CELANESE CORPORATION

SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934

 

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Filed by a Party other than the Registrant o

 

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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

 

CELANESE CORPORATION

(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):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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CELANESE CORPORATION

1601 West Lyndon B. Johnson Freeway

Dallas, Texas 75234

 

March 10, 2011

 

Dear Fellow Stockholders:

 

On behalf of your board of directors, I am pleased to invite you to attend the 2011 Annual Meeting of Stockholders of Celanese Corporation. The meeting will be held at 7:30 a.m. (Dallas time) on Thursday, April 21, 2011, at The Crescent Club, 200 Crescent Court — 17th Floor, Dallas, Texas 75201.

 

The accompanying Proxy Statement describes the items to be considered and acted upon by the stockholders at the Annual Meeting.

 

To ensure that your shares are represented at the meeting, we urge you to cast your vote as promptly as possible. You may vote by proxy via the Internet or telephone, or, if you received paper copies of the proxy materials by mail, you can also vote via mail by following the instructions on the proxy card or voting instruction card. We encourage you to vote via the Internet. It is convenient and saves us significant postage and processing costs.

 

Sincerely,

 

David N. Weidman

Chairman and

Chief Executive Officer

TABLE OF CONTENTS

 

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 21, 2011


Celanese Corporation’s Notice of Annual Meeting and Proxy Statement, 2010 Annual Report to
Stockholders and other proxy materials are available at www.proxyvote.com.

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

 

Our Proxy Statement follows. Financial and other information about Celanese Corporation is contained in our Annual Report to Stockholders for the fiscal year ended December 31, 2010 (the “2010 Annual Report to Stockholders”).

 

To ensure that your shares are represented at the meeting, we urge you to cast your vote as promptly as possible. You may vote by proxy via the Internet or telephone, or, if you received paper copies of the proxy materials by mail, you can also vote via mail by following the instructions on the proxy card or voting instruction card. We encourage you to vote via the Internet. It is convenient and saves us significant postage and processing costs.

 

By Order of the Board of Directors of
Celanese Corporation

 

Gjon N. Nivica, Jr.

Senior Vice President, General Counsel

and Corporate Secretary

 

Dallas, Texas

March 10, 2011

PROXY STATEMENT

 

For the Annual Meeting of Stockholders To Be Held on

April 21, 2011

 

The board of directors (the “board of directors” or the “board”) of Celanese Corporation, a Delaware corporation (“Celanese,” “us,” “Company,” “we” or “our”), solicits the enclosed proxy for use at our 2011 Annual Meeting of Stockholders (the “Annual Meeting”) to be held at 7:30 a.m. (Central Daylight Time) on Thursday, April 21, 2011, at The Crescent Club, 200 Crescent Court — 17th Floor, Dallas, Texas 75201. This Proxy Statement contains information about the matters to be voted on at the meeting and the voting process, as well as information about our directors (each, a “director” or collectively, the “directors”) and executive officers. We will bear the expense of soliciting the proxies for the Annual Meeting.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 21, 2011


Celanese Corporation’s Notice of Annual Meeting and Proxy Statement, 2010 Annual Report to
Stockholders and other proxy materials are available at www.proxyvote.com.

 

 

INFORMATION CONCERNING SOLICITATION AND VOTING

 

Pursuant to U.S. Securities and Exchange Commission (“SEC”) rules, we have elected to furnish proxy materials to our stockholders over the Internet instead of mailing printed copies of those materials to each stockholder. If you received a Notice of Internet Availability of Proxy Materials (“Notice of Internet Availability”) by mail, you will not receive a printed copy of the proxy materials unless you request one. Instead, the Notice of Internet Availability will instruct you as to how you may access and review the proxy materials and cast your vote on the Internet. If you received a Notice of Internet Availability by mail and would like to receive a printed copy of our proxy materials, please follow the instructions included in the Notice of Internet Availability. Stockholders who requested paper copies of proxy materials or previously elected to receive proxy materials electronically did not receive the Notice of Internet Availability and will receive the proxy materials in the format requested. This Proxy Statement and our 2010 Annual Report to Stockholders also are available in the investor section of our website, www.celanese.com.

 

The Notice of Internet Availability and, for stockholders who previously requested electronic or paper delivery, the proxy materials are first being made available on or about March 10, 2011, to stockholders of record and beneficial owners who owned shares of the Company’s Series A Common Stock (the “Common Stock”) at the close of business on February 23, 2011.

 

Our principal executive offices are located at 1601 West Lyndon B. Johnson Freeway, Dallas, Texas 75234.

 

QUESTIONS AND ANSWERS ABOUT
THE PROXY MATERIALS AND THE ANNUAL MEETING

 

What is the purpose of the Annual Meeting?

 

At our Annual Meeting, stockholders will vote upon several important Company matters. In addition, our management will report on the Company’s performance over the last fiscal year and, following the meeting, respond to questions from stockholders.

What is included in the proxy materials?

 

The proxy materials include:

 

 

If you requested a paper copy of these materials by mail, the proxy materials also include a proxy card or a voting instruction card for the Annual Meeting.

 

What information is contained in this Proxy Statement?

 

The information in this Proxy Statement relates to the proposals to be voted on at the Annual Meeting, the voting process, the Company’s board of directors and board committees, the compensation of the Company’s directors and certain executive officers for fiscal year 2010 and other required information.

 

How can I access the proxy materials over the Internet?

 

Your Notice of Internet Availability, proxy card or voting instruction card (as applicable) contains instructions on how to:

 

 

Our proxy materials are also available in the investor section of our website at www.celanese.com or at www.proxyvote.com.

 

Your Notice of Internet Availability, proxy card or voting instruction card contains instructions on how you may request to access proxy materials electronically on an ongoing basis. Choosing to access your future proxy materials electronically will help us conserve natural resources and reduce the costs of printing and distributing our proxy materials. If you choose to access future proxy materials electronically, you will receive an e-mail with instructions containing a link to the website where those materials are available and a link to the proxy voting website. Your election to access proxy materials by e-mail will remain in effect until you terminate it.

 

Who may attend the Annual Meeting?

 

The board of directors set February 23, 2011 as the record date for the Annual Meeting. All stockholders of record and beneficial owners of shares of Common Stock at the close of business on February 23, 2011, or their duly appointed proxies, may attend and vote at the Annual Meeting and any adjournments or postponements thereof. For verification of beneficial ownership at the Annual Meeting, you will need to bring personal identification and a copy of your brokerage statement reflecting your share ownership as of February 23, 2011 and check in at the registration desk.

 

Who may vote at the Annual Meeting?

 

Each stockholder who owned Common Stock at the close of business on February 23, 2011 is entitled to one vote for each share of Common Stock held on all matters to be voted on. At the close of business on the record date, there were 156,037,896 shares of our Common Stock outstanding.

 

What constitutes a quorum to conduct business at the Annual Meeting?

 

The required quorum for the transaction of business at the Annual Meeting is the presence of, in person or represented by proxy, the holders of a majority of the voting power of the outstanding shares of Common Stock entitled to vote at the Annual Meeting.

How many votes are required to approve each item?

 

Election of Directors.  The Company’s By-laws prescribe the voting standard for the election of directors as a majority of the votes cast in an uncontested election, such as this one, where the number of nominees does not exceed the number of directors to be elected. Under this standard, in order to be elected the number of shares voted “FOR” a director nominee must exceed the number of votes cast “AGAINST” that nominee. In the event of a contested election of directors, where the number of nominees exceeds the number of directors to be elected, directors shall be elected by a plurality of the shares represented in person or by proxy at the meeting and entitled to vote. You may not cumulate your votes in the election of directors.

 

All Other Proposals.  The affirmative vote of a majority of the voting power of the shares of Common Stock present in person or represented by proxy and entitled to vote at the Annual Meeting is required for all proposals other than the election of directors. For the proposals that are advisory, such as the proposal regarding an advisory vote on executive compensation and the proposal regarding an advisory vote on the frequency of say-on-pay, please refer to the text of these proposals for more information on the advisory nature of these proposals.

 

How are abstentions and broker non-votes treated?

 

Abstentions and broker non-votes (defined below under the heading, “Will my shares be voted if I do not provide my proxy?”) will be counted toward calculating a quorum. Shares not present at the meeting will have no effect on the outcome of the voting on any matter because they are not considered to be present and are not a vote cast. Shares voting “ABSTAIN” and broker non-votes will have no effect on the outcome of the voting in the election of directors because they are not considered votes cast, but they each will have the same effect as a vote against the other proposals as to which the abstention is made or broker-non vote is subject because they each are considered to be present.

 

How does the Board recommend I vote on the proposals?

 

The board recommends votes:

 

 

What does it mean to vote by proxy?

 

By giving your proxy, you give someone else the right to vote your shares in accordance with your instructions. In this way, you assure that your vote will be counted even if you are unable to attend the Annual Meeting. If you give your proxy but do not include specific instructions on how to vote, the Proxyholders (defined below) will vote your shares FOR the election of each of the board’s nominees for Class I director, FOR the approval of an advisory vote on executive compensation, FOR the approval of an annual advisory vote on say on pay, and FOR the ratification of the selection of KPMG LLP as our independent registered public accounting firm.

 

What is the difference between holding and voting shares as a stockholder of record and as a beneficial owner?

 

Most Celanese stockholders hold their shares through a stockbroker, bank or other nominee rather than directly in their own name. As summarized below, there are some distinctions between shares held of record and those owned beneficially.

 

Stockholder of Record.  If your shares are registered directly in your name with our transfer agent, Computershare Trust Company, N.A. (“Computershare”), you are considered, with respect to those shares, the

stockholder of record. As the stockholder of record, you have the right to grant your voting proxy directly to Steven M. Sterin, our Senior Vice President and Chief Financial Officer, and James R. Peacock III, our Vice President, Deputy General Counsel and Assistant Corporate Secretary (collectively, the “Proxyholders”) or to vote in person at the Annual Meeting.

 

Beneficial Owner.  If your shares are held in a stock brokerage account or by a bank or other nominee (the “Record Holder”), you are considered the beneficial owner of shares held in “street name,” and these proxy materials are being forwarded to you by your Record Holder, which is considered, with respect to those shares, the stockholder of record. As the beneficial owner, you have the right to direct your broker or nominee how to vote and are also invited to attend the Annual Meeting. HOWEVER, SINCE YOU ARE NOT THE STOCKHOLDER OF RECORD, YOU MAY NOT VOTE THESE SHARES IN PERSON AT THE ANNUAL MEETING UNLESS YOU OBTAIN A SIGNED LEGAL PROXY FROM THE RECORD HOLDER GIVING YOU THE RIGHT TO VOTE THE SHARES. A beneficial owner can obtain a legal proxy by making a request to the broker, bank, or trustee that is the Record Holder. Under a legal proxy, the bank, broker, or trustee that is the Record Holder confers all of its rights as a record holder (which may in turn have been passed on to it by the ultimate record holder) to grant proxies or to vote at the meeting. Your Record Holder has provided you with instructions on how to vote your shares.

 

What should I do if I receive more than one notice or e-mail about the Internet availability of the proxy materials or more than one copy of the printed proxy materials?

 

You may receive more than one notice or more than one e-mail about the Internet availability of the proxy materials or more than one copy of the printed proxy materials. For example, if you hold your shares in more than one brokerage account, you may receive a separate notice, a separate e-mail or a separate mailing for each brokerage account in which you hold shares. If you are a stockholder of record and your shares are registered in more than one name, you may receive more than one notice, e-mail or mailing. Please vote all of your shares.

 

How do I cast my vote?

 

Each stockholder is entitled to one vote for each share of Common Stock on all matters presented at the Annual Meeting. Celanese is offering the following methods of voting:

 

Voting In-Person.

 

Stockholders of Record.  Shares held directly in your name as the stockholder of record may be voted in person at the Annual Meeting. If you choose to vote in person at the Annual Meeting, please bring the Notice of Internet Availability and proof of personal identification.

 

Beneficial Owners.  Shares held in street name may be voted in person by you only if you obtain a legal proxy from the Record Holder giving you the right to vote the shares. You may request a legal proxy from your Record Holder by indicating on your voting instruction form that you plan to attend and vote your shares at the Annual Meeting, or at the internet voting site to which your voting materials direct you. Please allow sufficient time to receive a legal proxy through the mail after your Record Holder receives your request.

 

Voting via the Internet.

 

Shares may be voted via the Internet at www.proxyvote.com. Your voting instructions will be accepted up until 11:59 P.M. Eastern Time on April 20, 2011, the day before the Annual Meeting. Have your Notice of Internet Availability, proxy card or voting instruction card in hand when you access the website and follow the instructions to obtain your records and to create an electronic voting instruction form.

 

Voting via Telephone.

 

Shares may be voted via any touch-tone telephone at 1-800-690-6903. Your voting instructions will be accepted up until 11:59 P.M. Eastern Time on April 20, 2011. Have your Notice of Internet Availability, proxy card or voting instruction card in hand when you call and then follow the instructions given.

Voting via Mail.

 

If you received a paper proxy card, your shares may be voted via mail by marking, signing and dating your proxy card and returning it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.

 

EVEN IF YOU CURRENTLY PLAN TO ATTEND THE ANNUAL MEETING, WE RECOMMEND THAT YOU ALSO SUBMIT YOUR PROXY AS DESCRIBED ABOVE SO THAT YOUR VOTE WILL BE COUNTED IF YOU LATER DECIDE NOT TO ATTEND THE MEETING. SUBMITTING YOUR PROXY VIA INTERNET, TELEPHONE OR MAIL DOES NOT AFFECT YOUR RIGHT TO VOTE IN PERSON AT THE ANNUAL MEETING.

 

What happens if additional proposals are presented at the Annual Meeting?

 

Other than the election of directors, the advisory vote on executive compensation, the advisory vote on say on pay vote frequency and the ratification of the selection of KPMG LLP as the independent registered public accounting firm, we do not expect any matters to be presented for a vote at the Annual Meeting. If you grant a proxy, the persons named as Proxyholders will have the discretion to vote your shares on any additional matters properly presented for a vote at the Annual Meeting in accordance with the recommendation of the board of directors or, in the absence of such a recommendation, in accordance with the judgment of the Proxyholders. Under our By-laws, the deadline for notifying us of any additional proposals to be presented at the Annual Meeting has passed and, accordingly, stockholders may not present proposals at the Annual Meeting.

 

Can I change my vote or revoke my proxy?

 

If your shares are held in street name through a broker, bank or other nominee, you should contact the holder of your shares regarding how to revoke your proxy.

 

If you are a stockholder of record, you may change your vote at any time before the polls close at the Annual Meeting. You may do this by:

 

 

Your attendance at the Annual Meeting will not have the effect of revoking a proxy unless you notify our Corporate Secretary in writing before the polls close that you wish to revoke a previous proxy. You may revoke your proxy at any time before the proxy has been voted at the Annual Meeting by taking one of the actions described above.

 

Who will count the votes?

 

Representatives of Carl Hagberg & Associates will count the votes and will serve as the independent inspector of the election.

 

What if I execute my proxy but do not provide voting instructions?

 

If you provide specific voting instructions, your shares will be voted as you instruct. If you execute a proxy but do not specify how your shares are to be voted, the Proxyholders will vote your shares in accordance with the recommendations of the board provided above.

 

Will my shares be voted if I do not provide my proxy?

 

Your shares may be voted if they are held in the name of a brokerage firm, even if you do not provide the brokerage firm with voting instructions. Brokerage firms have the authority under the New York Stock Exchange (“NYSE”) rules to cast votes on certain “routine” matters if they do not receive instructions from their customers.

The ratification of the independent registered accounting firm is considered a routine matter for which brokerage firms may vote unvoted shares. The election of directors and the two advisory votes are not considered routine matters under current NYSE rules. When a proposal is not a routine matter and the brokerage firm has not received voting instructions from the beneficial owner of the shares with respect to that proposal, the brokerage firm cannot vote the shares on that proposal. This is called a “broker non-vote.” It should be noted that NYSE rules previously considered the election of directors to be a “routine” matter for which brokerage firms could vote in the election of directors if the record holder had not received instructions on how to vote from the beneficial owner. Accordingly, given this recent change, it is particularly important that beneficial owners instruct their brokers how they wish to vote their shares.

 

What are the costs of soliciting these proxies?

 

We will bear the costs of solicitation of proxies. We have engaged D.F. King & Co., Inc. to assist us with the solicitation of proxies and expect to pay D.F. King & Co. an estimated fee of $7,500 plus out of pocket expenses. In addition to solicitations by mail, D.F. King & Co. and our directors, officers and regular employees may solicit proxies by telephone, e-mail and personal interviews without additional remuneration. We will request brokers, custodians and fiduciaries to forward proxy soliciting material to the owners of shares of our Common Stock that they hold in their names. We will reimburse banks and brokers for their reasonable out-of-pocket expenses incurred in connection with the distribution of our proxy materials.

 

How can I request free copies of the proxy materials or additional information?

 

You may contact Broadridge:

 

 

What is “householding”?

 

We may send a single Notice of Internet Availability or set of proxy materials and other stockholder communications to any address shared by two or more stockholders. This process is called “householding.” This reduces duplicate mailings, saves printing and postage costs and conserves natural resources. We will deliver promptly upon written or oral request a separate copy of the Notice of Internet Availability, 2010 Annual Report to Stockholders or this Proxy Statement to a stockholder at a shared address to which a single copy of the documents was delivered.

 

To receive a separate copy or to stop receiving multiple copies sent to stockholders of record sharing an address:

 

 

What is the deadline to propose actions for consideration at next year’s annual meeting of stockholders?

 

You may submit proposals for consideration at future stockholder meetings. For a stockholder proposal to be considered for inclusion in the Company’s proxy statement for the 2012 Annual Meeting of Stockholders, the Company’s Corporate Secretary must receive the written proposal at our principal executive offices no later than the close of business on November 12, 2011. Such proposals also must comply with SEC regulations under Rule 14a-8

regarding the inclusion of stockholder proposals in company-sponsored proxy materials. Proposals should be addressed to:

 

Corporate Secretary
Celanese Corporation
1601 West Lyndon B. Johnson Freeway
Dallas, Texas 75234

 

For a stockholder proposal that is not intended to be included in the Company’s proxy statement under Rule 14a-8, the stockholder must provide the information required by the Company’s By-laws and give timely notice to the Company in accordance with the Company’s By-laws, which, in general, require that the notice be received by the Company’s Secretary:

 

 

If the date of the stockholder meeting is moved more than 30 days before the anniversary of the Company’s Annual Meeting for the prior year, then notice of a stockholder proposal that is not intended to be included in the Company’s proxy statement under Rule 14a-8 must be received no earlier than the close of business 120 days prior to the meeting and not later than the close of business on the later of the following two dates:

 

 

How may I recommend or nominate individuals to serve as directors?

 

You may recommend director candidates for consideration by the board’s nominating and corporate governance committee as described later in this Proxy Statement under “Corporate Governance — Candidates for the Board.” Generally, recommended candidates are considered at the first or second board meeting prior to the annual meeting.

 

In addition, the Company’s By-laws permit stockholders to nominate directors for election at an annual stockholder meeting. To nominate a director, the stockholder must deliver the information required by the Company’s By-laws. To nominate an individual for election at an annual stockholder meeting, the stockholder must give timely notice to the Company’s Corporate Secretary in accordance with the Company’s By-laws, which, in general, require that the notice be received by the Company’s Secretary between the close of business on December 23, 2011 and the close of business on January 22, 2012, unless the annual meeting is moved by more than 30 days before the anniversary of the prior year’s annual meeting, in which case the deadline will be as described in the question above.

 

How may I obtain a copy of the Company’s By-law provisions regarding stockholder proposals and director nominations?

 

You may contact the Company’s Secretary at our principal executive offices for a copy of the relevant By-law provisions regarding the requirements for making stockholder proposals and nominating director candidates. The Company’s By-laws also are available in the investor section of the Company’s website at www.celanese.com under Corporate Governance.

 

Date of our fiscal year end

 

This Proxy Statement provides information about the matters to be voted on at the Annual Meeting and also additional information about the Company, and certain of our officers and directors. Please note that some of the information is stated as of the end of our fiscal year, December 31, 2010, and some information is provided as of a more current date.

PROPOSAL 1: ELECTION OF DIRECTORS

 

 

Under the Company’s By-laws, in uncontested elections, such as this one, where the number of nominees does not exceed the number of nominees to be elected, a director nominee must receive the affirmative vote of a majority of the votes cast at the annual meeting of stockholders in order to be elected. The board believes this majority vote standard appropriately gives stockholders a greater voice in the election of directors than plurality voting does. Under the General Corporation Law of the State of Delaware, an incumbent director who fails to receive the required vote “holds over,” or continues to serve as a director, until his or her successor is elected and qualified. In order to address this “hold over” issue, board policy requires an incumbent nominee who fails to receive the required vote to tender his or her resignation. Following receipt of such a resignation, the board will act on it within 90 days of the certification of the vote. In considering whether to accept or reject the resignation, the board will consider all factors it deems relevant, including the underlying reason for the vote’s result, the director’s contributions to the Company during his or her tenure, and the director’s qualifications. The board may accept or reject the resignation. Only independent directors will participate in the deliberations regarding a tendered resignation.

 

Our board of directors is divided into three classes serving staggered three-year terms. At the Annual Meeting you will have the opportunity to elect three directors to serve for three years. Our board of directors has nominated Martin G. McGuinn, Daniel S. Sanders and John K. Wulff to be elected as Class I directors at the Annual Meeting. The director nominees, Messrs. McGuinn, Sanders and Wulff, have consented to be elected to serve as directors for the term of the Class I directors. Unless otherwise instructed, the Proxyholders will vote the proxies received by them for these three nominees. If any nominee of Celanese is unable or declines to serve as a director as of the time of the Annual Meeting, the board may designate a substitute nominee or reduce the size of the board. Proxies will be voted for any nominee who shall be designated by the present board of directors to fill the vacancy. If elected, Messrs. McGuinn, Sanders and Wulff will serve until the 2014 Annual Meeting of Stockholders or until their successors are elected and qualified.

 

The name of each of our directors and certain information about them, as of the date of this Proxy Statement (except ages, which are as of the date of the Annual Meeting), is set forth below. Included in the information below is a description of the particular experience, qualifications, attributes and skills that led the board to conclude that each person below should serve as a director for the Company.

 

 

Vote Required

 

Each director must receive a majority of the votes cast in favor of his or her election.

 

Recommendation of the Board

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
“FOR” THE NOMINEES LISTED ABOVE

 

Class II Directors — Term Expires in 2012

 

Class III Directors — Term Expires in 2013

 

 

The Company uses both cash and equity-based compensation to attract and retain qualified directors to serve on our board of directors. In setting the compensation levels, the nominating and corporate governance committee considered the extent of time and the expertise required to serve on our board. Each non-management director is entitled to an annual cash retainer of $85,000, which is paid in quarterly installments, and an annual equity retainer of $85,000 in restricted stock units that vest in one year. In addition, the chair of the nominating and corporate governance committee, compensation committee and environmental, health & safety committee receives an annual fee of $10,000 and the chair of the audit committee receives an annual fee of $20,000. The Presiding Director receives no additional compensation for his services as such.

 

Non-management directors are also able to participate in the Company’s 2008 Deferred Compensation Plan, which is an unfunded, nonqualified deferred compensation plan that allows directors the opportunity to defer a portion of their cash compensation and restricted stock units in exchange for a future payment amount equal to their deferments plus or minus certain amounts based upon the market performance of specified measurement funds selected by the participant.

 

The table below is a summary of compensation earned and restricted stock units granted by the Company to non-management directors for the fiscal year ended December 31, 2010. Mr. Weidman is not included in this table since he is an employee of the Company and receives no compensation for his services as director.

 

 

 

PROPOSAL 2: ADVISORY VOTE ON EXECUTIVE COMPENSATION

 

Celanese’s compensation program for named executive officers is intended to (1) support the execution of our business strategy and long-term financial objectives, (2) attract, incentivize and retain a talented team of executives who will provide leadership for our success in dynamic, competitive markets and products, (3) foster performance in the creation of long-term stockholder value, and (4) reward executives for contributions at a level reflecting our performance as well as their individual performance. Our compensation committee has designed our executive compensation program based on principles that reflect these objectives. These principles have contributed to our strong performance and rewarded executives appropriately. See “Executive Compensation — Compensation Discussion and Analysis” for additional discussion.

 

We are presenting this proposal, commonly known as a “Say-on-Pay” proposal, which gives you, as a stockholder, the opportunity to endorse or not endorse our executive compensation programs through an advisory vote on the following resolution:

 

“Resolved, that the stockholders approve, on an advisory basis, the compensation of our named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative disclosure, contained in this Proxy Statement.”

 

The board of directors recommends that stockholders endorse the compensation program for our named executive officers by voting FOR the above resolution. We believe that executive compensation for 2010 is reasonable and appropriate and, as discussed in the Compensation Discussion and Analysis (the “CD&A”) contained in this Proxy Statement, is justified by our performance. Our compensation programs are the result of a carefully considered approach and reflect advice received from the compensation committee’s independent compensation consultant.

 

In deciding how to vote on this proposal, the board of directors asks you to consider the following factors, many of which are more fully discussed in the CD&A:

 

Performance

 

We believe the compensation programs for the named executive officers were instrumental in helping us achieve strong financial performance in the challenging macroeconomic environment of 2010.

 

 

 

* Operating EBITDA is a non-GAAP financial measure that we define as net earnings plus loss (earnings) from discontinued operations, interest income and expense, taxes, and depreciation and amortization, and further adjusted for other charges and other adjustments (“Operating EBITDA”). See Exhibit A to this Proxy Statement for additional information concerning this measure and a reconciliation of this measure to net earnings, the most comparable U.S. GAAP financial measure.

 

 

Compensation

 

We believe our executive compensation programs, which emphasize long-term equity awards, satisfy the objectives described above and are strongly aligned with the long-term interests of our stockholders.

 

 

Corporate Governance

 

We believe our executive compensation program is aligned with good corporate governance.

 

 

Mitigation Against Excessive Risk

 

We believe our executive compensation programs do not encourage excessive and unnecessary risks that would threaten the value of our Company.

 

 

 

This vote is mandated by Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and SEC regulations. As an advisory vote, this proposal is not binding upon the Company. However, the compensation committee, which is responsible for designing and administering our executive compensation program, values the feedback received from stockholders in their vote on this proposal, and will consider the outcome of the vote when making future compensation decisions for named executive officers. In addition, the non-binding advisory votes described in this Proposal 2 and below in Proposal 3 will not be construed as (1) overruling any decision by the Company, the board of directors, or the compensation committee relating to the compensation of the named executive officers, or (2) creating or changing any fiduciary duties or other duties on the part of the board of directors, or any committee of the board of directors, or the Company.

 

Recommendation of the Board

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE “FOR” THE APPROVAL OF OUR EXECUTIVE COMPENSATION PROGRAM

PROPOSAL 3: ADVISORY VOTE ON SAY ON PAY FREQUENCY

 

In addition to providing an advisory vote on our executive compensation program, we are requesting stockholders to indicate their preference for the frequency in which these advisory votes on executive compensation should take place — every one, two or three years. This vote is mandated by Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and SEC regulations. Stockholders may indicate their preference on this advisory vote by choosing an annual, biennial or triennial vote frequency, or abstaining on this vote when stockholders vote in response to the resolution set forth below. We will ask stockholders not less than every six years whether they desire a different vote frequency on the advisory vote on executive compensation.

 

“Resolved, that a non-binding advisory vote of the Company’s stockholders to approve, on an advisory basis, the compensation of the named executive officers, as disclosed pursuant to the compensation disclosure rules of the SEC be held at an Annual Meeting of Stockholders, beginning with the 2011 Annual Meeting of the Stockholders, every one year, two years or three years.”

 

The board of directors has recommended that the stockholders approve that we conduct an advisory vote on executive compensation annually. We believe that an annual review of our executive compensation practices will be better aligned with stockholder interests as it allows us to obtain information on stockholders’ views of the compensation of our named executive officers on a more consistent basis. It also allows us to engage in regular dialogue with our stockholders on corporate governance matters, including our executive compensation philosophy, policies and programs. For these reasons, we believe that stockholders should support an annual advisory vote on executive compensation.

 

The option of one year, two years or three years that receives the highest number of votes cast by the stockholders will be the frequency for the advisory vote on named executive officer compensation that has been selected by stockholders. However, because this is an advisory vote, this proposal is not binding upon the Company in any way and the compensation committee and the board of directors may decide that it is in the best interests of stockholders and the Company to hold an advisory vote on executive compensation more or less frequently than the option approved by the stockholders. The compensation committee, which is responsible for designing and administering our executive compensation program, and the board of directors value the opinions expressed by stockholders in their vote on this proposal, and will consider the outcome of the vote when making a decision about the frequency of future advisory votes on executive compensation.

 

Recommendation of the Board

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THE SELECTION OF ONE YEAR AS
THE STOCKHOLDERS’ PREFERENCE FOR THE FREQUENCY WITH WHICH STOCKHOLDERS ARE PROVIDED AN ADVISORY VOTE ON EXECUTIVE COMPENSATION

PROPOSAL 4: RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The audit committee of the board of directors has selected KPMG LLP to audit the Company’s consolidated financial statements for fiscal year 2011. Since 2005 KPMG LLP served as our independent registered public accounting firm and also provided other audit-related and non-audit services that were approved by the audit committee.

 

Representatives of KPMG LLP will be present at the Annual Meeting and will have the opportunity to make a statement if they desire and will be available to respond to appropriate questions from stockholders.

 

We are asking our stockholders to ratify the selection of KPMG LLP as our independent registered public accounting firm. Although ratification is not required by our By-laws or otherwise, the board is submitting the audit committee’s selection of KPMG LLP to our stockholders for ratification as a matter of good corporate practice. Even if the selection is ratified, the audit committee in its discretion may select a different registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our stockholders. If the appointment of KPMG LLP is not ratified, the audit committee will evaluate the basis for the stockholders’ vote when determining whether to continue the firm’s engagement.

 

Aggregate fees billed to the Company during the years ended December 31, 2010 and 2009 by its independent registered public accounting firm, KPMG LLP, and KPMG LLP affiliates were as follows:

 

 

 

 

The audit committee is responsible for appointing, retaining and pre-approving the fees of the Company’s independent registered public accounting firm. The audit committee has adopted a Policy for Pre-Approval of Independent Auditor Services (“Pre-Approval Policy”) pursuant to which proposed services may be pre-approved through the application of detailed policies and procedures (“general pre-approval”) or by specific review of each service (“specific pre-approval”). The audit committee has provided general pre-approval for certain specific types of non-prohibited audit, audit-related and tax services that do not exceed $100,000 per project and $1,000,000 per year in the aggregate and gives detailed guidance to management as to the specific services that are eligible for general pre-approval. The audit committee is to be informed on a timely basis of any services performed by the independent auditor pursuant to general pre-approval. Unless a type of service is included in this general pre-approval, it will require specific pre-approval. The annual audit services engagement terms and fees must be specifically pre-approved by the audit committee. Requests to provide services that require specific pre-approval must be submitted to the audit committee by both the independent registered public accounting firm and the chief

financial officer or controller, and must include detailed back-up documentation and a joint statement as to whether the request or application is consistent with the SEC’s rule on auditor independence.

 

The audit committee may delegate its pre-approval authority to one or more of its members. The member or members to whom such authority is delegated must report any pre-approval decisions to the audit committee at its next scheduled meeting.

 

All services performed by our independent registered public accounting firm in 2010 were pre-approved by the audit committee.

 

Recommendation of the Board

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE “FOR” THE RATIFICATION OF OUR INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM FOR FISCAL YEAR 2011

CORPORATE GOVERNANCE

 

The business and affairs of the Company are managed under the direction of the board of directors. The board believes that good corporate governance is a critical factor in achieving business success and in fulfilling the board’s responsibilities to stockholders. The board believes that its practices align management and stockholder interests. Highlights of our corporate governance practices are described below.

 

Strong corporate governance is an integral part of Celanese’s core values. Our Company’s corporate governance policies and procedures are available on the corporate governance portal of the Company’s investor relations website at www.celanese.com. The corporate governance portal includes the Company’s Corporate Governance Guidelines, Board Committee Charters, Global Business Conduct Policy, Financial Code of Ethics, and Stockholders’ Communications with the Board Policy. Any future modification or amendments to our Financial Code of Ethics, and any waiver of our Financial Code of Ethics, which applies to our Chief Executive Officer (“CEO”) (Principal Executive Officer), Chief Financial Officer (“CFO”) (Principal Financial Officer) or Senior Vice President, Finance and Treasurer (Principal Accounting Officer) will be posted on the same website. We provide below specific information regarding certain corporate governance practices.

 

Our charter provides that the number of members of the board of directors shall be fixed by the board of directors, but shall be no less than seven and no more than fifteen. Currently we have nine directors. Our board of directors is divided into three classes. The members of each class serve for a staggered three-year term, expiring at the annual meeting of stockholders in the year shown below.

 

 

Our board of directors is to be comprised of a majority of independent directors. Please see more information about independence in “Corporate Governance — Director Independence.”

 

In February 2011, the board of directors approved a director retirement guideline, the full text of which is set forth in our Corporate Governance Guidelines. The guideline states that a director should retire from the board of directors no later than the annual meeting of stockholders following such director’s 72nd birthday; provided, however, the retirement guideline may be waived by a majority of uninterested directors upon the recommendation of the nominating and corporate governance committee. This guideline will be phased in and will first apply to our Class II directors beginning immediately following the 2012 Annual Meeting of Stockholders, our Class III directors beginning immediately following the 2013 Annual Meeting of Stockholders and our Class I directors beginning immediately following the 2014 Annual Meeting of Stockholders.

 

Meetings of our board of directors are presided over by the Chairman of the Board. Our By-laws do not require that the Chairman be independent of the Company and currently Mr. Weidman, our CEO, serves as Chairman. While the board regularly considers the separation of the Chairman/CEO roles, we believe that in order for the Company to succeed in executing its strategy it is important that these two roles be aligned as closely as possible. Having a combined Chairman/CEO allows the CEO to better understand and meet the needs of the board and allows the Chairman to better understand the Company’s day-to-day situation.

 

Each member of our board of directors has significant business experience. We believe that their independence is not adversely affected by having a combined Chairman/CEO.

Additionally, in order to eliminate any potential conflict of interest, the board has designated an independent Presiding Director. The Presiding Director presides over executive sessions of the board, which are conducted at least quarterly. In addition, the Presiding Director has the following responsibilities:

 

 

The Presiding Director during the period from the 2010 Annual Meeting of Stockholders through the 2011 Annual Meeting of Stockholders is Mr. Rohr. Under the Company’s current procedure, the role of Presiding Director rotates biennially among the chairs of the standing board committees at the first meeting of the board of directors following the Annual Meeting of Stockholders. Following the 2011 Annual Meeting of Stockholders, the Presiding Director will be the chairperson of the environmental, health & safety committee.

 

The board of directors has adopted a standard of independence for directors. This standard incorporates all of the requirements for director independence contained in the NYSE listing standards. The listing standards of the NYSE require companies listed on the NYSE to have a majority of “independent” directors. The NYSE listing standards generally provide that a director is independent if the board affirmatively determines that the director has no material relationship with the Company directly or as a partner, stockholder or officer of an organization that has a relationship with the Company. In addition, a director is not independent if (1) the director is, or has been within the last three years, an employee of the Company, or an immediate family member is, or has been within the last three years, an executive officer of the Company; (2) the director or a member of the director’s immediate family has received, during any twelve-month period within the last three years, more than $120,000 in direct compensation from the Company other than for service as a director and committee member, and pension or other forms of deferred compensation for prior service to the Company; (3) (a) the director is a current partner or employee of the Company’s independent auditor, (b) the director has an immediate family member who is a current partner of such firm, (c) the director has an immediate family member who is a current employee of the Company’s independent auditor and who personally works on the Company’s audit, or (d) the director or an immediate family member was within the last three years a partner or employee of the Company’s independent auditor and personally worked on the Company’s audit within that time; (4) the director or a member of the director’s immediate family is, or has been within the last three years, employed as an executive officer of another company where an executive officer of the Company serves or served on that company’s compensation committee; or (5) the director is a current employee, or an immediate family member is a current executive officer, of a company that has made payments to, or received payments from, the Company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1,000,000, or 2% of such other Company’s consolidated gross revenues.

 

In addition, in compliance with NYSE listing standards, we have a compensation committee and a nominating and corporate governance committee that are each composed of entirely independent directors, and each of these committees have written charters addressing the committee’s purpose and responsibilities and that we evaluate annually the performance of these committees.

 

The Company reviews and determines the independence of each of the directors in accordance with the Director Independence Standards set forth in Exhibit A to the Company’s Corporate Governance Guidelines, adopted by the board. The Director Independence Standards are intended to comply with the NYSE corporate governance rules and other applicable laws, rules and regulations regarding independence. The full text of the Corporate Governance Guidelines can be found in the investor section of the Company’s website, www.celanese.com, under Corporate Governance. The board considers transactions and relationships between each director or any member of his or her immediate family and the Company and its subsidiaries and affiliates. As more fully described in “Certain Relationships and Related Person Transactions,” the Company in the normal course of business has been a party to transactions with other corporations where certain of our directors are themselves either directors or officers. The board was made aware of these transactions and the amounts involved and none of them were deemed to be material or were considered to impact a director’s independence. One such

series of transactions between the Company and Albemarle Corporation, where one of our directors, Mark C. Rohr, is the Chairman of the Board, President and Chief Executive Officer, was considered to be an interested transaction in the aggregate that was pre-approved under the terms of our Related Party Transaction Policy.

 

The board, based upon the recommendation of the nominating and corporate governance committee, has affirmatively determined that eight of our directors, Messrs. Barlett, Hoffmeister, McGuinn, O’Neill, Rohr, Sanders and Wulff and Ms. Walters, are independent of the Company and its management under the NYSE listing standards and the Company’s director independence standards. Mr. Weidman, our Chairman and Chief Executive Officer, is the only director who is not independent.

 

The board has delegated to the audit committee the responsibility for overseeing the Company’s risk management process. Management reviews and discusses annually with the audit committee and the full board the process by which management and the board assess and manage the Company’s most significant business risks. Additionally, on an ongoing basis, senior management, including the CFO, provides updates to the audit committee on risk management policies and process compliance. This process for overseeing risk has been used to manage the significant categories of risks to which the Company is exposed. The board’s role in risk oversight has not had any effect on the board’s leadership structure.

 

While the board has delegated to the audit committee the responsibility for overseeing the Company’s risk management process, the board has also recently assigned oversight for each principal category of risk to either the full board, the audit committee or one of the board’s other standing committees. The following table shows the assignments by major category.

 

Risk Management Assignments

 

 

Each of our directors is expected to devote sufficient time and attention to his or her duties and to attend all board, committee and stockholders’ meetings. The board of directors held 7 meetings during 2010. All directors attended at least 75% of the aggregate of (i) meetings of the board and (ii) meetings of the committees on which they served during the fiscal year ended December 31, 2010. In addition, we have a policy requiring our directors to attend the annual meeting of stockholders. All of our directors attended the annual meeting of stockholders in 2010.

Committees of the Board

 

The board of directors has 4 standing board committees: audit, compensation, nominating and corporate governance, and environmental, health & safety committees. The following table sets forth the composition of our committees.

 

 

Audit Committee

 

The Company’s audit committee is comprised of Mr. Hoffmeister (Chairman), Mr. Barlett and Mr. McGuinn, each of whom the board has affirmatively determined are independent of the Company and its management under the rules of the NYSE and the SEC. The board has also determined that all members of the audit committee are independent and “audit committee financial experts” as the term is defined in Item 407(d)(5) of Regulation S-K. Each member of the audit committee is also “financially literate” as that term is defined by the rules of the NYSE. The audit committee held 10 meetings during 2010. The complete text of the Audit Committee Charter, adopted by the board of directors on October 21, 2010, is available from the Company’s investor relations website at www.celanese.com under Corporate Governance.

 

The audit committee is directly responsible for the appointment, compensation and oversight of the work of the Company’s independent auditor. The independent auditors report directly to the audit committee. The principal purposes of the audit committee are to oversee:

 

 

Compensation Committee

 

The Company’s compensation committee is comprised of Mr. Wulff (Chairman), Mr. Sanders, and Ms. Walters. The board has determined that all members of the nominating and corporate governance committee are independent. In addition, the board has determined that all members of the compensation committee are independent under Rule 16b-3 under the Securities Exchange Act of 1934 and qualify as “non-employee directors” for purposes of Section 162(m) of the Internal Revenue Code. The compensation committee held 9 meetings during 2010. The complete text of the Compensation Committee Charter, adopted by the board of directors on October 21, 2010, is available on the Company’s investor relations website at www.celanese.com under Corporate Governance. A description of the compensation committee’s processes and procedures for determining executive compensation is more fully described in “Compensation Discussion and Analysis” below.

 

The principal purposes of the compensation committee are to:

 

 

Nominating and Corporate Governance Committee

 

The Company’s nominating and corporate governance committee is comprised of Mr. Rohr (Chairman), Mr. O’Neill and Ms. Walters. The board has determined that all members of the nominating and corporate governance committee are independent. The nominating and corporate governance committee held 5 meetings during 2010. The completed text of the Nominating and Corporate Governance Charter, adopted by the board of directors on October 21, 2010, is available on the Company’s investor relations website at www.celanese.com under Corporate Governance. The Nominating and Corporate Governance Committee Charter provides that the nominating and corporate governance committee may, from time to time, retain legal, accounting or other consultants or experts the nominating and corporate governance committee deems necessary in the performance of its duties, including, in its process of identifying director candidates.

 

The principal purposes of the nominating and corporate governance committee are to:

 

 

Environmental, Health & Safety Committee

 

The Company’s environmental, health & safety committee is comprised of Mr. O’Neill (Chairman), Mr. Rohr, Mr. Sanders and Mr. Weidman. The environmental, health & safety committee assists the board in fulfilling its oversight duties, while Company management retains responsibility for assuring compliance with applicable environmental, health and safety laws and regulations. The environmental, health & safety committee held 2 meetings during 2010. The complete text of the Environmental, Health & Safety Committee Charter, adopted by the board of directors on November 30, 2010, is available on the Company’s investor relations website at www.celanese.com under Corporate Governance.

The principal purposes of the environmental, health & safety committee are to:

 

 

Candidates for the Board

 

The board of directors and the nominating and corporate governance committee consider candidates for board membership suggested by the board or nominating and corporate governance committee members, as well as by management and stockholders. The Nominating and Corporate Governance Committee Charter provides that the nominating and corporate governance committee may, from time to time, retain legal, accounting or other consultants or experts the nominating and corporate governance committee deems necessary in the performance of its duties, including, in its process of identifying director candidates.

 

Nominee Assessment and Diversity

 

The nominating and corporate governance committee’s assessment of a proposed director candidate will include a review of the person’s judgment, experience, independence, understanding of the Company’s business or other related industries, and such other factors as the nominating and corporate governance committee considers important, which are expected to contribute to an effective board, including the following qualities:

 

 

Although the Company does not have a formal policy on board diversity, when considering board candidates, the nominating and corporate governance committee strives to achieve a balance of knowledge, experience and perspective such that the Company’s board reflects a diversity of backgrounds and experiences.

Nominee Recommendations

 

The nominating and corporate governance committee will consider recommendations for director nominees made by stockholders. Stockholder recommendations should be sent to:

 

Celanese Corporation

Board of Directors

1601 West Lyndon B. Johnson Freeway

Dallas, Texas 75234

Attn: Corporate Secretary

 

Generally, recommended candidates are considered at the first or second board meeting prior to the annual meeting. No candidates were recommended by stockholders during 2010.

 

The nominating and corporate governance committee considers individuals recommended by stockholders in the same manner and to the same extent as it considers director nominees identified by other means. The Chairman of the nominating and corporate governance committee will make exploratory contacts with those nominees whose skills, experiences, qualifications and personal attributes satisfy those that the nominating and corporate governance committee has identified as essential for a nominee to possess, as described above. Then, an opportunity will be arranged for the members of the nominating and corporate governance committee or as many members as can do so to meet the potential nominees. The nominating and corporate governance committee will then select a nominee to recommend to the board of directors for consideration and appointment. Board members appointed in this manner will serve, absent unusual circumstances, until their election by our stockholders at the next annual meeting of stockholders. The board and the nominating and corporate governance committee have not received director nominations from any stockholders outside the board or the nominating and corporate governance committee.

 

Stockholder Communications with the Board

 

The board of directors has adopted the following procedure in accordance with the requirements of the SEC for stockholders to communicate with the board and its members. Stockholders and other parties interested in communicating directly with the non-management directors as a group or the board may do so by sending their communications to:

 

Celanese Corporation

Board of Directors

1601 West Lyndon B. Johnson Freeway

Dallas, Texas 75234

Attn: Corporate Secretary

 

All stockholder communications received by the Corporate Secretary will be delivered to one or more members of the board as appropriate, as determined by the Corporate Secretary. Notwithstanding the foregoing, the Corporate Secretary will maintain for the benefit of the board for a period of two years following the receipt of any communication, a record of all stockholder communications received in compliance with this policy.

 

Members of the board may review this record of stockholder communications upon their request to the Corporate Secretary. In addition, the receipt of any accounting, internal controls or audit-related complaints or concerns will be directed to the Chairman of the audit committee.

BOARD COMMITTEE REPORTS

 

Audit Committee Report

 

The audit committee of the board of directors assists the board in fulfilling its oversight responsibilities with respect to the external reporting process and the adequacy of the Company’s internal controls. Specific responsibilities of the audit committee are set forth in the Audit Committee Charter.

 

Company management is responsible for the Company’s internal controls and the financial reporting process. The independent registered public accounting firm KPMG LLP is responsible for performing an independent audit of the Company’s consolidated financial statements and issuing an opinion on the conformity of those audited financial statements with generally accepted accounting principles in the United States of America. The audit committee monitors the Company’s financial reporting process and reports to the board of directors on its findings.

 

The audit committee reviewed and discussed with Company management and KPMG LLP the audited financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. The audit committee also discussed with KPMG LLP the matters required to be discussed by the Statement on Auditing Standards No. 61, Communication with Audit Committees, as amended (AICPA, Professional Standards, Vol. 1, AU Section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. The audit committee has received from KPMG LLP the written disclosures and the letter required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the audit committee concerning independence, and has discussed with KPMG LLP its independence.

 

The audit committee has also considered whether the provision to the Company by KPMG LLP of limited non-audit services is compatible with maintaining the independence of KPMG LLP. The audit committee has satisfied itself as to the independence of KPMG LLP.

 

Based on the audit committee’s review and discussions described above, the audit committee recommended to the board of directors that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. This report was submitted by the audit committee,

 

David F. Hoffmeister, Chairman

Martin G. McGuinn

James E. Barlett

 

The audit committee report does not constitute soliciting material, and shall not be deemed to be filed or incorporated by reference into any other filing under the Securities Act of 1933, or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates the audit committee report by reference therein.

 

Compensation Committee Report

 

The compensation committee has reviewed and discussed the Compensation Discussion and Analysis contained in this Proxy Statement with management and the compensation committee’s independent compensation consultant and, based upon its review and discussion, the compensation committee recommended to the board of directors that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010 and this Proxy Statement. This report was submitted by the compensation committee,

 

John K. Wulff, Chairman

Daniel S. Sanders

Farah M. Walters

 

The compensation committee report does not constitute soliciting material, and shall not be deemed to be filed or incorporated by reference into any other filing under the Securities Act of 1933, or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates the compensation committee report by reference therein.

EXECUTIVE COMPENSATION

 

During 2010, we continued to progress towards becoming a premier chemical company. Our progress was driven by our relentless focus on our value creation levers of geographic growth, innovation, productivity, and portfolio enhancements. Our effective execution of these levers resulted in strong results in net sales and Operating EBITDA.* Specifically, in 2010 our net sales increased 16.5% to $5.9 billion and our Operating EBITDA increased 31% to $1.1 billion. Earnings from continuing operations before taxes increased 114% to $538 million, and net earnings were $377 million in 2010 compared to $498 million in 2009. Our 2009 net earnings included a net release of tax valuation allowances of $314 million. In addition, we improved our safety performance over 2009. Our strong operational and financial performance resulted in a 29% total return for stockholders in 2010, based on a closing price as of December 31, 2010 of $41.17 per share.

 

We closely monitor our performance in relation to the performance of those companies included in our peer groups, as described later in this Compensation Discussion and Analysis (“CD&A”). Although we target compensation to be at the median of our executive benchmarking peer group, whether we pay out at, above or below the targeted amount depends on internal performance metrics and overall company performance relative to our peers. This compensation structure is consistent with our philosophy of performance-based pay that also enables us to attract and retain the top talent in the industry.

 

2010 Pay Decisions and Plan Design Changes

 

In light of new roles and responsibilities, three of our named executive officers received base pay increases and / or adjustments to their annual performance bonus award targets or long-term equity incentive award targets in 2010. Base pay and target pay for all other named executive officers remained consistent with previous years.

 

The annual performance bonus plan design remained unchanged from last year and continues to measure performance relative to Operating EBITDA, working capital and environmental, health and safety (“EHS”) metrics and the individual performance of the executive officer. As a result of our strong 2010 performance described above, our annual performance bonus plan paid at 108.8% of target for corporate-level participants, including the named executive officers.

 

Our long-term incentive program was redesigned to further align our executives with long-term stockholders’ interests and the business strategy of our Company. Although we continued to grant time- and performance-vesting restricted stock units (“RSUs”), except for our chief executive officer who did not receive time-vesting RSUs in 2010, stock options were added to our named executive officers’ equity mix. A mandatory hold requirement of a portion of vested restricted stock units and net shares received from the exercise of stock options was introduced in 2010 (discussed further on page 45). The hold requirement for RSUs is seven years from the date of grant of the award (four years after the last vesting date). The hold requirement for shares acquired upon exercise of stock options after covering the exercise price, taxes and any transaction costs is one year from the date of exercise.

 

A thorough review of compensation related risks was completed in 2010. As described later in “Executive Compensation — Risk Assessment of Compensation Practices”, no material adverse risk was found in any of our executive or broad-based compensation programs. This assessment did lead to the amendment of our Insider Trading Policy to prohibit the hedging of Company stock by directors and employees.

 

 

*  Operating EBITDA is a non-GAAP financial measure. See Exhibit A to this Proxy Statement for additional information concerning this measure and a reconciliation of this measure to net earnings, the most comparable U.S. GAAP financial measure.

Highlights of Pay Programs

 

We continue to maintain pay programs that are aligned with good corporate governance. In fact, governance is embedded in our processes and policies and includes the following:

 

 

In addition to maintaining good corporate governance, we have designed our annual performance bonus plan and long-term incentive program to be aligned with best practices that mitigate against excessive risk. This includes the following:

 

 

We strongly believe that our executive officers’ compensation should be driven by performance. To the extent that we do not achieve our annual or long-term performance targets or an executive officer’s individual performance does not meet expectations, our compensation program is designed to reduce the amount of total compensation received by such executive officer.

 

The CD&A provides an overview of our compensation programs and explains how pay is determined for our CEO and the other executive officers named in the Summary Compensation Table on page 48 (collectively, our “named executive officers”). Our named executive officers for 2010 were:

 

 

The compensation committee is responsible for establishing compensation policies and programs that are consistent with our business strategy and aligned with our stockholders’ interests. Specifically, the compensation committee is responsible for:

 

 

Our compensation committee is comprised entirely of independent directors (as defined under NYSE listing standards).

 

The Role of the Compensation Consultant in Making Decisions

 

The compensation committee has retained Frederic W. Cook Co., Inc. (“FW Cook”) as its independent outside compensation consultant to advise it in connection with executive compensation matters. Beginning in mid-2010, representatives of FW Cook regularly attended compensation committee meetings as requested by its chair, Mr. Wulff, and reported directly and exclusively to the compensation committee on matters relating to compensation for the named executive officers. During 2010, the compensation committee requested that FW Cook:

 

 

During fiscal year 2010, FW Cook provided to the Company only services approved by the compensation committee.

 

Prior to April 2010, the compensation committee used Mercer LLC in the same capacity as described above. Mercer LLC also did not provide any material services to the Company or our senior management other than those provided in connection with its engagement by the compensation committee.

 

The Role of Management in Making Decisions

 

The compensation committee regularly meets with the CEO and the senior vice president, human resources to receive reports and recommendations regarding the compensation of our executive officers other than the CEO. In particular, the CEO submits recommendations, as appropriate, to the compensation committee on the base salary, target annual performance bonus award levels, and target levels of incentive and equity-based compensation to be offered to each executive officer. Recommendations are developed in consultation with the senior vice president, human resources and the compensation consultant and accompanied by market data prepared by the compensation committee’s consultant. In addition, the CEO makes recommendations to the compensation committee on the individual performance modifiers used to determine each executive officer’s actual payout under the annual

performance bonus award, as further described in “Compensation Discussion and Analysis — Performance Assessments and Individual Compensation Decisions.” Although the compensation committee considers the CEO’s recommendations, the final decisions regarding base salary, bonus and equity targets and individual performance modifiers are made by the compensation committee. The CEO does not make any recommendations to the compensation committee regarding his own compensation.

 

Compensation Philosophy.  Our focus as a company is to deliver continued earnings growth and superior value creation for our stockholders. To that end, we have adopted a “pay-for-performance” compensation program that is designed to reward executives for superior company and individual performance through awards of variable and long-term incentives. At the same time, these programs are intended to be sufficiently competitive with our peer companies so as to also attract and retain highly qualified personnel. We believe that our current compensation program is both attractive to our executives and aligned with the best interests of our stockholders.

 

Compensation Objectives.  The objectives of our compensation programs are to provide pay that is competitive, performance-based, aligned with the interest of our stockholders, and focused on attracting, rewarding and retaining talent as described below:

 

 

Elements of Compensation.  The table below summarizes the current elements of our compensation programs and how each element supports the Company’s compensation objectives:

 

 

Setting Total Compensation

 

Our compensation-setting process consists of establishing overall target total compensation for each executive officer and then allocating that compensation among base salary, annual performance bonus awards, and long-term incentive awards. While no specific formula is used to determine the allocation between cash and equity-based compensation, when allocating these compensation elements, we utilize a compensation mix more heavily weighted towards variable and long-term incentive compensation. The compensation committee believes that the CEO’s compensation should be the most heavily weighted towards variable and long-term incentive awards and, accordingly, 100% of his 2010 equity award (which accounted for 67% of his 2010 total targeted compensation) was allocated to performance-vesting RSUs (75%) and stock options (25%).

 

To establish the appropriate target level of compensation for the CEO and each executive officer, each compensation element is reviewed by the compensation committee against market data for our peer group provided by the compensation committee’s independent compensation consultant. Since a majority of the total compensation of our executive officers is performance-based and, therefore, “at risk”, actual compensation is determined by

Company and individual performance against pre-established objectives. If we achieve our annual performance targets, as approved by the board, and an executive officer meets individual performance objectives, the compensation committee’s philosophy is to target his or her compensation at or near the 50th percentile of the peer group for total annual cash compensation (base salary plus annual performance bonus award) and total annual compensation (total cash plus long-term incentive awards). To the extent that we exceed our annual performance targets and an executive officer significantly exceeds individual performance objectives, our compensation program is designed to reward such executive officer by paying total compensation in the top quartile of the peer group. To the extent that we do not achieve our annual performance targets or an executive officer’s individual performance does not meet expectations, our compensation program is designed to reduce the amount of total compensation received by such executive officer.

 

Setting compensation targets based on comparative market data is intended to ensure that our compensation practices are competitive in terms of attracting, rewarding and retaining executives. In addition, because a named executive officer’s target compensation is set by reference to persons with similar duties at companies in our peer group, the compensation committee does not establish any fixed relationship between the compensation of the CEO and that of any other named executive officer. Internal pay equity among the other named executive officers is also considered when setting compensation targets. The level of responsibility, scope of role and impact to the organization are all taken into consideration.

 

Our Compensation Peer Group

 

As noted above, the compensation committee’s independent compensation consultant provided an analysis of compensation data and practices from a select group of peer companies in the chemical industry. The compensation committee, with the assistance of the consultant, identified the companies to be included in our peer group based primarily on industry, market capitalization and annual revenue. In some cases the compensation committee also considered other criteria such as the number of employees at a potential peer company, the complexity of a potential peer company’s business, and whether the role and responsibilities of a potential peer company’s executive officers were comparable to those of our executive officers.

 

The peer group that was used in 2010 varied slightly from the one used in 2009 as a result of the acquisition or bankruptcy of companies in the peer group and the addition of other companies to take the place of those acquired or insolvent companies.

 

In determining total compensation for 2010, the compensation committee and its independent compensation consultant noted that our market capitalization and annual revenue were significantly larger than the majority of the companies in our peer group and adjusted both the overall compensation level and each element of compensation to reflect the complexity and sophistication of our business. In some cases this resulted in compensation that was above the median of the peer group.

 

As a result of the independent compensation consultant’s recommendations, in late 2010, the compensation committee reviewed and adjusted the composition of the peer group for 2011 in order to include companies that were more closely similar in market capitalization, revenue and complexities (i.e. — companies with at least 30% of revenue from foreign sources).

The 2010 and 2011 peer groups are as follows:

 

 

 

 

Although the compensation committee strives to set executive compensation at levels that are competitive with the companies in the peer group, it does not rigidly adhere to a particular target in determining executive compensation. Any executive officer’s total compensation may vary from the targets due to various other factors, including exceptionally strong or weak Company or business unit performance over the prior year and particularly strong or weak individual performance over the prior year. The compensation committee also takes into account additional individual factors when establishing total executive compensation levels, including an executive’s position within the Company, level of experience, tenure and need for retention.

 

Base Salary

 

Our CEO and the other executive officers are considered “at-will” employees. As such, the compensation committee annually reviews and approves the base salaries for the CEO and each of the other executive officers. In making a determination of the appropriate level of an executive officer’s base salary, the compensation committee considers a number of factors, including (i) the scope, complexity, and financial or business impact of the executive’s position, (ii) the executive’s level of expertise, experience and individual performance, (iii) how the executive’s base salary compares to that of the Company’s other executives, and (iv) how the executive’s base salary compares to the base salary of similarly-situated executives at companies in our peer group. As further discussed above in “Setting Total Compensation”, for any given executive, we generally target the median of base salaries paid to similarly-situated executives at companies in our peer group. However, as a result of the factors mentioned above, base salaries may actually be set higher or lower than the median when appropriate.

 

Annual Performance Bonus Awards

 

Plan Summary.  A target annual performance bonus award, expressed as a percentage of annual base salary, is set for each executive officer based upon the market data for his or her position and his or her level within the organization. Target bonus percentages for each named executive officer are shown in the chart below. The actual annual performance bonus award that an executive officer receives can range from 0% — 400% of his or her target annual performance bonus award based upon: (i) our achievement of certain business, financial and safety performance targets and (ii) the achievement by the executive officer of personal objectives established for him or her at the beginning of the year. An individual performance modifier for each executive officer (other than the CEO)

is recommended to the compensation committee by our CEO after the end of the fiscal year, based on his assessment of the satisfactory completion of the various individual objectives. The formula for determining the actual payout for each executive officer is as follows:

 

 

Eligible earnings is defined as base pay that is earned for the year. This amount is reflective of any pay adjustments that might have been made throughout the year.

 

Company Goals and Objectives.  The annual performance bonus awards for 2010 are based upon our achievement of incremental levels of Operating EBITDA, two working capital components (Accounts Receivable (“A/R”) + Inventory; and Accounts Payable (“A/P”)), and environmental, health and safety goals. The compensation committee adopted these performance metrics because it believes that they are the key indicators of our financial and operational success and key drivers of long-term stockholder value. Within each of these performance metric areas, there are three incremental performance levels, which are referred to internally as threshold, target and stretch. No annual performance bonus will be paid unless we meet or exceed the threshold level of Operating EBITDA. The target level for all metrics is set at amounts that reflect our internal, confidential business plan at the time the awards are established. These goals are generally within the ranges we have publicly disclosed for the performance period and, accordingly, require a high level of performance over the period to be achieved. Threshold and stretch levels are set as a percentage of target and designed to keep executives motivated throughout the year (threshold) as well as reward for exceptional performance (stretch).

 

For 2010, the target annual performance bonus awards and the measurement level for each of the named executive officers were as follows:

 

The 2010 threshold, target and stretch performance levels, as well as the actual performance levels, for our performance measures were:

 

 

 

 

The targets are based on the operating budget approved by the compensation committee, as adjusted from time to time for acquisitions and divestitures. In 2010, the compensation committee approved adjustments for acquisitions and a change in method of accounting for one of the Company’s investments.

 

For 2010, the business performance modifier for each of the named executive officers was 108.8%.

 

Individual Goals and Objectives.  The compensation committee believes that individual performance goals are appropriate instruments for measuring individual contributions to strategic corporate initiatives. Each named executive officer eligible for an annual performance bonus award had individual performance goals within the following framework.

 

 

An executive’s behaviors and results in relation to his or her individual goals are measured through an extensive appraisal process using a 9-box methodology which reflects behaviors and effectiveness in nine possible combinations. Each executive is assigned an individual performance modifier based on the CEO’s assessment of the executive’s achievement of those goals. The compensation committee reviews and approves the modifiers recommended by the CEO. The compensation committee determines the individual performance modifier assigned to the CEO in executive session. The bonus award is paid in March of the year following the performance period.

 

The rationale for each named executive officer’s individual performance modifier (including the achievement of such executive officer’s personal goals) is described in greater detail below in “Performance Assessment and Individual Compensation Decisions.”

Long-Term Incentive Compensation

 

In furtherance of our long-term compensation strategy, we seek to offer a compensation mix that provides appropriate incentives to meet our objectives of providing competitive pay packages for talented executives, delivering compensation that is performance-based, and aligning management’s interests with those of stockholders. In 2009, stockholders approved the 2009 Global Incentive Plan (the “2009 GIP”) pursuant to which the Company may grant stock options, stock appreciation rights, restricted stock, time-vesting and performance-vesting restricted stock units and incentive cash bonuses.

 

As described above in the “Elements of Compensation” table, long-term incentives in the form of equity awards support our compensation objectives and are consistent with our overall strategy to attract, motivate, reward and retain top performers. For 2010, the compensation committee approved a Long-term Incentive Plan (the “2010 LTIP”) under the 2009 GIP, pursuant to which awards of stock options and time-vesting and performance-vesting RSUs were made to our executive officers. The allocation of these awards was designed to be heavily weighted towards performance with 100% of the CEO’s and 75% of the other named executive officers’ equity awarded as performance-vesting RSUs and stock options. The compensation committee believes that this allocation provides an appropriate balance of risk / reward and retention of the executive officer and also appropriately considers the relative dilutive effect of each type of award to our stockholders. Based on our long-term approach to stock ownership, we also implemented a mandatory hold requirement on these long-term incentives that better aligns with business strategy and long-term stockholders as described in further detail below in “Hold Requirement for Equity Awards.” The long-term incentive mix and information regarding hold percentages are shown below:

 

 

Stock Options.  Stock options have a seven-year term and are granted with an exercise price equal to the average of the high and low stock price on the date of grant on October 1, 2010. They will only have value to employees to the extent that the price of our stock is higher than the exercise price of the options. The vesting schedule for our stock options related to the 2010 annual grant is 25% of the award each year for four years. Shares acquired on the exercise of stock options after covering the exercise price, taxes and any transaction costs must be held for one year following exercise.

 

Time-vesting RSUs.  Time-vesting RSUs facilitate stock ownership and will vest 30%, 30%, and 40% over three years from our 2010 annual grant date of October 1st. On each vesting date, a percentage of the vested shares must be held for an aggregate of seven years from the date of grant.

 

Performance-vesting RSUs.  Performance-vesting RSUs granted on December 1, 2010 also facilitate stock ownership and will vest on October 1, 2013 based upon the Company’s achievement of target levels of Operating EBITDA during the 2011 and 2012 fiscal years and the change in the price of the Common Stock, including dividends (as if reinvested) (“Total Stockholder Return” or “TSR”) as compared to peer companies during the period from October 1, 2010 through September 28, 2013, according to the schedule below. A portion of the shares that are earned and vested at the end of the performance period will be required to be held for four additional years, or seven years from the date of grant.

 

 

For purposes of measuring relative Total Stockholder Return for the 2010 performance-vesting RSUs, the compensation committee determined that a broader peer group (the Dow Jones U.S. Chemicals Index) than the one used for comparison of overall compensation was appropriate. The compensation committee’s key considerations

in making this decision included (i) the potential higher volatility of results produced by a smaller peer group in a plan of this type, (ii) the desire to establish a peer group that is more accessible to investors, and (iii) the benefits of selecting a peer group that will be “self-adjusting” and updated by an independent third party from year to year. The following 32 companies currently constitute this peer group:

 

 

Other Compensation Elements

 

Consistent with providing a total pay program that is sufficiently competitive with our peer companies so as to attract and retain highly qualified personnel, our executive officers receive or have access to the following benefits. We believe all of these plans have proven useful and, in many cases, necessary for recruiting and retention purposes.

 

Health and Welfare.  The health, dental and insurance benefits for executives are comparable with those provided by our peer companies and are generally the same benefits available to our other employees. In addition, we maintain an executive annual physical program that allows our executive officers to monitor and assess their overall health on a regular basis. We believe that this program further mitigates risk to the Company by providing information necessary for successful succession planning.

 

Celanese Americas Retirement Pension Plan.  All of our named executive officers participate in the same tax-qualified retirement plan, the Celanese Americas Retirement Pension Plan, or CARPP, but because of different hire dates, their participation formulas differ. This plan covers substantially all of our U.S. employees. See “2010 Pension Benefits Table” for details.

 

Celanese Americas Retirement Savings Plan.  All of our named executive officers are eligible to participate in the Celanese Americas Retirement Savings Plan, or CARSP, a tax-qualified, defined contribution plan (401(k)) sponsored by Celanese Americas LLC, one of our wholly owned subsidiaries. This plan covers substantially all of our U.S. employees. See “Supplemental Perquisites and All Other Compensation Table” for details.

 

2008 Deferred Compensation Plan.  In December 2007, we adopted a deferred compensation plan which provides certain of our senior employees the opportunity to defer a portion of their compensation in exchange for a future payment amount equal to their deferrals as adjusted based upon the market-performance of specified measurement funds selected by the participant. See “2010 Non-Qualified Deferred Compensation Table” for details.

 

Severance Policy.  In order to have a competitive benefit that allows for consistent administration without negotiations of special payments, we implemented an Executive Severance Benefits Plan that applies to our named executive officers (excluding the CEO) as well as other company executives. After a thorough market review and

internal analysis, the compensation committee approved a severance plan in 2010 that provides, upon the involuntary termination without cause of an executive, for the payment of (i) one year’s base salary, (ii) one year’s annual performance bonus award (based upon target Company performance and a 1.0 individual modifier), and (iii) a pro rata portion of the annual performance bonus award for the year in which the termination occurs (based upon actual Company performance and an 1.0 individual modifier). See “Potential Payments Upon Termination or Change In Control” for details. This benefit is not available to our CEO. Any separation pay or benefit for the CEO must be approved by the compensation committee after a thorough review and analysis of the CEO’s term of employment, past accomplishments, reasons for separation and competitive market practice.

 

Change in Control Agreements.  We have change in control agreements with all of our executive officers. The change in control agreements provide for a payment to be made to the named executive officers following a termination of employment by the Company without “cause” or by the officer with “good reason” within 2 years following a “change in control” (as each term is defined in the change in control agreements) or following the first public announcement of a potential change in control transaction, provided certain conditions are satisfied. Each change in control agreement has a two-year term that is automatically renewed for successive two-year terms unless 90 days’ notice of non-renewal is given by either party to the agreement. In certain circumstances, certain executives are eligible for a tax reimbursement payment. See “Potential Payments Upon Termination or Change in Control” for details.

 

In approving the change in control agreements, the compensation committee considered the prevalence of such agreements among similarly-situated executives at our peer companies based on data collected by us. The compensation committee also determined that the uniform non-compete and non-solicit clauses contained in such agreements provide a significant benefit to us. Specifically, the change in control agreements prohibit the executive officer from soliciting customers of, or competing against, the Company for a period of 1 year following the date of termination if such termination occurs following the announcement of a change in control event and 2 years following the date of termination if such termination occurs after a change in control event.

 

Perquisites.  We review our perquisites program periodically to ensure it remains market competitive for our executives and supportable to our stockholders. We offer a minimal cash perquisite allowance that allows our executive officers to use at their discretion and for the benefits that are most valued by them. This payment is not grossed up for taxes and not available to our CEO, Mr. Madden and Mr. Alder, as discussed below in the footnotes to the 2010 Summary Compensation Table.

 

 

For 2010, the principal elements of compensation for each of our named executive officers were base salary, annual performance bonus awards, stock options, and time-vesting and performance-vesting restricted stock unit awards. Each of these elements of our compensation program was reviewed by the compensation committee and the compensation committee assessed each element in relation to the other elements paid to each executive when making compensation decisions. The compensation committee also assessed each named executive officer’s performance relative to the goals described above when making individual modifier decisions for the annual performance bonus award. The compensation elements described in the tables below are shown as a percent of our 2010 peer group median developed by FW Cook. The percentage of the median reflected by the long-term incentive awards shown below is based on the planning value at the time of approval and not the grant date fair value reflected in the 2010 Summary Compensation Table. Timing differences between the approval date and grant date along with the accounting methodology for performance-vesting RSUs will cause variances between the committee approved value and the grant date fair value.

 

In addition to the compensation discussed below, each named executive officer received certain other benefits and compensation described in the 2010 Summary Compensation Table.

David N. Weidman

 

For fiscal year 2010, David N. Weidman received the following compensation:

 

 

The following table summarizes the deviation from the peer median of each element of Mr. Weidman’s compensation, the reasons for such deviation, and the reasons supporting Mr. Weidman’s individual performance modifier.

 

Steven M. Sterin

 

For fiscal year 2010, Steven M. Sterin received the following compensation:

 

 

The following table summarizes the deviation from the peer median of each element of Mr. Sterin’s compensation, the reasons for such deviation, and the reasons supporting Mr. Sterin’s individual performance modifier.

 

 

As discussed in the prior year’s proxy statement, Mr. Sterin received an off-cycle grant of 13,436 time-vesting RSUs valued at $400,000 on February 10, 2010 that will vest June 30, 2014. This award was made in recognition of Mr. Sterin’s performance as Chief Financial Officer and his increasing level of responsibility within the Company.

Douglas M. Madden

 

For fiscal year 2010, Douglas M. Madden received the following compensation:

 

 

The following table summarizes the deviation from the peer median of each element of Mr. Madden’s compensation, the reasons for such deviation, and the reasons supporting Mr. Madden’s individual performance modifier.

 

 

As discussed in the prior year’s proxy statement, Mr. Madden received an off-cycle grant of 16,795 time-vesting RSUs valued at $500,000 on February 10, 2010 that will vest December 31, 2013. This award was made in recognition of Mr. Madden’s promotion to chief operating officer and his increased level of responsibility within the Company.

James S. Alder

 

For fiscal year 2010, James S. Alder received the following compensation:

 

 

The following table summarizes the deviation from the peer median of each element of Mr. Alder’s compensation, the reasons for such deviation, and the reasons supporting Mr. Alder’s individual performance modifier.

 

Jacquelyn H. Wolf

 

Jacquelyn H. Wolf joined the Company in December 2009 as our Senior Vice President, Human Resources. For fiscal year 2010, Ms. Wolf received the following compensation:

 

 

The following table summarizes the deviation from the peer median of each element of Ms. Wolf’s compensation, the reasons for such deviation, and the reasons supporting Ms. Wolf’s individual performance modifier.

 

 

In addition, in connection with the hiring of Ms. Wolf in December 2009, she received the following additional compensation during fiscal year 2010:

 

 

Each of these equity awards was granted under the 2009 GIP. The terms of these awards are set forth above in “Compensation Philosophy and Elements of Compensation — Long-Term Incentive Compensation” and below in the 2010 Grants of Plan-Based Awards Table.

 

Following are descriptions of other policies that we believe are integral to a stockholder’s understanding of the Company’s overall executive compensation program structure.

Executive Stock Ownership Requirements

 

In 2007 the compensation committee adopted a stock ownership policy for senior management. Ownership includes (i) shares of our stock held outright, whether individually or through beneficial ownership in a trust, (ii) time-vesting and performance-vesting RSUs that have not vested (at target), and (iii) shares of our stock or share equivalents held in a Company-sponsored deferred compensation or retirement plan. Stock options do not count towards the executive officer’s ownership requirements. Failure to meet stock ownership requirements by the end of year 5, or failure to make a meaningful effort to do so, may result in the executive officer not receiving future base salary increases or equity awards, and may also make the executive officer ineligible for promotion.

 

The following table sets forth, as of December 31, 2010, the ownership requirement (expressed as a percentage of base salary) for each of our named executive officers, the actual number of shares owned and resulting ownership percentage, and the deadline for compliance:

 

 

 

 

As of February 23, 2011, all of the named executive officers had already achieved the required level of stock ownership.

 

Hold Requirement for Equity Awards

 

Based on our long-term approach to stock ownership, our compensation committee added a hold feature to the long-term equity awards provided to our executive officers in our 2010 annual grants. A hold feature better aligns with our long-term business strategy and the interest of our long-term stockholders. As noted above, this year we awarded stock options, time-vesting RSUs (except to the CEO) and performance-vesting RSUs. When each stock option is exercised, the executive officer must hold for an additional one year the net shares received after covering the exercise price, taxes and any transaction costs. For any time-vesting RSUs that become vested on a vesting date, a portion (55%) shall be immediately deliverable to the executive officer and the remaining portion (i.e., 45%) shall be subject to a hold requirement extending until the seventh anniversary of the grant date. For any performance-vesting RSUs that become vested, after adjustment for the achievement of the performance goals, a portion (25% for the CEO and 55% for the other named executive officers) shall be immediately deliverable to the executive officer and the remaining portion (i.e., 75% for the CEO and 45% for the other named executive officers) shall be subject to a hold requirement extending until the seventh anniversary of the grant date. The shares held after the exercise of options and the time- and performance-vesting RSUs subject to a hold requirement shall be deliverable to the executive officers earlier upon the executive officer’s death or disability or a change in control. If during the hold period the executive officer’s employment is terminated by the Company for cause (as defined in the award agreement) or the executive officer breaches the applicable clawback agreement with the Company, the shares and RSUs subject to the hold requirement shall be forfeited and cancelled without consideration.

 

Executive Compensation Recoupment Policy

 

In order to further align management’s interests with the interests of stockholders and support good governance practices, our compensation committee adopted a recoupment (also known as a “clawback”) policy

applicable to long-term incentive cash awards, restricted stock units, stock options or any other form of equity awarded to an employee. The policy prohibits the awardee from (i) disclosing confidential or proprietary information, (ii) competing with us, and (iii) soliciting or hiring employees, former employees or consultants of ours for a period of one year following the termination of the employee’s employment with us for any reason. In the event that the awardee violates the provisions of the recoupment policy, the awardee will cease vesting and forfeit any rights to the covered awards and will be required to deliver to us any amount received from the long-term incentive cash award or gain realized on any stock option exercises or any other transaction relating to an equity grant by us.

 

In addition, pursuant to Section 304 of the Sarbanes-Oxley Act of 2002, if we are required to restate our financials due to material noncompliance with any financial reporting requirements as a result of misconduct, the CEO and CFO will be required to reimburse us for any bonus or other incentive-based or equity-based compensation received during the 12 months following the first public issuance of the non-complying document, and any profits realized from the sale of securities of the Company during those 12 months.

 

Prohibition on Hedging

 

Our board has recently amended our Insider Trading Policy to prohibit directors and employees from (i) entering into transactions that have the effect of hedging risk associated with owning shares of our Common Stock, including engaging in short sales, engaging in transactions in put or call options or other derivative securities, or engaging in any other forms of hedging transactions relative to our Common Stock, such as collars or forward sale contracts, and (ii) purchasing our shares on margin.

 

Tally Sheets

 

From time-to-time, the compensation committee reviews a summary report, or “tally sheet,” prepared by FW Cook or management for each named executive officer. The purpose of a tally sheet is to show the total dollar value of the executive’s annual compensation. This includes the executive’s base salary, annual performance bonus award, equity-based compensation, perquisites, pension benefit accruals, and other compensation. The tally sheet also shows holdings of our stock and equivalents, and accumulated value and unrealized gains under prior equity-based compensation awards. In addition, the tally sheet shows amounts payable to the named executive officer upon termination of the executive’s employment under various circumstances, including retirement or a change in control. The compensation committee uses tally sheets to estimate the total annual compensation of the named executive officers, and to provide perspective on the value accumulated by the named executive officers from our compensation programs and the potential payouts to them under a range of termination scenarios.

 

Employment Agreements

 

The compensation committee has determined that it is not in our best interest to enter into employment agreements with the CEO or any other executive officer of the Company. However, we have entered into offer letters with certain of the executive officers from time to time, including Ms. Wolf, at the time of her hiring. These offer letters generally contain provisions outlining the executive’s base salary, bonus, sign-on equity grants and, in some cases, severance provisions. These offer letters do not create an expectation of employment and all of our executive officers remain employed “at will.”

 

Tax and Accounting Considerations

 

Tax Deductibility of Compensation Expense.  Section 162(m) of the Internal Revenue Code (the “Code”) places a limit of $1,000,000 on the amount of compensation to our CEO and the three other most highly compensated officers employed at the end of the year (other than our Chief Financial Officer) that may be deducted by us as a business expense in any tax year unless, among other things, the compensation is performance-based and has been approved by the stockholders. Salaries for the named executive officers do not qualify as performance-based compensation. Time-vesting RSUs granted by us do not qualify for an exemption under Section 162(m); however, stock options and performance-vesting RSUs granted by us in 2010 do qualify for an exemption under Section 162(m). Additionally, annual performance bonus awards for 2010, which were awarded under the 2009 GIP,

qualify as performance-based compensation and, therefore, for an exemption under Section 162(m). As permitted by such program, the compensation committee used its discretion to reduce a maximum award (200% of target for business performance and 200% of target for individual performance) to the amount actually awarded to each named executive officer.

 

The compensation committee believes that in establishing incentive compensation programs for our named executive officers, the potential deductibility of the compensation payable should be only one of several factors taken into consideration and not the sole governing factor. For that reason, the compensation committee may deem it appropriate to continue to provide one or more executive officers with the opportunity to earn incentive compensation that may be in excess of the amount deductible by reason of Section 162(m) or other provisions of the Code.

 

Tax Implications for Officers.  Section 409A of the Code imposes additional income taxes on executive officers for certain types of deferred compensation that do not comply with Section 409A. We do not believe this has had an impact on our compensation program for the executive officers because our deferred compensation plans have been designed to comply with Section 409A. Section 280G of the Code imposes an excise tax on payments to executives of severance or change in control compensation paid in connection with a change of control that exceed the levels specified in Section 280G. The named executive officers could receive the amounts shown on the table in the section entitled “Potential Payments Upon Termination or Change in Control” below as severance or change in control payments, but the compensation committee does not consider their potential impact in setting total annual compensation.

 

Accounting Considerations.  The compensation committee also considers the accounting and cash flow implications of various forms of executive compensation. In our financial statements, we record salaries and non-equity performance-based compensation incentives as expenses in the amount paid, or to be paid, to the named executive officers. Accounting rules also require us to record an expense in our financial statements for equity awards, even though equity awards are not paid as cash to employees. The accounting expense of equity awards to employees is calculated in accordance with FASB ASC Topic 718. The compensation committee believes, however, that the many advantages of equity compensation, as discussed above, more than compensate for the non-cash accounting expense associated with them.

 

It is our policy to regularly monitor our compensation policies and practices to determine whether our risk management objectives are being met and to adjust those policies and practices to address any incentives that are determined to encourage risks that are reasonably likely to have a material adverse effect on us and any changes in our risk profile. With respect to the compensation of our executives, the compensation committee, with the input of the independent compensation consultant and management, takes into consideration whether any such programs may incentivize excessive risk behavior. As part of these considerations and consistent with its compensation philosophy, our compensation programs, particularly our annual and long-term incentive programs, are designed to provide incentives for the executives to achieve our objectives without encouraging excessive risk taking because:

 

 

 

With respect to compensation of employees other than executives, under the direction of the compensation committee, management has reviewed our compensation policies and practices to determine whether those policies and practices encourage excessive risk-taking. Our compensation programs for employees other than executives are designed to incentivize employees to demonstrate the courage to make decisions that benefit the Company as a whole, while accepting personal accountability and avoiding unnecessary risk.

 

No member of the compensation committee was at any time during 2010 employed as an employee or officer of the Company or had any relationship with us requiring disclosure as a related-party transaction.

 

In addition, no executive officer of the Company has served on the board of directors or compensation committee of any other entity that has one or more executive officers who served as a member of our board of directors or compensation committee during 2010.

 

The following table summarizes all compensation for the fiscal years ended December 31, 2010, 2009 and 2008 awarded to, earned by, or paid to each of the named executive officers: