SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )

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Total System Services, Inc.

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Philip W. Tomlinson
Chairman of the Board and
Chief Executive Officer

March 26, 2008

 

Dear Shareholder:

 

You are cordially invited to attend our Annual Meeting of Shareholders at 10:00 a.m. on Wednesday, April 30, 2008, at the TSYS Riverfront Campus Auditorium, 1600 First Avenue, Columbus, Georgia. Enclosed with this Proxy Statement are your proxy card and the 2007 Annual Report.

 

We hope that you will be able to be with us and let us give you a review of 2007. If you are unable to attend the meeting, you can listen to it live and view the slide presentation over the Internet. You can access the meeting by going to our website at www.tsys.com. Additionally, we will maintain copies of the slides and audio of the presentation to the 2008 Annual Meeting on the website for reference after the meeting.

 

Whether you own a few or many shares of stock and whether or not you plan to attend in person, it is important that your shares be voted on matters that come before the meeting. To make sure your shares are represented, we urge you to vote promptly.

 

On December 31, 2007, Synovus Financial Corp. completed the spin-off to its shareholders of the shares of TSYS stock formerly owned by Synovus. TSYS is now a fully independent publicly traded company. We are excited about the future and look forward to your continued support in 2008.

 

Sincerely yours,

 

Philip W. Tomlinson

 

TOTAL SYSTEM SERVICES, INC.^®

 

NOTICE OF THE 2008 ANNUAL MEETING OF SHAREHOLDERS

 

 

G. Sanders Griffith, III
Secretary

 

Columbus, Georgia
March 26, 2008

 

 

YOUR VOTE IS IMPORTANT.  WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE VOTE YOUR SHARES PROMPTLY.

 

 

TABLE OF CONTENTS

 

 

Purpose

 

This Proxy Statement and the accompanying proxy card are being mailed to TSYS shareholders beginning on or about March 26, 2008. The TSYS Board of Directors is soliciting proxies to be used at the 2008 Annual Meeting of TSYS Shareholders which will be held on April 30, 2008, at 10:00 a.m., at the TSYS Riverfront Campus Auditorium, 1600 First Avenue, Columbus, Georgia. Proxies are solicited to give all shareholders of record an opportunity to vote on matters to be presented at the Annual Meeting. In the following pages of this Proxy Statement, you will find information on matters to be voted upon at the Annual Meeting of Shareholders or any adjournment of that meeting.

 

Who Can Vote

 

You are entitled to vote if you were a shareholder of record of TSYS stock as of the close of business on February 21, 2008, the record date. Your shares can be voted at the meeting only if you are present or represented by a valid proxy.

 

Quorum and Shares Outstanding

 

A majority of the outstanding shares of TSYS stock must be present, either in person or represented by proxy, in order to conduct the Annual Meeting of TSYS Shareholders. On February 21, 2008, 198,849,665 shares of TSYS stock were outstanding.

 

Proxies

 

The Board has designated two individuals to serve as proxies to vote the shares represented by proxies at the Annual Meeting of Shareholders. If you properly execute and submit a proxy card but do not specify how you want your shares to be voted, your shares will be voted by the designated proxies: (1) FOR the election of all of the director nominees; and (2) FOR the ratification of the appointment of KPMG LLP as TSYS’ independent auditor for the year 2008. The designated proxies will vote in their discretion on any other matter that may properly come before the Annual Meeting. At this time, we are unaware of any matters, other than as set forth above, that may properly come before the Annual Meeting.

 

Voting of Shares

 

Each share of TSYS stock represented at the Annual Meeting is entitled to one vote on each matter properly brought before the meeting. All shares entitled to vote and represented in person or by valid proxies received by phone, Internet or mail will be voted at the Annual Meeting in accordance with the instructions indicated on those proxies.

 

TSYS Dividend Reinvestment and Direct Stock Purchase Plan:  If you participate in this Plan, your proxy card represents shares held in the Plan, as well as shares you hold in certificate form registered in the same name.

 

Required Votes

 

Directors are elected by a plurality of the votes cast, which means the five nominees who receive the largest number of properly executed votes will be elected as directors. Each share of TSYS stock is entitled to one vote for each of five director nominees. Shares that are represented by proxies which are marked “withhold authority” for the election of one or more director nominees will not be counted in determining the number of votes cast for those persons.

 

The affirmative vote of a majority of the votes cast is needed to ratify the appointment of KPMG LLP as TSYS’ independent auditor for 2008.

Abstentions and Broker Non-Votes

 

Under certain circumstances, brokers are prohibited from exercising discretionary authority for beneficial owners who have not provided voting instructions to the broker (a “broker non-vote”). In these cases, and in cases where the shareholder abstains from voting on a matter, those shares will be counted for the purpose of determining if a quorum is present, but will not be included as votes cast with respect to those matters. Abstentions and broker non-votes will have no effect on the outcome of the vote for either of the proposals to be voted on at the Annual Meeting.

 

How You Can Vote

 

If you hold shares in your own name, you may vote by proxy or in person at the meeting. To vote by proxy, you may select one of the following options:

 

Vote By Telephone:

 

You can vote your shares by telephone by calling the toll-free telephone number (at no cost to you) shown on your proxy card. Telephone voting is available 24 hours a day, seven days a week. Easy-to-follow voice prompts allow you to vote your shares and confirm that your instructions have been properly recorded. Our telephone voting procedures are designed to authenticate the shareholder by using individual control numbers. If you vote by telephone, you do NOT need to return your proxy card.

 

Vote By Internet:

 

You can also choose to vote on the Internet. The website for Internet voting is shown on your proxy card. Internet voting is available 24 hours a day, seven days a week. You will be given the opportunity to confirm that your instructions have been properly recorded, and you can consent to view future proxy statements and annual reports on the Internet instead of receiving them in the mail. If you vote on the Internet, you do NOT need to return your proxy card.

 

Vote By Mail:

 

If you choose to vote by mail, simply mark your proxy card, date and sign it, and return it in the postage-paid envelope provided.

 

If your shares are held in the name of a bank, broker or other nominee, you will receive instructions from the holder of record that you must follow for your shares to be voted. Please follow their instructions carefully. Also, please note that if the holder of record of your shares is a broker, bank or other nominee and you wish to vote in person at the Annual Meeting, you must request a legal proxy from your bank, broker or other nominee that holds your shares and present that proxy and proof of identification at the Annual Meeting.

 

Revocation of Proxy

 

If you vote by proxy, you may revoke that proxy at any time before it is voted at the Annual Meeting. You may do this by (1) signing another proxy card with a later date and returning it to us prior to the Annual Meeting, (2) voting again by telephone or on the Internet prior to the Annual Meeting, or (3) attending the Annual Meeting in person and casting a ballot.

 

If your TSYS shares are held by a bank, broker or other nominee, you must follow the instructions provided by the bank, broker or other nominee if you wish to change your vote.

 

Attending the Annual Meeting

 

The Annual Meeting will be held on Wednesday, April 30, 2008 at the TSYS Riverfront Campus Auditorium, 1600 First Avenue, Columbus, Georgia. Directions to the auditorium can be obtained from the Investors page of TSYS’ website at www.tsys.com.

 

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be held on April 30, 2008

 

The Proxy Statement and Annual Report to security holders are available on our website at http://annualreport.tsys.com/.

Corporate Governance Philosophy

 

The business affairs of TSYS are managed under the direction of the Board of Directors in accordance with the Georgia Business Corporation Code, as implemented by TSYS’ Articles of Incorporation and bylaws. The role of the Board of Directors is to effectively govern the affairs of TSYS for the benefit of its shareholders and other constituencies. The Board strives to ensure the success and continuity of business through the election and oversight of qualified management. It is also responsible for ensuring that TSYS’ activities are conducted in a responsible and ethical manner. TSYS is committed to having sound corporate governance principles.

 

Independence

 

The listing standards of the New York Stock Exchange (“NYSE”) provide that a director does not qualify as independent unless the Board of Directors affirmatively determines that the director has no material relationship with TSYS. The Board has established categorical standards of independence to assist it in determining director independence which conform to the independence requirements in the NYSE listing standards. The categorical standards of independence are incorporated within our Corporate Governance Guidelines, are attached to this Proxy Statement as Appendix A and are also available in the Corporate Governance section of our website at www.tsys.com/ir/governance.

 

The Board has determined that a majority of its members are independent as defined by the listing standards of the NYSE and meet the categorical standards of independence set by the Board. TSYS’ Board has determined that the following directors are independent: Richard Y. Bradley, Kriss Cloninger III, G. Wayne Clough, Walter W. Driver, Jr., Sidney E. Harris, Mason H. Lampton, W. Walter Miller, Jr., H. Lynn Page, John T. Turner and Rebecca K. Yarbrough. Please see “Compensation Committee Interlocks and Insider Participation” on page 5 and “Certain Relationships and Related Transactions” on page 35 which include information with respect to immaterial relationships between TSYS and its independent directors. This information was considered by the Board in determining a director’s independence from TSYS under TSYS’ categorical standards of independence and NYSE listing standards.

 

Attendance at Meetings

 

The Board of Directors held five meetings in 2007. All directors attended at least 75% of Board and committee meetings held during their tenure during 2007. The average attendance by directors at the aggregate number of Board and committee meetings they were scheduled to attend was 92%. Although TSYS has no formal policy with respect to Board members’ attendance at its annual meetings, it is customary for all Board members to attend as there is a Board meeting immediately preceding the annual meeting. All of TSYS’ directors who were serving at the time attended the 2007 Annual Meeting of Shareholders.

Committees of the Board

 

TSYS’ Board of Directors has four principal standing committees — an Executive Committee, an Audit Committee, a Corporate Governance and Nominating Committee and a Compensation Committee. Each committee has a written charter adopted by the Board of Directors that complies with the listing standards of the NYSE pertaining to corporate governance. Copies of the committee charters are available in the Corporate Governance section of our website at www.tsys.com/ir/governance. The Board has determined that each member of the Audit, Corporate Governance and Nominating and Compensation Committees is an independent director as defined by the listing standards of the NYSE and our Corporate Governance Guidelines. The following table shows the membership of the various committees.

 

 

Executive Committee.  TSYS’ Executive Committee held four meetings in 2007. During the intervals between meetings of TSYS’ Board of Directors, TSYS’ Executive Committee possesses and may exercise any and all of the powers of TSYS’ Board of Directors in the management and direction of the business and affairs of TSYS with respect to which specific direction has not been previously given by TSYS’ Board of Directors unless Board action is required by TSYS’ governing documents, law or rule.

 

Audit Committee.  TSYS’ Audit Committee held nine meetings in 2007. Its Report is on page 17. The Board has determined that all four members of the Committee are independent under the rules of the NYSE and the Securities and Exchange Commission (“SEC”), financially literate under the rules of the NYSE and that at least one member, H. Lynn Page, is an “audit committee financial expert” as defined by the rules of the SEC. The primary functions of TSYS’ Audit Committee include:

 

 

Corporate Governance and Nominating Committee.  TSYS’ Corporate Governance and Nominating Committee held five meetings in 2007. The primary functions of TSYS’ Corporate Governance and Nominating Committee include:

 

 

Compensation Committee.  TSYS’ Compensation Committee held four meetings in 2007. Its Report is on page 27. The primary functions of TSYS’ Compensation Committee include:

 

 

The Compensation Committee’s charter reflects these responsibilities, and allows the Committee to delegate any matters within its authority to individuals or subcommittees it deems appropriate. In addition, the Committee has the authority under its charter to retain outside advisors to assist the Committee in the performance of its duties. In January 2007, the Committee retained the services of Hewitt Associates for 2007 to:

 

 

Hewitt was engaged directly by the Committee, although the Committee also directed that Hewitt continue to work with TSYS management. TSYS’ Executive Vice President of Administrative Services and his staff develop executive compensation recommendations for the Committee’s consideration in conjunction with TSYS’ Chief Executive Officer and with the advice of Hewitt Associates. In addition, during 2007 the Director of Human Resources of Synovus Financial Corp. (“Synovus”) provided advice with respect to equity awards of Synovus made to TSYS executives (such awards were granted by the Synovus Compensation Committee based upon the recommendation of the TSYS Compensation Committee).

 

TSYS’ Executive Vice President of Administrative Services works with the Chairman of the Committee to establish the agenda for Committee meetings. TSYS management also prepares background information for each Committee meeting. During 2007, TSYS’ Executive Vice President of Administrative Services and Synovus’ Director of Human Resources attended all Committee meetings, while TSYS’ Chief Executive Officer attended some Committee meetings, such as the Committee meeting in which his performance was reviewed with the Committee and other meetings upon the request of the Committee. TSYS’ Chief Executive Officer and Executive Vice President of Administrative Services and Synovus’ Director of Human Resources do not have authority to vote on Committee matters. An executive compensation consultant with Hewitt Associates also attends some Committee meetings upon the request of the Committee.

 

On December 31, 2007, Synovus completed the spin-off to its shareholders of the shares of TSYS stock formerly owned by Synovus (“Spin-Off”). As a result of the Spin-Off, representatives of Synovus will not participate in compensation matters at TSYS subsequent to 2007. Please see “Spin-Off” on page 38 for more information about the Spin-Off.

 

Compensation Committee Interlocks and Insider Participation.  Messrs. Lampton, Clough and Driver served on the Compensation Committee during 2007. None of these individuals is or has been an officer or employee of TSYS.

 

During 2007, the Special Committee of TSYS which was formed in connection with the Spin-Off engaged Goldman, Sachs & Co. to act as financial advisor in connection with the Spin-Off and the related special cash dividend which was paid by TSYS to all TSYS shareholders, including Synovus. TSYS paid Goldman, Sachs & Co. $5,000,000 in connection with the engagement, $3,500,000 of which was paid or accrued for in 2007 and $1,500,000 of which was agreed to be paid and was paid in 2008. The payments are comparable to payments between similarly situated unrelated third parties for similar services. Walter W. Driver, Jr., a director of TSYS, is Chairman-Southeast of Goldman, Sachs & Co. The payments by TSYS to Goldman, Sachs represent less than .006% of Goldman, Sachs’ 2007 gross revenues.

 

Consideration of Director Candidates

 

Shareholder Candidates.  The Corporate Governance and Nominating Committee will consider candidates for nomination as a director submitted by shareholders. Although the Committee does not have a separate policy that addresses the consideration of director candidates recommended by shareholders, the Board does not believe that such a separate policy is necessary as TSYS’ bylaws permit shareholders to nominate candidates and as one of the duties set forth in the Corporate Governance and Nominating Committee charter is to review and consider director candidates submitted by shareholders. The Committee will evaluate individuals recommended by shareholders for nomination as directors according

to the criteria discussed below and in accordance with TSYS’ bylaws and the procedures described under “Shareholder Proposals and Nominations” on page 40.

 

Director Qualifications.  TSYS’ Corporate Governance Guidelines contain Board membership criteria considered by the Corporate Governance and Nominating Committee in recommending nominees for a position on TSYS’ Board. The Committee believes that, at a minimum, a director candidate must possess personal and professional integrity, sound judgment and forthrightness. A director candidate must also have sufficient time and energy to devote to the affairs of TSYS, be free from conflicts of interest with TSYS, not have reached the retirement age for TSYS directors and be willing to make, and financially capable of making, the required investment in TSYS’ stock pursuant to TSYS’ Director Stock Ownership Guidelines. The Committee also considers the following criteria when reviewing a director candidate:

 

 

Identifying and Evaluating Nominees

 

The Corporate Governance and Nominating Committee has two primary methods for identifying director candidates (other than those proposed by TSYS’ shareholders, as discussed above). First, on a periodic basis, the Committee solicits ideas for possible candidates from a number of sources including members of the Board, TSYS executives and individuals personally known to the members of the Board. Second, the Committee is authorized to use its authority under its charter to retain at TSYS’ expense one or more search firms to identify candidates (and to approve such firms’ fees and other retention terms).

 

The Committee will consider all director candidates identified through the processes described above, and will evaluate each of them, including incumbents, based on the same criteria. The director candidates are evaluated at regular or special meetings of the Committee and may be considered at any point during the year. If based on the Committee’s initial evaluation a director candidate continues to be of interest to the Committee, the Chair of the Committee will interview the candidate and communicate his evaluation to the other Committee members and executive management. Additional interviews are conducted, if necessary, and ultimately the Committee will meet to finalize its list of recommended candidates for the Board’s consideration.

 

Meetings of Non-Management and Independent Directors

 

The non-management directors of TSYS meet separately at least four times a year after each regularly scheduled meeting of the Board of Directors. TSYS’ independent directors meet at least once a year. G. Wayne Clough, TSYS’ Lead Director, presides at the meetings of non-management and independent directors.

 

Communicating with the Board

 

TSYS’ Board provides a process for shareholders and other interested parties to communicate with one or more members of the Board, including the Lead Director, or the non-management or independent directors as a group. Shareholders and other interested parties may communicate with the Board by writing the Board of Directors, Total System Services, Inc., c/o General Counsel’s Office, 1600 First Avenue, Columbus, Georgia 31901 or by calling (888)467-2881. These procedures are also available in the

Corporate Governance section of our website at www.tsys.com/ir/governance. TSYS’ process for handling shareholder and other communications to the Board has been approved by TSYS’ independent directors.

 

Additional Information about Corporate Governance

 

TSYS has adopted Corporate Governance Guidelines which are regularly reviewed by the Corporate Governance and Nominating Committee. We have also adopted a Code of Business Conduct and Ethics which is applicable to all directors, officers and employees. In addition, we maintain procedures for the confidential, anonymous submission of any complaints or concerns about TSYS, including complaints regarding accounting, internal accounting controls or auditing matters. Shareholders may access TSYS’ Corporate Governance Guidelines, Code of Business Conduct and Ethics, each committee’s current charter, procedures for shareholders and other interested parties to communicate with the Lead Director or with the non-management or independent directors individually or as a group and procedures for reporting complaints and concerns about TSYS, including complaints concerning accounting, internal accounting controls and auditing matters in the Corporate Governance section of our website at www.tsys.com/ir/governance. Copies of these documents are also available in print upon written request to the Corporate Secretary, Total System Services, Inc., 1600 First Avenue, Columbus, Georgia 31901.

DIRECTOR COMPENSATION TABLE

 

The following table summarizes the compensation paid by TSYS to directors for the year ended December 31, 2007.

 

 

 

 

Director Compensation Program

 

The Corporate Governance and Nominating Committee of TSYS is responsible for the oversight and administration of the TSYS director compensation program. The Committee’s charter reflects these responsibilities and does not allow the Committee to delegate its authority to any person other than the

members of the Corporate Governance and Nominating Committee. Under its charter, the Committee has authority to retain outside advisors to assist the Committee in performance of its duties. In November 2006, the Corporate Governance and Nominating Committee retained Mercer Human Resource Consulting to review the competitiveness of the TSYS director compensation program. Mercer was directed to evaluate existing peer groups of companies against which to benchmark director compensation at TSYS, to revise if necessary and review and compare director pay practices at TSYS to industry peer companies and to those of general industry companies, analyzing cash compensation, long-term incentive compensation and total compensation. The Committee, with the assistance of Mercer, studied compensation at a peer group of 18 companies generally categorized as business service providers and at 350 large industrial, financial and service organizations. The Committee also asked Mercer to overview recent director pay trends, including shifts in pay mix, equity compensation trends and changes related to increased responsibilities and liability. Mercer’s recommendations for director compensation were then presented to the Committee. In January 2007, Mercer recommended certain changes to the director compensation program at TSYS; the Committee discussed and considered these recommendations and recommended to the Board that it approve the current compensation structure, except with respect to compensating employee directors as described in the following paragraph. The decisions made by the Committee are the responsibility of the Committee and may reflect factors and considerations other than the information and recommendations provided by Mercer. The Committee has decided to review and evaluate director compensation every two years.

 

Cash Compensation of Directors.  As reflected in the “Fees Earned or Paid in Cash” column of the Director Compensation Table above, for the fiscal year ended December 31, 2007, directors of TSYS received an annual cash retainer of $40,000, with Compensation Committee and Executive Committee members receiving an additional cash retainer of $10,000, Corporate Governance and Nominating Committee members receiving an additional cash retainer of $7,500 and Audit Committee members receiving an additional cash retainer of $15,000. In addition, the Chairperson of the Corporate Governance and Nominating Committee received a $7,500 cash retainer, the Chairperson of the Compensation Committee received a $10,000 cash retainer, the Chairperson of the Audit Committee received a $15,000 cash retainer and the Lead Director received a $5,000 cash retainer. For 2008, the Committee determined to discontinue the practice of paying cash compensation to directors who are employees of TSYS.

 

By paying directors an annual retainer, TSYS compensates each director for his or her role and judgment as an advisor to TSYS, rather than for his or her attendance or effort at individual meetings. In so doing, directors with added responsibility are recognized with higher cash compensation. For example, members of the Audit Committee receive a higher cash retainer based upon the enhanced duties, time commitment and responsibilities of service on that committee. The Corporate Governance and Nominating Committee believes that this additional cash compensation is appropriate. In addition, directors may from time to time receive compensation for serving on special committees of the TSYS Board.

 

Directors may elect to defer all or a portion of their cash compensation under the TSYS Directors’ Deferred Compensation Plan. The Directors’ Deferred Compensation Plan does not provide directors with an “above market” rate of return. Instead, the deferred amounts are deposited into one or more investment funds at the election of the director. In so doing, the plan is designed to allow directors to defer the income taxation of a portion of their compensation and to receive an investment return on those deferred amounts. All deferred fees are payable only in cash. Each of Messrs. Harris, Turner and Woods deferred all or a portion of their cash compensation under this plan during 2007.

 

Equity Compensation of Directors.  During 2007, non-management directors also received an annual award of 500 shares of restricted TSYS stock in the form of a grant from the TSYS 2002 Long-Term Incentive Plan, 100% of which vests after three years. The Board granted these restricted stock awards to directors on February 1, 2007. These restricted stock awards are designed to create equity ownership and to focus directors on the long-term performance of TSYS.

 

TSYS’ Director Stock Purchase Plan is a non-qualified, contributory stock purchase plan pursuant to which qualifying TSYS directors can purchase, with the assistance of contributions from TSYS, presently issued and outstanding shares of TSYS stock. Under the terms of the Director Stock Purchase Plan, qualifying directors can elect to contribute up to $5,000 per calendar quarter to make purchases of TSYS stock, and TSYS contributes an additional amount equal to 50% of the directors’ cash contributions.

Participants in the Director Stock Purchase Plan are fully vested in, and may request the issuance to them of, all shares of TSYS stock purchased for their benefit under the Plan. TSYS’ contributions under this Plan are included in the “All Other Compensation” column of the Director Compensation Table above. TSYS’ contributions under the Director Stock Purchase Plan further provide directors the opportunity to buy and maintain an equity interest in TSYS and to share in the capital appreciation of TSYS.

 

The restricted stock awards to directors and TSYS’ contributions under the Director Stock Purchase Plan also assist and facilitate directors’ fulfillment of their stock ownership requirements. TSYS’ Corporate Governance Guidelines require all directors to accumulate over time shares of TSYS stock equal in value to at least three times the value of their annual retainer. Directors have five years to attain this level of total stock ownership but must attain a share ownership threshold of one times the amount of the director’s annual retainer within three years. These stock ownership guidelines are designed to align the interests of TSYS’ directors to that of TSYS’ shareholders and the long-term performance of TSYS.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” ALL NOMINEES.

 

General Information

 

At the date of this Proxy Statement, the Board of Directors of TSYS consists of 18 members. Our directors determine the size of the Board and for purposes of the Annual Meeting, the number is fixed at 18. The Board is divided into three classes whose terms are staggered so that the term of one class expires at each Annual Meeting of Shareholders. The terms of office of the Class I directors expire at the 2008 Annual Meeting, the terms of office of the Class II directors expire at the 2009 Annual Meeting and the terms of office of the Class III directors expire at the 2010 Annual Meeting.

 

Nominees

 

The following nominees have been selected by the Corporate Governance and Nominating Committee and approved by the Board for submission to the shareholders: Kriss Cloninger III, G. Wayne Clough, H. Lynn Page, Philip W. Tomlinson and Richard W. Ussery, each to serve a three year term expiring at the 2011 Annual Meeting.

 

The Board believes that each director nominee will be able to stand for election. If any nominee becomes unable to stand for election, proxies in favor of that nominee will be voted in favor of any substitute nominee named by the Board upon the recommendation of the Corporate Governance and Nominating Committee. If you do not wish your shares voted for one or more of the nominees, you may so indicate on the proxy.

 

Members of the Board of Directors

 

Following is the principal occupation, age and certain other information for each director nominee and other directors serving unexpired terms. Unless otherwise noted, each director has occupied his or her principal occupation for at least five years.

 

 

 

 

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS THE INDEPENDENT AUDITOR.

 

The Audit Committee has appointed the firm of KPMG LLP as the independent auditor to audit the consolidated financial statements of TSYS and its subsidiaries for the fiscal year ending December 31, 2008 and TSYS’ internal control over financial reporting as of December 31, 2008. Representatives of KPMG will be present at the Annual Meeting with the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions from shareholders present at the meeting. Although shareholder ratification of the appointment of TSYS’ independent auditor is not required by our bylaws or otherwise, we are submitting the selection of KPMG to our shareholders for ratification to permit shareholders to participate in this important corporate decision. If not ratified, the Audit Committee will reconsider the selection, although the Audit Committee will not be required to select a different independent auditor for TSYS.

The following table sets forth the name, age and position with TSYS of each executive officer of TSYS.

 

 

 

The following table sets forth ownership of shares of TSYS stock by each director, each executive officer named in the Summary Compensation Table and all directors and executive officers as a group as of December 31, 2007.

 

 

 

 

 

 

The Audit Committee of the Board of Directors is comprised of four directors, each of whom the Board has determined to be an independent director as defined by the listing standards of the NYSE and the rules of the SEC. The duties of the Audit Committee are summarized in this Proxy Statement under “Committees of the Board” on page 4 and are more fully described in the Audit Committee charter adopted by the Board of Directors.

 

One of the Audit Committee’s primary responsibilities is to assist the Board in its oversight responsibility regarding the integrity of TSYS’ financial statements and systems of internal controls. Management is responsible for TSYS’ accounting and financial reporting processes, the establishment and effectiveness of internal controls and the preparation and integrity of TSYS’ consolidated financial statements. KPMG LLP, TSYS’ independent auditor, is responsible for performing an independent audit of TSYS’ consolidated financial statements and of the effectiveness of TSYS’ internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States) and issuing opinions on whether those financial statements are presented fairly in conformity with accounting principles generally accepted in the United States and on the effectiveness of TSYS’ internal control over financial reporting. The Audit Committee is directly responsible for the appointment, compensation and oversight of KPMG LLP. The function of the Audit Committee is not to duplicate the activities of management or the independent auditor, but to monitor and oversee TSYS’ financial reporting process.

 

In discharging its responsibilities regarding the financial reporting process, the Audit Committee:

 

 

Based upon the review and discussions referred to in the preceding paragraph, the Audit Committee recommended to the Board of Directors that the audited financial statements referred to above be included in TSYS’ Annual Report on Form 10-K for the year ended December 31, 2007 filed with the Securities and Exchange Commission.

 

 

The Audit Committee
H. Lynn Page, Chair
Kriss Cloninger III
Sidney E. Harris
John T. Turner

KPMG LLP Fees and Services

 

The following table presents fees for professional audit services rendered by KPMG LLP for the audit of TSYS’ annual financial statements for the years ended December 31, 2007 and December 31, 2006 and fees billed for other services rendered by KPMG during those periods.

 

 

 

 

Policy on Audit Committee Pre-Approval

 

The Audit Committee has the responsibility for appointing, setting the compensation for and overseeing the work of TSYS’ independent auditor. In recognition of this responsibility, the Audit Committee has established a policy to pre-approve all audit and permissible non-audit services provided by the independent auditor in order to assure that the provision of these services does not impair the independent auditor’s independence. TSYS’ Audit Committee Pre-Approval Policy addresses services included within the four categories of audit and permissible non-audit services, which include Audit Services, Audit Related Services, Tax Services and All Other Services.

 

The annual audit services engagement terms and fees are subject to the specific pre-approval of the Audit Committee. In addition, the Audit Committee must specifically approve permissible non-audit services classified as All Other Services.

 

Prior to engagement, management submits to the Committee for approval a detailed list of the Audit Services, Audit Related Services and Tax Services that it recommends the Committee engage the independent auditor to provide for the fiscal year. Each specified service is allocated to the appropriate category and accompanied by a budget estimating the cost of that service. The Committee will, if appropriate, approve both the list of Audit Services, Audit Related Services and Tax Services and the budget for such services.

 

The Committee is informed at each Committee meeting as to the services actually provided by the independent auditor pursuant to the Pre-Approval Policy. Any proposed service that is not separately listed in the Pre-Approval Policy or any service exceeding the pre-approved fee levels must be specifically pre-approved by the Committee. The Audit Committee has delegated pre-approval authority to the Chairman of the Audit Committee. The Chairman must report any pre-approval decisions made by him to the Committee at its next scheduled meeting.

COMPENSATION DISCUSSION AND ANALYSIS

 

Introduction

 

The TSYS executive compensation program for the officers named in the Summary Compensation Table on page 28 (“named executive officers”) is described in terms of the following elements:

 

 

For information about the Compensation Committee and its charter, its processes and procedures for administering executive compensation, the role of compensation consultants and other governance information, please see “Committees of the Board” on page 4.

 

Compensation Philosophy and Overview

 

TSYS has established a compensation program for our executives that is competitive, performance-oriented and designed to support our strategic goals. The goals and objectives of our compensation program are described below.

 

TSYS’ executive compensation program is designed to compete in the markets in which we seek executive talent. We believe that we must maintain a compensation program that allows us to recruit and retain top level executive talent and that will prevent our executives from being recruited from us. Our compensation program is also designed to be performance-oriented. A guiding principle in developing our compensation program has been “average pay for average performance — above-average pay for above-average performance.” As a result, a significant portion of the total compensation of each executive is at risk based on short and long-term performance. Because of our emphasis on performance, we also believe that compensation generally should be earned by executives while they are actively employed and can contribute to TSYS’ performance.

 

TSYS’ compensation program is also designed to support corporate strategic goals, including growth in earnings and growth in shareholder value. As described in more detail below, earnings growth is the primary driver of our short-term incentive program and growth in shareholder value is the primary driver of our long-term incentive program. TSYS believes that the high degree of performance orientation and the use of goals based upon growth in earnings and growth in shareholder value in our incentive plans aligns the interests of our executives with the interests of our shareholders. In addition, TSYS has adopted stock ownership guidelines in connection with our equity compensation programs, which further align our executives’ interests with the interests of our shareholders.

 

Primary Elements of Compensation

 

There are three primary elements of compensation in TSYS’ executive compensation program: base pay, short-term incentive compensation and long-term incentive compensation. Short-term and long-term incentive compensation are tied directly to performance. Short-term incentive compensation is based upon

fundamental operating performance of TSYS measured over a one-year period. For the reasons described below, long-term incentive compensation has been based upon Synovus’ total shareholder return measured over a three-year period. TSYS has not established a specific targeted “mix” of compensation between base pay and short-term and long-term incentives. However, both short-term and long-term incentives are based upon percentages or multiples of base pay. If both short-term and long-term incentives are paid at target, long-term incentives is the largest portion of an executive’s total compensation package. For example, if short-term and long-term incentives are paid at target, long-term incentives would constitute almost fifty percent of an executive’s total compensation package, thereby illustrating our emphasis on performance and growth in shareholder value.

 

Base Pay.  Base pay is seen as the amount paid to an executive for performing his or her job on a daily basis. To ensure that base salaries are competitive, TSYS targets base pay at the median (e.g., the 50th percentile) of the market for similarly situated positions, based upon each executive’s position and job responsibilities. In order to benchmark base pay, TSYS selects a peer group of companies (the “Peer Companies”). The Peer Companies are selected by considering companies that compete in TSYS’ market for business and for talent, companies with similar business operations and focus and companies with similar organization size (revenues approximately one-half to two times those of TSYS). In selecting the Peer Companies, potential companies were reviewed with the same Global Industry Classification Standards codes as TSYS and previously identified peer companies, service companies in the Dow Jones Industrial Goods and Services Index and companies in the Standard and Poors Software and Services Index. For 2007, the Peer Companies were: Acxiom Corp., Affiliated Computer Services, Inc., Alliance Data Systems Corp., BISYS Group, Inc., Ceridian Corp., Checkfree Corp., ChoicePoint Inc., Convergys Corp., eFunds Corp., Equifax Inc., Fair Isaac Corp., Fidelity National Information Services, Inc., Fiserv, Inc., Global Payments Inc., Paychex, Inc., Sabre Holdings Corp. and Teletech Holdings, Inc.

 

When establishing base salaries, the Committee compares each executive’s current base pay to the market median for that position using proxy information from the Peer Companies as well as external market surveys. For certain positions for which there is no clear market match in the benchmarking data, TSYS uses a blend of two or more positions from the benchmarking data. The Committee also reviews changes in the benchmarking data from the previous year. The Committee then uses this data to establish a competitive base salary for each executive. For example, an executive whose base salary is below the benchmarking target for his or her position may receive a larger percentage increase than an executive whose base salary exceeds the benchmarking target for his or her position.

 

In addition to market comparisons of similar positions at the Peer Companies, individual performance may affect base pay. For example, an executive whose performance is not meeting expectations may receive no increase in base pay or a smaller base pay increase in a given year. On the other hand, an executive with outstanding performance may receive a larger base pay increase or more frequent base pay increases.

 

Base pay is not directly related to TSYS’ performance, except over the long term since revenues are used in benchmarking base pay against the Peer Companies. Comparison of an executive’s base salary to the base salaries of other TSYS executives may also be a factor in establishing base salaries, especially with respect to positions for which there is no clear market match in the base pay benchmarking data. For 2007, all of the base pay increases for the named executive officers were calculated taking into account the market data described above as well as existing base salaries, the 2007 merit budget, internal pay equity, individual performance, experience, time in position and retention needs. Because of the process we use to establish base pay, large increases in base pay generally occur only when an executive is promoted into a new position.

 

Short-Term Incentives.  In addition to base salary, our executive compensation program includes short-term incentive compensation. We have elected to pay short-term incentive compensation in order to (1) provide an incentive for executives to meet our short-term earnings goals, and (2) ensure a competitive compensation program given the marketplace prevalence of short-term incentive compensation.

 

Our short-term incentive program is tied directly to our fundamental operating performance measured over a one-year period. Each year, the Committee establishes a target for percentage change in

earnings per share (“EPS”) from the prior year. The target is generally set based upon EPS guidance that has been publicly disclosed by TSYS. A target goal of 100% equates to a “market” award, which is a typical short-term incentive award for similar positions at the Peer Companies, expressed as a percentage of base salary earned during the year (“base earnings”). Actual short-term incentive targets for 2007 were set taking into account median market data at the Peer Companies, as well as existing incentive targets, internal pay equity, individual performance and retention needs. The target short-term incentive percentage for Messrs. Tomlinson and Woods is 100% of base earnings and the target short-term incentive percentage for TSYS’ other named executive officers is 85% of base earnings.

 

The amount of a short-term incentive award can range from zero to 200% of a target grant in accordance with a schedule approved by the Committee each year. For 2007, the Committee approved the following schedule:

 

 

Although the target EPS percentage change goal set by the Committee is generally based upon the EPS guidance which has been publicly disclosed by TSYS calculated in accordance with accounting principles generally accepted in the United States (“GAAP”), from time to time the target percentages are based on non-GAAP EPS percentages for purposes of determining short-term incentive compensation because of unusual events that could occur during the year. These events include, but are not limited to, changes in accounting and regulatory standards, changes in tax rates and laws, charges for corporate or workforce restructurings, acquisitions and divestitures and expenses associated with the conversion or deconversion of a major TSYS customer, expenses resulting from an ownership change, and other similar events. For 2007, the target percentages were based upon non-GAAP EPS percentages which excluded reductions in net income or expenses resulting from an ownership change.

 

As is common practice in the market, short-term incentives are paid in a lump-sum cash payment as soon as practicable in the year following the performance year, usually no later than February 15. Under the short-term incentive plan, the Committee has the right to exercise downward discretion and reduce the amount that would otherwise be awarded under the above schedule. For example, the short-term incentive awards can be reduced to reflect individual or business unit performance, to exclude unanticipated, non-recurring gains, or for affordability (reduced in order to fund another expense, such as other incentive compensation or retirement plans).

 

The short-term incentive awards for 2007 are set forth in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. The 2007 short-term incentive awards were paid at 135% of target. Excluding expenses associated with the Spin-Off, TSYS had non-GAAP EPS growth of 5% for 2007. Based upon the bonus payout schedule approved by the Committee, short-term incentives would have been paid at 200% of target. The Committee exercised downward discretion to 135%, however, because TSYS had revised its EPS guidance upward during 2007 and because of affordability.

 

Long-Term Incentives.  Our executive compensation program also includes long-term incentive compensation, which was paid in equity of TSYS and Synovus. It is important to understand the relationship of TSYS and Synovus prior to Synovus’ Spin-Off of TSYS in order to appreciate our rationale and process for determining long-term incentive awards, which relationship is described below. We are in the process of revising our process of granting long-term incentive awards to executives so that only TSYS

equity will be awarded to executives, and so that such awards will be based solely upon TSYS’ performance.

 

In connection with the Spin-Off, all outstanding Synovus stock options that had previously been granted to the named executive officers were converted into TSYS stock options. The conversion was accomplished by the cancellation of the outstanding Synovus stock options by the Synovus Compensation Committee and the grant of replacement TSYS stock options by the TSYS Compensation Committee. The exercise price and number of the TSYS replacement stock options was adjusted so that, immediately following the Spin-Off, each named executive officer had approximately the same “spread” (the difference between the fair market value of a stock option and the option’s exercise price) with respect to each replacement TSYS option as the previous Synovus option’s “spread” immediately preceding the Spin-Off. Except for the change in form of equity from Synovus to TSYS stock and the corresponding adjustments to the exercise price and number of shares to retain the same approximate “spread,” the replacement TSYS options are subject to the same terms and conditions as the original Synovus options. The replacement TSYS options are set forth in the “Grant of Plan-Based Awards” table on page 29.

 

Prior to the Spin-Off, Synovus owned 80.6% of the outstanding shares of TSYS stock. Although TSYS stock was publicly traded on the NYSE, only the approximately 19% of TSYS stock that was not owned by Synovus was available for trading. Consequently, there was limited float in TSYS stock, which negatively impacted its liquidity. For this reason, we had concluded that TSYS’ shareholder return was not the most appropriate measure of growth under TSYS’ long-term incentive compensation program. The shareholder return of Synovus was directly affected by TSYS’ shareholder return because of Synovus’ 80.6% ownership of TSYS. By recommending that TSYS executives be granted Synovus stock, and by linking the grant of equity awards to how well Synovus has performed, we ensured that the interests of TSYS executives were directly linked to the interests of Synovus shareholders. We believed this connection to Synovus shareholders to be important prior to the Spin-Off because of the substantial impact that TSYS’ performance had on the market capitalization of Synovus. As a result, Synovus’ total shareholder return was used as the basis for TSYS’ long-term incentive compensation program and this proved to be an effective approach.

 

We have elected to pay long-term incentive compensation in order to: (1) provide an incentive for our executives to provide exceptional shareholder return to shareholders by tying a significant portion of their compensation opportunity to growth in shareholder value; (2) align the interests of executives with shareholders by awarding executives equity in TSYS and Synovus; and (3) ensure a competitive compensation program given the market prevalence of long-term incentive compensation.

 

TSYS’ long-term incentive plan awarded equity to executives based upon performance, as measured by total shareholder return (“TSR”) of Synovus, over a three-year period. We used a three-year period to measure performance for purposes of our long-term incentive awards in order to reduce the impact of unusual events that may occur in a given year.

 

Under TSYS’ long-term incentive program, TSR was measured in two ways: (1) absolute TSR of Synovus; and (2) TSR compared to the competitors of Synovus. TSR for each measurement period was calculated by dividing Synovus’ stock price appreciation and dividends paid by the beginning stock price. We used both measures of shareholder return because we believed shareholders were interested both in how Synovus’ shareholder return compared to the competitors of Synovus, as well as their actual return on their investment. The competitors of Synovus, for purposes of long-term incentives, were the banks in the Keefe, Bruyette and Woods 50 Index (“KBW 50”). The KBW 50 was selected for awarding long-term incentives to ensure that the companies were chosen by an independent third party and to provide consistency from year to year in the assessment of long-term performance for incentive purposes.

 

The amount of long-term incentives awarded to executives each year was based upon a performance grid approved by the Committee. The performance grid had been in place for over a decade. This grid is reproduced below showing the absolute TSR of Synovus over the three preceding calendar years as the horizontal measurement and the percentile performance of Synovus against the KBW 50 over the three preceding calendar years as the vertical measurement.

PAYOUT AS A PERCENT OF TARGET

 

 

 

The award percentages in the performance grid were multiplied by the amount of a target long-term incentive award, which was expressed as a percentage of base earnings at the time the award is made. Actual long-term incentive targets were established taking into account market median data at the Peer Companies, as well as existing incentive targets, internal pay equity, individual performance and retention needs. The target long-term incentive percentage for Messrs. Tomlinson and Woods was 200% of base earnings and the target long-term incentive percentage for TSYS’ other named executive officers was 150% of base earnings.

 

TSYS believes that there are advantages and disadvantages to every form of equity award. As a result, awards payable under the performance grid were generally paid 50% in TSYS restricted stock and 50% in Synovus stock options, but the Committee has the discretion to vary the form of the award as needed for accounting, tax or other reasons. The 50%/50% “split” in equity awarded is based upon the estimated overall value of the award as of the date of grant (a stock option is estimated to be equal to one-third the value of a restricted stock award). Although TSYS prefers for all awards to be made in equity of TSYS, there were not enough shares of TSYS available for such awards prior to the Spin-Off because of TSYS’ approximately 81% ownership by Synovus. As a result, restricted stock awards were made in TSYS stock, while stock option awards were made in Synovus stock. The Compensation Committee of Synovus granted Synovus stock options to TSYS executives based upon the recommendation of the TSYS Committee.

 

In the event that Synovus’ TSR fell within the bottom left-hand corner of the payout grid (i.e., Synovus’ annualized TSR was less than 4% and was also less than the 30th percentile compared to the KBW 50) for a particular year, executives were awarded 50% of a target long-term incentive award, awarded solely in Synovus stock options, issued at fair market value (i.e., closing price) on the effective date of the award. The Committee believed that executives should receive a stock option grant even if Synovus’ TSR fell within this category because the Peer Companies would make such a grant and the stock price must appreciate from that point in order for the executive to benefit from the grant.

 

Because the Synovus and TSYS Compensation Committees may take action to approve equity awards on or near the date that Synovus’ and TSYS’ earnings are released, respectively, the Committees established the last business day of the month in which earnings are released as the grant date for equity awards to ensure that the annual earnings releases have had time to be absorbed by the market before equity awards are granted and stock option exercise prices are established. However, if the date of the TSYS earnings release or the date the TSYS Committee takes action is within five business days of the last business day of the month, the grant is postponed for five business days following the later date. TSYS released its annual earnings on January 16, 2007, and the TSYS Compensation Committee met on January 19, 2007 to approve TSYS restricted stock award grants to the named executive officers effective January 31, 2007. Synovus released its annual earnings on January 17, 2007. The Synovus Compensation Committee met on January 24, 2007 to approve Synovus stock option grants to the named executive officers effective January 31, 2007. As a result, the grant date for long-term incentive awards (Synovus stock options and TSYS restricted stock awards) was January 31, 2007. The closing price of Synovus stock on January 31, 2007 was used as the exercise price for stock options and to determine the FAS 123(R) accounting expense and was also used for disclosure in the compensation tables in this Proxy Statement.

In 2007, long-term incentive equity awards were granted to TSYS’ named executive officers pursuant to the above grid based upon the 2004-2006 performance period. For this performance period, Synovus’ annualized TSR was 4.91% and Synovus’ TSR was in the 16th percentile of the KBW 50. Under the grid, this resulted in a long-term incentive award equal to 50% of target. The equity awards made to TSYS’ named executive officers in 2007 are set forth in the “All Other Stock Awards” and “All Other Option Awards” columns in the Grant of Plan-Based Awards Table. The “split” in long-term incentive awards for all of the named executive officers was 50% Synovus stock options and 50% TSYS restricted stock awards.

 

In addition to the annual long-term incentive awards awarded pursuant to the performance grid described above, the Committee has granted other long-term incentive awards in certain circumstances. For example, the Committee made TSYS restricted stock award grants to Messrs. Tomlinson and Woods in 2005 to reflect their promotion to Chairman and Chief Executive Officer and President and Chief Operating Officer, respectively, and to serve as a vehicle for retaining their services in their new roles. Although the grants to Messrs. Tomlinson and Woods were awarded primarily for retention, the Committee approved performance-based grants to link their awards to a threshold level of performance. The awards to Messrs. Tomlinson and Woods vest over a seven year period. With respect to these awards, the Committee establishes performance measures each year during the seven year period and, if the performance measure is attained for a particular year, 20% of the award vests. The performance measure established for 2007 was 75% of the EPS percentage change established under TSYS’ short-term incentive plan. Because this measure was exceeded for 2007, 20% of the awards to Messrs. Tomlinson and Woods vested in 2007.

 

The Committee also recommended that “challenge grant” stock options in Synovus stock be granted to each of the named executive officers. The Synovus Compensation Committee granted such options on May 10, 2001. The challenge grants were significant in size, with Mr. Tomlinson receiving 500,000 Synovus stock options and each of the other named executive officers receiving a grant of 400,000 Synovus stock options, which options were converted into TSYS stock options in connection with the Spin-Off. The challenge grants were designed to provide these executives with an incentive for exceptional growth in shareholder return, as well as to retain the services of the executives who received the grants for a significant period of time. The challenge grants vest in equal installments if the fair market value of Synovus stock exceeds $40, $45 and $50 per share. The challenge grants also vest on May 10, 2008 if the stock price targets are not attained prior to such date, provided the executives remain in the continuous employment of TSYS through such date.

 

Benchmarking

 

As described above, TSYS benchmarks base salaries and “market” short-term and long-term incentive target awards with the Peer Companies. TSYS also benchmarks total compensation (base salary, short-term incentives and long-term incentives) of its executives. TSYS uses the Peer Companies for benchmarking total compensation, as well as external market surveys. TSYS uses a three-year look back of the total compensation benchmark data to reduce the impact of short-term fluctuations in the data which may occur from year to year. When reviewing the total compensation benchmarking data, TSYS focuses on total compensation opportunities, not necessarily the amount of compensation actually paid, which varies depending upon TSYS’ performance results due to the program’s performance orientation. For example, over the past five years, TSYS’ long-term incentive awards have been below-target for four of the five years, and above-target for one year. Although these awards result in total compensation amounts for TSYS’ executives that could be considered below market, the Committee believes the amount of compensation paid to its executives is appropriate given Synovus’ shareholder return during this five-year period.

 

Perquisites

 

Perquisites are a very small part of our executive compensation program. Perquisites are not tied to performance of TSYS. Perquisites are offered to align our compensation program with competitive practices because similar positions at the Peer Companies offer similar perquisites. The perquisites offered by TSYS are set forth in footnotes (5) through (7) of the Summary Compensation Table. Considered both individually and in the aggregate, we believe that the perquisites we offer to our named executive officers are reasonable and appropriate.

Employment Agreements

 

TSYS does not generally use employment agreements with respect to its executives, except in unusual circumstances such as acquisitions. None of the named executive officers have employment agreements.

 

Retirement Plans

 

Our compensation program also includes retirement plans designed to provide income following an executive’s retirement. We have chosen to use defined contribution retirement plans because we believe that defined benefit plans are difficult to understand, difficult to communicate, and contributions to defined benefit plans often depend upon factors that are beyond TSYS’ control, such as the earnings performance of the assets in such plans compared to actuarial assumptions inherent in such plans. TSYS offers three qualified defined contribution retirement plans to its employees: a money purchase pension plan, a profit sharing plan and a 401(k) savings plan.

 

The money purchase pension plan has a fixed 7% of compensation employer contribution every year. The profit sharing plan and any employer contribution to the 401(k) savings plan are tied directly to TSYS’ performance. There are opportunities under both the profit sharing plan and the 401(k) savings plan for employer contributions of up to 7% of compensation based upon the achievement of EPS growth goals. For 2007, TSYS’ named executive officers received a contribution of 7% of compensation under the profit sharing plan based upon TSYS’ performance. The retirement plan contributions for 2007 are included in the “All Other Compensation” column in the Summary Compensation Table.

 

In addition to these plans, the TSYS Deferred Compensation Plan (“Deferred Plan”) replaces benefits lost under the qualified plans due to legal limits imposed by the IRS. The Deferred Plan does not provide “above market” interest. Instead, participants in the Deferred Plan can choose to invest their accounts among mutual funds that are generally the same as the mutual funds that are offered in the 401(k) savings plan. The executives’ Deferred Plan accounts are held in a rabbi trust, which is subject to claims by TSYS’ creditors. The employer contribution to the Deferred Plan for 2007 for named executive officers is set forth in the “All Other Compensation” column in the Summary Compensation Table and the earnings on the Deferred Plan accounts during 2007 for named executive officers is set forth in the “Aggregate Earnings in Last FY” column in the Nonqualified Deferred Compensation Table and in the “All Other Compensation” column in the Summary Compensation Table.

 

Post-Termination Compensation Philosophy

 

TSYS’ compensation program is designed to reflect TSYS’ philosophy that compensation generally should be earned while actively employed. Although retirement benefits are paid following an executive’s retirement, the benefits are earned while employed and are substantially related to performance as described above. TSYS has entered into limited post-termination arrangements when appropriate, such as the change of control agreements which are described in the “Potential Payouts Upon Termination or Change of Control” section. TSYS chose to enter into change of control arrangements with its executives: (1) to ensure the retention of executives and an orderly transition during a change of control; (2) to ensure that executives would be financially protected in the event of a change of control so they continue to act in the best interests of TSYS while continuing to manage TSYS during a change of control; and (3) to ensure a competitive compensation package because such arrangements are common in the market and it was determined that such agreements were important in recruiting executive talent.

 

Stock Ownership Guidelines

 

To align the interests of its executives with shareholders, TSYS has implemented stock ownership guidelines for its executives. Under the guidelines, executives are required to maintain either five, four or three times the amount of their base salary in TSYS stock. TSYS’ Chief Executive Officer is required to maintain five times his base salary, the President four times his base salary and the other executive officers three times their base salaries. The guidelines are recalculated at the beginning of each calendar year. The guidelines were initially adopted January 1, 2004 and executives had a five-year grace period to fully achieve the guidelines with an interim three-year goal. Until the guidelines are achieved, executives are required to retain all net shares received upon the exercise of stock options, excluding shares used to pay the option’s exercise price and any taxes due upon exercise. In the event of a severe financial

hardship, the guidelines permit the development of an alternative ownership plan by the Chairman of the Board of Directors and Chairman of the Compensation Committee. All executives are currently in compliance with the guidelines.

 

Tally Sheets

 

The Committee periodically reviews tally sheets for each of TSYS’ named executive officers. The tally sheets add up all forms of compensation for each officer and also provide estimates of the amounts payable to each executive upon the occurrence of potential future events, such as a change of control, retirement, voluntary or involuntary termination, death and disability. The tally sheets are used to provide the Committee with total compensation amounts for each executive so that the Committee can determine whether the amounts are reasonable or excessive. Although the tally sheets are not used to benchmark total compensation with specific companies, the Committee considers total compensation paid to executives at other companies in considering the reasonableness of our executives’ total compensation. After its most recent review of the tally sheets, the Committee determined that the total compensation amounts are fair, reasonable and competitive.

 

Other Policies

 

Restatements.  TSYS does not have a formal policy regarding the recovery of awards or payouts in the event the financial statements upon which TSYS’ performance measurements are based are restated or otherwise adjusted in a manner that could reduce the size of an award. TSYS believes that the decision of whether a recovery is appropriate would depend upon the facts and circumstances surrounding the restatement or adjustment.

 

Tax Considerations.  We have structured most forms of compensation paid to our executives to be tax deductible. For example, Internal Revenue Code Section 162(m) limits the deductibility of compensation paid by a publicly-traded corporation to its Chief Executive Officer and four other highest paid executives for amounts in excess of $1 million, unless certain conditions are met. The base salaries of all of our named executive officers are tax-deductible because they are less than $1 million. In addition, the short-term and long-term incentive plans have been approved by shareholders and awards under these plans are designed to qualify as “performance-based” compensation to ensure deductibility under Code Section 162(m). We reserve the right to provide compensation which is not tax-deductible, however, if we believe the benefits of doing so outweigh the loss of a tax deduction. The only form of executive compensation not currently tax-deductible by TSYS is the personal use of corporate aircraft. We believe that a small amount of personal use each year is an appropriate perquisite for our executives, despite the loss of a tax deduction.

 

In general, TSYS does not “gross-up” its officers for taxes that are due with respect to their compensation. An example of an exception to this rule is for excise taxes that may be due with respect to the change of control agreements, as described above.

 

Accounting Considerations.  We account for all compensation paid in accordance with GAAP. The accounting treatment has generally not affected the form of compensation paid to named executive officers.

 

Board Fees.  During 2007, executives who served on the Board of Directors of TSYS were paid the same cash director fees as those paid to non-executive directors and are also entitled to participate in TSYS’ Director Stock Purchase Plan, which is described under “Equity Compensation of Directors.” However, directors who are also executives do not receive the equity compensation that is granted to non-executive directors of TSYS. Although paying cash director fees to “inside” executives who serve on Boards of Directors is not the prevalent market practice, it has been the historical practice at TSYS for many years and constitutes a small portion of affected executive’s total compensation amount. These amounts are included in the “All Other Compensation” column of the Summary Compensation Table. As described below, the payment of cash director fees to employees was eliminated effective January 1, 2008.

 

Conclusion

 

For the reasons described above, we believe that each element of compensation offered in our executive compensation program, and the total compensation delivered to each named executive officer, is fair, reasonable and competitive.

Significant Events After December 31, 2007

 

TSYS stock options and restricted stock awards were granted to TSYS’ named executive officers effective February 6, 2008 in accordance with the performance grid discussed under “Long-Term Incentives” above. The awards, which were made based upon Synovus’ TSR for the 2005-2007 performance period, were made at 50% of target. Messrs. Tomlinson, Lipham, Woods, Pruett and Tye were each granted TSYS stock option awards of 48,801, 17,868, 34,278, 21,390 and 20,567 shares, respectively, at an exercise price of $21.88, the closing price of TSYS stock on February 6, 2008. In addition, Messrs. Tomlinson, Lipham, Woods, Pruett and Tye were each granted TSYS restricted stock awards of 16,267, 5,956, 11,426, 7,130 and 6,856 shares, respectively, effective February 6, 2008. The stock options and restricted stock awards vest over a three year period, in equal annual installments of one-third each, on February 6, 2009, February 6, 2010 and February 6, 2011.

 

The Committee also awarded special retention restricted stock awards to TSYS’ named executive officers effective February 6, 2008. The retention awards were designed to retain key executives following the Spin-Off and to align and mobilize the executives as a team. Messrs. Tomlinson, Lipham, Wood, Pruett and Tye were awarded 91,408, 34,278, 91,408, 34,278 and 34,278 restricted shares, respectively. The shares for Messrs. Tomlinson and Woods are performance-based and vest over a seven-year period, with 20% of the shares vesting in any year in which performance measures established by the Compensation Committee are attained. The shares for the remaining executives vest over a five-year period, with 20% of the shares vesting on February 6, 2009, February 6, 2010, February 6, 2011, February 6, 2012 and February 6, 2013. All of these awards will be described in detail in next year’s Proxy Statement.

 

Effective January 1, 2008, the Committee increased the base salaries of Messrs. Tomlinson and Woods by $50,000 and $110,000, respectively. The entire amount of the increase for Mr. Tomlinson and $50,000 of the increase for Mr. Woods was equal to the amount of Board of Director fees foregone by each executive as a result of the decision to eliminate the payment of cash director fees to employees effective January 1, 2008. The remaining amount of the increase for Mr. Woods was determined in accordance with TSYS’ ongoing salary administration process.

 

In addition, as described earlier, we are revising our long-term incentive award process so that only TSYS equity will be awarded to executives and so that such awards will be based solely upon TSYS’ performance.

 

TSYS’ Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, has recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

The Compensation Committee
Mason H. Lampton, Chair
G. Wayne Clough
Walter W. Driver, Jr.

SUMMARY COMPENSATION TABLE

 

The table below summarizes the compensation for each of the named executive officers for each of the last two fiscal years.

 

The named executive officers were not entitled to receive payments which would be characterized as “Bonus” payments for either of these fiscal years. The short-term incentive amounts paid to the named executives for these fiscal years are set forth in the “Non-Equity Incentive Plan Compensation” column. TSYS’ methodology and rationale for short-term incentive compensation are described in the Compensation Discussion and Analysis above.

 

The named executive officers did not receive any compensation that is reportable under the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column because, as described in the Compensation Discussion and Analysis, TSYS has no defined benefit pension plans and does not pay above-market interest on deferred compensation. The retirement plan contributions and earnings for the named executive officers for these two fiscal years are set forth in the “All Other Compensation” column.

 

 

 

GRANTS OF PLAN-BASED AWARDS
for the Year Ended December 31, 2007

 

The table below sets forth the short-term incentive compensation (payable in cash) and long-term incentive compensation (paid in the form of TSYS restricted stock awards and stock options) awarded to the named executive officers for 2007.