2008 May Compensation Changes
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Date
of
Report (Date of earliest event reported):
May 13, 2008
_______________________
SYSCO
CORPORATION
(Exact
name of registrant as specified in its charter)
_________________________
|
Delaware
|
1-06544
|
74-1648137
|
|
(State
or Other Jurisdiction
of
Incorporation)
|
(Commission
File Number)
|
(IRS
Employer
Identification
No.)
|
1390
Enclave Parkway, Houston, TX 77077-2099
(Address
of principal executive office) (zip code)
Registrant’s
telephone number, including area code:
(281) 584-1390
N/A
(Former
name or former address, if changed since last report)
_________________________
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
|
ྑ
|
Written
communications pursuant to Rule 425 under the Securities Act (17
CFR
230.425)
|
|
ྑ
|
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|
|
ྑ
|
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-2(b))
|
|
ྑ
|
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR 240.13e-4(c))
|
SECTION
5 - CORPORATE GOVERNANCE AND MANAGEMENT
ITEM
5.02 DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS;
APPOINTMENT OF CERTAIN OFFICERS; COMPENSATORY
ARRANGEMENTS
OF CERTAIN OFFICERS.
This
Current Report on Form 8-K discusses changes to certain elements of the
compensation of the officers listed below (the “Named Executive Officers”). Many
of the changes discussed, including changes to the SERP and EDCP (each as
defined below) also apply to Sysco Corporation’s other corporate officers.
Named
Executive Officers:
|
Name
|
|
Title
|
|
Richard
J. Schnieders
|
|
Chairman
of the Board and Chief Executive Officer
|
|
Kenneth
F. Spitler
|
|
President
and Chief Operating Officer
|
|
William
J. Delaney
|
|
Executive
Vice President and Chief Financial Officer
|
|
Larry
G. Pulliam
|
|
Executive
Vice President, Global Sourcing and Supply Chain
|
Base
Salary Modifications of Named Executive Officers
In
recognition of the challenging economic environment and the corresponding need
to maintain strict discipline on expense control, the management team took
action to lead by example and voluntarily initiated a proposal to the
Compensation Committee for a 5% reduction in executive base salaries. The
proposal was accepted on May 13, 2008 by the Compensation Committee, effective
July 1, 2008, and the following modifications were approved:
|
Name
|
|
Salary
Reduction
|
|
Revised
Salary
|
|
Richard
J. Schnieders
|
|
$58,750
|
|
$1,116,250
|
|
Kenneth
F. Spitler
|
|
$36,500
|
|
$693,500
|
|
William
J. Delaney
|
|
$29,500
|
|
$560,500
|
|
Larry
G. Pulliam
|
|
$28,000
|
|
$532,000
|
These
salary revisions were part of a 5% reduction in the base salaries of all SYSCO
corporate officers at the senior vice president level and above. In addition,
for fiscal 2009, the base salaries of all corporate vice presidents and
assistant vice presidents will be frozen at their fiscal 2008 levels. Depending
upon SYSCO’s operational and financial performance during the first half of
fiscal 2009, management will consider whether or not vice president and
assistant vice president base salaries should be increased at that
time.
Approval
of Amended and Restated 2005 Management Incentive Plan to Eliminate 28% Stock
Match
On
May
14, 2008, the Board of Directors of the Company, upon recommendation of the
Compensation Committee, adopted amendments to the 2005 Management Incentive
Plan
(“MIB”). The amendments to the MIB are effective May 14, 2008. Each of SYSCO’s
corporate officers currently participates in the MIB.
A
summary
of the material terms and conditions of the MIB prior to the amendments, as
it
relates to the compensation of SYSCO’s highest level corporate officers,
including the Named Executive Officers, can be found in the Company’s proxy
statement that was filed with the U.S. Securities and Exchange Commission on
September 26, 2007, under the caption “Executive Compensation—2005 Management
Incentive Plan,” beginning on page 40. This information is incorporated by
reference into this Form 8-K.
Summary
of MIB Amendments
Prior
to
the amendments, the MIB provided that each participant who earned an MIB cash
bonus would also receive an award of SYSCO common stock with a value equal
to
28% of the cash bonus earned. Pursuant to the MIB amendments, the Company will
no longer issue this additional stock bonus under the MIB, beginning with any
bonus paid in August 2009 for fiscal 2009. Notwithstanding the amendments,
the
additional stock bonus will be issued in August 2008 with respect to any bonus
earned for fiscal 2008. It is currently anticipated that this component of
SYSCO’s corporate officer compensation will be replaced with restricted stock
awards under the Sysco Corporation 2007 Stock Incentive Plan starting in
calendar 2009.
Approval
of Fiscal 2009 Bonus Awards under the 2005 Management Incentive
Plan
On
May
13, 2008, the Compensation Committee approved fiscal 2009 bonus awards (the
“2009 Awards”) for certain officers of the Company, including the Named
Executive Officers, under the Company’s 2005 Management Incentive
Plan.
Each
of
the Named Executive Officers received the same 2009 Award, which provides for
a
potential bonus based on two components of Company performance—increase in fully
diluted earnings per share in fiscal 2009 as compared to fiscal 2008, and
three-year average return on capital for the fiscal years 2007, 2008 and 2009.
Return on capital for any given fiscal year is computed by dividing the
Company’s net after-tax earnings for the year by the Company’s total capital for
that year. Total capital for any given fiscal year is computed as the average
of
stockholders’ equity (computed as the sum of stockholders’ equity at the
beginning and end of the year and at the end of each of the first three
quarters, divided by five) and long-term debt (computed as the sum of long-term
debt at the beginning and end of the year and at the end of each of the first
three quarters, divided by five).
The
Named
Executive Officers will only earn a bonus under the 2009 Awards if the increase
in fully diluted earnings per share is at least 4% and
the
three-year average return on capital is at least 10%. This minimum level of
performance would earn each Named Executive Officer a bonus equal to 20% of
his
base salary. The maximum bonus under the 2009 Awards is earned if the increase
in diluted earnings per share is 20% or more and
the
three-year average return on capital is 25% or more. This maximum level of
performance would earn each Named Executive Officer a bonus equal to 330% of
his
base salary. Varying levels of performance in between these minimum and maximum
levels will earn varying levels of bonus between 20% and 330% of base salary.
The target bonus level is 200% of base salary, which is earned at varying levels
of performance, including at 13% increase in fully diluted earnings per share
and
17%
three-year average return on capital.
Because
the average return on capital component is calculated over a three-year period,
the bonus for fiscal 2009 shall be calculated as if any material change in
the
generally accepted accounting principles applied by the Company during any
of
the fiscal years covered by the 2009 Awards had not occurred. The agreements
provide the Committee with discretion to reduce any portion of the bonus related
to extraordinary income arising from the sale or exchange of an operating
division or subsidiary. The Committee must approve the payment of any bonus
under the 2009 Awards within 90 days following the end of fiscal 2009. All
bonuses under the 2009 Awards are subject to the provisions of the
MIB.
Termination
of 2006 Supplemental Performance Based Bonus Plan
On
May
14, 2008, the Board of Directors of the Company, upon recommendation of the
Compensation Committee, terminated the 2006 Supplemental Performance Based
Bonus
Plan (“Supplemental Plan”). The termination of the Supplemental Plan was
effective immediately; provided, however, that the Company will continue to
honor all outstanding agreements entered into under the Supplemental Plan.
SYSCO’s Chief Executive Officer, President and Chief Operating Officer and each
of its Executive Vice Presidents is currently a party to an outstanding
agreement under the Supplemental Plan. The outstanding agreements relate to
performance for the fiscal year ending June 28, 2008, with amounts payouts
under
such agreements occurring in August 2008.
A
summary
of the material terms and conditions of the Supplemental Plan prior to its
termination can be found in the Company’s proxy statement that was filed with
the U.S. Securities and Exchange Commission on September 26, 2007, under the
caption “Executive Compensation—2006 Supplemental Performance Based Bonus Plan,”
beginning on page 42. This information is incorporated by reference into this
Form 8-K.
Approval
of Fiscal Year 2009 Supplemental Bonus Agreements with CEO and Chief Operating
Officer and President
On
May
13, 2008, the Compensation Committee approved Fiscal Year 2009 Supplemental
Bonus Agreements to be entered into with Mr. Schnieders and Mr. Spitler. These
agreements were not entered into pursuant to any plan, and no supplemental
bonus
agreements were entered into with SYSCO’s other corporate officers. The
Compensation Committee felt that it was still appropriate to have Supplemental
Bonus Agreements with SYSCO’s top two executives in order to allow the
Compensation Committee to use some discretion in determining the total amount
of
Mr. Schnieders’ and Mr. Spitler’s bonus payments.
The
agreements are identical and contain the following material
provisions:
Exceeds
Expectations.
If the
Committee determines that the executive’s performance for fiscal 2009 has
exceeded expectations, the executive will be entitled to an additional bonus
equal to 25% of his MIB bonus with respect fiscal 2009. Any such bonus would
be
paid solely under the Supplemental Bonus Agreement, not the MIB, and would
be
included in the calculation of that portion of the executive’s compensation that
is subject to the $1 million dollar cap placed on certain compensation
deductions allowed to be taken by SYSCO under Section 162(m) of the Internal
Revenue Code. This means that based on Mr. Schnieders’ and Mr. Spitler’s current
compensation packages, such bonus would not be deductible with respect to Mr.
Schnieders and is not likely to be deductible with respect to Mr. Spitler.
Neither executive will receive any payment under the Supplemental Plan if he
does not also earn a bonus under the MIP. The evaluation of each executive’s
performance for fiscal 2009 will include, but will not be limited to, a review
of the following performance areas: implementation of the Company’s long-term
strategy, succession planning, and implementation of the Company’s planned
information technology initiatives.
Below
Expectations.
Pursuant to the agreements, each executive consents that if his performance
for
fiscal 2009 is below expectations, as determined by the Compensation Committee
based on the evaluation discussed above, his MIB bonus for fiscal 2009 shall
be
reduced by 25%.
Meets
Expectations.
If the
Compensation Committee determines, based on the evaluation discussed above,
that
the executive’s performance meets expectations, his MIB bonus will neither be
increased nor decreased.
Termination
of Employment.
If
either executive’s employment with SYSCO terminates for any reason prior to the
end of fiscal 2009, including, without limitation, as a result of death,
disability or following a change of control of SYSCO, and if his performance
through the date of termination in 2009 exceeds expectations, as determined
by
the Compensation Committee based the evaluation discussed above, he will receive
a 25% increase to any bonus that he is entitled to receive under the MIB
pursuant to the terms of his severance agreement with SYSCO. In no event,
however, if the executive’s employment with SYSCO terminates prior to the end of
fiscal 2009, may his MIB bonus, if any, be reduced pursuant to the terms of
the
supplemental bonus agreement.
Approval
of Amended and Restated Sysco Corporation Executive Deferred Compensation
Plan
On
May
14, 2008, the Board of Directors of the Company, upon recommendation of the
Compensation Committee, adopted the Fifth Amended and Restated Sysco Corporation
Executive Deferred Compensation Plan (“EDCP”). The new EDCP is effective July 2,
2008 and will replace the Fourth Amended and Restated Sysco Corporation
Executive Deferred Compensation Plan (“Prior EDCP”). With respect to the
compensation of SYSCO’s current corporate officers (including the Named
Executive Officers), the new EDCP is similar to the Prior EDCP in all material
respects, except as described herein. Each of the Named Executive Officers
currently participates in the EDCP.
A
summary
of the material terms and conditions of the Prior EDCP, as it relates to the
compensation of SYSCO’s corporate officers, can be found in the Company’s proxy
statement that was filed with the U.S. Securities and Exchange Commission on
September 26, 2007, under the caption “Executive Compensation—Pension
Benefits—Non-Qualified Deferred Compensation,” beginning on page 49. This
information is incorporated by reference into this Form 8-K.
Changes
from Prior EDCP
Reductions
in Investment Return of the Default Investment, Interest Credited on Company
Matches and Post-Termination Interest Rate
Prior
to
the EDCP amendments, Moody’s plus 1%, or the “risk free” option, was one of nine
available deemed investment options under the EDCP and was the default
investment option for participants who failed to make an investment election.
In
addition, Company matches were automatically credited with interest at the
Moody’s plus 1% rate, and interest credited during an installment payout period
under a fixed payment distribution option available under the EDCP was credited
at Moody’s plus 1%.
Beginning
as of July 2, 2008, the Moody’s plus 1%, or “risk free,” option and the default
investment rate will be changed to Moody’s without the addition of the 1%. As a
result, the interest rate credited on Company matches for fiscal 2009 and later
years, and the investment return on salary deferrals after July 1, 2008 and
bonus deferrals for fiscal 2009, as well as any transfers from another
investment option to the risk free option after July 1, 2008, will be based
on
Moody’s and not Moody’s plus 1%. In addition, for participants whose employment
terminates after July 1, 2008, interest credited to the participant’s account
during an installment payout period will be Moody’s and not Moody’s plus 1%.
Notwithstanding
these amendments, interest will continue to be credited at the Moody’s plus 1%
rate on each participant’s accumulated Company match account as of July 1, 2008,
and on that portion of the participant’s deferral account invested in the
Moody’s plus 1% option on July 1, 2008, and not otherwise transferred at a later
time. In addition, for participants whose employment terminates before July
2,
2008, interest credited to the participant’s account during the installment
payout period will be Moody’s plus 1%.
Elimination
of Variable Investment Payout Option
The
variable investment option, which allowed a participant to continue to direct
the investment of his account during an installment payout period, will not
be
available for participants who retire after July 1, 2008.
Distributions
upon Termination of Employment.
Under
the
Prior EDCP, a participant who terminated employment prior to age 60 or age
55
with 15 years of management incentive plan participation was required to receive
a mandatory lump sum payment of his account balance. Effective January 1, 2009,
a participant who terminates employment prior to the earlier of age 60, age
55
with 15 years of management incentive plan participation or age 55 with 10
years
of service with the Company will receive a lump sum. A participant may elect
the
form of distribution of his account if the participant terminates employment
after the earlier of age 60, age 55 with 15 years of management incentive plan
participation, or age 55 with 10 years of service with the Company.
Elimination
of Supplemental Bonuses from Eligibility for Deferral and the Company
Match
The
EDCP
now provides that bonuses payable under the 2006 Supplemental Performance Based
Bonus Plan or any similar arrangement, including the 2009 Supplemental Bonus
Agreements discussed below, may no longer be deferred under the EDCP and as
a
result are no longer eligible for the Company match.
Enhanced
Provisions Regarding Forfeiture of Certain EDCP Benefits for Cause or
Competition
The
EDCP
now provides that the Compensation Committee may cause a forfeiture of a
participant’s remaining Company matches and investment earnings and interest
credited to his account, if after a participant terminates employment for a
reason other than for “cause,” the Compensation Committee determines that the
participant engaged in conduct that would have resulted in his discharge for
“cause.”
In
addition, the EDCP now provides that the Compensation Committee may cause a
forfeiture of a participant’s remaining Company matches and investment earnings
and interest credited to his account, if a participant discloses trade secrets
or confidential information to a competitor.
Approval
of Amended and Restated Supplemental Executive Retirement
Plan
On
May
14, 2008, the Board of Directors of Sysco Corporation (“SYSCO” or the
“Company”), upon recommendation of the Compensation Committee, adopted the
Seventh Amended and Restated Sysco Corporation Supplemental Executive Retirement
Plan (“SERP”). The new SERP is effective June 28, 2008 and will replace the
Sixth Amended and Restated Sysco Corporation Supplemental Executive Retirement
Plan (“Prior SERP”). With
respect to the compensation of SYSCO’s current corporate officers (including the
Named Executive Officers), the new SERP is similar to the Prior SERP in all
material respects, except as described herein. Each of these individuals
currently participates in the Prior SERP and will participate in the
SERP.
A
summary
of the material terms and conditions of the Prior SERP, as it relates to the
compensation of the Named Executive Officers and other corporate officers,
can
be found in the Company’s proxy statement that was filed with the U.S.
Securities and Exchange Commission on September 26, 2007, under the caption
“Executive Compensation—Pension Benefits—Supplemental Executive Retirement
Plan,” beginning on page 48. This information is incorporated by reference into
this Form 8-K.
Changes
from Prior SERP
Set
forth
below is a summary of the material differences between the new SERP and the
Prior SERP as it relates to current corporate officers:
Change
in Definition of Final Average Compensation from Highest Five of Last Ten Years
to Average of Last Ten Years
The
Prior
SERP benefit payable to a participant was targeted as a monthly benefit
approximately equal to 50% of the participant’s Final Average Compensation, as
defined below, as adjusted by several factors, including the participant’s
vested percentage in his benefit, the participant’s years of SYSCO service
(including pre-acquisition service), the value of the participant’s projected
benefits derived from employer contributions under SYSCO’s tax-qualified
retirement plans, and the participant’s projected social security benefit. This
remains unchanged in the new SERP.
While
the
targeted monthly benefit approximately equal to 50% of the participant’s Final
Average Compensation remains unchanged, the definition of Final Average
Compensation has changed. Final Average Compensation was defined in the Prior
SERP as the monthly average of a participant’s Eligible Earnings, as defined
below, for the five fiscal years (which need not be successive) in which the
participant earned the highest Eligible Earnings during the last ten fiscal
years preceding the fiscal year his service with SYSCO ends. Under the new
SERP,
Final Average Compensation for years beginning with fiscal 2009 will equal
the
monthly average of a participant’s Eligible Earnings for the last ten fiscal
years preceding the fiscal year his service with SYSCO ends (or the date he
ceases to be covered under the SERP, if earlier). This will result in a savings
to SYSCO with respect to amounts paid under the SERP.
With
respect to a participant’s accrued benefit as of June 28, 2008, as discussed
below, however, Final Average Compensation continues to be defined in the new
SERP as it was under the Prior SERP.
Limits
Annual Bonus Included in Eligible Earnings for SERP
Calculation
Eligible
Earnings refers to compensation recognized for SERP purposes. Beginning with
fiscal 2009, the portion of a participant’s Management Incentive Plan bonus
counted as Eligible Earnings (i.e. solely for SERP purposes) will be capped
at
150% of the participant’s rate of base salary as of the last day of the
applicable fiscal year. Eligible Earnings for fiscal years prior to fiscal
2009
are not affected by this plan change. This new provision will also result in
a
savings to SYSCO with respect to amounts paid under the SERP.
The
capped definition of Eligible Earnings for fiscal years after fiscal 2008 as
described above will be used in all benefit calculations, including protected
benefits of a Protected Participant. The Protected Participant provisions were
included in changes to the Prior SERP adopted in 2005, with the provisions
protecting the benefits of long-term employees participating in the Prior SERP
who would be retiring within the ten years following the change. A Protected
Participant is a SERP participant on July 3, 2005 who, as of that date, had
(a)
attained age 60 or (b) attained age 55 and had been a SERP participant for
at
least 10 years. Each of Messrs. Schnieders and Spitler are Protected
Participants.
SERP
benefit formula
The
only
changes to the “regular” SERP benefit formula and “protected benefit” formula
that impact the compensation of SYSCO’s current corporate officers are the
changes described above.
A
SYSCO
corporate officer who is not a Protected Participant when his SYSCO service
ends
at some future date will receive a new SERP benefit based on the greater
of:
| · |
The
benefit determined as of that future date under the new provisions
described above, or
|
| · |
The
accrued benefit determined as of June 28, 2008 under the provisions
of the
Prior SERP, but with vesting and eligibility for immediate benefit
payments determined as of that future date. Other components used
in this
June 28, 2008 accrued benefit calculation will be frozen as of June
28,
2008, as follows:
|
| o |
Final
Average Compensation: monthly average of the highest five fiscal
years
(which need not be successive) of Eligible Earnings in the ten fiscal
year
period ending June 28, 2008,
|
| o |
Full
years of service (including pre-acquisition service) as of June 28,
2008;
|
| o |
Offsets
as of June 28, 2008, with the standard adjustment to reflect the
form and
timing of the SERP benefit payments as of that future date.
|
The
SERP
benefit, other than a protected benefit, cannot exceed the participant’s vested
percentage multiplied by the “limit” in effect during the fiscal year of his
retirement. The monthly limit for participants retiring in fiscal year 2008
is
$178,537. Each subsequent fiscal year, the limit will be adjusted for inflation.
For
a
Protected Participant, his future benefit will the greatest of the benefits
determined under four calculations using each of the regular and Protected
Participant benefit formulas under both the new SERP and frozen June 28, 2008
rules discussed above.
Enhanced
Provisions Regarding Forfeiture of SERP Benefits for Cause or
Competition
Under
the
new SERP, SYSCO now has the ability to cause the forfeiture of any remaining
SERP payments to a participant who was not discharged for “cause” (e.g., fraud,
embezzlement), but who after his termination was discovered by the Compensation
Committee to have engaged in behavior while employed that would have constituted
grounds for a discharge for “cause”.
The
new
SERP also contains enhanced forfeiture for competition grounds, including,
without limitation, the extension of the non-competition covenants from five
years after termination of employment to the entire remaining period while
any
SERP benefits are to be paid.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, SYSCO Corporation
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
| |
SYSCO
CORPORATION
|
|
Date:
May 15, 2008
|
By:
/s/ Michael C. Nichols
|
| |
Michael
C. Nichols
|
| |
Senior
Vice President, General Counsel
|
| |
and
Corporate Secretary
|