UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

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

Filed by the Registrant þ
Filed by a Party other than the Registrant o

Check the appropriate box:

o		Preliminary Proxy Statement
o		Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material Pursuant to §240.14a-12

 

P. H. GLATFELTER COMPANY

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

þ		No fee required.
o		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

	(1)		Title of each class of securities to which transaction applies:
	(2)		Aggregate number of securities to which transaction applies:
	(3)		Per unit or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
	(4)		Proposed maximum aggregate value of transaction:
	(5)		Total fee paid:

o		Fee paid previously with preliminary materials.
o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

	(1)		Amount Previously Paid:
	(2)		Form, Schedule or Registration Statement No.:
	(3)		Filing Party:
	(4)		Date Filed:

 

P. H. GLATFELTER COMPANY

96 South George Street, Suite 500

York, Pennsylvania 17401

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

TO BE HELD ON

 

May 5, 2010

 

TO OUR SHAREHOLDERS:

 

The 2010 Annual Meeting of the Shareholders of P. H. Glatfelter Company (“Annual Meeting”), a Pennsylvania corporation, will be held at the York Expo Center, 334 Carlisle Avenue, York, Pennsylvania, in the Pennsylvania Room, on Wednesday, May 5, at 10:00 a. m., to consider and act upon the following items:

 

 

Only holders of record of the Company’s common stock at the close of business on March 11, 2010, will be entitled to notice of, and to vote at, the Annual Meeting.

 

It is important that your shares be represented and voted at the Annual Meeting. Whether or not you currently plan to attend the Meeting, please complete, date and sign the accompanying proxy card and return it promptly in the enclosed envelope (requiring no postage if mailed in the United States). If you choose, you may still vote in person at the Annual Meeting, even though you had previously submitted a proxy card.

 

Thomas G. Jackson

Vice President,

General Counsel and
Secretary

 

March 30, 2010

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
THE 2010 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 5, 2010.

 

P. H. Glatfelter Company’s Proxy Statement for the 2010 Annual Meeting of Shareholders and the 2009 Annual Report, are available via the Internet at www.glatfelter.com/about_us/investor_relations/sec_filings.aspx

 

TABLE OF CONTENTS

 

P. H. GLATFELTER COMPANY

 

 

PROXY STATEMENT

 

The accompanying proxy is being solicited by the Board of Directors (the “Board”) of P. H. Glatfelter Company (“we,” “us,” or the “Company”), 96 South George Street, Suite 500, York, Pennsylvania 17401, in connection with the 2010 Annual Meeting of shareholders to be held on Wednesday, May 5, 2010 at 10:00 a.m., 334 Carlisle Avenue, York, Pennsylvania, in the Pennsylvania Room. This proxy statement and the accompanying proxy card are being mailed to the shareholders on or about March 30, 2010.

 

What is the purpose of the Annual Meeting?

 

At the Annual Meeting, shareholders will be asked to consider and act upon the following matters:

 

 

Why are shareholders receiving these proxy materials?

 

Shareholders are receiving these proxy materials in connection with the solicitation of proxies by the Board of Directors in connection with the 2010 Annual Meeting and shareholders are encouraged to read this proxy statement and to vote their shares by mailing the attached proxy card or in person at the Annual Meeting. The Board has appointed Director, Nicholas DeBenedictis and Director, J. Robert Hall, or either of them with power of substitution, to vote all properly executed proxies at the Annual Meeting or at any adjournment of the Annual Meeting which are received from shareholders who are entitled to vote.

 

Who may vote?

 

Shareholders of record as of the close of business on March 11, 2010, the record date, may vote at the Annual Meeting. At the close of business on March 11, 2010, there were 45,751,075 shares of the Company’s common stock issued and outstanding and eligible to vote at the Annual Meeting.

 

What is a beneficial owner?

 

If on March 11, 2010, a shareholder’s shares were not held in the shareholder’s name, but rather in the name of a brokerage firm, bank, dealer, or other similar organization, then the shareholder is the beneficial owner of shares and the shares are referred to as being held in “street name.” The broker, bank or firm that is holding the shareholder’s shares is the shareholder of record for purposes of voting at the Annual Meeting. As a beneficial owner, a shareholder has the right to direct the broker or other agent that is holding his shares regarding how to vote the shareholder’s shares being held by the broker.

 

How does a shareholder vote?

 

The procedures for voting are fairly simple: A shareholder is entitled to one vote per share of stock owned on the record date on each item of business presented at the Annual Meeting, except each shareholder has cumulative voting rights with respect to electing directors. Cumulative voting means that a shareholder is entitled to as many votes in electing directors as is equal to the number of shares of common stock that are owned by the shareholder on the record date, multiplied by the number of directors to be elected. Accordingly, for the election of six directors, a shareholder may cast his total number of votes “For” or “Withhold” all of his votes from a single nominee or may distribute or withhold his total number of votes between the six nominees as he determines up to the number of shares of common stock that are owned by the shareholder on the record date, multiplied by six. The persons named in the accompanying proxy card as Proxy Holders will vote the shareholder’s shares as the shareholder designates on his proxy card, including any exercise of cumulative voting rights through the distribution of votes among the nominees as indicated on the proxy card. Absent such designation, the Proxy Holders may use their discretionary authority to vote the shareholder’s shares as the proxy holders shall determine including voting those shares cumulatively.

 

For the proposal to approve the Management Incentive Plan, as amended and restated, a shareholder may vote “For” or “Against” or abstain from voting.

 

For the proposal to ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2010, a shareholder may vote “For” or “Against” or abstain from voting.

 

Only shareholders of the Company’s common stock on the record date of the Annual Meeting, March 11, 2010, may attend the Annual Meeting, and those shareholders will need an admission ticket or other proof of stock ownership to be admitted to the Annual Meeting.

 

 

 

How can a shareholder change his vote?

 

A shareholder of record can revoke his proxy at any time before his shares are voted if it (1) delivers a written revocation to the Company’s Secretary; (2) submits a later dated proxy (or voting instruction form if it holds his shares in street name); or (3) vote in person at the Annual Meeting. A shareholder that is a beneficial owner should follow the instructions provided by his broker or bank to change his vote.

 

What is a quorum?

 

As of March 11, 2010, there were 45,751,075 shares of the Company’s common stock outstanding and entitled to vote. The presence of shareholders entitled to cast at least a majority of the votes that all shareholders are entitled to cast on a particular matter will constitute a quorum for the purposes of such matter. Abstention or broker “non-votes” are counted as present and entitled to vote for purposes of determining a quorum. A broker “non-vote” occurs when a broker or bank holding shares for a beneficial owner does not vote on a particular matter because the broker or bank does not have discretionary voting authority to vote on the proposal and the beneficial owner has not provided voting instructions.

 

How does discretionary voting authority apply?

 

If a shareholder of record signs and returns the accompanying proxy card, but does not make any selections, Nicholas DeBenedictis and J. Robert Hall, as proxy holders, will have discretion to vote the shares and will vote those shares on behalf of the shareholder at the Annual Meeting as recommended by the Board.

 

If a beneficial owner does not provide the bank or broker that holds his shares with specific voting instructions, under the rules of various national and regional securities exchanges, the beneficial owner’s bank or broker may generally vote on routine matters but cannot vote on non-routine matters. Proposal 1 (election of directors) is not a routine matter. The Company believes Proposal 2 (approval of the Management Incentive Plan) and Proposal 3 (ratification of auditors) will be considered routine. If the beneficial owner’s bank or broker does not receive instructions from them on how to vote their shares on a non-routine matter, their bank or broker will inform the Company that they do not have the authority to vote on this matter with respect to the beneficial owner’s shares. We encourage shareholders to provide voting instructions to the organization that holds their shares by carefully following the instructions provided in the notice.

 

What is the Board’s recommendation?

 

The Board recommends a vote:

 

 

What vote is needed to elect Directors and for the proposals to be adopted?

 

 

Who pays for the proxy solicitation related to the Annual Meeting?

 

The Company pays the cost of preparing, printing, assembling and mailing this Proxy Statement and other proxy solicitation materials. The Company will also reimburse brokers and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding the Proxy Statement and other proxy soliciting materials to beneficial owners. In addition to the solicitation of proxies by mail, some of the Directors, Officers, other employees and agents may solicit proxies personally, by telephone and by other means. The Officers and Directors who may solicit proxies personally receive no special compensation for any solicitation activities.

 

Will any business other than that discussed in this proxy statement be considered or acted upon at this Annual Meeting?

 

No. The Company’s by-laws required shareholders to submit advance notice of all director nominations and shareholder proposals to be considered at the 2010 Annual Meeting to the Company by November 25, 2009, regardless of whether the shareholder seeks inclusion of their nomination or proposal in this proxy statement, or intends to solicit proxies on their own. Because the Company did not receive any such notice of nominations or proposals, no other Director nominations or shareholder proposals shall be considered at the 2010 Annual Meeting.

 

When are shareholder proposals due for inclusion in the proxy statement for the 2011 Annual Meeting?

 

A proposal that a shareholder would like to present at the 2011 Annual Meeting must be submitted to the Company’s Secretary prior to the preparation of the 2011 Proxy Statement. To be included in the proxy statement for the 2011 Annual Meeting, a shareholder proposal must be submitted in writing to the Company’s Secretary and delivered to, or mailed and received by the Company no later than November 30, 2010. The Company’s By-laws prescribe the procedures a shareholder must follow to bring business before shareholder meetings. To bring matters before the 2011 Annual Meeting, and to include a matter in the Proxy Statement for that meeting, a notice that includes all of the information required by the Company’s By-laws must be received by November 30, 2010.

 

How can a shareholder nominate director candidates?

 

A shareholder may recommend nominees for consideration by the Board’s Nominating and Corporate Governance Committee for nomination for election to the Board. Shareholder recommendations for director nominees will receive the same consideration by the Board’s Nominating and Corporate Governance Committee that all other nominations receive. If a shareholder wishes to recommend a nominee for director, the shareholder should submit such recommendation in writing, together with any supporting materials deemed appropriate, to the Company’s Secretary.

 

A shareholder may nominate a person for election to the Board, provided the recommendation is made in accordance with the procedures described herein and in the Company’s By-laws. To nominate a candidate for director at the 2011 Annual Meeting, notice of the nomination must be in writing and delivered to, or mailed and received at the Company no later than November 30, 2010.

 

What must be included in the notice to submit a shareholder proposal or to nominate a director candidate?

 

The notice must include:

 

 

This is a general description of the notice required to submit a proposal or nomination for consideration at the 2011 Annual Meeting. The Company’s By-laws contain a complete description of the notice requirements for shareholder proposals. Copies of the Company’s By-laws may be obtained from the Company’s web site at www.glatfelter.com/about_us/corporate_governance/bylaws.aspx or free of charge from the Secretary.

 

The proposal and notice must otherwise comply with the requirements of Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

 

 

To the Company’s knowledge, the following table sets forth information regarding ownership of the Company’s outstanding common stock as of March 11, 2010, (except as otherwise noted) by: (i) each person who is known by the Company to own beneficially more than 5% of the common stock of the Company; (ii) each Director, Director nominee and named executive officer; and (iii) all Directors, Director nominees and executive officers as a group. Except as otherwise indicated and subject to applicable community property laws, each owner has sole voting and investment powers with respect to the securities listed. The number of shares beneficially owned by each person is determined under the rules of the Securities and Exchange Commission (“SEC”) and the information is not necessarily indicative of beneficial ownership for any other purpose. Under the rules of the SEC, all shares which a person has the right to acquire beneficial ownership within 60 days are considered beneficially owned by that person.

 

 

 

 

* Less than 1%

 

 

 

 

 

The following table provides certain information as of December 31, 2009 regarding the Company’s equity compensation plans.

 

 

 

 

 

 

Section 16(a) of the Exchange Act requires the Company’s Directors and executive officers, and persons who own more than ten percent of a registered class of the Company’s equity securities (“10% Holders”), to file reports of holdings and transactions in the Company’s common stock with the SEC and the New York Stock Exchange (the “NYSE”). Based on the Company’s review of such reports (and amendments thereto), the Company believes that, in 2009, its Directors, executive officers and 10% Holders filed all required reports of holdings and transactions in the Company’s common stock with the SEC and the NYSE. George H. Glatfelter II, Chairman and Chief Executive Officer of the Company, is a co-trustee of the Irrevocable Trust of George H. Glatfelter dated October 19, 1976 (the “1976 Trust”) and the indirect beneficial owner of shares of Company common stock held by the 1976 Trust. In 2008, the other co-trustee of the 1976 Trust approved sales of the Company common stock in a series of six transactions without the knowledge of Mr. Glatfelter. Mr. Glatfelter filed a Form 4 in December 2009 when he was informed of the sales.

 

 

At the Annual Meeting, the Company’s shareholders will vote to fill six Director positions, each for one-year terms expiring on the date of the Company’s 2011 Annual Meeting of Shareholders and until their respective successors are elected and qualified. The Board proposes that Kathleen A. Dahlberg, George H. Glatfelter II, Richard C. Ill, Ronald J. Naples, Richard L. Smoot and Lee C. Stewart, who are currently serving as Directors of the Company, be re-elected as Directors for terms expiring in 2011. The nominees have consented to serve if elected to the Board.

 

If a nominee is unable to serve as a Director at the time of the Meeting, an event that the Board does not anticipate, the persons named in the accompanying proxy card will vote for such substitute nominee as may be designated by the Board, unless the Board reduces the number of Directors accordingly.

 

Board of Directors

 

The following table sets forth information as to the nominees and the other persons who are to continue as Directors of the Company after the 2010 Annual Meeting of Shareholders. The information included in the table was obtained in part from the respective nominees and in part from the records of the Company.

 

 

 

 

The Compensation Committee approved and recommended to the Board, and the Board adopted and recommends that you approve the Company’s Amended and Restated 2005 Management Incentive Plan (the “Plan”). The Company is seeking shareholder approval of the Plan for purposes of complying with Section 162(m) of the Code. Generally, Section 162(m) of the Code does not allow publicly held companies like the Company to take a tax deduction for compensation that is paid to the CEO and the four most highly compensated executive officers other than the CEO to the extent such compensation exceeds one million dollars per officer in any year. However, awards which are made by a publicly traded company pursuant to a performance-based compensation plan that is approved by its shareholders at least every five years will not be subject to the deduction limit. In order to satisfy this requirement, the Company is submitting the Plan for shareholder approval at this Annual Meeting. The Plan was last approved by the shareholders at the annual meeting held in 2005.

 

The Board believes that the Plan provides incentives to key employees with significant responsibility for the success and growth of the Company. The Plan is designed to: (1) promote the attainment of the Company’s significant business objectives, (2) encourage and reward management teamwork across the entire Company, and (3) assist in the attraction and retention of employees vital to the Company’s long-term success. Please see pages 20-21 of this proxy statement for a description of the awards made under the Plan to the Named Executive Officers for 2009.

 

The Plan is set forth in full at Appendix A to this Proxy Statement. A summary of the Plan is set forth below.

 

How is the Plan administered?

 

The Plan is administered by the Compensation Committee and all acts and authority of the Compensation Committee under the Plan are subject to the provisions of its charter and such other authority as may be delegated to the Compensation Committee by the Board. The Compensation Committee has full authority and discretion to determine eligibility for participation in the Plan, make awards under the Plan, establish the terms and conditions of such awards (including the performance goals and performance measures to be utilized) and determine whether such performance goals applicable to any performance measures for any awards have been achieved. The Compensation Committee is authorized to interpret the Plan, to adopt administrative rules, regulations, procedures and guidelines for the Plan, and may correct any defect, supply any omission or reconcile any inconsistency or conflict in the Plan or in any award under it. The Compensation Committee may, with respect to participants who are not subject to Section 162(m) of the Code, delegate

such power and authority under the Plan to the Company’s officers, as it deems necessary or appropriate.

 

The Compensation Committee has the authority and discretion to determine the extent to which awards under the Plan are structured to conform to the requirements applicable to performance-based compensation set forth in Section 162(m) of the Code and the regulations issued thereunder.

 

Who is eligible to participate in the Plan?

 

Participation in the Plan is limited to approximately 30 officers and key employees of the Company and its subsidiaries who have significant responsibility for corporate, business segment or facility-based operations. Each individual participant must be nominated by management and approved by the Compensation Committee for participation in the Plan.

 

What types of awards are made under the Plan?

 

The Compensation Committee (or with respect to certain executives, the CEO) may, in its discretion, make cash awards to eligible participants under the Plan. The amount of a participant’s award may be based on a percentage of such participant’s salary or such other methods as may be established by the Compensation Committee. The fact and/or terms of awards need not be uniform among all participants, or classes or categories of participants. No award paid to a participant for a particular performance period may exceed $2,000,000. A performance period generally is a calendar year but can be another period, as selected by the Compensation Committee, for which performance is being measured.

 

What performance measures are used?

 

For awards that are intended to be performance-based compensation under Section 162(m) of the Code, each award will be conditioned upon the Company’s achievement of one or more performance goal(s) with respect to one or more of the following performance measures as established by the Compensation Committee: cash flow; cash flow from operations; earnings (including earnings before interest, taxes, depreciation, and amortization, and pension income or expense, or some variation thereof); earnings per share, diluted or basic; earnings per share from continuing operations; net asset turnover; inventory turnover; capital expenditures; debt; net debt; debt reduction; working capital; return on investment; return on sales; net or gross sales; market share; economic value added; cost of capital; change in assets; expense reduction levels; productivity; delivery performance; safety record; stock price; return on equity; total shareholder return; return on capital; return on assets or net assets; revenue; income or net income; operating income or operating net income; operating profit or net operating profit; gross margin, operating margin or profit margin; and completion of acquisitions, sales of significant assets, business expansion, product diversification and other non-financial operating and management performance objectives.

 

To the extent consistent with Section 162(m) of the Code, the Compensation Committee may determine that certain adjustments shall apply, in whole or in part, in such manner as specified by the Compensation Committee, to exclude the effect of any of the following events that occur during a performance period: the impairment of tangible or intangible assets; litigation or claim judgments or settlements; the effect of changes in tax law, accounting standards or principles or other such laws or provisions affecting reported results; accruals for reorganization and restructuring programs, including but not limited to reductions in force and early retirement incentives; currency fluctuations; and any extraordinary, unusual, infrequent or non-recurring items, including, but not limited to, such items described in management’s discussion and analysis of financial condition and results of operations or the financial statements and notes thereto appearing in the Company’s annual report to shareowners for the applicable year.

 

Performance measures may be determined either individually, alternatively or in any combination, applied to either the Company as a whole or to a business unit or subsidiary entity thereof, either individually, alternatively or in any combination, and measured over a period of time including any portion of a year, annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison group, in each case as specified by the Compensation Committee.

 

No later than ninety (90) days after the beginning of an applicable performance period, the Compensation Committee will establish in writing the performance goals, performance measures and the method(s) for computing the amount of compensation which will be payable under the Plan to each participant if the performance goals established by the Compensation Committee are attained; provided, that for a performance period of less than one year, the Compensation Committee will take any action prior to the lapse of 25% of the performance period. In addition to establishing minimum performance goals below which no compensation will be paid with respect to an award, the Compensation Committee, in its discretion, may create a performance schedule under which an amount less than or more than the target award may be paid so long as the performance goals have been achieved.

 

The Compensation Committee, in its discretion, may also establish such additional restrictions or conditions that must be satisfied as a condition precedent to the payment of all or a portion of any awards. Such additional restrictions and conditions may include the receipt by a participant of a specified annual performance rating, continued employment by the participant until a date that may be beyond the end of a performance period, or the achievement of specified performance goals by the Company, business unit or participant. The Compensation Committee may, in its discretion, also reduce the amount of any award if it concludes that such reduction is necessary or appropriate based on: (i) an evaluation of a participant’s performance; (ii) comparisons with compensation received by other similarly

situated individuals working within the Company’s industry; (iii) the Company’s financial results and conditions; or (iv) other factors or conditions that the Compensation Committee deems relevant. The Compensation Committee may not use its discretionary authority to increase any award that is intended to be performance-based compensation under Section 162(m) of the Code.

 

When are awards paid?

 

Payment of awards is made as promptly as practicable (but in no event later than two and one-half months after the close of the fiscal year in which the performance period ends) after the Company’s certified public accountants have completed their examination of the Company’s year-end consolidated financial statements and the Compensation Committee has certified in writing the extent to which the applicable performance goals and other material terms have been achieved. If an award is subject to a vesting requirement whereby payment is contingent on the participant’s continued employment beyond the end of a performance period, payment will be made as soon as practicable following the participant’s satisfaction of the vesting requirement.

 

Unless otherwise determined by the Compensation Committee and, except in the case of death or disability as discussed in the paragraph below, participants who have terminated employment with the Company prior to the end of the performance period for any reason other than death, retirement, or total and permanent disability, will forfeit all rights to payment under any awards then outstanding under the Plan and will not be entitled to any cash payment for such period.

 

Unless otherwise determined by the Compensation Committee, if a participant’s employment with the Company terminates during a performance period by reason of death, retirement or total and permanent disability, the participant’s award will be pro-rated to reflect the period of service prior to his/her death, retirement or total or permanent disability, as the case may be, subject to the Compensation Committee’s certification that the applicable performance goals and performance measures have been met.

 

Are awards transferable?

 

No. A participant’s rights under the Plan may not be assigned, pledged or otherwise transferred except, in the event of the participant’s death, to the participant’s designated beneficiary or by the laws of descent and distribution.

 

Can the Plan be amended or terminated?

 

Yes. Although the Company intends to continue to use the Plan from year to year, the Company reserves the right, by action of the Board or the Compensation Committee, to amend, modify or terminate the Plan, at any time; provided, that no such amendment, modification or termination will, without the participant’s consent, materially adversely affect the rights of such participant to any payment that has been determined by the Compensation Committee to be due and owing to the participant under the Plan, but not yet paid. Notwithstanding the foregoing or any provision of the Plan to the contrary, the Compensation Committee may at any time (without the consent of participants) modify, amend, or terminate any or all of the provisions of the Plan to the extent necessary to conform the provisions of the Plan with Section 409A of the Code.

 

What are the Federal income tax consequences to participants?

 

When any part of an award is paid in cash to a participant, the participant will realize compensation which is taxable to the participant as ordinary income in the amount of the cash paid. The Company will generally be entitled to a deduction in the same amount of the award and at the same time as the participant recognizes ordinary income.

 

Are there any limitations on the Company’s deductions?

 

With certain exceptions, Section 162(m) of the Code limits the Company’s deduction for compensation in excess of one million dollars paid to the Company’s CEO and its four other highest-paid executive officers other than the CEO. Compensation paid to such covered employees is not subject to the deduction limitation if it is considered “qualified performance-based compensation” within the meaning of Section 162(m) of the Code. If the Company’s shareholders approve the Plan at the Annual Meeting, the Company intends that performance awards (intended to be treated as qualified performance-based compensation as defined in the Code) granted to covered employees under the Plan will satisfy the requirements of qualified performance-based compensation and therefore the Company will be entitled to a deduction with respect to the payment of such awards. However, with respect to awards that are not intended to be treated as qualified performance-based compensation as defined in the Code, the deduction that the Company might otherwise receive with respect to such awards to covered employees may be disallowed.

 

The Board believes that approval by shareholders of the Amended and Restated 2005 Management Incentive Plan for purposes of complying with Section 162(m) of the Internal Revenue Code is in the best interests of the Company and its shareholders and unanimously recommends a vote FOR the proposal.

 

The Audit Committee of the Board of Directors has appointed Deloitte & Touche LLP (“Deloitte”) as the Company’s independent registered public accounting firm for the fiscal year 2010, subject to ratification by the Company’s shareholders. Deloitte audited the Company’s consolidated financial statements for the fiscal year ended December 31, 2009.

 

A Deloitte representative is expected to attend the Annual Meeting, will be given the opportunity to make a statement if he or she chooses to do so, and will be available to respond to appropriate shareholder questions.

 

What did the Company pay its independent registered public accounting firm in 2009 and 2008?

 

For the years ended December 31, 2009 and 2008, the aggregate fees billed to the Company by Deloitte were as follows:

 

 

 

All services rendered for the Company by Deloitte in 2009 were permissible under applicable laws and regulations, and were pre-approved by the Audit Committee. The Audit Committee’s Audit and Non-Audit Services Pre-Approval Policy provides for the pre-approval of audit and non-audit services performed by the Company’s independent registered public accounting firm. Under the policy, the Audit Committee may pre-approve specific services, including fee levels, by the independent registered public accounting firm in a designated category (audit, audit-related, tax services and all other services). The Audit Committee may delegate, in writing, this authority to one or more of its members, provided that the member or members to whom such authority is delegated must report their decisions to the Audit Committee at its next scheduled meeting.

 

The Board believes that the ratification of Deloitte as the Company’s independent registered public accounting firm for the year ending December 31, 2010 is in the best interest of the Company and the shareholders and unanimously recommends a vote FOR the proposal.

 

The Board of Directors and management of the Company are dedicated to effective corporate governance. The Board has adopted Corporate Governance Principles to provide a framework for governance of the Company. These Corporate Governance Principles are set forth in full on the Company’s website at www.glatfelter.com/about_us/corporate_governance/principles.aspx and available in print upon request directed to the Secretary of the Company at 96 South George Street, Suite 500, York, PA 17401-1434.

 

What is the composition of the Board?

 

The Board currently consists of eight members. Each year, the Board elects one of its members to serve as Chairman. The Board reviews its governance structure and the qualifications of each Director and determines which Director is best qualified to chair the Board. The Board believes that the Company and its shareholders are best served by having a Chairman who has a wide-ranging, in-depth knowledge of the Company’s business operations and the competitive landscape and who can best execute the strategic plan approved by the Board. Based on his extensive experience and knowledge of the Company’s operations, industry, competitive challenges and opportunities, the Board has determined that, at this time, the Chief Executive Officer is the Director best qualified to serve in the role of Chairman. More specifically the Chairman:

 

 

In addition, the agenda for each Board meeting and the schedule of meetings is available to all Directors in advance so that any Director can review and request changes. Moreover, all Directors have unrestricted access to management at all times and communicate informally with management on a variety of topics.

 

The Board believes that shareholders are best served by the Board’s current leadership structure, because the Corporate Governance Principals and the Company’s policies and procedures provide for an empowered, independent Board and the full involvement of the independent members of the Board in the Board’s operations and its decision making.

 

In the Company’s Governance Principles, the Board has adopted the NYSE standards for determining the independence of Directors, which require that a Director not have a material relationship with the Company.

 

On an annual basis, each member of the Board is required to complete a questionnaire which is designed, in part, to provide information to assist the Board in determining

whether the director is independent under NYSE rules and our Corporate Governance Principles. In addition, each Director or nominee for Director has an affirmative duty to disclose to the Nominating and Corporate Governance Committee relationships between and among that director (or an immediate family member), the Company, and/or the management of the Company.

 

The Board has determined the following Directors are independent and do not have any material relationship with the Company: Ms. Dahlberg and Messrs. DeBenedictis, Hall, Ill, Naples, Smoot and Stewart. The Board determined that Mr. Glatfelter has a material relationship with the Company because he is the Chief Executive Officer of the Company. Thus, Mr. Glatfelter is deemed not to be an independent Director by NYSE standards and the Company’s Governance Principles.

 

What committees has the Board established?

 

The Company’s Board of Directors has four standing committees: the Audit Committee, the Compensation Committee, the Finance Committee, and the Nominating and Corporate Governance Committee. The Board appoints the members of all of these standing committees and their Chairpersons at its organizational meeting held following the Company’s Annual Meeting.

 

The Board has adopted a written charter for each of its standing committees, all of which are posted on the Company’s corporate website at www.glatfelter.com/about_us/corporate_governance/committees.aspx, and available in print upon request directed to the Secretary of the Company at 96 South George Street, Suite 500, York, PA 17401-1434.

 

Audit Committee. The Audit Committee, established in accordance with Section 3(a)(58)(A) of the Exchange Act, currently consists of four Directors: Messrs. Hall (Chair), DeBenedictis, Ill and Naples. In the opinion of the Board, all four Audit Committee members meet the Director independence requirements set forth in the listing standards of the NYSE and the applicable rules and regulations of the SEC in effect on the date of this proxy statement. The Board has determined that, based on their experience, Messrs. DeBenedictis, Hall, Ill and Naples are audit committee financial experts, as that term is defined in the applicable SEC regulations, and that all members of the Audit Committee are financially literate within the meaning of the NYSE listing standards. The Audit Committee held 8 meetings during 2009.

 

In accordance with its Board-approved charter, the purpose of the Audit Committee is to assist the Board in its oversight of (i) the quality and integrity of the accounting, auditing, and financial reporting practices of the Company, (ii) the compliance by the Company, its directors and officers with applicable laws and regulations and its Code of Business Conduct, (iii) the independent auditors’ qualifications and independence, and (iv) the performance of the Company’s internal audit function and independent auditors. The Audit Committee:

 

 

 

The Audit Committee has the authority to retain special legal, accounting, or other experts as it deems necessary to carry out its duties.

 

Compensation Committee. The Compensation Committee currently consists of five Directors: Mr. Naples, (Chair), Ms. Dahlberg, and Messrs. DeBenedictis, Smoot and Stewart. In the opinion of the Board, all five Compensation Committee members meet the Director independence requirements set forth in the NYSE listing standards in effect on the date of this proxy statement. The Compensation Committee held 7 meetings during 2009.

 

In accordance with its Board-approved charter, the Compensation Committee is responsible for discharging the Board’s duties related to compensation of the Company’s executives and also reviews, recommends for approval by the Board and oversees the Company’s management incentive and equity-based incentive compensation plans, defined benefit and contribution plans, and other welfare benefit plans. In addition to, or in furtherance of, the Compensation Committee’s functions described above, the Compensation Committee:

 

 

The Compensation Committee has the authority to engage independent compensation consultants, legal counsel or advisors, as it may deem appropriate in its sole discretion, and to approve related fees and retention terms of such consultants, counsel, or advisors, and routinely holds executive sessions without management.

 

The Committee has engaged Compensation Strategies, Inc., (“Consultant”) an independent executive compensation consulting firm, to provide advice and assistance to the Committee and to the Company’s management in the area of executive and non-employee Director’s compensation for the Company. The Consultant reports directly to the Committee but has been authorized by the Committee to work with certain executive officers of the Company as well as other employees in the Company’s human resources, legal, and finance departments. The Consultant conducts regular reviews of total compensation of the Company’s executive group, based on the process described in the Compensation Discussion & Analysis contained elsewhere in this proxy statement, for review by management in determining the appropriate levels of compensation for each executive.

 

The Consultant also conducts regular reviews of total compensation of the Company’s non-employee Directors and assists the Committee in the development of recommended changes in such compensation for approval by the Board of Directors. The Consultant also provides advice to the Committee and management with respect to other executive and Board compensation issues that arise throughout the year. During 2009, the scope of the Consultant’s assignments included a pay for performance analysis of the Company’s

bonus pay versus that of its peer group, advice on the design of the MIP and long term incentive programs for 2009 and for 2010, as discussed in the CD&A; and IRS Section 409A reviews of the Company’s benefit plans.

 

The Chair of the Compensation Committee is responsible for leadership of the Committee and development of the meeting agendas. The Committee may form subcommittees and delegate authority to them, as it deems appropriate. The meetings of the Compensation Committee are regularly attended by the CEO and the Committee’s independent compensation consultant, but the Committee usually meets in executive session at each meeting.

 

The CEO performs performance assessments and compensation recommendations for each executive officer of the Company (other than himself) on an annual basis. The Compensation Committee considers the CEO’s recommendations with the assistance of the Consultant and approves the compensation of the executive officers (other than the CEO). In the case of the CEO, the Committee develops its own recommendation in executive session without the CEO, or any other member of management, present and then provides this recommendation to the independent members of the Board for approval in executive session. The CEO, the Vice President of Human Resources & Administration, and the Vice President, General Counsel & Secretary generally attend, and the Senior Vice President & Chief Financial Officer occasionally attends, Compensation Committee meetings but none are present for executive sessions or any discussion of their own compensation.

 

Finance Committee. The Finance Committee currently consists of four Directors: Mr. Ill, (Chair) and Messrs. Glatfelter, Hall and Stewart. The Finance Committee provides advice to the Board on the financial policies of the Company and has oversight over matters of financial significance to the Company. Specifically, pursuant to its Board-approved charter, the Finance Committee:

 

 

The Finance Committee held 4 meetings during 2009.

 

Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee currently consists of five Directors: Mr. Stewart (Chair), Ms. Dahlberg, and Messrs. DeBenedictis, Hall and Smoot. In the opinion of the Board, all five members of the Nominating and Corporate Governance Committee meet the Director independence requirements as set forth in the NYSE listing standards in effect on the date of this proxy statement. Pursuant to its Board-approved charter, the Nominating and Corporate Governance Committee:

 

 

The Nominating and Corporate Governance Committee reviews all Director nominations submitted to the Company, including individuals recommended by shareholders, Directors or members of management. When evaluating whether to recommend an individual for nomination or re-nomination, the Nominating and Corporate Governance Committee will consider, at a minimum and in accordance with the Company’s Governance Principles, the nominee’s independence, availability to serve on the Board and the candidate’s knowledge, experience, skills, expertise, wisdom, integrity, business acumen and understanding of the Company’s business environment.

In evaluating Director candidates, the Committee considers a wide variety of qualifications, attributes and other factors and recognizes that a diversity of viewpoints and practical experiences can enhance the effectiveness of the Board. Accordingly, as part of its evaluation of each Director candidate, the Committee takes into account how that candidate’s background, experience, qualifications, attributes and skills may complement, supplement or duplicate those of other prospective candidates.

 

The Committee specifically reviews the qualifications of each candidate for election or re-election, including for incumbent Directors, his or her understanding of the Company’s businesses and the environment within which the Company operates, attendance and participation at meetings, and independence, including any relationships with the Company. Prior to nomination, each candidate for election must consent to stand for election, and each nominee must agree in writing to abide by the Company’s majority voting policy.

 

After the Committee has completed its evaluation of all candidates, it presents its recommendation to the Board for consideration and approval. The Committee also discusses with the Board any candidates who were submitted to and considered by the Committee but not recommended for election or re-election as Directors.

 

We will report any material change to this procedure in a quarterly or annual filing with the SEC. In addition, we will make any changes to this procedure available promptly by posting that information on the Corporate Governance section of our website at www.glatfelter.com/about_us/corporate_governance/default.aspx.

 

Based on the process described above, the Committee recommended and the Board determined to nominate each of the incumbent Directors for re-election at the 2010 Annual Meeting of Shareholders. The Committee and Board concluded that each of the incumbent Directors should be nominated for re-election based on the experience, qualifications, attributes and skills identified in the biographical information contained under “Election of Directors” on pages 7 to 8. The Committee and the Board assessed these factors in light of the Company’s businesses, which provide a diverse line of specialty papers and engineered products around the world. In particular, the Committee and the Board considered the following factors:

 

 

Any shareholder who wishes to recommend a nominee for election to the Board should follow the procedures set forth on page 3 of this proxy statement.

 

The Committee periodically reviews and oversees orientation programs for newly elected Directors and continuing education programs for incumbent Directors. The Committee also reviews shareholder proposals submitted for presentation at the Annual Meeting and proposed responses from the Board, and makes recommendations to the Board concerning Board procedures. The Nominating and Corporate Governance Committee is charged with developing and recommending corporate governance principles to the Board and reviewing these principles for appropriateness and compliance with SEC and NYSE requirements. The Nominating and Corporate Governance Committee reviews the senior management organization and succession plan.

 

The Nominating and Corporate Governance Committee has the authority to retain Director search consultants, outside counsel or other experts as it deems necessary to carry out its duties, and the Company makes funds available to the Committee for such retention. No third party Director search firms were engaged in 2009. The Nominating and Corporate Governance Committee held 3 meetings during 2009.

 

How may a shareholder communicate with the Company’s Board or the non-management Directors of the Company?

 

A shareholder may address written correspondence to the Board or any individual Director (whether management or non-management), to Mr. Thomas G. Jackson, Vice President General Counsel and Secretary, P. H. Glatfelter Company, 96 South George Street, Suite 500, York, PA 17401-1434.

 

The Company’s Board has approved a process whereby the Secretary of the Company will receive, review and, as appropriate, forward any communications which are addressed to the Board or a Director to the Board or named Director or the Chair of the Committee responsible for the matter addressed in the communication. All communications that relate to concerns regarding accounting, internal controls or auditing matters will be forwarded to the Chair of the Audit Committee.

 

Does the Company have a majority-voting policy?

 

The Company’s Governance Principles include a majority-voting policy for the election of Directors. Pursuant to the majority-voting policy, in an uncontested election, if a nominee for Director who is an incumbent Director receives a greater number of votes “withheld” from his or her election than votes “for” such election (a “Majority Withheld Vote”), and no successor has been elected at such meeting, the Director must tender his or her resignation following certification of the shareholder vote. In an uncontested election, if a nominee for Director who is not an incumbent Director receives at any meeting for the election of Directors at which a quorum is present a Majority Withheld Vote (but does receive the requisite plurality vote), the nominee will be deemed to have been elected to the Board and to have immediately resigned. To be eligible to stand for election, each person who agrees to be nominated must also agree, in writing, to be bound by this provision.

 

In the event of a Majority Withheld Vote, the Nominating and Corporate Governance Committee will consider the tendered resignation and make a recommendation to the Board as to whether or not to accept it. The Board will act on the Nominating and Corporate Governance Committee’s recommendation within 90 days following certification of the shareholder vote. In making their determinations, the Nominating and Corporate Governance Committee and the Board may consider any factors or other information that they consider appropriate or relevant. Thereafter, the Board will promptly disclose its decision whether or not to accept the Director’s resignation (and the reasons for rejecting the resignation, if applicable) in a press release or filing with the SEC. Any Director who tenders his or her resignation pursuant to this provision shall not participate in the Nominating and Corporate Governance Committee’s recommendation or Board action regarding whether or not to accept the resignation. However, if each member of the Nominating and Corporate Governance Committee received a Majority Withheld Vote at the same meeting, then the remaining independent Directors who did not receive a Majority Withheld Vote shall consider the resignations and determine whether or not to accept them. If the Directors who did not receive a Majority Withheld Vote in the same election constitute three or fewer Directors, all Directors may participate in the action regarding whether to accept the resignations, provided, however, that each Director’s resignation will be acted upon separately and no Director may participate in the Board action regarding whether or not to accept his or her resignation. A Director whose resignation is not accepted by the Board shall continue to serve until the next annual meeting of shareholders at which he or she is up for election and until his or her successor is duly elected, or until his or her earlier resignation or removal. If a Director’s resignation is accepted by the Board, or if a nominee for director who is not an incumbent Director is deemed to have been elected and to have immediately resigned, then the Board, in its sole discretion, may fill any resulting vacancy pursuant to the Company’s By-laws or may amend the Company’s By-laws to decrease the size of the Board. The Nominating and Corporate Governance Committee will make a recommendation to the Board as to whether or not it should fill the vacancy or amend the Company’s By-laws to reduce the size of Board.

 

What is the Company’s policy regarding Director attendance at the Annual Meeting?

 

While the Company does not have a policy regarding Director attendance at the annual meeting of shareholders, the Company’s Directors, including persons nominated for election at an annual meeting, generally attend the annual meeting.

 

How often did the Board meet during 2009?

 

The Board held 9 meetings during 2009.  The standing committees established by the Board held a total of 22 meetings in 2009. Each of the incumbent Directors attended at least 91% of the aggregate of the meetings of the Board and Board committees on which he or she served in 2009. Non-management Directors meet in regularly scheduled executive sessions (without management), at which the Chair of the Nominating and Corporate Governance Committee presides.

 

Where can additional Corporate Governance and related information be obtained?

 

The Company’s corporate website (www.glatfelter.com) includes a Corporate Governance page consisting of, among others, the Company’s Governance Principles and Code of Business Conduct, a listing of our Board of Directors and Executive Officers, Nominating, Audit and Compensation Committees of the Board of Directors and their respective Charters, the Company’s Code of Business Conduct, the Code of Business Ethics for the CEO and Senior Financial Officers of Glatfelter and other related material. The Company intends to satisfy the disclosure requirement for any future amendments to, or waivers from, its Code of Business Conduct or Code of Business Ethics for the CEO and Senior Financial Officers by posting such information on its website. The Company will,

upon request, provide a copy of its Code of Business Conduct or Code of Business Ethics for the CEO and Senior Financial Officers, at no charge.

 

How were Directors compensated?

 

Base Compensation. Non-employee Directors received an annual retainer fee of $35,000, two thirds of which consisted of shares of the Company’s common stock with an equivalent market value on the grant date, with the balance paid in cash. In addition to the annual retainer, non-employee Directors were paid in cash $2,000 for attendance at the annual Board retreat and $1,500 for each Board or committee meeting that they attended. Non-employee Directors serving as committee chairpersons of the Audit or Compensation Committees were paid an additional $10,000 (in cash) annually for their service and the Chairperson of the Finance and Nominating and Corporate Governance Committees each received an additional $5,000 in cash. In addition, each non-employee Director received an annual restricted stock unit award valued at $30,000, on the grant date. Such awards will vest over a three-year period. All accrued, but unpaid, Director cash compensation payments are made on each May 1st and November 1st. RSUs granted to directors in 2009 and thereafter will immediately vest upon a change in control. The RSUs granted to the directors prior to 2009 do not vest upon a change in control.

 

Deferred Compensation. Pursuant to the Company’s Deferred Compensation Plan for Directors (the Deferred Compensation Plan), every year each Director may elect to defer 50%, 75% or 100% of his or her annual retainer paid to such Director for serving on the Board, but not including any fees paid to a Director for attending meetings of the Board or any committee of the Board or for serving as a chairperson of a committee of the Board. No such elections were made with respect to fees earned in 2009.

 

Benefits. Each non-employee Director is covered by the Company’s Director’s and officers’ liability insurance, as well as the Company’s travel accident insurance.

 

Share Ownership Guidelines. The Company has established share ownership guidelines for its non-employee Directors in order to further enhance alignment with shareholders. The share ownership guidelines require that each Director own at least 7,200 shares of the Company’s common stock. Shares owned directly by the Director, unvested restricted stock and RSUs, and stock units held in the Deferred Compensation Plan are counted toward satisfying the share ownership guideline for Directors. As of December 31, 2009, all of the non-employee Directors were in compliance with the share ownership guideline.

 

 

 

 

 

Overview of Compensation Program Objectives and Design

 

The Compensation Committee of the Board of Directors (the “Committee”) approves the Company’s compensation philosophy and supervises the compensation program for the Named Executive Officers (“NEOs”) and other executives of the Company. The Committee has designed the Company’s compensation programs to attract, retain, motivate and reward the executives who are crucial to the success of our business. The Committee believes that compensation should reflect performance and should be fair, competitive and reasonable in light of a person’s responsibilities and experience and the overall profitability of the Company. The Committee believes that executive pay should vary according to the performance of the Company and that the best way to achieve these principles and objectives is by providing a mix of compensation programs that focus on long-term and short-term performance as well as progress in furthering the goals of the Company’s strategic plan. The Committee wants the interests of the Company’s executives to be aligned with the interests of the Company’s shareholders. As a result, the total compensation paid to the NEOs and other Company executives consists of several forms of compensation, including base salary, annual incentives, long-term incentives, limited perquisites, and benefits. Moreover, the Committee generally structures total compensation opportunities to target the 50th percentile of market levels, which, it believes, provides a competitive level of compensation relative to the Company’s industry and is consistent with its compensation philosophy. A significant portion of each NEO’s compensation opportunity consists of annual and long-term variable compensation that is contingent on the achievement of specific Company financial goals, reflects individual performance, and is designed to align the NEO’s interests with those of the Company’s shareholders. The opportunity to earn variable compensation is different for each NEO and generally increases commensurate with the NEO’s level of responsibility within the Company. In addition, the mix of annual and long-term incentive compensation varies among the NEOs in that the relative proportion of long-term incentive compensation is greater for greater levels of responsibility. Currently, the Company’s annual compensation is cash-based, while long-term compensation consists of equity-based awards. The Company does not have specific allocation goals between cash and equity-based compensation or between annual and long-term incentive compensation; instead, the Company relies on the process described below in its determination of compensation levels for each NEO.

 

While the Committee determines overall compensation strategy and policies for the NEOs other key executives and advisors and, except in the case of the CEO, approves their compensation, it seeks input from certain NEOs and other executives with respect to both overall guidelines and discrete compensation decisions. Specifically:

 

 

The NEOs noted above may, at the invitation of the Committee, attend portions of the Committee meetings; however, the Committee’s usual practice is to meet in executive session both alone and with the Consultant to reach final decisions about NEO compensation.

 

The compensation level for each NEO, except the CEO, is approved by the Committee after consideration of the specific recommendation of the CEO. In the case of the CEO, the Committee, with assistance from the Consultant, develops recommendations in executive session without the CEO or any other member of management in attendance, and then provides its recommendation to the independent members of the Company’s Board of Directors (the “Board”) for consideration and approval in executive session. All references to actions by the Committee with respect to setting the compensation of the NEOs shall mean, without further reference, that the Committee acts with respect to all NEOs except the CEO. Further, all references to actions by the Committee with respect to CEO compensation shall mean, without further reference, that the independent members of the Board have acted with respect to CEO compensation in accordance with the recommendation of the Committee.

 

The Committee has delegated to the Vice President, Human Resources and Administration authority to take certain administrative actions with respect to the Company’s incentive compensation plans and retirement and other benefit plans. Moreover, within the limits and guidelines specified in the Company’s approved incentive compensation plans, the CEO is authorized to determine incentive compensation for employees

other than the NEOs and other officers of the Company, and, depending on the vehicle used for such incentive compensation, the amounts awarded by the CEO may be subject to terms and overall amounts approved by the Committee. The design and administration of pension, savings, welfare, and vacation benefit plans and practices generally are handled by Company’s Human Resources, Finance, and Legal employees, although the Committee retains authority for approving major design changes, material changes to benefits that affect the NEOs and other executive officers, and certain administrative decisions that affect executive officers.

 

The Committee has sole authority to retain and terminate any consultants directly assisting it. The Committee also has the sole authority to approve the fees and other engagement terms for its consultants. For 2009, the Committee retained Compensation Strategies, Inc. (“CSI”) as its Consultant. In preparation to establish fiscal year 2009 compensation, the Committee used CSI to assess the competitiveness of the executive compensation program, to make recommendations regarding the program design based on prevailing market practices and business conditions, to advise the Committee on: i) the level of each NEO’s compensation, ii) peer group composition, iii) incentive plan performance metric conventions and design, (iv) external trends and regulatory developments, (v) executive succession planning, and (vi) to conduct research and analysis directed by the Committee. The Consultant also performed an analysis of bonuses paid under the Company’s Management Incentive Program relative to the Company’s peer group and financial performance. Moreover, the Consultant continued to provide competitive market data on executive compensation during 2009 which was used to evaluate the overall competitiveness of the Company’s compensation program and to develop recommendations on the total compensation paid to NEOs and other executives of the Company. The Consultant attended portions of Committee meetings and regularly met in executive session with the Committee with no members of management present. the Consultant does not provide any other human resources, benefits, or related services to the Company, Committee, or Board of Directors.

 

During 2009, the Company also engaged Mercer Consulting (“Mercer”) to perform a competitive market assessment of the Company’s executive pension programs and design and to offer recommendations based on prevailing market practices. Mercer has periodically advised the Company on pension administration issues for the NEOs and other Company executives.

 

The Committee has established several practices to ensure the Consultant’s independence, candor, and objectivity. The Consultant is engaged by and reports directly to the Committee, frequently meets separately with the Committee with no members of management present, and consults with the Committee’s Chairman between meetings. At each meeting of the Committee, management reports to the Committee the fees paid for services performed by the Consultant, and the Committee approves annually the work plan and budget for the Consultant.

 

Determination of Compensation Levels

 

As indicated above, the Committee generally structures total compensation opportunities to target the 50th percentile of market levels, which, it believes, provides a competitive level of compensation relative to the Company’s industry. In order to determine the 50th percentile of market levels, the Committee reviews a market analysis of total compensation for similarly situated executives from peer group companies (as discussed further below) and other broader-based market compensation data that is prepared by the Consultant. This market analysis is performed annually with respect to the CEO and CFO positions and every other year with respect to remaining NEOs. However, if market compensation levels with respect to the CEO or CFO are found to have changed substantially during the off-years, a full review of total compensation for the CEO, CFO and the NEOs is conducted. For 2009, the review was scheduled to include only the CEO and CFO; however, due to the economic crisis that was experienced during 2009 and the impact of that crisis on economic growth and compensation levels, the Committee, on the recommendation of the Consultant, approved the expansion of the compensation review to include a review of the total compensation of all of the NEOs. Consistent with standard practices, due to the varying sizes of the companies included in the peer group companies, statistical analysis is used to normalize the market compensation data collected to reflect the relative annual revenues of the Company and each of the peer group companies. In determining appropriate individual compensation levels for the NEOs, the Committee considers the adjusted market compensation data and the NEO’s tenure, experience, and particular set of skills as well as the NEO’s and Company’s overall performance.

 

The annual revenues of the companies included in the Compensation Peer Group for 2009 ranged from approximately $260 million to $6.8 billion. Since the Company competes for executive talent with a broad range of companies and industries, the companies included in the Compensation Peer Group are not the same as those companies which are included in the Company’s performance graph in the Company’s Annual Report to Shareholders. A listing of the companies included in the Compensation Peer Group for 2009 and information on which of these companies are also included in the performance graph that appears in

the Company’s Annual Report on Form 10-K, is provided below:

 

 

Base Salary

 

Although the Committee has structured the compensation of the NEOs such that a significant portion of each NEO’s compensation opportunity consists of annual and long-term variable compensation, it believes that reasonable, fixed, annual compensation appropriately meets the Company’s compensation objectives. The base salaries of the NEOs are reviewed and approved annually by the Committee, typically during the first quarter of the calendar year. Consistent with the Committee’s compensation philosophy, base salaries for the NEOs are generally targeted at the 50th percentile of the market. The Committee believes this compensation level is sufficient to achieve the objectives of the Company’s compensation program. In addition to assessing base salaries against comparable market data, in setting the annual base salary of each NEO, the Committee considers several factors, including salary recommendations from the CEO, the relative importance of the job to the Company, the external competitiveness of the NEOs’ total compensation packages, the nature and complexity of their job duties, the performance of the NEOs and the Company, as well as internal equity considerations. The Committee does not assign relative weightings to any of these factors. The Committee reviews base salaries annually, but may adjust salaries at any point during the year. The Committee does not necessarily adjust the NEOs’ base salaries each year.

 

During 2009, based on the recommendation of the CEO and the Committee’s independent assessment of market data and economic outlook, the Committee opted not to adjust the base salaries of the NEOs with the lone exception of an adjustment that the Committee, upon the recommendation of the CEO, approved to the base salary of a NEO which the Committee concluded was significantly below the 50^th percentile of the market. The Committee adjusted that NEO’s salary 10% in 2009. Likewise, the Board, upon the recommendation of the Committee, opted not to adjust the base salary of the CEO. As a group, the NEOs’ base salaries remained slightly below the 50^th percentile of the market during 2009.

 

For 2010, the Committee, after reviewing the current base salaries of the NEOs, has approved base salary increases for the NEOs ranging from 3% to 20% effective as of February 1, 2010. As a group, the NEOs’ adjusted base salaries remain slightly below the 50th percentile of the market for 2010.

 

Annual Incentives

 

The Committee believes that annual incentive awards, or bonuses, provide important performance incentives for the NEOs and other eligible Company executives and help to further the Committee’s compensation philosophy. The Company currently provides an annual incentive bonus opportunity to the NEOs under the Company’s Management Incentive Plan (the “MIP”). By design, the incentive bonuses, which NEOs are eligible to earn under the MIP, comprise a significant portion of the NEOs’ total compensation. Consistent with the Committee’s philosophy, the MIP is designed to ensure that incentive bonus awards represent at-risk compensation for the NEOs, to reward the achievement of corporate objectives that are pre-established by the Committee, and to provide incentive compensation that is competitive with the market for each position.

 

Each year the Committee approves a target bonus under the MIP for each NEO, expressed as a percentage of the NEOs’ base salaries with the exception of the CEO, whose target bonus is approved by the Board of Directors. The Committee generally establishes target bonuses for the NEOs at the 50^th percentile of the competitive marketplace. However, given that the NEOs’ 2009 base salaries were below-market, their target bonuses, as a dollar amount, were also slightly below the 50^th percentile of the market. For 2009, the Committee did not modify the target bonuses for any of the NEOs from the levels established during 2008. For 2010, target bonus percentages for the NEOs remain unchanged from 2009.

 

The following table sets forth targeted bonus levels for each NEO as a percentage of the NEO’s base salary:

 

Usually, in February each year, after the Company’s audited, consolidated, year-end financial results are available, the Committee confirms whether the pre-established MIP corporate performance metrics have been met and decides whether and, at what level, to award bonuses to the NEOs. As discussed further below, the amount ultimately received by the NEOs and other eligible executives is dependent on the extent of achievement of performance metrics established annually by the Committee for the MIP. The MIP provides that the Committee may, in its discretion, adjust any bonus earned by any NEO or other executive downward but the Committee does not have discretion to increase any bonus earned by any NEO or other executive.

 

In recent years, with the lone exception of 2009, the amount of a bonus has depended primarily on the Company’s achievement of profitability to judge the Company’s overall performance. For 2009, due to the uncertainty arising out of the global economic crisis, the Committee concluded that it was critical that the NEOs and other Company executives focus their attention and efforts on maximizing the Company’s cash flows while preserving the strength of the Company’s balance sheet and, to that end, adopted a MIP design which incorporated dual metrics: Operating Net Income (“ONI”) and Leverage Ratio. ONI consists of net income determined in accordance with United States’ generally accepted accounting principles (“US GAAP”) adjusted to exclude after-tax pension income or pension expense, gains from the sale of timberlands, legal defense costs associated with a significant environmental matter that is currently in litigation, the proceeds of a one-time tax credit and certain one-time costs which were associated with acquisitions. Leverage Ratio is defined as net debt divided by earnings, before interest, taxes, depreciation, amortization and net pension income/expense (“EBITDAP”). In 2009, The Committee weighted these metrics at 40% ONI and 60% Leverage Ratio.

 

As in past years, the Committee set the target level of ONI at the Company’s budgeted 2009 ONI. Likewise, the Committee set the target level of Leverage Ratio at a level which corresponded to the Company’s budgeted level of EBITDAP. In keeping with past practice, the Committee also incorporated a design feature in the 2009 MIP which required that the Company achieve a pre-established minimum level of performance for each MIP metric before any bonus would be earned by any eligible executive, including the NEOs, under the MIP (“Bonus Threshold Performance Level”). For 2009, the Bonus Threshold Performance Level was 80% of the targeted performance level for each MIP metric. In addition to this minimum performance requirement, the MIP design established by the Committee provided that no bonus under the MIP would be earned unless at least $16 million of ONI was achieved by the Company. Further, the Committee capped the aggregate bonuses payable under the 2009 MIP to all eligible executives, including the NEOs, at 8.6% of the Company’s 2009 ONI, on an after-tax basis (the “Aggregate Bonus Cap”), which is consistent with the amount of bonuses paid to eligible executives under the MIP over the most recent five-year period. Subject to the Aggregate Bonus Cap, targeted payment amounts for achievement of the Bonus Threshold Performance Level remained unchanged from prior years at 50% of the NEO’s target bonus levels, and achievement of the maximum performance level would result in bonus payments which would be equal to 200% of the NEO’s target bonus levels.

 

The following table summarizes the level of Company performance associated with each MIP metric and the corresponding target bonus level for the NEOs:

 

 

In 2009, the Company’s ONI totaled $37.2 million, EBITDAP totaled $125.2 million and adjusted net debt was $112.2 million resulting in a Leverage Ratio of 0.9x. Both ONI and Leverage Ratio were each above the maximum performance level, which, if no bonus cap were applicable, would have triggered a payout level for the NEOs at bonus level that was 200% of the NEOs’ bonus target level. However, due to the 8.6% ONI cap described above, the bonus payout level for the NEOs was reduced to 180% of the NEOs’ bonus target level.

 

The Committee believes the ONI and Leverage Ratio target levels were set at levels to sufficiently challenge the NEOs, meet the short term performance objectives of the Company and satisfy the Company’s compensation objectives. The following table summarizes target bonus opportunities for 2009 as a percent of base salaries:

 

 

The ranges set forth above are based on advice received from the Consultant regarding market practices. All payments to the NEOs under the MIP are based entirely on actual ONI and Leverage Ratio performance of the Company; no portion of the MIP payment is based on individual performance of each NEO. However, the Committee has the authority to reduce payments under the MIP based on the Committee’s assessment of individual performance during the year, with the approval of the independent members of the Board of Directors in the case of the CEO. No such reductions were made for 2009.

 

For 2010, the Committee has adopted a MIP design which incorporates the following two metrics: ONI and Free Cash Flow for all NEOs under the MIP including the leaders of the Company’s business units. ONI will, again, consist of net income determined in accordance with United States’ generally accepted accounting principles (“US GAAP”) adjusted to exclude certain items as determined by the

Committee. Free Cash Flow will consist of operating cash flows minus capital expenditures. These metrics will be weighted 80% ONI and 20% Free Cash Flow. The target performance level of ONI has been set at a level which accounts for the additional net income that is expected to be realized from the Company’s recent acquisition of Concert Industries; the target performance for ONI is established slightly higher than the Company’s 2010 budget to encourage management to successfully integrate that acquisition. Likewise, the target performance level of Free Cash Flow has been set at the Company’s budgeted level of Free Cash Flow. Target bonus percentages for the NEOs remain unchanged from 2009 and payment amounts for achievement of the threshold performance levels will remain unchanged at 50% of the target opportunities, and achievement of the maximum performance level would result in payments equal to 200% of the target opportunities.

 

Long-Term Incentives

 

Over the long term, the Committee believes that executive compensation should be substantially linked with corporate performance and shareholder value creation. The Committee believes that long-term compensation provides strong incentives for executives to improve the Company’s long-term performance, deliver value to its shareholders and remain employed by the Company. It also helps to retain the Company’s executives. Accordingly, again generally targeting the 50th percentile of the competitive marketplace, and with advice from the Consultant, the Committee determines annually the amount of long-term compensation that will be granted to executives under the Company’s shareholder approved Amended and Restated Long Term Incentive Plan (“LTIP”). The Committee also reviews on an annual basis the appropriateness and relative weightings of the long-term incentive compensation vehicles available under the LTIP. Most recently in 2008, the Committee supported a cash component of long-term incentive compensation. The cash LTIP (“cash LTIP”) component was intended to provide performance-based cash awards to eligible executives if the Company achieved preset financial targets by the end of a specified multi-year period and to reduce the number of shares of Company stock that are required to be issued under the LTIP. Accordingly, the 2008 cash LTIP will provide cash payments to eligible executives of the Company following the close of a three-year period ending with fiscal year 2010 if certain pre-set ONI and Return on Capital Employed goals are reached. The ONI portion of the cash LTIP represents 40% of the total award, while the remaining 60% is dependent on the Company’s Return on Capital Employed performance. The target performance goals are consistent with the Company’s long-term strategic objectives and, in the Committee’s opinion, represent reasonably aggressive performance levels. Target opportunities for the NEOs range from $59,290 to $319,000. Payment amounts for achievement of the threshold performance levels would equal 50% of the target opportunities, and achievement of the maximum performance levels would result in payments equal to 150% of the target opportunities. The Company’s performance against the established targets is measured over a three-year period, not on an annual basis. Therefore, the Committee will not be in a position to measure the Company’s performance against these targets until the end of the Company’s 2010 fiscal year.

 

As a result of the uncertain impact of the global economic crisis that continued during 2009, the Committee concluded that setting multi-year financial performance targets for the Company was too speculative, and that it was appropriate to temporarily suspend the cash LTIP. To that end, the Committee designed the 2009 long-term incentive program to consist exclusively of equity-based compensation in the form of restricted stock units (“RSUs”) and stock-only stock appreciation rights (“SOSARs”). Moreover, the 2009 design which was approved by the Committee provided that RSUs would constitute approximately 20% of each NEO’s incentive compensation opportunity under the program and that SOSARs would constitute approximately 80% of the incentive compensation opportunity. While the Committee believed that this relative weighting of RSUs and SOSARs provided an appropriate long — term incentive compensation opportunity for the NEOs given the economic conditions and outlook at that time, the Committee has not ruled out reinstating the cash LTIP in future periods as economic conditions stabilize.

 

RSUs. The Committee, on an annual basis, grants RSUs under the LTIP to certain of the Company’s executives with each grant vesting over a five-year period. The number of RSUs granted to the NEOs during 2009 ranged from 4,215 to 14,820, depending on the position of the NEO and information provided by the Committee’s external compensation consultant regarding competitive market compensation practices for each NEO. Each grant recipient of RSUs receives cash payments equal to the dividends paid on an equivalent number of shares of the Company’s common stock. RSUs vest ratably, with one-third of the units vesting on the third, fourth, and fifth anniversaries of each grant. Upon full vesting of each grant of RSUs, the units are converted to shares of the Company’s common stock at a 1:1 ratio, and those shares are transferred to the RSU grant recipient. RSU grants made by the Committee in 2004, 2005 and 2006 either vested or resulted in the payment of dividend equivalent payments to the NEOs in 2009, as indicated in the Summary Compensation Table.

 

SOSARs. The Committee, also on an annual basis, grants SOSARs under the LTIP to certain of the Company’s executives. SOSARs are intended to directly link executive compensation to the interests of shareholders through awards which have a value that is entirely dependent on appreciation in the Company’s stock price from the date the awards are granted. The SOSARs granted to the NEOs during 2009 ranged from 68,060 to 262,680 depending on the position of the NEO and information provided by the Committee’s external compensation consultant regarding competitive market compensation practices for each position. The SOSARs granted by the Committee during 2009 had an exercise price equal to the Company’s closing common stock price on the

date of grant, or $9.91, have a ten-year expiration term, and vest ratably, with one-third of the SOSARs vesting on the first, second, and third anniversaries of the date of grant. This vesting schedule ensures that recipients remain employed with the Company for an appropriate length of time prior to being able to exercise the SOSARs. Upon exercise of a vested SOSAR, the executive will receive shares of Company common stock with a value equal to the appreciation of the Company’s common stock from the date of grant. The re-pricing of SOSARs is not permitted under the LTIP.

 

Based on its assessment of the competitive market practices and data, the Committee believes that a mix of RSUs and SOSARs provides an appropriate and competitive balance of performance-based and time-vested compensation.

 

Stock Options. Once a popular compensation tool, stock options grant the holder the right to buy stock of a company at a fixed price for a fixed exercise period. Like SOSARs, stock options reward executives if the Company’s stock price rises. Stock options provide no value if the stock price stays flat or goes down. In past years, the Committee had regularly granted nonqualified stock options to Company’s executives and other key employees to align the interests of the employees with those of the Company. However, in response to recent changes in the accounting rules governing the treatment of the cost of granting options, the Committee has not granted options to any of the NEOs or other key executives since 2004 but several NEOs still hold unexpired options that were granted in prior periods. Those stock options were also granted with an exercise price equal to the closing price of Company stock on the grant date. The Company does not reprice stock options.

 

For 2010, the LTIP will continue to include RSUs and SOSARS, with RSUs again representing 20% and SOSARs representing 80%, of each NEO’s total long-term incentive. Due to the continuing uncertainty in the global economy, the Committee elected to continue the suspension of the cash LTIP for 2010. The number of RSUs granted to the NEOs on March 3, 2010 ranged from 2,020 to 8,190 for the NEOs, depending on the position of the NEO and information provided by the Committee’s compensation consultant regarding competitive market practices for each position. The SOSARs granted to the NEOs on March 3, 2010, ranged from 25,300 to 102,500 for the NEOs, depending on the position of the NEO and information provided by the Committee’s compensation consultant regarding competitive market practices for each position. The SOSARs had an exercise price equal to the Company’s closing common stock price on the date of grant, or $13.95.

 

Based on market information provided by the Consultant, the Committee continues to believe this mix of equity based compensation, at the relative weightings discussed above, provides the appropriate balance of performance-based and retention-based grants.

 

In recent years it has been the Committee’s practice to consider recommendations for equity-based grants to the NEOs and certain other key executives of the Company at its meeting that occurs in March of each year. If such equity-based grants are approved by the Committee, the Committee then recommends to the Board of Directors that it approve those grants at the March meeting of the Board of Directors. However, in 2009, the Committee deviated from its normal schedule for approving equity grants as a result of management’s determination in late 2008 that there would likely be an insufficient number of shares available under the LTIP to support equity-based grants to the NEOs and other key executives. Therefore, the approval of any grants was deferred until after the Company’s shareholders approved an increase in the number of shares of common stock available for awards under the LTIP. On April 29, 2009, the Company’s shareholders, on the recommendation of the Board, approved an increase in the number of shares available for grant under the LTIP and the Committee and the Board subsequently approved equity-based grants of RSUs and SOSARs to NEO’s and certain other key executives on May 5, 2009.

 

Other Equity Ownership Policies

 

The Company has established several policies for its NEOs and certain other executives of the Company in order to reinforce the importance of aligning the financial interests of executives and shareholders, and that impose certain controls and restrictions on the ability of an executive officer to buy or sell securities.

 

Executive Share Ownership Guidelines

 

The Company’s executives historically have held a significant portion of their personal wealth in the form of the Company’s common stock (or RSUs, stock options, or SOSARs that mirror the performance of the Company’s common stock). The Committee believes it is important to require the Company’s senior executives, including the NEOs, to meet minimum stock ownership guidelines (the “Executive Share Ownership Guidelines”). These guidelines were established in 2002 and updated in 2009; the minimum stock ownership targets reflect a stock price valuation of approximately $13.00 (the closing price on the date that the guidelines were initially adopted) and the base salary at the time the individual became subject to the guidelines. The Committee expresses these guidelines in terms of the value of equity holdings as a multiple of each senior executive’s base salary. Depending on the executive’s position, the Executive Share Ownership Guidelines require the executive to own a sufficient number of shares of Company stock having a market value that ranges in value from 1 times to, in the case of the CEO, 4 times the senior executive’s base salary.

 

Equity interests that count toward satisfaction of the Executive Share Ownership Guidelines include shares owned outright by the executive, or his or her spouse and dependent children, vested and unvested RSUs, shares held in a Section 401(k) or deferred compensation account, and 50% of any appreciation on either unexercised vested stock options or SOSARs. Newly hired or promoted executives have up to five years from the

time that the executive became subject to the Executive Share Ownership Guidelines to meet the applicable guideline. The Committee may reduce future long-term incentive awards for any executive who fails to meet the Executive Share Ownership Guidelines, depending on the circumstances. Each year, the Committee reviews whether the Company’s executives meet the Executive Share Ownership Guidelines. As of December 31, 2009, all NEOs were either in compliance with the applicable guideline for their position or were on track to satisfy their applicable guideline within the allotted period.

 

 

Blackout Periods and Pre-Clearance of Securities Transactions. The Company’s Code of Business Conduct and Insider Trading Policies prohibit certain employees, including all of the NEOs, from purchasing or selling the Company’s securities beginning on the first business day of the last month of each calendar quarter until the second business day after the Company releases its earnings for the quarter. The Company may also impose additional blackout periods on its executives due the availability of material, non-public information regarding the Company’s securities. In addition, the Company requires certain employees, including all of the NEOs, to pre-clear purchase or sale transactions involving the Company’s stock or securities, including stock option and SOSARs exercises. The Committee regularly reviews the list of Company “Insiders” who are subject to these trading restrictions.

 

Change in Control Arrangements

 

The Company has entered into Change-in-Control Employment Agreements with each of the NEOs, as well as certain other executives of the Company, the terms of which are discussed on pages 35 to 40 of this proxy statement. Generally, these agreements provide for severance and other benefits to be paid to executives upon a qualifying change of control (as defined in the agreements), including an amount to cover applicable excise taxes imposed under the Code. The Committee intends that these arrangements will serve as an incentive for executives to act in the interest of shareholders during a takeover, despite the risk of losing their jobs. Potential payments under these arrangements do not directly impact the yearly decisions made regarding other elements of executive compensation. The Company’s equity grant agreements outline the terms and conditions for the acceleration of equity vesting when a change in control occurs.

 

In the wake of general marketplace and shareholder concerns about executives potentially earning undue benefits that take effect after mergers and acquisitions, the Committee, in March 2009, directed that all subsequent grants of RSUs and SOSARs made to the NEOs and other eligible executives incorporate “double trigger” change of control provisions. In general, a single trigger provision provides that accelerated vesting of equity awards would occur in the event of a change of control irrespective of a corresponding termination. A double trigger provision, by contrast, only accelerates vesting in the event of a change of control and in the event that the executive is terminated without “Good Cause” or quits with “Good Reason” (as those terms are defined in the applicable agreement). As a result, vesting of RSUs or SOSARS that are granted after March 2009 and that have been held for at least six months will accelerate vesting only upon such a termination that occurs within two years of a change-in-control event. The Committee believes that the incorporation of the double trigger provision will ensure continuity of management during mergers and acquisitions and assist with attracting and retaining key executives, ultimately benefitting shareholders.

 

Post-Employment Compensation

 

The Company provides post-employment compensation to its executives, including the NEOs, under the Company’s qualified pension plan for salaried employees (collectively the “Pension Plan”). Compensation that is paid under the Pension Plan is subject to legal limits specified in the Code. The Committee believes that offering post-employment compensation allows the Company to attract, retain, recruit and motivate qualified employees and executives in the current competitive marketplace. To that end, the Committee has established a non-qualified Supplemental Executive Retirement Plan (SERP) consisting of two post-employment benefits for certain NEOs and other executives who have been nominated by the Company and approved by the Committee to participate in this plan. The first benefit available under the SERP, referred to as the “Restoration Pension Benefit” provides those executives whose benefits under the Pension Plan may be reduced due to legal limits applicable to qualified pension plans under the Code with a supplemental pension benefit, which will restore the portion of the pension benefit that was earned under the Pension Plan that cannot be paid from the Pension Plan due to the legal limits provided in the Code. Eligible executives may receive the Restoration Pension Benefit as an annuity or as a lump sum, depending on the value of the benefit at the time the executive terminates employment with the Company. Effective February 10, 2010, the Committee approved a revision to the Restoration Pension Benefit which revised the procedure for approval of the executives who will be eligible for this benefit. Subject to approval of the Committee, executives will generally be eligible for the Restoration Pension Benefit if they have at least one year of pensionable compensation in excess of the Code’s annual compensation limit for qualified pension plans.

The second post-employment benefit available under the SERP is referred to as the Final Average Compensation or “FAC” Pension. The FAC Pension pays a monthly pension benefit equal to a designated percentage of the executive’s average compensation over the 5 years immediately preceding his retirement, offset by an equivalent value of the participant’s benefits under the Pension Plan and certain Company-sponsored nonqualified defined benefit pension arrangements, including the Restoration Pension. The FAC Pension is payable following the executive’s retirement on or after age 55 in the form of an annuity or a lump sum, depending on the value of the benefit at the time it is scheduled to commence. If the FAC Pension is payable prior to age 62, the monthly amount of the benefit is reduced to reflect its early commencement. A survivor benefit is also payable under the FAC Pension to the participant’s surviving spouse in the event of the participant’s death before the FAC Pension commences. Pursuant to transition rules under Section 409A of the Code, in 2008, participants in the FAC Pension were afforded a one-time opportunity to elect to have their FAC pensions paid as a lump sum. Currently, only the CEO and the COO are eligible for the FAC Pension and each has elected, under the transition rule, a lump sum distribution of their FAC Pension.

 

The Committee has also established a Supplemental Management Pension Plan (“SMPP”) consisting of two benefits. The first benefit, known as the MIP Adjustment Supplement is a historic restoration benefit that currently benefits none of the NEOs. Prior to 2005, the Company’s MIP included a deferral feature by which MIP recipients could defer payment of all or a portion of their MIP bonuses. That deferral feature was eliminated for MIP bonuses paid after 2005. However, under the Company’s Pension Plan, a deferred MIP bonus was not considered as part of pensionable compensation under the terms of the Pension Plan. The MIP Adjustment Supplement was intended to restore the MIP deferral to pensionable compensation under the Pension Plan and pays the difference, if any, between the benefit earned by the employee under the Pension Plan and the benefit that the executive would have earned had the MIP bonus not been deferred and therefore eligible for inclusion as part of pensionable earnings. The MIP Adjustment Supplement benefits a smaller number of employees each year because (i) the MIP Adjustment Supplement is currently not available to any executive who receives a benefit under the Company’s SERP, and (ii) the Pension Plan’s final average compensation formula takes into account a participant’s five full consecutive years of employment in which his pensionable compensation was the highest. Prior to its elimination, the CEO deferred a portion of his prior MIP bonuses under this deferral feature. Since no MIP deferrals have been permitted since 2005, however, none of the other NEOs have or are eligible to benefit from this feature and the Company anticipates that the need for the MIP Adjustment Supplement will soon end. The second benefit, known as the Early Retirement Supplement, is available to certain management and executive employees, who are not eligible for the FAC Pension under the SERP, who retire from employment with the Company on or after age 55 but prior to age 65, normal retirement age under the Company’s tax-qualified Pension Plan. The Pension Plan permits a participant who retires early to receive a reduced monthly early retirement pension that begins immediately following retirement, or to postpone commencement of the pension until a later date, but not later than normal retirement age. If the participant agrees to postpone commencement of his or her Pension Plan pension until at least 36 months following early retirement (or, if earlier, until his or her normal retirement date following attainment of age 65) (the “Deferred Pension Plan Commencement Date”), then the Early Retirement Supplement will pay a supplemental benefit during the postponement period. The Early Retirement Supplement is equal to the monthly amount of the Pension Plan pension (or the sum of the Pension Plan pension and the Restoration Pension under the SERP, if applicable) payable on the Deferred Pension Plan Commencement Date in the form of a single life annuity. The benefit begins on the first day of the month on or next following early retirement and continues for 36 months (or until normal retirement date) when the deferred Pension Plan pension begins to be paid. There is a limited benefit payable for the surviving spouse if the participant dies before the end of the 36 month payment period.

 

Perquisites

 

Perquisites are offered by the Company to certain NEOs and other executives on a limited basis in order for the Company to remain competitive with the market and to attract and retain highly qualified executive talent. The most recent perquisite market analysis was performed in 2008. The Committee believes that perquisites should be a minimal part of executive compensation. The principal perquisites that the Company may provide to certain of its executives include, in the United States, dining and country club memberships and in Europe, a car allowance. From time to time, the Company may provide additional perquisites to an executive officer on an isolated basis. The Company values perquisites based on their incremental cost to the Company. Detail on perquisites offered to the NEOs can be found in the Summary Compensation Table.

 

Deductibility of Executive Compensation

 

Certain awards made under the LTIP and the 2005 Management Incentive Plan will qualify as performance-based compensation that will be exempt from the federal income tax $1 million deduction limitation imposed under Section 162(m) of the Code. However, while the Committee has established procedures to help maximize tax deductibility, in order to design compensation programs that address the Company’s needs, the Committee has not established a policy that requires that all executive compensation be exempt from the limitations on business deductions provided in Section 162(m) of the Code, as amended. The Committee expects that all 2009 MIP bonus payments or any compensation received by Company executives from the exercise of stock options or SOSARs will be exempt from the Section 162(m) deduction limitation as performance-based compensation.

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis set forth on pages 18 through 25 of this proxy statement (the “Compensation Discussion and Analysis”) with the management of the Company.

 

Based on the review and discussions describe above, the Compensation Committee has recommended to the Company’s Board that the Company’s Compensation Discussion and Analysis be included in the Company’s proxy statement for the Annual Meeting.

 

The information disclosed in the Company’s Report of the Compensation Committee shall not be deemed to be “soliciting material,” or to be “filed” with the SEC or subject to Regulation 14A or 14C or to the liabilities of Section 18 of the Exchange Act.

 

The Compensation Committee of the Board of Directors of P. H. Glatfelter Company.

 

Ronald J. Naples (Chair)

Kathleen A. Dahlberg

Nicholas DeBenedictis

Richard L. Smoot

Lee C. Stewart

 

The following table sets forth certain information concerning compensation of the Chief Executive Officer of the Company, the Chief Financial Officer of the Company and the Company’s three most highly compensated executive officers in 2009 other than the Chief Executive Officer and the Chief Financial Officer.

 

 

 

 

 

 

 

 

 

 

The following table sets forth information concerning grants of plan-based awards in 2009:

 

 

 

The following table sets forth information concerning outstanding equity awards as of December 31, 2009: