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 20, 2009

 

Dear Shareholder:

 

You are cordially invited to attend our Annual Meeting of Shareholders at 10:00 a.m. on Wednesday, April 29, 2009, at the TSYS Riverfront Campus Auditorium, One TSYS Way, Columbus, Georgia. Enclosed with this Proxy Statement are your proxy card and the 2008 Annual Report.

 

We hope that you will be able to be with us and let us give you a review of 2008. 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 2009 Annual Meeting on our website for reference after the meeting.

 

Your vote is important. Please vote as soon as possible even if you plan to attend the meeting.

 

Thank you for your interest in TSYS.

 

Sincerely yours,

 

Philip W. Tomlinson

 

TOTAL SYSTEM SERVICES, INC.^®

 

NOTICE OF THE 2009 ANNUAL MEETING OF SHAREHOLDERS

 

 

G. Sanders Griffith, III
Secretary

 

Columbus, Georgia

March 20, 2009

 

 

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 20, 2009. The TSYS Board of Directors is soliciting proxies to be used at the 2009 Annual Meeting of TSYS Shareholders which will be held on April 29, 2009, at 10:00 a.m., at the TSYS Riverfront Campus Auditorium, One TSYS Way, 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 19, 2009, 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 19, 2009,           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 submit a proxy card or submit a proxy by telephone or via the Internet 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; (2) FOR the amendment to TSYS’ Articles of Incorporation to declassify the Board of Directors; and (3) FOR the ratification of the appointment of KPMG LLP as TSYS’ independent auditor for the year 2009. 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

 

To be elected, directors must receive a majority of the votes cast (the number of shares voted “for” a director nominee must exceed the number of votes cast “against” that nominee).

 

The affirmative vote of shareholders holding a majority of the total issued and outstanding shares of TSYS stock as of the close of business on February 19, 2009 is required to approve the amendment to TSYS’ Articles of Incorporation to declassify the Board of Directors.

 

The affirmative vote of a majority of the votes cast is needed to ratify the appointment of KPMG LLP as TSYS’ independent auditor for 2009.

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 the same effect as a vote against the proposal to amend the Articles of Incorporation and will have no effect on the outcome of the vote to elect directors or ratify the appointment of KPMG LLP as TSYS’ independent auditor.

 

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 until 11:59 p.m. Eastern Time on April 28, 2009 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 until 11:59 p.m. Eastern Time on April 28, 2009. 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 before 11:59 p.m. Eastern Time on April 28, 2009; 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 29, 2009 at the TSYS Riverfront Campus Auditorium, One TSYS Way, Columbus, Georgia. Directions to the auditorium can be obtained from the Investors page of TSYS’ website at www.tsys.com.

 

Notice and Access

 

The Securities and Exchange Commission (“SEC”) has adopted amendments to the proxy rules that change how companies must provide proxy materials. These rules are often referred to as “notice and access.” Under the notice and access model, a company may select either of the following two options for making proxy materials available to shareholders:

 

 

A company may use a single method for all its shareholders, or use full set delivery for some while adopting the notice only option for others which is sometimes referred to as the hybrid model.

 

Full Set Delivery Option

 

Under the full set delivery option, a company delivers all proxy materials to its shareholders as it would have done prior to the change in the rules. This can be by mail or, if a shareholder has previously agreed, by e-mail. In addition to delivering proxy materials to shareholders, companies must post all proxy materials on a publicly-accessible website and provide information to shareholders about how to access that website.

 

In connection with its 2008 and 2009 Annual Meetings of Shareholders, TSYS elected to use the full set delivery option. Accordingly, you should have received TSYS’ 2009 proxy materials by mail or, if you previously agreed, by e-mail. These proxy materials include the Proxy Statement, proxy card and 2008 Annual Report. Additionally, TSYS has posted these materials at http://annualreport.tsys.com.

 

Notice Only Option

 

Under the notice only option, a company must post all its proxy materials on a publicly accessible website. However, instead of delivering its proxy materials to shareholders, the company instead delivers a “Notice of Internet Availability of Proxy Materials.” The notice includes, among other matters:

 

 

If a shareholder requests paper copies of the proxy materials, these materials must be sent to the shareholder within three business days. Additionally, paper copies must be sent via first class mail.

 

TSYS’ Use of the Notice Only Option in the Future

 

Although TSYS has previously elected to use the full set delivery option, we may choose to use the notice only option in the future. By reducing the amount of materials that a company needs to print and mail, the notice only option provides an opportunity for cost savings as well as conservation of natural resources. However, many companies that have used the notice only option have also experienced a lower participation rate — meaning that fewer shareholders voted at these companies’ annual meetings. TSYS plans to continue to evaluate the future possible cost savings as well as the possible impact on shareholder participation as it considers future use of the notice only option.

 

Important Notice Regarding the Availability of Proxy Materials for the Shareholder
Meeting to be held on April 29, 2009

 

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 (who no longer serves as a director), Walter W. Driver, Jr., Sidney E. Harris, Mason H. Lampton, W. Walter Miller, Jr., H. Lynn Page, John T. Turner, James D. Yancey and Rebecca K. Yarbrough. Please see “Certain Relationships and Related Transactions” on page 39 which includes 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 2008. All directors attended at least 75% of Board and committee meetings held during their tenure during 2008. The average attendance by directors at the aggregate number of Board and committee meetings they were scheduled to attend was 97%. 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 but one of TSYS’ directors who were serving at the time attended the 2008 Annual Meeting of Shareholders.

Committees of the Board

 

TSYS’ Board of Directors has four principal standing committees — an Audit Committee, a Corporate Governance and Nominating Committee, a Compensation Committee and an Executive 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.  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.  The Report of the Audit Committee is on page 18. The Board has determined that all members of the Committee are independent under the rules of the NYSE and the 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.  The primary functions of TSYS’ Corporate Governance and Nominating Committee include:

 

 

Compensation Committee.  The Report of the Compensation Committee is on page 30. The primary functions of TSYS’ Compensation Committee include:

 

 

The Compensation Committee’s charter reflects these responsibilities and, except to the extent prohibited by NYSE rules or other applicable law or regulation, allows the Committee to delegate any matters within its power and responsibility to individuals or subcommittees when 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 2008, the Committee retained the services of Hewitt Associates for 2008 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.

 

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 2008, TSYS’ Chief Executive Officer and TSYS’ Executive Vice President of Administrative Services attended all Committee meetings. TSYS’ Chief Executive Officer and Executive Vice President of Administrative Services do not have authority to vote on Committee matters. At the request of the Committee, an executive compensation consultant with Hewitt Associates attended all Committee meetings held in 2008.

 

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 42.

 

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. Richard Y. Bradley, 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, One TSYS Way, 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., One TSYS Way, Columbus, Georgia 31901.

DIRECTOR COMPENSATION TABLE

 

The following table summarizes the compensation paid by TSYS to non-employee directors for the year ended December 31, 2008.

 

 

 

 

Director Compensation Program

 

The Corporate Governance and Nominating Committee of TSYS is responsible for the oversight and administration of the TSYS director compensation program. TSYS does not pay management directors for Board service in addition to their regular employee compensation. The Committee generally reviews and recommends any changes in director compensation to the Board for its approval every two years although the Committee determined not to take any action in 2009 in light of current economic conditions.

 

Under its charter, the Committee has authority to retain outside advisors to assist the Committee in performance of its duties. The Corporate Governance and Nominating Committee retained Mercer Human Resource Consulting to review the competitiveness of the TSYS director compensation program for compensation to be paid during 2007. 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. 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 director compensation structure for 2007, which structure remained in place for 2008, except that for 2008 the Committee determined to discontinue the practice of paying cash compensation to directors who are employees of TSYS. 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.

 

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, 2008, non-employee 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.

 

By paying non-employee directors annual retainers for Board and Committee Service, 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.

 

Deferral Program.  Non-employee 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. Messrs. Harris and Turner deferred all or a portion of their cash compensation under this plan during 2008.

 

Equity Compensation of Directors.  During 2008, non-employee directors also received an annual award of 500 shares of restricted TSYS stock in the form of a grant from the TSYS 2008 Omnibus Plan, 100% of which vests after three years. The Board granted these restricted stock awards to directors on February 11, 2008. 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 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, 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.

 

Stock Ownership Guidelines.  The restricted stock awards to non-employee 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 for Board service. 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. As of December 31, 2008, each director had satisfied these ownership guidelines.

 

General Information

 

At the date of this Proxy Statement, the Board of Directors of TSYS consists of 17 members. Our directors determine the size of the Board and for purposes of the Annual Meeting, the number is fixed at 17. 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 2011 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.

 

In October 2008, the Board of Directors amended our bylaws to adopt a majority vote standard for uncontested director elections. Under this standard, a nominee for director will be elected to the Board if the votes cast for the nominee exceed the votes cast against the nominee. However, directors will be elected by a plurality of the votes cast in a contested election.

 

In 2009, all director nominees identified below are currently serving on the Board. If shareholders do not elect a nominee who is serving as a director, Georgia law provides that the director would continue to serve on the Board as a “hold over director.” Under our Corporate Governance Guidelines, an incumbent director that is not elected is expected to tender, promptly following certification of the voting results, his or her resignation from the Board, which resignation may be conditioned on Board acceptance of the resignation. In addition, our Corporate Governance Guidelines provide that the Board will nominate for election and appoint to Board vacancies only those candidates who have agreed to tender, promptly following the failure to receive the required vote for election to the Board, an irrevocable resignation that will be effective upon Board acceptance of the resignation.

 

The Corporate Governance and Nominating Committee will consider the tendered resignation and recommend to the Board whether to accept or reject the resignation. The Board will act on the tendered resignation within 90 days from the certification of the voting results and promptly publicly disclose its decision. A director who tenders his or her resignation will not participate in the Committee’s recommendation or the Board action regarding whether to accept or reject the tendered resignation.

 

Nominees

 

The following nominees have been selected by the Corporate Governance and Nominating Committee and approved by the Board for submission to the shareholders: James H. Blanchard, Richard Y. Bradley, Walter W. Driver, Jr., Gardiner W. Garrard, Jr. and W. Walter Miller, Jr., each to serve a three year term expiring at the 2012 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.

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

 

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.

 

 

 

 

Introduction

 

After careful consideration and upon the recommendation of its Corporate Governance and Nominating Committee, the Board of Directors has unanimously determined that it would be in the best interests of TSYS and its shareholders to amend TSYS’ Articles of Incorporation to declassify the Board and provide for the annual election of all directors, as described below. The Board is now asking TSYS’ shareholders to approve this amendment to the Articles of Incorporation.

 

TSYS’ Current Classified Board Structure

 

Article VIII of TSYS’ Articles of Incorporation divides TSYS’ directors into three classes as nearly equal in size as possible, with members of each class serving three-year terms of office. Consequently, at any given annual meeting of shareholders, TSYS’ shareholders have the ability to elect only one class of directors, constituting roughly one-third of the entire Board.

 

Proposed Declassification of the Board

 

In October 2008, the Board of Directors voted to approve, and to recommend that TSYS’ shareholders approve at the 2009 Annual Meeting, an amendment to TSYS’ Articles of Incorporation that would eliminate the Board’s classified structure. If TSYS’ shareholders approve the proposed amendment, directors who have been elected to three-year terms prior to the effectiveness of the amendment (including directors elected at the 2009 Annual Meeting) will complete those terms. Beginning with the 2010 Annual Meeting, directors whose previous terms are expiring will be subject to election for a one-year term expiring at the next annual meeting. Thus, beginning with the 2012 Annual Meeting, the entire Board will be elected annually.

 

Rationale for Declassification

 

The Board of Directors is committed to good corporate governance at TSYS. Accordingly, in determining whether to propose declassification as described above, the Board carefully reviewed the various arguments for and against a classified Board structure.

 

The Board recognizes that a classified structure may offer several advantages, such as promoting board continuity and stability, encouraging directors to take a long-term perspective and reducing a company’s vulnerability to coercive takeover tactics. The Board also recognizes, however, that a classified structure may appear to reduce directors’ accountability to shareholders since such a structure does not enable shareholders to express a view on each director’s performance by means of an annual vote. The Board also considered the fact that many companies are transitioning away from a classified board structure.

 

In view of the considerations described above, the Board of Directors, upon the recommendation of its Corporate Governance and Nominating Committee, has unanimously determined that it is in the best interests of TSYS and its shareholders to eliminate the classified Board structure as proposed.

 

Text and Effectiveness of Proposed Amendment

 

The text of the proposed amendment is set forth in Appendix B to this Proxy Statement, with deletions indicated by strike throughs and additions indicated by underlining. The Board has adopted conforming amendments to TSYS’ bylaws that will become effective if the proposed amendment is approved by shareholders.

 

If TSYS’ shareholders approve the proposed amendment, it will become effective upon the filing of Articles of Amendment to the Articles of Incorporation with the Secretary of State of the State of Georgia, which TSYS would do promptly after the Annual Meeting. If TSYS’ shareholders do not approve the proposed amendment, the Board of Directors will remain classified.

 

Vote Required

 

The affirmative vote of shareholders holding a majority of our issued and outstanding shares of stock is required to approve the proposed amendment.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL OF THE AMENDMENT TO TSYS’ ARTICLES OF INCORPORATION TO DECLASSIFY THE BOARD OF DIRECTORS.

 

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, 2009 and TSYS’ internal control over financial reporting as of December 31, 2009. 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 BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS THE INDEPENDENT AUDITOR.

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, 2008.

 

 

 

 

 

 

The Audit Committee of the Board of Directors is comprised of three 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 5 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, 2008 filed with the Securities and Exchange Commission.]

 

 

The Audit Committee
H. Lynn Page, Chair
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, 2008 and December 31, 2007 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

 

This Compensation Discussion and Analysis (“CD&A”) provides an overview and analysis of TSYS’ executive compensation program, the material compensation decisions made under the program and the material factors considered in making those decisions. Specifically, this CD&A includes the following sections:

 

 

The series of tables following this CD&A provide detailed information about the compensation earned by or paid to the following named executive officers:

 

 

For information about the Compensation Committee and its charter, its processes and procedures for administering TSYS’ executive compensation program, the role of compensation consultants and other governance information, please see “Committees of the Board” on page 5.

 

Compensation Philosophy and Overview

 

TSYS has established a competitive, performance-oriented executive compensation program designed to support our strategic goals. Specifically, TSYS’ executive compensation program is designed to compete in the markets in which we seek executive talent. We believe that we must maintain an executive compensation program that allows us to recruit and retain top level executive talent.

 

Our executive compensation program is performance-oriented. A guiding principle of our compensation program is “average pay for average performance — above-average pay for above-average performance —  below-average pay for below-average performance.” As a result, a significant portion of the total compensation of each executive is at risk based on short-term and long-term performance.

 

TSYS’ compensation program is designed to support corporate strategic goals, including growth in earnings per share (“EPS”) and total shareholder return (“TSR”). As described in more detail below, EPS growth is the driver of our Annual Incentive Program (“AIP”). The AIP is our short-term incentive

program that provides performance-based cash bonuses. EPS growth coupled with TSR is the driver of our Long-Term Incentive Program (“LTIP”). TSYS believes that the high degree of performance orientation and the use of EPS growth and TSR targets serve to align the interests of our executives with the interests of our shareholders. TSYS has also adopted stock ownership guidelines that further align our executives’ interests with the interests of our shareholders.

 

Primary Elements of Compensation

 

We believe that the primary elements of our executive compensation program promote the objectives of aligning compensation with performance measures that are directly related to TSYS’ financial goals and creation of shareholder value without encouraging executives to take unnecessary and excessive risks. The primary elements of compensation in TSYS’ executive compensation program are summarized in the table below.

 

 

Base Pay.  Base pay provides our executives with a level of compensation commensurate with their respective skills, responsibilities, experience and performance. It is the amount paid to an executive for

performing his or her job on a daily basis. TSYS targets base pay at the median of the market for comparable positions. To ensure that base pay is competitive, TSYS benchmarks an executive’s base pay against base pay paid by our peer companies. See the “Analysis” section below for a list of our peer companies and information on the process used to select our peer companies.

 

When establishing base pay, 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, the Committee 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. After reviewing the benchmarking data, the Committee establishes 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 pay to the base pay of other TSYS executives may also be a factor in establishing base pay, especially with respect to positions for which there is no clear market match in the base pay benchmarking data. Because of the process used to establish base pay, large increases in base pay generally occur only when an executive is promoted into a new position. For 2008, 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 2008 merit budget, internal pay equity, individual performance, experience, time in position and retention needs.

 

Annual Incentive Program.  Annual cash bonuses under the AIP provide an incentive for our executives to meet our short-term performance goals. In addition, given the prevalence of short-term incentive compensation in the marketplace, AIP awards ensure a competitive compensation program.

 

AIP awards are tied directly to our fundamental operating performance measured over a one-year period. Each year the Committee establishes a performance target as a percentage of change in EPS from the prior year. The performance target is generally set based upon TSYS’ publicly disclosed EPS guidance. The Committee also establishes payout targets. A payout 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 pay earned during the year. Actual AIP payout targets for 2008 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 2008 AIP payout target for Messrs. Tomlinson and Woods is 100% of base pay, and the 2008 AIP payout target for TSYS’ other named executive officers is 85% of base pay.

 

The amount of an AIP award ranges from zero to 200% of the payout target in accordance with a schedule approved by the Committee each year. For 2008, the Committee approved the following schedule:

 

The Committee has the right to exercise downward discretion and reduce or eliminate the amount that would otherwise be awarded under the approved schedule. For example, amounts can be reduced to reflect individual or business unit performance, to exclude unanticipated, non-recurring gains or for affordability.

 

TSYS had EPS growth of 5.7% for 2008. Under the payout schedule set forth above, bonuses could have been paid at approximately 42.5% of target. However, TSYS executive management recommended payment of bonuses at 25% of target, and the Committee accepted the recommendation. Bonuses for 2008 are set forth in the “Non-Equity Incentive Plan Compensation” column in the Summary Compensation Table on page 31.

 

As is common practice in the market for short-term incentive compensation, awards under the AIP are paid in a lump-sum cash payment as soon as practicable in the year following the performance year, usually no later than February 28.

 

Long-Term Incentive Program.  Equity awards under the LTIP provide an incentive for our executives to provide exceptional return to shareholders by tying a significant portion of their compensation to growth in shareholder value. Equity awards also align the interests of our executives with our shareholders by awarding executives equity in TSYS. Finally, given the prevalence of long-term incentive compensation in the marketplace, LTIP awards ensure a competitive compensation program.

 

Each year the Committee establishes performance measures for LTIP awards. LTIP awards are expressed as a multiple of an executive’s base pay. LTIP payout targets are 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. See the Analysis section below for the identity of our peer companies and for information on the process used to select our peer companies. LTIP awards are generally paid one-half in stock options and one-half in restricted stock or performance share awards.

 

Because the Committee may take action to approve LTIP awards on or near the date that TSYS’ earnings are released, the Committee has 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 restricted stock grants are made and stock option exercise prices are established. However, if the date of the TSYS earnings release or the date the Committee takes action is within five business days of the last business day of the month, the grant date is postponed for five business days after the later of the TSYS earnings release or the date the Committee takes action. With respect to performance-based equity awards, awards vest on the date that the Committee certifies that the required performance measures have been attained. In addition, the date that the Committee certifies that required performance measures have been attained is used to determine the number of performance shares received by an executive in connection with a performance share award.

 

February 6, 2008 Equity Awards Based on 2005 — 2007 Financial Performance.  Prior to December 31, 2007, Synovus owned approximately 80% of the outstanding shares of TSYS stock. On December 31, 2007, Synovus completed the spin-off to its shareholders of the shares of TSYS stock formerly owned by Synovus (“Spin-Off”). After the Spin-Off, TSYS became a fully independent, publicly owned company.

 

Under the terms of the LTIP in effect before the Spin-Off, LTIP awards were made in January following the performance period and were based on Synovus’ TSR over a three year-period. TSR was measured in two ways: (1) absolute TSR of Synovus, and (2) TSR compared to the peer companies.

 

At its meeting on January 30, 2008, the Committee approved equity awards under the LTIP equal to 50% of the payout target based on Synovus’ TSR for the three year period ending December 31, 2007. The equity awards were effective February 6, 2008 and were paid 50% in stock options and 50% in restricted stock. The stock options and the restricted stock are subject to a three year vesting schedule with one-third vesting on February 6, 2009, February 6, 2010 and February 6, 2011. The closing price of TSYS stock on February 6, 2008, was used as the exercise price for the stock options and to determine the SFAS 123(R) accounting expense and was also used for disclosure in the compensation tables in this Proxy Statement. Stock options received by the named executive officers are included in the “All Other Option Awards: Number of Securities Underlying Options” column in the Grants of Plan-Based Awards Table on page 32. Restricted stock awards received by the named executive officers are included in the

“All Other Stock Awards: Number of Shares of Stock or Units” column in the Grants of Plan-Based Awards Table.

 

New LTIP.  After the Spin-Off, at its meeting on March 25, 2008, the Committee approved changes in the LTIP to reflect that prospective LTIP awards will no longer be based solely on historical TSR over a three-year period. Because of these changes, named executive officers received performance awards for both 2007 and 2008 in calendar year 2008. The equity grants effective February 6, 2008 (see immediately preceding discussion) are the performance awards for 2007. The performance awards for 2008 and the revised LTIP are discussed in detail below.

 

TSYS believes that there are advantages and disadvantages to every form of equity award. LTIP awards made subsequent to March 25, 2008 will be paid 50% in stock options and 50% in performance share awards. Stock options will be awarded in the performance year. Performance share awards will be denominated in U.S. dollars when awarded and will ultimately be paid in the form of TSYS stock after the end of the three year period beginning with the performance year.

 

50% of LTIP Award Paid in Stock Options.  The value of a stock option is estimated to be equal to approximately one-third the value of a restricted stock award. The value of a stock option is determined as of the date of grant. Stock options will vest in three equal installments on the first, second and third anniversaries of the date of grant.

 

50% of LTIP Award Paid in Performance Share Awards.  Performance share awards are expressed as a multiple of an executive’s base pay. Performance share awards are denominated in U.S. dollars when awarded. The ultimate value of a performance share award is tied to our EPS growth and our TSR performance relative to our peer companies. Each year the Committee establishes an initial performance target stated as a percentage change in EPS from the prior year and a three year performance target based on our TSR performance relative to our peer companies.

 

The EPS growth schedule is the same schedule used to determine payouts under the AIP. The Committee approved the following TSR schedule for the performance share awards:

 

 

The actual value of a performance share award for any year is determined as follows:

 

 

March 31, 2008 Equity Awards.  In conjunction with the approval of changes in the LTIP, the Committee approved LTIP awards for the named executive officers effective March 31, 2008. Messrs. Tomlinson and Woods received LTIP awards equal to 250% of base pay, and the other named executive officers received LTIP awards equal to 150% of base pay.

 

Each executive received one-half of his LTIP award in the form of stock options. Stock options received by the named executive officers are included in the “All Other Option Awards: Number of Securities Underlying Options” column in the Grants of Plan-Based Awards Table on page 32. The closing price of TSYS stock on March 31, 2008 was used as the exercise price for the stock options and to determine the SFAS 123(R) accounting expense and was also used for disclosure in the tables in this Proxy Statement.

 

Each executive received one-half of his LTIP award in the form of a performance share award. The performance share award was denominated in U.S. dollars, with the initial number of performance shares to be determined after the end of 2008 based on EPS growth for 2008. The Committee approved use of the same EPS growth targets used to determine payouts under the AIP (see table on page 22).

 

TSYS had EPS growth of 5.7% for 2008. Under the payout schedule approved by the Committee, performance share awards could have been paid at approximately 42.5% of target. However, TSYS executive management recommended payment of performance shares at 25% of target, and the Committee accepted the recommendation at its meeting on January 26, 2009. The closing price of TSYS stock on January 26, 2009, the date the Committee certified that the performance measure was attained, was $12.90 per share. Accordingly, each executive’s initial award of performance shares was determined as follows: (Performance Share Award Target x 25%)/12.90. The performance share awards for the named executive officers are included in the “Estimated Future Payouts Under Equity Incentive Plan Awards” column in the Grants of Plan-Based Awards Table on page 32. The initial award of performance shares may be increased or decreased +/- 20% after the end of a three year period based on attainment of TSR growth targets as described under “New LTIP” on page 24.

 

2008 Special Equity Awards.  In addition to annual awards under the LTIP, the Committee has granted other long-term incentive awards. Effective February 6, 2008, the named executive officers received restricted stock awards under a special equity grant. The special equity grant was designed to align the interests of TSYS’ executives with shareholders following the Spin-Off and to provide a key retention tool for executives. Restricted stock awarded to named executive officers other than Messrs. Tomlinson and Woods vests in five equal installments on the first, second, third, fourth and fifth anniversaries of the date of grant. Restricted stock awarded to Messrs. Tomlinson and Woods was tied to a threshold level of performance over the period 2008 — 2014. Specifically, 20% of the restricted stock awarded to Messrs. Tomlinson and Woods vests in any year that EPS growth is at least 75% of the target EPS under the AIP for the year, and any restricted stock that has not vested at the end of 2014 will be forfeited. The performance measure was exceeded for 2008, and, accordingly, 20% of the restricted stock awarded to Messrs. Tomlinson and Woods vested on January 26, 2009, the date the Committee certified that the performance measure had been attained.

 

The 2008 special equity awards for Messrs. Tomlinson and Woods are included in the “Estimated Future Payouts Under Equity Incentive Plan Awards” column in the Grants of Plan-Based Awards Table on page 32. For the other named executive officers, these awards are included in the “All Other Stock Awards: Number of Shares of Stock or Units” column in the Grants of Plan-Based Awards Table.

 

2005 Special Equity Awards.  The Committee made TSYS restricted stock 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 tied the grants to a threshold level of performance over a seven year period. Specifically, 20% of the restricted stock granted in 2005 vests in any year that EPS growth is at least 75% of the target EPS under the AIP for the year. Any restricted stock that has not vested at the end of the seven year period will be forfeited. The performance measure was exceeded for 2008, and, accordingly,

20% of the restricted stock granted in 2005 vested on January 26, 2009, the date the Committee certified that the performance measure had been attained.

 

Qualified Plans and Non-Qualified Deferred Compensation Plan.  TSYS sponsors three qualified retirement plans that provide retirement income for a broad-based group of employees, including our executives. Specifically, TSYS sponsors the TSYS Money Purchase Pension Plan, the TSYS Profit Sharing Plan and the TSYS 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. For fiscal 2008, TSYS’ named executive officers received a contribution of 7% of compensation under the Money Purchase Pension Plan, 1.75% of compensation under the Profit Sharing Plan and no contribution under the 401(k) Savings Plan. The retirement plan contributions for 2008 are included in the “All Other Compensation” column in the Summary Compensation Table on page 31.

 

In addition to these plans, TSYS sponsors the TSYS Deferred Compensation Plan (“Deferred Plan”). TSYS makes contributions to the Deferred Plan in an amount equal to the benefits that cannot be paid under the qualified plans due to limits imposed by the IRS. In addition, participants in the Deferred Plan may elect to contribute all or a portion of their base pay and cash bonuses under the AIP to the Deferred Plan. Assets of the Deferred Plan are held in a rabbi trust, which is subject to claims by TSYS’ creditors. The Deferred Plan does not provide “above market” interest. Instead, participants in the Deferred Plan invest amounts held for their benefit among specified mutual funds. The available mutual funds are similar, but not identical, to the mutual funds offered under the 401(k) Savings Plan. Employer contributions to the Deferred Plan for 2008 are included in the “All Other Compensation” column in the Summary Compensation Table on page 31. In the past, although the Deferred Plan does not provide “above market” interest, TSYS has elected to include earnings on deferred accounts in the “All Other Compensation” column in the Summary Compensation Table because the investment options under the Deferred Plan are not identical to the investment options under the 401(k) Savings Plan. With the downturn in the market during 2008, none of the named executive officers had any earnings on assets held for his benefit under the Deferred Plan.

 

Analysis

 

Benchmarking.  The Committee uses information from companies that we consider our peers to review compensation of the named executive officers relative to the compensation paid to similarly-situated executives and to evaluate performance-based compensation plans. This process is often referred to as “benchmarking.” We believe that benchmarking is a point of reference for measurement, not the determinative driver of the named executive officers’ compensation or the performance-based plans.

 

TSYS believes that the peer group that should be used for compensation comparison purposes is not the same as the peer group that should be used for performance comparisons because the groups have different purposes. Compensation benchmarking peer groups are focused on competitors for talent, and performance peer groups are focused on competitors for capital or companies competing on the same economic playing field. Accordingly, TSYS has identified two peer groups: the Executive Compensation Benchmarking Group and the LTIP Benchmarking Group. The term “peer companies” is used in this Proxy Statement to refer to companies in the Executive Compensation Benchmarking Group or the LTIP Benchmarking Group, as applicable.

 

Information from companies in the Executive Compensation Benchmarking Group is used on an annual basis to benchmark compensation of the named executive officers. Prior to the Spin-Off, the Executive Compensation Benchmarking Group consisted of 17 technology-oriented transaction processors

with revenues of approximately one-half to two times those of TSYS. The companies in the Executive Compensation Benchmarking Group were:

 

 

In 2008, the Committee completed a comprehensive review of the Executive Compensation Benchmarking Group in light of TSYS’ market position post Spin-Off. Companies in the updated Executive Compensation Benchmarking Group were selected by considering companies that compete in TSYS’ market for business and talent, companies with similar business operations and focus, and companies with similar organization size (revenues approximately one-half to two times those of TSYS). Companies in the updated Executive Compensation Benchmarking Group are:

 

 

Information from companies in the LTIP Benchmarking Group is used to adjust LTIP performance awards based on TSYS’ TSR relative to the TSR of the LTIP Benchmarking Group. Prior to the Spin-Off, the LTIP Benchmarking Group consisted of banks in the Keefe, Bruyette and Woods 50 Index. In 2008, the Committee completed a comprehensive review of the LTIP Benchmarking Group in light of TSYS’ market position post Spin-Off. The Committee elected to update the LTIP Benchmarking Group to consist of the companies in the S&P Technology Index.

 

As described above, TSYS benchmarks base salaries and “market” short-term and long-term incentive targets with the applicable peer companies. TSYS also benchmarks total compensation (base salary, short-term incentives and long-term incentives) of its executives using size-adjusted benchmark data at median. 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 that may occur from year to year.

 

Tally Sheets.  The Committee reviewed a tally sheet for the CEO in January, 2008, and it reviewed tally sheets for all named executive officers, including the CEO, in October, 2008. The tally sheets were prepared by the Committee’s compensation consultant. Each tally sheet presented the dollar amount of each element of the executive’s compensation package, including base salary, cash bonus under the AIP, current LTIP target award, perquisites, health and welfare benefits, contributions to the qualified plans and the Deferred Plan and outstanding equity awards. The tally sheets also provided 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.

 

Tally sheets provide the Committee a summary of all elements of an executive’s compensation package, as well as information on wealth accumulation, so that the Committee can analyze both the individual elements of compensation (including the compensation mix) as well as the aggregate total amount of actual and projected compensation and determine whether the executive’s compensation is reasonable or excessive. Although the tally sheets are not used to benchmark total compensation with our peer companies, the Committee considers total compensation paid to executives at our peer companies in considering the reasonableness of our executives’ compensation. After its review of the tally sheets, the Committee determined that the named executive officers’ compensation is performance oriented, competitive, designed to align with our strategic goals and reasonable.

Other Issues and Policies

 

Employment Agreements.  Absent special circumstances (e.g., executives employed as a result of an acquisition), TSYS executives generally do not have employment agreements. None of the named executive officers has employment agreements.

 

Perquisites.  Perquisites are a very small part of our executive compensation program. Perquisites are offered to align our compensation program with competitive practices because similar positions at the peer companies offer similar perquisites. Perquisites are not tied to performance measures. Additional information on perquisites is set forth in footnote (5) of the Summary Compensation Table on page 31. Considered both individually and in the aggregate, we believe that the perquisites we offer to our named executive officers are reasonable and appropriate.

 

Post-Termination Compensation Philosophy.  TSYS’ executive compensation program is designed to reflect TSYS’ philosophy that compensation should generally be earned by executives while they are actively employed (i.e., while contributing to TSYS’ performance). 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 under “Potential Payouts Upon Termination or Change in Control” on page 36. TSYS chose to enter into change of control arrangements with its executives to: (1) ensure the retention of executives and an orderly transition during a change of control; (2) 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) ensure a competitive compensation package because such arrangements are common in the market and it was determined that such agreements were important in recruiting and retaining executive talent.

 

Stock Ownership Guidelines.  To align the interests of our executives with our shareholders, TSYS has implemented stock ownership guidelines for our executives. Under the guidelines, executives are required to own a multiple of their base pay in TSYS stock. TSYS’ Chief Executive Officer is required to own TSYS stock valued at five times his base salary, the President is required to own TSYS stock valued at four times his base salary and the other named executive officers are required to own TSYS stock valued at three times their base salaries. Executives generally have a five-year grace period to comply with the guidelines, with an interim three-year goal. Until the guidelines are met, 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 Committee. All named executive officers are currently in compliance with the guidelines.

 

Recoveries.  TSYS implemented a “clawback” policy effective January 1, 2009. Under the policy, the Committee may direct that TSYS recover all or a portion of any incentive award granted or paid if such incentive award is computed using materially misstated financial information or other performance metric criteria. The amount to be recovered is equal to the excess of the incentive award paid or granted over the incentive award that would have been paid or granted had such financial information or performance metric been fairly stated at the time the incentive award was paid or granted, or any greater or lesser amount (up to the entire incentive award) that the Committee determines.

 

The Committee may use one or more of the following methods to effect a recovery: seek repayment, reduce (subject to applicable law) the amount that would otherwise have been paid, or withhold payment of future increases in compensation or grants of compensatory awards.

 

Tax Considerations.  In making compensation decisions the Committee considers that Internal Revenue Code Section 162(m) limits deductions for compensation paid in excess of $1 million to certain executive officers, with an exception for performance-based compensation. Base pay of each of our named executive officers is tax-deductible because it is less than $1 million. We have designed much of the other compensation paid to our named executive officers to qualify for the performance-based exception. When necessary to meet the requirements for deductibility under the Internal Revenue Code, members of the Committee may abstain from voting on performance-based compensation.

TSYS may elect to provide compensation that is not tax-deductible if we believe the benefits of doing so outweigh the loss of a tax deduction. At this time, TSYS is not entitled to a deduction for certain costs related to an executive’s personal use of corporate aircraft. We believe that a limited amount of personal use each year is an appropriate perquisite for our executives, despite the loss of a tax deduction.

 

With the exception of excise taxes that may be due with respect to the change of control agreements, TSYS does not “gross up” its named executive officers for taxes that are due with respect to their compensation. An estimate of the potential excise taxes payable in connection with a change in control is included under “Potential Payouts Upon Termination or Change in Control” on page 36.

 

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

 

Compensation Realized By Named Executive Officers for 2008

 

The Summary Compensation Table on page 31 provides compensation information for each named executive officer as required by SEC rules. However, the Summary Compensation Table includes amounts that were not realized by the executives in 2008. For example, the Summary Compensation Table reflects the expense recognized for financial statement reporting purposes in connection with equity awards (i.e., options, restricted stock and performance shares) for 2008 and prior years in accordance with SFAS 123(R) rather than the financial benefit realized by the executives in 2008 as a result of the exercise of stock options or the vesting of restricted shares. This information is, however, set forth in the Option Exercises and Stock Vested Table on page 37.

 

The following table only reflects compensation realized by each executive for 2008 and is not a substitute for the Summary Compensation Table. In addition, it is not part of the compensation tables that we are required by SEC rules to present in this Proxy Statement. Furthermore, it does not include a number of compensation opportunities that were made available in 2008. For example, the LTIP awards for 2008 are not included in the table because the awards did not vest during 2008. Detailed information on all compensation opportunities that were made available in 2008 and all compensation paid to or earned by the named executive officers during 2008 is included in this CD&A and the series of tables following this CD&A.

 

Although various compensation opportunities for the named executive officers are not included in the following table, the Compensation Committee considered all amounts paid to or earned by the named executive officers and all compensation opportunities in its determination that the compensation paid to or earned by each named executive officer in 2008 is performance oriented, competitive, designed to align with our strategic goals and reasonable.

The following table reflects the components of the compensation realized by the named executive officers for 2008:

 

 

 

 

Significant Events After December 31, 2008

 

Because of the uncertainties in the current financial market and general economy, base pay for the named executive officers was not increased effective January 1, 2009. The Committee will revisit this issue after the financial results for the first quarter of 2009 become available.

 

Conclusion

 

For the reasons described above, we believe that each element of compensation in our executive compensation program and the total compensation paid to or earned by each named executive officer in 2008 is performance oriented, competitive, designed to align with our strategic goals and reasonable.

 

COMPENSATION COMMITTEE REPORT

 

The 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 and incorporated by reference in TSYS’ Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission.

 

The Committee
Mason H. Lampton, Chairman
Walter W. Driver, Jr.
Kriss Cloninger, III

SUMMARY COMPENSATION TABLE

 

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

 

The named executive officers were not entitled to receive payments which would be characterized as “Bonus” payments for any 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 TSYS has no defined benefit pension plans and does not pay above-market interest on deferred compensation. The retirement plan contributions and earnings, if applicable, for the named executive officers for these three fiscal years are set forth in the “All Other Compensation” column.

 

 

 

GRANTS OF PLAN-BASED AWARDS
for the Year Ended December 31, 2008

 

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, performance share awards and stock options) awarded to the named executive officers in 2008.