UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

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

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Sysco Corporation

(Name of Registrant as Specified In Its Charter)

 

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1390 Enclave Parkway

Houston, Texas 77077-2099

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held November 18, 2009

 

To the Stockholders of Sysco Corporation:

 

The Annual Meeting of Stockholders of Sysco Corporation, a Delaware corporation, will be held on Wednesday, November 18, 2009 at 10:00 a.m. at The St. Regis Hotel located at 1919 Briar Oaks Lane, Houston, Texas 77027, for the following purposes:

 

 

Only stockholders of record at the close of business on September 21, 2009 will be entitled to receive notice of and to vote at the Annual Meeting. You may inspect a list of stockholders of record at the company’s offices during regular business hours during the 10-day period before the Annual Meeting. You may also inspect this list at the Annual Meeting.

 

We hope you will be able to attend the Annual Meeting in person. Whether or not you plan to attend in person, we urge you to promptly vote your shares by telephone, by the Internet or, if this proxy statement was mailed to you, by returning the enclosed proxy card in order that your vote may be cast at the Annual Meeting.

 

By Order of the Board of Directors

 

Manuel A. Fernandez

Chairman of the Board

 

          , 2009

 

SYSCO CORPORATION
1390 Enclave Parkway
Houston, Texas 77077-2099

PROXY STATEMENT

 

2009 ANNUAL MEETING OF STOCKHOLDERS

 

          , 2009

 

Information About Attending the Annual Meeting

 

Our Annual Meeting will be held on Wednesday, November 18, 2009 at 10:00 a.m. at The St. Regis located at 1919 Briar Oaks Lane, Houston, Texas 77027.

 

Information About This Proxy Statement

 

We are providing you with a Notice of Internet Availability of Proxy Materials and access to these proxy materials because our Board of Directors is soliciting your proxy to vote your shares at the Annual Meeting. Unless the context otherwise requires, the terms “we,” “our,” “us,” the “company” or “Sysco” as used in this proxy statement refer to Sysco Corporation.

 

Information About the Notice of Internet Availability of Proxy Materials

 

In accordance with rules and regulations adopted by the Securities and Exchange Commission, instead of mailing a printed copy of our proxy materials, including our annual report to stockholders, to each stockholder of record, we may now generally furnish proxy materials, including our annual report to stockholders, to our stockholders on the Internet.

 

 

Receiving Future Proxy Materials Electronically:  Stockholders may also sign up to receive future proxy materials, including E-Proxy Notices, and other stockholder communications electronically instead of by mail. This will reduce our printing and postage costs and eliminate bulky paper documents from your personal files. In order to receive the communications electronically, you must have an e-mail account, access to the Internet through an Internet service provider and a web browser that supports secure connections. Visit http://enroll.icsdelivery.com/syy for additional information regarding electronic delivery enrollment.

Where to Find Information in this Proxy Statement:  For your convenience, set forth below is a listing of the major topics in this proxy statement.

 

Who Can Vote

 

You can vote at the Annual Meeting if you owned shares at the close of business on September 21, 2009. You are entitled to one vote for each share you owned on that date on each matter presented at the Annual Meeting.

 

On August 28, 2009, there were 591,214,401 shares of Sysco Corporation common stock outstanding. All of our current directors and executive officers (20 persons) owned, directly or indirectly, an aggregate of 1,081,910 shares, which was less than 1% of our outstanding stock as of August 28, 2009. We expect that these individuals will vote their shares in favor of electing the four nominees named below, and FOR each of the following:

 

 

We expect that these individuals will vote AGAINST the stockholder proposal requesting that the Board of Directors adopt certain principles for health care reform.

 

How to Vote

 

You may vote your shares as follows:

 

 

If you vote by proxy, the individuals named on the proxy card (your proxies) will vote your shares in the manner you indicate. You may specify whether your shares should be voted for, against or abstain with respect to all, some or none of the nominees for director and with respect to ratification of the appointment of the independent accountants, approval of an advisory vote relating to the company’s executive compensation philosophy, policies and procedures, and approval of the stockholder proposal.

 

If you sign and return your proxy card without indicating your voting instructions, your shares will be voted as follows

 

 

If your shares are not registered in your own name and you plan to attend the Annual Meeting and vote your shares in person, you should contact your broker or agent in whose name your shares are registered to obtain a proxy executed in your favor and bring it to the Annual Meeting in order to vote.

 

How to Revoke or Change Your Vote

 

You may revoke or change your proxy at any time before it is exercised by:

 

 

The last vote that we receive from you will be the vote that is counted.

 

Broker Non-Votes

 

A broker non-vote occurs when a broker holding shares for a beneficial owner does not vote on a particular proposal because the broker does not have discretionary voting authority and has not received voting instructions from the beneficial owner.

 

Quorum Requirement

 

A quorum is necessary to hold a valid meeting. A quorum will exist if the holders of at least 35% of all the shares entitled to vote at the meeting are present in person or by proxy. All shares voted by proxy are counted as present for purposes of establishing a quorum, including those that abstain or as to which the proxies contain broker non-votes as to one or more items.

 

Votes Necessary for Action to be Taken

 

Sysco’s Bylaws and Corporate Governance Guidelines include a majority vote standard for uncontested director elections. Since the number of nominees timely nominated for the Annual Meeting does not exceed the number of directors to be elected, each director to be elected shall be elected if the number of votes cast “for” election of the director exceeds those cast “against.” Any incumbent director who is not re-elected will be required to tender his or her resignation promptly following certification of the stockholders’ vote. The Corporate Governance and Nominating Committee will consider the tendered resignation and recommend to the Board whether to accept or reject the resignation offer, or whether other action should be taken. The Board will act on the recommendation within 120 days following certification of the stockholders’ vote and will promptly make a public disclosure of its decision regarding whether to accept the director’s resignation offer.

Pursuant to Sysco’s Bylaws, the affirmative vote of a majority of the votes cast, either for or against, is required to approve the:

 

 

Broker non-votes will be disregarded with respect to the election of directors and all other proposals. Abstentions will be disregarded with respect to the election of directors and all other proposals except the proposals to approve the 2009 Non-Employee Directors Stock Plan and amend Sysco’s 2007 Stock Incentive Plan, as amended. NYSE rules require that the proposals to approve the 2009 Non-Employee Directors Stock Plan and amend Sysco’s 2007 Stock Incentive Plan, as amended, receive a majority of the votes cast, whether for, against or abstain. Accordingly, abstentions will count as votes against with respect to these proposals.

 

In addition, NYSE rules require that at least 50% of the shares entitled to vote at the meeting actually cast a vote, either for, against or abstain, with respect to the proposals to approve the 2009 Non-Employee Directors Stock Plan and amend Sysco’s 2007 Stock Incentive Plan, as amended. Broker non-votes will not be counted as votes cast for purposes of the NYSE 50% vote requirement.

 

Who Will Count Votes

 

We will appoint one or more Inspectors of Election who will determine the number of shares outstanding, the voting power of each, the number of shares represented at the Annual Meeting, the existence of a quorum and whether or not the proxies and ballots are valid and effective.

 

The Inspectors of Election will determine, and retain for a reasonable period a record of the disposition of, any challenges and questions arising in connection with the right to vote and will count all votes and ballots cast for and against and any abstentions or broker non-votes with respect to all proposals and will determine the results of each vote.

 

Cost of Proxy Solicitation

 

We will pay the cost of solicitation of proxies including preparing, printing and mailing this proxy statement, should we choose to mail any written proxy materials, and the E-Proxy Notice. Solicitation may be made personally or by mail, telephone or electronic data transfer by officers, directors and regular employees of the company (who will not receive any additional compensation for any solicitation of proxies).

 

We will also authorize banks, brokerage houses and other custodians, nominees and fiduciaries to forward copies of proxy materials and will reimburse them for their costs in sending the materials. We have retained Georgeson Shareholder Communications to help us solicit proxies from these entities and certain other stockholders, in writing or by telephone, at an estimated fee of $14,500 plus reimbursement for their out-of-pocket expenses.

 

Other Matters

 

We do not know of any matter that will be presented at the Annual Meeting other than the election of directors and the proposals discussed in this proxy statement. However, if any other matter is properly presented at the Annual Meeting, your proxies will act on such matter in their best judgment.

 

Annual Report

 

We will furnish additional copies of our annual report to stockholders, including our Annual Report on Form 10-K, without charge upon your written request if you are a record or beneficial owner of Sysco Corporation common stock whose proxy we are soliciting in connection with the Annual Meeting. Please address requests for a copy of the annual report to the Investor Relations Department, Sysco Corporation, 1390 Enclave Parkway, Houston, Texas 77077-2099. The Annual Report on Form 10-K is also available on our website under “Investors — Financial Information” at www.sysco.com.

Householding

 

Stockholders who share the same last name and address may receive only one copy of the E-Proxy Notice and any other proxy materials we choose to mail unless we receive contrary instructions from any stockholder at that address. This is referred to as “householding.” If you prefer to receive multiple copies of the E-Proxy Notice, and any other proxy materials that we mail, at the same address, additional copies will be provided to you promptly upon written or oral request, and if you are receiving multiple copies of the E-Proxy Notice and other proxy materials, you may request that you receive only one copy. Please address requests for a copy of the E-Proxy Notice to the Investor Relations Department, Sysco Corporation, 1390 Enclave Parkway, Houston, Texas 77077-2099. The Annual Report on Form 10-K is also available on our website under “Investors — Financial Information” at www.sysco.com.

 

If your shares are not registered in your own name, you can request additional copies of the E-Proxy Notice and any other proxy materials we mail or you can request householding by notifying your broker or agent in whose name your shares are registered.

 

Four directors are to be elected at the meeting. The Board of Directors currently consists of 12 members divided into three classes of four directors each. The company’s governing documents provide that the Board of Directors shall be divided into three classes with no class of directors having more than one director more than any other class of directors. The directors in each class serve for a three-year term. A different class is elected each year to succeed the directors whose terms are expiring.

 

The Board of Directors has nominated the following four persons for election as directors in Class II to serve for three-year terms or until their successors are elected and qualified:

 

 

Each of Mr. Golden, Mr. Hafner, Ms. Newcomb and Mr. Spitler is currently serving as a director of Sysco and has consented to serve if elected. Although management does not contemplate the possibility, in the event any nominee is not a candidate or is unable to serve as a director at the time of the election, the proxies will vote for any nominee who is designated by the present Board of Directors to fill the vacancy.

 

Set forth below is biographical information for each nominee for election as a director at the 2009 Annual Meeting.

 

Nominees for election as Class II Directors for terms expiring at the 2012 Annual Meeting:

 

Jonathan Golden, 72, has served as a director of Sysco since February 1984. Mr. Golden is a partner of Arnall Golden Gregory LLP, counsel to Sysco. Mr. Golden is a member of the Finance Committee and the Corporate Sustainability Committee.

 

Joseph A. Hafner, Jr., 64, has served as a director of Sysco since November 2003. In November 2006, Mr. Hafner retired as Chairman of Riviana Foods, Inc., a position he had held since March 2005. He served as President and Chief Executive Officer of Riviana from 1984 until March 2004. Mr. Hafner is Chairman of the Finance Committee and is also a member of the Audit Committee, the Executive Committee, the Corporate Sustainability Committee and the Employee Benefits Committee.

 

Nancy S. Newcomb, 64, has served as a director of Sysco since February 2006. Ms. Newcomb served as Senior Corporate Officer, Risk Management, of Citigroup from May 1998 until her retirement in 2004. She served as a customer group executive of Citicorp (the predecessor corporation of Citigroup) from December 1995 to April 1998, and as a division executive, Latin America from September 1993 to December 1995. From January 1988 to August 1993 she was the principal financial officer, responsible for liquidity, funding and capital management. Ms. Newcomb is also a director of Moody’s Corporation and The DIRECTV Group, Inc. Ms. Newcomb is a member of the Audit Committee and the Finance Committee.

 

Kenneth F. Spitler, 60, has served as a director since January 2009. Mr. Spitler was promoted to the role of President and Chief Operating Officer, effective July 1, 2007. In January 2009, he assumed the additional role of Vice Chairman of the Board of Directors. Mr. Spitler joined Sysco in 1986 and has held a variety of executive positions with the company including serving as president and chief executive officer of the company’s Detroit and Houston operating companies. In 2000, he was named senior vice president, operations for the Northeast Region, with responsibility for 14 Sysco operating companies in eight states. Mr. Spitler relocated to Sysco’s corporate headquarters in 2002 when he was promoted to executive vice president, redistribution and foodservice operations with responsibility for nationwide broadline operations and the development of redistribution facilities. He was promoted to the position of Executive Vice President and President of North American foodservice operations in January 2005, and served in that role until his promotion to his current position. Mr. Spitler is a member of the Executive Committee, the Finance Committee, the Corporate Sustainability Committee and the Employee Benefits Committee.

 

The Board of Directors recommends a vote FOR the nominees listed above.

 

 

Class III directors whose terms expire at the 2010 Annual Meeting:

 

John M. Cassaday, 56, has served as a director of Sysco since November 2004. He is President and Chief Executive Officer of Corus Entertainment Inc., a media and entertainment company based in Canada, a position he has held since September 1999. He also serves as a director of Corus Entertainment Inc. and Manulife Financial Corporation. Mr. Cassaday is Chairman of the

Compensation Committee and is also a member of the Corporate Governance and Nominating Committee and the Executive Committee. He served as the Presiding Director of the Board during fiscal 2009.

 

Manuel A. Fernandez, 63, has served as a director of Sysco since November 2006 and as the non-executive Chairman of the Board since June 28, 2009. He has been the Managing Director of SI Ventures, a venture capital firm, since 2000 and Chairman Emeritus of Gartner, Inc., a leading information technology research and consulting company, since 2000. Prior to his present positions, Mr. Fernandez was Chairman, President, and Chief Executive Officer of Gartner. Previously, he was President and Chief Executive Officer at Dataquest, Inc., Gavilan Computer Corporation, and Zilog Incorporated. Mr. Fernandez also serves on the board of directors of Brunswick Corporation, Flowers Foods, Inc., The Black & Decker Corporation and several private companies and foundations. Mr. Fernandez is a member of the Corporate Governance and Nominating Committee, the Compensation Committee and the Executive Committee.

 

Hans-Joachim Koerber, 63, has served as a director of Sysco since January 2008. Dr. Koerber served as the chairman and chief executive officer of METRO Group, Germany’s largest retailer, from 1999 until his retirement in October 2007. Dr. Koerber is a director of Air Berlin PLC, Skandinaviska Enskilda Benken AB and Esprit Holdings Limited. Dr. Koerber is a member of the Audit Committee and the Finance Committee.

 

Jackie M. Ward, 71, has served as a director of Sysco since September 2001. Ms. Ward founded in 1968, and later served as Chairman, President and Chief Executive Officer of, Computer Generation Incorporated, which was acquired in December 2000 by Intec Telecom Systems PLC, a technology company based in the United Kingdom. Ms. Ward is a director of Flowers Foods, Inc., Sanmina-SCI Corporation and WellPoint, Inc. Ms. Ward is Chairman of the Corporate Governance and Nominating Committee and is also a member of the Compensation Committee and the Executive Committee.

 

Class I Directors whose terms expire at the 2011 Annual Meeting:

 

William J. DeLaney, 53, has been a director of Sysco since January 2009 and began serving as Sysco’s Chief Executive Officer on March 31, 2009. Mr. DeLaney began his Sysco career in 1987 as assistant treasurer at the company’s corporate headquarters. He was promoted to treasurer in 1991, and in 1993 he was named a vice president of the company, continuing in those responsibilities until 1994. Mr. DeLaney joined Sysco Food Services of Syracuse in 1996 as chief financial officer, progressed to senior vice president in 1998 and executive vice president in 2002. In 2004, Mr. DeLaney was appointed president and chief executive officer of Sysco Food Services of Charlotte. He held that position until December 2006, when he was named Sysco’s Senior Vice President of Financial Reporting. Effective July 1, 2007, Mr. DeLaney was promoted to the role of Executive Vice President and Chief Financial Officer and has continued to serve in such position following his promotion to CEO until the appointment of Sysco’s new Chief Financial Officer becomes effective on October 5, 2009. Mr. DeLaney is Chairman of the Executive Committee and Chairman of the Employee Benefits Committee and is also a member of the Finance Committee.

 

Judith B. Craven, M.D., 64, has served as a director of Sysco since July 1996. Dr. Craven served as President of the United Way of the Texas Gulf Coast from 1992 until her retirement in September 1998. Dr. Craven is also a director of Belo Corporation, Luby’s, Inc., Sun America Funds and VALIC. Dr. Craven is Chairman of the Corporate Sustainability Committee and is also a member of the Corporate Governance and Nominating Committee, the Compensation Committee and the Employee Benefits Committee.

 

Phyllis S. Sewell, 78, has served as a director of Sysco since December 1991. Currently retired, she formerly served as Senior Vice President of Federated Department Stores, Inc. Mrs. Sewell is a member of the Compensation Committee and the Corporate Governance and Nominating Committee.

 

Richard G. Tilghman, 69, has served as a director of Sysco since November 2002. Mr. Tilghman served as Vice Chairman and Director of SunTrust Banks from 1999 until his retirement in 2000. He served as Chairman and Chief Executive Officer of Crestar Financial Corporation, a bank holding company, from 1986 until 1999. Mr. Tilghman is Chairman of the Audit Committee and is also a member of the Finance Committee and the Executive Committee.

 

Unless otherwise noted, the persons named above have been engaged in the principal occupations shown for the past five years or longer.

 

Corporate Governance Guidelines

 

The Board of Directors has adopted the Sysco Corporation Corporate Governance Guidelines. These guidelines outline the functions of the Board, director responsibilities, and various processes and procedures designed to ensure effective and responsive governance. These guidelines also outline qualities and characteristics we consider when determining whether a member or candidate is qualified to serve on the Board, including diversity, skills, experience, time available and the number of other boards the member sits on, in the context of the needs of the Board and Sysco. We review these guidelines from time to time in response to changing regulatory requirements and best practices and revise them accordingly. The guidelines were last revised in May 2009. We have published the Corporate Governance Guidelines on our website under “Investors — Corporate Governance” at www.sysco.com and you may obtain a copy in print by writing to the Investor Relations Department, Sysco Corporation, 1390 Enclave Parkway, Houston, Texas 77077-2099.

 

Code of Business Conduct

 

We require all of our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer and controller to comply with our long-standing Code of Business Conduct to help ensure that we conduct our business in accordance with the highest standards of moral and ethical behavior. Our Code of Business Conduct addresses:

 

 

The Code, which was last updated in September 2007, requires strict adherence to all laws and regulations applicable to our business and requires employees to report any violations or suspected violations of the Code. We have published the Code of Business Conduct on our website under “Investors — Corporate Governance” at www.sysco.com. You may obtain the Code in print by writing to the Investor Relations Department, Sysco Corporation, 1390 Enclave Parkway, Houston, Texas 77077-2099.

 

Director Independence

 

Our Corporate Governance Guidelines require that at least a majority of our directors meet the criteria for independence that the New York Stock Exchange has established for continued listing, as well as the additional criteria set forth in the Guidelines. Additionally, we require that all members of the Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee be independent and that all members of the Audit Committee satisfy the additional requirements of the New York Stock Exchange and applicable rules promulgated under the Securities Exchange Act of 1934.

 

Under New York Stock Exchange listing standards, to consider a director to be independent, we must determine that he or she has no material relationship with Sysco other than as a director. The standards specify the criteria by which we must determine whether directors are independent, and contain guidelines for directors and their immediate family members with respect to employment or affiliation with Sysco or its independent public accountants.

 

In addition to the NYSE’s standards for independence, our Corporate Governance Guidelines contain categorical standards that provide that the following relationships will not impair a director’s independence:

 

 

 

The Board of Directors has reviewed all relevant relationships of the directors with Sysco. The relationships reviewed included those described under “Certain Relationships and Related Transactions,” and several relationships that did not automatically make the individual non-independent under the NYSE standards or our Corporate Governance Guidelines, either because of the type of affiliation between the director and the other entity or because the amounts involved did not meet the applicable thresholds. Such relationships include the following (for purposes of this section, “Sysco”, “we,” “us” and “our” include our operating companies):

 

 

After reviewing such information, the Board of Directors has determined that each of Mr. Cassaday, Dr. Craven, Mr. Fernandez, Mr. Hafner, Dr. Koerber, Ms. Newcomb, Mrs. Sewell, Mr. Tilghman and Ms. Ward has no material relationship with Sysco and is independent under the NYSE standards and the categorical standards set forth in the Corporate Governance Guidelines and described above. Mr. Golden is not considered to be independent. The Board has also determined that each member of the Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee is independent. The independence decisions referenced above were based on the Board’s determinations that the relevant positions fell within the categorical standards of the Corporate Governance Guidelines, that status as a director or trustee of an entity with which Sysco does business does not present a material relationship or that specific amounts involved in a transaction were not large enough to impact the director’s independence. Our Corporate Governance Guidelines also provide that no independent director who is a member of the Audit, Compensation or Corporate Governance and Nominating Committees may receive any compensation from Sysco other than in his or her capacity as a non-employee director or committee member. The Board has determined that none of the above-named directors has received any compensation from Sysco during fiscal 2009, and no member of the Audit Committee has received any compensation from Sysco at any time while he or she has served as such, other than in his or her capacity as a non-employee director or committee member.

 

Director Compensation

 

See “Director Compensation” for a discussion of compensation received by our non-employee directors during fiscal 2009.

Chairman of the Board and Presiding Director

 

During fiscal 2009, the non-management directors held three executive sessions without the CEO or any other member of management present. Mr. Cassaday served as presiding director and presided at these executive sessions during fiscal 2009. Concurrently with Mr. Schnieders’ retirement effective June 27, 2009, Mr. Fernandez was chosen to serve as the non-executive Chairman of Sysco’s Board of Directors. Sysco’s Corporate Governance Guidelines provide that at any time that the Chairman of the Board is an independent director, he or she shall also be deemed to be the Presiding Director. Whenever the Chairman of the Board is also a current or former officer of the Company or is otherwise not an independent director, the Board will choose a separate presiding director annually from among the independent directors. Because he is an independent director serving as Chairman of the Board, Mr. Fernandez is also currently serving as the presiding director.

 

The Chairman of the Board (as presiding director), among other things, establishes the agenda for, and presides at, meetings of the non-employee directors. In addition, the independent directors, exclusive of all directors who have not been determined to be independent, meet in executive session at least once a year, and the Chairman (as presiding director) presides at such meetings.

 

The Chairman has the following additional duties and responsibilities:

 

 

Board Meetings and Attendance

 

The Board of Directors held ten meetings, including five regular meetings and five special meetings, during fiscal 2009, and all directors attended 75% or more of the aggregate of:

 

 

It is the Board’s policy that directors attend the Annual Meeting of Stockholders, to the extent practicable. In fiscal 2009, all directors who were in office at that time attended the Annual Meeting held in November 2008.

 

Committees of the Board

 

As of the date of this proxy statement, each of the individuals continues to serve on the committees listed in his or her biographical information under “Election of Directors.”

 

Audit Committee — The Audit Committee held twelve meetings during fiscal 2009. During fiscal 2009, Mr. Hafner, Dr. Koerber, Ms. Newcomb and Mr. Tilghman (Chair) served on the Audit Committee for the full year, and Mr. Richard G. Merrill served on the Committee until his retirement on November 19, 2008. The Audit Committee oversees and reports to the Board with respect to various auditing and accounting matters, including:

 

 

The Audit Committee also reviews with the Finance Committee enterprise-wide risk assessment and risk management policies, and assists the Board in its oversight of legal and regulatory compliance. Each member of the Audit Committee is financially literate and has been determined by the Board to be independent, as defined in the New York Stock Exchange’s listing standards and Section 10A(m)(3) of the Securities Exchange Act of 1934. No Audit Committee member serves on the audit committees of more than two other companies. The Board has determined that Messrs. Hafner and Tilghman and Ms. Newcomb each meet the definition of an audit committee financial expert as promulgated by the Securities and Exchange Commission.

 

Compensation Committee — The Compensation Committee held nine meetings during fiscal 2009. During fiscal 2009, Mr. Cassaday (Chair), Dr. Craven, Mr. Fernandez, Mr. Merrill, Mrs. Sewell, Mr. Tilghman and Ms. Ward served on the

Compensation Committee. Mr. Merrill served on the Committee until his retirement on November 19, 2008. Mr. Tilghman served on the Committee until May 15, 2009, and Dr. Craven and Mr. Fernandez were appointed to the Committee effective May 15, 2009. All other committee members served for the full year. The function of the Compensation Committee is to determine and approve all compensation of the Chief Executive Officer and the other executive officers, including the named executive officers, and to oversee the administration of:

 

 

Except for decisions that impact the compensation of the Chief Executive Officer, the Compensation Committee is authorized to delegate any decisions it deems appropriate to a subcommittee. In such a case, the subcommittee must promptly make a report of any action that it takes to the full Compensation Committee. For a detailed description of the Compensation Committee’s processes and procedures for consideration and determination of executive compensation, including the role of executive officers and compensation consultants in recommending the amount and form of executive compensation, see “Compensation Discussion and Analysis”.

 

Corporate Governance and Nominating Committee — The Corporate Governance and Nominating Committee held nine meetings during fiscal 2009. During fiscal 2009, Ms. Ward (Chair), Mr. Cassaday, Dr. Craven, Mr. Fernandez and Mrs. Sewell served on the Corporate Governance and Nominating Committee. All committee members served for the full year. The function of the Corporate Governance and Nominating Committee is to:

 

 

Finance Committee — The Finance Committee held five meetings during fiscal 2009. During fiscal 2009, Mr. Hafner (Chair), Dr. Craven, Mr. DeLaney, Mr. Fernandez, Mr. Golden, Dr. Koerber, Ms. Newcomb, Mr. Schnieders, Mr. Spitler and Mr. Tilghman served on the Finance Committee. Dr. Craven, Mr. Fernandez and Mr. Schnieders served on the Committee through May 15, 2009, and Mr. DeLaney, Mr. Spitler and Mr. Tilghman were appointed to the Committee effective May 15, 2009. All other Committee members served for the full year. The function of the Finance Committee is to assist the Board in satisfying its fiduciary responsibilities relating to Sysco’s financial performance and financial planning. The Finance Committee:

 

 

The Finance Committee annually reviews with the Audit Committee Sysco’s enterprise-wide risk assessment and risk management policies, policies regarding financial risk management and insurance risk management strategies. In addition, the Finance Committee assists the Audit Committee in reviewing and overseeing Sysco’s environmental, health and safety matters and related regulatory compliance. The Finance Committee reports regularly, and makes recommendations to the Audit Committee regarding specific actions to be taken in this area at least annually.

Executive Committee — The Executive Committee did not meet during fiscal 2009. During fiscal 2009, Mr. Schnieders (Chair), Mr. Cassaday, Mr. DeLaney, Mr. Hafner, Mr. Spitler, Mr. Tilghman and Ms. Ward served on the Executive Committee. Mr. DeLaney and Mr. Spitler were appointed to the Committee effective May 15, 2009. All other committee members served for the full year. In conjunction with Mr. Schnieders’ retirement, Mr. Fernandez was appointed Chair of the Committee effective June 28, 2009. The Executive Committee is authorized to exercise all of the powers of the Board when necessary, to the extent permitted by applicable law.

 

Employee Benefits Committee — The Employee Benefits Committee met once during fiscal 2009. During fiscal 2009, Mr. DeLaney, Mr. Hafner, Mr. Schnieders, Mr. Spitler and Dr. Craven served on the Employee Benefits Committee. Mr. Schnieders served on the Committee and acted as its Chair through February 13, 2009. Messrs. DeLaney and Spitler were appointed to the Committee effective February 13, 2009, and Mr. DeLaney has served as its Chair since that date. Mr. Hafner was appointed to the Committee effective May 15, 2009. The Employee Benefits Committee’s purpose is to oversee the maintenance and administration of the Corporation’s employee stock purchase, employee welfare benefit, and tax-qualified retirement plans, except that the Employee Benefits Committee does not have authority with respect to the compensation of executive officers.

 

Corporate Sustainability Committee — The Corporate Sustainability Committee met four times during fiscal 2009. During fiscal 2009, Dr. Craven (Chair), and Messrs. Fernandez, Golden, Hafner, Schnieders and Spitler served on the Corporate Sustainability Committee. Messrs. Hafner and Schnieders served on the Committee through May 15, 2009. Mr. Golden was appointed to the Committee effective July 18, 2008, and Mr. Spitler was appointed to the Committee effective May 15, 2009. The Corporate Sustainability Committee’s purpose is to provide review and act in an advisory capacity to the Board and management with respect to policies and strategies that affect Sysco’s role as a socially responsible organization and with respect to Sysco’s long-term sustainability.

 

Current copies of the charters for the Audit Committee, the Compensation Committee, the Corporate Governance and Nominating Committee, the Finance Committee and the Corporate Sustainability Committee are published on our website under “Investors — Corporate Governance — Committees” at www.sysco.com and are available in print by writing to the Investor Relations Department, Sysco Corporation, 1390 Enclave Parkway, Houston, Texas 77077-2099.

 

Nominating Committee Policies and Procedures in Identifying and Evaluating Potential Director Nominees

 

In accordance with its Charter, the Corporate Governance and Nominating Committee will observe the procedures described below in identifying and evaluating candidates for election to Sysco’s Board of Directors.

 

In considering candidates for election to the Board, the Committee will determine the incumbent directors whose terms expire at the upcoming Annual Meeting and who wish to continue their service on the Board. The Committee will also identify and evaluate new candidates for election to the Board for the purpose of filling vacancies. The Committee will solicit recommendations for nominees from persons that the Committee believes are likely to be familiar with qualified candidates. These persons may include members of the Board, Sysco’s management and stockholders who beneficially own individually or as a group at least five percent of Sysco’s outstanding shares for at least one year and who have expressed an interest in recommending director candidates. In evaluating candidates, the Committee will consider the absence or presence of material relationships with Sysco that might impact independence, as well as the diversity, age, skills, experience, time available and the number of other boards the candidate sits on in the context of the needs of the Board and Sysco, and such other criteria as the Committee shall determine to be relevant at the time. The Committee may also determine to engage a professional search firm to assist in identifying qualified candidates. Where such a search firm is engaged, the Committee shall set its fees and scope of engagement.

 

The Committee will also consider candidates recommended by stockholders. The Committee will evaluate such recommendations using the same criteria that it uses to evaluate other candidates. Stockholders can recommend candidates for consideration by the Committee by writing to the Corporate Secretary, 1390 Enclave Parkway, Houston, Texas 77077, and including the following information:

 

 

The Committee typically recommends director candidates to the Board in early July of each year. The Committee will consider in advance of Sysco’s next Annual Meeting of stockholders those director candidate recommendations that the Committee receives by May 1st.

 

With respect to all incumbent and new candidates that the Committee believes merit consideration, the Committee will:

 

 

In its discretion, the Committee may designate one or more of its members, or the entire Committee, to interview any proposed candidate. Based on all available information and relevant considerations, the Committee will recommend to the full Board for nomination those candidates who, in the view of the Committee, are most suited for membership on the Board.

 

The Committee has not received any recommendations for director nominees for election at the 2009 annual stockholders meeting from any Sysco security holder or group of security holders.

 

If we receive by June 9, 2010 a recommendation of a director candidate from one or more stockholders who have beneficially owned at least five percent of our outstanding common stock for at least one year as of the date the stockholder makes the recommendation, then we will disclose in our next proxy materials relating to the election of directors the identity of the candidate, the identity of the nominating stockholder(s) and whether the Committee determined to nominate such candidate for election to the Board. However, we will not provide this disclosure without first obtaining written consent of such disclosure from both the nominating stockholder and the candidate it is planning to identify. The Committee will maintain appropriate records regarding its process of identifying and evaluating candidates for election to the Board.

 

Majority Voting in Director Elections

 

The Company’s Bylaws provide for majority voting in uncontested director elections. Majority voting means that directors are elected by a majority of the votes cast — that is, the number of shares voted “for” a director must exceed the number of shares voted “against” that director. Any incumbent director who is not re-elected in an election in which majority voting applies shall tender his or her resignation promptly following certification of the stockholders’ vote. The Corporate Governance and Nominating Committee shall consider the tendered resignation and recommend to the Board whether to accept or reject the resignation offer, or whether other action should be taken. The director who tenders his or her resignation shall not participate in the recommendation of the committee or the decision of the Board with respect to his or her resignation. The Board shall act on the recommendation within 120 days following certification of the stockholders’ vote and shall promptly disclose its decision regarding whether to accept the director’s resignation offer. In contested elections, where there are more nominees than seats on the Board as of the record date of the meeting at which the election will take place, directors are elected by a plurality vote. This means that the nominees who receive the most votes of all the votes cast for directors will be elected.

 

Communicating with the Board

 

Interested parties may communicate with the independent Chairman of the Board, the non-management directors as a group and the individual members of the Board by confidential email. All emails will be delivered to the parties to whom they are addressed. The Board requests that items unrelated to the duties and responsibilities of the Board not be submitted, such as product inquiries and complaints, job inquiries, business solicitations and junk mail. You may access the form to communicate by email in the corporate governance section of Sysco’s website under “Investors — Corporate Governance — Contact the Board” at www.sysco.com.

 

The following persons currently serve as executive officers of Sysco. Each person listed below has served as an officer of Sysco and/or its subsidiaries for at least the past five years.

 

 

 

 

William B. Day has served as Senior Vice President — Merchandising and Supply Chain since July 1, 2009. He began his Sysco career in 1983 as a staff accountant at Sysco’s Memphis, Tennessee subsidiary. Between 1984 and 1987 he divided his time between Sysco’s corporate headquarters and Sysco’s Atlanta subsidiary, where he served as the Chief Financial Officer. In 1987 Mr. Day officially moved to Sysco’s corporate headquarters in Houston where he served in a variety of roles until 1999, when he was promoted to Assistant Controller. Mr. Day started Sysco’s RDC project in 2000, was named Vice President, Supply Chain Management in 2003 and was promoted to Senior Vice President, Supply Chain in July 2007.

 

William J. DeLaney is described under “Election of Directors”.

 

Kirk G. Drummond has served as Sysco’s Senior Vice President, Finance and Treasurer since December, 2005. Mr. Drummond joined Sysco in 1986 as Controller of Sysco’s Grand Rapids, Michigan subsidiary. In 1989 he transferred to Sysco’s Atlanta operation as Chief Financial Officer and Controller, a position he held until 1992 when he assumed the added duties of Vice President of Finance. Mr. Drummond relocated to Sysco’s corporate headquarters in Houston in 1997 when he was appointed Vice President and Controller. He was named Vice President and Chief Information Officer in 2000 and served in that position until January 2005, when he was appointed to the role of Senior Vice President and Chief Information Officer. In December 2005, Mr. Drummond was appointed to his current duties.

 

G. Mitchell Elmer was promoted to Senior Vice President and Controller in November 2008 after serving as Vice President and Controller from 2000 to November 2008 and assuming the added responsibility of Chief Accounting Officer in July 2005. Mr. Elmer began his Sysco career in 1989 as a staff auditor in operations review at Sysco’s corporate office in Houston. In 1991 he transferred to Sysco’s Virginia subsidiary as Director of Finance, and the following year he was named Vice President of Finance and Administration. Mr. Elmer was appointed Vice President of Finance for Sysco’s Louisville, Kentucky operation in 1995 and progressed to Senior Vice President of Marketing, Merchandising and Finance at that company in 1997. The following year he transferred to Sysco’s Denver operation as Vice President of Finance. In 2000 he returned to Sysco’s corporate office to serve as Vice President and Controller.

 

Michael W. Green has served as Executive Vice President of Northeast and North Central U.S. Foodservice Operations since January 2008. Mr. Green began his Sysco career in 1991 as a member of the Management Development Program and was named Sysco’s Vice President of Marketing later that year. In 1992, he was promoted to Senior Vice President of Marketing and Merchandising, and then to Executive Vice President, of Sysco’s Chicago operating company. In 1994, Mr. Green became the President and Chief Executive Officer of Sysco Food Services of Detroit. He was promoted in 2004 to Senior Vice President of Operations for Sysco’s Midwest Region, a position he held until his promotion to his current title.

James D. Hope has served as Senior Vice President, Business Transformation, since November 2008. Mr. Hope started his career at Sysco’s corporate headquarters as a financial analyst in 1987. He advanced through the Operations Review department, becoming Manager in 1992. He transferred to Sysco Food Services of Kansas City, Inc. in 1993 as Chief Financial Officer, where he was named President and Chief Executive Officer in 2000. Mr. Hope served as Group President, Demand, in the company’s Strategic Group from December 2005 until July 2007. He was promoted in July 2007 to Senior Vice President, Sales and Marketing, a position he held until November 2008.

 

Michael C. Nichols has served as Sysco’s General Counsel since 1998, assumed the added responsibility of Corporate Secretary in 2002, and was promoted to Senior Vice President in July 2006. In 2009, Mr. Nichols assumed additional responsibilities for the oversight of Sysco’s Human Resources and Administrative functions. Mr. Nichols began his Sysco career in 1981 as General Counsel at Sysco’s corporate office in Houston, a position he held through 1988. In 1991, he rejoined Sysco Corporation as Vice President of Management Development and Human Resources, and in 1998 he advanced to the position of General Counsel.

 

Larry G. Pulliam has served as Sysco’s Executive Vice President, Foodservice Operations since July 2009. In his new role, Mr. Pulliam has responsibility for Sysco’s specialty companies and SYGMA (Sysco’s quick-serve restaurant distribution company), while continuing to have executive management responsibility for Sysco’s sales to contract and multi-unit customers in the casual dining and large venue market segments. Mr. Pulliam began his foodservice career in 1975 with a regional foodservice company in Fort Worth, Texas. He served in a variety of areas for that company, from warehouse operations to information services, before joining Sysco’s corporate office in 1987. Mr. Pulliam was named Vice President of Operations for Sysco’s Los Angeles operation in 1991, and in 1995 he transferred to the Baltimore subsidiary to serve as Executive Vice President and Chief Operating Officer. He returned to Sysco’s corporate office in 1997 as Vice President and Chief Information Officer, a position he held until he was promoted to President and Chief Executive Officer of Sysco Food Services of Houston, LP in 2000. Mr. Pulliam then returned to Sysco’s corporate office as Senior Vice President, Merchandising Services in 2002 and served in that role until 2005, when he was promoted to Executive Vice President, Merchandising Services. From 2005 to July 2009, he served as Executive Vice President, Global Sourcing and Supply Chain.

 

Stephen F. Smith has served as Executive Vice President of South and West U.S. Foodservice Operations since January 2008. Mr. Smith began his career at Sysco in 1980, progressing through positions of increasing responsibility at several operating companies. Mr. Smith was appointed as President and Chief Executive Officer of Sysco’s Atlanta, Georgia operations in 1983, of Sysco’s Little Rock, Arkansas operations in 1987, and of Sysco Food Services of Central Florida in 1995. In June 2002, Mr. Smith was promoted to Senior Vice President, Foodservice Operations for Sysco’s Southeast Region, a position that he held until he was promoted to his current title.

 

Kenneth F. Spitler is described under “Election of Directors”.

 

On September 8, 2009, the Board of Directors appointed Robert C. Kreidler, age 45, to serve as Sysco’s Executive Vice President and Chief Financial Officer effective October 5, 2009. Mr. Kreidler most recently served as Chief Financial Officer for C&S Wholesale Grocers from February 2007 through March 2009. Between December 2003 and February 2007, he served as Senior Vice President of Corporate Strategy and Treasurer for Yum! Brands, Inc., which includes the worldwide operations of KFC, Pizza Hut, Taco Bell, Long John Silver’s and A&W All-American Food Restaurants.

 

Management Development and Succession Planning

 

On an ongoing basis, the Board plans for succession to the position of CEO and other key management positions, and the Corporate Governance and Nominating Committee oversees this management development and succession planning process. To assist the Board, the CEO periodically provides the Board with an assessment of senior executives and their potential to succeed to the position of CEO, as well as perspective on potential candidates from outside the company. In addition, the CEO periodically provides the Board with an assessment of potential successors to other key positions.

 

During fiscal 2008, as part of the Board’s ongoing succession planning, the executive management team engaged an independent advisor to evaluate and analyze the strengths and weaknesses of Sysco’s top executives. In addition, in fiscal 2009, the Board and its Corporate Sustainability Committee engaged in discussions with management regarding increasing the diversity of Sysco’s executive management team. In addition, the Chief Executive Officer and Chief Operating Officer have included Sysco’s effectiveness in management development and succession planning as part of their fiscal 2010 non-financial performance goals, which are reviewed at the end of the fiscal year by the Compensation and Corporate Governance and Nominating Committees. Management development and succession planning remain top priorities of executive management and the Board.

 

The following table sets forth certain information with respect to the beneficial ownership of Sysco’s common stock, as of August 28, 2009, by (i) each director and each director nominee, (ii) each named executive officer (as defined under “Compensation Discussion and Analysis”), and (iii) all directors, director nominees and executive officers as a group. To our knowledge, no person or group beneficially owned more than 5% of our common stock as of August 28, 2009. Unless otherwise indicated, each stockholder identified in the table has sole voting and investment power with respect to his or her shares. Fractional shares have been rounded down to the nearest whole share.

 

 

 

 

 

Stock Ownership Guidelines

 

To align the interests of our executives with those of our stockholders, Sysco’s Board of Directors concluded that our executive officers should have a significant financial stake in Sysco stock. To further that goal, for several years we have maintained stock ownership guidelines for our executives. Our Corporate Governance Guidelines provide that the executives should own the number of shares, by position, as described in the following table:

 

 

The three- and five-year periods begin when the executive is elected to the listed position. If an individual is promoted from one listed position to another, he or she will be required to meet the new position ownership guideline by the third and fifth years following the promotion, while continuing to meet the guideline under his or her previous position.

 

For purposes of the guidelines, the shares counted towards ownership include shares owned directly or indirectly by the executive through the Sysco Corporation Employee Stock Purchase Plan, as well as any other shares of vested, unvested or restricted stock held by the executive, but do not include shares held through any other form of indirect beneficial ownership or shares underlying unexercised options.

 

In the event that these ownership guidelines present an undue hardship for an executive, the Chairman of the Corporate Governance and Nominating Committee may make an exception or provide an alternative to address the intent of the guidelines, taking into consideration the executive’s personal circumstances.

 

We adopted guidelines with a specific number of shares rather than a multiple of salary to protect executives from unnecessary concern regarding fluctuations in the stock price, and the Corporate Governance and Nominating Committee will periodically review the guidelines to determine if they need to be updated due to, among other things, significant changes in the price of Sysco stock. Based on an assumed $25 Sysco stock price, the CEO ownership requirement of 175,000 shares equals a value of approximately five and one-half times Mr. DeLaney’s salary. The other officer ownership requirements are set at lower levels that Sysco believes are reasonable given their salaries and responsibility levels. The graduated approach of a three-year and then five-year requirement also allows a reasonable amount of time for an executive to accumulate the shares necessary to satisfy the ownership requirements imposed upon him following his appointment or promotion. Restricted stock incentives, coupled with shares obtained from the exercise of stock options, are anticipated to provide all executives with ample opportunity to satisfy these requirements within the specified time frames.

 

We provide the Board of Directors with the status of the executives’ stock ownership at its regularly-scheduled meetings to ensure compliance with these holding requirements. As of August 28, 2009, all named executive officers met the then-applicable stock ownership requirement.

 

Pursuant to Section 16(a) of the Securities Exchange Act of 1934 and the rules issued thereunder, our executive officers and directors and any persons holding more than ten percent (10%) of our common stock are required to file with the Securities and Exchange Commission and the New York Stock Exchange reports of initial ownership of our common stock and changes in ownership of such common stock. To our knowledge, no person beneficially owns more than 10% of our common stock. Copies of the Section 16 reports filed by our directors and executive officers are required to be furnished to us. Based solely on our review of the copies of the reports furnished to us, or written representations that no reports were required, we believe that, during fiscal 2009, all of our executive officers and directors complied with the Section 16(a) requirements.

 

Related Person Transactions Policies and Procedures

 

The Board has adopted written policies and procedures for review and approval or ratification of transactions with related persons. We subject the following related persons to these policies: directors, director nominees, executive officers, beneficial owners of more than 5% of our stock and any immediate family members of these persons.

 

We follow the policies and procedures below for any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships in which Sysco was or is to be a participant, the amount involved exceeds $100,000, and in which any related person had or will have a direct or indirect material interest. These policies specifically apply without limitation to purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness, guarantees of indebtedness, and employment by Sysco of a related person. The Board of Directors has determined that the following do not create a material direct or indirect interest on behalf of the related person, and are, therefore, not related person transactions to which these policies and procedures apply:

 

 

Any of our employees, officers or directors who have knowledge of a proposed related person transaction must report the transaction to our General Counsel. Whenever practicable, before the transaction goes effective or becomes consummated, the Corporate Governance and Nominating Committee of the Board of Directors will review and approve the proposed transaction in accordance with the terms of this policy. If the General Counsel determines that it is not practicable to obtain advance approval of the transaction under the circumstances, the Committee will review and, in its discretion may ratify, the transaction at its next meeting. In addition, the Board of Directors has delegated to the Chair of the Committee the authority to pre-approve or ratify, as applicable, any related person transaction in which the aggregate amount involved is expected to be less than $500,000.

 

In addition, if a related person transaction is ongoing in nature and the Committee has previously approved it, or the transaction otherwise already exists, the Committee will review the transaction during its first meeting of each fiscal year to:

 

 

We will consider a related person transaction approved or ratified if the transaction is authorized by the Corporate Governance and Nominating Committee or the Chair, as applicable, in accordance with the standards described below, after full disclosure of the related person’s interests in the transaction. As appropriate for the circumstances, the Committee will review and consider such of the following as it deems necessary or appropriate:

 

 

The Committee will review such additional information about the transaction as it in its sole discretion shall deem relevant. The Committee may approve or ratify the transaction only if the Committee determines that, based on its review, the transaction is in, or is not inconsistent with, the best interests of Sysco. The Committee may, in its sole discretion, impose such conditions as it deems appropriate on Sysco or the related person when approving a transaction. If the Committee or the Chair, as applicable, does not ratify a related person transaction, we will either rescind or modify the transaction, as the Committee or the Chair, as applicable, directs, as soon as practicable following the failure to ratify the transaction. The Chair will report to the Committee at its next regularly scheduled meeting any action that he or she has taken under the authority delegated pursuant to this policy. If any director has an interest in a related person transaction, he or she is not allowed to participate in any discussion or approval of the transaction, except that the director is required to provide all material information concerning the transaction to the Committee.

 

Transactions with Related Persons

 

Mr. Golden is the sole stockholder of Jonathan Golden, P.C., a partner in the law firm of Arnall Golden Gregory LLP, Atlanta, Georgia, which provided legal services to Sysco during fiscal 2009 and continues to do so in fiscal 2010. During fiscal 2009, Sysco incurred approximately $3.17 million in legal fees and disbursements related to these services. We believe the amounts were fair and reasonable in view of the level and extent of services rendered. Due to this relationship, Mr. Golden is not considered to be an independent director under the NYSE standards or the categorical standards set forth in Sysco’s Corporate Governance Guidelines.

 

Mr. Green’s brother-in-law works for Red Gold, Inc., which supplies tomato products to Sysco. Sysco paid Red Gold approximately $65 million during fiscal 2009.

 

Ms. Twila Day, who is not an executive officer, is the wife of William Day, our Senior Vice President, Merchandising and Supply Chain. Ms. Day is employed by us as Sysco’s Vice President and Chief Information Officer, a position she has held since December 2005. Ms. Day has 17 years of experience in Sysco’s information technology department and has been a corporate officer since 2000. With respect to fiscal 2009, we paid Ms. Day a base salary of $250,000; however, she did not receive a MIP bonus payout with respect to fiscal 2009. For fiscal 2008, she earned a MIP bonus of $471,271 in cash that we paid in August 2008 and received 4,675 matching shares with a value of $131,929. In August 2008, Ms. Day received a $28,438 payment with respect to the September 2005 CPU grant. Ms. Day received a new CPU grant in September 2008 of 2,000 units with a target value of $35 each, which will be payable following conclusion of fiscal 2011 if all specified criteria are met. See “Executive Compensation — Cash Performance Unit Plans.” In November 2008, Ms. Day received a grant of stock options to purchase 13,000 shares of common stock pursuant to our 2007 Stock Incentive Plan. This grant had a grant date fair value as calculated in accordance with SFAS 123(R) of $78,260. Ms. Day is included with other MIP participants under the fiscal 2010 MIP program, although her target bonus as a Vice President is lower than that of the named executive officers. See “Executive Compensation — 2005 Management Incentive Plan.” She is also a participant in the SERP, the EDCP and other regular and customary employee benefit plans, programs and benefits generally available to our officers, including those described in the “Compensation Discussion and Analysis” section, under the heading “Benefits, Perks and Other Compensation.”

 

The Corporate Governance and Nominating Committee has approved all of the above transactions in accordance with the disclosed policies and procedures.

 

The following table sets forth certain information regarding equity compensation plans as of June 27, 2009.

 

 

 

 

The following discussion and analysis contains references to target performance levels for our annual and longer-term incentive compensation. These targets and goals are disclosed in the limited context of Sysco’s compensation programs and should not be interpreted as management’s expectations or estimates of results or other guidance. We specifically caution stockholders not to apply these statements to other contexts.

 

Introduction

 

Sysco is the global leader in selling, marketing and distributing food products, equipment and supplies to the foodservice industry. As such, our long-term success depends on our ability to attract, retain and motivate highly talented individuals who are committed to Sysco’s vision and strategy. One of the key objectives of our executive compensation program is to link executives’ pay to their performance and their advancement of Sysco’s overall performance and business strategies. Other objectives include aligning the executives’ interests with those of stockholders and encouraging high-performing executives to remain with Sysco over the course of their careers. The six Sysco executives who are identified in the Summary Compensation Table are referred to as our “named executive officers.” Mr. Schnieders retired as Chief Executive Officer effective March 31, 2009 and as executive Chairman of the Board effective June 27, 2009, after over 26 years of service to Sysco. The remaining five executives have a combined total of over 112 years of service with Sysco and its affiliates, during which they have gained broad experience and earned promotions to increasing levels of responsibility. The amount of compensation for each named executive officer reflects extensive management experience, continued high performance and exceptional service to Sysco and our stockholders over a long period of time.

 

Oversight of the Executive Compensation Program

 

Unless the context indicates otherwise, references to the “Committee” in this Compensation Discussion and Analysis and the executive compensation section following it refer to the Compensation Committee of the Board of Directors. The Committee determines and approves all compensation of the Chief Executive Officer, or CEO, and Sysco’s other executive officers, including the named executive officers. Although the Compensation Committee meets jointly with the Corporate Governance and Nominating Committee to discuss both the CEO’s personal goals and his performance in achieving such goals in each fiscal year, the Compensation Committee solely approves all compensation awards and payout levels. The Committee develops and oversees programs designed to compensate our corporate officers, including the named executive officers, as well as the presidents and executive vice presidents of our operating companies. The Committee is also authorized to approve all grants of restricted stock, stock options and other awards under our equity-based incentive plans for Sysco employees. Further information regarding the Committee’s responsibilities is found under “Committees of the Board” and in the Committee’s Charter, available on the Sysco website at www.sysco.com under “Investors — Corporate Governance — Committees”.

 

For the past several years and through the first quarter of fiscal 2010, the Committee retained Mercer as its compensation consultant. Retained by and reporting directly to the Committee, Mercer provides assistance in evaluating Sysco’s executive compensation programs and policies, and, where appropriate, assists with the redesign and enhancement of elements of the programs. Mercer also advises the Corporate Governance and Nominating Committee with respect to non-employee director compensation. In addition to providing background information and written materials, Mercer representatives attend meetings at which the Committee Chairman believes that Mercer’s expertise would be beneficial to the Committee’s discussions. The Committee reviews annually the overall fees incurred by the Committee and by management for consulting services provided by Mercer and its affiliates, and the Committee does not believe Mercer’s or its affiliates’ provision of services to management affects in any way the advice Mercer provides to the Committee on executive compensation matters. The Committee is satisfied that Mercer follows rigorous guidelines and practices to guard against any conflict and ensure the objectivity of their advice. There is no overlap between the members of the consulting team giving advice to the Committee and those involved with other work for Sysco. During fiscal 2009, Sysco’s Canadian subsidiary paid Mercer approximately $127,500 for non-executive benefit consulting services that Mercer was determined by the Canadian subsidiary as best suited to perform.

 

Executive Compensation Philosophy and Core Principles

 

Since the early 1970s, our executive compensation plans have directly linked a substantial portion of annual executive compensation to Sysco’s performance. These plans are designed to deliver superior compensation for superior individual and company performance; likewise, when individual and/or company performance falls short of expectations, certain programs deliver lower levels of compensation. However, the Committee tries to balance pay-for-performance objectives with retention considerations, so that even during temporary downturns in company performance, the programs continue to ensure that

successful, high-achieving employees remain at Sysco. Furthermore, to attract and retain highly skilled management, our compensation program must remain competitive with that of comparable employers who compete with us for talent.

 

The following key principles are the cornerstone of Sysco’s executive compensation philosophy:

 

 

Sysco has historically paid base salaries from below the 25^th percentile to the 50^th percentile of similar positions in Sysco’s compensation peer group, while placing significant portions of executive pay at risk through short-term and long-term incentives. This emphasis on performance-based variable compensation has sometimes resulted in the loss of one or more significant components of the named executive officers’ target annual compensation. For example, in fiscal 2009, the named executive officers did not earn a MIP bonus because the company did not achieve at least a 4% increase in fully diluted earnings per share. Similarly, in fiscal 2006, the five highest paid executive officers did not earn a MIP bonus because the company did not satisfy the necessary performance criteria.

 

The Committee supports executive performance and retention by using continued service as a significant determinant of total pay opportunity. For example, in order to receive full vesting under the most commonly applicable vesting provision of the Supplemental Executive Retirement Plan, or SERP, an executive must be at least 55 years old, have at least 15 years of MIP service and have combined age and MIP service totaling 80, such as a 60 year old with 20 years of MIP service. Sysco also includes time-based factors in its long-term incentives, with outstanding option grants generally vesting over a period of five years, outstanding restricted stock awards vesting over three years, and cash performance unit payouts based on a three-year performance period. In addition, currently proposed restricted stock or restricted stock unit awards to be made in the future are expected to vest over three years. We believe that Sysco’s compensation strategies have been effective in promoting performance and retention and are aligned with our company culture, which places a significant value on the tenure of high-performing executives.

 

In developing our pay for performance policies, the Committee generally benchmarks elements of pay against a comparison peer group, discussed under “— External and Internal Analysis.” However, the Committee has not historically had an exact formula for allocating between fixed and variable, cash and non-cash, or short-term and longer-term compensation, allowing it to incorporate flexibility into our annual and longer-term compensation programs and adjust for the evolving business environment. Following last year’s comprehensive executive compensation review, the Committee identified the following long-term goals:

 

 

The Committee intends to achieve these goals through, and has built the executive compensation program upon a framework that includes, the following components, each of which is described in greater detail later in this Compensation Discussion and Analysis:

 

 

Based on Mercer’s 2008 benchmarking of Sysco’s pay and performance against the original peer group discussed below, Mercer informed the Committee that total compensation paid by Sysco for fiscal 2007, including retirement benefits, was aligned with Sysco’s performance, while total cash compensation exceeded performance. Compensation for fiscal 2008 showed a similar trend. As a result, the Committee’s subsequent actions have been designed to decrease the emphasis on annual incentives and retirement benefits and increase the emphasis on long-term incentives in order to bring Sysco more in line with its peer group. For

fiscal 2009, total cash compensation was lower than usual since the executive officers did not receive an annual bonus payment. We will continue to pursue our long-term goals and to monitor the overall competitiveness of our compensation package.

 

External and Internal Analysis

 

External Analysis

 

For the compensation package to be effective, the Committee must balance the components so that they are both externally competitive and internally equitable.

 

Sysco is the largest foodservice distributor in North America, and other companies in the foodservice industry are significantly smaller. We believe that these smaller businesses would not create a satisfactory comparison group due to the greater skill levels and abilities required to manage a company of Sysco’s size. Absent an industry peer group, the Committee concluded that the most comparable companies with respect to executive pay are companies whose business size and complexity are similar to ours and with which we compete for top executive positions. Therefore, the peer group developed for the executive compensation analysis is not the same peer group that is used in the stock performance graph in our annual report to stockholders.

 

In order to implement these conclusions regarding external comparison of executive pay, the Committee instructed Sysco’s management to work with Mercer to construct a peer group for Sysco’s executive compensation analysis. The peer group utilized by the Committee for compensation decisions made during fiscal 2009 was composed of publicly-traded U.S. companies with a revenue range of approximately one-half to three times Sysco’s revenues that shared similar business characteristics with Sysco. In particular, Mercer helped the Committee examine industry leaders and other high-performing companies in logistics and distribution businesses that involved a high volume of relatively low-margin products and employed large sales forces. For decisions made during fiscal 2009 for all named executive officers except Messrs. Smith and Green, the peer group, referred to herein as the fiscal 2009 peer group, consisted of the 14 companies identified below:

 

 

With respect to Messrs. Smith and Green, with respect to whom comparable peer group information was not readily available, the Committee made fiscal 2009 compensation decisions using information from the 2008 Mercer Benchmark Database broad-based industry survey of companies with annual revenues in excess of $10 billion.

 

During fiscal 2009, the Committee requested that Mercer begin a reevaluation of our executive compensation peer group, taking into account an investment peer analysis that we had already undertaken to determine companies that compete with Sysco for investor capital. In this process, Mercer continued to focus on companies with a revenue range of approximately one-half to three times Sysco’s revenues that shared similar business characteristics with Sysco, but also focused on companies that could be considered comparable to Sysco for purposes of attracting investor dollars and executive talent. As a result, in February 2009, Mercer recommended a new peer group of 12 companies. The Committee discussed the new peer group with Mercer, including the retention of one additional company that was previously included in the fiscal 2009 peer group, and approved selection of a new peer group of 13 companies as set forth below. The new peer group adds four companies identified by the investor relations department and removes five companies with larger revenue size and somewhat different business models from Sysco, resulting in a $45 billion median revenue level that is much closer to Sysco’s than that of the fiscal 2009 peer group’s $57 billion:

 

 

Peer group compensation data is limited to information that is publicly reported and, to the extent it deems appropriate, the Committee uses it to benchmark the major components of compensation for our named executive officers. For general compensation decisions made prior to July 2009, Mercer prepared a study in September 2008 that used the fiscal 2009 peer group information to benchmark proposed fiscal 2009 base salary, total cash compensation, total direct compensation, executive

retirement values and total direct compensation plus executive retirement values of each of the named executive officers to equivalent peer company positions. The Committee also reviewed a September 2008 Mercer report on long-term incentive compensation in connection with its grants of cash incentive units and stock options in the fall of 2008. During fiscal 2009, Mercer also prepared an analysis of executive Chairman of the Board, Chief Executive Officer and Vice Chairman compensation programs in connection with Mr. Schnieders’ retirement and transition to non-CEO Chairman of the Board and the promotions of Messrs. DeLaney and Spitler. With respect to Messrs. Smith and Green, Mercer provided information from its Benchmark Database survey regarding Mr. Smith and Green’s total direct compensation. Mercer also prepared a July 2009 compensation report using the revised peer group information, for the Committee’s use in making fiscal 2010 compensation decisions, particularly long-term incentive compensation decisions, with respect to the named executive officers.

 

For purposes of the Mercer reports, total cash compensation for fiscal 2008 was defined as base salary plus the annual MIP bonus, including the stock match portion and the effect of the supplemental bonus, and excluding payments pursuant to cash performance units we granted in prior years. Target 2009 total cash compensation was similarly defined, although Mercer used the target bonus of 200% of base salary and assumed no supplemental bonus or reduction. Total direct compensation was defined as total cash compensation plus the value of stock options and cash performance units. The Committee believes the exclusion of the supplemental bonus/reduction was appropriate because the supplemental bonus is only paid for performance levels that exceed expectations and that are therefore over and above the target level of performance that the Committee considers in benchmarking executive compensation. To determine an annualized cost of providing retirement benefits, Mercer projected benefits to retirement age 60 for each named executive officer and each comparable peer group company executive, using each company’s specific pay mix, and then determined the amount of total cash compensation that, if deferred at 7% annual interest for each year of executive service, would equal the same lump sum value payable from all employer sponsored retirement plans. In performing this analysis, Mercer assumed that each peer company executive had the same age, service and career progression as the corresponding Sysco executive.

 

Internal Analysis

 

With respect to annual salary and the various incentive awards available to the named executive officers, the Committee does not perform a formal internal equity analysis, but does consider the internal equity of the compensation awarded by utilizing comparisons within the Sysco organization. On an annual basis, the Committee compares the CEO’s compensation with that of the President and the Executive Vice Presidents to ensure that the CEO compensation, as well as its relationship to the compensation of the CEO’s direct reports, is reasonable. The Committee makes similar evaluations among the President, Executive Vice Presidents and Senior Vice Presidents. These comparisons only provide a point of reference, as we do not use specific formulas to determine compensation levels, which reflect the responsibilities of a particular officer position. Although officers at different levels of the organization receive a different percentage of their base salary as payment of the MIP bonus, the financial performance criteria used for most corporate officers, including the named executive officers, for payment of the bonus are identical.

 

Annual Compensation

 

Base Salary

 

The table below shows the salaries of each named executive officer at the beginning and end of fiscal 2009 and the percentage changes over that period:

 

 

 

 

Analysis

 

The Committee typically reviews base salaries each November and sets them for the following calendar year. In prior years in which expense control was not a prevailing factor, the Committee would subjectively consider each executive’s performance in the prior year and recent company performance, as well as each executive’s job responsibilities, management experience, individual contributions, number of years in his or her position and current salary. After taking into consideration the difficult economic and market environment facing Sysco and the corresponding need to maintain strict discipline on expense control, in May 2008, each named executive officer agreed to a 5% salary reduction effective July 1, 2008. At such time, the Committee determined that it would not increase executive officer salaries during fiscal 2009.

 

During the fall of 2008, the Committee reviewed the Mercer report, which showed that although the fiscal 2009 base salaries of Messrs. DeLaney, Spitler, Pulliam and Schnieders approximated the 25th percentile relative to the fiscal 2009 peer group, their target total cash compensation for fiscal 2009 was at or above the 75th percentile for all except Mr. Schnieders, who was slightly above the median; however, due to the Committee’s prior decision to not increase any executive officer salaries during fiscal 2009, the Committee did not make any base salary modifications at that time. Similarly, for the same reason, the Committee did not request Mercer to compile new information comparing Messrs. Smith’s and Green’s salaries relative to similar peer group positions.

 

Sysco’s culture has been built around the belief that establishing a relatively modest base salary and placing more of the executives’ annual pay at risk will drive both individual and company performance in order to achieve our business targets. Although the Committee’s base salary decisions are made at a different time than its decisions regarding other elements of compensation, the Committee does consider how each executive’s salary affects the other elements of his total cash compensation and total compensation, such as the impact on the annual target bonus, which is based on a multiple of salary, and the impact on future benefits under the SERP.

 

In the second quarter of fiscal 2009, Mr. Schnieders was serving as Chairman of the Board and Chief Executive Officer, but informed the Board that he was considering retirement in the near future. The Board then began discussions with Mr. Schnieders regarding whether he might be persuaded to remain with Sysco, and if so, in what capacity and for how long. During this period, it became the consensus of the Board that should Mr. Schnieders notify Sysco of his intent to retire, Mr. DeLaney would likely be appointed Chief Executive Officer and that Mr. Spitler, remaining as President and Chief Operating Officer, would work closely with Mr. DeLaney to assist him in the transition to his new position. As a result, the Committee engaged Mercer to assist it in developing appropriate pay packages for Mr. DeLaney and Mr. Spitler in the event that Mr. Schnieders determined to retire. Because this management change would mark Mr. DeLaney’s elevation to a new executive level, the Committee instructed Mercer that Mr. DeLaney should receive sufficient increases effective upon his promotion to constitute a material step towards peer group competitiveness, but that his pay package should be made competitive at the Chief Executive Officer level with Sysco’s peer group only as his tenure and experience in the CEO role increased. Because of Mr. Spitler’s long tenure at Sysco’s upper executive levels, and his responsibility to work closely with Mr. DeLaney to assist him in his transition, the Committee instructed Mercer that Mr. Spitler’s compensation should be made competitive at the Chief Operating Officer level with Sysco’s peer group at the higher percentiles. Mr. Schnieders notified Sysco on January 17, 2009 of his intent to retire as Chief Executive Officer, effective March 31, 2009, and to remain as executive Chairman of the Board through June 27, 2009. Following this notice, Sysco promoted Mr. DeLaney to Chief Executive Officer, effective March 31, 2009. Mr. Spitler retained his position as President and Chief Operating Officer, Mr. DeLaney and Mr. Spitler were elected to the Board, and the Board elected Mr. Spitler as its Vice Chairman.

 

In connection with these actions, the Committee approved the salary increases disclosed above for Messrs. DeLaney and Spitler, which had been recommended by Mercer based on competitive data and the Committee’s instructions regarding its compensation philosophy. For the reasons discussed above, Mr. DeLaney’s salary increase placed him below the 25^th percentile of the fiscal 2009 peer group with respect to base salary and slightly below the 25^th percentile of the fiscal 2009 peer group with respect to target total cash compensation; Mr. Spitler’s salary increase placed him between the 25^th percentile and the median of the fiscal 2009 peer group with respect to base salary and above the 75^th percentile of the fiscal 2009 peer group with respect to target total cash compensation. However, Mercer also informed the Committee that comparisons for Mr. Spitler at the median level were impacted by the fact that a number of peer group companies had recently hired new chief operating officers with lower pay than their predecessors. In both instances, these comparisons were made using comparable peer group positions. In approving the salary increases, the Committee also reviewed an internal pay equity comparison of base salary for Messrs. DeLaney and Spitler and determined that these salary increases provided appropriate base salary differentiation for Mr. DeLaney’s first year as Chief Executive Officer.

The Committee made its decisions regarding the continuation of Mr. Schnieders’ full base salary level during his term as executive Chairman of the Board in connection with its negotiation of Mr. Schnieders’ transition and retirement agreement, discussed at “— Severance Agreements” below.

 

In September 2009, the Board of Directors appointed Robert C. Kreidler to serve as Sysco’s Executive Vice President and Chief Financial Officer effective October 5, 2009. Before such appointment, Mercer provided information to the Compensation Committee with competitive information regarding the compensation of chief financial officers in Sysco’s compensation peer group. The Compensation Committee set Mr. Kreidler’s base salary at $500,000. This initial salary would place him below the 25^th percentile of the fiscal 2009 peer group with respect to base salary and slightly above the 75^th percentile of the fiscal 2009 peer group with respect to target total cash compensation, including a target MIP bonus equal to 200% of salary.

 

Management Incentive Plan

 

The MIP is designed to offer opportunities for compensation tied directly to annual and/or multi-year company performance. Under the terms of the plan, we pay the annual bonus in cash with payments made in the first quarter of the fiscal year for bonuses earned with respect to performance in the prior fiscal year. In connection with its comprehensive review of the compensation program, the Committee removed the 28% stock match from the plan, beginning with the fiscal 2009 bonus that would have been payable in fiscal 2010. This change was made in order to shift the compensation mix emphasis from short-term to longer-term incentives, with the expectation that this portion of the bonus will be replaced beginning in November 2009 with grants of restricted stock or restricted stock units vesting over a three-year period. We currently pay the bonus pursuant to the 2005 Management Incentive Plan, which is described in further detail under “Executive Compensation — 2005 Management Incentive Plan.”

 

Each year the Committee approves MIP agreements that are entered into between Sysco and each of the named executive officers. In May 2008 and 2009, the Committee approved respective fiscal 2009 and 2010 bonus agreements with each of the named executive officers pursuant to the 2005 Management Incentive Plan. In approving the agreements, the Committee generally targeted each named executive officer’s bonus at approximately 200% of his base salary. Payouts for the CEO, President and Executive Vice Presidents under the MIP agreements equaled 196% of salary in fiscal 2005, 0% of salary in fiscal 2006, approximately 300% of salary in fiscal 2007, approximately 275% of salary in fiscal 2008 and 0% of salary in fiscal 2009. This resulted in an average annual payout for the top corporate officers during the last five fiscal years of 154% of their salary under the MIP agreements.

 

Fiscal 2009

 

The named executive officers’ fiscal 2009 bonus was based solely on these corporate financial objectives:

 

 

 

Because Sysco did not achieve at least a 4% increase in fully diluted earnings per share for fiscal 2009, we paid no MIP bonus to the named executive officers for fiscal 2009.

 

Fiscal 2010

 

The fiscal 2010 bonus program is based on the same criteria as the 2009 program. Unlike prior MIP awards, however, the fiscal 2010 awards are subject to clawback provisions that provide that, subject to applicable governing law, all or a portion of the bonus paid pursuant to the 2010 awards may be recovered by Sysco if there is a restatement of our financial results, other than a restatement due to a change in accounting policy, within 36 months of the payment of the bonus and the restatement would result in the payment of a reduced bonus if the bonus was recalculated using the restated financial results. The Committee has the sole discretion to determine the form and timing of the repayment. See “— Potential Impact on Compensation of Financial Restatements.”

As discussed above, the fiscal 2010 bonus does not have a stock match portion. Varying levels of performance will earn varying levels of bonus between 20% and a maximum 330% of base salary. The target bonus level is 200% of base salary. The various levels of performance and the percentage of base salary they would yield as a bonus are set forth in the table under “Executive Compensation — 2005 Management Incentive Plan,” based on the degree to which actual results meet, exceed or fall short of pre-established performance goals.

 

Analysis

 

The Committee develops the annual bonus program with respect to the executive officers as a group and does not customize it for individuals. With respect to both the fiscal 2009 and fiscal 2010 MIP grants, Sysco’s executive management team prepared the grids used for calculating the earnings per share and average three-year return on capital components of the bonus. Management submitted the fiscal 2009 grid to the Committee and the Committee asked Mercer to review it. Mercer confirmed to the Committee that, based on the fiscal 2009 peer group information available at that time, and assuming payment of Sysco’s target bonuses of 200% of base salary, Sysco’s target for total cash compensation in fiscal 2009 would place the named executive officers near the peer group’s 75^th percentile, except for Mr. Schnieders’ target total cash compensation, which would be near the median. The Committee approved the same grid for fiscal 2010 based on the prior year’s analysis.

 

Although the fiscal 2009 peer group information indicated that Sysco’s overall annual financial performance relative to the peer group companies for fiscal 2008 approximated or somewhat exceeded the median, the Committee determined that the 75^th percentile was generally the appropriate target for total cash compensation, based on the Committee’s stated goal of maintaining conservative base salaries with premium positioned annual bonus opportunities. With base salaries generally set near or below the median for each named executive officer, a significant part of the executives’ total cash compensation is at risk and is only paid based upon performance, thus justifying compensation in excess of the median when that performance is attained. Therefore, target total cash compensation of each of the named executive officers for fiscal 2009 was above the 75^th percentile, except with respect to Mr. Schnieders, whose target cash compensation was near the median, and except with respect to Mr. DeLaney, whose target cash compensation following his promotion was below the 25^th percentile for the reasons discussed above. Mr. Schnieders’ target total cash compensation was closer to the median, in order to maintain his compensation at historical compensation levels and minimize the difference between his compensation and the other named executive officers. The Committee’s consideration of the potential impact of the supplemental bonus on total cash compensation relative to the peer group is discussed under “— Supplemental Performance Bonus — Analysis.”

 

Ongoing suggestions by, and discussions among, the Committee members, various members of the executive management team and Mercer led to the Committee approving the following changes in the fiscal 2009 program compared to prior years’ programs:

 

 

The move to the use of three-year return on capital reflected an acknowledgement by Sysco that, while it was previously believed that return on stockholder’s equity was an important metric to shareholders and the investment community, return on capital has now become a more significant part of such investors’ focus. These changes were also made, and the specific levels of performance chosen, in order to bring Sysco more in line with the compensation programs of its peers, focus on company sales and earnings growth, focus on improved asset management, more closely link compensation to Sysco’s growth expectations and shareholder value creation, and improve the alignment between Sysco’s business strategy and performance. These measures were carried forward to the fiscal 2010 program.

 

The Committee approved the fiscal 2009 and fiscal 2010 grids and bonus opportunities on the basis of these considerations.

 

Supplemental Performance Bonus

 

In May 2008, Sysco entered into supplemental bonus agreements with each of Messrs. Schnieders and Spitler for fiscal 2009. The May 2008 agreements provided that the Committee, in its sole discretion, could increase or decrease by up to 25% the cash portion of the executives’ 2009 MIP bonuses, depending upon whether the Committee concluded that the executives’ performance “exceeded expectations” or was “below expectations,” based on the Committee’s separate review of each individual, including but not limited to a review of these performance areas:

 

 

If the executives’ performance had simply “met expectations,” the executives would neither have received an additional bonus nor have had their 2009 bonus reduced. Because the named executives did not earn a MIP bonus for 2009, Sysco did not pay any supplemental bonuses to either Mr. Schnieders or Mr. Spitler for fiscal 2009. The Committee does not currently intend to approve supplemental bonus agreements for any named executive officer with respect to fiscal 2010.

 

Analysis

 

The Committee approved the May 2008 supplemental bonus agreements based on its belief that a portion of the CEO’s and the President’s bonus potential should be based on the Committee’s subjective evaluation of their individual performance with respect to non-financial performance goals. When Mercer benchmarked target total cash compensation for fiscal 2009, the supplemental bonus and/or any supplemental reduction was not taken into account because the supplemental bonus is only paid for performance that exceeds expectations regarding the target level of performance. However, the Committee determined that the importance of emphasizing these non-financial performance goals outweighed any negative peer group comparisons if supplemental bonus amounts were paid. The Committee chose the performance areas for the supplemental bonus agreements, after consultation with Mr. Schnieders, based on its subjective determination of the most important non-financial areas of focus for the CEO and the President. The Committee chose goals and targets designed to measure performance that would provide long-term benefits to our operations. The Committee determined that the financial performance targets of the MIP for fiscal 2009 were properly aligned with the responsibilities of the other named executive officers and that a supplemental bonus based on non-financial performance criteria was not necessary or appropriate for them for fiscal 2009.

 

In May 2009, Messrs. DeLaney and Spitler and the Compensation Committee jointly agreed to align the framework of the top executives’ annual compensation with that of the named other executive officers by eliminating supplemental bonus agreements for fiscal 2010. The Committee determined that sufficient incentives are currently in place for each named executive officer to achieve superior performance, and as a result, that payment of the supplemental bonuses would not provide material additional benefits to Sysco. Likewise, in the event of performance that does not meet expectations, the Committee believes that it has sufficient ability to adjust the other components of the compensation program in order to appropriately penalize such performance. The Committee intends to continue to subjectively evaluate the named executive officers based on such criteria as it deems appropriate and to make appropriate adjustments to their compensation to reflect the results of these evaluations.

 

Longer-Term Incentives

 

Fiscal 2009 longer-term incentives consisted of three-year cash performance units granted in September 2008 and stock options granted in November 2008. For details regarding these grants see “Executive Compensation — Cash Performance Unit Plan” and “Executive Compensation — Grants of Plan-Based Awards.” Now that the MIP bonus no longer includes a stock match portion, it is the intent of the Committee to add restricted stock or restricted stock units, with vesting over a period of three years, to the mix of longer-term incentives, beginning with the fiscal 2010 grants in November 2009.

 

During fiscal 2009, exclusive of the special grants to Messrs. DeLaney and Spitler made in January and February 2009 and except as discussed below with respect to Messrs. Spitler and Schnieders, the named executive officers received approximately 50% of the value of their long-term incentives in stock options, valued using a Black-Scholes model, and the remaining 50% in cash performance units, valued at their target levels. While the Committee always retains discretion regarding future grants of equity-based awards and long-term incentives, it is currently anticipated that beginning in fiscal 2010, Sysco’s CEO, President and all corporate Executive Vice Presidents will receive approximately 50% of the value of their long-term incentives in stock options, approximately 25% in cash performance units, and approximately 25% in grants of restricted stock or restricted stock units, with the options valued using the Black-Scholes model, CPUs valued at the target level of $35 per unit and each share of restricted stock or restricted stock unit valued at the closing price of Sysco common stock on the business day prior to the grant.

 

As part of Mr. Kreidler’s employment package and to more quickly align his interests with those of Sysco’s stockholders, the Committee expects to make a special one-time sign-on incentive grant to Mr. Kreidler of 5,000 restricted stock units and 75,000 stock options in late September 2009. He will also be eligible to receive annual long-term incentive grants in November 2009.

 

Cash Performance Units

 

Under the Sysco Corporation 2004 Cash Performance Unit Plan, participants in the MIP have the opportunity to receive cash incentive payments based on Sysco’s performance over a three-year period. We pay any awards earned under these plans in cash rather than in Sysco stock or stock units. CPU grants are forward-looking and the grant of CPUs typically does not take into account prior Sysco or individual performance. The payout on CPUs is based on the company’s actual performance over the three-year performance cycle beginning with the fiscal year in which the CPU is granted. In September 2008, the Committee granted three-year cash performance units under the 2004 plan. In addition, the cash performance units that we issued in 2005

were paid out in August 2008, and the cash performance units that we issued in 2006 were paid out in August 2009. In November 2008, our stockholders approved our 2008 Cash Performance Unit Plan, which replaces the 2004 plan. We expect to make fiscal 2010 cash performance unit grants under the 2008 plan, which does not differ materially from the 2004 plan.

 

The Committee established performance criteria for grants to the named executive officers in September 2006 covering the three-year performance period ended June 27, 2009. For each of the corporate officers, one-half of the payout was based on the average growth in basic net earnings per share and one-half of the payout was based on average increase in sales, adjusted for product inflation and deflation. For these purposes, we calculate basic earnings per share prior to the accruals for the MIP and supplemental bonuses. Achievement of the target would have yielded a 100% payout, while the minimum satisfaction of only one criterion would have yielded a 25% payout and maximum performance above target on both criteria would have provided a 150% payout. The Committee took the total value that was targeted at 100% payout for CPUs for a given level of participant and divided by the $35.00 value assigned to each unit to determine the number of units to be granted to each participant. We believe that the minimum and target amounts under the CPUs have historically been achievable, although the maximum payout would generally be difficult to obtain at the corporate level and for most of our subsidiaries.

 

Our average growth in basic net earnings per share over the three-year performance period ended on June 27, 2009 was 9.6%, and our adjusted sales growth was negative 0.24%, which yielded a payout of 43.75% of the value of the units to each corporate participant previously granted units, including Messrs. Spitler, Pulliam, Smith, Green and Schnieders. Our average growth in basic net earnings per share over the three-year performance period ended on June 28, 2008 was 11.14%, and our adjusted sales growth was 4.42%, which yielded a payout of 81.25% of the value of the units to each corporate participant previously granted units, including Messrs. Spitler, Pulliam, Smith, Green and Schnieders. In order for generally accepted accounting principles to be applied consistently year-over-year, these performance measures for the CPUs may be calculated slightly differently from those in our financial statements.

 

At the time of the 2004 and 2005 grants, Mr. DeLaney was serving as President of Sysco’s Charlotte subsidiary, so one-half of his payout was based on that subsidiary’s increase in operating pre-tax earnings and one-half was based on the percentage increase in the subsidiary’s sales, adjusted for product inflation and deflation. The performance of Sysco’s Charlotte subsidiary yielded a payout of 150% for the units previously granted to Mr. DeLaney in September 2005 that we paid in August 2008 and a payout of 75% for the units previously granted to Mr. DeLaney in September 2006 that we paid in August 2009. Mr. DeLaney’s grant that we paid in August 2009 was his last remaining grant with a payout tied to our Charlotte subsidiary’s performance.

 

The grants related to the three-year performance periods ending in fiscal 2010 and 2011 each have a value of $35 per unit and have the same payout possibilities, ranging from 25% to 150% of the total value of the units granted in each year. For each of the remaining corporate grants that are currently outstanding, the Committee used the same performance criteria described above, except that:

 

 

Actual payout amounts to the named executive officers for the fiscal 2006 CPU grants that we paid in fiscal 2009 are set forth in footnote (3) to the Summary Compensation Table. The specific performance measures and related payouts for each year’s corporate grant are shown under “Executive Compensation — Cash Performance Unit Plans.” Pursuant to the terms of the grant agreements, Mr. Schnieders’ will continue to receive any amounts earned pursuant to his CPUs following his retirement.

 

Analysis

 

In July and September of 2008, in order to begin moving towards the anticipated fiscal 2010 long-term incentive split of 50% options, 25% CPUs and 25% restricted stock or restricted stock units, the Committee determined the approximate target aggregate annual long-term incentive values for each of the named executive officers. The Committee reviewed the Mercer reports on executive compensation and long-term incentive compensation, and the Committee’s analysis also included a review of the then-current long-term incentive compensation, adding the target value of the CPUs and the Black-Scholes value of options granted to each of the named executive officers during fiscal 2008, plus the value of the 28% stock match on the targeted

200% fiscal 2008 MIP bonus, to set a minimum baseline for its fiscal 2009 long-term incentive value determination. At that time, the Committee recognized that there needed to be an increase for Mr. DeLaney to provide long-term incentives that more closely matched the amounts granted to the Chief Financial Officer at peer group companies.

 

Mercer’s recommendations included suggested targets for annual long-term incentive amounts for Messrs. DeLaney, Pulliam and Schnieders that were near the median in accordance with Sysco’s general compensation philosophy. Mercer’s recommendations with respect to Mr. Spitler were above the median, which Mercer believed was appropriate because his peer group comparative data had changed significantly since Mercer’s prior reports. Mercer explained that several new presidents or COOs had been recently appointed at peer group companies, with such individuals receiving compensation amounts significantly lower than their more experienced predecessors, thereby artificially lowering the comparative data for Mr. Spitler. Award levels for Messrs. Smith and Green were determined in light of their January 2008 promotions and the desire to bring their longer-term compensation levels more in line with those of the other named executive officers.

 

The Committee considered the market data and recommendations provided by Mercer, as well as the fact that fiscal 2009 was a transition year for Sysco’s long-term incentive compensation, with the stock match portion of the MIP having been paid for the last time in August 2008 but no restricted stock scheduled for issuance until fiscal 2010. The Committee ultimately targeted long-term incentive amounts that were greater than the baseline values calculated using the awards for fiscal 2008, but less than the amounts recommended by Mercer to reflect the company’s competitive pay strategy. The Committee made this decision based on its subjective determination that the increases necessary to bring the long-term incentives up to Mercer’s recommended levels were too great to be made in one year and should be phased in over two or more years. The targets for fiscal 2009 long-term incentive amounts chosen by the Committee would place each of the executive officers’ total long-term incentive compensation from slightly below the 25^th percentile to the median for total long-term incentives granted to similar positions within the peer group companies, except for Mr. Spitler, whose total long-term incentive compensation would be somewhat above the median for the reasons discussed above.

 

After consulting with Mercer and members of executive management, the Committee determined that a long-term incentive breakdown for fiscal 2009 of approximately 50% stock options and 50% cash performance units was appropriate, since no restricted stock would be awarded during fiscal 2009 and the Committee desired to maintain some consistency with prior year grants while also allowing fiscal 2009 to serve as a transition to the anticipated fiscal 2010 long-term incentive mix. The Committee generally followed Mercer’s recommendations with respect to the breakdown for each Executive Vice President’s fiscal 2009 long-term incentive compensation, with slightly more than 50% of their fiscal 2009 long-term incentives granted in the form of options. However, the Committee determined that, if the number of options to be granted to Messrs. Spitler and Schnieders were increased sufficiently for the fiscal 2009 option grant values to equal half of the total long-term incentive values originally targeted, the increase in the size of their option grants would be larger than the Committee subjectively determined was appropriate in one year. As a result, the Committee maintained the overall value of the anticipated fiscal 2009 long-term incentive grants for Messrs. Schnieders and Spitler, reducing the size of the option piece and increasing the size of the CPU component. This resulted in the target value of their fiscal 2009 CPU grants exceeding the Black-Scholes value of their fiscal 2009 option grants, which were made in November 2008.

 

The minimum, target and maximum performance criteria levels and the payouts for the awards made during fiscal 2009 were recommended by the executive management team and were similar to those made during fiscal 2008, provided that the Committee increased the threshold, target and maximum earnings performance levels, in order to more closely align the performance measures with the company’s long-term goal of maintaining low- to mid- double digit annualized earnings growth.

 

Stock Options

 

The Committee approved the fiscal 2009 stock option grants to the named executive officers in November 2008 under our 2007 Stock Incentive Plan, which was approved by stockholders in November 2007. The specific grants are shown under “Executive Compensation — Grants of Plan-Based Awards.” The 2007 Stock Incentive Plan calls for options to be priced at the closing price of our common stock on the business day prior to the grant date, and the fiscal 2009 option grant agreement provides for ratable vesting over a five-year period.

 

Our stock option grant administrative guidelines were adopted in February 2007, as described under “Executive Compensation — Outstanding Equity Awards at Fiscal Year-End.” Under the guidelines, the Committee will generally not make grants during a period preceding an anticipated event that is likely to cause a substantial increase or a substantial decrease in the trading price of Sysco’s common stock, such as an earnings release. The Committee will generally authorize and grant

options during normal trading windows. If we have grants scheduled to occur outside of a normal trading window or when Sysco is in possession of material non-public information, then:

 

 

The Committee anticipates that the policy will be revised so that it applies to grants of restricted stock and restricted stock units, which the Committee currently anticipates will begin in November 2009.

 

The Committee made an additional option grant to Mr. DeLaney in February 2009 in connection with his promotion to Chief Executive Officer. See “Stock Options — Analysis” below.

 

Analysis

 

See “Cash Performance Units — Analysis” above for an analysis of the Committee’s fiscal 2009 overall annual longer-term incentive grant decisions, which affected the Committee’s stock option grant decisions.

 

The Committee believes that option grants benefit employee performance and retention, particularly in years in which Sysco’s performance does not create high cash compensation. They will also help to ensure that longer-term strategic initiatives are not compromised by having executives focus solely on short-term profitability for payment of the annual bonus. Sysco’s long-term performance ultimately determines the value of stock options, because gains from stock option exercises are entirely dependent on the long-term appreciation of our stock price. The Committee expects that this longer-term focus will benefit Sysco and its stockholders, as it more closely aligns the executives’ interests with those of stockholders and focuses executives on strategies that increase long-term stockholder value. Existing ownership levels are not a factor in the Committee’s granting of options because it does not want to discourage executives from holding significant amounts of Sysco stock.

 

In connection with Mr. DeLaney’s promotion to Chief Executive Officer, as discussed above at “Base Salary,” the Committee engaged Mercer to assist it in developing the appropriate pay package for him. Following its review of the peer group information prepared by Mercer, the Committee determined that Mr. DeLaney should receive a special stock option grant in February 2009 with an aggregate value that, when added to Mr. DeLaney’s prior fiscal 2009 stock option and CPU grants, would bring the total value of his fiscal 2009 longer-term incentives to or slightly above the peer group 25^th percentile. The peer group 25^th percentile was chosen for the reasons discussed under “Base Salary” above. The Committee determined to make the grant 100% in stock options, as opposed to 50% stock options and 50% CPUs, due to the Committee’s inability to utilize the fiscal 2009 performance criteria and periods contained in the September 2009 grants while maintaining deductibility limit under Section 162(m) of the Code. See “— Income Deduction Limitations,” below. As with the fiscal 2009 stock option grants made in November 2008, the Committee valued the options at their Black-Scholes value. The Committee also reviewed an internal pay equity comparison of fiscal 2009 longer-term incentives for Mr. DeLaney and Mr. Spitler and determined that these additional grants, taken together with Mr. DeLaney’s prior fiscal 2009 grants, provided appropriate differentiation from Mr. Spitler for Mr. DeLaney’s first transition year.

 

Restricted Stock and Restricted Stock Units

 

As discussed above, the Committee currently intends to add restricted stock or restricted stock units to Sysco’s long-term incentive package beginning in November 2009. Based on information provided by Mercer, the Committee believes that granting restricted stock or restricted stock units to the named executive officers beginning in fiscal 2010 will bring Sysco more in line with its peer group when comparing the total mix of short- and longer-term compensation. The Committee expects the restricted stock or restricted stock units to constitute approximately 25% of the total value of longer-term incentives for the named executive officers and to vest in 1/3 increments over three years. In January 2009, in connection with his promotion to Vice Chairman, the Committee made a restricted stock grant to Mr. Spitler, as discussed in footnote 7 to the Summary Compensation Table. This restricted stock vests ratably over three years beginning on the first anniversary of the grant date.

Analysis

 

In connection with the retirement of Mr. Schnieders, Mr. DeLaney’s succession to the position of Chief Executive Officer, and Mr. Spitler’s election as Vice Chairman, the Board and the Committee determined that Mr. Spitler’s skill, experience and assistance with the CEO transition were very important to Sysco’s continuing success. As a result, as discussed above at “Base Salary,” the Committee engaged Mercer to assist it in developing the appropriate pay package for Mr. Spitler, with specific emphasis on his long-term retention and his key executive role. After receiving guidance from Mercer that the grant fell within the competitive parameters set by the Company, the Committee approved the restricted stock grant discussed above. The size of the grant was based on the determination of the Committee chair, after taking into consideration the respective roles and relationships of the CEO and COO, in negotiation with Mr. Spitler in order to ensure his continued involvement with Sysco during Mr. DeLaney’s first few years as CEO, while the three-year ratable vesting was designed to provide Mr. Spitler with sufficient incentive to remain in the employ of Sysco for at least the next three years while at the same time providing him with a portion of the value of the grant at the end of each year of the three-year vesting period. The Committee does not expect this special restricted stock grant to affect the size or amount of Mr. Spitler’s future annual long term incentive grants.

 

Retirement/Career Incentives

 

Supplemental Executive Retirement Plan

 

We provide annual retirement benefits to all corporate employees and most of our non-union operating company employees under the broad-based tax-qualified Sysco Corporation Retirement Plan, which we simply refer to as the “pension plan.” In addition, Sysco offers supplemental retirement plans to approximately 170 corporate and operating company officers. Each of the named executive officers participates in the Supplemental Executive Retirement Plan, or SERP. The Committee utilizes the SERP to increase the retirement benefits available to officers whose benefits under the pension plan are limited by law. The earliest an executive can retire and receive any benefits under the SERP is age 55 with a minimum of 15 years of MIP service. The SERP was designed to provide fully vested participants with post-retirement monthly payments, with the annual benefits equaling to up to 50% of a qualified participant’s final average annual compensation, as discussed below, in combination with other retirement benefits, including other pension benefits, the company match under the 401(k) plan and social security payments. Annual retirement benefits from the SERP for a participant who is 100% vested in his accrued benefit are generally limited to approximately $2.25 million, with such maximum limit adjusted for cost-of-living increases. However, each of Messrs. Spitler and Smith qualify for, and at the time of his retirement Mr. Schnieders qualified for, a protected benefit under the SERP. This limit does not apply to the protected benefit, which we will pay if it is greater than the benefit under the current provisions. The other named executive officers who do not qualify for the protected benefit will receive a SERP benefit based on the greater of the benefit determined under the current provisions of the SERP or the accrued benefit determined as of June 28, 2008 under the prior provisions of the SERP, but with vesting and eligibility for immediate benefit payments determined as of the separation date. For the protected participants, we calculate SERP benefits as the greatest of the benefits determined under four calculations using each of the regular and protected participant benefit formulas under both the current provisions of the SERP and their frozen June 28, 2008 benefits. The terms of the SERP are more specifically described at “Executive Compensation — Pension Benefits — Supplemental Executive Retirement Plan.” The amounts accrued by each named executive officer under the pension plan and the SERP as of June 27, 2009 are set forth under “Executive Compensation — Pension Benefits.” Mr. Schnieders’ annual SERP benefit following his retirement on June 27, 2009 is approximately $1.9 million.

 

In December 2008, the Committee recommended and the Board approved additional amendments to the SERP based on the Committee’s consultation with Mercer. Those amendments that could materially impact the compensation of the named executive officers under the SERP are summarized below:

 

 

In addition to the amendments discussed above, the Committee also recommended, and the Board approved, additional amendments in December 2008 designed to bring the SERP into compliance with Section 409A of the Code.

 

Analysis

 

Sysco’s retirement plans are an important performance and retention tool, the effectiveness of which the Committee tries to balance with the cost of providing them. Our history supports that this approach works, as our named executive officers, including Mr. Schnieders, had an average tenure of over 20 years with Sysco at the end of fiscal 2009. Based on Mercer’s report, as of September 2008, compensation to the named executive officers under the SERP placed Sysco above the 75^th percentile for retirement benefits relative to the peer group, but total target compensation plus retirement benefits placed Sysco between the median and the 75^th percentile for the named executive officers. As a result, the Committee believes that these benefits, as modified during fiscal 2009, are appropriate in light of Sysco’s overall compensation structure.

 

The Committee continues to review the SERP regularly in order to achieve the following goals:

 

 

The modifications to the SERP approved by the Committee during fiscal 2009 to remove the special disability vesting provisions and to provide for the actuarial reduction in death benefits paid prior to age 55 further these goals by potentially reducing Sysco’s anticipated cost of payments. The decision not to cap the amount of the MIP bonus included in the non-service related active death benefit was based on the Committee’s subjective determination that the life insurance benefits available to all SERP participants, including the named executive officers, did not provide adequate financial protection in the event of the participant’s death and that the SERP death benefit should therefore be increased.

 

Nonqualified Executive Deferred Compensation Plan

 

Sysco offers an Executive Deferred Compensation Plan, or EDCP, to provide MIP participants, including the named executive officers, the opportunity to save for retirement and accumulate wealth in a tax-efficient manner beyond what is available under Sysco’s 401(k) retirement savings plan. Participants may defer up to 100% of their base salary and up to 40% of their cash MIP bonus to the EDCP. Sysco does not match any salary deferrals into the EDCP. For participants who defer a portion of their MIP bonus, Sysco matches 15% of the first 20% deferred, making the maximum possible match to the EDCP 3% of the cash bonus. This match generally vests at the tenth anniversary of the crediting date, subject to earlier vesting in the event of death, disability, a change in control or the executive’s attaining age sixty. Participants who defer compensation under the EDCP may choose from a variety of investment options, including Moody’s Average Corporate Bond Yield, with respect to amounts deferred. Company matching contributions are credited with the Moody’s Average Corporate Bond Yield. The EDCP is described in further detail under “Executive Compensation — Nonqualified Deferred Compensation.”

 

In November 2008, the Committee recommended and the Board approved additional amendments to the EDCP based on the Committee’s consultation with Mercer. The only such amendment potentially materially affecting the compensation of the named executive officers allowed EDCP participants to elect, on or before December 15, 2008, to receive a one-time lump sum distribution during calendar 2009 of some or all of the participants’ deferrals under the EDCP, as well as a portion of vested company matching amounts, determined as of May 15, 2009. The calendar 2009 distributions were made on June 30, 2009. Messrs. Spitler, Pulliam, Smith and Green made distribution elections under the EDCP pursuant to this provision. The details of these elections are included under “Executive Compensation — Executive Deferred Compensation Plan.”

 

In addition to the amendments discussed above, the Committee also recommended, and the Board approved, additional amendments in November 2008 designed to bring the EDCP into compliance with Section 409A of the Code.

 

Analysis

 

Currently, individual contributions to the 401(k) plan are limited by law to $16,500 per year. The Committee believes that the EDCP motivates and assists in the retention of key employees by providing them with greater flexibility in structuring the timing of their compensation payments. The EDCP is an important recruitment and retention tool for Sysco, as the companies with which we compete for executive talent typically provide a similar plan to their senior employees.

The Committee’s decision to amend the EDCP to provide for the one-time lump sum distribution election was driven primarily by the current economic crisis and by certain transitional relief under the provisions of Section 409A of the Code, which allowed such amendments to be made prior to December 31, 2008. Given declines in Sysco’s stock price and in the investment portfolios of virtually all EDCP participants, the Committee deemed it appropriate to provide for this one-time ability to receive a current distribution of deferred amounts in order to assist those participants in need of additional liquidity or those participants who believed that current income tax levels were more favorable than those that would be in effect following their retirement.

 

Severance Agreements

 

In prior years, the Committee approved, and the Board of Directors ratified, severance agreements for certain executive officers, including Messrs. Schnieders and Spitler. Mr. Schnieders’ severance agreement terminated on March 31, 2009 pursuant to the terms of his transition and retirement agreement, discussed below. The other named executive officers do not currently have severance agreements. The severance agreement for Mr. Spitler does not contain any classic “single trigger” provisions that would cause an immediate payment obligation solely as a result of a change in control of Sysco; however, the agreement does provide for certain tax gross up payments in the event he incurs a golden parachute excise tax following a change in control. Under the terms of this agreement, if we terminate Mr. Spitler without cause or he terminates his employment for good reason, as these terms are defined in the agreement, he is entitled to two years’ base salary plus two years’ MIP bonus, based on his average bonus over the prior five years, in 24 equal monthly installments. In addition, if the termination occurs before the end of a fiscal year in which a bonus would have been earned but for the termination, Mr. Spitler will receive a pro rated share of the cash bonus payable.

 

The agreement also provides for waivers of the provisions of the SERP and the EDCP that reduce payments thereunder to the extent that they would not be deductible by Sysco pursuant to Section 280G of the Internal Revenue Code. In addition, if we make payments to Mr. Spitler that are contingent on a change in control as provided for under Section 280G, the IRS may impose an excise tax on him pursuant to Section 4999 of the Internal Revenue Code with respect to such payments and certain other payments conditioned on a change in control. In that event, the severance agreement provides that Mr. Spitler will be entitled to receive an indemnity payment of any such tax and a “gross up” of that payment so that he will have no out of pocket costs as a result of the excise tax and tax reimbursement payments. The severance agreement also requires a general release from Mr. Spitler and contains non-compete and non-disparagement provisions. The severance agreement is described under “Executive Compensation — Severance Agreements.”

 

We amended Messrs. Schnieders’ and Spitler’s severance agreements in late calendar 2008 in order to bring them into compliance with Section 409A.

 

In connection with his resignation, Sysco entered into a transition and retirement agreement with Mr. Schnieders on January 19, 2009, which became effective as of January 27, 2009. The material terms of the retirement agreement are described under “Executive Compensation — Executive Severance Agreements.”

 

Analysis

 

When Sysco entered into the severance agreement with Mr. Spitler and various other individuals then serving as executive officers, the Committee and the Board believed that it was necessary in order to retain the executives and to ease their transition in the event of their involuntary termination of employment with Sysco without “cause” or for a voluntary termination for “good reason.” The Committee has reviewed a January 2008 Mercer review of severance provisions among our peer group companies, which indicates that approximately half of the peer group companies offered such protections. It was the Committee’s intent that provisions in the severance agreement regarding Mr. Spitler’s termination following a change in control preserve executive morale and productivity and encourage retention in the face of the disruptive impact of an actual or rumored change in control of Sysco. In addition, these provisions align executive and stockholder interests by enabling Mr. Spitler to consider corporate transactions that are in the best interests of Sysco’s stockholders and other constituents without undue concern over whether the transactions may jeopardize his employment and compensation. The Committee does not believe that the severance agreement provides undue incentive for Mr. Spitler to encourage a change in control. Finally, the provisions protect stockholder interests in the event of a change in control by helping assure some amount of management continuity, which could improve company performance and maintain stockholder stock value.

 

The Committee has reviewed the potential costs associated with the gross-up payments called for by the severance agreement and has determined that they are fair and appropriate for several reasons. The excise tax tends to penalize employees who defer compensation, as well as penalizing those employees who do not exercise options in favor of those who do. In addition, the lapse of restrictions and acceleration of vesting on equity awards can cause an executive to incur excise tax liability

before actually receiving any cash severance payments. Therefore, the Committee believes that the gross-up payments are necessary to ensure proper consideration of a change in control by Mr. Spitler.

 

As part of the Committee’s comprehensive review of compensation, the Committee reviewed whether or not agreements with change in control provisions similar to those in the severance agreements should be extended to the other named executive officers. In late fall 2008, the Committee determined that it would not offer such agreements to the other named executive officers at that time. This determination was based on the Committee’s subjective belief that many other companies had ceased to offer such agreements to their executives, as well as an analysis of the benefits offered under Sysco’s compensation programs to executives in the event of a change in control. The Committee determined that it would not ask Mr. Schnieders or Mr. Spitler to amend or terminate their previously existing severance agreements since they represented previously negotiated arrangements that continued to benefit the company.

 

The Committee approved the terms of Mr. Schnieders’ transition and retirement agreement pursuant to arms’ length negotiations with Mr. Schnieders. Mr. Schnieders agreed to have his severance agreement terminated on March 31, 2009 in exchange for the transition and retirement agreement. Although the Committee did not engage Mercer to specifically benchmark Mr. Schnieders’ compensation as executive Chairman of the Board, the Committee did rely on Mercer’s advice that executive Board Chairs are typically paid pursuant to a company’s existing executive compensation programs, although often at reduced levels. The Committee balanced this information with its primary objectives of ensuring that Mr. Schnieders would remain available for a reasonable period to assist Messrs. DeLaney and Spitler in their transition and that Mr. Schnieders’ severance agreement would terminate without triggering any payments to Mr. Schnieders or accelerating or triggering any of Mr. Schnieders’ other rights under the agreement.

 

Benefits, Perks and Other Compensation

 

We provide benefits for executives that we believe are reasonable, particularly since the cost of these benefits constitutes a very small percentage of each named executive officer’s total compensation.

 

Sysco’s named executive officers are generally eligible to participate in Sysco’s regular employee benefit programs, which include the defined benefit pension plan, a 401(k) plan, our employee stock purchase plan, group life insurance and other group benefit plans. We also provide MIP participants, including the named executive officers, with additional life insurance benefits, long-term disability coverage, including disability income coverage, and long-term care insurance, as well as reimbursement for an annual comprehensive wellness examination by a physician of their choice. We believe these benefits are required to remain competitive with our competitors for executive talent. Although the executive officers are eligible to participate in Sysco’s group medical and dental coverage, we adjust employees’ contributions towards the monthly cost of the medical plan according to salary level; therefore, executives pay a higher percentage of the cost of these benefits than do non-executives.

 

MIP participants, including the named executive officers, are encouraged to occasionally have their spouses accompany them at business dinners and other business functions in connection with some meetings of the Board of Directors, certain business meetings and other corporate-sponsored events, and Sysco pays, either directly or by reimbursement, all expenses associated with their spouses’ travel to and attendance at these business-related functions. Furthermore, Sysco owns fractional interests in private aircraft that are made available to members of the Board of Directors, executives and other members of management for business use, but are not allowed to be used for personal matters. Spouses may occasionally accompany executive officers on such flights in connection with travel to and from business-related functions if there is space available on the aircraft. In addition, the transition and retirement agreement entered into with Mr. Schnieders allowed him to utilize such flights for travel to and from his residence in Santa Fe, New Mexico and Sysco’s corporate headquarters from January 2009 through his retirement on June 27, 2009.

 

Officers, as well as many other associates, are provided with cell phones and PDA devices that are paid for by Sysco, are intended primarily for business use and which we consider to be necessary and integral to their performance of their duties. All employees, including our named executive officers, and members of our Board of Directors are also entitled to receive discounts on all products carried by Sysco and its subsidiaries.

 

Consistent with Sysco’s practices on relocation of officers, we have agreed to provide Mr. Kreidler reimbursement for certain relocation expenses following his appointment to serve as Executive Vice President and Chief Financial Officer at our headquarters in Houston, Texas.

 

Sysco does not provide the named executive officers with automobiles, security monitoring or split-dollar life insurance.

Benefits Following a Change in Control

 

As discussed above, we have no “single trigger” provisions in any severance or similar agreement that would cause an immediate cash payment obligation solely as a result of a change in control of Sysco; however, Mr. Spitler’s severance agreement does provide for certain tax gross up payments in the event of a change in control. We have included provisions regarding a change in control in several of Sysco’s benefit plans and agreements, including an immediate payout of CPUs at the maximum payout level and 100% vesting of SERP balances, EDCP amounts, options, and restricted stock upon a change in control. See “Executive Compensation — Quantification of Termination/Change in Control Payments” for a detailed explanation of potential benefits under the various provisions.

 

Analysis

 

The Committee believes that these provisions will preserve executive morale and productivity and encourage retention in the face of the disruptive impact of an actual or rumored change in control of Sysco. The Committee has balanced the impact of these acceleration provisions with corresponding provisions in the SERP and the EDCP that provide for a reduction in benefits to the extent they are not deductible under Section 280G of the Code.

 

Potential Impact on Compensation of Financial Restatements

 

In the event of a restatement of our financial results, other than a restatement due to a change in accounting policy, it is the Committee’s policy that it will review all incentive payments made to MIP participants within the 36 months prior to the restatement on the basis of having met or exceeded specific performance targets in grants or awards made on or after May 14, 2009. If such incentive payments would have been lower had they been calculated based on the restated results, the Committee will, to the extent permitted by applicable law, seek to recoup any such excess payments for the benefit of Sysco. The Committee has the sole discretion to determine the form and timing of the recoupment, which may include repayment from the MIP participant or an adjustment to the payout of a future incentive. In addition, the executives are subject to forfeiture of benefits under the SERP and EDCP in certain circumstances. These remedies would be in addition to, and not in lieu of, any actions imposed by law enforcement agencies, regulators or other authorities.

 

Income Deduction Limitations

 

Section 162(m) of the Internal Revenue Code generally sets a limit of $1 million on the amount of non-performance-based compensation that Sysco may deduct for federal income tax purposes in any given year with respect to the compensation of each of the named executive officers other than the chief financial officer. The Committee has adopted a general policy of structuring the performance-based compensation arrangements, including the MIP bonus and CPUs but not the supplemental bonuses, in order to preserve deductibility to the extent feasible after taking into account all relevant considerations. However, the Committee also believes that Sysco needs flexibility to meet its incentive and retention objectives, even if Sysco may not deduct all of the compensation paid to the named executive officers.

 

Based on the factors discussed under “Annual Compensation — Base Salary,” the Committee paid Mr. Schnieders a base salary of in excess of $1 million in order to remain competitive. The Committee determined that the additional base salary was appropriate even though the excess over $1 million was not deductible.

 

Section 409A of the Internal Revenue Code

 

Section 409A of the Internal Revenue Code deals specifically with non-qualified deferred compensation plans. We have made amendments to Mr. Spitler’s severance agreement, the SERP and the EDCP, and have designed the 2008 CPU Plan, in order to ensure that they comply with Section 409A.

 

Stock Ownership Guidelines

 

See “Stock Ownership — Stock Ownership Guidelines” for a description of our executive stock ownership guidelines and stock retention policies.

 

Total Compensation

 

In September, 2009, after reviewing the Mercer reports and survey and the Company’s fiscal 2009 performance, the Committee determined that each named executive officer’s total fiscal 2009 compensation provided the executive with adequate and reasonable compensation. The Committee also determined that each named executive officer’s total fiscal 2009 compensation was appropriate given Sysco’s performance in fiscal 2009 and the executive’s performance.

 

The Compensation Committee of the Board of Directors of Sysco Corporation has reviewed and discussed the foregoing Compensation Discussion and Analysis as required by Item 402(b) of Regulation S-K with management and, based on such review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Annual Report on Form 10-K and this Proxy Statement.

 

COMPENSATION COMMITTEE

 

  John M. Cassaday, Chairman

  Judith B. Craven*

  Manuel A. Fernandez*

  Phyllis S. Sewell

  Richard G. Tilghman**

  Jackie M. Ward

 

 

Summary Compensation Table

 

The following table sets forth information with respect to each of the named executive officers — our Chief Executive Officer and Chief Financial Officer as of the end of fiscal 2009, the four most highly compensated of the other executive officers of Sysco and its subsidiaries employed at the end of fiscal 2009 and our previous Chief Executive Officer, Mr. Schnieders, who retired as Chief Executive Officer as of March 31, 2009 and as executive Chairman of the Board as of June 27, 2009. In determining the three other most highly compensated executive officers, we excluded the amounts shown under “Change in Pension Value and Nonqualified Deferred Compensation Earnings.” The “Bonus” column was intentionally omitted because no cash bonuses have been paid outside of incentive plans during the fiscal years shown below.

 

 

 

 

 

 

 

 

 

f.  the estimated amount paid for spousal meals in connection with business events,

 

 

 

Grants of Plan-Based Awards

 

The following table provides information on CPU grants, stock options, restricted stock and MIP awards granted during fiscal 2009 to each of the named executive officers.

 

 

 

 

 

 

Cash Performance Unit Plans

 

The Sysco Corporation 2004 Cash Performance Unit Plan was formerly known as the Sysco Corporation 2004 Mid-Term Incentive Plan and the Sysco Corporation 2004 Long-Term Incentive Cash Plan, and is referred to herein as the “2004 Cash Performance Unit Plan.” The 2004 Cash Performance Unit Plan provides certain key employees, including the named executive officers, the opportunity to earn cash incentive payments based on pre-established performance criteria over performance periods of at least three years. We refer to these units as “CPUs.” The Committee currently makes grants annually for performance periods ending at the end of the third fiscal year, including the year of grant. We made the last grants under the 2004 plan on September 11, 2008, and the plan was replaced with the 2008 Cash Performance Unit Plan in November 2008. With respect to the compensation of the named executive officers, the 2008 plan is identical in all material respects the 2004 plan. All future CPU grants to the named executive officers will be made pursuant to the 2008 Plan. Beginning with the grants to be made in fiscal 2010, the Committee intends to set the performance goals for the awards during the first ninety days of the fiscal year and grant individual awards at its meeting the following November. The 2008 Plan will expire on November 30, 2014, unless sooner terminated by the Board.

Under the plans, the Committee may select performance goals from those specified in the plan, based on the performance of Sysco generally or on the performance of subsidiaries or divisions. With respect to the grants in fiscal 2007 that we paid in August 2009 and all currently outstanding corporate grants, the Committee set, or will set, performance criteria based on the average increases in Sysco’s earnings per share and sales over the performance periods. See below regarding certain adjustments to these measures. At the time of the fiscal 2007 grants, Mr. DeLaney was serving as President of Sysco’s Charlotte subsidiary, so one-half of his payout for the fiscal 2007 through fiscal 2009 performance period was based on that subsidiary’s increase in operating pre-tax earnings and one-half was based on the percentage increase in the subsidiary’s sales adjusted for product inflation and deflation. In addition to the awards that the named executives received in fiscal 2007 and that we paid to them in August 2009, as discussed in footnote (3) to the Summary Compensation Table, as of August 28, 2009, the named executives held cash performance unit grants in the amounts and for the performance periods set forth below:

 

 

Following the conclusion of each three-year performance period, if we meet the relevant performance criteria, we will pay each named executive an amount obtained by multiplying the number of performance units that the executive received by the $35 value assigned to each unit and then multiplying the resulting product by a specified percentage. Each of the outstanding CPU grants, as well as those paid in August 2009, including all grants to Messrs. Spitler, Pulliam, Smith and Green and the fiscal 2008 and fiscal 2009 grants to Mr. DeLaney, contains a sliding scale for each component for each of the performance periods as follows:

 

 

plus

 

 

All of these performance measures relate to performance for completed fiscal years. For period to period comparisons, we compare results in accordance with generally accepted accounting principles applied on a consistent basis, and we adjust them for any fiscal year containing 53 weeks. Samples of the payment criteria and payout percentages, including the threshold, target and maximum payment criteria and payout percentages, for each component of the outstanding corporate grants are set forth below. The amounts shown reflect a simplified grid of payment criteria and payout amounts; they do not include incremental criteria and payouts between the amounts shown. In between the levels shown in the table, the payout percentage increases incrementally, approximately in proportion to increases in the criteria. The minimum percentage payout would be 25% if only one of the performance criteria is satisfied at the minimum level and the maximum percentage payout would be 150% if the maximum levels for both criteria are satisfied. As an example, achievement of 12% earnings per share growth and 6% sales growth for the corporate CPUs covering the fiscal years 2008-2010 would result in an 87.5% payout, determined by adding 62.5% and 25%, or $30.625 per unit, determined by multiplying 87.5% by $35 per unit.

 

 

PLUS

 

 

The CPUs granted to Mr. DeLaney for the Charlotte subsidiary’s performance for fiscal year 2007 through fiscal year 2009 utilized a similar scale to the corporate scale for fiscal years 2007 through 2009 shown above, except that Part 1 is measured by reference to our Charlotte subsidiary’s increase in operating pre-tax earnings rather than earnings per share.

 

We will make all payments due with respect to the cash performance units in cash. No payments made under the Cash Performance Unit Plans to any named executive in any fiscal year may be higher than 1% of Sysco’s earnings before income taxes, as publicly disclosed in the “Consolidated Results of Operations” section of Sysco’s 10-K for the fiscal year ended immediately before the applicable payment date.

 

If the executive’s employment terminates during a performance period because the executive retires in good standing or leaves our employment due to disability, the executive will nonetheless receive the specified payment on the applicable payment date, as if he remained employed on that date. If the executive dies during the performance period, we will reduce the number of performance units that we awarded to the executive by multiplying the number of performance units we initially awarded to the executive by a fraction, the numerator being the number of months in the performance period during which the executive was an active employee of Sysco for at least 15 days of the month and the denominator being the number of months in the performance period. If the executive’s employment terminates before the end of the performance period for any reason other than retirement in good standing, death or disability, we will cancel the executive’s performance units, and the executive will not receive any payments under the plan with respect to the cancelled performance units. The plan provides that if a change in control occurs during a performance period we will pay the executive the maximum amount payable under the plan for the executive’s performance units for that performance period, as if the highest performance levels had been achieved.

 

2005 Management Incentive Plan

 

Our 2005 Management Incentive Plan provides key executives, including the named executive officers, with the opportunity to earn bonuses through the grant of annual performance-based bonus awards, payable in cash. The Committee generally makes bonus awards under the plan in May or June prior to the beginning of the fiscal year to which they relate and we pay amounts owed under such awards in August following the conclusion of such fiscal year. Bonus opportunities awarded to corporate participants, including the named executive officers, under the MIP may be based on any one or more of the following:

 

 

All of these performance measures relate to performance for completed fiscal years or multiple completed fiscal year periods. For period to period comparisons, we compare results in accordance with generally accepted accounting principles applied on a consistent basis, and we adjust them for any fiscal year containing 53 weeks. The Committee has the discretion to determine which performance factors will be used for a particular award and the relative weights of the factors. No named executive officer may receive an aggregate bonus for any given fiscal year under the MIP in excess of $10,000,000. The Committee will determine and pay all bonuses within 90 days following the end of the fiscal year for which the bonus was earned.

For the fiscal 2009 awards, as well as the awards we made in May 2009 with respect to fiscal 2010, we calculate the bonus utilizing a matrix based upon Sysco’s annual percentage increase in fully diluted earnings per share and its three-year average return on capital. The scale on the X-axis for the percentage increase in earnings per share begins at 4% and continues indefinitely, while the corresponding scale on the Y-axis for three-year average return on capital begins at 10% and also continues indefinitely; however, the maximum bonus that we will pay pursuant to this award is 330% of base salary. Where the two scales intersect determines the payout percentage of base salary. We will pay no bonus unless Sysco achieves at least a 4% increase in earnings per share and a 10% three-year average return on capital. For the fiscal 2010 awards, the three-year average return on capital will be calculated using fiscal 2008, 2009 and 2010. The average return on capital for fiscal 2008 and 2009 was 20.9% and 18.9%, respectively. We did not pay any bonuses pursuant to the fiscal 2009 awards under the MIP because Sysco did not achieve both an increase in fully diluted earnings per share of at least 4% and a three-year average return on capital for fiscal 2007, 2008 and 2009 of at least 10%.

 

A simplified version of the matrix for determining fiscal 2009 and 2010 payment amounts is set forth below. The criteria and payout percentage increase incrementally between the levels shown in the matrix below. Numbers shown in the body of the matrix are percentages applied to base salary in effect at the end of fiscal year.