UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION

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

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

Check the appropriate box:

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þ		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material Pursuant to §240.14a-12

 

Abercrombie & Fitch Co.

(Name of Registrant as Specified In Its Charter)

 

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

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Abercrombie & Fitch Co.

6301 Fitch Path

New Albany, Ohio 43054

(614) 283-6500

 

May 10, 2010

 

Dear Fellow Stockholders:

 

You are cordially invited to attend the Annual Meeting of Stockholders to be held at 10:00 a.m., Eastern Daylight Saving Time, on Wednesday, June 9, 2010, at our executive offices located at 6301 Fitch Path, New Albany, Ohio 43054. I hope that you will all be able to attend and participate in the Annual Meeting, at which time we will have the opportunity to review the business and operations of our Company.

 

The formal Notice of Annual Meeting of Stockholders and Proxy Statement are attached, and the matters to be acted upon by our stockholders are described in them.

 

It is important that your shares be represented and voted at the Annual Meeting. Accordingly, after reading the attached Proxy Statement, please complete, date, sign and return the accompanying form of proxy. Alternatively, you may vote electronically through the Internet or by telephone in accordance with the instructions on your form of proxy. Your vote is important regardless of the number of shares you own.

 

Sincerely yours,

 

Michael S. Jeffries

Chairman and Chief Executive Officer

Abercrombie & Fitch Co.

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

 

May 10, 2010

TO OUR STOCKHOLDERS:

 

Notice is hereby given that the 2010 Annual Meeting of Stockholders (the “Annual Meeting”) of Abercrombie & Fitch Co. (the “Company”) will be held at the executive offices of the Company located at 6301 Fitch Path, New Albany, Ohio 43054, on Wednesday, June 9, 2010, at 10:00 a.m., Eastern Daylight Saving Time, for the following purposes:

 

 

Your Board of Directors recommends that you vote “FOR” the election of the director nominees listed in the Company’s Proxy Statement for the Annual Meeting under the section captioned “ELECTION OF DIRECTORS”, “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending January 29, 2011, “FOR” the Abercrombie & Fitch Co. 2010 Long-Term Incentive Plan and “AGAINST” the stockholder proposals described in the Company’s Proxy Statement for the Annual Meeting, if the stockholder proposals are properly presented for consideration at the Annual Meeting.

 

If you were a stockholder of record, as shown by the transfer books of the Company, at the close of business on April 13, 2010, you will be entitled to receive notice of and to vote at the Annual Meeting or at any adjournment or postponement of the Annual Meeting.

Our Investor Relations telephone number is (614) 283-6500 should you wish to obtain directions to our executive offices in order to attend the Annual Meeting and vote in person. Directions to our executive offices may also be found on our website (www.abercrombie.com) on the “Investors” page under the “Directions To A&F” link.

 

By Order of the Board of Directors,

 

Michael S. Jeffries

Chairman and Chief Executive Officer

 

 

Abercrombie & Fitch Co.

6301 Fitch Path

New Albany, Ohio 43054

(614) 283-6500

 

PROXY STATEMENT

 

Dated May 10, 2010

 

ANNUAL MEETING OF STOCKHOLDERS

 

To Be Held On June 9, 2010

 

This Proxy Statement is being furnished to stockholders of Abercrombie & Fitch Co. (the “Company”) in connection with the solicitation of proxies by the Company’s Board of Directors (the “Board”) for use at the Annual Meeting of Stockholders to be held on Wednesday, June 9, 2010 (the “Annual Meeting”), or at any adjournment or postponement of the Annual Meeting. The Annual Meeting will be held at 10:00 a.m., Eastern Daylight Saving Time, at the Company’s executive offices located at 6301 Fitch Path, New Albany, Ohio 43054. This Proxy Statement and the accompanying form of proxy were first sent or given to stockholders on or about May 10, 2010.

 

A form of proxy for use at the Annual Meeting accompanies this Proxy Statement and is solicited by the Board. You may ensure your representation at the Annual Meeting by completing, signing, dating and promptly returning the accompanying form of proxy. A return envelope, which requires no postage if mailed in the United States, has been provided for your use. Alternatively, you may give voting instructions electronically via the Internet or by using the toll-free telephone number stated on the form of proxy. The deadline for stockholders to transmit voting instructions electronically via the Internet or telephonically is 11:59 p.m., Eastern Daylight Saving Time, on June 8, 2010. The Internet and telephone voting procedures are designed to authenticate stockholders’ identities, to allow stockholders to give their voting instructions and to confirm that stockholders’ voting instructions have been properly recorded. If you vote through the Internet, you should understand that there may be costs associated with electronic access, such as usage charges from Internet access providers and telephone companies, that will be borne by you.

 

Stockholders holding shares in “street name” with a broker/dealer, financial institution or other holder of record should review the information provided to them by the holder of record. This information will describe the procedures to be followed in instructing the holder of record how to vote the “street name” shares and how to revoke previously given instructions.

 

If you are a registered stockholder, you may revoke your proxy at any time before it is actually voted at the Annual Meeting by giving notice of revocation to the Company in writing, by accessing the designated Internet site prior to the deadline for transmitting voting instructions electronically, by using the toll-free number stated on the form of proxy prior to the deadline for transmitting voting instructions electronically, or by attending the Annual Meeting and giving notice of revocation in person. You may also change your vote by choosing one of the following options: executing and returning to the Company a later-dated form of proxy; submitting a later-dated vote through the designated Internet site or the toll-free telephone number stated on the form of proxy prior to the deadline for transmitting voting instructions electronically; or voting at the Annual Meeting. Attending the Annual Meeting will not, by itself, revoke your proxy.

The Company will pay the costs of preparing, assembling, printing and mailing this Proxy Statement, the accompanying form of proxy and any other related materials and all other costs incurred in connection with the solicitation of proxies on behalf of the Board, other than the Internet access and telephone usage charges mentioned above. Although the Company is soliciting proxies by mailing the proxy materials to stockholders, proxies may be solicited by Company employees or, as referred to by the Company, “associates,” via mail or by telephone, facsimile, electronic transmission or personal contact without additional compensation. The Company has retained Laurel Hill, New York, New York, to aid in the solicitation of proxies with respect to shares held by broker/dealers, financial institutions, and other custodians, fiduciaries and nominees for a fee of approximately $8,000, plus expenses. The Company will reimburse its transfer agent, broker/dealers, financial institutions, and other custodians, fiduciaries and nominees for their reasonable costs in sending proxy materials to stockholders.

 

The Company’s Annual Report on Form 10-K for the fiscal year ended January 30, 2010 (“Fiscal 2009”) is being delivered with this Proxy Statement.

 

VOTING AT THE ANNUAL MEETING

 

The shares entitled to vote at the Annual Meeting consist of shares of the Company’s Class A Common Stock, par value $0.01 per share (the “Common Stock”), with each share entitling the holder of record to one vote. There are no cumulative voting rights in the election of directors. At the close of business on April 13, 2010, the record date for the Annual Meeting, there were 88,196,508 shares of Common Stock outstanding. A quorum for the Annual Meeting is one-third of the outstanding shares of Common Stock.

 

The results of stockholder voting will be tabulated by the inspectors of election appointed for the Annual Meeting. Shares of Common Stock represented by properly executed proxies returned to the Company prior to the Annual Meeting or represented by properly authenticated Internet or telephone voting instructions will be counted toward the establishment of a quorum for the Annual Meeting.

 

Those shares of Common Stock represented by properly executed proxies, or properly authenticated Internet or telephone voting instructions, that are received prior to the Annual Meeting and not subsequently revoked, will be voted as directed by the stockholders. All valid proxies received prior to the Annual Meeting which do not specify how shares of Common Stock are to be voted will be voted “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending January 29, 2011, and, except in the case of broker non-votes, “FOR” the election as directors of the Company of the nominees of the Board listed under the section captioned “ELECTION OF DIRECTORS”, “FOR” the approval of the Abercrombie & Fitch Co. 2010 Long-Term Incentive Plan and “AGAINST” each of the three stockholder proposals, if such stockholder proposal is properly presented at the Annual Meeting. No appraisal rights exist for any action proposed to be taken at the Annual Meeting.

 

Under the applicable rules of the New York Stock Exchange (“NYSE”), the ratification of the Company’s independent registered public accounting firm is considered a “routine” item upon which broker/dealers, who hold their clients’ shares of Common Stock in street name, may vote the shares in their discretion on behalf of their clients if those clients have not furnished voting instructions within the required time frame before the Annual Meeting. Under applicable NYSE rules, the uncontested election of directors, the approval of the Abercrombie & Fitch Co. 2010 Long-Term Incentive Plan and the stockholder proposals are not considered “routine” items, and broker/dealers may not vote on any non-routine item without voting instructions from their clients. A “broker non-vote” occurs when a broker/dealer holding

shares of Common Stock for a client is unable to vote on a proposal because the proposal is non-routine and the client does not provide any voting instructions. Accordingly, if your shares are held in street name and you do not properly instruct your broker/dealer how to vote on these matters, your shares will not be voted with respect to any non-routine items.

 

NOTICE REGARDING INTERNET AVAILABILITY OF PROXY MATERIALS

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders of Abercrombie & Fitch Co. to be Held on June 9, 2010: This Proxy Statement, the Notice of Annual Meeting of Stockholders, a sample form of the proxy sent or given to stockholders by the Company and the Company’s Annual Report on Form 10-K for the fiscal year ended January 30, 2010 are available at www.proxyvote.com.

 

Our Investor Relations telephone number is (614) 283-6500 should you wish to obtain directions to our executive offices in order to attend the Annual Meeting and vote in person. Directions to our executive offices may also be found on our website (www.abercrombie.com) on the “Investors” page under the “Directions To A&F” link.

 

ELECTION OF DIRECTORS

 

There are currently nine directors — three in the class whose terms expire at the Annual Meeting, three in the class whose terms expire in 2011 and three in the class whose terms expire in 2012.

 

Four directors are standing for election at the Annual Meeting. Except for Elizabeth M. Lee, who was appointed on March 25, 2010, to fill a vacancy in the class of directors whose terms expire at the annual meeting of stockholders in 2011, directors elected at the Annual Meeting will hold office for a three-year term expiring at the annual meeting of stockholders in 2013 or until their successors are elected and qualified. Ms. Lee, upon election at the Annual Meeting, will hold office through the term of her class, which expires at the 2011 annual meeting of stockholders, or until her successor is elected and qualified. The nominees of the Board for election as directors at the Annual Meeting, each of whom was recommended by the Nominating and Board Governance Committee, are identified below. The individuals named as proxies in the form of proxy solicited by the Board intend to vote the shares of Common Stock represented by the proxies received under this solicitation for the Board’s nominees, unless otherwise instructed. If any nominee who would otherwise receive the required number of votes becomes unable or unwilling to serve as a candidate for election as a director, the individuals designated to vote as proxies will have full discretion to vote the shares of Common Stock represented by the proxies they hold for the election of the remaining nominees and for the election of any substitute nominee designated by the Board upon recommendation by the Nominating and Board Governance Committee. The Board has no reason to believe that any of the Board’s nominees will be unable or unwilling to serve as a director if elected.

 

In an uncontested election of directors, which the Company believes will be the case at the Annual Meeting, each nominee must be elected by a majority of the votes cast (i.e., the votes cast for such nominee’s election must exceed the votes cast against such nominee’s election). Broker non-votes, if any, and abstentions will not be treated as votes cast. Proxies may not cast votes for more than four nominees.

 

The Board has adopted a resignation policy, included in the Company’s Corporate Governance Guidelines, which requires that an incumbent director who receives less than a majority of the votes cast

in an uncontested election tender his or her resignation and outlines the procedures by which the Board will consider whether to accept such resignation. The resignation policy provides:

 

Nominees

 

The information set forth in the table below concerning the principal occupation, other affiliations and business experience, as of April 13, 2010, of each nominee for election as a director has been furnished to the Company by each nominee.

 

 

THE BOARD RECOMMENDS A VOTE “FOR” EACH OF THE

NOMINEES IDENTIFIED ABOVE.

Continuing Directors

 

The information set forth in the table below concerning the principal occupation, other affiliations and business experience, as of April 13, 2010, of each continuing director has been furnished to the Company by each director.

 

 

 

Certain Relationships and Related Transactions

 

Review, Approval or Ratification of Transactions with Related Persons

 

The Board has adopted the Abercrombie & Fitch Co. Related Person Transaction Policy (the “Policy”), which is administered by the Nominating and Board Governance Committee and the Company’s General Counsel. A copy of the Policy is posted on the “Corporate Governance” page of the Company’s website at www.abercrombie.com, accessible through the “Investors” page. The Policy applies to any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which the Company or one of its subsidiaries participates, the amount involved exceeds or is expected to exceed $120,000, and a “related person” had, has or will have a direct or indirect interest. Pursuant to the Policy, a “related person” is any person:

 

 

Each director, director nominee or executive officer of the Company must notify the Company’s General Counsel in writing of any interest that such individual or an immediate family member of such individual had, has or may have, in a related person transaction. Each director, director nominee and executive officer will also complete a questionnaire on an annual basis designed to elicit information about potential related person transactions. In addition, any related person transaction proposed to be entered into by the Company or one of its subsidiaries must be reported by the Company’s management to the Company’s General Counsel. Any potential related person transaction that is raised will be analyzed by the Company’s General Counsel, in

consultation with management and with outside counsel, as appropriate, to determine whether the transaction, arrangement or relationship does, in fact, constitute a related person transaction requiring compliance with the Policy.

 

Pursuant to the Policy, all related person transactions (other than those deemed to be pre-approved or ratified under the terms of the Policy) will be referred to the Nominating and Board Governance Committee for approval (or disapproval), ratification, revision or termination. Whenever practicable, a related person transaction is to be reviewed and approved or disapproved by the Nominating and Board Governance Committee prior to the effective date or consummation of the transaction. If the Company’s General Counsel determines that advance consideration of a related person transaction is not practicable, the Nominating and Board Governance Committee will review and, in its discretion, may ratify the transaction at the Committee’s next meeting. If the Company becomes aware of a related person transaction not previously approved under the Policy, the Nominating and Board Governance Committee will promptly review the transaction, including the relevant facts and circumstances, and evaluate all options available to the Company, including ratification, revision, termination or rescission of the transaction, and take the course of action the Committee deems appropriate under the circumstances.

 

No director may participate in any approval or ratification of a related person transaction in which the director or an immediate family member of the director is involved. The Nominating and Board Governance Committee may only approve or ratify those transactions that the committee determines to be in the Company’s best interests. In making this determination, the Nominating and Board Governance Committee will review and consider all relevant information available to it, including:

 

 

Any related person transaction previously approved or ratified by the Nominating and Board Governance Committee or otherwise already existing that is ongoing in nature is to be reviewed by the Nominating and Board Governance Committee annually.

Pursuant to the terms of the Policy, the following related person transactions are deemed to be pre-approved or ratified (as appropriate) by the Nominating and Board Governance Committee even if the aggregate amount involved would exceed $120,000:

 

 

The Code of Business Conduct and Ethics adopted by the Board also addresses the potential conflicts of interest which may arise when a director, officer or associate has an interest in a transaction to which the Company or one of its subsidiaries is a party. If a potential conflict of interest arises concerning an officer or director of the Company, all information regarding the issue is to be reported to the Company’s General Counsel for review and, if appropriate or required under the Company’s policies (including the Company’s Related Person Transaction Policy), submitted to the Nominating and Board Governance Committee for review and disposition.

 

Transactions with Related Persons

 

Pursuant to the indemnification provisions contained in the Company’s Amended and Restated Bylaws, the Company is paying the legal fees incurred by current and former executive officers and directors in connection with the lawsuits against the Company and the derivative lawsuits on behalf of the Company described in the section captioned “Certain Legal Proceedings”. During Fiscal 2009, the Company advanced approximately $870,000 for such fees on behalf of such current and former executive officers and directors. Each such current or former executive officer or director has undertaken to repay to the Company any expenses advanced by the Company should it be ultimately determined that the executive officer or director was not entitled to indemnification by the Company. The Company expects to be reimbursed for most of these fees under one or more of its insurance policies.

 

Director Independence

 

The Board has reviewed, considered and discussed each director’s and each director nominee’s relationships, both direct and indirect, with the Company and its subsidiaries in order to determine whether such director or director nominee meets the independence requirements of the applicable sections of the NYSE Listed Company Manual (the “NYSE Rules”). The Board has determined that a majority of the

incumbent directors qualify as independent under the NYSE Rules. Specifically, the Board has determined that each of James B. Bachmann, Lauren J. Brisky, Archie M. Griffin, John W. Kessler, Elizabeth M. Lee, Edward F. Limato, Robert A. Rosholt and Craig R. Stapleton has no commercial, industrial, banking, consulting, legal, accounting, charitable, familial or other relationship with the Company, either directly or indirectly, that would be inconsistent with a determination of independence under the applicable NYSE Rules. The Board specifically considered a number of circumstances in the course of reaching these conclusions, including the relevant relationships described above in the section captioned “Certain Relationships and Related Transactions — Transactions with Related Persons” as well as the facts that:

 

 

Mr. Jeffries does not qualify as independent because he is an executive officer of the Company.

 

There are no family relationships among any of the directors and executive officers of the Company. Please see the text under the caption “SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT” in Part I of the Company’s Annual Report on Form 10-K for Fiscal 2009 filed on March 29, 2010 for information about the Company’s executive officers.

 

Meetings of and Communications with the Board

 

The Board held seven meetings of the full Board and two non-management director meetings and took two actions by written consent during Fiscal 2009. All of the directors attended 75% or more of the total number of meetings of the Board and of committees of the Board on which they served that were held during the period they served.

 

Although the Company does not have a formal policy requiring members of the Board to attend annual meetings of the stockholders, the Company encourages all incumbent directors and director nominees to attend each annual meeting of stockholders. All incumbent directors attended the Company’s last annual meeting of stockholders held on June 10, 2009.

In accordance with the Company’s Corporate Governance Guidelines and applicable NYSE Rules, the non-management directors of the Company meet (without management present) at regularly scheduled executive sessions at least twice per year and at such other times as the directors deem necessary or appropriate. Executive sessions of the non-management directors are scheduled as an agenda item at each regularly scheduled meeting of the Board though the non-management directors do not always meet in executive session. Prior to the establishment of the Lead Independent Director position in February 2010, each executive session was presided over by one of the non-management directors, as determined prior to or at the beginning of the executive session by the non-management directors. On February 23, 2010, Craig R. Stapleton was appointed the Company’s first Lead Independent Director, and the Company’s Corporate Governance Guidelines were amended to set forth the duties and responsibilities of the Lead Independent Director position. Among the Lead Independent Director’s duties is presiding at all meetings of the non-management or independent directors. If the non-management directors include directors who are not independent, then at least once a year the independent directors of the Company will meet in executive session and the Lead Independent Director will preside at each executive session.

 

The Board believes it is important for stockholders and other interested parties to have a process to send communications to the Board and its individual members. Accordingly, stockholders and other interested parties who wish to communicate with the Board, the non-management directors as a group, the independent directors as a group, the Lead Independent Director, or a particular director may do so by sending a letter to such individual or individuals, in care of the Company’s Secretary, to the Company’s executive offices at 6301 Fitch Path, New Albany, Ohio 43054. The mailing envelope must contain a clear notation indicating that the enclosed letter is a “Stockholder/Interested Party — Non-Management Director Communication,” “Stockholder/Interested Party — Board Communication”, “Stockholder/Interested Party — Independent Director Communication”, “Stockholder/Interested Party — Lead Independent Director Communication” or “Stockholder/Interested Party — Director Communication,” as appropriate. All such letters must identify the author as a stockholder or other interested party and clearly state whether the intended recipients are all members of the Board, all non-management directors, all independent directors or certain specified individual directors. Copies of all such letters will be circulated to the appropriate director or directors. Correspondence marked “personal and confidential” will be delivered to the intended recipient without opening. There is no screening process in respect of communications from stockholders or other interested parties.

 

Committees of the Board

 

The Board has five standing committees — the Compensation Committee, the Executive Committee, the Audit Committee, the Nominating and Board Governance Committee and the Corporate Social Responsibility Committee.

 

Compensation Committee

 

The Compensation Committee provides overall guidance for the Company’s executive compensation policies and approves the amounts and elements of compensation for the Company’s executive officers. The Compensation Committee is currently comprised of Lauren J. Brisky (Chair), James B. Bachmann, Edward F. Limato and Craig R. Stapleton. Ms. Brisky and Mr. Limato served as members of the Compensation Committee throughout Fiscal 2009. John W. Kessler served as a member of the Compensation Committee until June 9, 2009 when he resigned from the Compensation Committee. Mr. Bachmann was appointed to the Compensation Committee on June 10, 2009. Mr. Stapleton was appointed to the Compensation Committee on February 12, 2009 in conjunction with his election to the Board. The Board has determined that each member

of the Compensation Committee qualifies as an independent director under the applicable NYSE Rules. The Compensation Committee is organized and conducts its business pursuant to a written charter which was most recently revised by the Board on August 21, 2007, a copy of which is posted on the “Corporate Governance” page of the Company’s website at www.abercrombie.com, accessible through the “Investors” page. The Compensation Committee periodically reviews and reassesses the adequacy of its charter, in consultation with the Nominating and Board Governance Committee, and recommends any proposed changes to the full Board as necessary to reflect changes in regulatory requirements, authoritative guidance and evolving practices.

 

The Compensation Committee’s charter sets forth the duties and responsibilities of the Compensation Committee, which include:

 

 

The Compensation Committee held ten meetings during Fiscal 2009. The Compensation Committee’s processes and procedures to determine executive compensation, including the use of compensation consultants and the role of executive officers in making recommendations relating to executive compensation, are described in the section captioned “COMPENSATION DISCUSSION AND ANALYSIS” beginning on page 35.

 

Executive Committee

 

The Executive Committee is comprised of John W. Kessler (Chair), Michael S. Jeffries and Edward F. Limato. Messrs. Kessler, Jeffries and Limato served as members of the Executive Committee throughout Fiscal 2009.

 

The Executive Committee is organized and conducts its business pursuant to a written charter that was adopted by the Board on November 12, 2009, a copy of which is posted on the “Corporate Governance” page of the Company’s website at www.abercrombie.com, accessible through the “Investors” page. The Executive Committee will periodically review and reassess the adequacy of its charter, in consultation with the Nominating and Board Governance Committee, and recommend changes to the full Board as necessary to reflect changes in regulatory requirements, authoritative guidance and evolving practices.

 

The Executive Committee’s charter sets forth the duties and responsibilities of the Executive Committee, which include:

 

 

The Executive Committee held three meetings and took one action by written consent during Fiscal 2009.

 

Audit Committee

 

The Audit Committee was established in accordance with Section 3(a)(58)(A) of the Exchange Act and is currently comprised of James B. Bachmann (Chair), Lauren J. Brisky and Robert A. Rosholt. Messrs. Bachmann and Rosholt and Ms. Brisky served as members of the Audit Committee throughout Fiscal 2009. The Board has determined that each current member of the Audit Committee qualifies as an independent director under the applicable NYSE Rules and under SEC Rule 10A-3. The Board has also determined that each of the current

members of the Audit Committee is “financially literate” under the applicable NYSE Rules. In addition, the Board has determined that each of Mr. Bachmann, Ms. Brisky and Mr. Rosholt qualifies as an “audit committee financial expert” under applicable SEC Rules by virtue of their experience described above, in the section captioned “ELECTION OF DIRECTORS”. The Board believes that each member of its Audit Committee is highly qualified to discharge his or her duties on behalf of the Company and its subsidiaries.

 

The Audit Committee is organized and conducts its business pursuant to a written charter that was most recently revised by the Board on August 14, 2008, a copy of which is posted on the “Corporate Governance” page of the Company’s website at www.abercrombie.com, accessible through the “Investors” page. At least annually, the Audit Committee, in consultation with the Nominating and Board Governance Committee, reviews and reassesses the adequacy of its charter and recommends any proposed changes to the full Board as necessary to reflect changes in regulatory requirements, authoritative guidance and evolving practices.

 

The Audit Committee’s duties and responsibilities are set forth in its charter. The primary functions of the Audit Committee are to assist the Board in its oversight of:

 

 

The Audit Committee’s specific responsibilities include:

 

 

 

The Audit Committee held nine meetings during Fiscal 2009. The Audit Committee’s annual report relating to Fiscal 2009 is on page 76.

 

Nominating and Board Governance Committee

 

The Nominating and Board Governance Committee is currently comprised of Craig R. Stapleton (Chair), Archie M. Griffin and Robert A. Rosholt. Messrs. Griffin and Rosholt served as members of the Nominating and Board Governance Committee throughout Fiscal 2009. John W. Kessler served as a member of the Nominating and Board Governance Committee until June 9, 2009 when he resigned from the Nominating and Board Governance Committee. Mr. Stapleton was appointed to the Nominating and Board Governance Committee on June 10, 2009. The Board has determined that each current member of the Nominating and Board Governance Committee qualifies as an independent director under the applicable NYSE Rules. The Nominating and Board Governance Committee is organized and conducts its business pursuant to a written charter which was most recently revised by the Board on August 21, 2007, a copy of which is posted on the “Corporate Governance” page of the Company’s website at www.abercrombie.com, accessible through the “Investors” page. The Nominating and Board Governance Committee periodically reviews and reassesses the adequacy of its charter and recommends any proposed changes to the full Board as necessary to reflect changes in regulatory requirements, authoritative guidance and evolving practices.

 

The purpose of the Nominating and Board Governance Committee is to provide oversight on a broad range of issues surrounding the composition and operation of the Board. The primary responsibilities of the Nominating and Board Governance Committee include:

 

 

 

The Nominating and Board Governance Committee held five meetings during Fiscal 2009.

 

Corporate Social Responsibility Committee

 

The Corporate Social Responsibility Committee was established in November 2009 to provide oversight of the Company’s attention to issues of social responsibility, including diversity, human rights, philanthropy and sustainability and the Company’s policies, practices and progress with respect to such issues. The Corporate Social Responsibility Committee is currently comprised of Archie M. Griffin (Chair), John W. Kessler and Elizabeth M. Lee. The Corporate Social Responsibility Committee is organized and conducts its business pursuant to a written charter that was adopted by the Board on November 12, 2009, a copy of which is posted on the “Corporate Governance” page of the Company’s website at www.abercrombie.com, accessible through the “Investors” page. The Corporate Social Responsibility Committee will periodically review and reassess the adequacy of its charter, in consultation with the Nominating and Board Governance Committee, and recommend changes to the full Board as necessary to reflect changes in regulatory requirements, authoritative guidance and evolving practices.

 

The Corporate Social Responsibility Committee’s charter sets forth the duties and responsibilities of the Corporate Social Responsibility Committee, which include:

 

 

 

The Corporate Social Responsibility Committee did not hold any meetings in Fiscal 2009.

 

Director Qualifications and Consideration of Director Candidates

 

As described above, the Company has a standing Nominating and Board Governance Committee that has responsibility for providing oversight on a broad range of issues surrounding the composition and operation of the Board, including identifying candidates qualified to become directors and recommending director nominees to the Board.

 

When considering candidates for the Board, the Nominating and Board Governance Committee evaluates the entirety of each candidate’s credentials and does not have specific eligibility requirements or minimum qualifications that must be met by a candidate. The Nominating and Board Governance Committee considers those factors it deems appropriate, including independence, judgment, skill, diversity, strength of character, ethics, integrity, experience with businesses and organizations of comparable size or scope, experience as an executive of or adviser to public and private companies, experience and skill relative to other Board members, specialized knowledge or experience, and the desirability of the candidate’s membership on the Board and any committees of the Board. Depending on the current needs of the Board, the Nominating and Board Governance Committee may weigh certain factors more or less heavily. The Nominating and Board Governance Committee does, however, believe that all members of the Board should have the highest character and integrity, a reputation for working constructively with others, sufficient time to devote to Board matters and no conflict of interest that would interfere with performance as a director.

 

While the Board and the Nominating and Board Governance Committee do not have specific eligibility requirements and do not weigh any of the factors they deem appropriate more heavily than others, both the Board and the Nominating and Board Governance Committee believe that, as a group, the directors should have diverse backgrounds and qualifications. The Company believes that the Board, as a group, has such backgrounds and qualifications, although this is an area of constant focus for the Board and the Nominating and Board Governance Committee. In connection with their annual Board self-evaluation process, members of the Board have highlighted several backgrounds and qualifications that the Board has sought and/or

continues to seek. These include international experience, which the Company believes Mr. Stapleton helped provide; additional female members, which the Company believes Ms. Lee helped address; and additional retail and/or chief executive experience.

 

The Nominating and Board Governance Committee considers candidates for the Board from any reasonable source, including stockholder recommendations, and does not evaluate candidates differently based on the source of the recommendation. The process for seeking and vetting additional director candidates is ongoing and is not dependent upon the existence of a vacancy on the Board. Accordingly, the Board believes that this ongoing pursuit of qualified candidates functions as an appropriate director succession plan. Pursuant to its charter, the Nominating and Board Governance Committee has the authority to retain consultants and search firms to assist in the process of identifying and evaluating candidates and to approve the fees and other retention terms for any such consultant or search firm.

 

Information regarding each of our directors and director nominees is set forth above. In addition to the specific information presented with respect to such individual, the Company believes that each of its directors has a reputation for the highest character and integrity and that the directors work very cohesively and constructively with each other and with management. They have each demonstrated business acumen and an ability to exercise sound judgment, as well as a commitment of service to the Board and the Company.

 

Director Nominations

 

The Board, taking into account the recommendations of the Nominating and Board Governance Committee, selects nominees for election as directors at each annual meeting of stockholders. Stockholders may recommend director candidates for consideration by the Nominating and Board Governance Committee by giving written notice of the recommendation to the Chair of the Nominating and Board Governance Committee, in care of the Company, at the Company’s executive offices at 6301 Fitch Path, New Albany, Ohio 43054. The recommendation must include the candidate’s name, age, business address, residence address and principal occupation. The recommendation must also describe the qualifications, attributes, skills or other qualities possessed by the recommended director candidate. A written statement from the candidate consenting to serve as a director, if elected, must accompany any such recommendation.

 

In addition, stockholders wishing to formally nominate a candidate for election as a director may do so provided they comply with the nomination procedures set forth in the Company’s Amended and Restated Bylaws. Each stockholder nomination must be delivered in person or mailed by United States certified mail to the Secretary of the Company and received not less than 120 days nor more than 150 days before the first anniversary date of the Company’s proxy statement in connection with the last annual meeting of stockholders, which, for purposes of the Company’s 2011 Annual Meeting of Stockholders, means no later than January 10, 2011 nor earlier than December 11, 2010. The Secretary of the Company will deliver any stockholder nominations received in a timely manner for review by the Nominating and Board Governance Committee. Each stockholder nomination must contain the following information:

 

 

 

Each nomination must be accompanied by the written consent of the proposed nominee to be named in the proxy statement and to serve if elected. No person may be elected as a director unless he or she has been nominated by a stockholder in the manner just described or by the Board or a committee of the Board.

 

Board Leadership Structure

 

The Company is led by Mr. Jeffries, who has served as Chief Executive Officer of the Company since February 1992, and as Chairman since May 1998, when the Company was spun off from its former parent. The Company’s Board is comprised of Mr. Jeffries and eight non-management directors. The Company established a Lead Independent Director position in February 2010 and appointed Mr. Stapleton as the initial Lead Independent Director.

 

In addition to other duties more fully described in the Company’s Corporate Governance Guidelines, the Lead Independent Director is responsible for:

 

 

The Board has five standing committees: Audit, Compensation, Corporate Social Responsibility, Executive and Nominating and Board Governance. Each of these committees has a separate chair. Detailed information on each Board committee is contained in the section captioned “Committees of the Board”.

The Company believes that a combined Chairman and Chief Executive Officer position, together with independent chairs for each of our Board committees, a Lead Independent Director, regularly scheduled executive sessions of the Board and regularly scheduled meetings of the non-management directors is the most appropriate Board leadership structure for the Company at this time. This structure demonstrates to all of our stakeholders, including our associates, customers and stockholders, that our Board is committed to engaged, independent leadership and the performance of its responsibilities. Experienced and independent directors, sitting on various committees with independent chairs, oversee the Company’s operations, risks, performance and business strategy. The Board believes that combining the Chairman and Chief Executive Officer positions takes advantage of the talent and knowledge of Mr. Jeffries, the person whom the Board recognizes as the “founder” of the modern day Abercrombie & Fitch, and effectively combines the responsibilities for strategy development and execution with management of day-to-day operations. It also reduces the potential for confusion or duplication of efforts and provides clear leadership for the Company. The Board believes that its strong governance practices, including its supermajority of independent members, the combination of the Chairman and Chief Executive Officer roles, and its clearly defined Lead Independent Director responsibilities, provide an appropriate balance among strategy development, operational execution and independent oversight of the Company.

 

Board Role in Risk Oversight

 

Our Board has overall responsibility for risk oversight with a focus on the most significant risks facing the Company. Not all risks can be dealt with in the same way. Some risks may be easily perceived and controllable, and other risks are unknown; some risks can be avoided or mitigated by particular behavior, and some risks are unavoidable as a practical matter. For some risks, the potential adverse impact would be minor, and, as a matter of business judgment, it may not be appropriate to allocate significant resources to avoid the adverse impact; in other cases, the adverse impact could be significant, and it is prudent to expend resources to seek to avoid or mitigate the potential adverse impact. In some cases, a higher degree of risk may be acceptable because of a greater perceived potential for reward.

 

Management is responsible for identifying risk and risk controls related to significant business activities; mapping the risks to Company strategy; and developing programs and recommendations to determine the sufficiency of risk identification, the balance of potential risk to potential reward and the appropriate manner in which to control risk. The Board implements its risk oversight responsibilities by having management provide periodic reports on the significant risks that the Company faces and how the Company is seeking to control or mitigate risk, if and when appropriate. In some cases, risk oversight is addressed as part of the full Board’s engagement with the Chief Executive Officer and management. In other cases, a Board committee is responsible for oversight of specific risk topics. For example, the Audit Committee oversees issues related to internal control over financial reporting; the Nominating and Board Governance Committee oversees issues related to the Company’s governance structure, corporate governance matters and processes and risks arising from related person transactions; the Corporate Social Responsibility Committee will oversee issues related to diversity, sustainability, human rights and similar issues; and the Compensation Committee oversees risks related to compensation programs, as discussed in greater detail below. Presentations and other information for the Board and Board committees generally identify and discuss relevant risk and risk control; and the Board members assess and oversee the risks as a part of their review of the related business, financial or other activity of the Company.

 

Management recently completed a comprehensive enterprise risk management review, in which the identification of enterprise level risks and mitigation processes were the primary topics. This review was

overseen by the Audit Committee. The Audit Committee and the full Board will continue to monitor enterprise risk management and will receive periodic updates on enterprise risk management.

 

Risk Assessment in Compensation Programs.  Consistent with new SEC disclosure requirements, management has assessed the Company’s compensation programs and has concluded that the Company’s compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company. This assessment was overseen by the Compensation Committee, in consultation with its independent counsel and independent compensation consultant.

 

In particular, in reaching its conclusion, the Company has reviewed the compensation of all associates in light of the following areas of risk:

 

 

The Company does not believe that any of these specific areas apply to the Company’s compensation policies and practices in any meaningful manner.

 

Compensation of Directors

 

Officers who are directors receive no additional compensation for services rendered as directors. Directors who are not associates of the Company or its subsidiaries (“non-associate directors”) receive:

 

 

The annual restricted stock unit grant is subject to the following provisions:

 

 

 

Non-associate directors are also reimbursed for their expenses for attending Board and committee meetings and receive the discount on purchases of the Company’s merchandise extended to all Company associates.

 

The Company has maintained the Directors’ Deferred Compensation Plan since October 1, 1998. The Directors’ Deferred Compensation Plan was split into two plans (Plan I and Plan II) as of January 1, 2005 to comply with Internal Revenue Code Section 409A. The terms of Plan I govern “amounts deferred” (within the meaning of Section 409A) in taxable years beginning before January 1, 2005 and any earnings thereon. The terms of Plan II govern “amounts deferred” in taxable years beginning on or after January 1, 2005 and any earnings thereon. Voluntary participation in the Directors’ Deferred Compensation Plan enables a non-associate director of the Company to defer all or a part of his or her retainers, meeting fees (which are no longer paid) and stock-based incentives (including options, restricted shares of Common Stock and restricted stock units relating to shares of Common Stock). The deferred compensation is credited to a bookkeeping account where it is converted into a share equivalent. Stock-based incentives deferred pursuant to the Directors’ Deferred Compensation Plan are credited as shares of Common Stock. Amounts otherwise payable in cash are converted into a share equivalent based on the fair market value of the Company’s Common Stock on the date the amount is credited to a non-associate director’s bookkeeping account. Dividend equivalents will be credited on the shares of Common Stock credited to a non-associate director’s bookkeeping account (at the same rate as cash dividends are paid in respect of outstanding shares of Common Stock) and converted into a share equivalent. Each non-associate director’s only right with respect to his or her bookkeeping account (and the amounts allocated thereto) will be to receive distribution of the amount in the account in accordance with the terms of the Directors’ Deferred Compensation Plan. Distribution of the deferred amount is made in the form of a single lump-sum transfer of the whole shares of Common Stock represented by the share equivalents in the non-associate director’s bookkeeping account (plus cash representing the value of fractional shares) or annual installments in accordance with the election made by the non-associate director. Shares of Common Stock will be distributed under the 2005 Long-Term Incentive Plan in respect of deferred compensation allocated to non-associate directors’ bookkeeping accounts on or after August 1, 2005, under the 2003 Stock Plan for Non-Associate Directors in respect of deferred compensation allocated to non-associate directors’ bookkeeping accounts between May 22, 2003 and July 31, 2005 and under the 1998 Restatement of the 1996 Stock Plan for Non-Associate Directors in respect of deferred compensation allocated to non-associate directors’ bookkeeping accounts prior to May 22, 2003.

The following table summarizes the compensation paid to, awarded to or earned by, the non-associate directors for Fiscal 2009. The Company’s Chairman and Chief Executive Officer Michael S. Jeffries is not included in this table as he is an officer of the Company and thus receives no compensation for his services as a director. The compensation received by Mr. Jeffries as an officer of the Company is shown in the Fiscal 2009 Summary Compensation Table on page 52 and discussed in the text and tables included under the section captioned “EXECUTIVE OFFICER COMPENSATION” beginning on page 52.

 

Director Compensation for Fiscal 2009

 

 

 

 

Corporate Governance Guidelines

 

In accordance with applicable NYSE Rules, the Board has adopted the Abercrombie & Fitch Co. Corporate Governance Guidelines to promote the effective functioning of the Board and its committees and to reflect the Company’s commitment to the highest standards of corporate governance. The Board, with the assistance of the Nominating and Board Governance Committee, periodically reviews the Corporate Governance Guidelines to ensure they are in compliance with all applicable requirements. The Corporate Governance Guidelines, which were most recently amended by the Board on February 23, 2010, are available on the “Corporate Governance” page of the Company’s website at www.abercrombie.com, accessible through the “Investors” page.

 

Code of Business Conduct and Ethics

 

In accordance with applicable NYSE Rules, the Board has adopted the Abercrombie & Fitch Co. Code of Business Conduct and Ethics, which is available on the “Corporate Governance” page of the Company’s website at www.abercrombie.com, accessible through the “Investors” page. The Code of Business Conduct and Ethics, which is applicable to all associates, includes a Code of Ethics applicable to the Chief Executive Officer, Chief Financial Officer, Controller, Treasurer, all Vice Presidents in the Finance Department and other designated financial associates. The Company intends to satisfy any disclosure requirements regarding any amendment of, or waiver from, a provision of the Code of Business Conduct and Ethics by posting such information on the “Corporate Governance” page of the Company’s website at www.abercrombie.com, accessible through the “Investors” page.

 

Compensation Committee Interlocks and Insider Participation

 

The Compensation Committee is currently comprised of Lauren J. Brisky (Chair), James B. Bachmann, Edward F. Limato and Craig R. Stapleton. Ms. Brisky and Mr. Limato served as members of the Compensation Committee throughout Fiscal 2009. Mr. Stapleton was appointed to the Compensation Committee on February 12, 2009 in conjunction with his election to the Board. John W. Kessler served as a member of the Compensation Committee until June 9, 2009 when he resigned from the committee. Mr. Bachmann was appointed to the Compensation Committee on June 10, 2009.

 

Certain Legal Proceedings

 

On September 2, 2005, a purported class action, styled Robert Ross v. Abercrombie & Fitch Company, et al., was filed against the Company and certain of its officers in the United States District Court for the Southern District of Ohio on behalf of a purported class of all persons who purchased or acquired shares of the Company’s Common Stock between June 2, 2005 and August 16, 2005. In September and October of 2005, five other purported class actions were subsequently filed against the Company and other defendants in the same Court. All six securities cases allege claims under the federal securities laws related to sales of Common Stock by certain defendants and to a decline in the price of the Company’s Common Stock during the summer of 2005, allegedly as a result of misstatements attributable to the Company. Plaintiffs seek unspecified monetary damages. On November 1, 2005, a motion to consolidate all of these purported class actions into the first-filed case was filed by some of the plaintiffs. The Company joined in that motion. On March 22, 2006, the motions to consolidate were granted, and these actions (together with the federal court derivative cases described in the following paragraph) were consolidated for purposes of motion practice, discovery and pretrial proceedings. A consolidated amended securities class action complaint (the “Complaint”) was filed on August 14, 2006. On October 13, 2006, all defendants moved to dismiss that Complaint. On August 9,

2007, the Court denied the motions to dismiss. On September 14, 2007, defendants filed answers denying the material allegations of the Complaint and asserting affirmative defenses. On October 26, 2007, plaintiffs moved to certify their purported class. After briefing and argument, the motion was submitted on March 24, 2009, and granted on May 21, 2009. On June 5, 2009, defendants petitioned the Sixth Circuit for permission to appeal the class certification order and on August 24, 2009, the Sixth Circuit granted leave to appeal.

 

On September 16, 2005, a derivative action, styled The Booth Family Trust v. Michael S. Jeffries, et al., was filed in the United States District Court for the Southern District of Ohio, naming the Company as a nominal defendant and seeking to assert claims for unspecified damages against nine of the Company’s present and former directors, alleging various breaches of the directors’ fiduciary duty and seeking equitable and monetary relief. In the following three months, four similar derivative actions were filed (three in the United States District Court for the Southern District of Ohio and one in the Court of Common Pleas for Franklin County, Ohio) against present and former directors of the Company alleging various breaches of the directors’ fiduciary duty allegedly arising out of the same matters alleged in the Ross case and seeking equitable and monetary relief on behalf of the Company. In March of 2006, the federal court derivative actions were consolidated with the Ross actions for purposes of motion practice, discovery and pretrial proceedings. A consolidated amended derivative complaint was filed in the federal proceeding on July 10, 2006. On February 16, 2007, the Company announced that the Board had received a report of the Special Litigation Committee established by the Board to investigate and act with respect to claims asserted in the derivative lawsuit, which concluded that there was no evidence to support the asserted claims and directed the Company to seek dismissal of the derivative cases. On September 10, 2007, the Company moved to dismiss the federal derivative cases on the authority of the Special Litigation Committee report. On March 12, 2009, the Company’s motion was granted and, on April 10, 2009, plaintiffs filed an appeal from the order of dismissal. The state court has stayed further proceedings in the state-court derivative action until resolution of the consolidated federal derivative cases.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table furnishes, as of April 13, 2010 (unless otherwise noted below), with respect to each person who is known to the Company to be the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company, the name and address of such beneficial owner, the number of shares of Common Stock beneficially owned (as determined in accordance with Rule 13d-3 under the Exchange Act) and the percentage such shares comprised of the outstanding shares of Common Stock of the Company.

 

 

 

 

The following table furnishes the number of shares of Common Stock of the Company beneficially owned (as determined in accordance with Rule 13d-3 under the Exchange Act) by each of the current directors and director nominees, by each of the named executive officers, and by all of the current directors and executive officers as a group, as of April 13, 2010.

 

 

 

 

Stock Ownership Guidelines

 

The Board believes it is important that the executive officers and directors have, and are recognized both internally and externally as having, long-term financial interests that are aligned with those of the Company’s stockholders. Accordingly, the Board adopted stock ownership guidelines for all directors and executive officers effective as of November 12, 2009. The Company’s stock ownership guidelines are posted on the “Corporate Governance” page of the Company’s website at www.abercrombie.com, accessible through the “Investors” page.

 

The guidelines for the executive officers are:  five times annual base salary for the Chief Executive Officer and one times annual base salary for the other executive officers. The guidelines are initially calculated using the executive officer’s base salary as of the later of the date the guidelines were adopted and the date the individual was first designated as an executive officer by the Board. The guidelines may be recalculated, in the discretion of the Nominating and Board Governance Committee, when an executive officer changes pay grade and otherwise from time to time. Until the amount contemplated by the guidelines is achieved, the executive officer is required to retain an amount equal to 50% of the shares received as a result of the exercise of stock options or stock-settled stock appreciation rights or the vesting of restricted stock or restricted stock units, in each case net of any exercise price or withholding taxes; provided, that for a three-year transition period from the date of adoption, executive officers are required to retain 331/3% of the net shares received if they are not above the applicable guidelines. Failure to meet or, in unique circumstances, to show sustained progress toward meeting these stock ownership guidelines may be a factor considered by the Compensation Committee in determining future long-term incentive equity grants and/or appropriate levels of incentive compensation.

 

The guideline for the directors is three times the amount of the annual retainer paid to directors, calculated using the annual retainer as of the later of the date the guidelines were adopted and the date the director is elected to the Board. It is anticipated that directors should be able to achieve the guideline within three years of joining the Board, or, in the case of directors serving at the time the guidelines were adopted, within three years of the date of adoption of the guidelines.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

To the Company’s knowledge, based solely on a review of the forms furnished to the Company and written representations that no other forms were required, during Fiscal 2009, all directors, officers and

beneficial owners of greater than 10% of the outstanding shares of Common Stock timely filed the reports required by Section 16(a) of the Exchange Act, except Diane Chang and Leslee K. Herro, executive officers of the Company, who each filed one late Form 4 reporting one transaction; David S. Cupps, an executive officer of the Company, who filed two late Forms 4, reporting one transaction on each; and Charles F. Kessler, a former executive officer of the Company, who filed one late Form 4 reporting one transaction.

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Summary

 

The economic downturn which began in the fiscal year ended January 31, 2009 (“Fiscal 2008”) and continued into Fiscal 2009, brought with it one of the most challenging business environments in generations. Significant declines in consumer confidence and a change in consumer spending patterns had a direct and profound impact on the Company’s performance. In the face of these conditions, the Company focused on protecting its brands to support its long-term strategy. The Company continues to believe that this focus was appropriate, particularly given the strong international reception of its brands.

 

In this context, the Company accelerated its international store openings while significantly reducing the number of domestic store openings compared to prior years. This approach reflected the Company’s strategy of focusing on the areas of greatest long-term growth opportunity. During Fiscal 2009, the Company achieved a number of significant milestones with regard to its international strategy. The Company opened flagship stores in Milan, Italy and Tokyo, Japan, its first two stores in non-English speaking countries, and introduced the Hollister brand in Germany and Italy in addition to increasing its presence in the United Kingdom. The performance of the international flagships and mall-based stores demonstrates to the Company that there is tremendous opportunity abroad. The sales and profitability of these international mall-based stores are significantly higher than comparable U.S. stores. In 2010, the Company continues to make progress on its plans to open additional flagships and mall-based stores.

 

In Fiscal 2009, after a review of strategic options, the Board authorized the Company to close its Ruehl branded stores and related direct-to-consumer business, which closure was completed by the end of the fiscal year. The Company believes that the closure of Ruehl enabled the Company to focus its resources on the areas of greatest opportunity. In addition, during Fiscal 2009, the Company began a review of lower-performing U.S. based stores, with a particular focus on stores with leases expiring in the next two to three years. Overall, while continuing to focus on its international strategy, the Company is also expending significant efforts in seeking to achieve a sustained improvement in the performance of its domestic business.

 

The Compensation Committee holds the view that, while overall compensation must be aligned with the creation of stockholder value over the long term, short-term performance must also factor into annual compensation. Thus, the compensation earned by the individuals addressed in this Compensation Discussion and Analysis recognizes the impact of the Company’s Fiscal 2009 performance; and, consequently, there were no annual cash incentive compensation payouts for named executive officers other than Mr. Cupps and a significantly lower equity value for most executive officers in Fiscal 2009 compared to previous years.

 

The Company’s named executive officers (“NEOs”) include the following individuals who are currently serving as executive officers of the Company:

 

Michael S. Jeffries, Chairman and Chief Executive Officer (“CEO”)

 

Jonathan E. Ramsden, Executive Vice President and Chief Financial Officer (“CFO”)

 

Diane Chang, Executive Vice President — Sourcing

Leslee K. Herro, Executive Vice President — Planning and Allocation

 

David S. Cupps, Senior Vice President, General Counsel and Secretary

 

Effective January 22, 2010, Charles F. Kessler, who was serving as Executive Vice President — Female Merchandising, resigned from his executive level position with the Company and will remain on a transitional basis in a non-executive role with the Company through July 31, 2010. As Mr. Kessler was an executive officer for the majority of Fiscal 2009, and an NEO for purposes of the Fiscal 2009 Summary Compensation Table, this Compensation Discussion and Analysis will include discussion applicable to Mr. Kessler, as well as the other NEOs listed above.

 

Compensation Objectives

 

The compensation programs are governed by the Compensation Committee of the Board, which is comprised solely of independent, non-associate directors of the Company. See the description of the Compensation Committee beginning on page 16.

 

The Company operates in the fast-paced and highly competitive arena of specialty retail. To be successful, the Company must attract and retain key creative and management talents who thrive in this environment. The Company sets high goals and expects superior performance from these individuals. The Company’s executive compensation structure is designed to support this culture. As such, the Company’s executive compensation and benefit programs are designed to:

 

 

Management, in consultation with the Compensation Committee, and its outside advisors described below under the caption “Role of the Compensation Committee”, has developed an executive compensation and benefits strategy that rewards the performance, behaviors and culture that the Company believes create stockholder value. Thus, the compensation earned by executive officers reflects:

 

 

 

Role of the Compensation Committee

 

In making executive compensation decisions, the Compensation Committee is advised by both an independent counsel, Gibson, Dunn & Crutcher LLP (“Gibson Dunn”), and an independent compensation consultant, Pearl Meyer & Partners, LLC (“Pearl Meyer”). The only services that Pearl Meyer and Gibson Dunn perform for the Company are at the direction of the Compensation Committee. Pearl Meyer and Gibson Dunn did not provide any services to the Company in Fiscal 2009 other than executive and director compensation consulting and advisory services. In this regard, the Compensation Committee has adopted a policy regarding the use of outside compensation consultants that provides as follows:

 

If the Committee retains a compensation consultant to provide advice, information and other services to the Committee relating to the compensation of the Company’s Chief Executive Officer, its officers identified in Rule 16a-1(f) under the Exchange Act or its non-associate directors or other matters within the responsibility of the Committee, such consultant may only provide services to, or under the direction of, the Committee and is prohibited from providing any other services to the Company.

 

The Compensation Committee has the right to terminate the services of counsel and the compensation consultant at any time. While the Compensation Committee retains Gibson Dunn and Pearl Meyer directly, Gibson Dunn and Pearl Meyer interact with the Company’s Senior Vice President of Human Resources, the Company’s office of General Counsel and the Company’s Chief Financial Officer and their respective staffs in carrying out assignments in order to obtain compensation and performance data for the executive officers and the Company. In addition, the Compensation Committee’s advisors may, at their discretion, seek input and feedback from management regarding their work product prior to presentation to the Compensation Committee in order to confirm information or address other similar issues. Representatives from Gibson Dunn and Pearl Meyer are present at all Compensation Committee meetings. Both firms provide independent perspectives on any management proposals. Gibson Dunn and Pearl Meyer representatives generally remain during “executive session” for open dialogue on proposals.

 

Only Compensation Committee members vote on the Committee’s decisions regarding executive compensation. The Compensation Committee receives information from the CEO regarding his own goals and targets, and his recommendations for compensation of the other NEOs. In addition, the CEO provides the Compensation Committee with a self-evaluation, but decisions of the Compensation Committee regarding compensation for the CEO and other NEOs are ultimately made solely by the Compensation Committee, with input from management and the Compensation Committee’s advisors. The Compensation Committee often requests certain Company executive officers to be present at Compensation Committee meetings where

executive compensation and Company and individual performance are discussed and evaluated so they can provide input into the decision-making process. Executive officers may provide insight, suggestions or recommendations regarding executive compensation during periods of general discussion, but do not have a vote in any decision-making.

 

Compensation and Benefits Structure

 

Pay Level — Determination of the appropriate pay opportunity

 

Pay levels for all associates of the Company, including the NEOs listed in the Fiscal 2009 Summary Compensation Table on page 52, are determined based on a number of factors, including each individual’s roles and responsibilities within the Company, current compensation, experience and expertise, pay levels in the competitive market for similar positions, internal pay equity relationships between the executive officers and the CEO and the performance of the individual, his/her business unit and the Company as a whole. The Compensation Committee approves the pay levels for all the executive officers. In determining the pay levels, the Compensation Committee considers all elements of compensation and benefits.

 

The Compensation Committee uses a number of sources to determine the “competitive market”. The primary data source used in setting competitive market levels for the NEOs is information publicly disclosed by the peer retail companies listed below. Annually, the compensation consultant to the Compensation Committee and the Compensation Committee evaluate whether companies should be added to or removed from the list of peer retail companies. The annual review considers such factors as revenue, market capitalization and geographic location. The Compensation Committee reviews information on all forms of compensation provided by the peer retail companies (e.g., salary, bonus, short-term incentives and long-term incentives). The public information for the peer retail companies is supplemented with survey data, which provides position-based compensation levels across broad industry segments. The compensation consultant to the Compensation Committee uses survey data from multiple providers, including Mercer, Hay Group, Salary.com, Hewitt Associates, Inc., and Towers Watson. The Compensation Committee does not make any decisions with respect to the companies that participate in these surveys, and views the name of each such company as immaterial to its decision-making process. For corporate staff positions, such as the Chief Financial Officer, the Compensation Committee considers survey data based on companies of similar size, without regard to industry. For industry specific positions, such as the Executive Vice Presidents of Sourcing and Planning and Allocation, the Compensation Committee considers retail industry survey data for companies of a similar size.

 

The peer retail companies used by the Compensation Committee in determining the “competitive market” include:

 

Relative to the competitive market data, the Compensation Committee intends that the overall total compensation opportunity for the executive group for the achievement of target performance will be approximately equal to the 75^th percentile of identified comparator companies. This same market positioning is used for other professionals within the Company. In view of the Company’s competitive industry, its high profile, its need for highly-qualified individuals in creative areas, and its geographic location, the Compensation Committee believes that this top quartile positioning is both necessary and appropriate. Furthermore, the Company has a history of setting challenging performance goals, and the top quartile target compensation levels are consistent with this goal-setting.

 

As noted above, notwithstanding the Company’s overall pay positioning objectives, pay opportunities for specific individuals vary based on a number of factors. The Compensation Committee does not precisely benchmark each executive officer’s compensation to market levels on an annual basis, but it does review market information and, in a given year, may engage in a more detailed review which may result in significant adjustments to a given executive officer’s compensation. Actual total compensation in a given year will vary above or below the target compensation levels based primarily on the attainment of overall Company financial goals and the creation of stockholder value.

 

 

The Company’s compensation program consists of the following elements:

 

 

Base Salary

 

NEO base salaries reflect the Company’s operating philosophy, culture and business direction, with each salary determined by an annual assessment of a number of factors, including the individual’s current base salary, job responsibilities, impact on development and achievement of business strategy, labor market compensation data, individual performance relative to job requirements, the Company’s ability to attract and retain critical executive officers and salaries paid for comparable positions within an identified compensation peer group. The Compensation Committee intends that base salary, together with other principal components of compensation at target opportunity levels, will approximate the 75^th percentile of total compensation levels provided by the peer companies. Nevertheless, no specific weighting is applied to the factors considered in setting the level of base salary, and thus the process relies on the subjective exercise of the Compensation Committee’s judgment.

 

Annual Incentive Compensation Plan

 

The Incentive Compensation Performance Plan (the “Incentive Plan”), approved by stockholders at the 2007 Annual Meeting, is designed to focus on and reward short-term operating performance. It is the broadest

of the Company’s management incentive programs, covering approximately 834 participants, including the CEO and the other NEOs. The Incentive Plan has target incentive levels, expressed as a percentage of base salary, for each level of associate. Each participant in the Incentive Plan is assigned to an incentive level based on his/her position within the Company, with higher levels of associates having more pay at risk. The short-term incentive level for each associate is determined in conjunction with the other principal elements of compensation (base salary and long-term incentives). As described above, it is the Compensation Committee’s intent that all elements combined should approximate the 75^th percentile of total compensation provided by the peer companies.

 

 

The Company’s Incentive Plan is divided into two six-month periods that correspond to the Company’s selling seasons, February through July (the “Spring” season) and August through January (the “Fall” season). The participant’s annual opportunity is divided into two performance periods — the target incentive payout for the Spring season equals 40% of the annual target incentive opportunity and the target incentive payout for the Fall season equals 60% of the annual target incentive opportunity. The split in the annual target incentive opportunity is based on historical seasonality of operating results going back several years. Actual awards under the Incentive Plan vary based upon actual performance of the Company relative to the goals set by the Compensation Committee at the beginning of each season (as discussed in the section captioned “Pay-for-Performance — Determination of the performance measures and goals used in the pay programs”, below). The maximum incentive opportunity that can be earned under the Incentive Plan is two times the target award, for the achievement of outstanding performance. For performance falling in between the “threshold,” “target” and “maximum” performance levels, the Company awards incentive payout amounts on an interpolated basis.

 

The Compensation Committee administers the Incentive Plan in a manner such that payments under the Incentive Plan can qualify as “performance-based” compensation under Section 162(m) of the Internal Revenue Code.

 

Long-Term Incentive Program for NEOs other than the CEO

 

Long-term incentives are used to balance the short-term focus of the annual cash incentive compensation program by tying a significant portion of total compensation to performance achieved over multi-year periods. Under the 2005 Long-Term Incentive Plan (the “2005 LTIP”), which was approved by stockholders at the 2005 Annual Meeting, and the 2007 Long-Term Incentive Plan (the “2007 LTIP”), which was approved by stockholders at the 2007 Annual Meeting, the Compensation Committee may grant a variety of long-term incentive vehicles, including options, stock appreciation rights (“SARs”), restricted stock units, and performance shares. For NEOs other than the CEO, the Company currently relies on a combination of restricted

stock units, options and SARs. The combination of the types of awards provides a balance between retention (through restricted stock units) and long-term performance (through options and stock appreciation rights), as described below. Furthermore, the use of stock-based compensation in the long-term incentive program balances the cash-based nature of short-term incentive pay (i.e., base salary and annual cash incentive payouts).

 

In general, the restricted stock unit grants have historically vested according to the schedule below, provided that the associate continues to work for the Company through the vesting dates. The weighting of the vesting toward the later years rewards retention.

 

 

Beginning with awards made to Executive Vice Presidents who were NEOs on the Fiscal 2008 grant date, the Company added a performance component to the vesting schedule for restricted stock units. The restricted stock units will vest 25% a year if net income grows at 2% or more over the previous year’s net income achievement. If this performance hurdle is not met, the restricted stock unit award will not vest in accordance with the vesting schedule for that year. The executive officer has the opportunity to earn back this unvested portion of the award if cumulative performance hurdles are met in subsequent years. The Compensation Committee retains the right to adjust equity vesting schedules for specific circumstances.

 

In Fiscal 2009, as described in the Fiscal 2009 Grants of Plan-Based Awards table, the Executive Vice Presidents were all granted stock appreciation rights. The Compensation Committee felt that awarding stock appreciation rights instead of restricted stock units on an annual basis provided greater alignment between the interests of these executive officers and stockholders, as Executive Vice Presidents will only receive value from these awards if the market price of the Company’s Common Stock appreciates over the price on the date of grant.

 

In general, option and SAR grants vest according to the schedule below, provided that the associate continues to work for the Company through the vesting dates.

 

 

While the Company believes that both retention and long-term performance are important objectives for a long-term incentive program, the Company also believes that the “at risk” component of the long-term incentive program should be higher for the more senior executive officers. Structuring more of the long-term incentive compensation of senior executive officers “at risk” more closely ties the economic benefit of such compensation to the interests of stockholders as a significant portion of their potential compensation will only be realized if the market price of the Company’s Common Stock increases. Therefore, the ratio of restricted stock units to stock appreciation rights (or options) varies by level of participant. When compared to the percentage of the total long-term award value received by a majority of the associates in the form of restricted stock units versus stock appreciation rights (or options), the more senior executive officers receive a relatively

lower percentage of their long-term award value in the form of restricted stock units and a relatively higher percentage in the form of stock appreciation rights or options. For the Executive Vice Presidents, 100% of their total long-term incentive awards granted during Fiscal 2009 were in the form of stock appreciation rights. For the Senior Vice President listed as an NEO, restricted stock units comprised 34% of the grant date fair value of his Fiscal 2009 total long-term incentive award, with the balance comprised of stock appreciation rights.

 

Equity awards for the CEO are established by the terms of his employment agreement and described beginning on page 56.

 

Target long-term incentive award levels are set so that the entire compensation package will fall at or near the 75^th percentile of identified comparator companies’ levels. The Compensation Committee also assesses aggregate share usage and dilution levels in comparison to the peer retail companies and general industry norms. Within these general grant guidelines, individual awards may be adjusted up or down to reflect the performance of the executive officer and his or her potential to contribute to the success of the Company’s initiatives to create stockholder value and other individual considerations.

 

The Compensation Committee has adopted an Equity Grant Policy pursuant to which it reviews and approves individual grants for the NEOs, as well as the total number of options, stock appreciation rights and restricted stock unit grants made to all associates. The annual grants typically are reviewed and approved at the Compensation Committee’s scheduled March meeting. The grant date for these annual grants is the date of the Compensation Committee meeting at which they are approved. Administration of restricted stock unit, option and stock appreciation right awards is managed by the Company’s human resources department with specific instructions related to timing of grants given by the Compensation Committee. The Company has no intention, plan or practice to select annual grant dates for NEOs in coordination with the release of material, non-public information, or to time the release of such information because of award dates.

 

Benefits

 

As associates of the Company, the NEOs are eligible to participate in all of the broad-based Company-sponsored benefits programs on the same basis as other full-time associates.

 

In addition to the qualified Abercrombie & Fitch Co.  Savings and Retirement Plan (the “401(k) Plan”), the Company has a nonqualified deferred compensation plan, the Abercrombie & Fitch Nonqualified Savings and Supplemental Retirement Plan (the “Nonqualified Savings and Supplemental Retirement Plan”), that allows executive officers to defer a portion of their compensation over-and-above the Internal Revenue Service (“IRS”) limits imposed on the Company’s 401(k) Plan. The Company also makes matching and retirement contributions to the Nonqualified Savings and Supplemental Retirement Plan on behalf of the participants. Company contributions have a five-year vesting schedule. The Nonqualified Savings and Supplemental Retirement Plan allows participants the opportunity to save and invest their own money on the same basis (as a percentage of their pay) as other associates under the 401(k) Plan. Furthermore, the Nonqualified Savings and Supplemental Retirement Plan is competitive, and the Company’s contribution element provides retention value. The Company’s Nonqualified Savings and Supplemental Retirement Plan is further described and Company contributions and the individual account balances for the NEOs are disclosed under the section captioned “Nonqualified Deferred Compensation” beginning on page 61. The Company provides a separate Supplemental Executive Retirement Plan to the Company’s Chairman and CEO, the material provisions of which are described under the section captioned “Pension Benefits” beginning on page 60.

The Company offers a life insurance benefit for all full-time associates equal to two times base salary. For Vice Presidents and above, the death benefit is set at four times base salary.

 

The Company offers a long-term disability benefit to all full-time associates which covers 60% of base salary for the disability period. In addition, the Company offers an Executive Long-Term Disability Plan for all associates earning over $200,000 in base salary which covers an additional 15% of base salary and 75% of target annual cash incentive compensation for the disability period.

 

The Company does not offer perquisites to its executive officers that are not widely available to all full-time associates, with the exception of the CEO, who is currently provided certain perquisites, including supplemental life insurance and, through the end of Fiscal 2009, unlimited private air travel, pursuant to the terms of his employment agreement, as more fully described in the footnotes to the Fiscal 2009 Summary Compensation Table on page 52. At the time the CEO’s employment agreement was entered into, the Compensation Committee carefully considered the provision of these benefits, including private air travel and personal security, and approved those benefits out of concern for the CEO’s safety and his extensive travel schedule.

 

In light of changing compensation practices, the Compensation Committee and the CEO have agreed to an amendment to the CEO’s employment agreement (entered into on April 12, 2010), pursuant to which the CEO will, commencing with the 2010 fiscal year, no longer be entitled to unlimited use of Company aircraft for personal travel without reimbursement to the Company. Beginning with Fiscal 2010, to the extent the aggregate incremental cost to the Company of the CEO’s personal use of Company aircraft in any fiscal year exceeds $200,000, the CEO will reimburse the Company for the amount by which his personal use exceeds $200,000. In addition, beginning with the Fiscal 2010 year, the CEO’s right to a tax gross-up in connection with his personal use of Company aircraft has been eliminated. In consideration for these modifications of the CEO’s employment agreement, the Company paid to the CEO a lump-sum cash payment of $4,000,000. This payment is subject to a clawback of a pro-rated portion thereof in the event that the CEO voluntarily terminates his employment without good reason prior to the expiration of the term of his employment agreement on February 1, 2014. Beginning in Fiscal 2010, the Compensation Committee and the CEO have also agreed to eliminate the tax gross-up in connection with personal security provided by the Company.

 

Employment Agreements, Severance and Change-in-Control Benefits

 

The Compensation Committee carefully considers the use and conditions of employment agreements. The Compensation Committee recognizes that, in certain circumstances, formal written employment contracts are necessary in order to successfully recruit and retain senior executive officers. Currently, only Mr. Jeffries, the CEO, has such an employment contract, the material provisions of which are described in the section captioned “Employment Agreement with Mr. Jeffries” beginning on page 56. The Compensation Committee believes it is in the best interest of the Company to ensure that Mr. Jeffries’ employment is secured through the use of a contract. Although the Company has existed for more than 100 years, Mr. Jeffries’ role is more akin to founder than a typical CEO. His vision has transformed the Company into one of the most successful and widely known specialty retailers.

 

All associates who participate in the Company’s stock-based compensation plans, including the NEOs (other than the CEO with respect to awards granted to him pursuant to his employment agreement), are entitled to certain benefits in the event of termination due to death or disability or a change in control as set forth in the plan documents for the Company’s stock-based compensation plans. The foregoing arrangements

are discussed in further detail in the section captioned “Potential Payments Upon Termination or Change in Control” beginning on page 64.

 

Other Compensation Considerations

 

As a general matter, the Compensation Committee considers the various tax and accounting implications of compensation vehicles employed by the Company.

 

When determining amounts of long-term incentive grants to executive officers and associates, the Compensation Committee examines the accounting cost associated with the grants. Under U.S. generally accepted accounting principles, grants of options, SARs, restricted stock units and other share-based payments result in an accounting charge for the Company. Share-based compensation expense is recognized, net of estimated forfeitures, over the requisite service period on a straight line basis. The Company estimates the fair value of options and SARs granted using the Black-Scholes option-pricing model. In the case of restricted stock units, the Company calculates the fair value of the restricted stock units granted as the market price of the underlying Common Stock on the date of grant adjusted for anticipated dividend payments during the vesting period.

 

Section 162(m) of the Internal Revenue Code generally prohibits any publicly-held corporation from taking a federal income tax deduction for compensation paid in excess of $1,000,000 in any taxable year to the chief executive officer and the other named executive officers (excluding the chief financial officer). Section 162(m) excepts qualified performance-based compensation, among other things, from this deductibility limitation. It is the Compensation Committee’s policy to maximize the deductibility of executive compensation, to the extent compatible with the needs of the business, as the Compensation Committee believes that compensation and benefits decisions should be primarily driven by the needs of the business, rather than by tax policy. Therefore, the Compensation Committee may make pay decisions (such as the determination of the CEO’s base salary) that result in compensation expense that is not fully deductible under Section 162(m). For Fiscal 2009, Section 162(m) prohibited the deduction of approximately $5 million in executive compensation, primarily as a result of restricted stock unit awards granted prior to Fiscal 2008 to Mr. Jeffries, Ms. Chang and Ms. Herro that do not contain performance-based vesting criteria. Beginning in Fiscal 2008, restricted stock unit grants made to NEOs at the Executive Vice President level have a performance-based vesting schedule that would qualify any compensation recognized from the grants as performance-based compensation under Section 162(m) and, therefore, exempt such compensation from the Section 162(m) deductibility limitation.

 

Pay-for-Performance — Determination of the performance measures and goals used in the pay programs

 

The Company uses several vehicles to create a strong link between pay and performance:

 

The Incentive Plan rewards participants for the achievement of short-term, operational goals. As mentioned above, the Company has used the Incentive Plan as a means to focus the organization on the achievement of seasonal financial performance goals. For Fiscal 2009, the Company performance measure for both the Spring and Fall seasons was operating income. Until this season and the significant downturn in the economy, target payout was tied to the achievement of budgeted net income. Due to potential volatility in

the Company’s effective income tax rate for the period, operating income was used for the Spring 2009 and Fall 2009 seasons. The metrics for each period were as follows:

 

 

 

 

Threshold payout levels under the Incentive Plan have historically been set to equal the previous year’s actual results. As a result, no payout occurred unless the Company beat the previous year’s performance. The radical shift in the economic environment led to a change in this methodology for Spring 2009. For this season, the threshold level of payout was tied to management’s overall budget expectation for the period. However, as actual performance was below threshold, no cash incentive compensation was paid for Spring 2009.

 

In Fall 2009, the Compensation Committee set two different goals for the Incentive Plan. The goals for the non-NEOs provided a payout beginning at the achievement of $100,000,000 of operating income. A target level bonus for non-NEOs for Fall 2009 performance required the Company to achieve actual Fall 2008 operating income performance. The Compensation Committee set a more aggressive goal for the NEOs, as no payout could occur for Fall 2009 performance for the NEOs unless the Company met or exceeded actual Fall 2008 operating income performance.

 

 

 

 

For the Fall 2009 period, non-NEOs received a cash incentive compensation payment for the period equal to 60% of the target award. NEOs did not receive a cash incentive compensation payment for this period. Mr. Cupps was not an NEO until the resignation of Mr. Charles Kessler eight days before the end of the Fall 2009 period. Mr. Cupps’s cash incentive compensation payment was, therefore, determined using the non-NEO goal described above and he received a partial payout, as shown in the Fiscal 2009 Summary Compensation Table on page 52. The remaining NEOs received no cash incentive compensation payment for Fiscal 2009.

 

The Incentive Plan gives the Compensation Committee members discretion to adjust cash incentive payouts downward based on their business judgment. However, the Compensation Committee may not adjust cash incentive payouts upward under the terms of the Incentive Plan.

 

Clawback Policy

 

The plans pursuant to which short-term and long-term incentive compensation is paid to the Company’s executive officers (i.e., the Company’s Incentive Plan, 2005 LTIP and 2007 LTIP) each include a stringent “clawback” provision, which allows the Company to seek repayment of any incentive amounts that were erroneously paid. Each of the plans provides that if (i) a participant (including one or more NEOs) has received payments under the plan pursuant to the achievement of a performance goal and (ii) the Compensation Committee determines that the earlier determination as to the achievement of the performance goal was based on incorrect data and in fact the performance goal had not been achieved or had been achieved to a lesser extent than originally determined and a portion of such payment would not have been paid given the correct data, then such portion of any such payment paid to the participant must be repaid by such participant to the Company. This provision provides significant protection to the Company since there is no requirement of misconduct on the part of the plan participant before the clawback provision is triggered.

 

Fiscal 2009 Compensation Actions

 

CEO Employment Agreement

 

As noted above, the Compensation Committee believes it is in the best interest of the Company to secure Mr. Jeffries’ employment through the use of a contract because his vision and leadership transformed the Company into one of the strongest specialty retailers in the country over the past decade. As previously reported, Mr. Jeffries and the Company were party to an employment agreement that was scheduled to expire on December 31, 2008. Given the importance of his vision and leadership to the Company, the Compensation Committee was keenly interested in keeping Mr. Jeffries engaged in the Company’s business and thus desired a long-term employment agreement that would motivate Mr. Jeffries’ performance, and also seek to implement executive compensation and corporate governance best practices. The Compensation Committee believes that these goals were attained and are reflected in the employment agreement entered into between the Company and Mr. Jeffries as of December 19, 2008. Certain of the material terms of that agreement, which were fully disclosed in the Company’s SEC filings in 2008 and 2009, are as follows:

 

 

 

As noted above, additional details of the employment agreement and the vesting and other terms of the Retention Grants and the semi-annual grants made and to be made to Mr. Jeffries under the terms of the employment agreement are provided in the section captioned “Employment Agreement with Mr. Jeffries” beginning on page 56.

 

Compensation for Fiscal 2009 related to Mr. Jeffries

 

The Fiscal 2009 Summary Compensation Table on page 52 shows Fiscal 2009 total compensation for Mr. Jeffries of $36,335,644, as calculated under executive compensation disclosure rules adopted by the SEC on December 23, 2009 and effective as of February 28, 2010. The Board’s Compensation Committee believes that the following considerations are relevant to an understanding of the compensation awarded to Mr. Jeffries in Fiscal 2009.

 

Of the total compensation of $36,335,644 reported for Mr. Jeffries, over 90% represents equity awards granted during Fiscal 2009 but which will only be realizable in future years and upon the satisfaction of certain conditions. The vast majority of Mr. Jeffries’ total compensation for Fiscal 2009 and Fiscal 2008, reported in the Fiscal 2009 Summary Compensation Table on page 52 is “non-cash” and relates to stock appreciation right awards granted to Mr. Jeffries under the employment agreement entered into with the Company in December 2008 (the “Jeffries Agreement”). Under the new SEC rules regarding the disclosure of stock-based compensation that became effective as of February 28, 2010, the full grant date fair value of those stock appreciation right awards must be disclosed in the Fiscal 2009 Summary Compensation Table as “compensation awarded” to Mr. Jeffries in Fiscal 2009 (for the portion of the awards granted in Fiscal 2009) and Fiscal 2008 (for the portion of the awards granted in Fiscal 2008).

 

The Compensation Committee views those stock awards, particularly the Retention Grant provided to Mr. Jeffries through the Jeffries Agreement, as compensation to be earned by Mr. Jeffries over the full five-year term of the Jeffries Agreement. The Retention Grant will not become vested (meaning that Mr. Jeffries

will not be able to exercise the award and receive any shares earned under the award), unless and until Mr. Jeffries remains continuously employed by the Company through January 31, 2014 (subject only to limited vesting acceleration under the severance provisions of the employment agreement) and is subject to certain transfer restrictions. Similarly, no portion of the semi-annual grant made in September 2009 under the terms of the Jeffries Agreement vested in Fiscal 2009, as the stock appreciation rights which are the subject of the semi-annual grant will become vested in equal annual installments over the four-year period following the grant date.

 

The table below presents another way of looking at Mr. Jeffries’ stock-based compensation for Fiscal 2009. As illustrated by the table, the current in-the-money value of such stock-based compensation as of the end of Fiscal 2009 was significantly lower than the grant date fair value shown in the Fiscal 2009 Summary Compensation Table.

 

Fiscal 2009 CEO SAR Grants

 

 

The Fiscal 2009 year-end in-the-money value of $7,843,500 represents less than 1% of the increase in the market capitalization of the Company during Fiscal 2009. For the purposes of this calculation, the increase in market capitalization has been calculated by multiplying the number of shares outstanding by the ending market price for the beginning of the year, February 2, 2009, and comparing that amount to that determined using the same calculation as of January 29, 2010.

 

In addition to the grant date fair value of the stock appreciation rights, there are other amounts in the Fiscal 2009 Summary Compensation Table that were not payable to Mr. Jeffries during Fiscal 2009.

As shown in the table below, under the executive compensation disclosure rules in effect for Fiscal 2008 and prior years, Mr. Jeffries’ total reported compensation of $10,900,269 for Fiscal 2009 would have reflected a decrease of 33% from his reported total compensation of $16,208,938 for Fiscal 2008. The new rules applicable to this Proxy Statement result in a 57% increase in reported total compensation from $23,198,271 to $36,335,644 between Fiscal 2008 and Fiscal 2009.

 

It is important to note that the accounting rules applicable to Mr. Jeffries’ stock-based awards have not changed, but that the change in values reported in the Fiscal 2009 Summary Compensation Table reflect a change in the SEC Rules regarding the disclosure of stock-based awards. In addition, the lower compensation values reported under the rules in effect for Fiscal 2008 and prior years more closely approximate the actual expense reported by the Company in its Consolidated Statement of Operations and Comprehensive Income for Fiscal 2009.

 

The following table is provided for illustrative purposes to compare the disclosure requirements under the new SEC Rules effective as of February 28, 2010, compared to the rules used in the prior year, and is not intended to replace the Fiscal 2009 Summary Compensation Table on page 52.

 

Merit Increases

 

In Fiscal 2009, the Company established an aggregate base salary increase budget. In doing so, the Company reviewed market data on projected base salary increases published by numerous sources including WorldatWork and Towers Watson. The Compensation Committee did not award a base pay increase to the CEO as base pay was competitive, nor to the CFO who had recently joined the Company. Given the challenging retail environment, base salary increases for all home office associates, including the NEOs, were delayed by five months beyond the typical effective date for base salary increases. All eligible home office associates in good standing other than the CEO and CFO, who was not eligible, received a 2% increase to base salary, effective in August 2009. The 2% increase was meant to keep pace with labor market inflation.

 

Incentive Compensation and Long-Term Incentives

 

The Incentive Plan goals are set seasonally. For the Fall 2009 season, the Company made total cash incentive payouts of approximately $5.1 million to a total of 821 associates. The NEOs, other than Mr. Cupps, as previously mentioned on page 46, did not receive an incentive compensation payout for either season in Fiscal 2009 based on Company performance.

 

In Fiscal 2009, the Company granted a total of 473,197 restricted stock unit awards to a total of 1,007 associates. In addition, the Company granted a total of 4,240,367 stock appreciation rights and stock options to a total of 60 associates. The grant levels are based on the long-term equity value necessary to achieve the Company’s desired 75^th percentile of identified comparator companies positioning for the participants. As discussed on page 56, the Company granted the second and third portion of the Retention Grant to Mr. Jeffries under his 2008 employment agreement in March 2009 and September 2009. Before the Compensation Committee approves the equity grants in total, the Committee reviews the overall dilution represented by the awards to ensure that the overall share usage is consistent with competitive practice.

 

Mr. Kessler’s Resignation as an Executive Vice President

 

In the Current Report on Form 8-K filed by the Company on January 28, 2010 with the SEC, the Company announced that Charles F. Kessler resigned as an executive officer on January 22, 2010, and that Mr. Kessler will remain with the Company on a transitional basis in a non-executive role through July 31, 2010.

 

Mr. Kessler entered into an agreement (the “Kessler Agreement”) with Abercrombie & Fitch Management Co., a subsidiary of the Company, setting forth the terms of Mr. Kessler’s separation from employment and service with the Company and its subsidiaries and affiliates.

 

 

 

Pursuant to the Kessler Agreement, Mr. Kessler agreed to a non-disclosure covenant (unlimited as to time), a 12-month non-competition covenant and a 24-month non-solicitation covenant. Mr. Kessler also agreed to cooperate with the Company and its subsidiaries and affiliates both in defense of any claims asserted against them and otherwise.

 

REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION

 

The Compensation Committee of the Board reviewed the “COMPENSATION DISCUSSION AND ANALYSIS” and discussed it with management. Based on such review and discussion, the Compensation Committee recommended to the Board that the “COMPENSATION DISCUSSION AND ANALYSIS” be included in this Proxy Statement.

 

Submitted by the Compensation Committee of the Board:

 

 

EXECUTIVE OFFICER COMPENSATION

 

Summary Compensation Table

 

The following table summarizes the compensation paid to, awarded to or earned by the NEOs for Fiscal 2009, Fiscal 2008 and the fiscal year ended February 2, 2008 (“Fiscal 2007”) in accordance with new rules promulgated by the SEC effective as of February 28, 2010. Under the rules in effect prior to such date, the total compensation reflected in the table below would be different (e.g., the Chief Executive Officer’s total compensation under the prior rules would have been $10,900,269 in Fiscal 2009 and $16,208,938 in Fiscal 2008). Because the effect of the new SEC rules is significant, the Company believes that supplemental disclosure may assist the stockholders in analyzing the compensation reflected in the following table. This supplemental disclosure is set forth under the section captioned “COMPENSATION DISCUSSION AND ANALYSIS — Fiscal 2009 Compensation Actions — Compensation for Fiscal 2009 related to Mr. Jeffries” beginning on page 47 of this Proxy Statement.

 

Fiscal 2009 Summary Compensation Table

 

 

 

 

 

All Other Compensation Table

 

 

 

 

 

 

 

 

 

Grants of Plan-Based Awards

 

The following table sets forth information regarding cash and stock-based incentive awards granted to the NEOs during Fiscal 2009.

 

Fiscal 2009 Grants of Plan-Based Awards