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TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy
Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant ý | |||
Filed by a Party other than the Registrant o |
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Check the appropriate box: |
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
THE ESTÉE LAUDER COMPANIES INC. |
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(Name of Registrant as Specified In Its Charter) |
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant) |
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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(1) | Title of each class of securities to which transaction applies: |
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(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
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(4) | Proposed maximum aggregate value of transaction: |
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(5) | Total fee paid: |
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
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(2) | Form, Schedule or Registration Statement No.: |
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Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. |
The Estée Lauder Companies Inc. 767 Fifth Avenue New York, NY 10153 |
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William P. Lauder Executive Chairman |
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September 24, 2010 |
Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders. It will be held on Tuesday, November 9, 2010, at 10:00 a.m., local time, at the Jumeirah Essex House in New York City, where we will ask you to vote on the election of five nominees as director to serve until the 2013 Annual Meeting of Stockholders, the approval of the Amendment to the Amended and Restated Fiscal 2002 Share Incentive Plan, and the ratification of the Audit Committee's appointment of KPMG LLP as independent auditors for the 2011 fiscal year.
As we did last year, we will be using the Securities and Exchange Commission rule allowing companies to provide their stockholders with access to proxy materials over the Internet. On or about September 29, 2010, we will begin mailing a Notice of Internet Availability of Proxy Materials to our stockholders informing them that our 2010 Proxy Statement, Fiscal 2010 Annual Report and voting instructions are available online. As more fully described in that Notice, all stockholders may choose to access our proxy materials on the Internet or may request to receive paper copies of the proxy materials. This allows us to conserve natural resources and reduces the costs of printing and distributing the proxy materials, while providing our stockholders with access to the proxy materials in a fast and efficient manner.
Please vote your shares using the Internet or telephone, or by requesting a printed copy of the proxy materials and completing and returning by mail the proxy card you will receive in response to your request. Instructions on each of these voting methods are outlined in the enclosed Proxy Statement. Please vote as soon as possible.
I look forward to seeing you at the Annual Meeting.
YOUR VOTE IS IMPORTANT. PLEASE PROMPTLY SUBMIT YOUR PROXY
BY INTERNET, TELEPHONE OR MAIL.
THE ESTÉE LAUDER COMPANIES INC.
767 Fifth Avenue
New York, New York 10153
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Tuesday, November 9, 2010, at 10:00 a.m., local time
Jumeirah
Essex House
Grand Salon
160 Central Park South
New York, NY
We also will transact such other business as may properly come before the meeting and any adjournments or postponements of the meeting.
By Order of the Board of Directors | ||
SPENCER G. SMUL Senior Vice President, Deputy General Counsel and Secretary |
New
York, New York
September 24, 2010
THE BOARD OF DIRECTORS URGES YOU TO VOTE BY THE INTERNET OR BY TELEPHONE OR BY REQUESTING A PRINTED COPY OF THE PROXY MATERIALS AND COMPLETING AND RETURNING BY MAIL THE PROXY CARD YOU WILL RECEIVE IN RESPONSE TO YOUR REQUEST.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE 2010 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON NOVEMBER 9, 2010: The Company's Proxy Statement for the 2010 Annual Meeting of Stockholders and the Annual Report to Stockholders for the fiscal year ended June 30, 2010 are available at http://www.proxyvoting.com/el.
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THE ESTÉE LAUDER COMPANIES INC.
767 Fifth Avenue
New York, New York 10153
September 24, 2010
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 9, 2010
This Proxy Statement is furnished in connection with the solicitation of proxies on behalf of the Board of Directors of The Estée Lauder Companies Inc. (the "Company", "we" or "us"), a Delaware corporation, to be voted at the Annual Meeting of Stockholders to be held in the Grand Salon at the Jumeirah Essex House, 160 Central Park South, New York, New York, on Tuesday, November 9, 2010, at 10:00 a.m., local time, and at any adjournment or postponement of the meeting.
Admission to the meeting will require a ticket. If you are a stockholder of record and plan to attend, please check the appropriate box on the proxy card, or so indicate when you vote by telephone or the Internet, and an admission ticket will be mailed to you. If you are a stockholder whose shares are held through an intermediary such as a bank or broker, and you plan to attend, please request an admission ticket by writing to the Investor Relations Department at The Estée Lauder Companies Inc., 767 Fifth Avenue, New York, New York 10153. Evidence of your ownership of shares of our Common Stock on September 15, 2010 (the "Record Date"), which you can obtain from your bank, broker or other intermediary, must accompany your letter.
Only stockholders of record of shares of Class A Common Stock and Class B Common Stock at the close of business on the Record Date are entitled to vote at the Annual Meeting or at any adjournment or postponement of the meeting. Each owner of record of Class A Common Stock on the Record Date is entitled to one vote for each share of Class A Common Stock so held. Each owner of record of Class B Common Stock on the Record Date is entitled to ten votes for each share of Class B Common Stock so held. On September 15, 2010, there were 119,246,883 shares of Class A Common Stock and 76,732,041 shares of Class B Common Stock issued and outstanding.
Why did I receive a notice in the mail regarding the Internet availability of the proxy materials instead of a paper copy of the proxy materials?
In accordance with rules adopted by the Securities and Exchange Commission (the "SEC"), we have elected to furnish to our stockholders this Proxy Statement and our Fiscal 2010 Annual Report by providing access to these documents on the Internet rather than mailing printed copies. Accordingly, a Notice of Internet Availability of Proxy Materials (the "Notice") is being mailed to our stockholders of record and beneficial owners (other than those who previously requested printed copies or electronic delivery of our proxy materials), which will direct stockholders to a website where they can access our proxy materials and view instructions on how to vote online or by telephone. If you would prefer to receive a paper copy of our proxy materials, please follow the instructions included in the Notice.
How do I cast my vote if I am a stockholder of record?
If you are a stockholder of record (which means your shares are registered directly in your name with the Company's transfer agent, BNY Mellon Shareowner Services, or you have a physical stock certificate) you can vote your shares in one of two ways: either by proxy or in person at the Annual Meeting. If you choose to vote by proxy you may do so by using the Internet or the telephone, or
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by requesting a printed copy of our proxy materials and completing and returning by mail the proxy card you will receive in response to your request.
Whichever method you use, each valid proxy received in time will be voted at the Annual Meeting in accordance with your instructions. To ensure that your proxy is voted, it should be received by the close of business on November 8, 2010. If you submit a proxy without giving instructions, your shares will be voted as recommended by the Board of Directors.
How do I cast my vote if my shares are held in "street name"?
If you are a beneficial owner of shares held in a stock brokerage account or by a bank or other nominee (i.e. in "street name"), you are invited to attend the Annual Meeting. However, since you are not a stockholder of record, you may not vote these shares in person at the Annual Meeting unless you bring with you a legal proxy from the stockholder of record. A legal proxy may be obtained from your broker, bank or nominee.
If you do not wish to vote in person or you will not be attending the Annual Meeting, you may vote over the Internet by following the instructions provided in the Notice, or, if you requested to receive printed proxy materials, you will receive voting instructions from your broker, bank, or nominee describing the available processes for voting your stock.
If your shares are held for you by a broker, your broker must vote those shares in accordance with your instructions. If you do not give voting instructions to your broker, your broker may vote your shares for you on any discretionary items of business to be voted upon at the Annual Meeting, such as the ratification of the appointment of KPMG LLP (Item 3).
Important Consideration for "street name" holders: You must instruct your broker if you want your shares to be counted in the election of directors at the Annual Meeting (Item 1) and the approval of the Amendment to the Amended and Restated Fiscal 2002 Share Incentive Plan (Item 2). New York Stock Exchange rules prevent your broker from voting your shares on these matters without your instructions. Please follow the instructions provided by your broker so that your vote can be counted.
All proxies delivered pursuant to this solicitation are revocable at any time before they are exercised at the option of the persons submitting them by giving written notice to the Secretary of the Company at the mailing address set forth below, by submitting a later-dated proxy (either by mail, telephone or the Internet) or by voting in person at the Annual Meeting. The mailing address of our principal executive offices is 767 Fifth Avenue, New York, New York 10153. The approximate date on which this Proxy Statement and form of proxy are first being sent or given to stockholders, or being made available through the Internet for those stockholders receiving their proxy materials electronically, is September 29, 2010.
The holders of a majority of the votes entitled to be cast by the stockholders entitled to vote generally, present in person or by proxy, shall constitute a quorum for the transaction of business at the Annual Meeting. Abstentions, broker non-votes and votes withheld are included in the count to determine a quorum.
What if a quorum is not represented at the Annual Meeting?
In the event that a quorum does not exist, the Executive Chairman or the holders of a majority of the votes entitled to be cast by the stockholders who are present in person or by proxy may adjourn the meeting. At such adjourned meeting at which a quorum may be present, any business may be transacted which might have been transacted at the meeting as originally called.
How many votes are required to approve a proposal?
Directors (Item 1) will be elected by a plurality of the votes cast by the holders of the shares of Class A Common Stock and Class B Common Stock voting in person or by proxy at the Annual Meeting. Under our bylaws, approval of the
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Amendment to the Amended and Restated Fiscal 2002 Share Incentive Plan (Item 2) and ratification of the appointment of KPMG LLP (Item 3) require the affirmative vote of a majority of the votes cast "For" and "Against" each proposal by holders of Class A Common Stock and Class B Common Stock. Accordingly, abstentions and broker non-votes, while not included in calculating vote totals for the three proposals, will have the practical effect of reducing the number of "For" votes needed to approve them.
All proxies properly submitted pursuant to this solicitation and not revoked will be voted at the Annual Meeting in accordance with the directions given. In the election of directors to serve until the Annual Meeting of Stockholders in 2013, stockholders may vote in favor of all nominees or withhold their votes as to any or all nominees. Regarding the other proposal to be voted upon, stockholders may vote in favor of the proposal, may vote against the proposal or may abstain from voting. Stockholders should specify their choices on the enclosed proxy card or pursuant to the instructions thereon for telephone or Internet voting. If no specific choices are indicated, the shares represented by a properly submitted proxy will be voted:
If you have returned your signed and completed proxy card and other matters are properly presented at the Annual Meeting of Stockholders for consideration, the proxy holders appointed by the Board of Directors (the persons named in your proxy card if you are a stockholder of record) will have the discretion to vote on those matters for you.
Representatives of BNY Mellon Shareowner Services will tabulate the votes and act as inspectors of election.
May I see a list of stockholders entitled to vote as of the Record Date?
A list of registered stockholders as of the close of business on September 15, 2010 will be available for examination by any stockholder for any purpose germane to the meeting during normal business hours from October 29, 2010 through November 9, 2010 at the office of Spencer G. Smul, Senior Vice President, Deputy General Counsel and Secretary of the Company, at 767 Fifth Avenue, New York, New York 10153.
Can I access the Notice of Annual Meeting, Proxy Statement, Annual Report and Form 10-K on the Internet?
Our Proxy Statement (including Notice of Annual Meeting) and Fiscal 2010 Annual Report to Stockholders are available at http://www.proxyvoting.com/el.
These proxy materials are also available, along with the Annual Report on Form 10-K for the fiscal year ended June 30, 2010, in "Financial Reports" of the "Investors" section of our website at www.elcompanies.com. Instead of receiving future copies of our Notice of Annual Meeting, Proxy Statement, Annual Report and Form 10-K by mail, most stockholders can elect to receive an email that will provide electronic links to these documents. Opting to receive your proxy materials online will save us the cost of producing and mailing documents to your home or business, and will also give you an electronic link to the proxy voting site.
Stockholders of record can enroll in Investor ServiceDirect at www.bnymellon.com/shareowner/isd for online access to future proxy materials.
If you hold your shares in a bank or brokerage account, you also may have the opportunity to receive copies of these documents electronically. Please check the information provided in the proxy materials mailed to you by your bank or broker regarding the availability of this service.
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ELECTION OF DIRECTORS
(Item 1)
Currently, the Board of Directors is comprised of fourteen directors. The directors are divided into three classes, each serving for a period of three years.
The stockholders elect one class of the members of the Board of Directors annually. The directors whose terms will expire at the 2010 Annual Meeting of Stockholders are Aerin Lauder, William P. Lauder, Lady Lynn Forester de Rothschild, Richard D. Parsons and Richard F. Zannino, each of whom has been nominated to stand for re-election as a director at the 2010 Annual Meeting, to hold office until the 2013 Annual Meeting and until his or her successor is elected and qualified. In the unanticipated event that one or more of these nominees is unable or declines to serve for any reason, the Board of Directors may reduce the number of directors or take action to fill the vacancy or vacancies.
The Board recommends a vote FOR each nominee as a director to hold office until the 2013 Annual Meeting. Proxies received by the Board will be so voted unless a contrary choice is specified in the proxy.
NOMINEES FOR ELECTION TO TERM EXPIRING 2013 (CLASS II)
Aerin Lauder Director since 2004 Age 40 |
Ms. Lauder became Senior Vice President, Creative Director for the Estée Lauder brand in July 2004. From April 2001 through June 2004 she was Vice President of Global Advertising for the brand. From 1997 through April 2001, she was Executive Director, Creative Marketing, helping to define and enhance the Estée Lauder brand image. Prior to 1997, she was Director, Creative Product Development since 1995. Ms. Lauder joined the Company in 1992 as a member of the Prescriptives marketing team. She is a member of the Junior Associates of the Museum of Modern Art, The Metropolitan Museum of Art's Costume Institute Visiting Committee, the Board of Trustees of Thirteen/WNET and the Advisory Board of the New York Botanical Garden. | |||
William P. Lauder Director since 1996 Age 50 |
Mr. Lauder is Executive Chairman of the Company and, in such role, he is Chairman of the Board of Directors. He was Chief Executive Officer of the Company from March 2008 through June 2009 and President and Chief Executive Officer from July 2004 through February 2008. From January 2003 through June 2004, he was Chief Operating Officer. From July 2001 through 2002, he was Group President responsible for the worldwide business of the Clinique and Origins brands and the Company's retail store and online operations. From 1998 to 2001, he was President of Clinique Laboratories, LLC. Prior to 1998, he was President of Origins Natural Resources Inc., and he had been the senior officer of that division since its inception in 1990. Prior thereto, he served in various positions since joining the Company in 1986. He is a member of the Boards of Trustees of The University of Pennsylvania and The Trinity School in New York City and the Boards of Directors of the Fresh Air Fund, the 92nd Street Y, the Partnership for New York City, GLG Partners, Inc. (since July 2006) and the Advisory Board of Zelnick Media. He was also a director of True Temper Sports, Inc. from 2004 to 2009. Mr. Lauder is a member of the Nominating and Board Affairs Committee. |
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Richard D. Parsons Director since 1999 Age 62 |
Mr. Parsons became Chairman of the Board of Citigroup Inc. in February 2009 where he has served as a director (member of the Personnel and Compensation Committee and Chairman of the Nominating and Governance Committee) since 1996. He has also been a senior advisor to Providence Equity Partners LLC since 2009. From May 2003 until his retirement in December 2008, he served as Chairman of the Board of Time Warner Inc. From May 2002 until December 2007, he served as Chief Executive Officer of Time Warner Inc. From January 2001 until May 2002, he was Co-Chief Operating Officer of AOL Time Warner. From 1995 until the merger with America On-Line Inc., he was President of Time Warner Inc. From 1990 through 1994, he was Chairman and Chief Executive Officer of Dime Bancorp, Inc. He has been a member of the Board of Madison Square Garden, Inc. (member of the Audit Committee) since February 2010. Among his numerous community activities, he is Chairman of the Apollo Theatre Foundation, and serves on the Boards of The American Museum of Natural History and The Museum of Modern Art. He is also a trustee of Howard University. Mr. Parsons is Chair of the Compensation Committee and is a member of the Nominating and Board Affairs Committee. |
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Lynn Forester de Rothschild Director since 2000 Age 56 |
Lady de Rothschild has been Chief Executive of E L Rothschild LLC, a private investment company, since June 2002. From 2004 to 2007, she was Co-Chair of FieldFresh Pvt. Ltd., a joint venture with Bharti Enterprises established to develop Indian agriculture. From 1989 to 2002, Lady de Rothschild was President and Chief Executive Officer of FirstMark Holdings, Inc., which owned and managed various telecommunications companies worldwide. She was Executive Vice President for Development at Metromedia Telecommunications, Inc. from 1984 to 1989. Lady de Rothschild is a director of The Economist Newspaper Limited (member of the Audit Committee). She is Chair of the American Fund for the Tate and Friends of the FIA (Fondo per L'Ambiente Italiano). She is a Trustee of the Peterson Institute of International Economics (USA), the ERANDA Foundation (de Rothschild foundation), the Alfred Herrhausen Society for International Dialogue of Deutsche Bank, Hand in Hand International and the Global Commercial Microfinance Advisory Board of Deutsche Bank Microfinance Consortium. Lady de Rothschild is a member of the Council on Foreign Relations (USA), Chatham House (UK) and the Foreign Policy Association. She served as a member of the National Information Infrastructure Advisory Committee and as the Secretary of Energy Advisory Board under President Clinton and the U.N. Advisory Committee on Inclusive Financial Services. Lady de Rothschild was also a director of Starwood Property Trust, Inc. from August 2009 to January 2010. Lady de Rothschild is Chair of the Nominating and Board Affairs Committee. |
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Richard F. Zannino Director since 2010 Age 51 |
Mr. Zannino is a Managing Director at the private equity firm CCMP Capital Advisors, LLC, a position he has held since July 2009. He is on the firm's Investment Committee and co-heads the consumer, retail and
media practices. Prior to joining CCMP Capital, he was an independent retail and media advisor from February 2008 to June 2009. He was Chief Executive Officer and a member of the Board of Directors of Dow Jones & Company from February 2006
until his resignation in January 2008, shortly after its acquisition by News Corp. Mr. Zannino joined Dow Jones as Executive Vice President and Chief Financial Officer in February 2001 and was promoted to Chief Operating Officer in July 2002.
From 1998 to 2001, he was Executive Vice President of Liz Claiborne where he oversaw the finance, administration, retail fragrance and licensing divisions. From 1993 to 1998, Mr. Zannino was with Saks Fifth Avenue, serving as Vice President and
Treasurer, Senior Vice President, Finance and Merchandise Planning and then Executive Vice President and Chief Financial Officer. Mr. Zannino has been a director of IAC/InteractiveCorp (member of the Audit Committee) since June 2009. Mr. Zannino is a member of the Audit Committee. |
INCUMBENT DIRECTORSTERM EXPIRING 2011 (CLASS III)
Charlene Barshefsky Director since 2001 Age 60 |
Ambassador Barshefsky is Senior International Partner at the law firm of WilmerHale in Washington, D.C. Prior to joining the law firm, she was the United States Trade Representative from March 1997 to January 2001, and Deputy United States Trade Representative and Acting United States Trade Representative from June 1993 to March 1997. From February 2001 until July 2001, Ambassador Barshefsky was a Public Policy Scholar at the Woodrow Wilson International Center for Scholars in Washington, D.C. Ambassador Barshefsky is also a director of American Express Company since 2001 (Chairman of the Public Responsibility Committee), Starwood Hotels & Resorts Worldwide, Inc. since 2001 (Chairman of the Corporate Governance and Nominating Committee) and Intel Corporation since 2004 (Chairman of the Finance Committee and member of the Compliance Committee). She is also a member of the Council on Foreign Relations, and a Trustee of the Howard Hughes Medical Institute. Ambassador Barshefsky is a member of the Nominating and Board Affairs Committee. |
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Fabrizio Freda Director since 2009 Age 53 |
Mr. Freda is President and Chief Executive Officer of the Company. From March 2008 through June 2009, he was President and Chief Operating Officer where he was instrumental in designing the Company's long-term strategic plan and oversaw the Clinique, Bobbi Brown, La Mer, Jo Malone, Aveda, and Bumble and bumble brands and the Aramis and Designer Fragrances division. He also was responsible for the Company's International Division, as well as Global Operations, Research and Development, Packaging, Quality Assurance, Merchandise Design, Corporate Store Design and Retail Store Operations. Prior to joining the Company, Mr. Freda served in a number of positions of increasing responsibility at The Procter & Gamble Company ("P&G"), where he was responsible for various operating, marketing and key strategic efforts for over 20 years. From 2001 through 2007 Mr. Freda was President, Global Snacks, at P&G. Mr. Freda also spent more than a decade in the Health and Beauty Care division at P&G. From 1986 to 1988 he directed marketing and strategic planning for Gucci SpA. |
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Jane Lauder Director since 2009 Age 37 |
Ms. Lauder became Global President, General Manager of the Origins and Ojon brands in July 2010. From July 2008 until July 2010 she was Senior Vice President/General Manager of the Origins brand. From July 2006 until July 2008 she was Senior Vice President, Global Marketing for Clinique. From 2003 through July 2006, Ms. Lauder was Vice President of Marketing for BeautyBank where she spearheaded the creation and launch of the skin care and cosmetics line, American Beauty, as well as Flirt! From 2001 through 2003 she was Vice President of Marketing for the stila brand. Ms. Lauder began her career with the Company in 1996 at Clinique. |
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Leonard A. Lauder Director since 1958 Age 77 |
Mr. Lauder is Chairman Emeritus of the Company and a member of the Board of Directors. He was Chairman of the Board of Directors from 1995 through June 2009 and served as the Company's Chief Executive Officer from 1982 through 1999 and President from 1972 until 1995. Mr. Lauder formally joined the Company in 1958 after serving as an officer in the United States Navy. Since joining, he has held various positions, including executive officer positions other than those described above. He is Chairman Emeritus of the Board of Trustees of the Whitney Museum of American Art, a Charter Trustee of The University of Pennsylvania, a Trustee of The Aspen Institute and the co-founder and director of the Alzheimer's Drug Discovery Foundation. He also served as a member of the White House Advisory Committee on Trade Policy and Negotiations under President Reagan. |
INCUMBENT DIRECTORSTERM EXPIRING 2012 (CLASS I)
Rose Marie Bravo, CBE Director since 2003 Age 59 |
Ms. Bravo is a retail and marketing consultant. She was Vice Chairman of Burberry Group Plc from July 2006 to July 2007. Prior to that she was Burberry's Chief Executive from 1997 to July 2006. Prior to her
appointment at Burberry, Ms. Bravo was President of Saks Fifth Avenue from 1992, with responsibility for merchandising, marketing and product development. From 1974 to 1992, Ms. Bravo held a number of positions at R.H.
Macy & Co., culminating as Chairman and Chief Executive Officer of the U.S. retailer, I. Magnin from 1987 to 1992. Ms. Bravo is a member of the Board of Directors of Tiffany & Co. since October 1997 (member of the
Compensation Committee and Nominating/Corporate Governance Committee) and Phoenix House Foundation. Ms. Bravo is a member of the Compensation Committee and Stock Plan Subcommittee. |
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Paul J. Fribourg Director since 2006 Age 56 |
Mr. Fribourg is the Chairman and Chief Executive Officer of Continental Grain Company, which is an international agribusiness and investment company with investments in the poultry and pork businesses, since July 1997. Mr. Fribourg joined Continental Grain Company (formerly known as ContiGroup) in 1976 and worked in various positions there with increasing responsibility in both the United States and Europe. Mr. Fribourg has been a director of Loews Corporation since 1997 (Chairman of the Nominating and Governance Committee and member of the Audit Committee and Compensation Committee). He also serves as a member of, among others, the JPMorgan Chase National Advisory Board and Rabobank International North American Agribusiness Advisory Board. He has been a member of the Council on Foreign Relations since 1985. Mr. Fribourg also served on the Board of Directors of Premium Standard Farms, Inc. from 1998 to 2007, Smithfield Foods, Inc. from 2007 to 2009, and Vivendi Universal, S.A. from 2003 to 2006. Mr. Fribourg is a member of the Audit Committee, the Compensation Committee and the Stock Plan Subcommittee. |
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Mellody Hobson Director since 2005 Age 41 |
Ms. Hobson serves as the President of Ariel Investments (Chicago-based investment management firm and adviser to the mutual funds offered by the Ariel Investment Trust) since 2000, and as President and Director of its governing member, Ariel Capital Management Holdings, Inc. She also serves as President (since 2002) and Chairman of the Board of Trustees (Chairman since 2006, trustee since 1993) of the Ariel Investment Trust (registered investment company). Ms. Hobson has served as a director of DreamWorks Animation SKG, Inc. since 2004 (Chairman of the Compensation Committee and member of the Nominating and Governance Committee) and Starbucks Corporation since 2005 (Vice-Chairman of the Audit and Compliance Committee and member of the Compensation Committee). She also works with a variety of civic and professional institutions, including serving as a director of the Chicago Public Library as well as its foundation, and as a board member of the Field Museum, the Chicago Public Education Fund and the Sundance Institute. Ms. Hobson is a member of the Audit Committee. |
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Irvine O. Hockaday, Jr. Director since 2001 Age 74 |
Mr. Hockaday is the former President and Chief Executive Officer of Hallmark Cards, Inc. He retired in December 2001. Prior to joining Hallmark in 1983, he was President and Chief Executive Officer of Kansas City Southern Industries, Inc. Mr. Hockaday was a member of the Hallmark Board of Directors from 1978 until January 2002. He has been a director of the Ford Motor Company since 1987 (Senior Lead Director; member of the Audit Committee) and Crown Media Holdings, Inc. since May 2000. He has also served on the Board of Directors of Aquila, Inc. from 1995 to 2008, Dow Jones & Company, Inc. from 2005 to 2007 and Sprint Nextel Corporation from 1997 to 2009. Mr. Hockaday is Presiding Director and Chair of the Audit Committee. |
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Barry S. Sternlicht Director since 2004 Age 49 |
Mr. Sternlicht is Chairman and Chief Executive Officer of Starwood Capital Group, a private real estate investment firm he formed in 1991. Mr. Sternlicht is also Chairman and Chief Executive Officer of Starwood Property Trust, Inc. since 2009, which is focused on originating, investing in, financing and managing commercial mortgage debt instruments. From October 2004 until May 2005, he was Executive Chairman of Starwood Hotels & Resorts Worldwide, Inc., a company which he formed in 1995 and of which he was Chairman and Chief Executive Officer from 1995 until October 2004. Mr. Sternlicht is Chairman of the Board of Société du Louvre and Baccarat and serves on the boards of National Golf, Ellen Tracy, Field & Stream, the Pension Real Estate Association, the National Advisory Board of JPMorgan Chase, the International Advisory Board of EuroHypo Bank, and Starwood Capital Group affiliates. Mr. Sternlicht is a trustee of Brown University and serves on the boards of numerous civic organizations and charities including Robin Hood, the Dreamland Theatre, the Juvenile Diabetes Research Foundation International's "National Leadership Advocacy Program" and the Business Committee for the Arts, Inc. Mr. Sternlicht is a member of the Committee to Encourage Corporate Philanthropy, the Young Presidents Organization and the Urban Land Institute. Mr. Sternlicht is a member of the Compensation Committee and Stock Plan Subcommittee. |
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The following table sets forth certain information regarding the beneficial ownership of the Company's Class A Common Stock and Class B Common Stock as of September 15, 2010 by (i) each person known by the Company to own beneficially more than 5% of the outstanding shares of either Class A Common Stock or Class B Common Stock, (ii) each of the Company's directors or nominees, (iii) each of the current or former executive officers whose names appear in the summary compensation table, and (iv) all directors and executive officers as a group. Except as set forth in the notes to the table, the business address of each 5% stockholder is 767 Fifth Avenue, New York, New York 10153. As described in the notes to the table, certain named beneficial owners share voting and/or investment power with respect to certain shares of common stock. Consequently, such shares are shown as beneficially owned by more than one person.
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Class A Common Stock(1) |
Class B Common Stock |
Voting Power |
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Name of Beneficial Owner
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Number (2) | % | Number | % | % | |||||||||||
Leonard A. Lauder (3)(4) |
2,690,669 | 2.3 | % | | | 0.3 | % | |||||||||
Joel S. Ehrenkranz and George W. Schiele, as trustees of the Leonard A. Lauder 2008 Marital Trust (3)(5) |
| | 45,329,842 | 59.1 | % | 51.2 | % | |||||||||
Ronald S. Lauder (3)(6) |
214,449 | 0.2 | % | 7,067,670 | 9.2 | % | 8.0 | % | ||||||||
William P. Lauder (3)(7) |
2,612,808 | 2.2 | % | 3,896,952 | 5.1 | % | 4.7 | % | ||||||||
Gary M. Lauder (3)(8) |
1,515,078 | 1.3 | % | 657,022 | 0.9 | % | 0.9 | % | ||||||||
Aerin Lauder (3)(9) |
23,706 | * | 8,220,593 | 10.7 | % | 9.3 | % | |||||||||
Jane Lauder (10) |
26,673 | * | 2,405,297 | 3.1 | % | 2.7 | % | |||||||||
Richard D. Parsons, individually and as trustee (3)(11) |
35,590 | * | 9,356,472 | 12.2 | % | 10.6 | % | |||||||||
Carol S. Boulanger, individually and as trustee (12) |
1,513,844 | 1.3 | % | 634,152 | 0.8 | % | 0.9 | % | ||||||||
Charlene Barshefsky (13) |
57,802 | * | | | * | |||||||||||
Rose Marie Bravo (14) |
11,475 | * | | | * | |||||||||||
Paul J. Fribourg (15) |
27,873 | * | | | * | |||||||||||
Mellody Hobson (16) |
31,348 | * | | | * | |||||||||||
Irvine O. Hockaday, Jr. (17) |
28,031 | * | | | * | |||||||||||
Lynn Forester de Rothschild (18) |
10,986 | * | | | * | |||||||||||
Barry S. Sternlicht (19) |
82,586 | * | | | * | |||||||||||
Richard F. Zannino (20) |
2,000 | * | | | * | |||||||||||
Fabrizio Freda (21) |
111,496 | * | | | * | |||||||||||
John Demsey (22) |
16,568 | * | | | * | |||||||||||
Cedric Prouvé (23) |
191,323 | 0.2 | % | | | * | ||||||||||
Richard W. Kunes (24) |
91,803 | * | | | * | |||||||||||
Capital World Investors (25) |
9,736,240 | 7.9 | % | | | 1.1 | % | |||||||||
BlackRock, Inc. (26) |
7,595,350 | 6.4 | % | | | 0.9 | % | |||||||||
Lone Pine Capital (27) |
6,105,520 | 5.1 | % | | | 0.7 | % | |||||||||
All directors and executive officers as a group (24 persons) (28) |
6,581,308 | 5.5 | % | 30,946,984 | 40.3 | % | 35.6 | % |
10
(a) 2,300,669 shares of Class A Common Stock directly and with respect to which he has sole voting and investment power; and
(b) 390,000 shares of Class A Common Stock owned by Evelyn H. Lauder (shares owned by Evelyn H. Lauder are not subject to the Stockholders' Agreement).
Mr. L. Lauder disclaims beneficial ownership of the shares of Class A Common Stock owned by his wife, Evelyn H. Lauder. Shares owned by Mrs. Lauder are not subject to the Stockholders' Agreement.
Messrs. Ehrenkranz and Schiele disclaim beneficial ownership of all such shares. Mr. Ehrenkranz's business address is 375 Park Avenue, New York, New York 10152. Mr. Schiele's business address is 19 Hill Rd., Greenwich, Connecticut 06830.
11
(a) 57,553 shares of Class A Common Stock and 7,064,488 shares of Class B Common Stock directly and with respect to which he has sole voting and shares investment power as described below;
(b) 3,182 shares of Class A Common Stock and 3,182 shares of Class B Common Stock as sole trustee of a trust for the benefit of his children and with respect to which he has sole voting and investment power;
(c) 36,457 shares of Class A Common Stock as a Director of the Ronald S. Lauder Foundation with respect to which he shares voting and investment power; and
(d) 117,257 shares of Class A Common Stock as a Director of The Jewish Renaissance Foundation with respect to which he shares voting and investment power.
Shares owned by The Jewish Renaissance Foundation are not subject to the Stockholders' Agreement. Mr. R. Lauder disclaims beneficial ownership of the shares of Class A Common Stock and Class B Common Stock owned by trusts for the benefit of one or more of his children, the Ronald S. Lauder Foundation, and The Jewish Renaissance Foundation. 7,064,488 shares of Class B Common Stock are pledged by Mr. R. Lauder to secure loans under a loan facility with a group of banks as to which he has sole voting power and shares investment power with the collateral agent pledgee.
(a) 65,311 shares of Class A Common Stock and 3,262,800 shares of Class B Common Stock directly and with respect to which he has sole voting and investment power;
(b) 884,331 shares of Class A Common Stock and 634,152 shares of Class B Common Stock as co-trustee of The 1992 GRAT Remainder Trust established by Leonard A. Lauder for the benefit of William P. Lauder and others and with respect to which he shares voting power with Gary M. Lauder, as co-trustee, and investment power with Gary M. Lauder and Carol S. Boulanger, as co-trustees;
(c) 625,513 shares of Class A Common Stock as co-trustee of The 1992 GRAT Remainder Trust established by Leonard A. Lauder for the benefit of Gary M. Lauder and others with respect to which he shares voting power with Gary M. Lauder, as co-trustee, and investment power with Gary M. Lauder and Carol S. Boulanger, as co-trustees;
(d) 1,008,000 shares of Class A Common Stock underlying exercisable options held by Mr. W. Lauder; and
(e) 29,653 shares of Class A Common Stock underlying restricted stock units expected to vest and be paid out (subject to withholding of shares for payment of taxes) on November 1, 2010.
Mr. W. Lauder disclaims beneficial ownership of shares held by the two trusts to the extent he does not have a pecuniary interest in such shares. Excludes stock options with respect to 300,718 shares of Class A Common Stock granted to Mr. W. Lauder under the Company's share incentive plans that were not yet exercisable as of September 15, 2010. Also excludes shares of Class A Common Stock underlying; (a) performance share unit awards with a target payout of 26,207 shares and restricted stock units in respect of 8,736 shares that were granted to Mr. W. Lauder by the Stock Plan Subcommittee on September 11, 2008; (b) performance share unit awards with a target payout of 14,706 shares and restricted stock units in respect of 26,950 shares that were granted to Mr. W. Lauder by the Stock Plan Subcommittee on September 2 and 3, 2009; and (c) performance share unit awards with a target payout of 10,761 shares and restricted stock units in respect of 10,761 shares that were granted to Mr. W. Lauder by the Stock
12
Plan Subcommittee on September 1 and 15, 2010.
(a) 625,513 shares of Class A Common Stock as co-trustee of The 1992 GRAT Remainder Trust established by Leonard A. Lauder for the benefit of Gary M. Lauder and others and with respect to which he shares voting power with William P. Lauder, as co-trustee, and investment power with William P. Lauder and Carol S. Boulanger, as co-trustees;
(b) 884,331 shares of Class A Common Stock and 634,152 shares of Class B Common Stock as co-trustee of The 1992 GRAT Remainder Trust established by Leonard A. Lauder for the benefit of William P. Lauder and others with respect to which he shares voting power with William P. Lauder, as co-trustee, and investment power with William P. Lauder and Carol S. Boulanger, as co-trustees; and
(c) 5,234 shares of Class A Common Stock and 22,870 shares of Class B Common Stock as custodian for his nieces.
Mr. G. Lauder disclaims beneficial ownership of the shares held by him as custodian and of the shares held by the two trusts to the extent he does not have a pecuniary interest in such shares. Mr. G. Lauder's business address is ActiveVideo Networks, Inc., 333 W. San Carlos St., Suite 400, San Jose, California 95110.
(a) 528 shares of Class A Common Stock and 750,000 shares of Class B Common Stock directly and with respect to which she has sole voting and investment power;
(b) 5,065,296 shares of Class B Common Stock as sole trustee of the Aerin Lauder Zinterhofer 2008 Grantor Retained Annuity Trust;
(c) 2,405,297 shares of Class B Common Stock as co-trustee of the Trust under Article 2 of The Zinterhofer 2008 Descendants Trust Agreement u/a/d December 24, 2008 (the "2008 Descendants Trust") with respect to which she shares voting and investment power with Jane Lauder, as co-trustee;
(d) 22,638 shares of Class A Common Stock underlying exercisable options held by Ms. A. Lauder; and
(e) 540 shares of Class A Common Stock underlying restricted stock units expected to vest and be paid out (subject to withholding of shares for payment of taxes) on November 1, 2010.
Excludes stock options with respect to 6,292 shares of Class A Common Stock granted to Ms. A. Lauder under the Company's share incentive plans that were not yet exercisable as of September 15, 2010. Also excludes shares of Class A Common Stock underlying (a) restricted stock units in respect of 186 shares that were granted to Ms. A. Lauder by the Stock Plan Subcommittee on September 11, 2008; (b) restricted stock units in respect of 434 shares that were granted to Ms. A. Lauder by the Stock Plan Subcommittee on September 2, 2009; and (c) restricted stock units in respect of 938 shares that were granted to Ms. A. Lauder by the Stock Plan Subcommittee on September 1, 2010.
Ms. A. Lauder disclaims beneficial ownership to the extent that she does not have a pecuniary interest in the securities held by the trusts.
Richard D. Parsons is trustee of a trust for the benefit of Ms. A. Lauder that hold shares of Class B Common Stock. See Note 11.
(a) 618 shares of Class A Common Stock directly with respect to which she has sole voting and investment power;
13
(b) 2,405,297 shares of Class B Common Stock as co-trustee of the 2008 Descendants Trust with respect to which she shares voting and investment power with Aerin Lauder, as co-trustee;
(c) 23,749 shares of Class A Common Stock underlying exercisable options held by Ms. J. Lauder; and
(d) 2,306 shares of Class A Common Stock underlying restricted stock units expected to vest and be paid out (subject to withholding of shares for payment of taxes) on November 1, 2010.
Excludes stock options with respect to 40,549 shares of Class A Common Stock granted to Ms. J. Lauder under the Company's share incentive plans that were not yet exercisable as of September 15, 2010. Also excludes shares of Class A Common Stock underlying (a) restricted stock units in respect of 1,389 shares that were granted to Ms. J. Lauder by the Stock Plan Subcommittee on September 11, 2008; (b) performance share unit awards with a target payout of 2,334 shares and restricted stock units in respect of 1,556 shares that were granted to Ms. J. Lauder by the Stock Plan Subcommittee on September 2, 2009; and (c) performance share unit awards with a target payout of 2,966 shares and restricted stock units in respect of 2,966 shares that were granted to Ms. J. Lauder by the Stock Plan Subcommittee on September 1 and 15, 2010.
Ms. J. Lauder disclaims beneficial ownership to the extent that she does not have a pecuniary interest in the securities held by the trust.
Richard D. Parsons is trustee of certain trusts for the benefit of Ms. J. Lauder that hold shares of Class B Common Stock. See Note 12.
(a) 2,221 shares of Class A Common Stock directly and with respect to which he has sole voting and investment power;
(b) 3,369 shares of Class A Common Stock underlying stock units payable in shares;
(c) 30,000 shares of Class A Common Stock underlying options that are exercisable (or which will be exercisable on November 13, 2010); and
(d) 9,356,472 shares of Class B Common Stock as trustee of trusts for the benefit of Aerin Lauder and Jane Lauder and with respect to which Mr. Parsons has sole voting and investment power.
Mr. Parsons disclaims beneficial ownership of the shares held in trust. Mr. Parson's business address is 9 West 57th Street, Suite 4700, New York, New York 10019.
(a) 4,000 shares of Class A Common Stock directly and with respect to which she has sole voting and investment power;
(b) 884,331 shares of Class A Common Stock and 634,152 shares of Class B Common Stock as co-trustee of The 1992 GRAT Remainder Trust established by Leonard A. Lauder for the benefit of William P. Lauder and others and with respect to which she shares investment power with William P. Lauder and Gary M. Lauder, as co-trustees; and
(c) 625,513 shares of Class A Common Stock as co-trustee of The 1992 GRAT Remainder Trust established by Leonard A. Lauder for the benefit of Gary M. Lauder and others with respect to which she shares investment power with Gary M. Lauder and William P. Lauder, as co-trustees.
Ms. Boulanger disclaims beneficial ownership of all such shares. Ms. Boulanger's business address is 1540 Broadway, New York, NY 10036.
14
(a) 2,000 shares of Class A Common Stock directly and with respect to which she has sole voting and investment power;
(b) 4,085 shares of Class A Common Stock underlying stock units payable in shares; and
(c) 51,717 shares of Class A Common Stock underlying options that are exercisable (or which will become exercisable on November 13, 2010).
(a) 4,000 shares of Class A Common Stock directly and with respect to which she has sole voting and investment power;
(b) 2,475 shares of Class A Common Stock underlying stock units payable in shares; and
(c) 5,000 shares of Class A Common Stock underlying options that are exercisable (or which will become exercisable on November 13, 2010).
(a) 2,000 shares of Class A Common Stock directly and with respect to which he has sole voting and investment power;
(b) 713 shares of Class A Common Stock underlying stock units payable in shares; and
(c) 25,160, shares of Class A Common Stock underlying options that are exercisable (or which will become exercisable on November 13, 2010).
Mr. Fribourg also holds stock units payable in cash in respect of 9,103 shares of Class A Common Stock, which represent retainers and fees deferred by him prior to September 15, 2010. Such units are excluded from the table, because they are not payable in shares.
(a) 3,000 shares of Class A Common Stock directly and with respect to which she has sole voting and investment power;
(b) 3,348 shares of Class A Common Stock underlying stock units payable in shares; and
(c) 25,000 shares of Class A Common Stock underlying options that are exercisable (or which will become exercisable on November 13, 2010).
Ms. Hobson also holds stock units payable in cash in respect of 11,840 shares of Class A Common Stock, which represent retainers and fees deferred by her prior to September 15, 2010. Such units are excluded from the table, because they are not payable in shares.
(a) 17,325 shares of Class A Common Stock directly and with respect to which he has sole voting and investment power;
(b) 5,706 shares of Class A Common Stock underlying stock units payable in shares; and
(c) 5,000 shares of Class A Common Stock underlying options that are exercisable (or which will become exercisable on November 13, 2010).
Mr. Hockaday also holds stock units payable in cash in respect of 28,149 shares of Class A Common Stock, which represent retainers and fees deferred by him prior to September 15, 2010. Such units are excluded from the table, because they are not payable in shares.
(a) 2,000 shares of Class A Common Stock directly and with respect to which she has sole voting and investment power;
15
(b) 3,986 shares of Class A Common Stock underlying stock units payable in shares; and
(c) 5,000 shares of Class A Common Stock underlying options that are exercisable (or which will become exercisable on November 13, 2010).
Lady de Rothschild also holds stock units payable in cash in respect of 24,927 shares of Class A Common Stock, which represent retainers and fees deferred by her prior to September 15, 2010. Such units are excluded from the table, because they are not payable in shares.
(a) 27,000 shares of Class A Common Stock directly and with respect to which he has sole voting and investment power;
(b) 18,000 shares of Class A Common Stock indirectly through three family trusts;
(c) 2,055 shares of Class A Common Stock underlying stock units payable in shares; and
(d) 35,531 shares of Class A Common Stock underlying options that are exercisable (or which will become exercisable on November 13, 2010).
Mr. Sternlicht also holds stock units payable in cash in respect of 12,680 shares of Class A Common Stock, which represent retainers and fees deferred by him prior to September 15, 2010. Such units are excluded from the table, because they are not payable in shares.
(a) 27,044 shares of Class A Common Stock directly and with respect to which he has sole voting and investment power;
(b) 26,119 shares of Class A Common Stock underlying restricted stock units expected to vest and be paid out (subject to withholding of shares for payment of taxes) on November 1, 2010; and
(c) 58,333 shares of Class A Common Stock underlying options that are exercisable.
Excludes stock options with respect to 418,103 shares of Class A Common Stock granted to Mr. Freda under the Company's share incentive plans that were not yet exercisable as of September 15, 2010. Also excludes shares of Class A Common Stock underlying (a) performance share unit awards with a target payout of 30,574 shares and restricted stock units in respect of 10,192 shares that were granted to Mr. Freda by the Stock Plan Subcommittee on September 11, 2008; (b) restricted stock units in respect of 79,602 shares that were granted to Mr. Freda by the Stock Plan Subcommittee on July 1, 2009; (c) performance share unit awards with a target payout of 29,412 shares and restricted stock units in respect of 33,897 shares that were granted to Mr. Freda by the Stock Plan Subcommittee on September 2 and 3, 2009; and (d) performance share unit awards with a target payout of 21,522 shares and restricted stock units in respect of 21,522 shares that were granted to Mr. Freda by the Stock Plan Subcommittee on September 1, 2010.
(a) 3,232 shares of Class A Common Stock directly and with respect to which he has sole voting and investment power; and
(b) 13,336 shares of Class A Common Stock underlying restricted stock units expected to vest and be paid out (subject to withholding of shares for payment of taxes) on November 1, 2010.
Excludes stock options with respect to 211,729 shares of Class A Common Stock granted to Mr. Demsey under the Company's share incentive plans that were not yet exercisable as of September 15, 2010. Also excludes shares of Class A Common Stock
16
underlying (a) performance share unit awards with a target payout of 10,919 shares and restricted stock units in respect of 3,640 shares that were granted to Mr. Demsey by the Stock Plan Subcommittee on September 11, 2008; (b) performance share unit awards with a target payout of 11,723 shares and restricted stock units in respect of 12,897 shares that were granted to Mr. Demsey by the Stock Plan Subcommittee on September 2 and 3, 2009; and (c) performance share unit awards with a target payout of 14,170 shares and restricted stock units in respect of 14,170 shares that were granted to Mr. Demsey by the Stock Plan Subcommittee on September 1 and 15, 2010.
(a) 25,550 shares of Class A Common Stock directly and with respect to which he has sole voting and investment power; and
(b) 154,166 shares of Class A Common Stock underlying options that are exercisable; and
(c) 11,607 shares of Class A Common Stock underlying restricted stock units expected to vest and be paid out (subject to withholding of shares for payment of taxes) on November 1, 2010.
Excludes stock options with respect to 201,350 shares of Class A Common Stock granted to Mr. Prouvé under the Company's share incentive plans that were not yet exercisable as of September 15, 2010. Also excludes shares of Class A Common Stock underlying (a) performance share unit awards with a target payout of 10,919 shares and restricted stock units in respect of 3,640 shares that were granted to Mr. Prouvé by the Stock Plan Subcommittee on September 11, 2008; (b) performance share unit awards with a target payout of 11,723 shares and restricted stock units in respect of 10,549 shares that were granted to Mr. Prouvé by the Stock Plan Subcommittee on September 2 and 3, 2009; and (c) performance share unit awards with a target payout of 13,093 shares and restricted stock units in respect of 13,093 shares that were granted to Mr. Prouvé by the Stock Plan Subcommittee on September 1 and 15, 2010.
(a) 24,999 shares of Class A Common Stock directly and with respect to which he has sole voting and investment power;
(b) 6,440 shares of Class A Common Stock owned by his wife;
(c) 49,999 shares of Class A Common Stock underlying options that are exercisable; and
(d) 10,365 shares of Class A Common Stock underlying restricted stock units expected to vest and be paid out (subject to withholding of shares for payment of taxes) on November 1, 2010.
Excludes stock options with respect to 181,436 shares of Class A Common Stock granted to Mr. Kunes under the Company's share incentive plans that were not yet exercisable as of September 15, 2010. Also excludes shares of Class A Common Stock underlying (a) performance share unit awards with a target payout of 8,736 shares and restricted stock units in respect of 2,912 shares that were granted to Mr. Kunes by the Stock Plan Subcommittee on September 11, 2008; (b) performance share unit awards with a target payout of 10,421 shares and restricted stock units in respect of 9,494 shares that were granted to Mr. Kunes by the Stock Plan Subcommittee on September 2 and 3, 2009; and (c) performance share unit awards with a target payout of 12,385 shares and restricted stock units in respect of 12,385 shares that were granted to Mr. Kunes by the Stock Plan Subcommittee on September 1 and 15, 2010.
17
or indirect voting and/or investment discretion over 9,736,240 shares of Class A Common Stock, which are held for its own benefit or for the benefit of its clients by its separate accounts, externally managed accounts, registered investment companies, subsidiaries and/or other affiliates.
(a) 42,436 shares of Class A Common Stock;
(b) 25,022 shares of Class A Common Stock underlying restricted stock units expected to vest and be paid out (subject to withholding of shares for payment of taxes) on November 1, 2010; and
(c) 246,664 shares of Class A Common Stock underlying options that are exercisable.
Excludes stock options with respect to an aggregate of 486,759 shares of Class A Common Stock granted to the executive officers whose names do not appear in this table, that were outstanding on September 15, 2010 but were not yet exercisable. Also excludes for the non-named executive officers shares of Class A Common Stock underlying (a) performance share unit awards with a target payout of 21,840 shares and restricted stock units in respect of 7,280 shares that were granted to such executives by the Stock Plan Subcommittee on September 11, 2008; (b) performance share unit awards with a target payout of 28,656 shares and restricted stock units in respect of 28,109 shares that were granted to such executives by the Stock Plan Subcommittee on September 2 and 3, 2009; and (c) performance share unit awards with a target payout of 34,114 shares and restricted stock units in respect of 34,114 shares that were granted by the Stock Plan Subcommittee on September 1 and 15, 2010.
18
Additional Information Regarding the Board of Directors
Stockholders' Agreement. All Lauder Family Members (other than The 4202 Corporation) who beneficially own shares of Common Stock have agreed pursuant to a stockholders' agreement with the Company (the "Stockholders' Agreement") to vote all shares beneficially owned by them for Leonard A. Lauder (or for one of his sons), Ronald S. Lauder (or for one of his daughters) and one person, if any, designated by each as a director of the Company. The term "Lauder Family Member" is defined later in this Proxy Statement (see "Certain Relationships and Related TransactionsLauder Family Relationships and Compensation"). Lauder Family Members who are parties to the Stockholders' Agreement beneficially owned, in the aggregate, on September 15, 2010, shares of Common Stock having approximately 83% of the voting power of the Company. The right of each of Leonard A. Lauder (or his sons) and Ronald S. Lauder (or his daughters) to designate a nominee exists only when he (including his descendants) beneficially owns (other than by reason of the Stockholders' Agreement) shares of Common Stock with at least 10% of the total voting power of the Company. Currently, William P. Lauder is the nominee of Leonard A. Lauder and Aerin Lauder and Jane Lauder are the nominees of Ronald S. Lauder. The right of each of Leonard A. Lauder (or one of his sons) and Ronald S. Lauder (or one of his daughters) to be nominated will exist so long as he (including his descendants) beneficially owns shares of Common Stock with at least 5% of the total voting power of the Company. In the event that Leonard A. Lauder ceases to be a member of the Board of Directors by reason of his death or disability, then his sons, William P. Lauder and Gary M. Lauder, will succeed to his rights to be nominated as a director and to designate one nominee. If either son is unable to serve by reason of his death or disability, the other son will have the right to designate a nominee. Similarly, Aerin Lauder and Jane Lauder, Ronald S. Lauder's daughters, will succeed to their father's rights if he should cease to be a director by reason of his death or disability. If either daughter is unable to serve by reason of her death or disability, the other daughter will have the right to designate a nominee. In the event none of Leonard A. Lauder and his sons and Ronald S. Lauder and his daughters are able to serve as directors by reason of death or disability, then the rights under the Stockholders' Agreement to be a nominee and to designate a nominee will cease.
Board Committees. The Board of Directors has established three standing committeesthe Audit Committee, the
Compensation Committee (which includes the Stock Plan
Subcommittee) and the Nominating and Board Affairs Committee. Current copies of the charters for each of these Committees may be found in the "Investors" section of the Company's website:
www.elcompanies.com under the heading "Corporate Governance." Stockholders may also contact Investor Relations at 767 Fifth Avenue, New York, New York 10153 or call
800-308-2334 to obtain a hard copy of these documents without charge.
The Company is a "controlled company" under the rules of the New York Stock Exchange because the Lauder family and their related entities hold more than 50% of the voting power of the outstanding voting stock. As such, the Company may avail itself of exemptions relating to the independence of the Board and certain Board committees. Despite the availability of such exemptions, the Board of Directors has determined that it will have a majority of independent directors and that both the Nominating and Board Affairs Committee and the Compensation Committee will have otherwise required provisions in their charters. The Board of Directors currently has also determined to use the two remaining exemptions, and thus will not require that the Nominating and Board Affairs Committee and Compensation Committee be comprised solely of independent directors.
The Audit Committee members are Irvine O. Hockaday, Jr., Chair, Mellody Hobson, Paul J. Fribourg and Richard F. Zannino. The Board of Directors has determined that Mr. Hockaday, Ms. Hobson, Mr. Fribourg and Mr. Zannino each qualifies as an "Audit Committee Financial Expert" in accordance with the rules issued by the Securities and Exchange Commission. The Audit Committee has a written charter adopted by the Board of Directors. The Committee, among other
19
things, appoints the independent auditors; reviews the independence of such auditors; approves the scope of the annual audit activities of the independent auditors and the Company's Internal Control Department; reviews audit results; reviews and discusses the Company's financial statements with management and the independent auditors; reviews and discusses with the Board the Company's risk assessment and management processes; and is responsible for our policy for the review of related person transactions. The Committee also meets separately, at least quarterly, with the Chief Financial Officer and Chief Internal Control Officer and with representatives of the independent auditor.
The Compensation Committee members are Richard D. Parsons, Chair, Rose Marie Bravo, Paul J. Fribourg and Barry S. Sternlicht. The Committee has the authority to, and does, establish and approve compensation plans and arrangements with respect to the Company's executive officers and administers the executive annual incentive plan. The Stock Plan Subcommittee, whose members are Rose Marie Bravo, Paul J. Fribourg and Barry S. Sternlicht, has the authority to adopt and administer the Company's share incentive plans.
The Nominating and Board Affairs Committee members are Lynn Forester de Rothschild, Chair, Charlene Barshefsky, William P. Lauder and Richard D. Parsons. The Committee, among other things, recommends nominees for election as members of the Board, considers and makes recommendations regarding Board practices and procedures and reviews the compensation for service as a Board member.
Each committee reports regularly to the Board and has authority to engage its own advisors.
Board and Board Committee Meetings; Attendance at Annual Meetings; Executive Sessions. Directors are expected to
devote sufficient time to carrying out their duties and responsibilities effectively, and should be committed to serve on the Board for
an extended period of time. In furtherance of the Board's role, directors are expected to attend all scheduled Board and Board Committee meetings and all meetings of stockholders. In fiscal 2010, the
Board of Directors met seven times, the Compensation Committee met five times, the Stock Plan Subcommittee met five times, the Audit Committee met eight times, and the Nominating and Board Affairs
Committee met four times. The total combined attendance for all board and committee meetings was 96.95%. In fiscal 2010, the non-employee directors met five times in executive session. All
the directors that were on the Board attended the Annual Meeting of Stockholders in November 2009.
Irvine O. Hockaday, Jr. has served as the presiding director for all executive sessions of the Board of Directors since November 2004. Mr. Hockaday has been appointed by the Board to serve for an additional one-year term beginning after the 2010 Annual Meeting. The presiding director serves for a one-year term beginning with the meeting of the Board immediately following the Annual Meeting of Stockholders and is selected from among the independent members of the Board.
Board Leadership Structure. Our Board is currently led by our Executive Chairman, who is a member of the Lauder
family. As provided in our Corporate Governance Guidelines, we also have an
independent director who serves as our presiding director. The remaining directors include our President and Chief Executive Officer, eight other non-employee directors (seven of whom are
independent), and three more members of the Lauder family. A majority of the directors are independent.
The Board of Directors considers this structure appropriate in view of the Lauder family's significant investment in the Company, including direct and indirect holdings of more than 87% of the voting power of the outstanding voting stock. The structure also comports with the Stockholders' Agreement among various members of the Lauder family and the Company, which was originally entered into in connection with our initial public offering in 1995. See "Additional Information Regarding the Board of DirectorsStockholders' Agreement."
In addition to his responsibilities as Chairman of the Board, Mr. W. Lauder, as Executive Chairman, works with the President and Chief Executive Officer to set overall vision, strategy,
20
financial objectives and investment priorities for the business. He also continues to provide high-level leadership in areas that are important to the Company, including marketing, trade relations, global communications and regulatory affairs. Mr. Freda joined the Board on July 1, 2009 upon his becoming our President and Chief Executive Officer. Mr. Hockaday, the current presiding director, presides at all meetings or executive sessions of non-employee or independent directors.
Board Role in Risk Oversight. Our Board of Directors regularly receives reports from our President and Chief
Executive Officer and other members of senior management regarding areas of
significant risk to us, including strategic, operational, financial, legal and regulatory, and reputational risks. However, senior management is responsible for assessing and managing the Company's
various risk exposures on a day-to-day basis. In this regard, management has established functions that focus on particular risks, such as the Company's Legal Department,
Treasury Group and Environmental Affairs and Safety Department, and has over time developed a more systemic and integrated approach to overall risk management, which includes the identification of
risks and mitigation plans in the strategic planning process. The Board's role is one of oversight, assessing major risks facing the Company and reviewing options for their mitigation with management.
In addition, under its Charter, the Audit Committee reviews and discusses with management our enterprise risk management processes.
Risk in Compensation Programs. We undertook a review of our compensation programs in 2010 to determine whether the
risks arising from our compensation programs (in addition to those applicable
only to executive officers) were reasonably likely to have a material adverse effect on the Company. As part of the review, we compiled an inventory of all incentive plans covering our management
employees or otherwise used in our most significant operations and developed a framework for evaluating incentive plan design features that may encourage or help mitigate risk, such as mix of
compensation elements, metrics, leverage, caps and time horizons. The results were reviewed with senior management and the Compensation Committee and we concluded that our compensation programs are
not reasonably likely to have a material adverse effect on the Company.
Director Qualifications. Our Board is comprised of individuals with diverse and complementary business experience,
leadership experience and financial expertise. Many of our current
directors have leadership experience at major domestic and multinational companies, as well as experience on the boards of other companies and organizations, which provides an understanding of
different business processes, challenges and strategies. Other directors have government, legal, public policy and media experience that provides insight into issues faced by public companies. The
members of the Board are inquisitive and collaborative, challenging yet supportive, and demonstrate maturity and sound judgment in performing their duties. In addition to their own attributes, skills
and experience and their significant personal investments in the Company, Lauder Family Members (including related entities) who control the Company have agreed to vote their shares in favor of four
individuals. They are the four Lauder family members who are currently on the Board.
The Board believes that the above-mentioned attributes, along with the leadership skills and other experience of its Board members some of which are described in the table on the following page, provide the Company with the appropriate perspectives and judgment to guide the Company's long-term strategy, monitor progress and, in general, oversee management. Nominees for election at the Annual Meeting on November 9, 2010 have an asterisk (*) next to their names.
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Charlene Barshefsky | International, government and public policy experience as United States Trade Representative |
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Legal experience, including current role as Senior International Partner at WilmerHale |
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Board experience at American Express Company, Intel Corporation and Starwood Hotels & Resorts Worldwide |
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Trustee of the Howard Hughes Medical Institute |
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Rose Marie Bravo |
Global management, marketing, retail and consumer and luxury brand industry experience as former Chief Executive of Burberry and other leadership positions at Saks Fifth Avenue (including as President) and Macy's |
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Board experience at Tiffany & Co. |
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Experience working abroad |
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Merchandise and product development expertise |
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Fabrizio Freda |
Global management, marketing and other business and consumer and luxury brand industry experience as CEO of The Estée Lauder Companies Inc. |
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Similar experience, including developing and leading global organizations, in leadership positions at The Procter & Gamble Company and Gucci SpA |
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Experience leading successful creative organizations with innovation programs based on research and development |
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Experience living and working in several countries |
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Financial expertise |
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Paul J. Fribourg |
Global management, marketing and other business experience as Chairman and Chief Executive Officer of Continental Grain Company |
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Board experience at Loews Corporation |
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Affiliation with leading business and public policy associations (Council on Foreign Relations) |
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Financial expertise |
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Mellody Hobson |
Management and investment experience as President of Ariel Investments |
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Board experience at DreamWorks Animation SKG, Inc. and Starbucks Corporation |
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Media experience as on-air financial contributor for ABC's "Good Morning America" |
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Financial expertise |
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Irvine O. Hockaday, Jr. |
Global business experience and consumer brand industry experience as former CEO of Hallmark Cards, Inc. |
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Board experience at numerous public companies, including Ford Motor Company and Sprint Nextel Company |
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Financial expertise |
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Legal experience |
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Aerin Lauder* | Marketing and other consumer and luxury brand industry experience through leadership roles at The Estée Lauder Companies Inc. since joining in 1992 |
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Significant stockholder and Stockholders' Agreement |
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Jane Lauder |
Management, marketing and other industry experience through leadership roles at The Estée Lauder Companies Inc. since joining in 1996 |
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Significant stockholder and Stockholders' Agreement |
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Leonard A. Lauder |
Global business, marketing and consumer and luxury brand industry experience through leadership roles at The Estée Lauder Companies Inc. since joining in 1958 |
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Experience leading successful creative organizations with innovation programs based on research and development |
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Affiliation with leading business, civic and public policy associations |
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Charter Trustee of The University of Pennsylvania |
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Significant stockholder and Stockholders' Agreement |
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William P. Lauder* |
Global business, marketing, Internet, retail and consumer and luxury brand industry experience through leadership roles at The Estée Lauder Companies Inc. since joining in 1986 |
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Experience leading successful creative organizations with innovation programs based on research and development |
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Board experience at GLG Partners Inc. |
||
Significant stockholder and Stockholders' Agreement |
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Trustee of University of Pennsylvania |
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Financial expertise |
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Richard D. Parsons* |
Global business, marketing, media, Internet, banking and other business and consumer brand experience through leadership roles at Time Warner Inc. and Dime Bancorp, Inc. |
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Board experience at Time Warner Inc. and Citigroup, Inc. |
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Private equity experience at Providence Equity Partners |
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Trustee of Howard University |
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Legal and government experience |
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Financial expertise |
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Lynn Forester de Rothschild* |
Global business and investment experience as Chief Executive of E L Rothschild LLC and CEO of FirstMark Holdings, Inc. |
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Board and media experience as director of The Economist Newspaper Limited |
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Affiliation with leading business and public policy associations (Council on Foreign Relations) |
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Experience working abroad |
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Legal and government expertise |
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Financial expertise |
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Barry S. Sternlicht | Global business, investment, real estate, financial, private equity, entrepreneurial and consumer brand and luxury industry expertise at Starwood Capital Group and founder and former Chief Executive of Starwood Hotels & Resorts |
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Trustee of Brown University |
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Financial expertise |
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Richard F. Zannino* |
Management, media, finance, retail and consumer brand industry experience in various positions at Dow Jones & Company (including CEO, COO and CFO), Liz Claiborne (including CFO) and Saks Fifth Avenue (including CFO) |
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Consumer, retail, media and private equity experience at CCMP Capital Advisors, LLC |
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Board experience at IAC/Interactive Corp. and Dow Jones & Company |
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Trustee of Pace University |
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Financial expertise |
The Company does not have a specific policy on diversity of the Board. Instead, the Board evaluates nominees in the context of the Board as a whole, with the objective of recommending a group that can best support the success of the business and, based on the group's diversity of experience, represent stockholder interests through the exercise of sound judgment. Such diversity of experience may be enhanced by a mix of different professional and personal backgrounds and experiences. The Company is proud to have one of the most diverse boards in the S&P 500 when measured by gender and race.
Board Membership Criteria. The Nominating and Board Affairs Committee works with the Board on an annual basis to
determine the appropriate characteristics, skills and experience for the
Board as a whole and for its individual members. All directors should possess the highest personal and professional ethics as well as an inquisitive and objective perspective, practical wisdom and
mature judgment. In evaluating the suitability of individual Board members, the Board takes into account many factors, including general understanding of marketing, finance and other disciplines
relevant to the success of a large publicly traded company in today's business environment; understanding of the Company's business on a technical level; and educational and professional background.
The Board evaluates each individual in the context of the Board as a whole, with the objective of recommending a group that can best support the success of the business and, based on its diversity of
experience, represent stockholder interests through the exercise of sound judgment. In determining whether to recommend a director for re-election, the Nominating and Board Affairs
Committee also considers the director's past attendance at meetings and participation in and contributions to the activities of the Board.
Upon determining the need for additional or replacement Board members, the Nominating and Board Affairs Committee will identify one or more director candidates and evaluate each candidate under the criteria described above based on the information it receives with a recommendation or that it otherwise possesses, which information may be supplemented by additional inquiries. Application of these criteria involves the exercise of judgment and cannot be measured in any mathematical or routine way. Based on its assessment of each candidate's independence, skills and qualifications and the criteria described above, the Committee will make recommendations regarding potential director candidates to the Board. The Committee may engage third parties to assist in the search for director candidates or to assist in gathering information regarding a candidate's background and experience. The Committee will evaluate stockholder recommended candidates in the same manner as other candidates. Candidates may also be designated pursuant to the Stockholders'
24
Agreement. See "Additional Information Regarding the Board of DirectorsStockholders' Agreement."
Board Independence Standards for Directors. To be considered "independent" for purposes of membership on the
Company's Board of Directors, the Board must determine that a director has no material
relationship with the Company, including any of its subsidiaries, other than as a director. For each director, the Board broadly considers all relevant facts and circumstances. In making its
determination, the Board considers the following categories of relationships to be material, thus precluding a determination that a director is "independent":
Additionally, the following relationships will not be considered to be "material" relationships that would impair a director's independence:
Contributions to tax exempt organizations shall not be considered payments for purposes of these independence standards. An "immediate family member" includes a director's spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than domestic employees) who shares such person's home.
The Board reviews at least annually whether directors meet these Director Independence Standards.
The following directors, including two nominated for re-election, have been determined by the Board to be "independent" pursuant to New York Stock Exchange rules and the Company's Independent Director Standards described above: Charlene Barshefsky, Rose Marie Bravo, Paul J. Fribourg, Mellody Hobson, Irvine O. Hockaday, Jr., Lynn Forester
25
de Rothschild, Barry S. Sternlicht and Richard F. Zannino.
In addition to the foregoing, in order to be considered "independent" under New York Stock Exchange rules for purposes of serving on the Company's Audit Committee, a director also may not accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the Company, other than as a director, and may not be an "affiliated person" of the Company. Audit Committee members may receive directors' fees and fixed payments for prior service with the Company. The Board has determined that each of the members of the Audit Committee meet these additional independence requirements as well.
Communications with the Board. An interested party who wishes to communicate with the Board, any Committee thereof,
the non-management directors as a group, the independent
directors as a group, or any individual director, including the presiding director for executive sessions of the Board, may do so by addressing the correspondence to that individual or group, c/o Sara
E. Moss, Executive Vice President and General Counsel, The Estée Lauder Companies Inc., 767 Fifth Avenue, New York, New York 10153. She, or her designee, will review all such
correspondence to determine that the substance of the correspondence relates to the duties and responsibilities of the Board or individual Board member before forwarding the correspondence to the
intended recipient. Spam, junk mail, solicitations, and hostile, threatening, illegal or similarly unsuitable material will not be forwarded to the intended recipient and, if circumstances warrant,
may be forwarded to the Company's security staff. Any communication that is not forwarded may be made available to the intended recipient at his or her request.
Director Nominees Recommended by Stockholders. The Nominating and Board Affairs Committee will consider stockholder
recommendations of nominees in the same manner as and pursuant to the same criteria by which
it considers all other nominees, except for nominations received pursuant to the Stockholders' Agreement. See "Board Membership Criteria." Stockholders who wish to suggest qualified candidates should
send their written recommendation to the Nominating and Board Affairs Committee c/o Sara E. Moss, Executive Vice President and General Counsel, The Estée Lauder Companies Inc.,
767 Fifth Avenue, New York, New York 10153. The following information must accompany any such recommendation by a stockholder: (i) the name and address of the stockholder making the
recommendation, (ii) the name, address, telephone number and social security number of the proposed nominee, (iii) the class or series and number of shares of the Company that are
beneficially owned by the stockholder making the recommendation, (iv) a description of all arrangements or understandings between the stockholder and the candidate, and an executed written
consent of the proposed nominee to serve as a director of the Company if so elected, (v) a copy of the proposed nominee's resume and references, and (vi) an analysis of the candidate's
qualifications to serve on the Board of Directors and on each of the Board's committees in light of the criteria for Board membership established by the Board. See "Board Membership Criteria." For
stockholders intending to nominate an individual for election as a director directly, there are specific procedures set forth in our bylaws. See "Stockholder Proposals and Direct Nominations."
Corporate Governance Guidelines and Code of Conduct
The Board of Directors has developed corporate governance practices to help it fulfill its responsibilities to stockholders in providing general direction and oversight of management of the Company. These practices are set forth in the Company's Corporate Governance Guidelines. The Company also has a Code of Conduct ("Code") applicable to all employees, officers and directors of the Company, including, without limitation, the Chief Executive Officer, the Chief Financial Officer and other senior officers. These documents, as well as any waiver of a provision of the Code granted to any senior officer or director or material amendment to the Code, if any, may be found in the "Investors" section of the Company's website: www.elcompanies.com. Stockholders may also contact Investor Relations at 767 Fifth Avenue, New York, New York 10153
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or call 800-308-2334 to obtain a hard copy of these documents without charge.
The Audit Committee of the Board of Directors, consisting solely of "independent directors" as defined by the Board and consistent with the rules of the New York Stock Exchange, has:
Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements for the fiscal year ended June 30, 2010 be included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2010 filed with the Securities and Exchange Commission.
The Audit Committee
Irvine O. Hockaday, Jr., (Chair)
Paul J. Fribourg
Mellody Hobson
Richard F. Zannino
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and any persons who own more than 10% of the Class A Common Stock, to file forms reporting their initial beneficial ownership of common stock and subsequent changes in that ownership with the SEC and the New York Stock Exchange. Officers, directors and greater-than-10% beneficial owners also are required to furnish the Company with copies of all forms they file under Section 16(a). Based solely upon a review of the copies of the forms furnished to the Company, or a written representation from a reporting person that no Form 5 was required, the Company believes that during the 2010 fiscal year all Section 16(a) filing requirements were satisfied.
Policy and Procedures for the Review of Related Person Transactions
We have a written policy that sets forth procedures for the review and approval or ratification of transactions involving "Related Persons," which consists of any director, nominee for director, executive officer or greater than 5% stockholder of the Company, and the "Immediate Family Members" of any such director, nominee for director, executive officer or greater than 5% stockholder. The Audit Committee (or its Chair under certain circumstances) is responsible for applying the Policy with the assistance of the Executive Vice President and General Counsel ("EVP GC") or designee (if any).
"Transactions" covered by the Policy consist of any financial transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness) or any series of similar transactions, arrangements or relationships in which:
Determination of materiality may include the importance of the interest to the Related Person (financially or otherwise), the relationship of the Related Person to the Transaction and of Related Persons with each other, and the dollar amount involved in the Transaction; and whether any
27
related person has or will have a direct material interest or an indirect material interest in the transaction.
The Policy includes a list of categories of transactions identified by the Board as having no significant potential for an actual or the appearance of a conflict of interest or improper benefit to a related person, and thus are not subject to review by the Committee ("Excluded Transactions"). Excluded Transactions include certain transactions in the ordinary course of business between the Company and another entity with which a Related Person is affiliated and certain discretionary charitable contributions by the Company to an established non-profit entity with which a related person is affiliated, as long as the amounts involved are below certain percentages of the consolidated gross revenues of the Company and the Related Person.
Each Transaction by a Related Person should be reported to the EVP GC, or designee, for presentation to the Committee for approval prior to its consummation, or for ratification, if necessary, after consummation. The EVP GC or designee will assess whether any proposed transaction involving a related person is a related person transaction covered by the Related Person Transaction Policy, and if so, the transaction will be presented to the Committee for review and consideration at its next meeting or, in those instances in which the EVP GC or designee determines that it is not practicable or desirable for the Company to wait until the next Committee meeting, to the Chair of the Committee. If the EVP GC or designee potentially may be involved in a related person transaction, the applicable person is required to inform the Chief Executive Officer and the Chair of the Committee. Transactions by Related Persons (other than Excluded Transactions) will be reviewed and be subject to approval by the Committee. If possible, the approval will be obtained before the Company commences the transaction or enters into or amends any contract relating to the transaction. If advanced Committee approval of a related party transaction is not feasible or not identified prior to the commencement of a transaction, then the transaction will be considered and, if the Committee determines it to be appropriate, ratified at the Committee's next regularly scheduled meeting.
In determining whether to approve or ratify a related person transaction covered by the Policy, the Committee may take into account such factors it deems appropriate, which may include (if applicable), but not be limited to:
A member of the Committee who is a Related Person in connection with a particular proposed related person transaction will not participate in any discussion or approval of the transaction, other than discussions for the purpose of providing material information concerning the transaction to the Committee.
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Certain Relationships and Related Transactions
Lauder Family Relationships and Compensation. Leonard A. Lauder is Chairman Emeritus. His brother, Ronald S. Lauder is Chairman of Clinique Laboratories, LLC. Leonard A. Lauder's wife, Evelyn H. Lauder, is Senior Corporate Vice President of the Company. Leonard and Evelyn Lauder have two sons, William P. Lauder and Gary M. Lauder. William P. Lauder is Executive Chairman and in such role, is Chairman of the Board of Directors, Gary M. Lauder is not an employee of the Company. Ronald S. Lauder and his wife, Jo Carole Lauder, have two daughters, Aerin Lauder and Jane Lauder. Aerin Lauder is Senior Vice PresidentCreative Director for the Estée Lauder brand and is a director of the Company. Jane Lauder is Global President, General Manager of Origins and Ojon and a director of the Company.
For fiscal 2010, the following Lauder Family Members received the following amounts from the Company as compensation: Leonard A. Lauder received an aggregate of $900,000 for his services; Ronald S. Lauder received $500,000 in salary and a bonus of $326,900; Evelyn H. Lauder received $650,000 in salary and a bonus of $407,950; Aerin Lauder received $335,000 in salary and a bonus of $162,459 and stock options in respect of 1,950 shares of Class A Common Stock and restricted stock units in respect of 650 shares of Class A Common Stock; and Jane Lauder received $400,000 in salary and a bonus of $271,800 and stock options in respect of 14,000 shares of Class A Common Stock, performance share units in respect of 2,334 shares of Class A Common Stock and restricted stock units in respect of 2,334 shares of Class A Common Stock. Each is entitled to participate in standard benefit plans, such as the Company's pension and medical plans. For information regarding fiscal 2010 compensation for William P. Lauder, see "Executive Compensation."
For fiscal 2011, Leonard A. Lauder is being paid on a per diem basis with an aggregate limit of $1,600,000; Ronald S. Lauder has a base salary of $650,000 and bonus opportunities with a target payout of $350,000; Evelyn H. Lauder has a base salary of $675,000 and bonus opportunities with a target payout of $325,000; Aerin Lauder has a base salary of $375,000 and bonus opportunities with a target payout of $175,000; and Jane Lauder has a base salary of $500,000 and bonus opportunities with a target payout of $300,000. On September 1 and 15, 2010, Aerin Lauder was granted stock options with respect to 2,813 shares of Class A Common Stock and restricted stock units in respect of 938 shares of Class A Common Stock and Jane Lauder was granted stock options with respect to 17,798 shares of Class A Common Stock, performance share units with a target payout of 2,966 shares of Class A Common Stock and restricted stock units in respect of 2,966 shares of Class A Common Stock. The grants were consistent with those made to employees at their level. For information regarding fiscal 2011 compensation for William P. Lauder, see "Executive Compensation."
Leonard A. Lauder's current employment agreement (the "LAL Agreement") provides for his employment as Chairman Emeritus until such time as he resigns, retires or is terminated. Mr. L. Lauder is entitled to participate in standard benefit plans, such as the Company's pension and medical plans, and has a supplemental pension arrangement discussed below. Mr. L. Lauder is entitled to participate in the Amended and Restated Fiscal 2002 Share Incentive Plan, but no grants have been made to him under the plan to date. If Mr. L. Lauder retires, the Company will continue to provide him with the office he currently occupies (or a comparable office if the Company relocates) and a full-time executive secretary for as long as he would like. The Company may terminate Mr. L. Lauder's employment at any time if he becomes "permanently disabled," in which event Mr. L. Lauder will be entitled to (i) receive his base salary for a period of two years after termination, (ii) receive bonus compensation at an annual rate equal to the average of the actual bonuses paid to him prior to such termination under the LAL Agreement (the "Leonard Lauder Bonus Compensation") and (iii) participate in the Company's benefit plans for two years. In the event of Mr. L. Lauder's death during the term of his employment, for a period of one year from the date of Mr. L. Lauder's death, his beneficiary or legal representative will be entitled to receive Mr. L. Lauder's base salary and the Leonard
29
Lauder Bonus Compensation. Mr. L. Lauder may terminate his employment at any time upon six months' written notice to the Company, in which event Mr. L. Lauder will be entitled to receive his base salary and the Leonard Lauder Bonus Compensation for the six-month period following termination. In addition, the Company may terminate Mr. L. Lauder's employment for any reason upon 60 days' written notice. In the event of termination of his employment by the Company (other than for cause, disability or death) or a termination by Mr. L. Lauder for good reason after a change of control, (a) Mr. L. Lauder, for a period of three years from the date of termination, will be entitled to (i) receive his base salary in effect at the time of termination, (ii) receive the Leonard Lauder Bonus Compensation, (iii) participate in the Company's benefit plans and (b) in the case of termination by the Company (other than for cause, disability or death), Mr. L. Lauder will not be subject to the non-competition covenant contained in the LAL Agreement. If Mr. L. Lauder receives any severance payments, then he is entitled to be reimbursed for any excise taxes that may be imposed on them. Upon termination for any reason, options previously granted to Mr. L. Lauder will remain exercisable for the remainder of their respective terms, subject to certain non-competition and good conduct provisions.
As used in this Proxy Statement, the term "Lauder Family Members" includes only the following persons: (i) the estate of Mrs. Estée Lauder; (ii) each descendant of Mrs. Lauder (a "Lauder Descendant") and their respective estates, guardians, conservators or committees; (iii) each "Family Controlled Entity" (as defined below); and (iv) the trustees, in their respective capacities as such, of each "Family Controlled Trust" (as defined below). The term "Family Controlled Entity" means (i) any not-for-profit corporation if at least 80% of its board of directors is composed of Lauder Descendants; (ii) any other corporation if at least 80% of the value of its outstanding equity is owned by Lauder Family Members; (iii) any partnership if at least 80% of the value of its partnership interests are owned by Lauder Family Members; and (iv) any limited liability or similar company if at least 80% of the value of the company is owned by Lauder Family Members. The term "Family Controlled Trust" includes certain trusts existing on November 16, 1995 and trusts the primary beneficiaries of which are Lauder Descendants, spouses of Lauder Descendants and/or charitable organizations, provided that if the trust is a wholly charitable trust, at least 80% of the trustees of such trust consist of Lauder Descendants.
Registration Rights Agreement. Leonard A. Lauder, Ronald S. Lauder, The Estée Lauder 1994 Trust, William P.
Lauder, Gary M. Lauder, Aerin Lauder, Jane Lauder, certain Family
Controlled Entities and other Family Controlled Trusts, Morgan Guaranty Trust Company of New York ("Morgan Guaranty") and the Company are parties to a Registration Rights Agreement (the "Registration
Rights Agreement"), pursuant to which each of Leonard A. Lauder, Ronald S. Lauder and Morgan Guaranty have three demand registration rights and The Estée Lauder 1994 Trust has six
demand registration rights in respect of shares of Class A Common Stock (including Class A Common Stock issued upon conversion of Class B Common Stock) held by them. Three of the
demand rights granted to The Estée Lauder 1994 Trust may be used only by a pledgee of The Estée Lauder 1994 Trust's shares of Common Stock. All the parties to the
Registration Rights Agreement (other than the Company) also have an unlimited number of piggyback registration rights in respect of their shares. The rights of Morgan Guaranty and any other pledgee of
The Estée Lauder 1994 Trust under the Registration Rights Agreement will be exercisable only in the event of a default under certain loan arrangements. Leonard A. Lauder and Ronald S.
Lauder may assign their demand registration rights to Lauder Family Members. The Company is not required to effect more than one registration of Class A Common Stock in any consecutive
twelve-month period. The piggyback registration rights allow the holders to include their shares of Class A Common Stock in any registration statement filed by the Company, subject to certain
limitations.
The Company is required to pay all expenses (other than underwriting discounts and commissions of the selling stockholders, taxes payable by the selling stockholders and the fees and expenses of the selling stockholders' counsel)
30
in connection with any demand registrations, as well as any registrations pursuant to the exercise of piggyback rights. The Company has agreed to indemnify the selling stockholders against certain liabilities, including liabilities arising under the Securities Act of 1933.
Stockholders' Agreement. All Lauder Family Members (other than the 4202 Corporation) who beneficially own shares of
Common Stock are parties to the Stockholders' Agreement. The
stockholders who are parties to the Stockholders' Agreement beneficially owned, in the aggregate, shares of Common Stock having approximately 83% of the voting power of the Company on
September 15, 2010. Such stockholders have agreed to vote in favor of the election of Leonard A. Lauder (or one of his sons) and Ronald S. Lauder (or one of his daughters) and one designee, if
any, of each as directors. See "Additional Information Regarding the Board of DirectorsStockholders' Agreement." Parties to the Stockholders' Agreement, may, without restriction under the
agreement, sell their shares in a widely distributed underwritten public offering, in sales made in compliance with Rule 144 under the Securities Act of 1933 or to other Lauder Family Members.
In addition, each party to the Stockholders' Agreement may freely donate shares in an amount not to exceed 1% of the outstanding shares of Common Stock in any 90-day period. In the case of
other private sales, each stockholder who is a party to the Stockholders' Agreement (the "Offering Stockholder") has granted to each other party (the "Offeree") a right of first offer to purchase
shares of Class A Common Stock that the Offering Stockholder intends to sell to a person (or group of persons) who is not a Lauder Family Member. Each Offeree has the opportunity to purchase
the Offeree's pro rata portion of the shares to be offered by the Offering Stockholder, as well as additional shares not purchased by other Offerees. Any shares not purchased pursuant to the right of
first offer may be sold at or above 95% of the price offered to the Offerees. The agreement also includes provisions for bona fide pledges of shares of Common Stock and procedures related to such
pledges. The Stockholders' Agreement will terminate upon the occurrence of certain specified events, including the transfer of shares of Common Stock by a party to the Stockholders' Agreement that
causes all parties thereto immediately after such transaction to own beneficially in the aggregate shares having less than 10% of the total voting power of the Company.
Other Arrangements. The Company has subleased certain of its office space in New York to an affiliate of Ronald S.
Lauder. For fiscal 2010, the rent paid or accrued was approximately
$514,000, which equals the Company's lease payments for that space. The Company also has agreed to provide such affiliate with certain services, such as phone systems, payroll service and office and
administrative services, which are reimbursed at a rate approximating the Company's incremental cost thereof. For fiscal 2010, the affiliate paid approximately $8.0 million pursuant to such
agreement. At June 30, 2010, the affiliate had deposited with the Company $1.3 million to cover expenses. The Company has similar arrangements for space and services with an affiliate of
Leonard A. Lauder and his family. For fiscal 2010, that affiliate and/or family members paid the Company $3.8 million for office space and certain services, such as phone systems, payroll
service and office and administrative services. At June 30, 2010, the affiliate and family members had deposited with the Company $154,000 to cover expenses. The payments by the affiliates and
family members approximated the Company's incremental cost of such space and services.
Certain members of the Lauder family (and entities affiliated with one or more of them) own numerous works of art that are displayed at the Company's offices. The Company pays no fee to the owners for displaying such works. The owners of the works pay for their maintenance. In fiscal 2010, the Company paid premiums of about $6,000 for insurance relating to such works.
Annual Retainer for Board Service. Each non-employee director receives an annual cash retainer of $70,000, payable quarterly. An additional $25,000 is payable to each non-employee director by a grant of stock units (accompanied by dividend equivalent rights) as an
31
annual stock retainer in the fourth quarter of the calendar year. The stock units vest upon grant. Each stock unit is convertible into shares of Class A Common Stock on or after the first business day of the calendar year following the one in which the director ceases to be a member of the Board. The number of stock units to be awarded is determined by dividing $25,000 by the average closing price of the Class A Common Stock on the twenty trading days next preceding the date of grant. In lieu of receiving stock units, a director may elect to receive options in respect of Class A Common Stock. The number of shares subject to such option grant is determined by dividing $75,000 by the closing price per share of the Class A Common Stock on the date of grant. Such price per share is also the exercise price per share of the options. Options have 10-year terms (subject to post-service limitations), vest immediately, and are exercisable one year after the date of grant. In no event will stock units or stock options representing more than 5,000 shares of Class A Common Stock be granted in connection with the annual stock retainer.
Stock Options. In addition to the cash and stock portion of the retainer, each non-employee director receives an
annual grant of options with 10-year
terms to purchase 5,000 shares of Class A Common Stock. The exercise price of the options is equal to the closing price of the Class A Common Stock on the date of grant and the options
vest and are exercisable one year after the date of grant (subject to post-service limitations).
Annual Retainer for Committee Service. Each director who serves on a Committee receives an additional annual cash
retainer, payable quarterly in the following amounts: $8,000 per year for service on
the Nominating and Board Affairs Committee, $12,000 per year for service on the Audit Committee, and $8,000 per year for service on the Compensation Committee (including service on the Stock Plan
Subcommittee). The Chairman of the Audit Committee receives a further annual cash retainer of $25,000 and the Chairmen of the Compensation Committee and the Nominating and Board Affairs Committee
receive a further annual cash retainer of $15,000 each.
Initial Stock Grant. On the date of the first annual meeting of stockholders which is more than six months after a
non-employee director's initial election to the Board,
the director receives a grant of 2,000 shares of Class A Common Stock (plus a cash payment in an amount to cover related income taxes).
Stock Ownership Requirement. Each director is expected to own at least 2,000 shares of Class A Common Stock.
Deferral. Non-employee directors may elect to defer receipt of all or part of their cash-based compensation. The
deferrals may take the form of
stock equivalent units (accompanied by dividend equivalent rights) to be paid out in cash or may simply accrue interest until paid out in cash.
Management Directors. Directors who are also employees of the Company receive no additional compensation for service
as directors. These directors are Aerin Lauder, Jane Lauder,
Leonard A. Lauder, William P. Lauder and Fabrizio Freda. Information concerning the compensation of the Lauder family members, including those who serve as directors, and Mr. Freda is described
in "Executive Compensation" (in the case of Mr. W. Lauder and Mr. Freda) and "Certain Relationships and Related TransactionsLauder Family Relationships and Compensation."
Reimbursement of Expenses. Non-employee directors are reimbursed for their reasonable expenses (including costs of
travel, food and lodging), incurred in attending Board,
committee and stockholder meetings. Directors are also reimbursed for any other reasonable expenses relating to their service on the Board, including participating in director continuing education and
Company site visits.
Company Products. The Company provides directors with representative samples of the Company's products. The Company
believes that receiving these products serve a business purpose
by expanding the directors' knowledge of the Company's business. The Company also provides each director with the opportunity to purchase up to $1,280 worth of the Company's products each calendar
year (based on suggested retail prices) at no charge. If directors choose to take advantage
32
of such opportunities and purchase more than $640 worth of the Company's product, the excess is imputed as taxable income. Non-employee directors may also purchase a limited amount of Company products at a price equal to 50% off the suggested retail price, which is the same program made available to officers of the Company. For the year ended June 30, 2010, the aggregate incremental cost to the Company of these Company products was substantially less than $10,000 per director.
The following table sets forth compensation information regarding the Company's non-employee directors in fiscal 2010.
Director Compensation for Fiscal 2010
Name
|
Fees Earned or Paid in Cash ($)(1) |
Stock Awards ($)(2)(3) |
Option Awards ($)(4)(5) |
Non-Equity Incentive Plan Compensation ($) |
Change in Pension Value and Nonqualified Deferred Compensation Earnings($)(6) |
All Other Compensation ($) |
Total ($) |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Charlene Barshefsky |
$ | 78,000 | $ | 26,736 | $ | 75,700 | | | | $ | 180,436 | |||||||||||
Rose Marie Bravo |
78,000 | 26,736 | 75,700 | | | | 180,436 | |||||||||||||||
Paul J. Fribourg |
84,000 | | 100,045 | | | | 184,045 | |||||||||||||||
Mellody Hobson |
82,000 | 26,736 | 75,700 | | | | 184,436 | |||||||||||||||
Irvine O. Hockaday, Jr. |
107,000 | 26,736 | 75,700 | | | | 209,436 | |||||||||||||||
Richard D. Parsons |
101,000 | 26,736 | 75,700 | | | | 203,436 | |||||||||||||||
Lynn Forester de Rothschild |
93,000 | 26,736 | 75,700 | | | | 195,436 | |||||||||||||||
Barry S. Sternlicht |
78,000 | | 100,045 | | | | 178,045 | |||||||||||||||
Richard F. Zannino |
41,000 | | | | | | 41,000 |
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Name
|
Date of Grant |
Number of Shares of Class A Common Stock Underlying Restricted Stock Units Granted (#) |
Grant Date Fair Value ($) |
Total Number of Shares of Class A Common Stock Underlying Restricted Stock Units Outstanding as of June 30, 2010 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Charlene Barshefsky |
11/13/09 | 573 | $ | 26,736 | 4,085 | ||||||||
Rose Marie Bravo |
11/13/09 | 573 | 26,736 | 2,475 | |||||||||
Paul J. Fribourg |
N/A | | | 714 | |||||||||
Mellody Hobson |
11/13/09 | 573 | 26,736 | 3,348 | |||||||||
Irvine O. Hockaday, Jr. |
11/13/09 | 573 | 26,736 | 5,706 | |||||||||
Richard D. Parsons |
11/13/09 | 573 | 26,736 | 3,986 | |||||||||
Lynn Forester de Rothschild |
11/13/09 | 573 | 26,736 | 3,986 | |||||||||
Barry S. Sternlicht |
N/A | | | 2,055 | |||||||||
Richard F. Zannino |
N/A | | | |
34
Name
|
Date of Grant |
Number of Shares of Class A Common Stock Underlying Stock Options Granted (#) |
Grant Date Fair Value ($) |
Total Number of Shares of Class A Common Stock Underlying Stock Options Outstanding as of June 30, 2010 (#) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Charlene Barshefsky |
11/13/09 | 5,000 | $ | 75,700 | 51,717 | ||||||||
Rose Marie Bravo |
11/13/09 | 5,000 | 75,700 | 27,231 | |||||||||
Paul J. Fribourg |
11/13/09 | 6,608 | 100,045 | 25,160 | |||||||||
Mellody Hobson |
11/13/09 | 5,000 | 75,700 | 25,000 | |||||||||
Irvine O. Hockaday, Jr. |
11/13/09 | 5,000 | 75,700 | 5,000 | |||||||||
Richard D. Parsons |
11/13/09 | 5,000 | 75,700 | 30,000 | |||||||||
Lynn Forester de Rothschild |
11/13/09 | 5,000 | 75,700 | 5,000 | |||||||||
Barry S. Sternlicht |
11/13/09 | 6,608 | 100,045 | 35,531 | |||||||||
Richard F. Zannino |
N/A | | | |
35
Compensation Discussion and Analysis
Overview of Compensation Philosophy and Objectives
Our compensation program for executive officers is designed to attract and retain high quality people and to motivate them to achieve both our long-term and short-term goals. The overall goal is to continue sustainable growth of net sales and profitability on an annual and long-term basis.
Fiscal 2010 was the first full year of our four-year long-term plan and we made substantial progress in advancing our financial and strategic goals. We achieved record results in many financial metrics including earnings per share. These results were a significant improvement over the prior fiscal year. They reflected the determination and efforts of our executive officers and our employees. They also reflected actions we took and choices we made in fiscal 2009, which was an extraordinarily difficult fiscal year for us and for business generally. Many of the conditions we faced during fiscal 2009 continued at the start of fiscal 2010.
As part of the strategy, we focused on aligning the many facets of our Company to provide a foundation for implementing and maintaining efficiencies. At the start of fiscal 2010, we also continued a more measured approach to spending in view of external risks, such as the global economic uncertainty and the potential impact of the H1N1 virus. When certain of these potential external risks failed to materialize or ended up having less of an impact than we anticipated, we were well-positioned to take advantage of opportunities and execute plans in accordance with our long-term strategy. We also achieved strong financial results in fiscal 2010 in many areas, including profits and operating cash flow.
In addition, at the start of fiscal 2010, we successfully implemented the management succession resulting in our current Executive Chairman, President and Chief Executive Officer and senior leadership team.
Our executive compensation program is designed to achieve our business and financial goals by providing compensation that:
We have been in the beauty business for over 60 years, and have established a strong record of growth and profitability. For the first 50 years, we were wholly-owned by the Lauder family. Today, the family continues to own a significant portion of our outstanding stock. Our executive compensation program reflects our successful track record and the control by the Lauder family. Our cash compensation in the form of salary and annual cash incentives has historically been comparatively higher and our stock-based compensation is comparatively lower than our peers. However, over the past few years, the Compensation Committee and the Stock Plan Subcommittee have attempted to shift executive compensation in the direction of equity-based elements.
In fiscal 2010, our executive officers included the Executive Chairman, President and Chief Executive Officer, the Group Presidents and the heads of certain functions. The "Named Executive Officers" are those named in the "Summary Compensation Table" on page 51. As the senior most officers with the greatest overall responsibility, the Executive Chairman and President and Chief Executive Officer received the highest levels of compensation, including bonus opportunities and stock-based compensation. The two are followed by the Group Presidents by reason of their respective duties and responsibilities and then by the function heads. There is internal equity among similarly situated executive officers, which is intended to foster a more team-oriented approach to managing the business.
36
We have entered into employment agreements with our executive officers to attract and retain strong candidates and to provide the basis for a shared mutual understanding of the employment relationship. The employment agreements for our Named Executive Officers are described under "Employment Agreements." Beginning with new agreements in fiscal 2010, the Company made an effort to implement standard employment agreements for executive officers that no longer include specified amounts of salary, bonus or equity-based compensation, but do set forth the mutual understanding regarding termination and severance and non-competition, confidentiality and related covenants.
The compensation program for executive officers is established and administered by the Compensation Committee and the Stock Plan Subcommittee. The Stock Plan Subcommittee approves the terms of all grants to executive officers under our share incentive plans (including any equity-compensation-related terms of prior agreements for executive officers). The Compensation Committee approves all other aspects of executive compensation.
Elements of Compensation; Allocation
Our executive compensation program consists of the following:
We also provide competitive benefits and modest perquisites.
We try to maintain a proportional mix of compensatory elements that reflects the executive officer's role in our Company and provides similar opportunities for executive officers with similar responsibilities. The amounts and allocations for each element (and among each element) are determined based on the position and the type and level of responsibility of the particular executive officer, internal pay equity and competitive considerations. In fiscal 2010, we tried to foster greater interdependence and collaboration among brands, regions and functions to drive the corporate strategy by increasing the alignment of business unit performance with overall corporate performance in how we structured annual incentives. Generally we believe that executive officers should have a greater percentage of their compensation based on performance in the form of short-term annual cash incentives and long-term equity-based incentives consisting of stock options and performance share units ("PSUs"), followed by base salary and restricted stock units ("RSUs"). Based on target levels for incentive compensation for fiscal 2010, base salary for all executive officers was on average about 27% of total compensation, annual cash incentives were about 31% of total compensation and long-term equity-based compensation was about 42% of total compensation. For fiscal 2010, the percentage of total compensation opportunities represented by annual incentives and long-term equity-based incentives (consisting of stock options and PSUs) was about 69% for our Executive Chairman, 58% for our Chief Financial Officer, 65% to 69% for Group Presidents and in the range of 52% to 56% for corporate function heads. It was about 48% for our President and Chief Executive Officer, who received a one-time grant of RSUs worth $4 million upon his first day in that position, and about 70% if you exclude such grant. While our President and Chief Executive Officer received some additional options and PSUs in fiscal 2009, he received no equity grants in fiscal 2008. Leonard A. Lauder, Evelyn H. Lauder and Ronald S. Lauder did not receive any long-term equity-based compensation awards in fiscal 2010.
In general, base salary is the only portion of compensation that is assured. Annual cash incentives and PSUs are primarily intended to reward executives for achieving annual and three-year financial goals, respectively. Stock options are primarily intended to align executive officers' interests with those of the other stockholders and provide value to the executive officers only if there is an increase in stock price after the date of grant. RSUs are also intended to align the executive officers' interests with those of other stockholders and to increase the executive
37
officers' beneficial ownership of stock in line with our executive stock ownership policy.
In certain circumstances, we may also pay amounts necessary to attract an executive to work for us or to move to a particular location. This reflects, in part, the global nature of our business and the executives that we seek to attract and retain.
Over the past few years, the Compensation Committee and the Stock Plan Subcommittee have attempted to shift executive compensation toward equity-based elements. This shift in compensation elements has had the collateral benefit of reducing the costs under our retirement plans associated with our executive officers as our contributions and the executive officers' benefits under such plans are based on salary and annual incentive bonus payouts.
Base Salary. We pay base salaries to provide executives with a secure base of cash compensation. Salary levels were
typically set by the Compensation Committee for a period of
years in the executive officer's employment agreement. As noted above, new agreements do not specifically provide for salary levels. For fiscal 2010, salaries for the Executive Chairman, President and
Chief Executive Officer and two Group Presidents were set forth in their agreements. For the Executive Vice President and Chief Financial Officer, his salary in fiscal 2010 was the same as it was in
fiscal 2009. For all the Named Executive Officers, their salaries in fiscal 2011 are remaining the same as they were in fiscal 2010. Generally, for executives with base salaries of $1 million
or more per year, increases in base salary are not made except in the case of promotions or in the renewal of an employment agreement. This reflects, in part, the limitation on tax deductibility by us
of non-objective performance-based compensation imposed by Section 162(m) of the Internal Revenue Code ("Section 162(m)"). See "Tax Compliance Policy" below. By not
authorizing increases in base salary, the Compensation Committee can shift compensation more towards annual incentive bonuses and equity-based compensation. In determining the amount of base salary
for an executive officer, the Compensation Committee primarily considers the executive's position, his or her current salary and tenure and internal pay equity, as well as competitiveness of the
salary level in the marketplace. For fiscal 2010, executive officers with prior year employment agreements and base salaries below $1 million per year agreed to forgo their salary increases for
the year. The Committee also considers the impact of Section 162(m), recommendations from the Executive Chairman, President and Chief Executive Officer and the Executive Vice
PresidentGlobal Human Resources.
Annual Incentive Bonuses. Annual incentives provided under the Executive Annual Incentive Plan are of key importance in
aligning the interests of our executives with our
short-term goals and rewarding them for performance. For executive officers, the level of bonus opportunities and performance targets are based on the scope of the executive's
responsibilities, internal pay equity among executives with similar responsibilities and competitive considerations. In fiscal 2010, we tried to foster greater interdependence and collaboration among
brands, regions and functions to drive the corporate strategy by increasing the alignment of business unit performance with overall corporate performance in annual incentives. The Executive Annual
Incentive Plan is designed and administered to qualify as objective performance-based compensation under Section 162(m), so that bonuses paid out under the plan are tax deductible by us.
For executive officers with employment agreements entered into prior to fiscal 2010, the payout for target-level performance for their aggregate bonus opportunities under the Executive Annual Incentive Plan is set forth in their employment agreements. For those executives with the fiscal 2010 form of agreement, bonus opportunities are set by the Compensation Committee and for fiscal 2010 payouts for target-level performance for aggregate opportunities were frozen at the same level as in fiscal 2009.
For fiscal 2010, the annual incentive bonus payable to each executive is based on the product of three factors: (a) the target payout for the executive officer times (b) the Corporate Multiplier (as described below) times (c) the Business Unit Multiplier (as described below).
38
The business criteria, the performance levels within each multiplier and the threshold, target and maximum payouts associated with each criteria and performance level are set by the Compensation Committee in consultation with management and the Committee's compensation consultant during the first quarter of the fiscal year. Each of the Corporate Multiplier and the Business Unit Multipliers is expressed as a percentage. The percentage is the sum of the component parts as described in more detail below. Target level performance on each of the criteria will result in multipliers at 100% and payout at 100% of the executive officer's target opportunity. Additional amounts may be paid out if performance exceeds 100% of the target up to a maximum set by the Compensation Committee. Partial amounts may be paid out provided the predetermined minimum portion of the target has been achieved. However, failure to achieve the pre-established minimum threshold level of performance results in no credit for that particular criteria and depending upon performance in respect of other criteria can lead to no bonus being paid. Measurement of performance is subject to certain automatic adjustments, such as changes in accounting principles, the impact of discontinued operations and non-recurring income/expenses and the impact on net sales of unplanned changes in foreign currency rates. Such automatic adjustments included the charges associated with restructuring activities in fiscal 2010.
The Corporate Multiplier is comprised of four company-wide performance criteria(1) diluted net earnings per share from continuing operations ("Diluted EPS"), (2) net operating margin percentage ("NOP Margin"), (3) net sales and (4) return on invested capital ("ROIC"). It is the same for each executive officer. At target performance levels, each measure would contribute one quarter or 25% to the total Corporate Multiplier, which would be 100%. At threshold performance levels (which equates to performance at 85% of target for net sales and 50% of target for the other criteria), each measure would be 50% of that quarter of the whole and the total Corporate Multiplier would be 50%. If we failed to achieve the threshold level of performance for all four criteria, then the Corporate Multiplier would be zero and no bonus would be payable to the executive officers. At maximum performance levels (which equates to 105% or more of target), each measure would be 120% of that quarter of the whole and the total Corporate Multiplier would be 120%.
The Business Unit Multiplier works similarly, but is based on various combinations of business criteria at the business unit level, including: (1) net sales, (2) NOP Margin, (3) inventory days to sell and (4) other divisional goals. The weighting of the various measures is fixed for each executive officer depending upon his or her position and responsibilities, and discussed further below. As with the Corporate Multiplier, target level performance on all the applicable criteria leads to a Business Unit Multiplier of 100%. At threshold performance levels (which equates to performance at 85% of target), each measure would be 62.5% of its percentage of the whole at target level and the total Business Unit Multiplier would be 62.5%. If we failed to achieve the threshold level of performance for all the applicable criteria for an executive officer, then the Business Unit Multiplier would be zero and no bonus would be payable to that executive officer. At or above maximum performance levels (which equates to 110% or more of target), each measure would be 125% of its percentage of the whole at target level and the total Business Unit Multiplier would be 125%.
If all performance was at target level, then the payout to the executive would be 100% of his or her target payout. If all performance was at the threshold level, then the payout to the executive would equal 31.25% of his or her target payout. If performance was below threshold on all the criteria that went into the Corporate Multiplier or the Business Unit Multiplier, then there would be no payout to the executive officer. If performance was at or above maximum performance levels on all performance criteria, then the payout to the executive would equal 150% of his or her target payout.
As noted, the weightings of the various criteria for an executive officer's Business Unit Multiplier depend upon the executive officer's position and responsibilities. For the Executive Chairman and the President and Chief Executive
39
Officer, their Business Unit Multiplier for fiscal 2010 is based on the performance of the brands (60%), regions (30%) and functions (10%). For the Group Presidents, their Business Unit Multiplier for fiscal 2010 is based on the performance of their particular group of brands or regions (80%) and all brands (10%), all regions (5%) and all functions (5%). For the Chief Financial Officer and other function heads, their Business Unit Multiplier for fiscal 2010 is based on the performance of their particular function (40%), and all brands (35%), all regions (15%) and all functions (10%). The overall brand and region performance is a weighted average of the performance on the financial metrics discussed above of the various brands and regions weighted based on relative sales volume.
For fiscal 2010, the targets for the Corporate Multiplier criteria and corresponding calculation of the Corporate Multiplier were as follows:
|
|
Threshold | Target | Maximum | Actual Performance |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Fiscal 2010 Target(1) |
% of Target |
Payout (% of Oppty) |
% of Target |
Payout (% of Oppty) |
% of Target |
Payout (% of Oppty) |
% of Target |
Payout (% of Oppty) |
|||||||||||||||||||
Diluted EPS |
$1.63 | 50% | 50% | 100% | 100% | 105% | 120% | 177.6% | 120% | |||||||||||||||||||
NOP Margin |
9.7% | 50% | 50% | 100% | 100% | 105% | 120% | 135.8% | 120% | |||||||||||||||||||
Net Sales |
$7,425.9 million | 85% | 50% | 100% | 100% | 105% | 120% | 103.9% | 115.4% | |||||||||||||||||||
ROIC |
11.8% | 50% | 50% | 100% | 100% | 105% | 120% | 153.4% | 120% | |||||||||||||||||||
Corporate Multiplier |
50% | 100% | 120% | 118.9% |
Where performance exceeded the maximum level (i.e. for Diluted EPS, NOP Margin and ROIC), the payout factors were at 120% of target. In the case where the actual performance was between the target and the maximum (i.e. for Net Sales), the payout factor was calculated mathematically using the target level of performance and associated payout as a base. As an example, each 1% increase in performance over the target resulted in a 4% increase in the associated payout factor up to the maximum performance level and associated payout factor. Accordingly, the Corporate Multiplier for fiscal 2010 was 118.9%. It is the same for each executive officer.
For the Business Unit Multiplier, the Global Brands Weighted Average, the Regions Weighted Average and the Functions Average are mathematical weighted averages (or a simple average in the case of functions) of the portion of the Business Unit Multiplier of twenty business leaders in the Company that were solely applicable to the leader's brand or brands, region (or geography or channel within a region) or function. The weightings in the case of the two weighted averages are based on net sales. For the two Group Presidents, the principal components
40
of their Business Unit Multipliers are as set forth in the following table:
|
|
Threshold | Target | Maximum | Actual Performance |
||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Fiscal 2010 Target(1) |
% of Target |
Payout (% of Oppty) |
% of Target |
Payout (% of Oppty) |
% of Target |
Payout (% of Oppty) |
% of Target |
Payout (% of Oppty) |
||||||||||||||||||
Net Sales |
|||||||||||||||||||||||||||
Demsey |
$3,970.7 million | 85% | 62.5% | 100% | 100% | 110% | 125% | 105.5% | 113.7% | ||||||||||||||||||
Prouvé |
$4,296.7 million | 85% | 62.5% | 100% | 100% | 110% | 125% | 105.5% | 113.9% | ||||||||||||||||||
NOP Margin |
|||||||||||||||||||||||||||
Demsey |
17.8% | 85% | 62.5% | 100% | 100% | 110% | 125% | 114.8% | 125.0% | ||||||||||||||||||
Prouvé |
22.3% | 85% | 62.5% | 100% | 100% | 110% | 125% | 108.7% | 121.7% | ||||||||||||||||||
Inventory Days to Sell |
|||||||||||||||||||||||||||
Demsey |
166.2 | 85% | 62.5% | 100% | 100% | 110% | 125% | 90.9% | 77.3% | ||||||||||||||||||
Prouvé |
115.1 | 85% | 62.5% | 100% | 100% | 110% | 125% | 109.8% | 124.6% |
Where performance exceeded the maximum level (i.e. for NOP Margin and Days to Sell), the payout factors were at 125% of target. In the case where the actual performance was between the target and the maximum (i.e. for Net Sales), the payout factor was calculated mathematically using the target level of performance and associated payout as a base. As an example, each 1% increase in performance over the target resulted in a 4% increase in the associated payout factor up to the maximum performance level and associated payout factor.
The Business Unit Multiplier for each Group President and the Executive Vice President and Chief Financial Officer included business unit strategic objectives tied to our four-year long-term strategy (the "fiscal 2013 strategic plan"), which is described in more detail after the next table. For fiscal 2010, each was assigned four goals that accounted for the percentages of his aggregate bonus opportunity target indicated below. These qualitative performance goals were specifically designed to incentivize each Group President and the Executive Vice President and Chief Financial Officer to accomplish the following objectives in fiscal 2010:
(a) Strategy Alignment and Deploymentweighted 3.5% for the Group Presidents and 7% for the Executive Vice President and Chief Financial OfficerCommunicate the corporate strategy throughout his respective business unit/function and drive the top priority action items for his respective business unit/function, as defined by the fiscal 2013 strategic plan;
(b) Organization Integrationweighted 3.5% for the Group Presidents and 7% for the Executive Vice President and Chief Financial OfficerBe a positive change agent, through leadership and effective management of employees in his business unit/function, to create a more integrated and collaborative organization which better exploits scale and better leverages best practices between brands, regions and functions and puts the consumer first.
(c) Fiscal 2010 Priority for Business Unit/Functionweighted 6% for the Group Presidents and 12% for the Executive Vice President and Chief Financial OfficerDefine uniquely relevant strategies with cascading choices for his particular business unit or function that are consistent with the fiscal 2013 strategic plan; and
41
(d) Cost and Productivity Improvementweighted 7% for the Group Presidents and 14% for the Executive Vice President and Chief Financial OfficerCollaborate with the brands, regions and functions outside his particular business unit or function on all transformational activities in the cost and productivity improvement elements of the fiscal 2013 strategic plan (as outlined above) and deliver specific savings assigned to his business unit or function.
After the end of fiscal 2010, the Executive Chairman, President and Chief Executive Officer and Executive Vice PresidentGlobal Human Resources, with appropriate input from other employees of the Company, reviewed the actions taken by each Group President and the Executive Vice President and Chief Financial Officer. It was determined that each took the requisite actions necessary in respect of each goal to achieve or exceed his individual performance goals and such achievement was confirmed by the Compensation Committee in its business judgment.
For each Named Executive Officer, the calculation of his Business Unit Multiplier (expressed as the weighted payout %) is as follows:
|
William P. Lauder | Fabrizio Freda | John Demsey | Cedric Prouvé | Richard W. Kunes | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
% of Oppty (at Target) |
Actual (weighted payout %) |
% of Oppty (at Target) |
Actual (weighted payout %) |
% of Target |
Actual (weighted payout %) |
% of Target |
Actual (weighted payout %) |
% of Target |
Actual (weighted payout %) |
||||||||||||||||||||||
Global Brands Weighted Average |
60% | 60.3% | 60% | 60.3% | 10% | 10.1% | 10% | 10.1% | 35% | 35.2% | ||||||||||||||||||||||
Regions Weighted Average |
30% | 30.1% | 30% | 30.1% | 5% | 5.0% | 5% | 5.0% | 15% | 15.1% | ||||||||||||||||||||||
Functions Average |
10% | 11.9% | 10% | 11.9% | 5% | 6.0% | 5% | 6.0% | 10% | 11.9% | ||||||||||||||||||||||
Business Unit Strategic Objectives |
20% |
24.0% |
20% |
24.0% |
40% |
49.3% |
||||||||||||||||||||||||||
Division Net Sales(1) |
25% | 28.4% | 25% | 28.5% | ||||||||||||||||||||||||||||
Division NOP Margin(1) |
25% | 31.2% | 25% | 30.4% | ||||||||||||||||||||||||||||
Division Days to Sell |
10% | 7.7% | 10% | 12.4% | ||||||||||||||||||||||||||||
Business Unit Multiplier |
100% | 102.4% | 100% | 102.4% | 100% | 112.4% | 100% | 116.4% | 100% | 111.5% |
For more information about the potential bonus opportunities awarded to our Named Executive Officers for fiscal 2010 and the actual payouts made in respect of fiscal 2010 performance, see "Grants of Plan-Based Awards in Fiscal 2010" and "Summary Compensation Table."
As noted above, fiscal 2010 was the first full year of our fiscal 2013 strategic plan. The goals of the plan at the start of fiscal 2010 were to:
42
At the start of fiscal 2010, key elements of focus in the fiscal 2013 strategic plan included:
In addition, at the start of fiscal 2010, we planned to achieve the fiscal 2013 strategic plan goals by:
Long-Term Equity-Based Compensation
General. We consider equity-based compensation awarded under our Amended and Restated Fiscal 2002 Share Incentive Plan to be of key importance in aligning executives with our long-term goals and rewarding them for performance. The awards also provide an incentive for continued employment with us. Each year since fiscal 2006, we have granted to certain executive officers a combination of stock options, RSUs and PSUs. However, since fiscal 2000, no grants of any equity-based compensation have been made to Leonard A. Lauder, Ronald S. Lauder or Evelyn H. Lauder. The Stock Plan Subcommittee typically makes equity-based compensation awards to our executive officers at its regularly scheduled meeting during the first quarter of the fiscal year. There is no relationship between the timing of the granting of equity-based awards and our release of material non-public information.
The actual amounts and allocation of equity-based compensation granted to the named executive officers reflects the business judgment of the Stock Plan Subcommittee after consultation with its executive compensation consultant and our senior management. As with each other element of compensation, and compensation overall, the Stock Plan Subcommittee (or the Compensation Committee for non-equity-based compensation), its executive compensation consultant, and management and its consultant, take into account the level of responsibility of the particular executive officer, internal pay equity and what needs to be paid from a competitive standpoint to attract and retain key executive talent. They also consider applicable employment agreements and our desire to shift toward more equity-based compensation as a percent of the total mix of compensation. While the Subcommittee and our senior management review
43
the components of total direct compensation with the assistance of their consultants, they first analyze, for each type of position in the executive officer group, total direct compensation to gauge the extent to which it is broadly aligned with that of our executive compensation peer group. The Subcommittee and our senior management then review the elements of compensation (i.e. base salary, annual cash incentive bonus opportunities and medium and long-term equity-based compensation opportunities) and work towards a mix of these elements as a percentage of total direct compensation that is more performance-oriented and is reasonable when compared with the peer group given our belief that executive officers should have a greater percentage of their compensation in the form of variable shorter and longer-termed incentive compensation. The equity-based elements also serve as a retention mechanism and to help executive officers acquire sufficient shares of Class A Common Stock to satisfy the executive stock ownership guidelines. Excluding additional RSUs granted in fiscal 2010 and described below, the allocation among the different types of awards in fiscal 201050% stock options, 25% PSUs (at target level) and 25% RSUsreflects, in the business judgment of the Subcommittee, a balance among motivating the executive officers, rewarding performance, mitigating risk and helping the executive officers increase their equity ownership. No specific weightings were used to determine the specific amounts or the total mix of the equity-based compensation. As with the amount of equity-based compensation granted, the allocation amongst the alternative equity-based compensation vehicles are compared with practices of the peer group companies (noted below) to make sure they are competitive and appropriate.
Stock Options. Stock options typically represent about 50% of the grant date fair value of the equity-based compensation
granted to such executive officers. We believe that
stock options are performance-based because the exercise price is equal to the closing price of the underlying Class A Common Stock on the date the option is granted. Despite the value
attributed on grant for accounting purposes, value is realized by the executive officer only to the extent that the stock price exceeds such price during the period in which the executive officer is
entitled to exercise the options and he or she exercises them. The ability to exercise the options is limited by our "Policy on Avoidance of Insider Trading" described below. Options granted to our
executive officers generally become exercisable in equal installments approximately 16 months, 28 months and 40 months after the date of grant.
Performance Share Units. We have granted PSUs to certain of our executive officers. PSUs typically represent approximately
25% of the equity-based compensation granted to such executive
officers. The PSUs are generally rights to receive shares of our Class A Common Stock if certain company-wide performance criteria are achieved during a three-year
performance period. PSUs are expressed in terms of opportunities. Each opportunity is based on particular business criteria that are considered important in achieving our overall financial goals. The
Stock Plan Subcommittee establishes the performance target for each opportunity during the period ending prior to one quarter of the performance period elapsing. Each opportunity is expressed in
shares to be paid out if performance equals 100% of the target. The aggregate amount of a PSU represents the aggregate payout if the performance of all opportunities equal 100% of the related target
performances. Additional amounts are paid out under a particular opportunity if the performance associated with such opportunity exceeds 100% of the target up to a maximum set by the Stock Plan
Subcommittee. Partial payouts may be made provided a significant portion of the target has been achieved. Failure to achieve the pre-established minimum threshold amount would result in no
payout being made under the opportunity. Measurement of performance is subject to certain automatic adjustments, such as changes in accounting principles, the impact of discontinued operations and
non-recurring income or expenses. Such automatic adjustments included the unplanned impact of foreign currency changes and returns and charges associated with restructuring activities in
fiscal 2009 and 2010. The targets for the PSU opportunities and corresponding payouts for PSUs granted in fiscal 2008 for the three-year period ended June 30, 2010 were based on
compound annual growth
44
rates ("CAGR") in company-wide net sales and earnings per share as follows:
|
Fiscal 2008 through Fiscal 2010 Target(1) |
|
|
|
|
|
|
|
|
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Threshold | Target | Maximum | Actual Performance | ||||||||||||||||||||||||
|
% of Target |
Payout (% of Oppty) |
% of Target |
Payout (% of Oppty) |
% of Target |
Payout (% of Oppty) |
% of Target |
Payout (% of Oppty) |
||||||||||||||||||||
Net Sales (CAGR) |
7.2% | 90% | 50% | 100% | 100% | 110% | 150% | 89.5% | 0% | |||||||||||||||||||
Diluted Net Earnings Per Share from Continuing Operations (CAGR) |
10% | 85% | 50% | 100% | 100% | 115% | 150% | 100.6% | 102.0% |
The targets for the PSU opportunities and corresponding payouts for PSUs granted in fiscal 2010 for the three-year period ending June 30, 2012 are based on CAGR in company-wide net sales, earnings per share and ROIC as follows:
|
Fiscal 2010 through Fiscal 2012 Target(1) |
|
|
|
|
|
|
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Threshold | Target | Maximum | |||||||||||||||||||
|
% of Target |
Payout (% of Oppty) |
% of Target |
Payout (% of Oppty) |
% of Target |
Payout (% of Oppty) |
||||||||||||||||
Net Sales (CAGR) |
3.6% | 90% | 50% | 100% | 100% | 110% | 150% | |||||||||||||||
Diluted Net Earnings Per Share from Continuing Operations (CAGR) |
23.5% | 85% | 50% | 100% | 100% | 115% | 150% | |||||||||||||||
ROIC (CAGR) |
16.8% | 85% | 50% | 100% | 100% | 115% | 150% |
For the PSUs that were paid out after the end of fiscal 2010, where actual performance was below threshold (i.e. for net sales (CAGR) goal), no payouts were made. For the goal related to diluted net earnings per common share from continuing operations (CAGR), the payout was calculated mathematically using the threshold level of performance (measured in terms of the diluted net earnings per common shares from continuing operations in fiscal 2010, the final fiscal year of the performance period) and associated payout as a base. In this case, each 0.1% increase in performance over the threshold resulted in a 0.5% increase in associated payout up to the target performance level and associated payout.
In fiscal 2010, each PSU grant was comprised of three separate opportunitiesachievement of company-wide net sales, earnings per share and ROIC goalsin each case for the three years ending June 30, 2012. The goals were based on a strategic plan which includes our goals for growth in net sales, earnings per share and ROIC. The plan was developed with reference to our fiscal 2013 strategic plan and the conditions that existed at the start of fiscal 2010. We believe the targets when they were set were reasonably aggressive. For the fiscal 2010 PSUs, each opportunity accounted for one third of the total target opportunities. Under ordinary circumstances, payouts for an opportunity only will be made if performance exceeds the pre-established minimum threshold for such opportunity. At the threshold
45
level of performance for the opportunity, the payout would be 50% of the target opportunity. At or above maximum performance target, the payout would be 150% of the target opportunity.
Restricted Stock Units. RSUs are the right to receive shares of our Class A Common Stock over a period of time and
typically represent approximately 25% of the annual grant of
equity-based compensation to certain of our executive officers. RSUs are granted to executive officers to serve as a retention mechanism and to help them build their equity ownership in the Company.
RSUs are also intended to help executive officers acquire sufficient shares of Class A Common Stock to satisfy the executive stock ownership guidelines introduced in fiscal 2007.
The RSUs granted to executive officers in fiscal 2010 generally vest ratably in thirds on November 1, 2010, October 31, 2011 and October 31, 2012 (or the first day thereafter that shares may be traded under our Policy on Avoidance of Insider Trading).
In addition to the normal annual grant, the Subcommittee granted RSUs to executive officers in connection with discretionary bonuses after the end of fiscal 2009. These RSUs generally vest 30% on November 1, 2010 and 70% on October 31, 2011.
In addition, a special grant of RSUs with an aggregate value on the date of grant of $4 million was made to Fabrizio Freda on July 1, 2009, his first day as President and Chief Executive Officer of the Company. One third of the special grant of RSUs vested on July 1, 2010, and the rest will vest ratably on July 1, 2011 and July 2, 2012.
Peer Group and Compensation Consultant
We consider the compensation practices of a peer group of companies for the purpose of determining the competitiveness of our total compensation and various elements, but we do not target a specific percentile. The peer group used for compensation in fiscal 2010 was adopted a few years ago and includes:
Alberto-Culver
|
Limited Brands
|
The Compensation Committee periodically reviews the peer group. Near the end of fiscal 2010, the Committee decided to add Procter & Gamble and Johnson & Johnson to the peer group and remove Nike, Liz Claiborne and Jones Apparel. The changes to the peer group reflect changes in the market in which we compete for executive talent. The Committee refers to the peer group data when considering compensation levels and the allocation of compensation elements for employment agreements with executive officers.
Until September 2009, a small group of consultants within Mercer, Inc. ("Mercer") had served as the Compensation Committee's executive compensation consultant for a number of years. In September 2009, members of the group left Mercer and formed Compensation Advisory Partners ("CAP"), which is now the firm engaged by, and reporting directly to, the Compensation Committee. While at Mercer, the group was engaged by, and reported directly to, the Committee without input from management. The consultants, when they were at Mercer and now at CAP, work with the Committee (including the Subcommittee) and management and, among other things, provide advice regarding compensation structures generally and competitive compensation data and review for the Committee and/or Subcommittee information prepared by management. All of the decisions with respect to determining the amount or form of executive compensation under the Company's executive compensation programs are made by the Committee or Subcommittee alone and may reflect factors and considerations other than the information and advice provided by the consultants. The Committee periodically
46
undertakes a comprehensive review of our compensation programs. During fiscal 2009, the Committee and Subcommittee considered improvements to the programs for fiscal 2010 to make them more consistent with the fiscal 2013 strategy. The Committee had been aware that during the engagement of Mercer other consultants and employees within Mercer and its affiliates provided a range of consulting and other services to us. Neither the Committee nor the Board of Directors approved the additional services, which related to global pension actuarial and investment services, global retirement plan and compensation consulting services and insurance brokerage services. For fiscal 2010, fees paid to Mercer for executive compensation consulting services amounted to $40,000. No fees were paid for director compensation services. Fees paid to Mercer and its affiliates for other services amounted to $4.1 million. As previously noted, the Committee and Subcommittee are no longer using Mercer as a consultant.
In order to supplement its internal resources and to help the Committee and Subcommittee as necessary, the Company has engaged a separate consultant, Towers Watson, to assist with compensation matters in general and with executive compensation as well.
Role of Executive Officers
As noted above, executive compensation is set by the Compensation Committee and Stock Plan Subcommittee. In performing this function, the Committee and Subcommittee rely on the Executive Chairman, President and Chief Executive Officer and the Executive Vice PresidentGlobal Human Resources (the "EVP HR") to provide information regarding the executive officers, the executive officers' roles and responsibilities and the general performance of the Company, the executive officers and the various business units that they manage. The three executive officers providing support take directions from and bring suggestions to the Compensation Committee and Stock Plan Subcommittee. They suggest performance measures and targets for each of the executive officers under the Executive Annual Incentive Plan and for PSUs. They also make suggestions regarding terms of employment agreements. The final decisions regarding salaries, bonuses (including measures, targets and amounts to be paid), equity grants and other compensation matters related to executive officers are made by the Compensation Committee or Stock Plan Subcommittee, as the case may be. The EVP HR and her staff work with the Executive Vice President and General Counsel and her staff as well as CAP, Towers Watson and outside counsel in this context.
Other Benefits and Perquisites
Benefits. We determine benefits for executive officers by the same criteria applicable to the general employee population in the location where the executive officer is situated. In general, benefits are designed to provide protection to the executive and/or his or her family in the event of illness, disability or death and to provide reasonable levels of income upon retirement. The benefits are important in attracting and retaining employees and to alleviate distractions that may arise relating to health care, retirement and similar issues.
Perquisites. We provide limited perquisites to our executive officers under our Executive Perquisite Plan and our Executive
Automobile Program. The perquisites include
(a) an annual perquisite allowance of $20,000 for the Executive Chairman and the President and Chief Executive Officer and $15,000 for the other executive officers (other than the Lauders),
(b) personal use of a company car (or cash in lieu of a company car), (c) financial counseling costs up to $5,000 per year and (d) spousal or home leave travel. On occasion, we
will provide expense reimbursements relating to relocations, as we did for Mr. Freda in fiscal 2008. We believe these perquisite programs help to attract and retain executive officers and are
more cost-effective to us than providing additional salary to the executive officers because the perquisite amounts are not included in calculating pension benefits.
Post-Termination Compensation
Retirement Plans. We provide retirement benefits to our employees in the United States, which cover executive officers under the Estée Lauder Companies Retirement Growth Account
47
Plan (the "RGA Plan"), the related Estée Lauder Inc. Benefits Restoration Plan (the "Restoration Plan"), and the Estée Lauder Companies 401(k) Savings Plan. Executive officers who have worked for our subsidiaries outside the United States may also be covered under plans covering such employees. As with other benefits, the retirement plans are intended to enable us to attract and retain employees. The plans provide employees, including the executive officers, with an opportunity to plan for future financial needs during retirement. For a more detailed discussion on the retirement plans, see "Pension Benefits" beginning on page 62.
In addition, certain executive officers, such as Mr. Freda, who joined us mid-career or who forfeited certain retirement benefits from their former employers to join us, have been provided with non-qualified supplemental pension arrangements. In addition, we agreed to provide for Mr. Prouvé to continue his participation in the applicable French National Social Security and supplementary regimes. However, this and other expatriate-type allowances that have been provided to Mr. Prouvé are being phased out through fiscal 2011 by means of a transition allowance.
Deferred Compensation. We currently allow executive officers to defer a portion of their annual bonus. Under the terms of
their employment agreements and the Executive Annual Incentive
Plan, each of the Named Executive Officers may elect to defer all or part of his incentive bonus compensation, subject to the requirements of Section 409A of the Internal Revenue Code
("Section 409A"). The ability to defer is provided to participating executive officers as a way to assist them in saving for future financial needs with relatively little cost to us. The
amounts deferred are a general obligation of ours and the cash that is not paid currently may be used by us for our general corporate purposes. For a more detailed discussion on deferred compensation,
see the "Nonqualified Deferred Compensation in Fiscal 2010 and at June 30, 2010" table and the accompanying narrative on page 64.
Potential Payments upon Termination of Employment. As discussed in more detail under "Potential Payments upon Termination or
Change of Control" beginning on page 65, the Named Executive Officer's employment
agreements provide for certain payments and other benefits in the event their employment is terminated under certain circumstances, such as disability, death, termination by us without cause,
termination by us for material breach and non-renewals of their employment arrangement, or termination by the executive officer for "good reason" following a "change of control."
In view of the Lauder family's ownership of shares with over 87% of the voting power, they have the ability to determine whether our company will undergo a "change of control." In order to protect the interests of the executive officers and to keep them involved and motivated during any process that may result in a "change of control," certain of our outstanding equity compensation agreements contain provisions that accelerate vesting or may accelerate exercisability of equity-based awards upon a "change of control." However, under our employment agreements with our executive officers and in stock option and RSU agreements for grants made in fiscal 2011, the executive officers will receive severance benefits (or acceleration of benefits) after a "change of control" only if we terminate the executive officer or the executive officer terminates his or her employment for "good reason."
We place great value on the long-term commitment that many executive officers have made to us. In addition to recognizing the service they have provided during their tenure, we attempt to motivate them to act in a manner that will provide longer-term benefits to us even as they approach retirement. In this regard, stock options, RSUs and PSUs granted to executive officers who are retirement-eligible contain provisions that allow the executive officers to continue to participate in the longer-term success of the business following retirement. For example, stock options become immediately exercisable upon retirement and are exercisable for the remainder of their ten-year terms. In addition, to the extent the performance is achieved, a retiree's PSUs will vest in accordance with the original vesting schedule.
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Tax Compliance Policy
We are aware of the limitations on deductibility for income tax purposes of certain compensation in excess of $1 million per year paid to our most highly compensated executive officers under Section 162(m). While significant portions of the compensation program as it applied to such persons in fiscal 2010 were designed to take advantage of exceptions to Section 162(m), such as the "performance-based" exception for annual bonuses, PSUs and stock options, certain non-deductible compensation, such as the RSUs, was authorized.
Tax and Accounting Implications of Each Form of Compensation
Salary is expensed when earned. Amounts are tax deductible, except for certain annual payments over $1 million to the Chief Executive Officer and the three highest paid executive officers other than the Chief Executive Officer (collectively, the "Covered Executives").
Annual bonuses under the Executive Annual Incentive Plan are expensed during the year in which performance is being measured. Bonuses paid out under the Executive Annual Incentive Plan are tax deductible.
Stock options are expensed at grant date fair value over the requisite service period. Outstanding options have been granted pursuant to stockholder-approved plans, and are therefore deductible for tax purposes under Section 162(m). The deduction is taken by us in the tax year in which the option is exercised and the deductible amount per share is equal to the spread between the option exercise price and the price of the stock at the time of exercise.
PSUs are expensed at grant date fair value over the applicable performance period. Outstanding performance share units have been granted pursuant to a stockholder-approved plan, and are therefore deductible for income tax purposes under Section 162(m).
RSUs are expensed at grant date fair value over the requisite service period. RSUs are tax deductible in the tax year when the shares are paid out except when payouts are made to a person who is a Covered Executive at the time of payout to the extent such Covered Executive's compensation exceeds the Section 162(m) limitations. Non-deductible restricted stock units were paid out in fiscal 2010.
Executive Stock Ownership Guidelines
In fiscal 2007, we adopted stock ownership guidelines for our executive officers. The guidelines were adopted in part to increase our executive officers' direct stockholdings to better align their interests with those of our stockholders. Each executive officer has five years to meet his or her target. Targets are tiered depending on an executive officer's position and are expressed as multiples of annual salary: 2.5 times for the Executive Chairman and the President and Chief Executive Officer; 1.5 times for Group Presidents and 1.0 times for other executive officers. The Lauders, who are executive officers, exceed the guidelines applicable to them. Shares held directly by the executive officer or by his or her family members or in controlled entities and shares underlying vested and unvested restricted stock units are included in determining the value of the shares held.
Policy on Avoidance of Insider Trading
Our executive officers, as well as members of our Board of Directors, and employees at senior levels and in sensitive areas throughout our organization, are subject to our policy on avoidance of insider trading. Under this policy, such people are prohibited from buying or selling shares of our stock during regular and special blackout periods. This also applies to the exercise of stock options and sale of the underlying shares. Moreover, prior to any trade, executive officers, directors and such employees must obtain preclearance from our Legal Department.
We do not restrict pledges of securities but require that pledges of securities be precleared by our Legal Department. While shares of our stock held in brokerage margin accounts can be considered to be "pledged," we do not consider margin accounts to be subject to our preclearance policy.
49
Recoupment Policy
In September 2010, the Compensation Committee and Stock Plan Subcommittee adopted an executive compensation recoupment policy, also known as a "clawback," that applies to any annual and long-term incentive compensation (whether in the form of stock options or paid or payable in cash or equity) and RSUs awarded to executive officers. Under the policy, recoupment would apply in the event of an accounting restatement resulting from material noncompliance with financial reporting requirements under the applicable securities laws. Recoupment would apply to any current or former executive officer who received incentive compensation within the three-year period prior to the restatement and the amount to be recouped would be the amount in excess of what the executive officer would have been paid under the restatement.
In addition to the policy described above, the Amended and Restated Fiscal 2002 Share Incentive Plan provides for forfeiture of awards in the event that after termination of employment a participant (which includes individuals who are not executive officers) competes with or otherwise conducts herself or himself in a manner adversely affecting the Company.
Compensation Committee and Stock Plan Subcommittee Report
The Compensation Committee and the Stock Plan Subcommittee have reviewed and discussed with management the foregoing Compensation Discussion and Analysis in this Proxy Statement on Schedule 14A. Based on such review and discussions, the Compensation Committee and the Stock Plan Subcommittee have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into the Company's Annual Report on Form 10-K for the year ended June 30, 2010.
Compensation Committee Richard D. Parsons (Chair) Rose Marie Bravo Paul Fribourg Barry S. Sternlicht |
Stock Plan Subcommittee Rose Marie Bravo Paul Fribourg Barry S. Sternlicht |
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The following table, footnotes and narratives describe the compensation during the past three fiscal years for (a) our Chief Executive Officer, (b) our Chief Financial Officer and (c) our four other most highly compensated executive officers in our fiscal year ended June 30, 2010 ("fiscal 2010"). The fiscal year ended June 30, 2009 is referred to as "fiscal 2009" and the fiscal year ended June 30, 2008 is referred to as "fiscal 2008."
Name and Principal Position(1) | Year | Salary ($) |
Bonus ($)(2) |
Stock Awards ($)(3) |
Option Awards ($)(4) |
Non-Equity Incentive Plan Compensation ($)(5) |
Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(6) |
All Other Compensation ($)(7) |
Total ($) |
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
William P. Lauder, |
2010 | $1,500,000 | $0 | $1,825,000 | $978,718 | $3,648,950 | $470,977 | $65,514 | $8,489,159 | ||||||||||||||||||||
Executive Chairman |
2009 | 1,500,000 | 825,000 | 2,769,032 | 2,703,000 | 150,000 | 312,107 | 90,264 | 8,349,403 | ||||||||||||||||||||
|
2008 | 1,500,000 | 0 | 2,213,990 | 2,242,500 | 3,074,500 | 96,251 | 63,623 | 9,190,864 | ||||||||||||||||||||
Fabrizio Freda, |
2010 |
1,500,000 |
0 |
6,687,527 |
1,957,447 |
3,648,950 |
496,243 |
81,875 |
14,372,042 |
||||||||||||||||||||
President and Chief |
2009 | 1,300,000 | 687,500 | 3,230,448 | 3,153,500 | 125,000 | 495,310 | 453,640 | 9,445,398 | ||||||||||||||||||||
Executive Officer |
2008 | 433,333 | 1,833,333 | 0 | 0 | 0 | 164,383 | 329,467 | 2,760,516 | ||||||||||||||||||||
John Demsey, |
2010 |
1,000,000 |
0 |
1,041,647 |
745,200 |
2,671,900 |
272,497 |
50,014 |
5,781,258 |
||||||||||||||||||||
Group President |
2009 | 1,000,000 | 244,475 | 1,153,702 | 1,126,250 | 711,050 | 192,872 | 51,400 | 4,479,749 | ||||||||||||||||||||
|
2008 | 1,000,000 | 0 | 922,538 | 934,375 | 1,648,600 | 86,776 | 50,074 | 4,642,363 | ||||||||||||||||||||
Cedric Prouvé, |
2010 |
1,000,000 |
0 |
928,651 |
745,200 |
2,076,000 |
200,853 |
348,825 |
5,299,529 |
||||||||||||||||||||
Group President- |
2009 | 1,000,000 | 131,500 | 1,153,702 | 1,126,250 | 637,000 | 130,492 | 410,930 | 4,589,874 | ||||||||||||||||||||
International |
2008 | 1,000,000 | 0 | 737,996 | 747,500 | 1,330,000 | 65,786 | 217,835 | 4,099,117 | ||||||||||||||||||||
Richard W. Kunes, |
2010 |
870,000 |
0 |
813,122 |
662,400 |
927,600 |
160,416 |
45,908 |
3,479,446 |
||||||||||||||||||||
Executive Vice |
2009 | 870,000 | 122,500 | 923,046 | 901,000 | 175,000 | 126,802 | 21,262 | 3,139,610 | ||||||||||||||||||||
President and Chief |
2008 | 835,000 | 0 | 737,996 | 747,500 | 686,300 | 65,574 | 17,600 | 3,089,970 | ||||||||||||||||||||
Financial Officer |
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and Mr. Kunes $531,488, $692,284 and $553,497. The payout of PSUs could be as low as zero depending on performance over the relevant period and the value of any payout will depend on the stock price at the time of payout. For a description of the performance criteria applicable to the PSUs, see "Compensation Discussion and AnalysisElements of Compensation; AllocationLong-Term Equity-Based CompensationPerformance Share Units."
Date of Grant
|
Expected Volatility |
Expected Term to Exercise |
Dividend Yield |
Risk-Free Interest Rate |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 2, 2009 |
30 | % | 9 | 2.0 | % | 3.3 | % | ||||||
Sep. 11, 2008 |
28 | % | 8 | 1.2 | % | 3.5 | % | ||||||
Sep. 21, 2007 |
24 | % | 9 | 1.2 | % | 4.6 | % |
The expected volatility assumption is a combination of both current and historical implied volatilities of the underlying stock which are obtained from public data and sources. See "Grants of Plan-Based Awards" for information about option awards granted in fiscal 2010 and "Outstanding Equity Awards at June 30, 2010" for information with respect to options outstanding at June 30, 2010. The actual value, if any, realized by an executive officer from any option will depend on the extent to which the market value of our Class A Common Stock exceeds the exercise price of the option on the date the option is exercised. Accordingly, there is no assurance that the value realized by an executive officer will be at or near the amounts set forth in the table. These amounts should not be used to predict stock performance.
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$20,000; Mr. Freda, $32,761, $15,000 and $0; Mr. Demsey, $15,000, $15,000 and $15,874; Mr. Prouvé, $15,000, $14,815 and $18,580; and Mr. Kunes, $15,000, $0 and $0; (v) financial counseling as follows: Mr. W. Lauder, $5,000, $5,000 and $0; Mr. Freda, $5,000, $5,000 and $5,000; Mr. Demsey, $3,500, $3,500 and $3,500; Mr. Prouvé, $3,500, $3,500 and $3,500; and Mr. Kunes, $5,000, $3,500 and $3,500; (vi) personal use of Company leased auto or auto allowance as follows: Mr. W. Lauder, $6,437, $8,097 and $3,337; Mr. Freda, $4,400, $13,200 and $4,400; Mr. Demsey, $7,414, $8,800 and $13,200; Mr. Prouvé, $0, $0 and $11,000; and Mr. Kunes, $11,208, $3,062 and $0; (vii) companion or home leave travel as follows: Mr. Freda, $15,922, $0 and $0; and Mr. Prouvé, $0, $61,915 and $60,695; (viii) reimbursement for children's tuition and taxes thereon relating to relocation as follows: Mr. Prouvé, $0, $0 and $68,631; (ix) transitional payment to Mr. Prouvé in lieu of expatriate allowances of $317,300, $317,300 and $0; and (x) expenses related to Mr. Freda's relocation to the United States, including temporary living expenses, travel, electrical appliances, shipment of household goods and the related tax gross up payment in the amounts of $7,892, $404,540 and $304,167. In addition, with respect to Mr. W. Lauder, in fiscal 2005, we instituted a flight safety policy, which provides that our Chairman of the Board of Directors and our Chief Executive Officer should not fly together for any reason. One effect of the policy was to increase the costs of certain non-business trips for Mr. W. Lauder. In order to remedy this, we allowed Mr. W. Lauder to use Company-provided aircraft for non-business trips where it was necessary to comply with the flight safety policy at an incremental cost to us of $43,547 in fiscal 2009 and $27,186 in fiscal 2008. We also make available to our employees, including the Named Executive Officers, the ability to obtain a limited amount of our products for free or at a discount. The incremental cost of the free product program to us did not exceed $1,000 in any fiscal year for any of the Named Executive Officers. The sales of product to employees at a discount are profitable for us.
In "Compensation Discussion and Analysis," we describe our considerations in determining fiscal 2010 compensation for Named Executive Officers. The material terms of each Named Executive Officer's employment agreement are described below:
William P. Lauder. Mr. W. Lauder's compensation in fiscal 2010 was paid pursuant to an employment agreement providing
for his continued employment as our President and Chief
Executive Officer through March 2, 2008 and thereafter as Chief Executive Officer through June 30, 2010, unless earlier terminated. In connection with Fabrizio Freda becoming Chief
Executive Officer as of July 1, 2009, Mr. W. Lauder's agreement was amended to provide that he would be Executive Chairman through June 30, 2010. Under the agreement,
Mr. W. Lauder was entitled to receive a base salary of not less than $1.5 million per annum and would be eligible for aggregate target annual incentive bonus compensation of
$3 million for each year of the agreement. Through June 30, 2009, Mr. W. Lauder received annual stock-based awards under our Amended and Restated Fiscal 2002 Share Incentive Plan
(or a successor plan) (our "Share Incentive Plan") with a value equivalent to a grant of stock options with respect to 300,000 shares of our Class A Common Stock. In September 2007,
Mr. W. Lauder was granted stock options in respect of 150,000 shares of Class A Common Stock with an exercise price of $42.58 per share, RSUs in respect of 25,998 shares of
Class A Common Stock and PSUs with a target payout of 25,998 shares of Class A Common Stock. In September 2008, Mr. W. Lauder was granted stock options in respect of 150,000
shares of Class A Common Stock with an exercise price of $52.83 per share, RSUs in respect of 26,207 shares of Class A Common Stock and PSUs with a target payout of 26,207 shares of
Class A Common Stock. In connection with the change in his position, we agreed to recommend to the Stock Plan Subcommittee annual stock-based awards under the Share Incentive Plan with a value
equivalent at the time of grant of no less than
53
$2 million; provided, however, at no time was an annual grant to exceed or be in respect of more than 200,000 shares of Class A Common Stock at target performance (provided that above-target performance payouts on PSUs shall not be subject to this limitation). Accordingly, in September 2009, Mr. W. Lauder was granted stock options in respect of 88,652 shares of Class A Common Stock with an exercise price of $34.00 per share, RSUs in respect of 14,706 shares of Class A Common Stock and PSUs with a target payout of 14,706 shares of Class A Common Stock. In addition to our benefits generally available to senior executives (i.e. annual perquisite reimbursement under our Executive Perquisite Plan up to $20,000, financial counseling services up to $5,000, and participation in our Executive Automobile Program with an automobile having an acquisition value of $75,000), we will continue to provide Mr. W. Lauder additional executive life insurance with a face amount of $5 million with annual premiums paid by us. As of fiscal 2010, such insurance is being provided through a universal life insurance policy. Under a new employment agreement entered into with Mr. W. Lauder effective July 1, 2010, Mr. W. Lauder will be an employee-at-will and continue as Executive Chairman until his retirement or other termination of his employment. The agreement provides for a base salary to be set by the Compensation Committee. For fiscal 2011, his base salary was set at $1.5 million, which was the same as the prior fiscal year. His bonus opportunities and equity grants shall be determined by the Compensation Committee and Stock Plan Subcommittee, respectively. For fiscal 2011, his aggregate target incentive bonus opportunities are $3.0 million and, in September 2010, he was granted stock options in respect of 62,066 shares of Class A Common Stock with an exercise price of $58.08 per share, RSUs in respect of 10,761 shares of Class A Common Stock and PSUs with a target payout of 10,761 shares of Class A Common Stock.
Fabrizio Freda. During fiscal 2010, Mr. Freda was paid pursuant to an employment agreement that was entered into in
November 2007 in connection with his joining the
Company. The initial agreement provided for him to serve as President and Chief Operating Officer and provided a timetable for him to be elected Chief Executive Officer. The agreement was amended in
March 2009 to reflect his election to that position effective July 1, 2009. The term of employment set forth in the agreement expires June 30, 2011. Through fiscal 2009, the agreement
provided for a base salary of not less than $1.3 million per annum, which was increased to $1.5 million beginning in fiscal 2010. Starting in fiscal 2010, he was eligible for aggregate
target annual incentive bonus compensation of no less than $3.0 million for each Contract Year (as defined below) for which the employment agreement is in effect. During fiscal 2009,
Mr. Freda was eligible to receive stock-based awards under our Share Incentive Plan with a value equivalent to a grant of stock options with respect to 250,000 shares of the Company's
Class A Common Stock. In addition, he was entitled to receive a one-time grant of stock-based awards under our Share Incentive Plan with a value equivalent to a grant of stock
options with respect to 100,000 shares of the Company's Class A Common Stock. Accordingly, in September 2008, Mr. Freda was granted stock options in respect of 175,000 shares of
Class A Common Stock with an exercise price of $52.83 per share, RSUs in respect of 30,574 shares of Class A Common Stock and PSUs with a target payout of 30,574 shares of Class A
Common Stock. In connection with his promotion to Chief Executive Officer on July 1, 2009, Mr. Freda received a one-time grant of RSUs in respect of 119,403 shares of
Class A Common Stock (valued at $4 million on the date of grant). In addition, for fiscal 2010 and 2011, we agreed to recommend to the Stock Plan Subcommittee annual stock-based awards
under the Share Incentive Plan with a value equivalent at the time of grant of no less than $4 million with such value determined in accordance with procedures generally utilized by the Company
for its financial reporting at the time of grant; provided, however, at no time shall an annual grant exceed or be in respect of more than 400,000 shares of Class A Common Stock at target
performance (provided that above-target performance payouts on PSUs shall not be subject to this limitation). Accordingly, in September 2009, Mr. Freda was granted stock options in respect of
177,305 shares of Class A Common Stock with an exercise price of $34.00 per share, RSUs in respect of 29,412 shares of Class A Common Stock and PSUs with
54
a target payout of 29,412 shares of Class A Common Stock. In September 2010, Mr. Freda was granted stock options in respect of 124,131 shares of Class A Common Stock with an exercise price of $58.08 per share, RSUs in respect of 21,522 shares of Class A Common Stock and PSUs with a target payout of 21,522 shares of Class A Common Stock. In addition to benefits generally available to senior executives (i.e. annual perquisite reimbursement under our Executive Perquisite Plan of up to $15,000 (increased to $20,000 for fiscal 2010 and 2011), financial counseling services up to $5,000, and participation in the Company's Executive Automobile Program with an automobile having an acquisition value of $50,000 (which was increased to $75,000 in March 2009)), we agreed to provide Mr. Freda additional executive term life insurance with a face amount of $5 million, travel for his spouse to accompany him on up to two (2) business-related travel itineraries per fiscal year and relocation allowances and expenses from Italy to the New York area in accordance with the Company's relocation policy. In addition, Mr. Freda is entitled to an annual supplemental deferral computed by taking the difference between $485,000 and the actual vested annual accruals and contributions made to the Company's qualified and non-qualified pension and qualified retirement savings plans on behalf of the Executive. Such deferrals are credited with interest annually at a rate per annum equal to the Citibank base rate but in no event more than 9%. Mr. Freda will also be reimbursed for relocation costs of his family from New York to Italy in the event of his termination.
John Demsey. Mr. Demsey's compensation in fiscal 2010 was paid pursuant to an employment agreement which provides for
Mr. Demsey's employment as Group President
through June 30, 2010, unless earlier terminated. Under the terms of the agreement, Mr. Demsey is entitled to receive a base salary of not less than $1.0 million per annum and
will be eligible for aggregate annual target incentive bonus compensation of not less than $2.0 million for each year of the agreement. During the term of the agreement, we agreed to recommend
to the Stock Plan Subcommittee annual stock-based awards under our Share Incentive Plan with a value equivalent to no less than a grant of stock options with respect to 125,000 shares of our
Class A Common Stock. In September 2007, Mr. Demsey was granted stock options in respect of 62,500 shares of Class A Common Stock with an exercise price of $42.58 per share, RSUs
in respect of 10,833 shares of Class A Common Stock and PSUs with a target payout of 10,833 shares of Class A Common Stock. In September 2008, Mr. Demsey was granted stock options
in respect of 62,500 shares of Class A Common Stock with an exercise price of $52.83 per share, RSUs in respect of 10,919 shares of Class A Common Stock and PSUs with a target payout of
10,919 shares of Class A Common Stock. In September 2009, Mr. Demsey was granted stock options in respect of 67,500 shares of Class A Common Stock with an exercise price of $34.00
per share, RSUs in respect of 11,723 shares of Class A Common Stock and PSUs with a target payout of 11,723 shares of Class A Common Stock. In addition to the benefits generally
available to our senior executives (i.e. annual perquisite reimbursement under our Executive Perquisite Plan up to $15,000, financial counseling services up to $5,000, and participation in our
Executive Automobile Program with an automobile having an acquisition value of $50,000), we will continue to provide Mr. Demsey additional executive term life insurance with a face amount of
$5 million with annual premiums to be paid by us. Under a new employment agreement entered into with Mr. Demsey effective July 1, 2010, Mr. Demsey will be an
employee-at-will and continue as Group President until his retirement or other termination of his employment. The agreement provides for a base salary to be set by the
Compensation Committee. For fiscal 2010 and 2011, his base salary was set at $1.0 million. His bonus opportunities and equity grants shall be determined by the Compensation Committee and Stock
Plan Subcommittee, respectively. For fiscal 2011, his aggregate target incentive bonus opportunities are $2.3 million and, in September 2010, he was granted stock options in respect of 81,728
shares of Class A Common Stock with an exercise price of $58.08 per share, RSUs in respect of 14,170 shares of Class A Common Stock and PSUs with a target payout of 14,170 shares of
Class A Common Stock. His benefits remain essentially the same as those in his prior agreement.
55
Cedric Prouvé. Mr. Prouvé's compensation in fiscal 2010 was paid pursuant to an employment agreement
which provided for Mr. Prouvé's
employment as Group President-International through June 30, 2011, unless earlier terminated. Under that agreement, which was amended effective as of July 1, 2009,
Mr. Prouvé is entitled to a base salary of not less than $1.0 million per annum and is eligible for annual aggregate target incentive bonus compensation of not less than
$1.5 million for fiscal 2009, $1.5 million for fiscal 2010 and $1.75 million for fiscal 2011. During the term of the agreement, we agreed to recommend to the Stock Plan
Subcommittee annual stock-based awards under our Share Incentive Plan with a value equivalent to no less than a grant of stock options with respect to 125,000 shares of our Class A Common
Stock. In September 2008, Mr. Prouvé was granted stock options in respect of 62,500 shares of Class A Common Stock with an exercise price of $52.83 per share, RSUs in
respect of 10,919 shares of Class A Common Stock and PSUs with a target payout of 10,919 shares of Class A Common Stock. In September 2009, Mr. Prouvé was granted
stock options in respect of 67,500 shares of Class A Common Stock with an exercise price of $34.00 per share, RSUs in respect of 11,723 shares of Class A Common Stock and PSUs with a
target payout of 11,723 shares of Class A Common Stock. In September 2010, Mr. Prouvé was granted stock options in respect of 75,516 shares of Class A Common Stock
with an exercise price of $58.08 per share, RSUs in respect of 13,093 shares of Class A Common Stock and PSUs with a target payout of 13,093 shares of Class A Common Stock. In addition
to the benefits generally available to our senior executives (i.e. annual perquisite reimbursement under our Executive Perquisite Plan up to $15,000, financial counseling services up to $5,000,
and participation in our Executive Automobile Program with an automobile having an acquisition value of $50,000), we will continue to provide Mr. Prouvé additional executive term
life insurance with a face amount of $5 million with annual premiums paid by us. In addition, so long as Mr. Prouvé remains employed by the Company, we shall pay to him
during the term of his current agreement, an amount equal to $317,300 per year as final expatriate allowances (including reimbursement for taxes) relating to his move to New York at the request of the
Company.
Richard W. Kunes. Under his employment agreement effective July 1, 2009, Mr. Kunes is an employee-at-will and he
will continue as Executive
Vice President and Chief Financial Officer until his retirement or other termination of his employment. The agreement provides for a base salary to be set by the Compensation Committee. For fiscal
2010 and 2011, his base salary was and is set at $870,000. His bonus opportunities and equity grants shall be determined by the Compensation Committee or Stock Plan Subcommittee. For fiscal 2010 and
2011, his aggregate target incentive bonus opportunities were and are $700,000 and $730,000, respectively. In September 2009, he was granted stock options in respect of 60,000 shares of Class A
Common Stock with an exercise price of $34.00 per share, RSUs in respect of 10,421 shares of Class A Common Stock and PSUs with a target payout of 10,421 shares of Class A Common Stock.
In September 2010, he was granted stock options in respect of 71,435 shares of Class A Common Stock with an exercise price of $58.08 per share, RSUs in respect of 12,385 shares of
Class A Common Stock and PSUs with a target payout of 12,385 shares of Class A Common Stock. For fiscal 2011, in addition to the benefits generally available our to senior executives
(i.e. annual perquisite reimbursement under our Executive Perquisite Plan up to $15,000, financial counseling services up to $5,000, and participation in our Executive Automobile Program with
an automobile having an acquisition value of $50,000), we provided Mr. Kunes additional executive term life insurance with a face amount of $5 million with annual premiums to be paid by
us.
Each agreement described above provides that the executive may elect to defer all or part of his annual incentive bonus compensation in compliance with Section 409A. In certain cases, we may require the executive to defer salary and bonus amounts to be received by him to the extent such amounts may not be currently deductible by us by reason of Section 162(m).
56
Each employment agreement also provides that the executive must abide by restrictive covenants relating to non-competition and non-solicitation during his employment and, under certain circumstances, for two years following termination of employment, and non-disclosure relating to our confidential information.
The provisions of the employment agreements relating to termination of employment and payments relating to termination are discussed in "Potential Payments upon Termination or Change of Control."
GRANTS OF PLAN-BASED AWARDS IN FISCAL 2010
The following table sets forth information with respect to each award in fiscal 2010 to each Named Executive Officer of plan-based compensation, including bonus opportunities under the Executive Annual Incentive Plan, and options to purchase our Class A Common Stock, performance share units ("PSUs") and restricted stock units ("RSUs") under the Amended and Restated Fiscal 2002 Share Incentive Plan. The material terms of the bonus opportunities are described in "Compensation Discussion and AnalysisElements of CompensationAnnual Incentive Bonuses" and the material terms of the PSUs are described in "Compensation Discussion and AnalysisElements of CompensationLong-Term Equity-Based CompensationPerformance Share Units."
|
|
|
|
|
|
|
|
|
All Other Option Awards: Number of Securities Underlying Options (#)(4) |
|
|
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Estimated Possible Payouts Under Non- Equity Incentive Plan Awards(1) |
Estimated Future Payouts Under Equity Incentive Plan Awards(2) |
All Other Stock Awards: Number of Shares of Stock or Units (#)(3) |
|
|
||||||||||||||||||||||||||||
|
|
Exercise or Base Price of Option Awards ($/Sh) |
Grant Date Fair Value of Stock and Option Awards ($)(5) |
|||||||||||||||||||||||||||||||
Name
|
Grant Date |
Threshold ($) |
Target ($) |
Maximum ($) |
Threshold (#) |
Target (#) |
Maximum (#) |
|||||||||||||||||||||||||||
William P. Lauder |
N/A | $ | 937,500 | $ | 3,000,000 | $ | 4,500,000 | |||||||||||||||||||||||||||
|
9/2/09 | 7,353 | 14,706 | 22,059 | $ | 500,004 | ||||||||||||||||||||||||||||
|
9/2/09 | 14,706 | 500,004 | |||||||||||||||||||||||||||||||
|
9/2/09 | 88,652 | $ | 34.00 | 978,718 | |||||||||||||||||||||||||||||
|
9/3/09 | 24,495 | 824,992 | |||||||||||||||||||||||||||||||
Fabrizio Freda |
N/A | 937,500 | 3,000,000 | 4,500,000 | ||||||||||||||||||||||||||||||
|
9/2/09 | 14,706 | 29,412 | 44,118 | 1,000,008 | |||||||||||||||||||||||||||||
|
9/2/09 | 29,412 | 1,000,008 | |||||||||||||||||||||||||||||||
|
9/2/09 | 177,305 | 34.00 | 1,957,447 | ||||||||||||||||||||||||||||||
|
7/1/09 | 119,403 | 4,000,001 | |||||||||||||||||||||||||||||||
|
9/3/09 | 20,413 | 687,510 | |||||||||||||||||||||||||||||||
John Demsey |
N/A | 625,000 | 2,000,000 | 3,000,000 | ||||||||||||||||||||||||||||||
|
9/2/09 | 5,862 | 11,723 | 17,585 | 398,582 | |||||||||||||||||||||||||||||
|
9/2/09 | 11,723 | 398,582 | |||||||||||||||||||||||||||||||
|
9/2/09 | 67,500 | 34.00 | 745,200 | ||||||||||||||||||||||||||||||
|
9/3/09 | 7,259 | 244,483 | |||||||||||||||||||||||||||||||
Cedric Prouvé |
N/A | 468,800 | 1,500,000 | 2,250,000 | ||||||||||||||||||||||||||||||
|
9/2/09 | 5,862 | 11,723 | 17,585 | 398,582 | |||||||||||||||||||||||||||||
|
9/2/09 | 11,723 | 398,582 | |||||||||||||||||||||||||||||||
|
9/2/09 | 67,500 | 34.00 | 745,200 | ||||||||||||||||||||||||||||||
|
9/3/09 | 3,904 | 131,487 | |||||||||||||||||||||||||||||||
Richard W. Kunes |
N/A | 218,800 | 700,000 | 1,050,000 | ||||||||||||||||||||||||||||||
|
9/2/09 | 5,211 | 10,421 | 15,632 | 354,314 | |||||||||||||||||||||||||||||
|
9/2/09 | 10,421 | 354,314 | |||||||||||||||||||||||||||||||
|
9/2/09 | 60,000 | 34.00 | 662,400 | ||||||||||||||||||||||||||||||
|
9/3/09 | 3,637 | 122,494 |
57
Annual Incentive Plan and the fiscal 2010 payouts, see "Summary Compensation Table" and "Compensation Discussion and AnalysisElements of CompensationAnnual Incentive Bonuses."
58
Class A common stock underlying the options. See "Compensation Discussion and AnalysisElements of Compensation; AllocationLong-Term Equity-Based CompensationStock Options."
OUTSTANDING EQUITY AWARDS AT JUNE 30, 2010
The following table sets forth information with respect to stock options, RSUs and PSUs outstanding on June 30, 2010 under our plans existing at the time of grant for each Named Executive Officer. In the section of the table relating to "Stock Awards," the first, second and third rows set forth RSUs and PSUs granted to the Named Executive Officers (other than Mr. Freda) in September 2007, 2008 and 2009, respectively. The fourth row sets forth additional RSUs granted in September 2009. Mr. Freda joined the Company in March 2008. RSU and PSU grants were made to him in September 2008 and September 2009, which are reflected in the first and third lines, and RSU grants were made to him in July 2009 and September 2009, which are reflected on the second and fourth lines.
|
Option Awards (1) | Stock Awards | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name
|
Number of Securities Underlying Unexercised Options (#) Exercisable (1) |
Number of Securities Underlying Unexercised Options (#) Unexercisable (1) |
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) |
Option Exercise Price ($) |
Option Expiration Date |
Number of Shares or Units of Stock That Have Not Vested (#)(2) |
Market Value of Shares or Units of Stock That Have Not Vested ($)(3) |
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(4) |
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(5) |
||||||||||||||||||
William P. Lauder |
100,000 | 0 | n/a | $ | 40.50 | 7/26/2011 | |||||||||||||||||||||
|
100,000 | 0 | n/a | 32.15 | 7/10/2012 | ||||||||||||||||||||||
|
200,000 | 0 | n/a | 33.44 | 8/20/2013 | ||||||||||||||||||||||
|
300,000 | 0 | n/a | 43.10 | 8/24/2014 | ||||||||||||||||||||||
|
150,000 | 0 | n/a | 35.00 | 9/26/2015 | ||||||||||||||||||||||
|
150,000 | 0 | n/a | 39.56 | 9/20/2016 | ||||||||||||||||||||||
|
100,000 | 50,000 | n/a | 42.58 | 9/21/2017 | 8,666 | $ | 497,255 | 25,998 | $ | 1,491,765 | ||||||||||||||||
|
50,000 | 100,000 | n/a | 52.83 | 9/11/2018 | 17,472 | 992,934 | 13,104 | 744,672 | ||||||||||||||||||
|
0 | 88,652 | n/a | 34.00 | 9/2/2019 | 14,706 | 827,654 | 14,706 | 827,654 | ||||||||||||||||||
|
24,495 | 1,378,579 | |||||||||||||||||||||||||
Fabrizio Freda |
58,333 | 116,667 | n/a | 52.83 | 9/11/2018 | 20,383 | 1,158,366 | 15,287 | 868,760 | ||||||||||||||||||
|
119,403 | 6,720,001 | |||||||||||||||||||||||||
|
0 | 177,305 | n/a | 34.00 | 9/2/2019 | 29,412 | 1,655,307 | 29,412 | 1,655,307 | ||||||||||||||||||
|
20,413 | 1,148,844 | |||||||||||||||||||||||||
John Demsey |
0 | 20,834 | n/a | 42.58 | 9/21/2017 | 3,611 | 207,199 | 10,833 | 621,598 | ||||||||||||||||||
|
0 | 41,667 | n/a | 52.83 | 9/11/2018 | 7,280 | 413,722 | 5,460 | 310,263 | ||||||||||||||||||
|
0 | 67,500 | n/a | 34.00 | 9/2/2019 | 11,723 | 659,770 | 11,723 | 659,770 | ||||||||||||||||||
|
7,259 | 408,537 | |||||||||||||||||||||||||
Cedric Prouvé |
50,000 | 0 | n/a | 35.00 | 9/26/2015 | ||||||||||||||||||||||
|
50,000 | 0 | n/a | 39.56 | 9/20/2016 | ||||||||||||||||||||||
|
33,333 | 16,667 | n/a | 42.58 | 9/21/2017 | 2,889 | 165,771 | 8,666 | 497,255 | ||||||||||||||||||
|
20,833 | 41,667 | n/a | 52.83 | 9/11/2018 | 7,280 | 413,722 | 5,460 | 310,263 | ||||||||||||||||||
|
0 | 67,500 | n/a | 34.00 | 9/2/2019 | 11,723 | 659,770 | 11,723 | 659,770 | ||||||||||||||||||
|
3,904 | 219,717 | |||||||||||||||||||||||||
Richard W. Kunes |
33,333 | 16,667 | n/a | 42.58 | 9/21/2017 | 2,889 | 165,771 | 8,666 | 497,255 | ||||||||||||||||||
|
16,666 | 33,334 | n/a | 52.83 | 9/11/2018 | 5,824 | 330,978 | 4,368 | 248,233 | ||||||||||||||||||
|
0 | 60,000 | n/a | 34.00 | 9/2/2019 | 10,421 | 586,494 | 10,421 | 586,494 | ||||||||||||||||||
|
3,637 | 204,690 |
59
60
OPTION EXERCISES AND STOCK VESTED IN FISCAL 2010
The following table sets forth as to each Named Executive Officer information on exercises of stock options and vesting of RSUs and PSUs during fiscal 2010, including (i) the number of shares of Class A Common Stock underlying options exercised in fiscal 2010; (ii) the aggregate dollar value realized upon exercise of such options; (iii) the number of shares of Class A Common Stock received from the vesting of RSUs and PSUs during fiscal 2010; and (iv) the aggregate dollar value realized upon the vesting of RSUs on November 2, 2009 and payout of PSUs on September 2, 2009.
|
Option Awards | Stock Awards | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name
|
Number of Shares Acquired on Exercise (#) |
Value Realized on Exercise ($)(1) |
Number of Shares Acquired on Vesting (#)(2) |
Value Realized on Vesting ($)(3) |
|||||||||
William P. Lauder |
100,000 | (4) | $ | 1,905,350 | 35,445 | (5) | $ | 1,524,275 | (5) | ||||
Fabrizio Freda |
| | 10,191 | (6) | 457,984 | (6) | |||||||
John Demsey |
112,500 | (7) | 1,090,626 | 13,265 | (8) | 573,656 | (8) | ||||||
Cedric Prouvé |
245,000 | (9) | 5,453,945 | 12,543 | (10) | 540,812 | (10) | ||||||
Richard W. Kunes |
200,000 | (11) | 2,471,500 | 11,816 | (12) | 508,141 | (12) |
61
We provide retirement benefits to our employees in the United States, including the Named Executive Officers, through qualified and non-qualified defined benefit pension plans. These plans include The Estée Lauder Companies Retirement Growth Account Plan ("RGA Plan") and the Estée Lauder Inc. Benefits Restoration Plan (the "Restoration Plan"), respectively.
The non-qualified Restoration Plan provides for pension benefit payments which employees would have received under the RGA Plan if eligible compensation (including deferred salary and bonuses, where the Plan allows) had not been subject to certain compensation limits as dictated by tax laws under ERISA that apply to qualified retirement plans.
In general, for employees who were at least 50 years old and had five years of Company qualifying employment on January 1, 1993 or who had ten years of Company qualifying employment as of that date ("grandfathered employees"), retirement benefits pursuant to the plans are calculated as a multiple of years of qualifying Company employment times a percentage (1% up to 1.5% above a Social Security covered compensation level) of final qualifying average compensation, payable as a monthly pension for life starting at age 62. Conversion to alternative forms of payment is available, including a one-time lump sum. Qualifying compensation includes basic salary only. The plan provisions that apply to non-grandfathered employees, as discussed below, also apply to grandfathered employees as a minimum benefit.
For other employees ("non-grandfathered employees"), retirement benefits under the plans are the aggregate amount of annual credits (defined as 3, 4 or 5% of total annual compensation, including bonus, with certain items excluded) plus annual interest credits thereon, based on a government index, of not less than 4%. The aggregate amount is payable as a one-time lump sum under both plans or converted to monthly lifetime payments under the RGA Plan. Pension benefits for Messrs. W. Lauder, Freda, Demsey, Prouvé and Kunes are computed with respect to these non-grandfathered provisions.
Executive officers who have worked for our subsidiaries outside the United States may also be covered under company-sponsored pension plans covering such employees. None of the Named Executive Officers are covered under such plans.
We do not have any policies with respect to granting additional years of credited service except as provided in certain termination provisions as reflected in executive officer employment agreements. Benefits attributable to the additional years of credited service are payable by us pursuant to the terms of applicable employment agreements and are not payable under either the RGA Plan or the Restoration Plan.
In connection with his agreement to join the Company in November 2007, Mr. Freda is entitled to an annual supplemental deferral computed by taking the difference between $485,000 and the actual vested annual accruals and contributions made to the Company's qualified and non-qualified pension and qualified retirement savings plans on behalf of the Executive. Such deferrals are credited with interest annually at a rate per annum equal to the Citibank base rate but in no event more than 9%.
Set forth in the table below is each Named Executive Officer's years of credited service and the present value of his accumulated benefit under each of the pension plans and executive employment agreements pursuant to which he would be entitled to a retirement benefit, in each case, computed as of the same pension plan measurement date used for financial statement reporting purposes with respect to our audited financial statements for the fiscal year ended June 30, 2010.
62
Name
|
Plan Name | Number of Years Credited Service (#)(1) |
Present Value of Accumulated Benefit ($) |
Payments During Last Fiscal Year ($) |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
William P. Lauder |
RGA Plan | 24 | $260,733 | $ | 0 | |||||||
|
Restoration Plan | 1,613,163 | 0 | |||||||||
Fabrizio Freda |
RGA Plan |
2 |
12,617 |
0 |
||||||||
|
Restoration Plan | 47,498 | 0 | |||||||||
|
Employment Agreement | 1,095,821 | 0 | |||||||||
John Demsey |
RGA Plan |
19 |
228,717 |
0 |
||||||||
|
Restoration Plan | 949,637 | 0 | |||||||||
Cedric Prouvé |
RGA Plan |
17 |
128,591 |
0 |
||||||||
|
Restoration Plan | 558,906 | 0 | |||||||||
Richard W. Kunes |
RGA Plan |
24 |
276,997 |
0 |
||||||||
|
Restoration Plan | 545,177 | 0 |
The present values of accumulated benefits reflected in the table above were calculated based on the assumption that the benefits under the pension plans would be payable at the earliest retirement age at which unreduced benefits are payable (age 65). The present values also reflect the assumption that 80% of benefits are payable as a one-time lump sum and 20% are payable as lifetime monthly payments ("annuities"). Amounts calculated under the pension formula based on compensation that exceeds IRS limits will be paid under the Restoration Plan and are included in the present values shown in the table above. The present value of accumulated benefits under the RGA and Restoration Plans was calculated using a 5.30% pre-retirement discount rate and RP 2000 mortality table (projected 15 years) for annuities and a 5% discount rate and GAR 1994 mortality table for lump sums, consistent with the assumptions used in the calculation of our benefit obligations as of June 30, 2010, as disclosed in Note 13 to our audited consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2010.
63
NONQUALIFIED DEFERRED COMPENSATION IN FISCAL 2010 AND AT JUNE 30, 2010
Set forth in the table below is information about contributions and earnings, if any, credited to the accounts maintained by the Named Executive Officers under nonqualified deferred compensation arrangements and the account balances on June 30, 2010.
Name
|
Executive Contributions in Last FY ($)(1) |
Registrant Contributions in Last FY ($) |
Aggregate Earnings in Last FY ($)(2) |
Aggregate Withdrawals/ Distributions ($) |
Aggregate Balance at Last FYE ($)(3) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
William P. Lauder |
$ | 522,000 | | $ | 163,701 | | $ | 5,443,369 | ||||||||
Fabrizio Freda |
| | | | | |||||||||||
John Demsey |
| | | | | |||||||||||
Cedric Prouvé |
| | | | | |||||||||||
Richard W. Kunes |
175,000 | | 167,876 | | 5,336,112 |
64
POTENTIAL PAYMENTS UPON TERMINATION OF EMPLOYMENT OR CHANGE OF CONTROL
Events of Termination under the Employment Agreements
We have entered into employment agreements with each of our Named Executive Officers. See "Employment Agreements" above. These agreements provide for certain payments and other benefits if a Named Executive Officer's employment is terminated under circumstances specified in his respective employment agreement, including after a "change of control" of our company (as defined below).
The current agreements for each of William P. Lauder and John Demsey are effective as of July 1, 2010. Mr. Freda's current agreement reflects the amendments that became effective as of July 1, 2009. Cedric Prouvé's current agreement is effective as of July 1, 2008, but includes amendments made effective July 1, 2009. Richard W. Kunes' agreement is effective as of July 1, 2009. The descriptions below of the termination provisions of the employment agreements are based on the employment agreements as in effect on the date of this proxy statement. As previously noted, Mr. Brestle retired on June 30, 2009.
Termination of Employment Upon Permanent Disability. We may terminate a Named Executive Officer's employment at any time by
reason of a "permanent disability" (as defined below), in which event the executive will be
entitled to receive:
In addition, the executive will be entitled to continue to participate, to the extent permitted by applicable law and the applicable plan, in our healthcare, life insurance and accidental death and dismemberment insurance benefit plans during the Disability Continuation Period (disregarding any required delay in payments pursuant to Section 409A of the Internal Revenue Code). Since continued participation in the 401(k) Savings Plan and the RGA Plan is not permitted under law during the Disability Continuation Period, the executive will be entitled to receive cash payments equivalent in value to his continued participation in all qualified and non-qualified pension plans and the maximum matching contribution allowable under the 401(k) Savings Plan (the "Pension Replacement Payment") during the Disability Continuation Period. See "Effect of Certain Tax Regulations on Payments" below.
For purposes of the employment agreements, "Contract Year" means the 12 month period beginning July 1 during the term of the employment agreement. "Permanent Disability" means a disability as defined under our applicable insurance policy, or, in the absence of an applicable policy, a physical or mental disability or incapacity that prevents the executive from discharging his responsibilities under his employment agreement for a period of six consecutive months or an aggregate of six months out of any twelve-month period.
Termination of Employment Upon Death. In the event of the executive officer's death during the term of his employment, his
beneficiary or legal representative will be entitled to
receive:
65
Termination of Employment Other than for Cause, Death or Disability; Constructive Termination. We may terminate the
executive's employment for any reason (other than for "cause" as defined in the employment agreement) upon 90 days' prior written
notice. In the event of our termination of the executive's employment (other than for cause, disability or death) or our non-renewal of the executive's employment (except for a change in
our policy regarding the use of written employment agreements for executives, the form of equity-based compensation or the mix of cash and non-cash compensation), or a termination by the
executive for an uncured "material breach" (as defined below), the executive will be entitled to:
For purposes of the agreements, "material breach" is a material reduction in the executive's authority, functions, duties or responsibility or our failure to pay any award to which the executive is entitled under his employment agreement.
Termination of Employment Following a Change of Control. In the event the executive terminates his employment for "good
reason" (as defined below) following a "change of control" of our company (with respect to
Messrs. W. Lauder, Freda, Demsey, Prouvé and Kunes, within 2 years of a "Change of Control"), he is entitled to receive payments and benefits as if his employment were
terminated by us without cause. In the event of a termination by us, or by the executive for good reason, after a change of control, the executive will also be entitled to reimbursement for outside
legal counsel up to $20,000.
For purposes of the agreements, "good reason" means that the executive is assigned duties that are materially inconsistent with his position, his position is materially diminished, we breach the compensation arrangements of the employment agreement (and fail to timely cure the breach), the executive is required to relocate to any location more than 50 miles from the location at which he performed his services prior to the change of control or we fail to have any successor company assume the executive's employment agreement.
66
For purposes of the employment agreements, a "change of control" is deemed to have occurred upon any of the following events:
However, changes in the relative beneficial ownership among members of the Lauder family and family-controlled entities would not, by themselves, constitute a change of control, and any spin-off of one of our divisions or subsidiaries to our stockholders would not constitute a change of control.
"Continuing directors" mean the directors in office on the effective date of the executive officer's employment agreement and any successor to those directors and any additional director who was nominated or selected by a majority of the continuing directors in office at the time of his or her nomination or selection.
Termination for Cause. In the case of termination by us for "cause" (as defined below), the executive will be entitled to
receive his accrued but unpaid salary and any benefit under our
employee benefit programs and plans as determined under such programs and plans upon and as of such termination.
For purpose of the agreements, "cause" means that the executive has engaged in any of a list of specified activities, including his material breach of, or willful refusal to perform his duties under the agreements (other than because of disability or death), his failure to follow a lawful directive of the Chief Executive Officer or the board of directors that is within the scope of his duties, willful misconduct unrelated to us that could reasonably be anticipated to have a material adverse effect on us, gross negligence that could reasonably be anticipated to have a material adverse effect on us, violation of our Code of Conduct, drug or alcohol abuse that materially affects his performance or conviction of, entry of a guilty plea or no contest for, a felony.
Voluntary Termination. The executive may terminate his employment for any reason at any time upon 90 days' prior
written notice, in which event we will have no further
obligations after termination other than to pay the executive's accrued but unpaid salary, bonus compensation, if any, earned but not paid that relates to any Contract Year ended prior to the date of
termination, and for a period of up to two years from the date of termination, to the extent permitted by applicable law, benefits under our employee benefit plans and programs as determined by such
plans and programs upon and as of such termination.
Condition Precedent to Receipt of Payments upon Termination
The employment agreements require, as a precondition to the receipt of the payments described above, that the Named Executive Officer execute a general release of claims against us and our subsidiaries and affiliates. The release does not apply to rights that the executive may otherwise have to any payment of benefit provided for in his employment agreement or any vested benefit the executive may have in any of our benefit plans. The agreements also include provisions relating to nondisclosure of our confidential information and non-competition with us.
67
Modification of Severance Payments and Benefits
The fiscal 2010 form of employment agreements provide that changes to severance payments and benefits may be made by the Compensation Committee (or the Stock Plan Subcommittee for changes related to matters under its authority), except at such time the Company is contemplating one or more transactions that will result in a Change of Control or after a Change of Control. Moreover, any changes made to severance payments or benefits without the consent of the Executive will not be effective until two years after such change is approved by the Compensation Committee or Stock Plan Subcommittee.
Effect of Certain Tax Regulations on Payments
Effect of Excise Tax or Parachute Payments. Under the employment agreements of the Named Executive Officers, if any amount or benefit paid under their respective agreements, taken together with any amounts or benefits otherwise paid to the executive by us or any of our affiliated companies, are parachute payments subject to excise tax under Section 4999, the amounts paid to the executive will be reduced (but not below zero) to the extent necessary to eliminate the excise tax.
Effect of Section 409A on Timing of Payments. Under the employment agreements, any amounts that are not exempt from
Section 409A will be subject to the required six-month delay in payment
after termination of service provided that the executive is a "specified employee" for purposes of Section 409A at the time of termination of service. Amounts that otherwise would have been
paid during this six-month delay will be paid in a lump sum on the first day after such period expires.
Effect of Termination on Outstanding Awards under Equity Plans
Under our Amended and Restated Fiscal 2002 Share Incentive Plan, executives may be awarded stock options, stock appreciation rights, stock awards, RSUs and PSUs.
The exercise of stock options or stock appreciation rights after termination of employment and the payment of RSUs or PSUs are subject to the executive neither competing with, or taking employment or rendering service to one of our competitors without our written consent nor conducting himself in a manner adversely affecting us.
Permanent Disability. Upon the executive's total and permanent disability (as determined under our long-term disability
program), stock options that are not yet exercisable
become immediately exercisable and may be exercised until the earlier of one year after the last day of salary continuation or the expiration of the option term. RSUs will vest pro rata for the number
of full months the executive was receiving salary continuation payments during the applicable vesting period and will be paid in accordance with the award's vesting schedule. The executive will be
entitled to a pro rata payment of PSUs for the number of full months the executive was receiving salary continuation payments during the award period, with the payment to be made at the same time
payments for the award period are paid to active executives. If the executive officer is retirement eligible, the provisions relating to termination upon retirement will apply in lieu of the
provisions relating to "permanent disability."
Termination of Employment Upon Death. Upon the executive's death, stock options that are not yet exercisable become
immediately exercisable and may be exercised until the earlier of one year after
death or the expiration of the option term. For stock options granted before 2007, the ability to exercise one year after death is not limited by the option term. RSUs will vest pro rata for the
number of full months the executive was receiving salary continuation payments during the applicable period. The executive officer will also be entitled to a pro rata payment of PSUs for the number of
full months the executive was receiving salary continuation payments during the award period. RSUs and PSUs will be paid as soon as practicable after the executive's death. If the executive officer is
retirement eligible, the provisions relating to termination upon retirement will apply in lieu of the provisions relating to death.
Termination of Employment Upon Retirement. Upon formal retirement under the terms of our
68
RGA Plan, stock options that are not yet exercisable become immediately exercisable and may be exercised until the end of the option term. RSUs will continue to vest and be paid in accordance with the vesting schedule. The executive officer will be entitled to payment of PSUs as if he had been employed throughout the entire award period, with payment to be made at the same time such awards are paid to active executives.
Termination of Employment by Us Other than for Cause, Death or Disability. Upon termination of employment without "cause" (as
defined in the Amended and Restated Fiscal 2002 Share Incentive Plan) by us, stock options that are not yet
exercisable become immediately exercisable and may be exercised until the earlier of 90 days after the last day of salary continuation or the end of the option term. RSUs will vest pro rata for
the number of full months receiving salary continuation payments during the vesting period of the award and be paid in accordance with the vesting schedule. PSUs are forfeited if such termination
occurs before the end of the first year of the award period. However, if termination occurs after the end of the first year of the award period, the executive will be entitled to a pro rata payout for
the number of full months the executive was receiving salary continuation payments during the award period, with the payment to be made at the same time such awards are paid to active executives. If
the executive officer is retirement eligible, the provisions relating to termination upon retirement will apply in lieu of the provisions described in this paragraph.
Voluntary Termination; Termination of Employment for Cause. Upon termination of employment by the executive without cause,
stock options that are exercisable may be exercised until the earlier of 90 days after
termination or the end of the option term. Stock options not yet exercisable as of the termination date are forfeited. Upon termination of employment by the executive (other than retirement) or
termination of employment for cause, RSUs and PSUs are forfeited.
Effect of Change in Control. Upon a "change in control" (as defined in the Amended and Restated Fiscal 2002 Share Incentive
Plan), the Stock Plan Subcommittee administering the Plan may
accelerate the exercisability or vesting of stock options granted prior to fiscal 2011. Each RSU will vest and become payable in shares as soon as practicable, but not later than two weeks after the
change of control. Each PSU will become payable in shares equal to the target award amount as soon as practicable but not later than two weeks after the change of control. If the executive officer is
retirement eligible, the provisions relating to termination upon retirement will apply in lieu of the provisions described in this paragraph. Beginning in fiscal 2011, if stock options are assumed by
an acquirer then exercisability will be accelerated after a change in control if the executive is terminated without Cause or the executive terminates for "good reason." Similarly, if RSUs are assumed
by the acquirer, vesting will be accelerated after a change in control if the executive is terminated without Cause or the executive terminates for "good reason." PSUs granted in fiscal 2011 will
become payable after a change in control in shares equal to the greater of the target award or what the payout would be based on performance as if the performance period ended on the date of the
change in control.
Effect of Employment Agreements on Stock Options. Under the employment agreements, if the executive's employment with us is
terminated as a result of death or disability or by us without cause, or his term of
employment is not renewed and the executive is not eligible for retirement under the terms of our qualified defined benefit pension plan, all stock options previously granted to the executive will
vest and become immediately exercisable until the earlier of one year after such termination or the end of the option term, subject to the non-competition and good conduct provisions of
the executive's employment agreement.
Effect of Section 409A on Equity Awards. Payment of amounts subject to Section 409A is permitted only upon certain
defined events including a change of control that satisfies the definition under
Section 409A and related regulations. In September 2007, we amended the definition of "change of control" in the Amended and Restated Fiscal 2002 Share Incentive Plan to
69
comply with Section 409A. In addition, if any payment under any equity award is subject to Section 409A, the required six-month delay after termination of service will apply to that payment.
Potential Payments in the Event of Termination at the End of our Last Fiscal Year
The following tables describe potential payments and other benefits that would have been received by each Named Executive Officer or his estate if employment had been terminated, under various circumstances, on June 30, 2010, the last business or trading day of our most recent fiscal year.
The following assumptions and general principles apply with respect to the following tables:
70
William P. Lauder
|
Retirement ($) |
Voluntary Termination ($) |
Death ($) |
Disability ($) |
Termination without Cause or by Executive for Material Breach(1) ($) |
Termination without Cause or for Good Reason After Change of Control ($) |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Base Salary |
$ | 0 | $ | 0 | $ | 1,500,000 | $ | 1,500,000 | $ | 3,000,000 | $ | 3,000,000 | |||||||
Bonus |
0 | 0 | 0 | 0 | 949,738 | 949,738 | |||||||||||||
Options |
0 | 0 | 2,873,908 | 2,873,908 | 2,873,908 | 2,873,908 | |||||||||||||
PSUs |
0 | 0 | 3,532,878 | 1,766,439 | 1,904,381 | 3,808,763 | |||||||||||||
RSUs |
0 | 0 | 2,970,357 | 2,970,357 | 3,609,300 | 3,696,421 | |||||||||||||
Continued Health Care Benefits(2) |
0 | 0 | 0 | 15,720 | 31,440 | 31,440 | |||||||||||||
Continued Participation in Pension and Retirement Plans(3) |
0 | 0 | 0 | 69,717 | 265,713 | 265,713 | |||||||||||||
Other Benefits and Perquisites(4) |
0 | 0 | 5,000 | 58,577 | 117,154 | 137,154 | |||||||||||||
Excise Tax Gross-Up (or Reduction) |
0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||
Total |
$ | 0 | $ | 0 | $ | 10,882,143 | $ | 9,254,718 | $ | 12,751,634 | $ | 14,763,137 | |||||||
71
Fabrizio Freda
|
Retirement ($) |
Voluntary Termination ($) |
Death ($) |
Disability ($) |
Termination without Cause(1) or by Executive for Material Breach ($) |
Termination without Cause or for Good Reason After Change of Control ($) |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Base Salary |
$ | 0 | $ | 0 | $ | 1,500,000 | $ | 1,500,000 | $ | 3,000,000 | $ | 3,000,000 | |||||||
Bonus |
0 | 0 | 0 | 0 | 1,163,714 | 1,163,714 | |||||||||||||
Options |
0 | 0 | 4,191,172 | 4,191,172 | 4,191,172 | 4,191,172 | |||||||||||||
PSUs |
0 | 0 | 2,841,059 | 1,766,439 | 1,696,414 | 3,392,828 | |||||||||||||
RSUs |
0 | 0 | 5,135,739 | 5,135,739 | 8,268,275 | 10,682,518 | |||||||||||||
Continued Health Care Benefits(2) |
0 | 0 | 0 | 13,299 | 26,598 | 26,598 | |||||||||||||
Continued Participation in Pension and Retirement Plans(3) |
0 | 0 | 0 | 443,327 | 989,600 | 989,600 | |||||||||||||
Other Benefits and Perquisites(4) |
0 | 0 | 5,000 | 34,100 | 68,200 | 88,200 | |||||||||||||
Excise Tax Gross-Up (or Reduction) |
0 | 0 | 0 | 0 | 0 | (1,689,698 | ) | ||||||||||||
Total |
$ | 0 | $ | 0 | $ | 13,672,970 | $ | 13,084,076 | $ | 19,403,973 | $ | 21,844,932 | |||||||
72
John Demsey
|
Retirement ($) |
Voluntary Termination ($) |
Death ($) |
Disability ($) |
Termination without Cause(1) or by Executive for Material Breach ($) |
Termination without Cause or for Good Reason After Change of Control ($) |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Base Salary |
$ | 0 | $ | 0 | $ | 1,000,000 | $ | 1,000,000 | $ | 2,000,000 | $ | 2,000,000 | |||||||
Bonus |
0 | 0 | 0 | 0 | 845,738 | 845,738 | |||||||||||||
Options |
0 | 0 | 1,861,576 | 1,861,576 | 1,861,576 | 1,861,576 | |||||||||||||
PSUs |
0 | 0 | 1,681,971 | 840,986 | 950,947 | 1,901,895 | |||||||||||||
RSUs |
0 | 0 | 1,279,625 | 1,279,625 | 1,619,779 | 1,689,229 | |||||||||||||
Continued Health Care Benefits(2) |
0 | 0 | 0 | 15,720 | 31,440 | 31,440 | |||||||||||||
Continued Participation in Pension and Retirement Plans(3) |
0 | 0 | 0 | 51,805 | 188,804 | 188,804 | |||||||||||||
Other Benefits and Perquisites(4) |
0 | 0 | 5,000 | 32,500 | 65,000 | 85,000 | |||||||||||||
Excise Tax Gross-Up (or Reduction) |
0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||
Total |
$ | 0 | $ | 0 | $ | 5,828,172 | $ | 5,082,212 | $ | 7,563,284 | $ | 8,603,682 | |||||||
73
Cedric Prouvé
|
Retirement ($) |
Voluntary Termination ($) |
Death ($) |
Disability ($) |
Termination without Cause(1) or by Executive for Material Breach ($) |
Termination without Cause or for Good Reason After Change of Control ($) |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Base Salary |
$ | 0 | $ | 0 | $ | 1,000,000 | $ | 1,000,000 | $ | 2,000,000 | $ | 2,000,000 | |||||||
Bonus |
0 | 0 | 0 | 0 | 717,667 | 717,667 | |||||||||||||
Options |
0 | 0 | 1,806,780 | 1,806,780 | 1,806,780 | 1,806,780 | |||||||||||||
PSUs |
0 | 0 | 1,557,629 | 778,814 | 888,776 | 1,777,552 | |||||||||||||
RSUs |
0 | 0 | 1,078,426 | 1,078,426 | 1,389,531 | 1,458,981 | |||||||||||||
Continued Health Care Benefits(2) |
0 | 0 | 0 | 15,720 | 31,440 | 31,440 | |||||||||||||
Continued Participation in Pension and Retirement Plans(3) |
0 | 0 | 0 | 49,796 | 172,383 | 172,383 | |||||||||||||
Other Benefits and Perquisites(4) |
0 | 0 | 323,300 | 339,100 | 360,900 | 380,900 | |||||||||||||
Excise Tax Gross-Up (or Reduction) |
0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||
Total |
$ | 0 | $ | 0 | $ | 5,766,135 | $ | 5,068,636 | $ | 7,367,477 | $ | 8,345,703 | |||||||
74
Richard W. Kunes
|
Retirement ($) |
Voluntary Termination ($) |
Death ($) |
Disability ($) |
Termination without Cause or by Executive for Material Breach ($) |
Termination without Cause or for Good Reason After Change of Control ($) |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Base Salary |
$ | 0 | $ | 0 | $ | 870,000 | $ | 870,000 | $ | 1,740,000 | $ | 1,740,000 | |||||||
Bonus |
0 | 0 | 0 | 0 | 275,650 | 275,650 | |||||||||||||
Options |
1,619,640 | 1,619,640 | 1,619,640 | 1,619,640 | 1,619,640 | 1,619,640 | |||||||||||||
PSUs |
790,108 | 790,108 | 1,384,718 | 790,108 | 790,108 | 1,580,216 | |||||||||||||
RSUs |
1,287,933 | 1,287,933 | 1,287,933 | 1,287,933 | 1,287,933 | 1,287,933 | |||||||||||||
Continued Health Care Benefits(1) |
0 | 0 | 0 | 15,720 | 31,440 | 31,440 | |||||||||||||
Continued Participation in Pension and Retirement Plans(2) |
0 | 0 | 0 | 47,932 | 130,656 | 130,656 | |||||||||||||
Other Benefits and Perquisites(3) |
0 | 0 | 5,000 | 23,100 | 46,200 | 66,200 | |||||||||||||
Excise Tax Gross-Up (or Reduction) |
0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||
Total |
$ | 3,697,681 | $ | 3,697,681 | $ | 5,167,291 | $ | 4,654,433 | $ | 5,921,627 | $ | 6,731,735 | |||||||
75
EQUITY COMPENSATION PLAN INFORMATION AS OF JUNE 30, 2010
The following table summarizes the equity compensation plans under which our securities may be issued as of June 30, 2010 and does not include grants made or cancelled, options exercised, RSUs converted to Class A Common Stock or PSUs paid out after such date. The securities that may be issued consist solely of shares of our Class A Common Stock and all plans were approved by stockholders of the Company.
Plan category(1)
|
Number of securities to be issued upon exercise of outstanding options, warrants and rights(2) |
Weighted-average exercise price of outstanding options, warrants and rights(3) |
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column)(4) |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Equity compensation plans approved by security holders |
11,995,071 | $ | 39.84 | 7,798,137 |
If all of the outstanding options, warrants, rights, stock units and share units, as well as the securities available for future issuance, included in the first and third columns in the table above were converted to shares of Class A Common Stock as of June 30, 2010, the total shares of Common Stock outstanding (i.e. Class A Common Stock plus Class B Common Stock) would increase 10% to 217,516,879. Of the outstanding options to purchase 10,083,553 shares of Class A Common Stock, options in respect of 10,080,058 shares are exercisable at a price less than $55.73, the closing price on June 30, 2010. Assuming the exercise of in-the-money options, the total shares outstanding as of June 30, 2010 would increase by 5% to 207,803,729.
76
APPROVAL OF THE AMENDMENT TO
THE ESTÉE LAUDER COMPANIES INC.
AMENDED AND RESTATED
FISCAL 2002 SHARE INCENTIVE PLAN
(ITEM 2)
The Board of Directors is proposing for stockholder approval the amendment to The Estée Lauder Companies Inc. Amended and Restated Fiscal 2002 Share Incentive Plan (the "Amended and Restated 2002 Share Plan"). For the past nine years the Company has used the Amended and Restated Fiscal 2002 Share Incentive Plan as a means of attracting, retaining, motivating and rewarding officers and other employees and further aligning their interests with those of the Company's other stockholders. As of September 15, 2010, there were less than 4.5 million shares of Class A Common Stock remaining available for grant under the Company's plans.
The Stock Plan Subcommittee of the Board of Directors of the Company undertook a review of the Amended and Restated 2002 Share Plan with the assistance of the Subcommittee's compensation consultant as well as the Company's outside counsel. On August 18, 2010, the Stock Plan Subcommittee adopted amendments to the Amended and Restated 2002 Share Plan that are reflected in the Amended and Restated 2002 Share Plan, subject to approval by the stockholders at the 2010 Annual Meeting. On August 18, 2010, the Board of Directors ratified the actions of the Stock Plan Subcommittee and recommended that stockholders approve the amendments to the Amended and Restated 2002 Share Plan. The amendments to the Amended and Restated 2002 Share Plan would principally:
The amendments to the Amended and Restated 2002 Share Plan are intended to allow the Company to continue to provide incentives which will attract, retain, motivate and reward highly competent people as officers, directors and
77
employees of, the Company, its subsidiaries and its affiliates, by providing them with opportunities to acquire shares of Class A Common Stock or to receive monetary payments based on the value of such shares pursuant to the Benefits (as defined below). In addition, the amendments to the Amended and Restated 2002 Share Plan are intended to assist in further aligning the interests of the Company's officers, directors and employees with those of its other stockholders.
The amendments to the Amended and Restated 2002 Share Plan provide the Subcommittee with flexibility to grant awards that can be administered flexibly to carry out the purposes of the plan and enable the Subcommittee to keep pace with changing developments in management compensation and remain competitive with those companies that offer creative incentives to attract and retain officers and employees. In September 2010, the Subcommittee granted stock options, performance-based share unit awards pursuant to which payout is contingent upon the Company achieving specified levels of financial performance measured at the end of a three-year period, and restricted stock units. The Subcommittee expects the majority of awards to be granted under the Amended and Restated 2002 Share Plan will be in the form of stock options, performance awards (including performance-based awards) or stock units.
The following summary describes the material features of the Amended and Restated 2002 Share Plan but is not intended to be complete and is qualified in its entirety by reference to the text of the Amended and Restated 2002 Share Plan, which is attached to this Proxy Statement as Appendix A. The attached copy of the Amended and Restated 2002 Share Plan has been marked to indicate changes. Deletions are indicated by ^ and additions are indicated by underlining.
The maximum number of shares of Class A Common Stock that may be delivered to participants under the Amended and Restated 2002 Share Plan, subject to certain adjustments, is an aggregate of 32,000,000 shares plus up to 8,400,000 shares of Class A Common Stock that are represented by awards granted under any prior plan of the Company (e.g., the Fiscal 1999 Share Incentive Plan and the Fiscal 1996 Share Incentive Plan) or under any employment agreement with the Company, which are forfeited, expire or are cancelled without the delivery of shares or which result in the forfeiture of shares back to the Company. As of September 15, 2010, 6,483,072 shares of Class A Common Stock were rolled over into the Current 2002 Share Plan and count toward the 8,400,000 share limit. In addition, any shares of Class A Common Stock subject to a stock option or stock appreciation right which for any reason is cancelled or terminated without having been exercised, any shares subject to stock awards, performance awards or stock units which are forfeited, any shares subject to performance awards settled in cash or any shares delivered to the Company as part or full payment for the exercise of a stock option or stock appreciation right, shall again be available for Benefits (as defined below) under the Amended and Restated 2002 Share Plan. The Amended and Restated 2002 Share Plan also imposes certain additional aggregate and individual maximums. The aggregate number of shares of Class A Common Stock that may be delivered through stock options shall be the lesser of (i) 32,000,000 and (ii) the maximum number of shares that may be delivered under the plan. The number of shares of Class A Common Stock with respect to which Benefits or stock options and stock appreciation rights may be granted to an individual participant under the Amended and Restated 2002 Share Plan may not exceed 2,000,000 in any fiscal year. The largest grants of shares of Class A Common Stock underlying Benefits granted to any individual in fiscal 2010 was 375,945. Such Benefits, which included options in respect of 177,305 shares, restricted stock units in respect of 169,228 shares and performance share units with a target payout 29,412 shares, were granted to the President and Chief Executive Officer. For fiscal 2011, the largest grants are currently expected to be 167,175, which reflects grants already made to our President and Chief Executive Officer in September 2010 of stock options in respect of 124,131 shares, restricted stock units in respect of
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21,522 shares and performance share units with a target payout of 21,522 shares.
The Amended and Restated 2002 Share Plan provides for administration by a committee of the Board of Directors of the Company appointed from among its members, which is comprised, unless otherwise determined by the Board of Directors, solely of not less than two members who shall be (i) "Non-Employee Directors" within the meaning of Rule 16b-3(b)(3) (or any successor rule) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and (ii) "outside directors" within the meaning of Treasury Regulation section 1.162-27(e)(3) under Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). The Board of Directors has determined that the Stock Plan Subcommittee shall administer the Amended and Restated 2002 Share Plan. References to the Subcommittee below shall include any subsequent committee authorized by the Board to administer the Amended and Restated 2002 Share Plan.
The Subcommittee is authorized, subject to the provisions of the Amended and Restated 2002 Share Plan, to establish such rules and regulations as it deems necessary for the proper administration of the Amended and Restated 2002 Share Plan and to make such determinations and interpretations and to take such action in connection with the Amended and Restated 2002 Share Plan and any Benefits granted as it deems necessary or advisable. Thus, among the Subcommittee's powers are the authority to select officers and other employees of the Company and its subsidiaries to receive Benefits, and to determine the form, amount and other terms and conditions of Benefits. The Subcommittee also has the power to modify or waive restrictions on Benefits, to amend Benefits, to grant extensions and accelerations of Benefits or to cancel Benefits. The Subcommittee may determine the extent to which any Benefit under the Amended and Restated 2002 Share Plan is required to comply, or not comply with, Section 409A of the Code, relating to deferrals.
Officers, directors and employees of, the Company or any of its subsidiaries and affiliates are eligible to participate in the Amended and Restated 2002 Share Plan. The selection of participants from this group is within the discretion of the Subcommittee. The estimated number of officers, directors and employees who are currently eligible to participate in the Amended and Restated 2002 Share Plan is 6,100.
The Amended and Restated 2002 Share Plan provides for the grant of any or all of the following types of benefits (collectively, "Benefits"): (1) stock options, including incentive stock options and non-qualified stock options; (2) stock appreciation rights; (3) stock awards; (4) performance awards; and (5) stock units. Benefits may be granted singly, in combination, or in tandem as determined by the Subcommittee. Stock awards, performance awards and stock units may, as determined by the Subcommittee in its discretion, constitute Performance-Based Awards, as described below.
Under the Amended and Restated 2002 Share Plan, the Subcommittee may grant awards in the form of options to purchase shares of Class A Common Stock. Options may either be incentive stock options, qualifying for special tax treatment, or non-qualified options. The Subcommittee will, with regard to each stock option, determine the number of shares subject to the option, the manner and time of the option's exercise and vesting, and the exercise price per share of stock subject to the option. The exercise price will not be less than 100% of the fair market value of the Class A Common Stock (generally the closing price on the New York Stock Exchange) on the date the stock option is granted (the "Fair Market Value"). The exercise price may be paid in cash or, in the discretion of the Subcommittee, by the delivery of shares of Class A Common Stock then owned by the participant, by the withholding of shares of Class A Common Stock for which a stock option is exercisable, or by a combination of these
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methods. In the discretion of the Subcommittee, payment also may be made by delivering a properly executed exercise notice to the Company together with a copy of irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds to pay the exercise price. The Subcommittee may prescribe any other method of paying the exercise price that it determines to be consistent with applicable law and the purposes of the Amended and Restated 2002 Share Plan. In determining which methods a participant may utilize to pay the exercise price, the Subcommittee may consider such factors as it determines are appropriate. No stock option is exercisable later than ten years after the date it is granted except in the event of a participant's death, in which case, the exercise period may be extended but not longer than one year after the participant's death. The exercise of any option which remains exercisable after termination of employment will be subject to satisfaction of the conditions precedent that the holder thereof neither (a) competes with or takes employment with or renders services to a competitor of the Company, its subsidiaries or affiliates without the consent of the Company nor (b) conducts himself or herself in a manner adversely affecting the Company.
Stock Appreciation Rights ("SARs")
The Amended and Restated 2002 Share Plan authorizes the Subcommittee to grant an SAR either in tandem with a stock option or independent of a stock option. An SAR is a right to receive a payment, in cash, Class A Common Stock, or a combination thereof, equal to the excess of (x) the Fair Market Value, or other specified valuation, of a specified number of shares of Class A Common Stock on the date the right is exercised over (y) the Fair Market Value, or other specified valuation (which shall not be less than Fair Market Value), of such shares of Class A Common Stock on the date the right is granted, all as determined by the Subcommittee. SARs granted under the Amended and Restated 2002 Share Plan are subject to terms and conditions relating to exercisability that are similar to those imposed on stock options, and each SAR is subject to such terms and conditions as the Subcommittee shall impose from time to time.
The Subcommittee may, in its discretion, grant Stock Awards (which may include mandatory payment of bonus incentive compensation in stock) consisting of Class A Common Stock issued or transferred to participants with or without payments therefor. Stock Awards may be subject to such terms and conditions as the Subcommittee determines appropriate, including, without limitation, restrictions on the sale or other disposition of such shares, the right of the Company to reacquire such shares for no consideration upon termination of the participant's employment within specified periods, and may constitute Performance-Based Awards, as described below. The Stock Award will specify whether the participant will have, with respect to the shares of Class A Common Stock subject to a Stock Award, all of the rights of a holder of shares of Class A Common Stock, including the right to receive dividends and to vote the shares.
The Amended and Restated 2002 Share Plan allows for the grant of performance awards which may take the form of shares of Class A Common Stock or stock units, or any combination thereof. Such awards may, but need not, be Performance-Based Awards. Such awards will be contingent upon the attainment over a period to be determined by the Subcommittee of certain performance goals. The length of the performance period, the performance goals to be achieved and the measure of whether and to what degree such goals have been achieved will be determined by the Subcommittee. Payment of earned performance awards will be made in accordance with terms and conditions prescribed or authorized by the Subcommittee. The participant may elect to defer, or the Subcommittee may require the deferral of, the receipt of performance awards upon such terms as the Subcommittee deems appropriate.
The Subcommittee may, in its discretion, grant Stock Units to participants. Such Stock Units may, but need not, be Performance-Based
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Awards. A "Stock Unit" is a notional account representing one share of Class A Common Stock. Stock Units shall be evidenced by a Benefit Agreement which shall specify the vesting requirements, the duration of any applicable deferral period, the performance or other conditions under which the Stock Unit may be forfeited and such other provisions as the Subcommittee shall determine. The Subcommittee shall also determine whether a participant granted a Stock Unit shall be entitled to Dividend Equivalent Rights (as defined in the Amended and Restated 2002 Share Plan). For Stock Units that vest on or after January 1, 2005, any deferral feature must comply with the requirements of Section 409A of the Code and the regulations thereunder.
Certain Benefits granted under the Amended and Restated 2002 Share Plan may be granted in a manner such that the Benefit qualifies for the performance-based compensation exemption to Section 162(m) of the Code ("Performance-Based Awards"). As determined by the Subcommittee in its sole discretion, either the granting or vesting of such Performance-Based Awards will be based upon achievement of hurdle rates and/or growth in one or more of the following business criteria: (i) net earnings; (ii) earnings per share; (iii) net sales; (iv) market share; (v) net operating profit; (vi) expense targets; (vii) working capital targets relating to inventory and/or accounts receivable; (viii) operating margin; (ix) return on equity; (x) return on assets; (xi) planning accuracy (as measured by comparing planned results to actual results); (xii) market price per share; (xiii) gross margin; (xiv) return on invested capital and (xv) total return to stockholders. In addition, Performance-Based Awards may include comparisons to the performance of other companies, such performance to be measured by one or more of the foregoing criteria. Furthermore, the measurement of performance against goals may exclude or adjust for the impact of certain events or occurrences that were not budgeted or planned for in setting the goals, including among other things, restructurings, discontinued operations, changes in foreign currency exchange rates, extraordinary items and other unusual or non-recurring items, and the cumulative effects of accounting changes. With respect to Performance-Based Awards, the Subcommittee shall establish in writing (x) the performance goals applicable to a given period, specifying by an objective formula or standard, the method for computing the amount of compensation payable to the participant if such performance goals are obtained and (y) the individual employees or class of employees to which such performance goals apply no later than 90 days after the commencement of such period (but in no event after one quarter of such period has elapsed). No Performance-Based Award shall be payable to, or vest with respect to, any participant for a given fiscal period until the Subcommittee certifies in writing that the objective performance goals (and any other material terms) applicable to such period have been satisfied.
For all Stock Awards, Performance Awards or Stock Units (collectively, "Share Awards") granted after August 18, 2010, except in certain circumstances, (i) Share Awards granted as to which vesting is based solely on continuation of service will vest over a minimum period of three (3) years from the date of grant and (ii) Share Awards as to which vesting is based solely or in part on the achievement of one or more performance conditions will vest based on a performance period of no shorter than one (1) year (and if vesting is within one year of the grant date, the grant date must be within the first three months of the performance period). Notwithstanding the foregoing, (x) the above noted minimum vesting requirements shall not apply to shares of Class A Common Stock available for issuance under the Plan in settlement, assumption or substitution of outstanding awards (or obligations to grant future awards) under the plans or arrangements of another entity ("Assumed Awards"), (y) Share Awards granted to any participants, which in the aggregate do not exceed 300 shares of Class A Common Stock as to which vesting is based solely on continuation of service, will vest over a minimum period of one year and (z) up to one million shares of Class A Common Stock may be
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granted subject to Share Awards without any minimum vesting requirements.
The Amended and Restated 2002 Share Plan provides that Benefits may be transferred by will or the laws of descent and distribution. The Subcommittee determines the treatment to be afforded to a participant in the event of termination of employment for any reason including death, disability or retirement. Except with respect to incentive stock options, the Subcommittee may permit a Benefit to be transferred by a participant to certain members of the participant's immediate family or trusts for the benefit of such persons or other entities owned by such person.
Upon the grant of any Benefit under the Amended and Restated 2002 Share Plan, the Subcommittee may, by way of an agreement with the participant, establish such other terms, conditions, restrictions and/or limitations covering the grant of the Benefit as are not inconsistent with the Amended and Restated 2002 Share Plan. No Benefit may be granted more than ten years after the date the Amended and Re