UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

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

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Brown-Forman Corporation

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June 26, 2009

 

Dear Brown-Forman Stockholder:

 

It is our pleasure to invite you to attend Brown-Forman Corporation’s 2009 Annual Meeting of Stockholders, which will be held:

 

Thursday, July 23, 2009

9:30 A.M. (Eastern Daylight Time)

Brown-Forman Conference Center

850 Dixie Highway

Louisville, Kentucky

 

We hope to see you on July 23. All Class A stockholders are urged to complete and return the enclosed proxy card as soon as possible, whether or not you plan to attend the Annual Meeting. Your vote is important to us.

 

Very truly yours,

 

 

 

 

NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS

 

Brown-Forman Corporation will hold its Annual Meeting for holders of our Class A common stock in the Conference Center at our corporate offices, 850 Dixie Highway, Louisville, Kentucky 40210, at 9:30 A.M. (Eastern Daylight Time), on Thursday, July 23, 2009.

 

We are holding this meeting for the following purposes, which are more fully described in the accompanying Proxy Statement:

 

 

Only Class A stockholders of record at the close of business on June 15, 2009, are entitled to vote at the meeting. Holders of Class B common stock are welcome to attend the meeting but may not vote. We will not close the stock transfer books in advance of the meeting. Class A stockholders may vote either in person or by proxy.

 

If you are a Class A stockholder, whether or not you plan to attend the meeting, PLEASE complete, sign, and date the enclosed proxy card and return it promptly in the enclosed envelope. Submitting a proxy will not affect your right to vote your shares differently if you attend the meeting in person. We are not asking for proxy cards from Class B stockholders.

 

We enclose separately for your review a copy of our Annual Report for the fiscal year ended April 30, 2009.

 

Louisville, Kentucky
June 26, 2009

 

By Order of the Board of Directors
Matthew E. Hamel, Secretary

 

 

IMPORTANT NOTICE REGARDING AVAILABILITY OF PROXY MATERIALS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JULY 23, 2009:

 

The Notice of Annual Meeting, Proxy Statement, and 2009 Annual Report to Stockholders
are available at www.brown-forman.com/proxy

 

PROXY STATEMENT

 

 

This section sets forth certain frequently asked questions and answers about the Proxy Statement and the Annual Meeting.

 

 

INTRODUCTION

 

This section describes the purpose of this Proxy Statement, who may vote, and how to vote.

 

Purpose.  The Board of Directors of Brown-Forman Corporation is sending you this Proxy Statement to solicit proxies for use at the 2009 Annual Meeting of Stockholders, which will be held Thursday, July 23, 2009, at 9:30 A.M. (Eastern Daylight Time) at Brown-Forman Corporation, 850 Dixie Highway, Louisville, Kentucky. We will begin mailing this Proxy Statement and accompanying materials on or about June 26, 2009, to holders of record of our Class A common stock at the close of business on June 15, 2009, the record date for the 2009 Annual Meeting. Also beginning on June 26, 2009, our directors, officers, and other employees may solicit proxies by mail, phone, fax, the Internet or in person. We will pay all solicitation costs. We will reimburse banks, brokers, nominees, and other fiduciaries for their reasonable charges and expenses incurred in forwarding our proxy materials to the beneficial owners of our stock held in street name. In addition, we have retained Proxy Express, Inc., to assist with the distribution of proxy materials for a fee of approximately $15,000, plus associated expenses.

 

We are providing access to our proxy materials both by sending you this full set of proxy materials and by notifying you of the availability of our proxy materials on the Internet. This Proxy Statement and our 2009 Annual Report to Stockholders are available at www.brown-forman.com/proxy. Please complete, sign, date, and return the enclosed proxy card at your earliest convenience.

 

Voting Stock.  We have two classes of common stock, Class A and Class B. Only holders of Class A common stock may vote at the 2009 Annual Meeting. As of the close of business on the record date, June 15, 2009, we had outstanding 56,613,071 shares of Class A common stock.

 

Voting Rights.  If you were a Class A stockholder on June 15, 2009, you may cast one vote for each share registered in your name. You may vote your shares either in person or by proxy. To vote by proxy, please complete, sign, date, and return the enclosed proxy card. Granting a proxy will not affect your right to vote shares registered in your name if you attend the meeting and want to vote in person. You may revoke a proxy at any time before it is voted by sending our Secretary written notice of your revocation at the following address: Matthew E. Hamel, 850 Dixie Highway, Louisville, Kentucky 40210, by issuing a new proxy, or by attending the meeting in person and casting your vote there. For any shares you hold in street name, you must submit voting instructions to the stockholder of record in accordance with the instructions they provide. To revoke your proxy, you must comply with the directions they provide. The proxy holders will vote all shares represented by effective proxies in accordance with the terms stated in the proxy. The proxy holders for this year’s Annual Meeting are Geo. Garvin Brown IV, Paul C. Varga, and Matthew E. Hamel.

 

A majority of the outstanding shares of our Class A common stock must be present in person or represented by proxy to constitute a quorum to conduct business at the Annual Meeting. In the election of directors, a nominee will be elected if he or she receives a majority of the votes cast. A majority of the votes cast means that the number of shares voted for a director must exceed the number of shares voted against that director (with abstentions and broker non-votes not counted as votes cast.) The affirmative vote of the majority of the shares present in person or represented by proxy and entitled to vote on the matter is required to re-approve the performance measures under the Brown-Forman 2004 Omnibus Compensation Plan. Abstentions and broker non-votes will have the same effect as a vote against the proposal. An affirmative vote of the majority of the shares represented at the meeting must approve any other matter properly presented and brought to a vote at the meeting.

 

This section describes our corporate governance practices in light of the corporate governance rules and regulations of the Securities and Exchange Commission and the New York Stock Exchange.

 

As a publicly traded, family-controlled company, Brown-Forman enjoys a rare governance opportunity, whereby members of our controlling stockholder group participate directly on our Board of Directors. We believe this governance structure confers a distinct competitive advantage upon the Company, due largely to the long-term ownership perspective of the Brown family. This advantage is sustained by a careful balancing of the roles of our three primary stakeholders: our Board of Directors, Company management, and our stockholders – including in particular, the Brown family.

 

 

Our Board has determined that Brown-Forman is a “controlled company” within the meaning of the New York Stock Exchange (“NYSE”) rules. A controlled company is one in which more than 50% of the voting power is held by an individual, a group or another company. The Brown family control group owns substantially more than 50% of our Class A voting stock, the overwhelming majority of which has historically voted in favor of the directors proposed by the Board.

 

Controlled companies are exempt from NYSE listing standards that require a board composed of a majority of independent directors, a fully independent nominating/corporate governance committee, and a fully independent compensation committee. We avail ourselves of the exemptions from having a board composed of a majority of independent directors and a fully independent nominating/corporate governance committee. Notwithstanding the available exemption, our Board Compensation Committee is composed exclusively of independent directors.

 

The Board believes that transparency is a hallmark of good corporate governance. All directors are invited to attend as guests meetings of committees on which they do not sit. This ensures the transparency of committee decision-making and the effective representation of all stockholder interests.

 

 

To Brown-Forman, one of the primary benefits of being a controlled company under the NYSE Rules is that members of our controlling stockholder group are able to participate more fully on our Board of Directors than they would otherwise.

 

Our Board of Directors is the policy-making body that is ultimately responsible for the business success and ethical climate of the Company. The Board oversees the performance of our senior management team, which is responsible for leading and operating the Company’s business. The Board’s primary responsibilities include retention and evaluation of the Company’s Chief Executive Officer (“CEO”), oversight of the Company’s corporate strategy and financial condition, oversight of our executive compensation policies and practices, and succession planning for the CEO and the Presiding Chairman of the Board. The Board of Directors may retain such independent advisors as it deems necessary or appropriate to the performance of its duties. The Board conducts an annual self-assessment to determine whether it and its committees are functioning effectively.

 

Presiding Chairman of the Board.  Our Board is chaired by Geo. Garvin Brown IV. In his role as Presiding Chairman of the Board, Mr. Brown is responsible for chairing Board meetings – a task that involves agenda planning, fostering Board engagement, and driving discussion toward timely consensus. Mr. Brown is also responsible for leading the Board in the fulfillment of its corporate

governance-related obligations. Our Presiding Chairman chairs our Annual Meeting of Stockholders and serves as a key liaison between the Board and our controlling family stockholders.

 

Director Service.  Directors are elected by majority vote of our Class A stockholders each year at the Annual Meeting. Once elected, a director holds office until the next Annual Meeting of Stockholders or until his or her successor is elected and qualified, unless he or she first resigns, retires, or is removed. A director may not stand for re-election to the Board after he or she has reached the age of 71. In exceptional circumstances, and upon recommendation of the Corporate Governance and Nominating Committee, the Board may request a director to remain on the Board until a given date, if it finds that such service would be of significant benefit to the Company. Board member service beyond the age of 71 must be approved by the affirmative vote of two-thirds of the directors, excluding the participation and vote of the director concerned. Directors are not subject to term limits.

 

Changes to our Board of Directors .

 

 

Independent Directors.  Under NYSE rules, a director qualifies as “independent” if the board of directors affirmatively determines that the director has no material relationship with the listed company. While the focus of the inquiry is independence from management , the board is required to consider broadly all relevant facts and circumstances in making an independence determination. Material relationships can include commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships. Our Board recognizes the value of having independent directors on the Board and has determined that five of our eleven director nominees have no material relationship with the Company and are therefore independent under NYSE standards. These are Directors Patrick Bousquet-Chavanne, John D. Cook, Richard P. Mayer, William E. Mitchell and William M. Street.

 

In making its determination of independence with regard to Mr. Street, the Board considered Mr. Street’s prior employment with the Company and his substantial Class A stock holdings. The Board believes that these relationships do not interfere with Mr. Street’s ability to exercise independent judgment in the performance of his duties as director. The Board determined that Donald G. Calder, who currently serves as a director but is retiring at the expiration of his term at the upcoming Annual Meeting, is independent under NYSE standards. With respect to our three former Board members who served during fiscal 2009 – Owsley Brown II, Barry D. Bramley, and Matthew R. Simmons – Mr. Bramley and Mr. Simmons were independent under NYSE standards.

 

The Board determined that Geo. Garvin Brown IV, Paul C. Varga, and James S. Welch, Jr. are not independent because they are members of Company management. The Board determined that Dace Brown Stubbs is not independent because she has an immediate family member who is employed by

the Company. The Board elected not to make a determination with respect to the independence of Martin S. Brown, Jr., and Sandra A. Frazier.

 

Brown Family Directors.  The Company believes that it is beneficial for Brown family members to be actively engaged in the oversight of the Company, including by serving on the Board of Directors. Through participation on the Board, the Brown family’s long-term perspective is brought to bear, in some measure, upon each and every Board consideration. Brown family directors serve as an effective intermediary between the Board and the controlling family stockholder group. Board service also provides the family with an active means by which to watch over their collective investment. Current Brown family member directors are: Geo. Garvin Brown IV, Martin S. Brown, Jr., Sandra A. Frazier, and Dace Brown Stubbs.

 

Management Directors.  The Company also believes that it is essential, from a corporate governance standpoint, that Company management be represented on the Board of Directors. Current Board members who are also members of Company management are: Geo. Garvin Brown IV, Paul C. Varga, and James S. Welch, Jr.

 

Board Meetings.  The Board held six meetings during fiscal 2009, all of which were regular meetings. Absent an appropriate reason, attendance is expected for the full meeting by all directors at the Company’s Annual Meeting of Stockholders, at all Board meetings, and at all meetings of each committee of which a director is a member. Each of our director nominees attended at least 83% of the meetings of the Board and Board committees on which they served during fiscal 2009. Twelve of the thirteen directors then serving were present at the 2008 Annual Meeting of Stockholders.

 

Executive Sessions.  NYSE rules require non-management directors to meet at regularly scheduled executive sessions without management present. Our non-management directors held two such meetings in fiscal 2009. Richard P. Mayer, Chair of the Corporate Governance and Nominating Committee, served as the presiding director for these meetings. NYSE rules also require companies whose group of non-management directors includes directors who are not “independent” under NYSE listing standards to hold an executive session of just the independent directors at least once per year. Our independent directors held two such meetings in fiscal 2009. Mr. Mayer was the presiding director for those meetings as well.

 

Board Committees.  Our Board has the following four standing committees: Audit Committee, Compensation Committee, Corporate Governance and Nominating Committee, and Executive Committee. Each Board committee operates pursuant to a written charter. Copies of the charters are posted on our website in the “Corporate Governance” area of the “Investor Relations” section ( www.brown-forman.com/company/governance ), and are available in print at no charge by writing to our Secretary, Matthew E. Hamel, 850 Dixie Highway, Louisville, Kentucky 40210, or e-mailing him at Secretary@b-f.com. Each Board committee conducts an annual self-evaluation (except the Executive Committee, which is evaluated by the full Board periodically) and has the power to hire independent advisors, as it deems necessary or appropriate. The following chart sets forth our current Board committee membership.

 

 

 

Audit Committee.  The Audit Committee assists the Board in fulfilling its oversight responsibilities with respect to the integrity of the Company’s financial statements, the Company’s compliance with legal and regulatory requirements, the independent auditor’s qualifications, independence, and performance, and the performance of the Company’s internal audit function. The committee’s responsibilities include, among other things, the preparation of the Audit Committee Report that appears in this Proxy Statement on page 20.

 

Donald G. Calder, John D. Cook, William E. Mitchell and William M. Street serve on the Audit Committee of our Board of Directors. Mr. Calder serves as Chair, and Mr. Street serves as Vice Chair. The Board has appointed Mr. Street to serve as Chair of the Audit Committee, effective upon Mr. Calder’s retirement on July 23, 2009. Barry D. Bramley served on the committee during fiscal 2009 until his retirement on September 28, 2008. Mr. Cook joined the committee effective September 25, 2008. The Audit Committee held three regular meetings and six telephonic certification-related meetings during fiscal 2009.

 

In addition to the NYSE requirement that each audit committee member satisfy the NYSE director independence standards, audit committee members must comply with the independence standards mandated by Section 301 of the Sarbanes-Oxley Act and set forth in Rule 10A-3 of the Securities Exchange Act of 1934, as amended. Each member of our Audit Committee satisfies these standards. The Board has determined that each member of our Audit Committee is “financially literate” within the meaning of the NYSE rules. Mr. Bramley served as the designated “audit committee financial expert” during fiscal 2009, until his retirement on September 28, 2008. Mr. Street has served as the audit committee financial expert since Mr. Bramley’s retirement.

 

Compensation Committee.  The Compensation Committee assists the Board in fulfilling the Board’s duties relating to the compensation of our directors, officers and employees. The committee’s responsibilities include, among other things, determining the compensation of the CEO; reviewing and approving the compensation of the Presiding Chairman of the Board; approving incentive compensation plan design and changes thereto for the CEO and other senior executive officers; participating in the preparation of the Compensation Discussion and Analysis that appears in this Proxy Statement on page 24; preparing the Compensation Committee Report that appears in this Proxy Statement on page 34; and leading the evaluation of the performance of the CEO and Presiding Chairman of the Board. The committee has engaged Frederic W. Cook & Co. as its independent compensation consultant for assistance with these responsibilities. The committee is composed of three directors, each of whom qualifies as an independent director under NYSE listing standards, a “non-employee director” under SEC rules, and an “outside director” under regulations adopted pursuant to Section 162 of the Internal Revenue Code.

Richard P. Mayer (Chair), Patrick Bousquet-Chavanne and John D. Cook serve on the Compensation Committee. Matthew R. Simmons served on the committee during fiscal 2009 until his retirement on January 22, 2009. John D. Cook joined the committee effective January 22, 2009. The committee held four regular meetings and three special meetings during fiscal 2009.

 

Corporate Governance and Nominating Committee.  The Corporate Governance and Nominating Committee’s primary responsibilities are: to assist the Board in identifying, recruiting and recommending to stockholders appropriate candidates to serve as directors; to review periodically the Company’s corporate governance principles in light of new developments in corporate governance law and best practices, taking into account the Company’s controlled-company status under the NYSE rules; to coordinate and oversee CEO succession planning on behalf of the Board; and to assist the Board with its annual self-evaluation. The Corporate Governance and Nominating Committee held six regular meetings during fiscal 2009.

 

Richard P. Mayer (Chair), Patrick Bousquet-Chavanne, Geo. Garvin Brown IV, and Donald G. Calder serve on the Corporate Governance and Nominating Committee. Barry D. Bramley served on the committee during fiscal 2009 until his retirement on September 28, 2008. Mr. Bousquet-Chavanne joined the committee effective September 25, 2008. All of the Corporate Governance and Nominating Committee members are independent under NYSE listing standards, except Geo. Garvin Brown IV. To exclude Brown family members from participation on this committee would lead to the incongruous result of a controlling family being precluded from participating in the forum that identifies directors, independent and otherwise, who oversee the management of the Company.

 

The Corporate Governance and Nominating Committee may from time to time engage independent search firms to assist in identifying potential Board candidates. In evaluating candidates for Board membership, the Corporate Governance and Nominating Committee seeks directors who will represent the best long-term interests of all stockholders. As articulated in our Corporate Governance Guidelines, the Board’s view is that all Brown-Forman directors should possess the highest personal and professional ethics, integrity, and values. The Board also believes that it is highly desirable for the directors to possess the following qualities: good judgment, candor, independence, civility, business courage, experience with businesses and other organizations of comparable character and of comparable or larger size, and a lack of possible conflicts of interest.

 

The Board realizes the critical and unique contribution made by each group of directors – the independent directors, the Brown family members, and the management representatives – and strives to find the ideal balance among them so that the Board can function in the most efficient and effective manner on behalf of all stockholders. The Board has not adopted a formal policy regarding stockholder-nominated director candidates because the committee believes that the processes used to date have been appropriate and effective for identifying and selecting Board members.

 

Executive Committee.  The Executive Committee may exercise all of the powers of the Board of Directors on such matters as are delegated to it by the Board, as well as during intervals between meetings of the Board of Directors. Geo. Garvin Brown IV, Paul C. Varga and James S. Welch, Jr., serve as members of the Executive Committee. The Executive Committee met twice during fiscal 2009.

 

Corporate Governance Guidelines.  The Board has adopted Corporate Governance Guidelines that provide a framework for the conduct of the Board’s business and guide the Board in the exercise of its duties. These guidelines set forth Board responsibilities, director qualification standards, Board meeting and attendance requirements, committee composition requirements, primary committee responsibilities, policies related to director compensation, management succession, director access to management and independent advisors, and an annual self-evaluation requirement for the Board, among other things. The Board amended the Corporate Governance Guidelines in May 2009 to include or update policies addressing stock ownership requirements for directors, change in a director’s principal occupation, and director service on other public boards, among others. In

addition, the amendment modified slightly the Company’s mandatory retirement policy for directors. A brief description of these provisions is set forth below:

 

 

The Corporate Governance Guidelines are published on our website in the “Corporate Governance” area of the “Investor Relations” section ( www.brown-forman.com/company/governance ). You may request a print copy at no charge by writing to our Secretary, Matthew E. Hamel, 850 Dixie Highway, Louisville, Kentucky 40210, or e-mailing him at Secretary@b-f.com.

 

Communication with our Board.  Brown-Forman stockholders and other interested parties may communicate with Brown-Forman’s directors, including the non-management directors or the independent directors as a group, by sending written communications to our Secretary, Matthew E. Hamel, at 850 Dixie Highway, Louisville, Kentucky 40210, or by e-mail at Secretary@b-f.com. Written communications received at that address will be provided to the individual director or group of directors to whom they are addressed, and copies of such communications will be provided to all other directors.

 

Brown-Forman has long believed that good corporate governance is essential to maintaining our integrity in the marketplace. We continually evaluate our corporate governance practices in the context of our controlled company status to address the changing regulatory environment and adopt what we believe are “best practices” for Brown-Forman.

 

Code of Conduct and Compliance Guidelines.  The Company has adopted the Brown-Forman Code of Conduct and Compliance Guidelines (the “Code of Conduct”), which set forth standards of ethical behavior applicable to all Company employees and directors. The Code of Conduct contains a Code of Ethics for Senior Financial Officers, which details the Company’s expectation that all financial, accounting, reporting, and auditing activities of the Company be conducted in strict compliance with all applicable rules and regulations, and in accordance with the highest ethical standards. The Code of Conduct, including the Code of Ethics for Senior Financial Officers, can be found on our website in the “Corporate Governance” area of the “Investor Relations” section ( www.brown-forman.com/company/governance ). You may request a print copy at no charge by

writing to our Secretary, Matthew E. Hamel, 850 Dixie Highway, Louisville, Kentucky 40210, or e-mailing him at Secretary@b-f.com.

 

Disclosure Controls Committee.  The Company has a Disclosure Controls Committee composed of members of senior management. The committee has established controls and procedures designed to ensure that information that may be required to be disclosed publicly is gathered and communicated to management and, if required, reported in a timely and accurate manner. The committee is also responsible for developing and implementing procedures to assist the Company in complying with Regulation FD (Fair Disclosure). The committee has implemented a financial review process that enables our CEO and Chief Financial Officer (“CFO”) to certify our quarterly and annual financial reports with confidence.

 

Separate Chairman of the Board and Chief Executive Officer Roles.  There are two separate and distinct management positions at Brown-Forman with the word “Chairman” in the title. Geo. Garvin Brown IV serves as our Presiding Chairman of the Board; and Paul C. Varga serves as Chief Executive Officer and Chairman of the Company. As Presiding Chairman of the Board, Mr. Brown’s responsibilities include chairing meetings of the Board, encouraging the Board’s role in strategic planning, leading the Board’s operations and administration, and planning Board meeting agendas. As Chief Executive Officer and Chairman of the Company, Mr. Varga is the Company’s highest ranking executive, and has ultimate responsibility for the Company’s performance, leadership of senior management, and all aspects of Company operations.

 

Unlike most public companies, Brown-Forman has an engaged family stockholder base with a long-term ownership perspective. We view our status as a publicly traded, family-controlled company as a distinct source of competitive advantage, and we believe that a strong relationship with the Brown family is essential to our growth, independence, and long-term value creation for all stockholders. We therefore actively cultivate our relationship with the Brown family.

 

Brown-Forman/ Brown Family Shareholders Committee.  The Brown-Forman/ Brown Family Shareholders Committee encourages and provides a forum for open, constructive and frequent dialogue between the Company and its controlling family stockholders. Designed for broad family participation, and including several non-family Company executives, the committee has proposed policies and formed working groups to study areas of particular interest to the Brown family, such as family governance, philanthropy, and family members’ education and employment at the Company. The committee conducts its interactions with the Company in a manner consistent with all applicable securities and disclosure rules and regulations.

 

Director of Family Shareholder Relations.  In 2009, the Company created the position of “Director of Family Shareholder Relations.” The Director of Family Shareholder Relations will work with Company employees and Brown family members to develop and implement policies and practices designed to further strengthen the relationship between the Company and the Brown family.

 

Family Members Appointed to Key Management Committees.  Brown family employees participate on key Company management committees that oversee and advise on internal and external operational matters. Participation on these committees enables our Brown family employees to contribute their long-term shareholder perspective on key matters and provides a valuable developmental opportunity.

 

This section provides biographical information about our Director nominees.

 

Election of Directors at the Annual Meeting.  Members of Brown-Forman’s Board of Directors are elected each year at the Annual Meeting of Stockholders. Once elected, a director holds office until the next Annual Meeting, or until his or her successor is elected and qualified, unless he or she first resigns, retires, or is removed. No director may stand for re-election to the Board after he or she has reached the age of 71, except upon special vote by the Board. The Board of Directors is authorized to fix the number of directors to serve on the Board from time to time, within a range of three to seventeen members. There are eleven nominees on this year’s slate of directors.

 

The proxy holders will vote all shares for which they receive a proxy “FOR” the election of all director nominees below, unless you direct them on the proxy card to vote against, or abstain from voting for, certain or all of the nominees. If any nominee becomes unable to serve before the meeting, the persons named as proxy holders may vote your shares for a substitute nominee. As of the date of this Proxy Statement, the Board is not aware of any nominee who is unwilling or unable to serve as director.

 

Nominees.  Each of our director nominees currently serves as a director of Brown-Forman and is standing for re-election. Set forth below is certain information about our director nominees.

 

The Board of Directors unanimously recommends a vote “FOR” the election of each of the director nominees.

 

 

 

Family Relationships.  No family relationship - first cousin or closer - exists between any two directors, executive officers, or persons nominated or chosen by the Company to become a director or executive officer, except Director Geo. Garvin Brown IV is the nephew of Director Dace Brown Stubbs.

 

This section identifies the beneficial owners of 5% or more of our voting stock and the ownership amounts of our directors and executive officers.

 

The table below identifies each beneficial owner of 5% or more of our Class A common stock, our only class of voting stock, as of April 30, 2009. The SEC defines “beneficial ownership” to include shares over which a person has sole or shared voting or investment power. Each of the beneficial owners listed in the table below is either a Brown family member, an entity or trust controlled by Brown family members, or an individual serving as an advisor to a Brown family trust at the request of a Brown family member.

 

The Brown family holds Class A shares in a variety of family trusts and entities, with multiple family members often sharing voting control and investment power as members of advisory committees to the trusts or as owners or officers of the entities. As a result, many of the shares shown in the table below are counted more than once, as they are deemed to be beneficially owned by more than one of the persons identified in the table. Counting each share only once, the aggregate number of shares of Class A common stock beneficially owned by the persons in this table is 38,066,401 shares, or 67.3% of the 56,596,065 Class A shares outstanding as of the close of business on April 30, 2009.

 

The table confirms that the Brown family continues its longstanding voting control of Brown-Forman Corporation.

 

 

 

 

The following table sets forth as of April 30, 2009, the beneficial ownership of our Class A and Class B common stock of each current director, each director nominee, each executive officer named in the Summary Compensation Table for Fiscal 2009 found on page 35, and of all directors and executive officers as a group. Some shares shown below are beneficially owned by more than one person. As of the close of business on April 30, 2009, there were 56,596,065 shares of Class A common stock and 93,545,762 shares of Class B common stock outstanding. In calculating the aggregate number of shares and percentages owned by all directors and executive officers as a group, which includes shares owned by persons not named in this table, we counted each share only once.

 

Stock Beneficially Owned by Directors and Executive Officers as of April 30, 2009

 

 

 

 

 

 

 

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers, directors, and “beneficial owners” of 10% or more of our Class A common stock to file stock ownership reports and reports of changes in ownership with the SEC. Based on a review of those reports and written representations from the reporting persons, we believe that during fiscal 2009, these persons reported all transactions on a timely basis, except that J. McCauley Brown filed one late Form 4 to report the purchase of 4,000 Class A shares. In addition, during fiscal 2009, Catherine Frazier Joy corrected an omission from her Form 3 filed June 11, 2007, of four trust accounts that each held 150 Class B shares.

 

This section is a report of the Audit Committee of the Board of Directors. It explains the role of the Audit Committee and sets forth the fees paid to our independent registered public accounting firm.

 

Audit Committee Report.

 

The Audit Committee’s primary responsibility is the oversight of the Company’s financial reporting process on behalf of the Board. Management is responsible for establishing and maintaining the Company’s internal controls, for preparing the financial statements, and for the public reporting process. The independent registered public accounting firm is responsible for performing an audit of the Company’s financial statements in accordance with generally accepted auditing standards and for issuing a report on its audit. The independent registered public accounting firm also issues a report on the effectiveness of the Company’s internal control over financial reporting. The Audit Committee reviews the work of management and has direct responsibility for retention of the independent registered public accounting firm on behalf of the Board of Directors.

 

On behalf of the Board, the Audit Committee retained PricewaterhouseCoopers LLP (“PwC”) as the independent registered public accounting firm to audit the Company’s consolidated financial statements and the Company’s internal control over financial reporting for fiscal 2009. The Audit Committee reviewed and discussed with management and the independent registered public accounting firm the audited financial statements as of and for the fiscal year ended April 30, 2009. In addition, the Audit Committee reviewed and discussed with management their assessment of the effectiveness of the Company’s internal control over financial reporting and PwC’s evaluation of the Company’s system of internal controls. These discussions included meetings with the independent registered public accounting firm without representatives of management present.

 

The Audit Committee discussed with the independent registered public accounting firm matters required to be discussed by Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. The independent registered public accounting firm provided the Audit Committee with the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board for independent auditor communications with audit committees concerning independence, and the committee discussed with the independent registered public accounting firm the firm’s independence and ability to conduct the audit. The Audit Committee has determined that PwC’s provision of audit and non-audit services to the Company is compatible with maintaining auditor independence.

 

Based on the foregoing, the Audit Committee recommended to the Board of Directors that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ending April 30, 2009.

 

Audit Committee

Donald G. Calder, Chair

William M. Street, Vice Chair

John D. Cook

William E. Mitchell

Fees Paid to Independent Registered Public Accounting Firm.

 

The following table shows the fees that the Company paid or accrued for the audit and non-audit services provided by PricewaterhouseCoopers LLP during fiscal years 2008 and 2009.

 

		Fiscal Years
		2008					2009
Audit Fees		$	1,733,516	(1	)		$	1,720,711
Audit-Related Fees			202,361					187,963
Tax Fees			0					0
All Other Fees			0					0
Total		$	1,935,877				$	1,908,674

 

 

Audit Fees.  This category includes the audit of the Company’s annual financial statements included in the Company’s Annual Report on Form 10-K, attestation services relating to the report on internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, review of financial statements included in the Company’s Form 10-Q quarterly reports, services normally provided in connection with statutory and regulatory filings or engagements, and statutory audits required by foreign jurisdictions.

 

Audit-Related Fees . This category consists principally of assurance and other services related to the Company’s acquisition and divestiture activities, and audits of employee benefit plans. All of such fees were pre-approved by the Audit Committee in accordance with the policy described below.

 

 

The Audit Committee approved the fiscal 2009 audit and non-audit services provided by PricewaterhouseCoopers LLP (“PwC”). The non-audit services approved by the Audit Committee were also reviewed to ensure compatibility with maintaining the registered public accounting firm’s independence. The Audit Committee pre-approves both the type of service to be provided by PwC and the estimated fee for the service. The Audit Committee has delegated to its Chair authority to pre-approve proposed audit and non-audit services that arise between meetings, with the understanding that the decision to approve the service will be reviewed at the next scheduled Audit Committee meeting. During the approval process, the Audit Committee considers the impact of the type of service on the independence of the registered public accounting firm. Services and fees must be deemed compatible with the maintenance of the registered public accounting firm’s independence, including compliance with SEC rules and regulations. The policy prohibits the Audit Committee from delegating to management the Audit Committee’s responsibility to pre-approve permitted services of our independent registered public accounting firm. Throughout the year, the Audit Committee reviews any revisions to the estimates of audit and non-audit fees initially approved.

 

The Audit Committee has adopted other policies in an effort to protect further the independence of our independent registered public accounting firm. The Audit Committee must pre-approve PwC’s rendering of personal financial and tax advice to any of the Company’s designated executive officers. In addition, the Audit Committee has adopted a policy that limits the Company’s ability to hire certain current and former employees of our independent registered public accounting firm.

 

The Audit Committee has appointed PricewaterhouseCoopers LLP (“PwC”) to serve as the Company’s independent registered public accounting firm for the fiscal year ending April 30, 2010. Through its predecessor Coopers & Lybrand L.L.P., PwC has served as the Company’s auditor continuously since 1933. A PwC representative will attend the Annual Meeting, will be given the opportunity to make a statement should he or she so desire, and will be available to respond to appropriate questions. We know of no direct or material indirect financial interest that PwC has in us or any of our subsidiaries, or of any connection with us or any of our subsidiaries by PwC in the capacity of promoter, underwriter, voting trustee, director, officer or employee.

 

This section explains our compensation philosophy and all elements of the compensation we provide to our Named Executive Officers.

 

 

The following bullet points provide a brief overview of the more detailed disclosure set forth in the “Compensation Discussion & Analysis” section that begins on page 24.

 

 

 

Compensation Committee.  The Compensation Committee (the “Committee”) of our Board of Directors assists the Board in fulfilling the Board’s duties relating to the compensation of our directors, officers, and employees. The Committee is composed of three directors, each of whom qualifies as an independent director under NYSE listing standards, a “non-employee director” under SEC rules, and an “outside director” under regulations adopted pursuant to Section 162 of the Internal Revenue Code. The Committee has the sole authority, on behalf of the Board of Directors, to determine the compensation of our CEO. The Committee, with input from the Management Compensation and Benefits Committee (of which our CEO is a member), determines the compensation of our other NEOs. The Management Compensation and Benefits Committee and our Human Resources Department support the Committee in the performance of its responsibilities.

 

Independent Compensation Consultant.  The Compensation Committee has engaged Frederic W. Cook & Co. as its independent compensation consultant. The Cook firm is responsible to the Committee and its Chair for reviewing and recommending the compensation of the CEO and other NEOs. The Cook firm also provides independent advice to the Board on director remuneration and is responsible for compiling, on a confidential basis, the responses from directors to its annual questionnaire on Board effectiveness. The Cook firm works with Company management as the Compensation Committee’s agent on all matters that fall within the Compensation Committee’s purview. The Cook firm provides no other service to the Company or its management. The Company paid the Cook firm $127,129 for its services during fiscal 2009.

 

Compensation Philosophy.  The overarching objective of our compensation program is to enable Brown-Forman to recruit, retain, and motivate a diverse team of talented executives who will lead the Company to fulfill our goal of being the best brand builder in the wine and spirits industry. In support of this objective, our compensation program has the following primary goals:

 

 

Compensation Offered.  We offer the following compensation and benefits to our NEOs:

 

 

 

Use of Market Data in Making Compensation Decisions.  We believe that to recruit, retain, and motivate high-caliber executives, our executive compensation must be competitive with the compensation opportunities provided by companies with which we compete for executive talent. Therefore, it is the Committee’s practice to target total cash compensation at the 55 ^th  to 65 ^th  percentile of the relevant market, with the possibility of delivering top quartile total compensation if business performance exceeds targeted goals, and the flexibility to pay at lower levels for periods of underperformance.

 

In making compensation decisions for fiscal 2009, the Committee used customized compensation survey data provided by Towers Perrin. Specifically, the Committee reviewed information from two subsets of Towers Perrin survey data – one of manufacturing companies and one of consumer products companies. Seven companies appeared in both survey groups. The survey data included salary, incentive compensation, and internal pay equity information from the comparator companies. The companies in each of the survey subsets were:

 

 

Towers Perrin provided the survey data as an “interactive tool” that created predictive market values for each executive position based on company sales and the pay percentile desired within the specified peer group. Comparative data from each of the two survey groups for each executive position for which data was available was used to calculate an average of the data for all pay elements surveyed to arrive at what the Committee considered to be the most useful market

information for each pay element and for each position. The Committee used this information primarily to understand prevailing market pay rates and practices in support of our goal of offering competitive compensation to our executive officers. The Committee also used this information as a reference point when apportioning pay across the various elements of compensation.

 

When setting our NEOs’ compensation for fiscal 2009, the Committee reviewed market data for annual cash compensation (base salary plus the value of short-term cash incentives) representing both the 55th percentile and the 65th percentile within the comparator groups to establish a range for total cash compensation. With respect to long-term incentive compensation, including long-term cash and equity compensation, the Committee referred to the 50th percentile of market data. The Committee also considered job scope, contribution, and long-term value to Brown-Forman.

 

Principal Elements of Compensation.

 

Base Salary.  Each year the Committee determines the salary for the CEO, and reviews and approves the salaries of the other NEOs and executive officers. We pay our NEOs a salary as a means of recognizing their significant responsibilities and rewarding them for their daily efforts. It has been our practice to offer our NEOs a salary within the 55 ^th  to 65 ^th  percentile of our comparator group, using the methodology described above. We believe that this compensation practice has furthered our objective of attracting, retaining, and motivating a diverse team of talented executives.

 

At each annual review, the Committee typically determines any increase or decrease to the NEOs’ salaries based on established merit budget guidelines applicable to all salaried employees and the results of individual performance assessments. However, in fiscal 2009, merit increase guidelines for NEOs and other executives were reduced to approximately half of the amount provided to other salaried employees. This reduction in merit increase guidelines was intended to moderate, due to difficult macro-economic circumstances, the increase in employment cost associated with merit increases, and is not reflective of lower levels of performance by the affected executives.

 

The holiday bonus, which we consider part of salary, is paid in cash near calendar year end and is calculated as follows:

 

 

The salaries, including holiday bonus, earned by our NEOs during fiscal 2009 are reflected in the column under the heading “Salary” in the Summary Compensation Table found on page 35.

 

Incentive Compensation.  We provide our executives with both short-term and long-term performance-based incentive compensation opportunities.

 

2004 Omnibus Compensation Plan.  On July 22, 2004, our stockholders approved the Brown-Forman 2004 Omnibus Compensation Plan (the “Plan”), an incentive compensation plan designed to reward participants for individual and Company performance. Officers, employees, and non-employee directors of the Company, its subsidiaries and affiliates are eligible to receive awards under the Plan. The Plan permits the following types of awards: cash, stock options, stock appreciation rights, stock, restricted stock, market value units, and performance units. All short-term and long-term incentive compensation paid by the Company is administered pursuant to the terms and conditions of the Plan. Under the terms of the Plan, performance goals are limited to certain Company, affiliate, operating unit or division financial performance measures. Performance goals may be expressed on an absolute or relative basis, and may exclude certain items as the Committee may determine.

Alignment with Corporate Vision.  Our corporate vision is to be the best brand builder in the wine and spirits industry. We measure our success on this front, relative to our industry peers, by evaluating “depletion-based operating income.” This is the amount of operating profit earned by the Company on the number of nine-liter cases depleted during a fiscal year. “Depletions” are shipments from the Company direct to retail, or shipments from distributors to wholesale or retail customers, and are commonly regarded in the industry as an approximate measure of consumer demand. The payouts under our incentive compensation plan are tied to Company performance against depletion-based operating income. Thus, our executive compensation plans are aligned with our corporate vision and the key performance metric that is indicative of our success.

 

Short-Term Incentive Compensation.  We provide our NEOs with an annual short-term incentive compensation opportunity, which is payable in cash and based upon a pre-determined percentage of each executive’s base salary. Short-term incentive compensation is performance-based, and payout is dependent upon the achievement during the fiscal year of certain goals related to Company performance.

 

Within 90 days following the start of each fiscal year, the Committee determines the annual performance goals and cash opportunity for each NEO. The Committee also establishes a threshold performance level, which must be achieved before any short-term incentive compensation is paid. Performance at target yields a payout of 100%. If the threshold performance level is satisfied, the short-term incentive compensation paid out is based upon how much Company performance exceeds or falls short of the performance target, and is capped at 200% of target. The Committee reserves the right to adjust downward (but not upward) any award produced by this formula. Short-term incentive compensation is typically paid out on June 15 following the end of the fiscal year.

 

For fiscal 2009, the short-term performance goals for the NEOs were based on the Company’s depletion-based operating income. The Committee believes that depletion-based operating income is the most relevant measure by which to assess the Company’s short-term business performance. Factors considered in setting the performance goals at the start of the year were performance expectations on this metric among industry competitors, Company historical depletion-based operating income trends, and the Company’s outlook for fiscal 2009 depletion-based operating income. The fiscal 2009 short-term performance goals were determined by the Committee, with input from the Management Compensation and Benefits Committee, and were as follows:

 

 

 

After adjusting for certain items, including a portion of the gain on the divestiture of the Company’s Italian wine brands, the negative impact of discontinued brands, agave write-offs in excess of normal losses, expenses associated with the Company’s reduction in force and early retirement programs, and the impact of an increase in excise taxes on ready-to-drink products in Australia, the Committee determined that for purposes of the Plan, the Company achieved depletion-based operating income of $705.0 million for fiscal 2009. This resulted in a short-term incentive compensation payout to our

NEOs of 75% of target. The Committee did not exercise downward discretion with regard to the short-term incentive compensation payout in respect of any NEO.

 

A NEO forfeits his or her short-term incentive compensation if he or she voluntarily terminates employment or is discharged for cause during the fiscal year. For executives who leave the Company voluntarily at or after age 55 with at least five years of service (considered to be retirees), the short-term incentive compensation is pro-rated based on length of service during the performance period, and is paid at the same time and in the same manner as to active employee participants.

 

Please see the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table for Fiscal 2009 found on page 35 and the Grants of Plan Based Awards for Fiscal 2009 table found on page 37 for more information on the short-term incentive compensation we paid to our NEOs.

 

Long-Term Incentive Compensation.  We provide our NEOs and other key employees with a long-term incentive compensation opportunity as part of their total compensation package. Long-term incentives are intended to focus our executives on our long-range strategic goals and on the sustainable growth and performance of our brands. Long-term incentives also serve as a retention mechanism and equity-building opportunity for our executives.

 

The long-term incentive compensation opportunity contains both cash-based and equity-based awards, and is generally established in accordance with the following process: The total long-term incentive compensation opportunity for each NEO is initially determined as a cash value. At least 50% of that value is delivered in the form of performance-based cash. The remaining portion is delivered through a combination of restricted stock, stock appreciation rights, and additional performance-based cash. The Committee, with input from the CEO with respect to the other NEOs, and taking into account the personal circumstances of the NEOs (such as time until retirement and current equity holdings) decides for each NEO what portion of the total long-term incentive compensation opportunity should be delivered via each of the long-term incentive vehicles. In making its decision regarding the portion of a long-term award to be delivered via restricted stock, the Committee examines the equity holdings in the Company of each NEO from all sources, including personal holdings, holdings from past incentive-based awards, and holdings within the executive’s 401(k) plan account. As a result, the equity awards to NEOs may include only restricted stock, only stock appreciation rights, or a combination of the two. To provide flexibility in retirement planning, executives who are older than 62 or who will attain age 62 during the fiscal year, are not required to have an equity component to their long-term incentive compensation award and instead may receive 100% of their award in the form of performance-based cash. James L. Bareuther did not have an equity component to his fiscal 2009 long-term incentive compensation for these reasons. The Committee believes that the use of equity-based compensation furthers the goal of aligning executives’ interests with those of Company stockholders.

 

For fiscal 2009, the long-term incentive compensation awarded to the NEOs contained three components: performance-based cash, performance-based restricted stock, and stock-settled stock appreciation rights.

 

Performance-Based Cash Opportunity.  Long-term cash awards are granted during the first 90 days of each fiscal year. Long-term cash awards granted in early fiscal 2009 will be paid out shortly following the completion of fiscal 2011 (likely on June 15, 2011). The target amount of the long-term performance-based cash award is adjusted up or down by the average of the Company’s short-term incentive performance scores over the applicable three-year period.

 

For the long-term incentive compensation performance period that ended in fiscal 2009 (i.e., for the three-year performance period of fiscal 2007 through fiscal 2009), the payout was based upon the average of the fiscal 2007, fiscal 2008 and fiscal 2009 payout percentages for the Company’s short-

term incentive compensation program (170%, 169% and 75%, respectively). The Company’s performance during this three-year performance cycle resulted in a long-term incentive compensation payout at 138% of target.

 

An executive typically forfeits all long-term cash incentives if he or she voluntarily terminates employment (prior to retirement eligibility) or is discharged for cause during any three-year performance period. Subject to the Plan Administrator’s discretion, for those NEOs who voluntarily leave the Company at or after age 55 with at least five years of service (considered to be retirees), the long-term cash incentive compensation may be pro-rated and paid at the same time and in the same manner as to active employee participants.

 

Please see the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table for Fiscal 2009 found on page 35 and the Grants of Plan Based Awards for Fiscal 2009 table found on page 37 for more information on the cash portion of the long-term incentive compensation we pay to our NEOs.

 

Performance-Based Equity Opportunity.

 

Restricted Stock.  Our performance-based restricted stock has a one-year performance measure followed by a three-year vesting period. The restricted stock award is initially determined by the Committee as a cash value, and is awarded to our NEOs on the date of the Company’s Annual Meeting of Stockholders, which is typically held in late July. This initial cash value is adjusted up or down after the completion of the fiscal year by the Company’s short-term incentive compensation performance score. The number of restricted shares issuable in respect of the award is determined by dividing the adjusted cash value by the closing price of the relevant class of our common stock on the date the award was originally made (the Annual Meeting date). The restricted shares are subject to certain employment-related restrictions for the ensuing three fiscal years, vesting on the first day of the fourth fiscal year following the date of grant.

 

For fiscal 2009, Class A common restricted stock awards were granted on July 24, 2008. The number of shares issued in respect of the awards was determined by multiplying the cash value of each NEO’s restricted stock opportunity at target by the short-term incentive compensation performance score for fiscal 2009 (75%), and dividing that product by the value of our Class A common stock as of the close of trading on the date of the award, July 24, 2008 ($57.35). The restricted shares were issued June 1, 2009. Restricted shares awarded for fiscal 2009 will vest on April 30, 2012. NEOs receive cash dividend payments on the restricted shares during the vesting period to reinforce the ownership value of the shares.

 

Restricted stock is forfeited should a NEO voluntarily terminate his or her employment (prior to retirement eligibility) during the restriction period, or be terminated for cause. Restricted stock vests on a pro-rata basis upon an involuntary termination for reasons other than for cause. Subject to the Plan Administrator’s discretion, restricted stock may vest on a pro-rata basis upon retirement or death. For more information on the restricted stock awarded for fiscal 2009, please see the Grants of Plan Based Awards for Fiscal 2009 and Outstanding Equity Awards as of April 30, 2009, tables set forth on pages 37 and 39, respectively.

 

Stock-Settled Stock Appreciation Rights.  Stock-settled stock appreciation rights (“SSARs”) are granted annually on the date of the Company’s Annual Meeting of Stockholders, which is typically held in late July. The number of Class B Common SSARs awarded to our NEOs for fiscal 2009 was determined by dividing the cash value of the long-term incentive compensation opportunity designated for SSARs by the Black-Scholes value of a SSAR as of the close of trading on the date of grant, July 24, 2008. SSARs are not exercisable until the first day of the third fiscal year following the grant date, and are exercisable for seven fiscal years thereafter (i.e., SSARs granted July 24, 2008, are exercisable May 1, 2011, and expire on April 30, 2018). For more information on

the SSARs awarded for fiscal 2009, please see the Grants of Plan Based Awards for Fiscal 2009 and Outstanding Equity Awards as of April 30, 2009 tables set forth on pages 37 and 39, respectively.

 

Class B Common Stock Distribution.  On October 27, 2008, we completed a special distribution of shares of our Class B common stock. For every four shares of Class A or Class B common stock held as of the record date, stockholders received one share of Class B common stock, with fractional shares payable in cash (outstanding option and SSAR awards were rounded up to the next whole share). Outstanding equity award amounts and exercise prices were adjusted as of October 27, 2008, to account for this distribution, and are presented in this Proxy Statement on an adjusted basis.

 

Executive Officer Changes.

 

 

Fiscal 2009 Company Performance and its Effect on Executive Compensation.  The Company’s underlying performance for fiscal 2009 was solid, especially relative to our direct industry competitors, but represented a decline in growth compared to fiscal 2008 and fiscal 2007. Company performance fell short of target for the fiscal 2009 performance period, but substantially exceeded target performance levels for the fiscal 2008 and fiscal 2007 performance periods. Therefore, the short-term incentive payout for the NEOs for fiscal 2009 was lower than target (75%), while the long-term incentive payout for the NEOs for the three-year performance period ending in fiscal 2009 was higher than target (138%). (The payout for performance at target is 100%.)

 

The market prices of our Class A and Class B common stock decreased during fiscal 2009. Our Class A common stock closing price decreased from $56.20 on April 30, 2008, to $48.70 on April 30, 2009. Our Class B common stock closing price decreased from $54.42 on April 30, 2008, to $46.50 on April 30, 2009. These price decreases resulted in a decrease in the value of our executives’ accumulated equity-based incentives during fiscal 2009.

 

Impact of Fiscal 2009 Performance on CEO Total Direct Compensation.  The Fiscal 2009 Summary Compensation Table appearing on page 35 presents compensation information for our CEO as required by SEC regulations. The table below reflects our CEO’s total direct compensation as viewed by the Compensation Committee when making compensation decisions. The table below is not designed to replace the Summary Compensation Table, but rather to reflect the Committee’s perspective related to the CEO’s total direct compensation. It differs from the 2009 Summary Compensation Table, which is required by the SEC to follow the Statement of Financial Accounting Standards 123R, Share-Based Payment (“FAS 123R”) methodology for expensing equity awards over the vesting period.

 

The Compensation Committee considers total direct compensation for a fiscal year to be: base salary, short-term cash paid as a result of that year’s performance, long-term cash paid for the three-year performance period ending at the conclusion of the fiscal year, the grant date fair value of SSAR awards made during the fiscal year (of which there were none for the CEO in fiscal 2008 or fiscal 2009), and the performance-adjusted value of restricted stock awards made during the fiscal year. Mr. Varga’s total direct compensation for fiscal 2008 and fiscal 2009, presented in this manner, is set forth in the following table. Short- and long-term incentive compensation for both years was based on the Company’s performance against pre-established financial targets (depletion-based operating income). The effect of fiscal 2009 Company performance on our CEO’s fiscal 2009 total direct compensation, as the Committee views it, resulted in a decrease of 34% from fiscal 2008 total direct compensation.

Fiscal 2009 versus Fiscal 2008 Total Direct Compensation
for our Chief Executive Officer

 

 

 

 

Perquisites and Employee Benefits.  We provide our NEOs with certain employee benefits that are available to nearly all salaried employees, including Company-paid group term life insurance equal to two times target cash compensation, travel accident insurance, Company matching contributions (up to 5%) to a 401(k) savings plan, medical and dental plans, and a pension that grows with each added year’s service and pay. In addition, we provide our NEOs and certain other executives with additional benefits, including a leased automobile, automobile insurance, and reimbursement of financial planning expenses. We purchase tickets to sporting and entertainment events for business outings with customers and suppliers. If the tickets are not used for business purposes, employees (including the NEOs) may have the opportunity to use the tickets at no incremental cost to the Company. We believe these benefits further our goal of attracting and retaining a diverse team of talented executives. We occasionally invite the NEOs and their spouses to certain events, including retirement celebrations and award dinners. We believe these events provide valuable opportunities for our senior executives to establish and develop relationships with our directors, long-term stockholders, employees, and each other, furthering our objective of having a strong and cohesive management team. For more detail on these benefits, please see the “All Other Compensation” column of the Summary Compensation Table for Fiscal 2009 found on page 35.

 

Post-Termination Compensation and Benefits.  We maintain both tax-qualified retirement plans and non-qualified supplemental excess retirement plans. Most salaried employees, including all of our NEOs, participate in the Salaried Employees Retirement Plan. This plan provides monthly retirement benefits based on age at retirement, years of service, and the average of the five highest consecutive calendar years’ salary during the final ten years of employment. These retirement benefits are not offset by Social Security benefits and are normally payable at age 65. A participant’s interest vests after five years of service. Please see the Pension Benefits Table on page 43 for additional information.

 

Federal tax law limits the benefits we might otherwise pay to key employees under “qualified” plans such as the Salaried Employees Retirement Plan. Therefore, for certain employees, including our NEOs, we maintain a nonqualified Supplemental Executive Retirement Plan (“SERP”). The SERP provides retirement benefits to make up the difference between a participant’s accrued benefit calculated under the Salaried Employees Retirement Plan and the ceiling imposed by federal tax law. The SERP also provides accelerated vesting of a portion of retirement benefits for certain key employees who join us mid-career.

We maintain a qualified 401(k) savings plan for most salaried employees, including our NEOs. Subject to a maximum the IRS sets annually, most participants in our 401(k) savings plan may contribute between 1% and 50% of their compensation to their savings plan accounts, although highly compensated employees including our NEOs are limited to contributions of between 1% and 16% of their compensation. Our match of participants’ contributions is currently 100% of the first 5% of the employee’s contribution, and vests fully after four years of service. At termination, the departing participant may elect to leave the vested balance in Company’s 401(k) plan or to roll it over to an IRA or (subject to applicable IRS rules) withdraw it.

 

We believe these post-termination compensation and benefit programs further our goal of attracting and retaining top executive talent, and serve to encourage executives to make long-term career commitments to us. For additional information on potential payments upon termination, please see the Potential Payments upon Termination or Change-in-Control section of this Proxy Statement found on page 44.

 

Fiscal 2010 Compensation.  During fiscal 2009, the Committee reviewed the Company’s short- and long-term incentive compensation program design and approved changes to the program that will be applicable to compensation awarded to the NEOs beginning in fiscal 2010. In doing so, the Committee sought to maintain the program’s compatibility with varying business and economic environments and to align the program more fully with certain of the Company’s performance measures, while appropriately correlating the level of incentive opportunity with the modest risk orientation that is considered optimal for the Company’s continued success.

 

Changes to Short-Term Incentive Compensation.  Our annual short-term incentive compensation opportunity will continue to be based, in large part, upon the achievement during the fiscal year of certain goals related to the Company’s depletion-based operating income. However, the threshold level of performance may be set below the level achieved during the prior fiscal year. In addition, when reviewing depletion-based operating income results at the conclusion of the fiscal year for purposes of assessing performance under the short-term incentive compensation plan, the impact of foreign exchange will be excluded. Also, in fiscal 2010, a minority component of the NEOs’ short-term incentive compensation opportunity will be based upon the achievement of individual performance objectives. This change will not affect the deductibility of the performance-based compensation we pay under our incentive compensation plans.

 

Changes to Long-Term Incentive Compensation.  Beginning in fiscal 2010, the allocation among our long-term incentive compensation vehicles will change as follows: 25% of the total target long-term incentive value will be allocated to each of: long-term cash, SSARs, and performance-based restricted stock. The Committee will have discretion with regard to the allocation of the remaining 25% of the award. The Committee will exercise this discretion by considering each NEO’s preference, total equity holdings, and career stage.

 

Beginning in fiscal 2010, long-term cash awards will be subject to a new performance measure. The new measure will consist of a comparison by the Committee of the three-year cumulative total shareholder return of Brown-Forman’s Class B common stock with that of the group of high-performing consumer products and retail companies comprising the S&P Consumer Staples Index. The Committee will establish a payout scale that correlates Brown-Forman’s percentile rank against the peer group on this measure to a specific payout level ranging from 0% to 200% of the participant’s target cash award, with target performance and payout set at the 55 ^th percentile rank versus the group.

 

Performance-based restricted stock awards made in fiscal 2010 will be subject to new performance and restriction periods. Currently, restricted stock awards are subject to a one-year performance period and a three-year (approximately) restriction period. Beginning in fiscal 2010, restricted stock awards will be subject to a three-year performance period and a one-year (approximately) restriction period. The performance measure for restricted stock awards will also change in fiscal 2010. The new measure will consist of a comparison of the compound annual growth rate in the Company’s

depletion-based operating income over a three-year period, with that of the nominal gross domestic product reported by the International Monetary Fund of a set of countries identified by the Committee (which countries will be aligned with our current and anticipated business operations). When calculating depletion-based operating income results at the conclusion of the three-year performance period, the impact of foreign exchange will be included.

 

Beginning in fiscal 2010, the maximum payout level achievable for restricted stock awards under the long-term incentive compensation plan will be 150% of the target award, while the minimum payout level will be 50% of the target award. This payout schedule should provide less volatility than under the previous design. The number of Class A common shares awarded to each participant will continue to be determined by dividing the performance-adjusted award value by the price of our Class A common stock as of the date of the award. By using this methodology to determine the number of shares awarded, the plan will continue to expose participants to changes in our stock price throughout the performance period. No dividends will be paid on the restricted shares during the three-year performance period. However, at the end of the performance period, the performance adjusted value of the award will be increased to account for the dividends paid during the second and third years of the performance period.

 

Changes to the Comparator Companies and Methodology for Market Comparison.  As part of the review of our incentive compensation program design, the Committee also undertook a review of the comparator group of companies used for market compensation analysis. In developing a new comparator group, the Committee’s goal was to identify superior brand-building consumer products companies with financial characteristics similar to Brown-Forman’s. The Committee also considered the global nature of the potential comparator companies, as well as the likely use of the companies as sources for executive talent recruitment. The following companies will be used for competitive compensation analysis beginning with the 2010 fiscal year, replacing the two groups of companies from the Towers Perrin database previously used:

 

 

The Committee has adjusted its philosophy regarding market-competitive compensation for the NEOs. Beginning in fiscal 2010, the Committee will review the median value of market compensation data of the comparator group, rather than the 55th to 65th percentile data that was considered previously. The revised comparator group is considered to be a high-performing group of consumer products companies, and positioning the target compensation of our NEOs at the median of the group should provide a level of compensation that is sufficiently competitive to achieve our talent recruitment and retention objectives. The Committee also made changes to the methodology it will use in its market comparisons. When reviewing market data for fiscal 2010 compensation decisions, the Committee may consider data that has been weighted on the basis of reported revenue.

 

Compensation Policies and Practices.

 

Deductibility of Compensation.  Section 162(m) of the Internal Revenue Code limits to $1 million the amount of annual compensation expense we may deduct when paid to a NEO unless the compensation is “performance-based” and paid under a formal compensation plan that meets the Internal Revenue Code’s requirements. We took appropriate steps in defining performance measures under our 2004 Omnibus Compensation Plan to assure the deductibility of all compensation paid to

NEOs under the Plan. To maintain flexibility, we have no policy requiring that all NEO compensation be fully deductible.

 

However, the Committee expects the Company to be able to deduct all fiscal 2009 compensation paid to our NEOs, with the exception of $1,458 of salary paid to our CEO.

 

In order to preserve the deductibility of performance-based awards granted under the Plan, the material terms of the performance measures must be disclosed to and approved by our stockholders at least every five years. Therefore these measures, which have not changed since the Plan was approved by our stockholders in 2004, must be re-approved at the upcoming Annual Meeting. For additional information on the re-approval of the performance measures under our 2004 Omnibus Compensation Plan, please see Proposal 2: Re-approval of Performance Measures under the Brown-Forman 2004 Omnibus Compensation Plan, set forth on page 52.

 

Equity Award Grants.  We have an equity award grant policy that requires the grant date of any award to be the date of the applicable Committee or Board meeting at which such award was approved, and the grant price to be the closing price of the relevant class of our common stock on the grant date. We do not have a program, plan or practice of timing equity award grants in conjunction with the release of material non-public information (or vice-versa). We have never re-priced or back-dated options granted under any of our equity compensation plans, and our 2004 Omnibus Compensation Plan specifically prohibits these practices.

 

Source of Plan Shares.  Under the terms of the Plan, we try to limit the source of shares delivered to participants under the Plan to those purchased by the Company from time to time on the open market, in private transactions, or otherwise. If we determine that the timing of such purchases may unduly affect the market price of the shares, the purchases may be spread over a period of time sufficient to minimize such effect. We may use newly-issued shares to cover exercises or redemptions of awards under the Plan, and then purchase an equal number of shares on the open market or otherwise as quickly as is reasonably practicable thereafter. This practice minimizes long-term dilution to our stockholders.

 

Conclusion.  We believe that our executive compensation program has been successful in recruiting, retaining, and motivating a team of talented and diverse executives, both in the United States and around the world, who will lead us to achieve our goal of being the best brand builder in the wine and spirits industry and enable us to deliver superior value to our stockholders.

 

Compensation Committee Report.

 

We, the Compensation Committee of the Board of Directors of Brown-Forman Corporation, have reviewed and discussed with Company management the Compensation Discussion and Analysis set forth above, and based upon such review and discussion, have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

Compensation Committee

Richard P. Mayer, Chairman
Patrick Bousquet-Chavanne
John D. Cook

 

The following table sets forth the compensation paid or accrued by the Company for the fiscal year ended April 30, 2009, as required to be calculated under SEC rules, for services rendered in all capacities by our Chief Executive Officer, our Chief Financial Officer, and our three other most highly compensated executive officers as of the end of the fiscal year (the “Named Executive Officers” or “NEOs”).

 

 

 

 

 

 

 

 

 

The following table sets forth each component of the “All Other Compensation” column of the Summary Compensation Table.

 

 

 

 

 

The following table sets forth information regarding the equity and non-equity awards granted to our NEOs during fiscal 2009 under our 2004 Omnibus Compensation Plan. For additional information on the Plan and the fiscal 2009 awards made thereunder, please see the “Incentive Compensation” section of our Compensation Discussion and Analysis, which begins on page 26.