation” under Code Section 162(m) be less than 100% of the fair market value of such common stock on the date the option is granted. On July 25, 2008, the fair market value of a share of common stock of the Company was $15.77.

 

Unless the administrator provides for a shorter period, the maximum term of an option granted under the 2008 Plan, including any Incentive Stock Options, will be 7 years from the date of its 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 2008 Plan will vest according to a schedule determined by the administrator, provided however, that no option, other than non-employee director options, may first become exercisable within one year from the date of grant, other than upon the death or disability of a participant or a change of control of the Company.

 

The administrator will determine the acceptable forms of payment of the exercise price of an option, which may include: (1) cash, (2) shares of capital stock of the Company, (3) irrevocable commitment by a broker to pay over the amount from a sale of shares issuable under an option, (4) delivery of previously owned shares, (5) withholding of shares or (6) any combination of the above.

 

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. The maximum amount payable pursuant to an incentive bonus award granted under the 2008 Plan for any fiscal year to any participant that is intended to satisfy the requirements for “performance based compensation” under Section 162(m) cannot exceed $10,000,000.

 

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 during specified periods 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. An award 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 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 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 above. 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 is an award pursuant to which a participant may be entitled to receive the amount, if any, by which the fair market value of the common stock of the Company on the date of exercise exceeds a measurement value. The measurement value of a stock appreciation right must equal or exceed the fair market value of a share of common stock of the Company on the date of the grant. The grant, retention, vesting and/or transferability of the stock appreciation right is subject during specified periods of time to such conditions and terms as the administrator of the 2008 Plan deems appropriate. The vesting of an award will be over a period of not less than one year, except for stock appreciation rights awarded to non-employee directors and in the case of death or disability of a participant or a change of control of the Company. The stock appreciation right may be paid in cash or shares of common stock of the Company or a combination of the two, in the discretion of the administrator. Unless the administrator provides for a shorter period, the maximum term of a stock appreciation right granted under the 2008 Plan will be 7 years from the date of grant.

 

Performance Criteria

 

For purposes of the 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 2008 Plan may be deferred by the recipient to the extent permitted under Section 409A(a)(1)(B) of the Code.

 

Termination

 

The 2008 Plan will terminate on the tenth anniversary of its approval by the Company’s stockholders, unless the Board of Directors 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 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 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 2008 Plan may qualify as Incentive Stock Options within the meaning of Code Section 422. 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 Stand-Alone SAR will not recognize any taxable income at the time the Stand-Alone SAR is granted. If the employee receives the appreciation inherent in the 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 Stand-Alone 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 Stand-Alone 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 Stand-Alone SARs or Tandem SARs. However, upon the exercise of either a Stand-Alone 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 (i) freely transferable or (ii) 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 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 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 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 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

 

On July 25, 2008, (i) 3,526,199 shares were covered by stock options granted under the Company’s existing stock incentive plans, at exercise prices ranging from $6.16 to $37.80 per share; (ii) 2,596,757 shares were subject to unvested awards of restricted stock granted under the existing stock incentive plans, and (iii) 240,531 shares remained available to support additional awards under the existing stock incentive plans. Pursuant to its terms, no awards may be granted under the existing stock incentive plan after August 8, 2008.

Information about stock option and performance share awards granted in fiscal 2008 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 “Fiscal Year 2008 Grants of Plan-Based Awards” on page 26 of this Proxy Statement.

 

Participation in the 2008 Plan is in the discretion of the administrator. Accordingly, future participation by executive officers, other employees and directors under the 2008 Plan is not determinable. In addition, the benefits under the 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 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 2008 Plan will require affirmative “FOR” votes from a majority of those shares present, either in person or by proxy, and entitled to vote at the Annual Meeting.

 

Recommendation of the Board

 

The Board unanimously recommends that you vote “FOR” the approval of the Company’s 2008 Plan. Proxies solicited by the Board will be so voted unless stockholders specify otherwise on their proxy cards.

 

The members of the Board are grouped into three classes: (1) Class 2009 Directors, who will serve until the Annual Meeting of Stockholders in 2009; (2) Class 2010 Directors, who will serve until the Annual Meeting of Stockholders in 2010; and (3) Class 2011 Directors, who will serve until the Annual Meeting of Stockholders in 2011.

 

The following table sets forth information regarding the Class 2009 Directors who will serve on the Board until the Annual Meeting of Stockholders in 2009.

 

 

The following table sets forth certain information regarding the Class 2010 Directors, who will serve on the Board until the Annual Meeting of Stockholders in 2010.

 

 

The following table sets forth certain information regarding the nominees for Class 2011 Directors, who, if elected at the 2008 Annual Meeting, will serve on the Board until the Annual Meeting of Stockholders in 2011.

 

 

The following table sets forth information regarding director(s) who are not standing for reelection at the Annual Meeting.

 

 

The Board held eight meetings during fiscal 2008, and all of the directors attended at least 75% of the Board meetings and the meetings of committees of which they were members.

 

The Board has determined that the following directors (which includes all of those standing for reelection) are “independent” within the Company’s independence standards and the independence standards of the NYSE: James Barlett, Edward Miller, Gerhard Schulmeyer, Harry You, Debra Perry, Patti Hart, Ihno Schneevoigt and Kenneth Whipple. For a director to be “independent”, the Board must 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 adopted by the NYSE. Under these standards, a director will not be deemed “independent” if the Board affirmatively determines that the director has a material relationship with the Company, or if:

 

 

 

The independent directors of the Board meet regularly in executive sessions outside the presence of management. On June 6, 2006, the Board appointed Patti Hart as the lead independent director (the “Lead Director”) to preside at executive sessions of the independent directors. Communications to the independent directors by stockholders and other interested parties may be sent to Korn/Ferry International, 1900 Avenue of the Stars, Suite 2600, Los Angeles, California 90067, Attention: Corporate Secretary.

 

Directors are expected to attend each annual meeting of stockholders. Last year all directors attended the 2007 Annual Meeting of Stockholders either in person or by telephone.

 

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 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 and 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, in its business judgment, has determined are “independent directors” under the Company’s independence standards (described above), the

applicable listing standards of the NYSE and the applicable rules of the SEC. The Board has determined that Messrs. Barlett, Cahouet and Whipple qualify as “audit committee financial experts” as that term is defined in Item 407(a)(5) of Regulation S-K under the Securities Exchange Act of 1934 (the “Exchange Act”). The Audit Committee met six times in fiscal 2008. 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, California 90067, Attention: Corporate Secretary.

 

Mr. Frank Cahouet serves on the audit committee of Teledyne Technologies, Inc., a public company. The Board has determined, however, that Mr. Cahouet’s simultaneous service on such other audit committees does not impair his ability to serve effectively on the Company’s Audit Committee.

 

Compensation and Personnel Committee.  The Compensation and Personnel Committee is comprised entirely of directors who have never served as officers of the Company. Among other things, the Compensation and Personnel Committee (a) 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 all named executive officers, and (b) 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 met nine times during fiscal 2008. The Board, in its business judgment, has determined that all members of the Compensation and Personnel Committee are “independent directors” under the Company’s independence standards (described above) and the applicable listing standards of the NYSE. 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, 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. Stockholders may submit director nominees in accordance with the Company’s bylaws and mail submissions to Korn/Ferry International, 1900 Avenue of the Stars, Suite 2600, Los Angeles, California 90067, Attention: Corporate Secretary. The Board, in its business judgment has determined that all members of the Nominating and Corporate Governance Committee are “independent directors” under the Company’s independence standards (described above) and the applicable listing standards of the NYSE. The Nominating and Corporate Governance Committee met six times in fiscal 2008. 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, California 90067, Attention: Corporate Secretary.

 

Code of Business Conduct and Ethics and Corporate Governance Guidelines.  The Board has adopted a Code of Conduct and Business Ethics that is applicable to all directors, employees and officers (including the Company’s chief executive officer, chief financial officer and principal accounting officer). The Code of Conduct and Business Ethics is available on the Company’s website at www.kornferry.com 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, California 90067, Attention: Corporate Secretary. We intend to post amendments or waivers under the Code of Business Conduct and Ethics on the Company’s website as well.

We have 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). Additionally, 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 shall agree to resign from the Board if the Board determines to accept such resignation. The Nominating and Corporate Governance Committee shall review and assess the circumstances surrounding such change, and shall 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, 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 400 consultants located in 40 countries throughout the world. As such, executives 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 (the “Committee”) of the Board has been delegated authority by the Board for the oversight of compensation for the Company’s senior management. The Committee has direct responsibility for determining the compensation of the “named executive officers” as defined below. The 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 proposed 2008 Plan.

 

Throughout the Proxy Statement, the individuals who served as the Company’s Chairman, Chief Executive Officer, Chief Operating Officer and Chief Financial Officer during fiscal 2008, as well as the other individuals included in the Summary Compensation Table on page 25, are referred to as the “named executive officers.”

 

In establishing and assessing the compensation programs and compensation policies for the named executive officers, other senior officers and key employees, 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 senior executive 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 senior executive compensation, the 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 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:

 

 

The Company does not set a relative percentile positioning for total direct compensation as a target for executive pay levels. Rather, the Company reviews total direct 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 executives with the unique set of skills necessary to manage and motivate a global human capital management firm with over 400 consultants operating in more than 89 offices in 35 countries.

 

The Committee retained Towers Perrin as compensation consultants to assess the competitiveness of the executive officers’ compensation taking into consideration the factors noted above and any other factors they deem appropriate.

 

The Company’s executive compensation program consists of three main elements: (1) base salary, (2) annual incentives and (3) long term incentives. The Company also provides its executives 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 executives for services rendered during the fiscal year and is delivered in the form of fixed cash compensation paid on a semi-monthly basis. Base salary is reviewed on an annual basis by the Committee. To assess base salary levels annually, 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 Committee also uses its general knowledge of the market for senior management positions in assessing base salary levels. The data gathered regarding the publicly traded companies is also reviewed by Towers Perrin, which provides the Committee with their input. Further, the Committee takes into consideration the results of individual appraisals for the executive and, with respect to the Chief Executive Officer’s direct reports, input from the Chief Executive Officer.

 

Annual incentives are intended to motivate and reward executives for achieving performance and strategic goals over a one-year period. The Company establishes an annual incentive plan each fiscal year. Annual incentives

are typically not guaranteed and the level of annual incentive award varies from year-to-year depending upon the Company’s and individual performance. Annual incentives are typically paid in cash, but the Committee has discretion to pay a portion of the annual incentive in equity or other long-term incentives. The performance goals 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 executives are measured. The Committee then compares the achievement of the performance goals and strategic objectives against the target and maximum annual incentive awards as described in the Executive’s employment contracts. The Committee compared the fiscal 2008 results against the goals, performance and strategic objectives, and determined annual incentive awards based on these criteria. Cash bonuses were awarded to the named executive officers as follows: Paul Reilly, $912,500; Gary Burnison, $1,150,000; Stephen Giusto, $200,000; Gary Hourihan, $400,000; Robert McNabb, $550,000 and Ana Dutra, $70,000.

 

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 Committee would evaluate whether adjustments are appropriate based upon the facts and circumstances surrounding the restatement and existing laws.

 

Long-term incentives are intended to align the executives’ 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 Committee has discretion to make grants of options, time-based restricted stock or performance award shares under its Performance Award Plan and time-based vesting contributions to the Company’s non-qualified deferred compensation plan with time-based vesting.

 

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 may be modified to reduce the percentage of the target.

 

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

 

 

In addition, 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 will vest in four equal annual installments beginning on July 10, 2009.

 

The Company provides executives 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 executives 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 executives, 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 complete irrevocable election forms that designate how their deemed account will be distributed (all elections are for a minimum of three years or at termination from service). Participants can also elect to receive their distributions in a lump sum or in installments (over five, ten or fifteen years). Participants also 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 Committee including the amounts to the named executive officers disclosed under “All Other Compensation” in the Summary Compensation Table on page 25.

 

To further align the executives’ 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 a 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 executive officers and directors have five years to meet the ownership requirements; however as of April 30, 2008, all the named executive officers met the ownership guidelines or are expected to meet the 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, Mr. Giusto and Mr. Reilly also provide for a defined severance benefit in the event of a termination of employment without “cause” or, in the case of each executive other than Mr. Reilly, for “good reason” as such terms are defined in the agreements. It is the Committee’s belief that such agreements are necessary from a competitive perspective and also contribute to the stability of the management team. Please refer to the “Potential Payments Upon Termination or Change of Control” for further discussion of these employment agreements.

 

As one of the factors in the review of compensation matters, the Committee considers the anticipated tax treatment to the Company. The deductibility of some types of compensation for executive officers depends upon the timing of an executive’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 Committee usually seeks to satisfy the requirements necessary to allow the compensation of its 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).

 

Directors Cahouet, Miller, Schneevoigt, Schulmeyer and Whipple comprise the Compensation and Personnel Committee. As of fiscal 2008, all members of the Compensation and Personnel Committee were “independent”, and none of them were employees or former employees of the Company. None of our executive officers served on the compensation committee, or board of directors, of another entity whose executive officer(s) served on our Committee.

 

The Compensation and Personnel Committee has reviewed and discussed the Compensation Discussion and Analysis (the “CD&A”) for the fiscal year ended April 30, 2008 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 the Proxy Statement for the fiscal year ended April 30, 2008 for filing with the SEC.

 

Kenneth Whipple, Chair

 

Frank V. Cahouet

 

Edward D. Miller

 

Ihno Schneevoigt

 

Gerhard Schulmeyer

 

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

 

 

 

 

 

The following table sets forth information with respect to options to purchase shares of the Company’s common stock granted in fiscal 2008 to the named executive officers.

 

 

Paul C. Reilly, Chairman since June 29, 2001 and Chief Executive Officer from June 29, 2001 until June 30, 2007.  In connection with the appointment of Paul Reilly as Chairman and Chief Executive Officer on June 29, 2001, we entered into an employment agreement (the “Reilly Employment Agreement”) with Mr. Reilly.

 

On April 25, 2007, we announced that effective July 1, 2007, we would be separating the positions of Chairman and Chief Executive Officer and in connection therewith we would not be renewing the Reilly Employment Agreement at the end of the initial term. Pursuant to a transition employment agreement dated as of April 24, 2007 (the “Transition Agreement”), we would continue to employ Mr. Reilly as Chairman and Chief Executive Officer until June 30, 2007 and thereafter (1) Mr. Burnison would assume the position of Chief Executive Officer and (2) Mr. Reilly would be retained as Executive Chairman under the terms and conditions of a new employment agreement dated as of April 24, 2007, which subsequently expired and was supplanted by another new employment agreement dated April 29, 2008 (the “New Reilly Employment Agreement”).

 

Under the New Reilly Agreement that became operative on July 1, 2008, we agreed to retain Mr. Reilly as Executive Chairman. In consideration for Mr. Reilly’s services as Executive Chairman, 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 the target bonus described in the foregoing sentence, Mr. Reilly may be considered for an additional bonus amount based upon critical special assignments.

Gary D. Burnison, Chief Executive Officer since July 1, 2007, Chief Operating Officer from October 1, 2003 until June 30, 2007, Chief Financial Officer and Executive Vice-President from March 20, 2002 until June 30, 2007.

 

We entered into an employment agreement with Mr. Burnison (the “Burnison Employment Agreement”) whereby, we appointed and agreed to employ Mr. Burnison as Chief Executive Officer, effective July 1, 2007. Pursuant to the Burnison Employment Agreement, we will 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 is initially eligible to receive (a) a grant of restricted stock, subject to the discretion of and approval by the Board and/or Compensation Committee with a target grant value of $900,000 (vests 25% each year); (b) an award of performance shares with a target grant value of 100% of annual base salary (cliff vests after 3 years subject to the Company’s performance over the performance period) and (c) an annual grant of restricted stock with a target grant value of 100% of annual base salary (vests 25% each year). The Board approved Mr. Burnison’s annual base salary increase to $675,000, effective July 1, 2008.

 

Stephen J. Giusto, Chief Financial Officer and Executive Vice President since November 1, 2007.

 

We entered into an employment agreement with Stephen Giusto on October 10, 2007 (the “Giusto Employment Agreement”). The Giusto Employment Agreement provides 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; (3) participation in the Company’s long-term, equity incentive program, pursuant to which Mr. Giusto is initially eligible to receive (a) a one-time grant of 17,000 shares of restricted stock that will vest in three equal annual installments with the first vesting occurring on November 1, 2008, (b) an equity award of restricted shares with a value of 100% of base salary (vests 25% each year) and (c) an equity award of performance shares with a value equal to 100% of base salary (cliff vests after 3 years subject to the Company’s performance over the performance period).

 

Gary C. Hourihan, Chairman of Leadership Development Solutions since May 1, 2008, Executive Vice-President and President of Global Leadership Development from March 2000 until April 30, 2008.  On April 30, 2008, Mr. Hourihan’s term of employment as the Executive Vice President and President of Leadership Development Solutions of the Company automatically expired pursuant to the terms of the letter agreement, dated December 14, 2006, between Mr. Hourihan and the Company. Mr. Hourihan currently does not have a written agreement with the Company.

 

Robert H. McNabb, Chief Executive Officer of Korn/Ferry International Futurestep, Inc. since July 2002 and Executive Vice-President of Korn/Ferry International.  We entered into an employment agreement (the “McNabb Employment Agreement”) with Robert McNabb as Chief Executive Officer of Korn/Ferry International Futurestep, Inc. 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 “McNabb Letter Agreement”) with Mr. McNabb to extend Mr. McNabb’s employment until September 30, 2009, at which time the Company has the option to renew for an additional 3-year term through September 30, 2012 by providing Mr. McNabb with 90 days prior written notice of renewal. The 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 is to receive (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, Chief Executive Officer of Leadership Development Solutions and Executive Vice President since February 15, 2008.  We entered into a letter agreement (the “Dutra Letter Agreement”) with Ana Dutra on January 16, 2008. 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 Committee to award Ms. Dutra $750,000 shares of restricted stock (vests 25% per year) and (6) an additional equity award of $750,000 shares of restricted stock (cliff vests after 3 years) to replace equity from her prior employer. On March 3, 2008, the Committee awarded to Ms. Dutra 44,590 shares of restricted stock that vest in four equal annual installments beginning on March 3, 2009 and an additional 44,590 shares of restricted stock that cliff vest on March 3, 2011.

 

The following table sets forth information with respect to options to purchase shares of the Company’s common stock and restricted stock granted to the named executive officers at fiscal year ended April 30, 2008.

 

 

 

 

The option exercises and vested stock of the named executive officers at fiscal year ended April 30, 2008 are set forth in the table below:

 

 

 

 

The pension benefits of the named executive officers as of fiscal year ended April 30, 2008 are set forth in the table below:

 

 

 

 

Estimated Annual Benefit* for Representative Years of Service and Final Average Salary
*Benefit is calculated using full target benefit of 25% of final average salary.

 

We amended the Company’s Worldwide Executive Benefit Retirement Plan to provide for no annual accruals after April 2003 and to provide that final average salary would be the greater of (i) the participant’s highest average monthly base salary during the 36 consecutive months out of the 72-month period ending June 1, 2003 or (ii) the participant’s base salary as of June 1, 2003. In addition, we made no accruals to the Plan for our 2003, 2004, 2005, 2006, 2007 and 2008 fiscal years. Under the terms of the Company’s Worldwide Executive Benefit Retirement Plan, designated managing directors and Vice Presidents would be entitled to receive an unfunded supplemental retirement benefit upon attainment of age 65, with a reduced benefit available as early as age 55. The supplemental benefit calculated on a single-life basis would be an annual amount equal to the named executive’s final average salary multiplied by a service percentage. The target service percentage is 25% with 1/20th accrued each year over the first 20 years of participation. The supplemental benefit was also offset by any retirement benefits provided by us and/or the local government. As of April 30, 2008, the credited years of service with accrued benefits for the Company’s named executive officers were: Paul C. Reilly, 0 years; Gary D. Burnison, 0 years; Stephen C. Giusto, 0 years; Gary C. Hourihan, 2 years; Robert H. McNabb, 0 years and Ana Dutra, 0 years. None of the benefits above are subject to any deduction for Social Security or other fiscal offset amount.

 

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 fiscal year end April 30, 2008 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 executive’s employment had terminated on April 30, 2008, given the named executive’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 non qualified 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 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 executive’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 executive’s age.

 

Paul C. Reilly, Chairman since June 29, 2001 and Chief Executive Officer from June 29, 2001 until June 30, 2007.

 

Under the New Reilly Agreement, if Mr. Reilly is terminated for any reason other than for cause, we will pay him a pro-rata portion of his bonus for the year of termination (assumed at the full-year target bonus in the table below). In addition, Mr. Reilly will receive a previously accrued and disclosed single lump sum cash payment of $1,625,000 for non- renewal of his original employment agreement. The New Reilly Agreement generally provides for 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.

 

Gary D. Burnison, Chief Executive Officer since July 1, 2007, Chief Operating Officer from October 1, 2003 until June 30, 2007, Chief Financial Officer and Executive Vice-President from March 20, 2002 until June 30, 2007 and Stephen J. Giusto, Chief Financial Officer and Executive Vice President since November 1, 2007.  Under the Burnison and Giusto Employment Agreements, if the executive’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 the executive and his dependents for as long as such coverage is available under COBRA. If we terminate the executive’s employment for cause or the executive 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 or Mr. Giusto’s employment is terminated by us without cause or by the executive for good reason, then we will provide the executive with the following: (1) his accrued compensation; (2) pro rata portion of his target annual cash incentive award for the year in which his employment terminated; (3) cash payments equal to one and one-half times (one time for Mr. Giusto) his then current annual base salary and one and one-half times (one time for Mr. Giusto) his target bonus; (4) for up to 18 months after termination, reimbursement of COBRA coverage premiums for the executive and his dependents 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 or Mr. Giusto’s employment is terminated by us without cause or by the executive for good reason, then we will provide the executive 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 (one and one half times for Mr. Giusto) his current annual base salary and two times (one and one half times for Mr. Giusto) his target bonus; (4) for up to 18 months after termination, reimbursement of COBRA coverage premiums for the executive and his dependents for so long as such coverage is available under COBRA and six months thereafter, reimbursement of a portion of the cost of healthcare coverage for him and his dependents; (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 and Giusto Employment Agreements generally provide for 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.