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.        )

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General Mills, Inc.

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NOTICE OF

 

2009 ANNUAL MEETING

 

OF STOCKHOLDERS

 

AND PROXY STATEMENT

 

Meeting Date:

 

Monday, September 21, 2009

at 11:00 a.m. (Central Daylight Time)

 

Meeting Place:

 

Children’s Theatre Company

2400 Third Avenue South

Minneapolis, Minnesota

 

 

 

August 10, 2009

 

Dear Stockholder:

 

It is my pleasure to invite you to the General Mills 2009 Annual Meeting of Stockholders. We will hold the meeting in the auditorium of the Children’s Theatre Company, 2400 Third Avenue South, Minneapolis, Minnesota, on Monday, September 21, 2009, at 11:00 a.m. Central Daylight Time. During the meeting, we will discuss each item of business described in this Notice of Annual Meeting of Stockholders and Proxy Statement, and we will give a current report on our business operations. There also will be time for questions. We expect the meeting to adjourn at about 12:15 p.m. We hope you will be able to attend the meeting. If you need special assistance at the meeting because of a disability, please contact the Corporate Secretary at the address above.

 

Whether or not you expect to attend, please vote your proxy so your shares will be represented at the meeting.

 

Sincerely,

 

 

NOTICE OF

2009 ANNUAL MEETING OF STOCKHOLDERS

SEPTEMBER 21, 2009

 

August 10, 2009

 

Dear Stockholder:

 

The Annual Meeting of Stockholders of General Mills, Inc. will be held on Monday, September 21, 2009, at 11:00 a.m., Central Daylight Time, in the auditorium of the Children’s Theatre Company, 2400 Third Avenue South, Minneapolis, Minnesota. The purpose of the meeting is to:

 

 

 

 

 

The record date for the Annual Meeting is July 23, 2009. If you held General Mills stock at the close of business on that date, you are entitled to vote at the Annual Meeting.

 

At the meeting, we also will report on our fiscal 2009 business results and other matters of interest to stockholders.

 

Your vote is important. We encourage you to vote by proxy, even if you plan to attend the meeting. You may vote your proxy as follows:

 

 

Please consult your Notice of Internet Availability of Proxy Materials or proxy card for specific voting instructions. For questions on accessing proxy materials or voting on the Internet, please contact us at 800-245-5703.

 

To request a printed copy of the proxy materials, please call 800-579-1639, e-mail sendmaterial@proxyvote.com or visit www.proxyvote.com. You will need your 12-digit control number to make your request.

 

Sincerely,

 

 

 

 

TABLE OF CONTENTS

 

GENERAL MILLS, INC.
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
MONDAY, SEPTEMBER 21, 2009

 

The board of directors of General Mills, Inc. (referred to as “General Mills,” “we,” “our,” “us” or the “company”) is soliciting proxies for use at the Annual Meeting of Stockholders to be held on September 21, 2009. This proxy statement summarizes the information you need to know to vote at the Annual Meeting. You do not need to attend the Annual Meeting to vote your shares. We first mailed or made available the proxy materials on or about August 10, 2009.

 

The fourteen director nominees presented below are recommended for election to the board of directors. Directors are elected by a majority of votes cast for a one-year term and serve until the next annual meeting where their successors are elected, or, if earlier, until their retirement, resignation or removal. If unforeseen circumstances (such as death or disability) make it necessary for the board of directors to substitute another person for any of the nominees, the proxies will vote your shares for that other person unless you instruct us otherwise when you vote.

 

 

The board of directors unanimously recommends a vote FOR each director nominee.

 

We have a long-standing commitment to good corporate governance practices. These practices provide an important framework within which our board of directors and management can pursue the strategic objectives of General Mills and ensure the company’s long-term vitality for the benefit of stockholders. The cornerstone of our practices is an independent and qualified board of directors. All directors are elected annually by a majority of votes cast by stockholders, and all board committees are composed entirely of independent directors.

 

The board carefully evaluates each incoming director candidate based on selection criteria and overall priorities for board composition that are periodically re-examined by the corporate governance committee with input from the rest of the directors. As our directors’ commitments change, the board revisits their situations to ensure that they can continue to serve the best interests of the company and its stockholders. We also demand high standards of ethics from our directors and management as described in the director and employee codes of conduct.

 

Our governance principles are published on our website at www.generalmills.com in the “Investors” section and are available in print to any stockholder who requests a copy from our Corporate Secretary. We have included some highlights from those principles below:

 

 

 

 

 

 

The corporate governance committee is responsible for recommending candidates for election to our board of directors. For more information on overall board composition guidelines and selection criteria for individual directors, see Board Independence and Composition. The corporate governance committee also reviews whether a potential candidate meets board and/or committee membership requirements imposed by law, regulation or stock exchange rules; recommends whether a potential candidate is independent and evaluates the potential for any conflict of interest between the director and General Mills.

 

Director nominees recommended by the corporate governance committee are subject to full board approval and election by stockholders at an annual meeting of stockholders. From time to time, the corporate governance committee retains a recruitment firm to assist in identifying, evaluating and recruiting director candidates, based on specified criteria, and pays the firm a fee for these services. Suggestions also are received from board members and stockholders.

 

Of the fourteen directors recommended for election at the 2009 Annual Meeting, all nominees were elected as directors at our 2008 Annual Meeting except for R. Kerry Clark, who was appointed to the board after our director recruitment firm identified him as a candidate. The corporate governance committee reviewed his qualifications and recommended his election to the board.

 

Stockholders who wish to suggest a candidate for our board of directors may submit a written recommendation to the Corporate Secretary, General Mills, Inc., P.O. Box 1113, Minneapolis, Minnesota 55440, along with the stockholder’s name, address and the number of General Mills shares beneficially owned; the name of the individual being nominated and number of General Mills shares beneficially owned by the candidate; the candidate’s biographical information describing experience and qualifications; a description of all agreements, arrangements or understandings between the stockholder and individual being nominated; and the candidate’s consent to serve as a director, if elected. The corporate governance committee may request that the stockholder provide certain additional information. For a candidate to be considered for the slate recommended in our proxy statement for the 2010 Annual Meeting, stockholders should submit the required information to the Corporate Secretary by April 12, 2010.

 

The corporate governance committee will consider and evaluate stockholder-recommended candidates by applying the same criteria used to evaluate director-recommended candidates. If the corporate governance committee decides the candidate is suitable for board membership, the corporate governance committee will make a recommendation to the board of directors for its approval to include the candidate in the slate of

directors nominated for election by stockholders in the proxy statement. During fiscal 2009, we received no director nominations from our stockholders.

 

Under our By-laws, stockholders may also nominate a candidate for election at an annual meeting of stockholders. Our annual meeting is typically held on the fourth Monday in September. Stockholders who intend to present a nomination at our 2010 Annual Meeting are required to notify the Corporate Secretary in writing and provide the information described in our By-laws no earlier than May 24, 2010 and no later than June 23, 2010. Director nominees submitted through this process will be eligible for election at the annual meeting, but will not be included in proxy materials sent to stockholders prior to the meeting.

 

 

 

Risk is an integral part of board and committee deliberations throughout the year. The audit committee and the board annually review an assessment of the primary operational and regulatory risks facing the company, their relative magnitude and management’s plan for mitigating these risks. In addition, the board discusses risks related to the company’s business strategy at the annual strategic planning meeting every October and at other meetings as appropriate.

 

The board has five standing committees that are each composed entirely of independent directors. The corporate governance committee reviews committee and committee chair assignments annually, and recommends committee rosters to the full board after considering factors such as the directors’ business and corporate governance experience, their preferences, criteria for specific committee service, the directors’ other responsibilities and scheduling flexibility. Assignments are rotated to ensure that each committee has an appropriate mix of tenure and experience. Committee membership shown below is effective as of August 1, 2009:

 

 

Audit Committee

 

Number of meetings in fiscal 2009: Seven

 

 

Compensation Committee

 

Number of meetings in fiscal 2009: Three

 

 

Corporate Governance Committee

 

Number of meetings in fiscal 2009: Four

 

 

Finance Committee

 

Number of meetings in fiscal 2009: Four

 

 

Public Responsibility Committee

 

Number of meetings in fiscal 2009: Two

 

 

A copy of each committee’s charter may be found on our website at www.generalmills.com in the “Investors” section under “Corporate Governance” and is available in print to any stockholder who requests it from our Corporate Secretary.

 

Directors are expected to attend all board and committee meetings, as well as the annual meetings of stockholders, absent exigent circumstances. All of our 13 directors in office at the time attended the 2008 Annual Meeting of Stockholders. During fiscal 2009, the board of directors met eight times and various committees of the board met a total of 21 times. All directors attended at least 75% of the aggregate total meetings of the board and board committees on which they served during fiscal 2009.

 

At the beginning of each fiscal year, the compensation committee reviews and approves compensation for executive officers except for the Chief Executive Officer, including any merit increases to base salary, annual incentive awards for the prior fiscal year’s performance, long-term incentive equity awards and performance targets for the next fiscal year. For the Chief Executive Officer, the committee makes recommendations for the board’s review and approval. The compensation committee members base these determinations on their review of competitive market data from our compensation and performance peer groups, the recommendations of our human resources department, and for other executive officers, the recommendations of the Chief Executive Officer. For more information on our compensation and performance peer groups, see the Compensation Discussion and Analysis.

 

The compensation committee conducts a performance assessment for the Chief Executive Officer that includes input from all independent non-employee directors. In an executive session, the chair of the compensation committee leads independent non-employee directors through a review of the Chief Executive Officer’s annual accomplishments, review of compensation actions recommended by the compensation committee; approval of compensation and review of performance objectives for the next fiscal year. Following the executive session, the chair of the compensation committee communicates the results of the evaluation to the Chief Executive Officer.

 

The compensation committee’s independent compensation consultant periodically conducts a detailed review of our compensation and performance peer groups and internal equity comparisons to support the compensation committee’s review process, including benchmarking on pay philosophies, compensation elements separately and in total, and incentive mix. Watson Wyatt & Company served as the independent compensation consultant during fiscal 2009. The compensation committee retained Frederic W. Cook & Co., Inc. to be its independent compensation consultant for fiscal 2010, due to their independence and industry experience. This firm advises the committee on director and executive compensation, but does no other work for General Mills. The change in the consulting relationship allows the company to continue to use Watson Wyatt for broad-based benefits and compensation consulting.

 

A representative of the independent compensation consultant attends compensation committee meetings from time to time to serve as a resource for the compensation committee. In order to encourage independent review and discussion of executive compensation matters, the compensation committee and the committee chair may request meetings with the independent compensation consultant in executive session without management present.

 

The compensation committee has sole authority to retain or replace the independent compensation consultant. In order to maintain consultant independence, the compensation committee adopted a formal policy in fiscal 2008 requiring compensation committee pre-approval of work performed by the independent compensation consultant.

 

We have adopted a code of conduct applicable to all employees, including our principal executive officer, principal financial officer and principal accounting officer, and a code of conduct applicable to our directors. The codes of conduct are available on our website at www.generalmills.com, and will be mailed to any stockholder who requests a copy from our Corporate Secretary, General Mills, Inc., P.O. Box 1113, Minneapolis, Minnesota 55440 or via e-mail at corporate.secretary@genmills.com.

 

The audit committee of the board of directors has established procedures for employees, stockholders, vendors and others to communicate concerns about our ethical conduct or business practices, including accounting, internal controls or financial reporting issues, to the audit committee, which has responsibility for these matters. Employees may seek advice or report actual or potential violations of our Code of Conduct by contacting our Ethics Line on an identified or anonymous basis.

 

Interested parties may directly contact any of our directors, any committee of the board, the board’s non-employee directors as a group or the board generally, by writing to them at General Mills, Inc., P.O. Box 1113, Minneapolis, Minnesota 55440 or via e-mail at boardofdirectors@genmills.com. The board of directors has instructed the Corporate Secretary to distribute communications to the director or directors, after ascertaining whether the communications are appropriate to duties and responsibilities of the board. The board has requested that the Corporate Secretary not forward the following types of communications: general surveys and mailings to solicit business or advertise products; job applications or resumes; product inquiries or complaints; new product suggestions or any material that is threatening, illegal or does not relate to the responsibilities of the board.

 

We structure director compensation to attract and retain qualified non-employee directors and to further align the interests of directors with the interests of stockholders. A substantial portion of director compensation is linked to our stock performance, and directors can elect to receive their entire board remuneration in stock and stock-related compensation. Directors are expected to keep all of the shares that they receive as compensation, net of shares used to pay the exercise price or withholding taxes, until they own shares equal in market value to at least five-times their annual retainer.

 

Determining Director Compensation.  The compensation committee periodically reviews surveys of non-employee director compensation trends, and a competitive analysis of peer company practices prepared by our compensation consultants, and makes recommendations to the board of directors on compensation for our non-employee directors, including their retainers and annual equity awards. Each component of director compensation is described below.

 

Annual Retainer.  Non-employee directors each receive an annual retainer of $75,000. The chair of the audit committee receives an additional $15,000, chairs of other committees receive an additional $10,000, and other audit committee members receive an additional $5,000. We do not pay any additional fees for attending or chairing a meeting. We pay annual retainers in quarterly installments. Directors can elect to have their retainers paid in cash and/or common stock.

 

Restricted Stock Units.  Upon attending their first board meeting and at each re-election, each non-employee director receives restricted stock units with a value of $90,000. The number of restricted stock units is determined based on the closing price of our common stock on the New York Stock Exchange on the date of the grant. Restricted stock units are granted under the 2006 Compensation Plan for Non-Employee Directors. The restricted stock units vest at the next annual meeting of stockholders. Directors who leave the board prior to vesting forfeit their restricted stock units. In the event an active director dies, his or her restricted stock units fully vest. Restricted stock units earn amounts equivalent to the regular dividend payments on our common stock. These amounts can be reinvested in additional stock units or paid to the director.

 

Stock Options.  Upon attending their first board meeting and at each re-election, each non-employee director receives stock options to purchase a certain number of shares for every restricted stock unit that they receive. This award may be periodically re-adjusted with the intent that 50% of the value of their equity award is delivered in stock options, and 50% of the value is delivered in restricted stock units. Options are granted under the 2006 Compensation Plan for Non-Employee Directors. The exercise price is the closing price of our common stock on the New York Stock Exchange on the date of grant. The options become exercisable at the next annual meeting of stockholders and expire 10 years after grant. Directors who leave the board prior to vesting forfeit their unvested options. In the event an active director dies, the options fully vest and remain exercisable by the directors’ estate for the remainder of the option’s full term.

 

Deferred Compensation.  Non-employee directors may defer their retainers and restricted stock units. We credit any deferred cash retainers with earnings based on a director’s selection from a group of funds offered to employees participating in our Deferred Compensation Plan. One of these funds tracks the return on our common stock. Earnings credited are not above-market or preferential. The value of deferred retainers paid in shares of our common stock and deferred restricted stock units tracks our common stock performance.

 

Other Benefits.  We have a Planned Gift Program for Directors (the “Planned Gift Program”) that has been discontinued for all directors elected during or after fiscal 2007. The Planned Gift Program is funded by General Mills-paid life insurance policies on each participating director. Upon the death of a director, we donate $1 million to a qualifying charity recommended by the director, and we receive the entire charitable deduction. We are then reimbursed by life insurance proceeds. We have calculated the change in the accrued liability for the benefit in fiscal 2009 and included it under footnote six, All Other Compensation.

 

The General Mills Foundation matches charitable contributions made by directors of up to $15,000 in each calendar year to eligible colleges, secondary and elementary schools, and up to $15,000 to eligible art and cultural organizations.

From time to time, we also invite our directors’ spouses to accompany them to the company’s annual strategic planning meetings, and we reimburse travel and incidental expenses related to their attendance, in order to foster social interaction among the directors.

 

The fiscal 2009 compensation of our non-employee directors is shown in the following table.

 

DIRECTOR COMPENSATION FOR FISCAL 2009

 

 

The grant date fair value of restricted stock units granted to each director in fiscal 2009 is $90,000, which consists of 1,321 restricted stock units granted to each director upon their re-election, or in the case of Mr. Clark, as a newly appointed director, 1,716 restricted stock units granted to him at his first board meeting. The grant date fair value is based on the closing price of our common stock on the New York Stock Exchange on the grant date.

 

At fiscal year end, each non-employee director held 1,321 restricted stock units, except for Mr. Danos, Ms. Hope, Ms. Miller, Ms. Ochoa-Brillembourg, Mr. Odland and Mr. Rose, who each reinvested their dividends and held 1,350 restricted stock units; Mr. Clark, who held 1,716 restricted stock units; and Mr. Spence, who held no restricted stock units.

 

 

All Other Compensation

 

 

The following table shows the amount of General Mills common stock beneficially owned by (a) each director and director nominee, (b) each named executive officer listed in the Summary Compensation Table, (c) all directors, director nominees and executive officers as a group and (d) each person or group owning more than 5% of our outstanding shares on the dates indicated. Unless otherwise noted, all amounts are as of July 23, 2009, and the stockholders listed in the table have sole voting and investment power with respect to the shares owned by them.

 

 

 

 

Based on a review of reports filed with the SEC by our directors and executive officers regarding their ownership and transactions in our common stock and written representations from those directors and officers, we believe that each director and executive officer has filed timely reports under Section 16(a) of the Securities Exchange Act of 1934 during fiscal 2009, with one exception. Due to an administrative delay, we did not file a timely report for an exercise of stock options, and disposition of the resulting shares, by Richard Lund, our Vice President, Controller, on July 15, 2008.

 

Introduction

 

Stockholders are asked to vote to adopt the General Mills, Inc. 2009 Stock Compensation Plan (the “2009 Plan”). The 2009 Plan would replace the General Mills, Inc. 2007 Stock Compensation Plan (the “2007 Plan”), which terminates according to its terms on December 31, 2009. If stockholders approve the 2009 Plan, we will issue no additional shares under the 2007 Plan. Shares which are forfeited, cancelled or terminated under the 2007 Plan (or other prior plans) will not be available for future grant.

 

The purpose of the 2009 Plan is to provide a compensation program that:

 

 

The company has long had an ownership culture in which its managers are expected to build and hold significant amounts of General Mills stock over the course of their careers, thereby aligning their interests with those of non-employee stockholders. We expect senior executives to own more than five-times their base salary in company stock, and the stock ownership target for the Chief Executive Officer is double this amount (ten-times base salary); actual stock ownership by senior executives on average is double these ownership expectations. Our vesting period for stock options and restricted stock units granted to managers is the longest in the consumer products industry (four-year cliff vesting versus the three-year ratable vesting which is the most common industry practice). Our average stock option holding time by company managers is also the longest in the consumer products industry, with the average stock option held for eight years of its 10-year life, with an unusually high percentage of stock options not exercised until well into the final year.

 

The company takes its stock compensation program deeper into its organization than do most other companies, with approximately 30% of all employees in professional positions participating in our stock compensation programs. Because we pay a portion of annual incentives in restricted stock units, General Mills relies heavily on stock compensation both to motivate long-term performance and to pay company managers competitively versus market practices.

 

Since the adoption of the 2007 Plan, which stockholders approved by a 79% vote, General Mills has made important progress in all four of its key measures of corporate performance: net sales growth, segment operating profit growth, earnings per share growth, and improvement in return on average total capital. During the same time period, our voluntary professional turnover for our more than 2,500 stock plan participants has been below 4% per year, less than half the rate of turnover experienced by other major companies. We believe the ownership culture at General Mills motivates the achievement of superior company performance, and also plays an essential role in retaining top talent.

 

To continue the financial performance that has been achieved over the life of the expiring 2007 Plan, it is important that stockholders adopt the 2009 Plan to ensure the company has sufficient shares authorized for issuance under our compensation plans. Highlights from the recommended 2009 Plan are as follows:

 

 

General Mills has significantly reduced both its annual share usage and its stock overhang during the terms of the 2005 and 2007 Plans. Annual share usage (as a percent of shares outstanding) continues to decline since the adoption of the 2005 Plan to a current annual target level of 1.6% and a maximum limit of 2.0%. Our stock overhang (options outstanding plus shares available for a grant, as a percent of shares outstanding) has been reduced by approximately 15% since the adoption of the 2005 Plan and is 15.6%. Since the beginning of fiscal 2008, we have reduced shares of common stock outstanding by 3.8% from approximately 341 million shares to 328 million shares, further mitigating the dilutive impact from share usage. Approximately 12% of our outstanding equity awards were issued as part of all-employee grants, salary replacement programs or as grants that required a matching stock ownership commitment.

Summary of Material Features of the 2009 Plan

 

The summary of the material features of the 2009 Plan that follows is subject to the full text of the 2009 Plan that is contained in Appendix B to this Proxy Statement.

 

 

Eligibility.  Only employees of General Mills and its subsidiaries and affiliates are eligible to receive awards under the 2009 Plan. The compensation committee determines which employees are eligible to participate. The primary recipients of awards under the 2009 Plan will be our officers, other key employees and managers. As of May 31, 2009, there were approximately 30,000 full- and part-time employees of General Mills and its subsidiaries, of which approximately 2,500 were officers, other key employees and managers.

 

Awards.  Awards under the 2009 Plan will be either performance-based and designed to comply with Section 162(m) of the Internal Revenue Code (the “Code”) or discretionary. Subject to the 2009 Plan limits, the compensation committee has the discretionary authority to determine the size of an award, if it will be tied to meeting performance-based requirements and if any performance awards, stock appreciation rights or restricted stock units will be settled in common stock or cash. In order for any participant to be awarded performance awards, restricted stock or restricted stock units based on their performance in a fiscal year, the net earnings from continuing operations, excluding items identified and disclosed by the company as non-recurring or special costs for that fiscal year, must be greater than zero.

 

Adjustments.  In the event of certain corporate transactions, including a special dividend, recapitalization, stock split, reverse stock split, combination of shares, reorganization, merger, consolidation, spin-off, repurchase or exchange of our common stock or similar event affecting our common stock, the number and kind of shares granted under the 2009 Plan will be adjusted appropriately.

 

Exercise of Stock Options and Stock Appreciation Rights.  The exercise price of stock options and stock appreciation rights granted under the 2009 Plan may not be less than the fair market value, as defined in the 2009 Plan, of our common stock on the date of grant, and the term may not be longer than 10 years and one month.

 

Vesting of Restricted Stock and Units.  Awards of restricted stock and restricted stock units vest, and the related restrictions lapse, at the conclusion of a specified period of continuous employment with us. This period is a minimum of four years from the date of grant.

 

Vesting of Performance Awards.  Performance awards vest upon the accomplishment of performance goals over one year or multiple years. Applicable performance goals and performance periods will be established by the compensation committee. The committee may adjust the value of awards based on performance-based criteria or as it otherwise determines in its discretion to be appropriate. It may also

require forfeiture of all or part of the performance award in the event that additional conditions are not met, for example, if the participant is terminated prior to the expiration of any service conditions.

 

Transferability.  Stock options and stock appreciation rights granted under the 2009 Plan are transferable only as provided by the rules of the compensation committee, by the participant’s last will and testament, or by the applicable laws of descent and distribution. Restricted stock, restricted stock units and performance awards may not be sold, transferred, assigned, pledged or otherwise encumbered or disposed of until the applicable restrictions lapse.

 

Change of Control.  In the event of a change of control, stock options and stock appreciation rights become fully exercisable for one year and performance awards, restricted stock and restricted stock units become fully vested subject to double-trigger vesting: (1) the change of control must be consummated and (2) the participant must be involuntarily terminated other than for cause, death or disability, or must voluntarily terminate with good reason within two years after a change of control. However, if the company’s stock will cease to exist as a result of the change of control, and there is not an adequate replacement security, the equity awards will vest immediately prior to the consummation of the change of control or the compensation committee may settle the awards for cash.

 

Termination, Death and Retirement.  If a participant voluntarily resigns or is terminated for cause, vested stock options and stock appreciation rights will expire three months after the termination of the participant’s employment. If a participant dies while employed by us, outstanding stock options and stock appreciation rights will fully vest and may be exercised by the person’s designated beneficiary, or in the absence of such designation, by the participant’s estate. Unless otherwise provided by the compensation committee at the time of grant, if a participant retires on or after age 55 with at least five years of service, or if a participant is involuntarily terminated when their age plus years of service with the company equals or exceeds 70, outstanding stock options and stock appreciation rights will continue to vest, and the participant may exercise stock options or stock appreciation rights according to their original terms. For senior vice presidents and above who are involuntarily terminated, but whose age plus years of service are less than 70, their stock options and stock appreciation rights will vest and remain exercisable for the lesser of one year or the original term.

 

Subject to certain exceptions, performance awards, restricted stock and restricted stock units will be forfeited if they are not vested when the participant terminates employment. If a participant dies while employed by us, performance awards, stock and restricted stock units will fully vest. Unless otherwise provided by the compensation committee at the time of grant, if a participant retires on or after age 55 and five years of service, or if a participant is involuntarily terminated when their age plus years of service with the company equals or exceeds 70, performance awards, restricted stock and restricted stock units will fully vest.

 

Administration.  The 2009 Plan will be administered by the compensation committee. The compensation committee will select employees who shall receive awards, determine the number of shares covered thereby, and establish the terms, conditions and other provisions of the awards. The compensation committee may interpret the 2009 Plan and establish, amend and rescind any rules relating to the 2009 Plan. The compensation committee may delegate all or part of its responsibilities.

 

Amendments.  Subject to approval of the board of directors, where required, the compensation committee may terminate, amend or suspend the 2009 Plan, provided that no action may be taken by the compensation committee or the board of directors (except those described earlier in the Adjustments section) without the approval of the stockholders to:

 

 

 

 

U.S. Tax Consequences.  Generally, no federal income tax is payable by a participant upon the grant of a stock option or stock appreciation right and we are not entitled to claim a tax deduction upon the grant. Under current tax laws, if a participant exercises a non-qualified stock option or stock appreciation right he or she will be taxed at ordinary income rates on the difference between the fair market value of the common stock on the exercise date and the option price or, in the case of a stock appreciation right, the fair market value of the stock on the date of grant. The company will be entitled to a corresponding deduction at the time the participant recognizes ordinary income, to the extent that the amount of income satisfies the general rules regarding deductibility of compensation, including those in Section 162(m) of the Internal Revenue Code.

 

Performance awards and awards of restricted stock and restricted stock units under the 2009 Plan generally are not subject to federal income tax when awarded and the company is not entitled to claim a tax deduction at the time of the award. Restricted stock is generally subject to ordinary income tax at the time the restrictions lapse, unless the participant properly files an election with the Internal Revenue Service to accelerate tax recognition to the date of the award. Performance awards and restricted stock units are generally subject to ordinary income tax at the time of payment. Any dividends or dividend equivalents received with respect to restricted stock, restricted stock units, or performance awards will be taxable as ordinary income at the time of payment. In these cases, the company is entitled to a corresponding deduction at the time the participant recognizes ordinary income, to the extent that the amount of income satisfies the general rules regarding deductibility of compensation, including those in Section 162(m) of the Internal Revenue Code.

 

For grants of unrestricted stock made under the 2009 Plan, the participant must recognize ordinary income equal to the excess of the fair market value of the shares received (determined as of the date of receipt) over the amount, if any, paid for the shares. The company will be entitled to a corresponding deduction at the time the participant recognizes ordinary income, to the extent that the amount of income satisfies the general rules regarding deductibility of compensation, including those in Section 162(m) of the Internal Revenue Code.

 

Special rules may apply in the case of participants subject to Section 16(b) of the Securities Exchange Act of 1934. Unless a special election with the Internal Revenue Service to accelerate tax recognition to the time of exercise is made under the tax laws, shares of stock received pursuant to the exercise of an option or stock appreciation right may be treated as restricted for a period of up to six months after the date of exercise. Accordingly, the amount of ordinary income recognized, and the amount of the company’s deduction, may be determined based on the fair market value of the stock as of the end of that period.

 

Taxable ordinary income recognized by a participant upon exercise of a stock option or stock appreciation right; lapse of restrictions on restricted stock or restricted stock units; and payment of a performance award, dividend or dividend equivalent will be treated as wages subject to income and employment tax withholding.

 

The 2009 Plan is intended to comply with Section 409A of the Internal Revenue Code.

 

New Plan Benefits.  No benefits or amounts have been granted, awarded or received under the 2009 Plan that were subject to stockholder approval. In addition, the compensation committee will determine the number and types of awards that will be granted under the 2009 Plan. Thus, it is not possible to determine the benefits that will be received by eligible participants if the 2009 Plan is approved by our stockholders.

 

The board of directors unanimously recommends a vote FOR the adoption of the General Mills, Inc. 2009 Stock Compensation Plan.

 

The following table provides certain information as of May 31, 2009 with respect to our equity compensation plans.

 

 

 

 

However, no additional shares will be issued under the 2007 Stock Compensation Plan after the annual meeting if the 2009 Stock Compensation Plan is approved. A total of 1,826,137 cash-settled restricted stock units have been granted under the 2007 Stock Compensation Plan. They did not reduce the number of shares available for other awards.

 

Our common shares outstanding as of July 23, 2009, the record date for the annual meeting, was approximately 325,530,671 shares. The number of common shares outstanding as of the record date reflects reductions as a result of share repurchases from May through July.

 

The compensation committee of the company has reviewed and discussed the following Compensation Discussion and Analysis with management and, based on such review and discussions, the compensation committee recommended to the board that the Compensation Discussion and Analysis be included in this proxy statement and in our annual report on Form 10-K for the fiscal year ended May 31, 2009.

 

SUBMITTED BY THE COMPENSATION COMMITTEE

 

Michael D. Rose, Chair

Bradbury H. Anderson

Raymond V. Gilmartin

Heidi G. Miller

Lois E. Quam

 

Executive Summary

 

This Compensation Discussion and Analysis describes the key principles and approaches used to determine the compensation of the named executive officers listed in the Summary Compensation Table and should be read in conjunction with the tables and narrative included in the rest of the Executive Compensation section of this proxy statement. All compensation paid to the named executive officers other than the Chief Executive Officer is determined by the compensation committee of the board of directors, which is composed solely of independent non-employee directors who meet regularly each fiscal year. For the Chief Executive Officer, compensation actions are approved by the independent non-employee members of the full board based on a recommendation of the compensation committee.

 

For fiscal 2009, the compensation committee retained Watson Wyatt & Company as its independent compensation consultant. At its May 2009 meeting, the compensation committee decided to retain a compensation consulting firm that does no other work for General Mills. Frederic W. Cook & Co., Inc. was selected to be the new consultant to the compensation committee for fiscal 2010, due to its independence and industry experience. This firm advises the committee on director and executive compensation issues. The change in the consulting relationship allows the company to continue to use Watson Wyatt for broad-based benefits and compensation consulting. For more information on the independent compensation consultant’s role in advising the compensation committee on executive compensation matters, see “Determining Executive Compensation” in the Corporate Governance section of this proxy statement.

 

General Mills strives to achieve financial performance that consistently ranks in the top tier of results from our consumer products industry peer group. The indicators utilized to determine whether the company meets this objective are the four key corporate performance measures that, taken together, correlate most highly with the creation of total enterprise value in major consumer food companies: net sales growth, segment operating profit growth, earnings per share growth and improvement in return on average total capital. When combined with an attractive dividend yield, we believe that the achievement of consistently superior performance versus these four measures of corporate performance will continue to result in strong total returns for General Mills stockholders.

 

The compensation committee designs the company’s compensation programs for executive officers to place a heavy emphasis on performance. As a result, approximately 80% of the total compensation of the named executive officers varies with annual company performance, with the only fixed compensation elements being base salary and certain employee benefits.

 

The annual Corporate Performance Rating, which the compensation committee uses to determine the size of both annual incentive and long-term incentive awards for the named executive officers, is based on specific targets approved by the compensation committee at the start of the fiscal year for the four key corporate

performance measures outlined above, which are equally weighted (25%). Performance targets align with General Mills’ publicly stated long-term performance goals of low single-digit net sales growth, mid single-digit segment operating profit growth and high single-digit earnings per share growth. In determining the specific incentive targets each year, the compensation committee generally utilizes two-year and five-year compound growth rates for performance peer group companies for each measure.

 

Corporate Performance Ratings can vary from 0 to 1.80, and targets are set such that, when General Mills’ performance is at the median of the performance peer group (Corporate Performance Ratings of 1.30 to 1.50), General Mills’ total compensation for executive officers is targeted to be at approximately the median compensation paid by the same group of companies. When General Mills’ performance is superior to that of the performance peer group (Corporate Performance Ratings between 1.51 and 1.80), executive officer compensation is targeted to be well above the peer group median. When General Mills’ performance is below that of the performance peer group (Corporate Performance Ratings below 1.30), executive officer compensation is targeted to be well below the median of that paid by peer group companies.

 

The annual Corporate Performance Ratings vary significantly based on the company’s performance in the fiscal year. One way to look at how difficult or likely it would be for the company to achieve the incentive targets would be to look at historical results. In the past 10 years (fiscal years 2000 through 2009), Corporate Performance Ratings have ranged from a low of 1.16 to a high of 1.80. In the past 20 years (fiscal years 1990 through 2009), Corporate Performance Ratings have ranged from 0 to 1.80. Over this 20-year period, annual Corporate Performance Ratings have averaged 1.49, which is at the high end of the 1.30 to 1.50 “On Target” rating range of the incentive rating schedule. The company’s total stockholder return has consistently exceeded the return of broad market indexes (Dow Jones Industrial Average, S&P 500), as well as industry comparisons including the S&P Packaged Food index and the median of our performance peer group. This performance has been delivered over the short (one- and three-year), medium (five-year) and long term time horizons (10- and 20-year). The difference in total direct compensation (base salary, annual incentive and long-term incentive) when a 1.80 Corporate Performance Rating is achieved versus that of a 1.00 Corporate Performance Rating for most executive officers is approximately 80%.

 

The compensation committee believes that the company’s executive compensation programs have been effective at incenting the achievement of superior results, appropriately aligning pay and performance, creating an ownership culture in which company managers think and act like stockholders, and in enabling General Mills to attract and retain some of the most talented executives in the global consumer products industry.

 

Compensation Philosophy and Principles

 

General Mills’ guiding philosophy is to maintain a compensation system that will attract, motivate, reward and retain competitively superior leaders who are able to consistently achieve corporate performance and total stockholder value that is in the top tier of its performance peer group. The compensation committee bases its compensation decisions on the following core principles:

 

 

 

Performance and Compensation Peer Groups

 

The compensation committee, with the assistance of management and the independent compensation consultant, benchmarks our performance and compensation against a peer group of 13-16 major consumer products companies. To establish this peer group, the compensation committee used the following five selection criteria:

 

 

As shown below, the median annual revenues and total assets for the 16 companies in this peer group are comparable to those of General Mills. The compensation committee annually reviews the composition of this peer group to assure it is the most relevant set of companies to use for comparison purposes. The peer groups utilized for comparisons of performance and compensation are identical with the exception of three European companies (Nestlé, Unilever and Danone) that are in our performance peer group but not in our compensation peer group, due to the lack of available publicly reported pay information. Previously, Anheuser-Busch and Wrigley were in the peer group. However, with their respective acquisitions by InBev and Mars, Incorporated, we have removed both companies.

The following branded consumer products companies comprise our performance peer group:

 

*Not in our compensation peer group due to lack of available publicly reported pay information.

 

Source: Standard & Poor’s Capital IQ

 * For the most recent fiscal year

** As of May 29, 2009

 

The compensation committee annually reviews comparisons of General Mills’ compensation under various performance scenarios versus peer group compensation practices to ensure our programs function consistently with our compensation philosophy and principles. Based upon these reviews, the compensation committee believes that the compensation paid to General Mills’ named executive officers is reasonable and appropriate.

 

Elements of the General Mills Total Rewards Program

 

During fiscal 2009, the General Mills executive pay program consisted of base salary, annual incentive, long-term incentive and health benefits and other perquisites. Our named executive officers were also eligible to participate in the various retirement benefit plans available to General Mills’ U.S.-based salaried employees (401(k) savings plan and a defined benefit pension plan). The Chief Executive Officer and other named executive officers participate in most of the same benefit programs and are subject to the same policies in all material respects as all company officers.

 

In the following table we have outlined our objectives regarding:

 

Pay and Performance Relationship

 

When determining executive compensation, General Mills achieves its strong performance orientation through aligning the total direct compensation (base salary, annual incentive and long-term incentive) with the company’s performance against its performance peer group. Base salary, retirement and health benefits and certain perquisites are the only elements that do not vary annually based upon company performance versus the peer group. Between 79% and 88% of total direct compensation for our five active named executive officers is performance-based, assuming target performance, as shown in the charts below.

 

 

Fiscal 2009 Performance

 

Fiscal 2009 was a very strong year for General Mills. Our performance for the year was generally superior to that of our 16-company performance peer group and, more specifically, the ten food companies. Key financial measures of corporate performance exceeded the two and five-year compound growth rate trends for our performance peer group. Performance also met or exceeded General Mills’ publicly stated long-term performance goals of low single-digit net sales growth, mid-single-digit segment operating profit growth and high single-digit earnings per share growth. The company exceeded the threshold for the maximum 1.80 rating on three performance measures, earnings per share growth, segment operating profit growth, and return on average total capital improvement. Company results on net sales growth fell in the range considered superior performance, between 1.51 and 1.80.

 

The mathematical outcome generated by our results in comparison to the Corporate Rating Grid was a 1.77 Corporate Performance Rating. The committee had the discretion to adjust this rating based on their assessment of performance. After reviewing the company’s fiscal 2009 performance, the compensation committee assigned a Corporate Performance Rating of 1.77. This incentive rating was based on June estimates of comparable year-to-year growth and improvement in our four performance measures. For the year, we reported an increase in net sales of 8%, segment operating profit growth of 10% and diluted earnings per share growth of 2%.

 

The compensation committee used adjusted measures to determine the Corporate Performance Rating, as the adjusted measures reflect our underlying operating performance and are used in reporting our results to stockholders, executive management and employees. The diluted earnings per share growth described above includes a $0.22 net loss from mark-to-market valuation of certain commodity positions, a net gain of $0.11 related to divestitures, an $0.08 gain from a settlement with an insurance carrier and a $0.15 charge associated with an unfavorable court decision on an uncertain tax matter. Furthermore, an additional 53rd week in fiscal 2009 contributed approximately 1.5 percentage points of net sales growth. Adjusting for these items affecting comparability of performance, net sales increased 6%, segment operating profit increased 10%, diluted earnings per share increased 13% and return on average total capital increased 50 basis points. See page 18 of our annual report on Form 10-K and page 88 of our 2009 annual report to stockholders for a discussion of these adjusted measures and for a reconciliation of the difference between these measures and the most directly comparable measures defined by generally accepted accounting principles.

Our earnings were also affected by other items that we have not adjusted for, because we consider them to be part of our underlying performance: (1) adverse foreign currency exchange rates, (2) the highest input cost inflation in recent memory, (3) incremental investments in marketing and sales initiatives to carry fiscal 2009 momentum into fiscal 2010, and (4) an incremental contribution to the General Mills Foundation to replenish its corpus.

 

The following is a brief description of how the compensation committee determined annual and long-term incentive awards for fiscal 2009.

 

Annual Incentive Awards

 

General Mills has an Executive Incentive Plan that provides the named executive officers with an opportunity to earn an annual incentive award that is paid partially in cash, with the balance paid in restricted stock units that require a stock ownership commitment. The compensation committee approves performance targets for these awards at the beginning of each fiscal year and also approves the awards granted in June after fiscal year end, based on performance for that fiscal year. For the named executive officers, the restricted stock unit component is equal to 30% of their cash incentive award and can be increased or decreased by as much as 30% based on the Corporate Performance Rating for that fiscal year. In fiscal 2009, all employees eligible for annual incentive stock awards received a 27% upward adjustment in grant size based on the 1.77 Corporate Performance Rating.

 

For the six named executive officers, annual incentive cash awards are determined by multiplying their salary by a Base Incentive rate (50% to 75%), which is a percentage based on their level of responsibility, the Corporate Performance Rating (as determined by the compensation committee) and by their Individual Performance Rating (determined by the board of directors for the Chief Executive Officer and by the Chief Executive Officer, subject to review by the compensation committee, for the other named executive officers). Annual incentive awards for the named executive officers can vary greatly from year to year based on the Corporate Performance Rating, which can range from 0 to 1.80; and the executive’s Individual Performance Rating, which can range from 0 to 1.50 and is typically 1.40 to 1.50 for senior officers. The Executive Incentive Plan establishes a maximum award, which is adjusted downward based on these ratings.

 

 

 

 

Individual Performance Ratings are based on the achievement of specific annual objectives such as financial and operating results, completion of strategic initiatives, the quality of business plans and organizational development progress in important areas like diversity and employee development. The specific cash incentive awards for the six named executive officers for fiscal 2009 are included in the Summary Compensation Table in the column titled “Non-Equity Incentive Plan Compensation,” and the stock incentive awards for the six named executive officers are included in the table entitled “Stock and Option Awards Based on Fiscal 2009

Performance” underneath the Summary Compensation Table. Please see CEO Performance and Compensation for a discussion of Mr. Powell’s individual performance rating for fiscal 2009.

 

The restricted stock unit portion of the annual incentive vests 100% four years after the grant date. At vest, half of the value of the awards will be settled in cash and half of the value will be settled in stock. To be eligible to receive these restricted stock units, each named executive officer must put an equal number of personally-owned shares of General Mills stock on deposit with the company for four years. The named executive officer’s shares must remain on deposit until the end of the restriction period in order for the restricted stock units to vest. Restricted stock units earn dividend equivalents equal to regular dividends paid on our common stock. Beginning with the June 2009 grants, dividend equivalents are held and paid only to the extent the underlying restricted stock units vest. For awards made prior to June 2009, dividend equivalents are paid quarterly in cash.

 

Long-Term Incentive Awards

 

In alignment with the company’s objective to achieve performance that consistently ranks in the top tier of results from our consumer products industry peer group, a significant portion of the named executive officers’ pay opportunity is provided through long-term incentive awards granted under the 2007 Stock Compensation Plan. Awards are granted annually in June after fiscal year end. The size of the awards is periodically benchmarked against the long-term incentive awards made by other large food and consumer products companies to executives holding comparable positions. Each named executive officer’s standard award can be increased or decreased by as much as 30% based on the Corporate Performance Rating for that fiscal year.

 

For long-term incentive awards granted in June 2008 and 2009, 50% of the value of the award was delivered in stock options, and 50% of the value was delivered in restricted stock units, with executives being able to elect a greater portion in restricted stock units up to a maximum of 100%. For the June 2009 awards, all employees eligible for stock compensation received an increase to their long-term incentive grant value of 27% based on the 1.77 Corporate Performance Rating for fiscal 2009. The June 2008 long-term incentive awards for the six named executive officers are included under Grants of Plan-Based Awards for Fiscal 2009. The June 2009 long-term incentive awards are included in the table entitled “Stock and Option Awards Based on Fiscal 2009 Performance” underneath the Summary Compensation Table.

 

The restricted stock units issued as long-term incentive awards vest 100% four years after the grant date. At vest, half of the value of the awards will be settled in cash and half of the value will be settled in stock. They earn dividend equivalents equal to regular dividends paid on our common stock. Beginning with the June 2009 grants, dividend equivalents are held and paid only to the extent the underlying restricted stock units vest. For awards made prior to June 2009, dividend equivalents are paid quarterly in cash.

 

The options issued as long-term incentive awards also vest 100% four years after the grant date. The exercise price per share equals the closing price of our common stock on the New York Stock Exchange on the grant date. The options generally expire 10 years and one month from the grant date. They include the right to pay the exercise price in cash or previously acquired common stock and the right to have shares withheld by the company to pay withholding tax obligations due upon exercise.

 

CEO Performance and Compensation

 

In fiscal 2009, the compensation committee recommended and the board of directors approved the annual incentive and stock awards for Mr. Powell, the company’s Chairman and Chief Executive Officer, consistent with the methods used for other senior executives. In determining Mr. Powell’s individual performance and annual incentive award, the compensation committee evaluated his performance by soliciting written feedback from all non-employee directors and subsequently discussing the consolidated input with all non-employee directors in executive session. The criteria utilized to determine Mr. Powell’s performance included the company’s financial and operational performance for fiscal 2009, the overall level of leadership he provided, and his continued ability to develop and implement strategies to enhance stockholder value. The compensation committee also considered Mr. Powell’s performance against his pre-established fiscal year objectives in a number of additional areas such as brand building, key customer initiatives, international expansion, marketplace innovation, productivity improvement, organizational development, and stockholder relations.

Consistent with all company officers, Mr. Powell did not receive a merit increase in July 2009. Based on the annual assessment of his performance by the board of directors, the compensation committee and full board of directors approved a fiscal 2009 annual incentive payment to Mr. Powell of $1,910,770 in cash and 13,038 restricted stock units requiring a matching investment, and a long-term incentive award of 53,662 restricted stock units and 268,306 stock options. The annual and long-term incentive awards were based on the Corporate Performance Rating of 1.77 and, therefore, the stock awards include an upward adjustment of 27%.

 

In fiscal 2009, the accounting expense listed for Mr. Powell’s “Stock Awards” and “Option Awards” and his “Total Compensation” in the Summary Compensation Table increased substantially from prior years, because he became eligible for early retirement, and to a lesser extent because of year-to-year increases in salary and awards due to promotion and performance. In accordance with SFAS 123R, the entire value of awards to retirement-eligible individuals that would vest on retirement is expensed at grant rather than over the vesting period of the awards. Mr. Powell’s Change in Pension Value was driven primarily by a year-to-year increase in salary, along with an additional year of age and service.

 

Mr. Powell was promoted to Chairman and Chief Executive Officer in fiscal 2008. Based on the most recent proxy analysis conducted by the independent compensation consultant, Mr. Powell’s total direct compensation for fiscal 2009 is positioned between the 25th percentile and median of chief executive officer compensation for peer group consumer products companies. The relative positioning of each pay element for Mr. Powell is as follows:

 

 

Significant Compensation Actions Since the Beginning of Fiscal 2009

 

In addition to the compensation decisions described above, the board of directors has taken the following actions since the beginning of fiscal 2009 that impact the named executive officers’ compensation arrangements:

 

Zero Merit Increases for Officers

 

At this time, all company officers, including the named executive officers, will forego merit increases that would have normally taken effect July 1, 2009. Merit increases have been maintained for employees below the officer level. We took this step in light of the current uncertain economic environment and evolving competitive practice.

New Independent Executive Compensation Consultant

 

At its May 2009 meeting, the compensation committee selected Frederic W. Cook & Co., Inc. to be its new independent consultant for fiscal 2010. The change reflects the compensation committee’s decision to retain a compensation consulting firm that does not provide other services to General Mills.

 

Dividends on Unvested Restricted Stock Units

 

In May 2009, the company adopted a practice of accumulating dividends on unvested restricted stock units and paying them at the time and to the extent the underlying restricted stock units vest. This practice began with the June 2009 stock awards. This decision was made to reflect emerging market practices.

 

Executive Compensation Clawback Policy

 

In June 2009, the company adopted an Executive Compensation Clawback Policy. In the event the company is required to restate financial results due to fraud, intentional misconduct, gross negligence or otherwise, the compensation committee may adjust the future compensation, cancel outstanding stock or performance-based awards, or seek recoupment of previous awards for company officers who were significant contributors to the cause of the restatement. Also, the compensation committee may take action where it reasonably believes the company’s Employee Code of Conduct or the terms of a separation agreement have been violated. The new policy was adopted in response to emerging market practices and to protect stockholder interests.

 

Approval of 2009 Stock Compensation Plan

 

In June 2009, the board of directors approved the 2009 Stock Compensation Plan (the “2009 Plan”) and recommended that stockholders approve the 2009 Plan at the annual meeting. The 2009 Plan is essential for the company to continue granting long-term compensation that will attract and retain management talent capable of consistently delivering superior financial performance. The equity-based awards granted under the 2009 Plan will also be important to tying a significant amount of management’s compensation opportunity directly to increases in stockholder value. We believe that the broad and deep employee stock ownership encouraged by the board of directors and management has motivated employees to achieve superior results through the years. The 2009 Plan maintains the moderated levels of annual share usage and outstanding awards that we have achieved in recent years. For more detail on the 2009 Plan, see Proposal Number 2, Adoption of the 2009 Stock Compensation Plan.

 

Limitation On Company-Covered Costs of Personal Use of Corporate Aircraft

 

In June 2008, the compensation committee increased the annual limit on company-covered personal use of corporate aircraft for the Chief Executive Officer to $100,000. In arriving at its decision, the compensation committee reviewed the value of similar benefits at peer companies and a cross-industry sample of large companies. The compensation committee also considered trends in cost elements included in value of the benefit and the number of flights the company considered reasonable and intended to have covered by the policy.

 

Stock Ownership Guidelines

 

Since 1991 the company has established stock ownership guidelines for senior executives. Currently these targets are ten-times salary for the Chief Executive Officer, five-times salary for senior vice presidents and above, including the named executive officers other than the Chief Executive Officer, and three-times salary for all other corporate officers. Newly-hired or promoted executives are given five years to attain the ownership target.

 

General Mills executives who have been in their role for multiple years generally exceed the stock ownership guidelines by significant amounts, as illustrated by three of the five active named executive officers shown in the table below. Our high level of executive stock ownership is a result of strong retention of executive talent (unwanted turnover of the top 500 managers is typically less than 1% annually) and the terms of General Mills’ stock compensation program, which has longer vesting requirements than any company in our compensation peer group (awards vest 100% four years from the grant date). In addition, most executives

at General Mills hold their stock options for eight years or longer. Mr. Powell and Mr. Mulligan have not yet fulfilled the guidelines due to their respective promotions in fiscal 2008, which significantly increased their stock ownership requirements from those established for their previous roles. Both executives have five years from their promotion date to attain their stock ownership guidelines.

 

Stock Ownership for Active Named Executive Officers

 

 

Other Compensation Policies

 

Stock Compensation Award Approval

 

In order to assure that the terms of all stock compensation awards fully reflect the intent of the board of directors and comply with all applicable requirements, we have strict administrative guidelines on the timing and approval of stock compensation awards. The compensation committee pre-approves all awards to senior vice presidents and higher-level executive officers, and the board pre-approves awards to the Chief Executive Officer. They typically approve these awards at the regularly scheduled June board meeting, when the rest of the annual and long-term incentive awards are granted to our employees. Under the terms of the 2007 and 2009 Stock Compensation Plans, the company cannot grant stock options at a discount to fair market value on the grant date. Except for the annual June grant, awards to executive officers may not be approved during trading blackout periods.

 

Independent Compensation Consultant Engagement

 

The compensation committee has adopted a policy for engagement of the committee’s independent compensation consultant, in order to ensure the consultant’s continuing independence and its accountability to the committee. The compensation committee has the sole authority to retain or replace the independent compensation consultant. Compensation committee approval is required prior to the company retaining the independent compensation consultant, or his or her firm, for any executive compensation services or other consulting services or products above an aggregate annual amount of $25,000. In accordance with the policy, the compensation committee selected the firm of Frederic W. Cook & Co., Inc. to be its independent consultant from fiscal 2010 forward. This firm performs no other services for the company.

 

Tax Deductibility of Compensation

 

Our Executive Incentive Plan, the 2007 Stock Compensation Plan and the proposed 2009 Stock Compensation Plan have each been structured with the intention that cash incentive payments, restricted

stock units, stock options and stock appreciation rights awarded under these plans can qualify as performance-based compensation, which is tax-deductible to the company under Section 162(m) of the Internal Revenue Code.

 

The following tables and accompanying narrative disclosure should be read in conjunction with the Compensation Discussion and Analysis, which presents objectives of our executive compensation and benefits programs. The table below presents compensation for individuals who served as Chief Executive Officer and Chief Financial Officer during fiscal 2009, for each of the other three most highly-compensated executive officers who were serving as executive officers at the end of fiscal 2009 and for Mr. Darcy, an executive officer who retired during fiscal 2009 but who otherwise would have qualified to be a named executive officer (the “named executive officers”). Mr. Mulligan and Mr. Friendly were not named executive officers in fiscal 2007, and Mr. O’Leary was not a named executive officer in fiscal 2007 or fiscal 2008, and therefore information on their compensation for those fiscal years is not included.

 

 

Compensation Earned in Fiscal Year

 

 

 

Stock and Option Awards Based on Fiscal 2009 Performance

 

 

 

 

All Other Compensation

 

 

Perquisites and Other Personal Benefits

 

 

 

The following table describes the potential range of annual incentive cash awards for fiscal 2009 performance and equity awards granted in fiscal 2009 for fiscal 2008 performance. The Summary Compensation Table and Compensation Discussion and Analysis include additional information about equity awards granted.