UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

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

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

Check the appropriate box:

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

 

Taubman Centers, Inc.

(Name of Registrant as Specified In Its Charter)

 

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

Payment of Filing Fee (Check the appropriate box):

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

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

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

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

 

TAUBMAN CENTERS, INC.

 

 

TABLE OF CONTENTS

 

TAUBMAN CENTERS, INC.
200 East Long Lake Road, Suite 300
Bloomfield Hills, Michigan 48304-2324

 

shares of an additional series of preferred stock subject to the exercise of conversion rights granted to certain holders of preferred equity in TRG.

 

What is the Series B Preferred Stock?

 

The Series B Preferred Stock was first issued in late 1998 and is currently held by partners in TRG other than the Company. Only TRG partners can acquire shares of Series B Preferred Stock; for nominal consideration, TRG partners can acquire such number of shares of Series B Preferred Stock equal to the number of units of limited partnership in TRG (“TRG units”) that they hold. If a TRG partner tenders its TRG units for common stock under the Company’s Continuing Offer (described herein), it is required to redeem an equal number of shares of Series B Preferred Stock. If a TRG partner exercises options to acquire TRG units and elects to hold TRG units, such partner may also acquire an equal number of Series B shares. As of the date hereof, Messrs. Robert Taubman and William Taubman are the only TRG partners who are also employees. All other employees are not TRG partners and upon their exercise of options to acquire TRG units, the TRG units are automatically converted to shares of common stock under the Continuing Offer.

 

The Series B Preferred Stock entitles its holders to one vote per share on all matters submitted to the Company’s shareholders and votes together with the common stock on all matters as a single class. In addition, the holders of Series B Preferred Stock (as a separate class) are entitled to nominate up to four individuals for election as directors. The number of individuals the holders of the Series B Preferred Stock may nominate in any given year is reduced by the number of directors nominated by such holders in prior years whose terms are not expiring. Three current directors whose terms are not expiring, Mr. Robert Taubman, Ms. Lisa Payne and Mr. William Taubman, were nominated by the holders of the Series B Preferred Stock. The holders of Series B Preferred Stock are entitled to nominate one more individual for election as a director of the Company, but they have chosen not to do so with respect to this annual meeting.

 

What constitutes a quorum?

 

The presence at the annual meeting, in person or by proxy, of the holders of a majority of the shares of Voting Stock outstanding on the record date will constitute a quorum for all purposes. As of the record date, 80,753,495 shares of Voting Stock were outstanding, consisting of 54,425,169 shares of common stock and 26,328,326 shares of Series B Preferred Stock. Proxies marked with abstentions or instructions to withhold votes, as well as broker non-votes (defined below), will be counted as present in determining whether or not there is a quorum.

 

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

 

Shareholders of Record.   If your shares are registered directly in your name with the Company’s transfer agent, BNY Mellon Shareowner Services, you are considered the shareholder of record with respect to those shares, and the applicable proxy materials are being sent directly to you by Broadridge Investor Communications Solutions on behalf of the Company. As the shareholder of record, you have the right to grant your voting proxy directly to the Company through a proxy card, through the Internet or by telephone or to vote in person at the annual meeting.

 

Beneficial Owners.   Many of the Company’s shareholders hold their shares through a broker, bank or other nominee rather than directly in their own name. If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares, and the applicable proxy materials are being forwarded to you by your broker, bank or nominee who is considered the shareholder of record with respect to those shares. As the beneficial owner, you have the right to direct your broker, bank or nominee on how to vote and are also invited to attend the annual meeting. Your broker, bank or nominee has enclosed voting instructions for you to use in directing the broker, bank or nominee on how to vote your shares. Since you are not the shareholder of record, you may not vote these shares in person at the annual meeting unless you obtain a proxy from your broker, bank or nominee and bring such proxy to the annual meeting.

Why did many shareholders receive a Notice in the mail regarding the Internet availability of proxy materials this year instead of a full set of proxy materials?

 

The Company has elected again to furnish proxy materials to you primarily through the Internet, which expedites the receipt of materials, significantly lowers our costs and conserves natural resources. If you received the Notice containing instructions on how to access this proxy statement and the 2009 annual report through the Internet, please do not mail in the Notice, as it is not intended to serve as a voting instrument.

 

How can I access the Company’s proxy materials and other reports filed with the SEC?

 

The Company’s website, www.taubman.com , under the Investing—SEC Filings tab provides access, free of charge, to SEC reports as soon as reasonably practicable after the Company electronically files such reports with, or furnishes such reports to, the SEC, including proxy materials, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports. Further, you can view these documents on a website maintained by the SEC at www.sec.gov.

 

As noted above, most shareholders will receive a Notice with instructions on how to view the proxy materials through the Internet (at www.proxyvote.com ). The Notice includes a control number that must be entered on the Internet in order to view the proxy materials. The Notice also describes how to receive the proxy materials by paper delivery or e-mail. You can elect to receive future proxy materials by e-mail at no charge by voting using the Internet and, when prompted, indicate you agree to receive or access shareholder communications electronically in future years. If you would like additional paper copies without charge, please send a written request to the Company’s executive offices: Taubman Centers Investor Services, 200 East Long Lake Road, Suite 300, Bloomfield Hills, Michigan 48304-2324. If you received the proxy materials by paper delivery, you can also view this proxy statement and the 2009 annual report through the Internet by accessing the Company’s website, www.taubman.com under Investing—Proxy Statements and Investing—Annual Reports.

 

The references to the website addresses of the Company and the SEC in this proxy statement are not intended to function as a hyperlink and, except as specified herein, the information contained on such websites are not part of this proxy statement.

 

May I vote my shares in person at the annual meeting?

 

Even if you plan to be present at the meeting, the Company encourages you to vote your shares prior to the meeting.

 

Shareholders of Record.   If you are a shareholder of record and attend the annual meeting, you may deliver your completed proxy card or vote by ballot.

 

Beneficial Owners.   If you hold your shares through a broker, bank or other nominee and want to vote such shares in person at the annual meeting, you must obtain a proxy from your broker, bank or other nominee giving you the power to vote such shares and bring such proxy to the annual meeting.

 

Can I vote my shares without attending the annual meeting?

 

By Mail.   If you received your annual meeting materials by paper delivery, you may vote by completing, signing and returning the enclosed proxy card or voting instruction card. Please do not mail in the Notice, as it is not intended to serve as a voting instrument.

 

By telephone.   If you received your annual meeting materials by paper delivery, you may vote by telephone as indicated on your enclosed proxy card or voting instruction card.

 

Through the Internet.   You may vote through the Internet as instructed on your Notice, proxy card, voting instruction card, or e-mail notification. In order to vote through the Internet, you must enter the control number that was provided on your Notice, proxy card, voting instruction card, or e-mail notification. The control number can be found on your Notice, proxy card, voting instruction card, or e-mail notification, depending on which type of notification you received. If you do not have any of these materials and are a shareholder of record, you may contact Taubman Centers Investor Services (248-258-7367) to request a proxy card (which will include your control

number) to be mailed to your address on record or an e-mail with your control number to be sent to your e-mail address on record. If you do not have any of these materials and are a beneficial owner, you must contact your broker, bank or other nominee to obtain your control number.

 

Can I change my vote?

 

Shareholders of Record.   You may change your voting instructions at any time prior to the vote at the annual meeting. You may enter a new vote by mailing a new proxy card bearing a later date, through the Internet, by telephone, or by attending the annual meeting in person. Your attendance at the annual meeting in person will not cause your previously granted proxy to be revoked unless you specifically so request and file the proper documentation with the Secretary of the Company. You may also revoke your proxy at any time by delivering a later-dated written revocation to the Secretary of the Company.

 

Beneficial Owners.   If you hold your shares through a broker, bank or other nominee, you should contact such person prior to the time such voting instructions are exercised.

 

What if I beneficially own shares through the Company’s 401(k) Plan?

 

Your proxy will serve to instruct the trustee of the 401(k) Plan how to vote your shares. If no direction is given to the trustee, the trustee will vote your shares held in the plan in the same proportion as votes received from other participants in the plan. To allow sufficient time for the trustee to vote your shares, your proxy must be received by 11:59 p.m. Eastern time on May 18, 2010. If you would like to revoke or change your voting instructions, you must do so by 11:59 p.m. Eastern time on May 18, 2010.

 

What does it mean if I receive more than one Notice, proxy card or voting instruction card?

 

If you receive more than one Notice, proxy card or voting instruction card, it means that you have multiple accounts with banks, brokers, other nominees and/or the Company’s transfer agent. Please take action with respect to each Notice, proxy card and voting instruction card that you receive. The Company recommends that you contact such persons to consolidate as many accounts as possible under the same name and address.

 

What if I do not vote for some of the proposals?

 

Shareholders of Record.   Proxies that are properly executed without voting instructions on certain matters will be voted in accordance with the recommendations of the Board on such matters. With respect to any matter not set forth on the proxy that properly comes before the annual meeting, the proxy holders named therein will vote as the Board recommends or, if the Board gives no recommendation, in their own discretion.

 

Beneficial Owners.   If you hold your shares in street name through a broker, bank or other nominee and do not provide voting instructions for any or all matters, such nominee will determine if it has the discretionary authority to vote your shares. Under applicable law and New York Stock Exchange (“NYSE”) rules and regulations, brokers have the discretion to vote on routine matters, such as the ratification of the appointment of the Company’s independent registered public accounting firm, but do not have discretion to vote on non-routine matters. Effective January 1, 2010, NYSE and SEC rule changes no longer permit a bank, broker or nominee to vote on behalf of beneficial owners with respect to uncontested elections of directors if you do not instruct your bank, broker or nominee on how to vote your shares in the manner set forth on your voting instruction card. In addition, the Company believes that the approval of the amendment to the 2008 Omnibus Plan will also be considered a non-routine matter. If you do not provide voting instructions, your shares will be considered “broker non-votes” with regard to the non-routine proposals because the broker will not have discretionary authority to vote thereon. Therefore, in particular, it is very important for you to vote your shares for the election of directors and the approval of the amendment to the 2008 Omnibus Plan.

 

What are the Board’s recommendations?

 

The Board recommends a vote:

 

Proposal 1 – FOR the re-election of the nominated slate of three directors.

Proposal 2 – FOR the ratification of KPMG as the Company’s independent registered public accounting firm for 2010.

 

Proposal 3 – FOR the approval of the amendment to the 2008 Omnibus Plan.

 

What vote is required to approve each item?

 

Proposal 1 – Election of Directors.   The three nominees who receive the most votes cast at the annual meeting will be elected as directors. The slate of nominees discussed in this proxy statement consists of three directors, Messrs. Jerome Chazen, Craig Hatkoff and Ronald Tysoe, whose terms are expiring. Withheld votes and broker non-votes will have no effect on the outcome of the vote.

 

Proposal 2 – Ratification of Appointment of Independent Registered Public Accounting Firm.   The affirmative vote of two-thirds of the shares of Voting Stock outstanding on the record date will be necessary to ratify the Audit Committee’s appointment of KPMG as the Company’s independent registered public accounting firm for the year ending December 31, 2010. Abstentions will have the same effect as a vote against the matter. Although shareholder ratification of the appointment is not required by law and is not binding on the Company, the Audit Committee will take the appointment under advisement if such appointment is not so ratified.

 

Proposal 3 – Approval of Amendment to 2008 Omnibus Plan.   The affirmative vote of two-thirds of the shares of Voting Stock outstanding on the record date will be necessary to approve the amendment to the 2008 Omnibus Plan. Abstentions and broker non-votes will have the same effect as a vote against the matter.

 

Other Matters.   If any other matter is properly submitted to the shareholders at the annual meeting, its adoption will require the affirmative vote of two-thirds of the shares of Voting Stock outstanding on the record date. The Board does not propose to conduct any business at the annual meeting other than as stated above.

 

Is a registered list of shareholders available?

 

The names of shareholders of record entitled to vote at the annual meeting will be available to shareholders entitled to vote at the meeting on Friday, May 21, 2010 at The Townsend Hotel for any purpose reasonably relevant to the meeting.

 

How do I find out the voting results?

 

Preliminary voting results will be announced at the annual meeting. In accordance with recent rules enacted by the SEC, the Company will publish the final voting results in a current report on Form 8-K within four business days of the annual meeting.

 

The following table sets forth information regarding the beneficial ownership of the Company’s equity securities as of March 24, 2010 by each of the directors and named executive officers and all of the directors and executive officers as a group. The following table also sets forth information regarding the beneficial ownership of the Company’s Voting Stock by beneficial owners of more than 5% of either class of the Company’s Voting Stock. Each share of common stock and Series B Preferred Stock is entitled to one vote on each matter to be voted upon. The share information set forth in the table below (both numbers of shares and percentages) reflects ownership of common stock and Series B Preferred Stock in aggregate. The notes to the table include information regarding Series B Preferred Stock holdings of Messrs. Robert Taubman, William Taubman and A. Alfred Taubman. The notes also include the percentage ownership of the shares of common stock and/or Series B Preferred Stock on a separate basis to the extent the holder’s ownership of such class represents greater than 1% of the outstanding shares. Further, the notes to the table include shares of the Company’s Non-Voting Preferred Stock held by directors or executive officers, including the percentage ownership of the Non-Voting Preferred Stock on a separate basis to the extent the holder’s ownership of such class represents greater than 1% of the outstanding shares. Unless otherwise indicated and subject to applicable community property laws, each owner has sole voting and investment powers with respect to the shares listed below.

 

 

 

 

 

 

Under the Company’s Restated Articles of Incorporation, in general, no shareholder may own more than 8.23% (the “General Ownership Limit”) in value of the Company’s “Capital Stock” (which term refers to the common stock, preferred stock and Excess Stock, as defined below). The Articles specifically permit two pension trusts to each own 9.9% in value of the Company’s Capital Stock and a third pension trust to own 13.74% in value of the Company’s Capital Stock (collectively, the “Existing Holder Limit”). In addition, the Board of Directors has the authority to allow a “look through entity” to own up to 9.9% in value of the Capital Stock (the “Look Through Entity Limit”), provided that after application of certain constructive ownership rules under the Internal Revenue Code and rules defining beneficial ownership under the Michigan Business Corporation Act, no person would constructively or beneficially own more than the General Ownership Limit. A look through entity is an entity (other than a qualified trust under Section 401(a) of the Internal Revenue Code, certain other tax-exempt entities described in the Articles, or an entity that owns 10% or more of the equity of any tenant from which the Company or TRG receives or accrues rent from real property) whose beneficial owners, rather than the entity, would be treated as owning the capital stock owned by such entity. Changes in the ownership limits cannot be made by the Board and would require an amendment to our Articles. Amendments to the Articles require the affirmative vote of holders owning not less than two-thirds of the outstanding Voting Stock.

 

The Articles provide that if the transfer of any shares of Capital Stock or a change in the Company’s capital structure would cause any person (the “Purported Transferee”) to own Capital Stock in excess of the General Ownership Limit, the Look Through Entity Limit, or the applicable Existing Holder Limit, then the transfer is to be treated as invalid from the outset, and the shares in excess of the applicable ownership limit automatically acquire the status of “Excess Stock.” A Purported Transferee of Excess Stock acquires no rights to shares of Excess Stock. Rather, all rights associated with the ownership of those shares (with the exception of the right to be reimbursed for the original purchase price of those shares) immediately vest in one or more charitable organizations designated from time to time by the Company’s Board of Directors (each, a “Designated Charity”). An agent designated from time to time by the Board (each, a “Designated Agent”) will act as attorney-in-fact for the Designated Charity to vote the shares of Excess Stock, take delivery of the certificates evidencing the shares that have become Excess

Stock, and receive any distributions paid to the Purported Transferee with respect to those shares. The Designated Agent will sell the Excess Stock, and any increase in value of the Excess Stock between the date it became Excess Stock and the date of sale will inure to the benefit of the Designated Charity. A Purported Transferee must notify the Company of any transfer resulting in shares converting into Excess Stock, as well as such other information regarding such person’s ownership of the capital stock as the Company requests.

 

Under the Articles, only the Designated Agent has the right to vote shares of Excess Stock; however, the Articles also provide that votes cast with respect to certain irreversible corporate actions ( e.g. , a merger or sale of the Company) will not be invalidated if erroneously voted by the Purported Transferee. The Articles also provide that a director is deemed to be a director for all purposes, notwithstanding a Purported Transferee’s unauthorized exercise of voting rights with respect to shares of Excess Stock in connection with such director’s election.

 

Although Mr. A. Alfred Taubman beneficially owns 28.4% of the Voting Stock, most of such Voting Stock consists of Series B Preferred Stock (see the beneficial ownership table above). The Series B Preferred Stock is convertible into shares of common stock at a ratio of 14,000 shares of Series B Preferred Stock to one share of common stock, and therefore one share of Series B Preferred Stock has a value of 1/14,000ths of the value of one share of common stock. Accordingly, Mr. A. Alfred Taubman’s significant ownership of Voting Stock does not violate the ownership limitations set forth in the Company’s charter.

 

The Board currently consists of nine members serving three-year staggered terms. Three directors are to be elected at the 2010 annual meeting of shareholders to serve until such annual meeting in 2013 or until such director’s earlier resignation, retirement or other termination of service. The Board has re-nominated Messrs. Chazen, Hatkoff and Tysoe for new three-year terms. Each of the nominees have consented to be named in this proxy statement and agreed to continue to serve as a director if elected by the shareholders. If any of them should become unavailable, the Board may designate a substitute nominee. In that case, the proxy holders named as proxies in the accompanying proxy card will vote for the Board’s substitute nominee. Alternatively, the Board may reduce the size of the Board or leave the position vacant. Additional information regarding the directors and director nominees of the Company is set forth below.

 

The Board recommends that the shareholders vote FOR each of the Company’s three director nominees that stand for re-election.

Directors

 

The Board currently consists of nine members serving three-year staggered terms. Under the Company’s Restated Articles of Incorporation, a majority of the Company’s directors must not be officers or employees of the Company or its subsidiaries. The directors and director nominees of the Company are as follows:

 

 

Director Background and Qualifications.   The following sets forth the business experience during at least the past five years of each Board nominee and each of the directors whose term of office will continue after the annual meeting.

 

In addition, the following includes a brief discussion of the specific experience, qualifications, attributes and skills that led to the conclusion that the directors and nominees should serve on the Board at this time. As set forth in the Corporate Governance Guidelines, the Nominating and Corporate Governance Committee considers the experience, mix of skills and other qualities of the existing Board to ensure appropriate Board composition. The Nominating and Corporate Governance Committee believes that Board members must have demonstrated excellence in their chosen field, high ethical standards and integrity, and sound business judgment. In addition, it seeks to ensure the Board includes members with diverse backgrounds, skills and experience, including appropriate financial and other expertise relevant to the Company’s business.

 

The Board believes that the directors and nominees have an appropriate balance of knowledge, experience, attributes, skills and expertise as a whole to ensure the Board appropriately fulfills its oversight responsibilities and acts in the best interests of shareholders. The Board believes that each director satisfies its criteria for demonstrating excellence in his or her chosen field, high ethical standards and integrity, and sound business judgment. In addition, the Board has six independent directors in accordance with the applicable rules of the NYSE, and such directors are also independent of the influence of any particular shareholder or shareholder groups whose interests may diverge from the interests of the shareholders as a whole. Further, each director or nominee brings a strong background and set of skills to the Board, giving the Board as a whole competence and experience in a wide variety of areas.

 

Jerome A. Chazen.   Mr. Chazen has served as a director of the Company since its initial offering in 1992. Mr. Chazen has extensive knowledge and experience in executive management, finance, international business,

private investing and retail matters. He serves on the Board of another public company, as well as in various roles for numerous educational and charitable organizations.

 

Mr. Chazen has been the Chairman of Chazen Capital Partners, a private investment company, since 1996. Mr. Chazen is also the Chairman Emeritus of Liz Claiborne, Inc., a company he founded with three other partners in 1976. Mr. Chazen has been a director of Atrinsic, Inc. (f/k/a New Motion, Inc.) since April 2005 (currently non-Executive Chairman of the Board and a member of its Audit and Compensation Committees). He also serves as a board member, executive or trustee for numerous educational and charitable organizations.

 

Craig M. Hatkoff.   Mr. Hatkoff has served as a director of the Company since 2004. Mr. Hatkoff has extensive knowledge and experience in real estate, capital markets, finance, private investing, entrepreneurship and executive management. He serves on the Board of another public company, as well as numerous educational and charitable organizations.

 

Mr. Hatkoff served as Vice Chairman of Capital Trust, Inc., a real estate investment management company listed on the New York Stock Exchange and one of the largest dedicated real estate mezzanine lenders, from 1997 to 2000. He has also served on the Board of Directors of Capital Trust since July 1997. From 2002 to 2005, Mr. Hatkoff was a trustee of the New York City School Construction Authority, the agency responsible for the construction of all public schools in New York City. Mr. Hatkoff is a co-founder of the Tribeca Film Festival. Mr. Hatkoff is also Chairman of Turtle Pond Publications LLC, which is active in children’s publishing and entertainment and is a private investor in other entrepreneurial ventures. Prior to joining Capital Trust, Inc., Mr. Hatkoff was a founder and a managing partner of Victor Capital Group, L.P., from 1989 until its acquisition in 1997 by Capital Trust, Inc.

 

Ronald W. Tysoe.   Mr. Tysoe has served as a director of the Company since 2007. Mr. Tysoe has extensive knowledge and experience in finance, real estate, executive management, capital markets, accounting, investment banking and retail. Mr. Tysoe qualifies as a financial expert under SEC rules based on such experience, as detailed below. He also has extensive ongoing Board experience through his current service as director of four other public companies, as well as his prior service on the Board of other public companies. Mr. Tysoe also has extensive Board committee experience.

 

Mr. Tysoe was a Senior Advisor at Perella Weinberg Partners LP, a boutique investment banking firm in New York from October 2006 through September 2007. Prior to that he was Vice Chairman, Finance and Real Estate, of Federated Department Stores, Inc. (now Macy’s, Inc.), a position he held since April of 1990. Mr. Tysoe served as Chief Financial Officer of Federated from 1990 to 1997 and served on the Federated Board of Directors from 1988 until May of 2005. Mr. Tysoe is currently a member of the Board of Directors of the following companies and currently serves on the following Board committees: Scripps Networks Interactive, Inc. (spun off from E.W. Scripps Company), a media and broadcasting enterprise, since July 2008 (Chairman of the Audit Committee and a member of the Compensation Committee); Canadian Imperial Bank of Commerce, since February 2004 (Chairman of the Audit Committee and a member of the Corporate Governance Committee); Cintas Corporation, since December 2007 (Chairman of the Audit Committee and a member of the Corporate Governance and Nominating Committee); and Pzena Investment Management, Inc., since December 2008 (member of the Audit, Compensation and Corporate Governance Committees). He also served as a director of Retail Investment Opportunities Corp (f/k/a NRDC Acquisition Corp., a special purpose acquisition corporation listed on the Amex exchange) from October 2007 to December 2009 (served on the Audit and Compensation Committees), and Ohio Casualty Corporation from February 2006 to September 2007 (served on the Audit and Governance Committees).

 

Robert S. Taubman.   In addition to Mr. Taubman’s leadership, strategic planning and extensive knowledge of the day to day operations of the Company, he is a leader in numerous real estate and shopping center industry associations and civic and charitable organizations in the Metro Detroit area, State of Michigan and nationally. He also has extensive Board and Board committee experience at public companies.

 

Mr. Taubman is the Chairman of the Board, and President and Chief Executive Officer of the Company and the Manager, which is a subsidiary of TRG. Mr. Taubman has been Chairman since December 2001 and President and CEO since 1990. Mr. Taubman has been a director of the Company since 1992. Mr. Taubman has been a director of Comerica Bank since 2000 (currently, a member of the Enterprise Risk Committee) and of Sotheby’s Holdings, Inc., the international art auction house, since 2000 (currently, Chairman of the Compensation Committee and a

member of the Finance Committee). He is also a member of the United States Department of Commerce Travel and Tourism Promotion Advisory Board, a director of the Real Estate Roundtable, a Trustee of the Urban Land Institute, a former trustee of the International Council of Shopping Centers, and a member of the Board of Governors of the National Association of Real Estate Investment Trusts. Mr. Taubman is the brother of Mr. William Taubman.

 

Lisa A. Payne.   In addition to Ms. Payne’s leadership, strategic planning and extensive knowledge of financial operations of the Company, she is a leader in numerous real estate and shopping center industry associations and civic and charitable organizations in the Metro Detroit area, State of Michigan and nationally. Prior to joining the Company, she also acquired broad real estate experience, including in acquisition and development financing, merger and acquisitions, and public and private debt and equity offerings. Ms. Payne also serves as a director of another public company.

 

Ms. Payne is the Chief Financial Officer and Vice Chairman of the Company, as appointed in 2005, and previously served as the Executive Vice President and the Chief Financial and Administrative Officer of the Company from 1997 to 2005. Ms. Payne has been a director of the Company since 1997. Prior to joining the Company in 1997, Ms. Payne was a vice president in the real estate department of Goldman, Sachs & Co., where she held various positions between 1986 and 1996. Ms. Payne has served as a trustee of Munder Series Trust and Munder Series Trust II since 2005 and a director of Masco Corporation since 2007 (currently, a member of the Audit and Governance Committees).

 

William U. Parfet.   Mr. Parfet has served as a director of the Company since 2005. Mr. Parfet has extensive knowledge and experience in executive management, accounting, finance, capital markets and international business. Mr. Parfet qualifies as a financial expert under SEC rules based on such experience, as detailed below, as well as his numerous leadership positions at national financial and accounting industry groups (including the EITF and FASB). He also has extensive ongoing Board experience through his current service as a director of two other public companies, as well as his prior service on the Board of other public companies. Mr. Parfet also has extensive Board committee experience.

 

Mr. Parfet is currently Chairman and Chief Executive Officer of MPI Research, a Michigan-based, privately-held pre-clinical toxicology research laboratory. He joined MPI Research in November 1995 as co-Chairman. From 1993 to 1996, he served as president and chief executive officer of Richard-Allan Medical Industries (now Thermo Fisher Scientific Inc.), a worldwide manufacturer of surgical and laboratory products. Prior to that, he had served in a variety of positions at The Upjohn Company, a pharmaceutical company, most recently as Vice Chairman of the Board. Mr. Parfet has served on the board of Monsanto Company since June 2000 (currently a member of the Audit, Executive and People and Compensation Committees) and Stryker Corporation since April 1993 (currently a member of the Audit, Governance and Nominating Committees, and is the Lead Independent Director). He also served as a director of PAREXEL International Corporation from June 2001 to May 2006 (served on the Executive, Audit and Compensation Committees), and a director of CMS Energy Corporation from November 1991 to May 2005 (served on the Audit, Executive, Finance and Pension, Organization and Compensation Committees).

 

Graham T. Allison.   Mr. Allison has served as a director of the Company since 1996 as well as one year of service from 1992 to 1993. Mr. Allison has extensive knowledge and experience in leadership, academia, international affairs and government policy. He has significant Board experience and investing knowledge through his current service as a director of various mutual funds, as well as his prior service on the Board of numerous other public companies.

 

Mr. Allison is the Douglas Dillon Professor of Government and the Director of the Belfer Center for Science and International Affairs at Harvard University. He has served as a director of Natixis Global Asset Management, the Loomis Sayles Funds and the Hansburger Funds since 1984. He also previously served as a director of CDC Nvest Funds and IXIS Asset Advisors, as well as Belco Oil and Gas, Chase Manhattan Bank, Getty Oil Company, and USEC. Mr. Allison has been a director of the Company since 1996 and previously served on the Board from 1992 until 1993, when he became the United States Assistant Secretary of Defense.

 

Peter Karmanos, Jr.   Mr. Karmanos has served as a director of the Company since 2000. Mr. Karmanos has extensive knowledge and experience in executive management, international business, compensation, and

entrepreneurship (including as founder of a public company). Mr. Karmanos also serves as a director of another public company. He is a leader in numerous civic and charitable organizations in the Metro Detroit area and State of Michigan.

 

Mr. Karmanos is the founder, and has served as a director since its inception in 1973, of Compuware Corporation, a global provider of software solutions and professional services headquartered in Detroit, Michigan. Mr. Karmanos has served as Compuware’s Chairman since November 1978, and as its Chief Executive Officer since July 1987. Mr. Karmanos has been a director of Worthington Industries, Inc. since 1997 (currently a member of its Compensation and Nominating and Governance Committees).

 

William S. Taubman.   In addition to Mr. Taubman’s leadership, strategic planning and extensive knowledge of development, leasing and center operations of the Company, he is a leader in numerous real estate and shopping center industry associations and civic and charitable organizations in the Metro Detroit area, State of Michigan and nationally. He also served as a financial analyst specializing in mergers and acquisitions before joining the Company.

 

Mr. Taubman is the Chief Operating Officer of the Company, appointed in 2005, and served as Executive Vice President of the Company from 1994 to 2005. Mr. Taubman is also the Executive Vice President of the Manager, a position he has held since 1994. Mr. Taubman has also been a director of the Company since 2000. His responsibilities include the overall management of the development, leasing, and center operations functions. He held various other positions with the Manager prior to 1994. Mr. Taubman also serves on the board of trustees of the International Council of Shopping Centers (and has been nominated as Chairman for 2010-11), and is a member of the Urban Land Institute and the National Association of Real Estate Investment Trusts. He is also Chairman of New Detroit and serves on the Board of Governors for the Museum of Arts & Design in New York. Mr. Taubman is the brother of Mr. Robert Taubman.

 

Director Independence .    The NYSE listing standards set forth objective requirements for a director to satisfy, at a minimum, in order to be determined to be independent by the Board, which are set forth in the Company’s Corporate Governance Guidelines. In addition, in order to conclude a director is independent in accordance with the NYSE listing standards, the Board must also consider all relevant facts and circumstances, including the director’s commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships, and such other criteria as the Board may determine from time to time. Pursuant to such authority, the Board has adopted additional categorical standards regarding relationships that the Board does not consider material for purposes of determining a director’s independence, as set forth in the Company’s Corporate Governance Guidelines. The Corporate Governance Guidelines also set forth the additional independence standards for members of the Audit Committee, as established by the SEC and the NYSE.

 

The Board has determined, after considering all of the relevant facts and circumstances including written information provided by each director, that Messrs. Allison, Chazen, Hatkoff, Karmanos, Parfet and Tysoe are “independent” from management in accordance with the NYSE listing standards and the Company’s Corporate Governance Guidelines. In particular, the Board considered the following matters:

 

 

The Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee are composed entirely of independent directors. In addition, after considering all of the relevant facts and circumstances, the Board has determined that each member of the Audit Committee of the Board qualifies under the Audit Committee independence standards established by the SEC and the NYSE.

 

The Board has general oversight responsibility for the Company’s affairs and the directors, in exercising their fiduciary duties, represent and act on behalf of the shareholders. Although the Board does not have responsibility for the Company’s day-to-day management, it stays regularly informed about the Company’s business and provides guidance to management through periodic meetings and other informal communications. The Board is significantly involved in, among other things, the Company’s strategic and financial planning process, leadership development, as well as other functions carried out through the Board committees as described below. The Board also performs an annual performance review of the Board and individual directors.

 

Board Leadership .   Our Board is led by Mr. Robert Taubman, the Company’s Chairman, President and Chief Executive Officer. Although the Board recognizes the increasing utilization of Non-Executive Chairmen and lead directors in many public companies, the Board believes its current leadership structure is most appropriate for the Company and best serves the stockholders of the Company at the current time, as it has since Mr. Robert Taubman became Chairman in 2001. There is no “one size fits all” approach to ensuring independent leadership. The Board believes that its independent directors, who represent two-thirds of the Board, are deeply engaged and provide significant independent leadership and direction given their executive and Board experience noted above. See “—Director Background and Qualifications.” The independent directors are the sole members of the Board committees, which oversee critical matters of the Company such as the integrity of the Company’s financial statements, the compensation of executive management, the selection and evaluation of directors, and the development and implementation of the Company’s corporate governance policies and structures. The independent directors also meet regularly in executive session at Board and committee meetings and have access to independent advisors as they deem appropriate. Management supports this oversight role through its tone-at-the-top and open communication.

 

The Board oversees the Company’s risk management. This oversight is administered primarily through the following:

 

 

Meetings .   The Board and its committees meet throughout the year at regularly scheduled meetings, and also hold special meetings and act by written consent as appropriate. In 2009, the Board held four meetings. During 2009, each director attended at least 75%, in aggregate, of the meetings of the Board and all committees of the Board on which he or she served. Directors are expected to attend all meetings, including the annual meeting of

shareholders, and it is the Company’s policy to schedule a meeting of the Board on the date of the annual meeting of shareholders. All directors attended the 2009 annual meeting except Mr. Hatkoff.

 

Non-management directors hold regularly scheduled executive sessions at which they meet without the presence of management. These executive sessions generally occur around regularly scheduled meetings of the Board. Each meeting, the position of presiding director is rotated in alphabetical order among the non-management directors. For more information regarding the Board and other corporate governance policies and procedures, see “— Corporate Governance.” For information on how you can communicate with the Company’s non-management directors, including the presiding director, see “— Communication with the Board.”

 

The Board has delegated various responsibilities and authority to Board committees and each committee regularly reports on its activities to the Board. Each committee, except the Executive Committee, has regularly scheduled meetings and often has executive sessions at which they meet without the presence of management. Each committee, other than the Executive Committee, operates under a written charter approved by the Board, which is reviewed annually by the respective committees and the Board and is available on the Company’s website, www.taubman.com , under Investing—Corporate Governance. The table below sets forth the current membership of the four standing committees of the Board and the number of meetings in 2009 of such committees:

 

 

Audit Committee .   The Audit Committee is responsible for providing independent, objective oversight and review of the Company’s auditing, accounting and financial reporting processes, including reviewing the audit results and monitoring the effectiveness of the Company’s internal audit function. In addition, the Audit Committee engages the independent registered public accounting firm. See “Audit Committee Disclosure,” “Report of the Audit Committee” and the Audit Committee’s charter for additional information on the responsibilities and activities of the Audit Committee.

 

The Board has determined that each Audit Committee member has sufficient knowledge in reading and understanding financial statements to serve thereon and is otherwise financially literate. The Board has further determined that Mr. Parfet and Mr. Tysoe each qualify as an “audit committee financial expert” within the meaning of SEC regulations and that each of them has the accounting and related financial management expertise required by the NYSE listing standards. The designation of an “audit committee financial expert” does not impose upon such person any duties, obligations or liabilities that are greater than are generally imposed on such person as a member of the Audit Committee and the Board, and such designation does not affect the duties, obligations or liabilities of any other member of the Audit Committee or the Board.

 

In accordance with NYSE rules, an Audit Committee member may not simultaneously serve on more than two other audit committees of public companies unless the Board determines that such simultaneous service would not impair the ability of such person to effectively serve on the Audit Committee and discloses such determination. Mr. Tysoe, appointed to the Audit Committee and Board in December 2007, is a member of more than two other public company audit committees. In March 2010, after considering all of the relevant facts and circumstances, including but not limited to Mr. Tysoe’s other activities and commitments (noting, in particular, that he does not have full time employment other than his service on various Boards) as well as his exemplary service to the Board

and Audit Committee since his appointment, the Board determined that the foregoing would not impair Mr. Tysoe’s ability to effectively serve on the Audit Committee.

 

Compensation Committee .    The Compensation Committee is responsible for overseeing compensation and benefit plans and policies, reviewing and approving equity grants and otherwise administering share-based plans, and reviewing and approving annually all compensation decisions relating to the Company’s senior management. The Compensation Committee also reviews and discusses, at least annually, the relationship between risk management policies and practices, corporate strategy and the Company’s compensation programs. See “Compensation Discussion and Analysis,” “Compensation Committee Report” and the Compensation Committee’s charter for additional information on the responsibilities and activities of the Compensation Committee.

 

Role of Management .    Similar to prior years, in 2009 the Compensation Committee took significant direction from the recommendations of the Manager, including Mr. Robert Taubman and Mr. Robert Reese, Senior Vice President, Chief Administrative Officer of the Manager, with respect to the design and implementation of the Company’s compensation program for its senior management. See “Compensation Discussion and Analysis—Advisors Utilized in Compensation Determinations” for further information.

 

Role of Compensation Consultant .    The Compensation Committee has the sole authority to engage outside advisors and establish the terms of such engagement, including compensatory fees. The Compensation Committee determined to re-engage Towers Watson as its compensation consultant for 2009 with respect to the Company’s senior management (excluding Mr. Parker) and director compensation programs and approved the terms of such engagement. A representative of Towers Watson often is invited to attend the Compensation Committee meetings.

 

The Compensation Committee works with management to determine the consultant’s responsibilities and direct its work product, although the Compensation Committee is responsible for the formal approval of the annual work plan. With respect to 2009 senior management compensation, see “Compensation Discussion and Analysis—Advisors Utilized in Compensation Determinations” for further information regarding Towers Watson’s services to the Compensation Committee.

 

The Compensation Committee intends to review the non-employee director compensation program every other year and make recommendations to the Board as appropriate. The Compensation Committee engaged Towers Watson to assess the Company’s competitive position regarding its non-employee director compensation program in 2008, which was presented to the Compensation Committee in March 2009. See “—Director Compensation” below for further information.

 

Nominating and Corporate Governance Committee .   The Nominating and Corporate Governance Committee is responsible for identifying and nominating individuals qualified to serve as Board members, other than vacancies for which holders of the Series B Preferred Stock are entitled to propose nominees, and recommending directors for Board committees. The Nominating and Corporate Governance Committee also is responsible for recommending to the Board appropriate Corporate Governance Guidelines and overseeing governance issues. See the Nominating and Corporate Governance Committee’s charter for additional information on its responsibilities and activities.

 

As set forth in the Corporate Governance Guidelines, the Nominating and Corporate Governance Committee considers the experience, mix of skills and other qualities of the existing Board to ensure appropriate Board composition. The Nominating and Corporate Governance Committee believes directors and nominees must have demonstrated excellence in their chosen field, high ethical standards and integrity, and sound business judgment. The Nominating and Corporate Governance Committee does not have a specific diversity policy underlying its nomination process, although it seeks to ensure the Board includes members with diverse backgrounds, qualifications, skills and experience, including appropriate financial, governance, capital market, real estate, retail and other expertise relevant to the Company’s business. Generally, the Nominating and Corporate Governance Committee will re-nominate incumbent directors who continue to satisfy its criteria for membership on the Board, who it believes will continue to make important contributions to the Board and who consent to continue their service on the Board. If a vacancy on the Board occurs, the Nominating and Corporate Governance Committee will seek individuals who satisfy its criteria for membership on the Board.

The Nominating and Corporate Governance Committee generally relies on multiple sources for identifying and evaluating non-incumbent nominees, including referrals from the Company’s current directors and management. In 2009, the Nominating and Corporate Governance Committee did not engage a search firm or pay fees to other third parties in connection with identifying or evaluating Board nominee candidates. The Nominating and Corporate Governance Committee does not solicit director nominations, but will consider recommendations by shareholders with respect to elections to be held at an annual meeting, so long as such recommendations are sent on a timely basis to the Secretary of the Company and are in accordance with the Company’s by-laws and applicable law. The Nominating and Corporate Governance Committee will evaluate nominees recommended by shareholders against the same criteria that it uses to evaluate other nominees. The Company did not receive any nominations of directors by shareholders for the 2010 annual meeting of shareholders.

 

Under the Company’s by-laws, as amended, shareholders must follow an advance notice procedure to nominate candidates for election as directors or to bring other business before an annual meeting. The advanced notice procedures set forth in the by-laws do not affect the right of shareholders to request the inclusion of proposals in the Company’s proxy statement and form of proxy pursuant to SEC rules. See “Additional Information—Presentation of Shareholder Proposals and Nominations at 2011 Annual Meeting” for information regarding providing timely notice of shareholder proposals and nominations. For shareholder proposals and nominations not for inclusion in the Company’s proxy statement, the notice provided by shareholders to the Company must include, among other things:

 

 

 

 

 

In addition, such information provided to the Company must be updated and supplemented so that all applicable information is true and correct as of the record date and within 15 days prior to the applicable meeting or any adjournment or postponement thereof. See the Company’s by-laws for complete information required to be included in such notice to the Company.

 

Executive Committee .    The Executive Committee has the authority to exercise many of the functions of the full Board between meetings of the Board.

 

The Board and management are committed to responsible corporate governance to ensure that the Company is managed for the benefit of its shareholders. To that end, the Board and management periodically review and update, as appropriate, its corporate governance policies and practices. The Company also updates policies and practices as mandated by the Sarbanes-Oxley Act of 2002, or other SEC or NYSE rules and regulations.

 

The Board has adopted Corporate Governance Guidelines, a copy of which can be found at the Company’s web site, www.taubman.com, under Investing—Corporate Governance. These guidelines address, among other things, director responsibilities, qualifications (including independence), compensation and access to management and advisors. The Nominating and Corporate Governance Committee is responsible for overseeing and reviewing these guidelines and recommending any changes to the Board. The Corporate Governance Guidelines were last reviewed and revised in December 2009.

 

The Board also has adopted a Code of Business Conduct and Ethics (the “Code”), which sets out basic principles to guide the actions and decisions of all of the Company’s employees, officers and directors. The Code, also available at the Company’s web site under Investing—Corporate Governance, covers numerous topics including honesty, integrity, conflicts of interest, compliance with laws, corporate opportunities and confidentiality. Waivers of the Code are discouraged, but any waiver or material amendment that relates to the Company’s executive officers or directors may only be made by the Board or a Board committee and will be publicly disclosed on the Company’s website under Investing—Corporate Governance within four business days of such waiver. See “Related Person Transactions” for additional information on the Board’s policies and procedures regarding related person transactions.

 

A copy of the Company’s committee charters, Corporate Governance Guidelines and Code will be sent to any shareholder, without charge, upon written request sent to the Company’s executive offices: Taubman Centers Investor Services, 200 East Long Lake Road, Suite 300, Bloomfield Hills, Michigan 48304-2324.

Director Compensation

 

Non-employee director compensation consists of a mix of cash and equity, with such directors retaining the option to defer such compensation under the Non-Employee Directors’ Deferred Compensation Plan. The combination of cash and equity compensation is intended to provide incentives for non-employee directors to continue to serve on the Board, to further align the interests of the Board and shareholders and to attract new non-employee directors with outstanding qualifications. Directors who are employees or officers of the Company or any of its subsidiaries do not receive any compensation for serving on the Board and therefore are excluded from the director compensation table below. The Compensation Committee intends to review the non-employee director compensation program every other year and make recommendations to the Board as appropriate.

 

Benchmarking .   The Compensation Committee engaged Towers Watson to assess the Company’s competitive position regarding its non-employee director compensation program in 2008, which was presented to the Compensation Committee in March 2009. Although the market data (based on 2007 compensation data) indicated that directors were significantly under-compensated relative to the general industry comparator group, the Compensation Committee determined not to benchmark its compensation for 2009. Instead, the Compensation Committee determined it was prudent to maintain the non-employee director compensation program in 2009 at 2008 levels given the existing economic, business and financial environment.

 

Stock Ownership Guidelines .   Effective March 2010, the Board revised the stock ownership guidelines for non-employee directors based upon the recommendation of the Compensation Committee. The prior guidelines

were effective since March 2007 and required non-employee directors to retain 3,307 shares of the Company’s common stock. Under the revised guidelines, non-employee directors are required to retain 5,095 shares of the Company’s common stock, which corresponds to $175,000 (five times the annual cash retainer, excluding the additional cash retainer for committee chairs) divided by $34.35 (the Company’s average closing stock price over the 90 trading days prior to March 1, 2010, the date of Board approval). Directors generally will have a six-year period to comply with the guidelines, with the initial compliance deadline being March 1, 2013 for current directors. The Compensation Committee will review the minimum equity holding level and other market trends and practices on a periodic basis. The Compensation Committee has confirmed that all directors currently satisfy the guidelines or are making significant progress toward the guidelines.

 

2009 Non-Employee Director Compensation .   The following table sets forth the compensation program for non-employee directors in 2009:

 

 

With respect to the annual equity retainer, non-employee directors receive shares of common stock having a fair market value of $12,500 each quarter (in advance). The fair market value is based on the closing price as of the last business day of the preceding quarter. The awards were made pursuant to the 2008 Omnibus Plan. The Company does not coordinate the timing of share grants with the release of material non-public information, as the grant date is always the first business day of each quarter.

 

In accordance with the Non-Employee Directors’ Deferred Compensation Plan, non-employee directors may defer the receipt of all or a portion of the cash retainer and equity retainer until the earlier of the termination of Board service or upon a change of control. The deferred compensation is denominated in restricted share units, and the number of restricted share units received equals the deferred retainer fee divided by the fair market value of the Company’s common stock on the business day immediately before the date the director would have been otherwise entitled to receive the retainer fee. During the deferral period, the non-employee directors’ deferral accounts are credited with dividend equivalents on their deferred restricted share units (corresponding to cash dividends paid on the Company’s common stock), payable in additional restricted share units based on the fair market value of the Company’s common stock on the business day immediately before the record date of the applicable dividend payment. Each non-employee director’s deferral account is 100% vested. The restricted share units are converted into the Company’s common stock at the end of the deferral period for distribution.

 

Other.    The Company reimburses all directors for expenses incurred in attending meetings or performing their duties as directors. The Company does not provide any perquisites to directors.

 

 

 

 

 

 

 

Any shareholder or interested party who desires to communicate with the Board or any specific director, including non-management directors, the presiding director, or committee members, may write to: Taubman Centers, Inc., Attn: Board of Directors, 200 East Long Lake Road, Suite 300, Bloomfield Hills, Michigan 48304-2324.

 

Depending on the subject matter of the communication, management will:

 

 

To submit concerns regarding accounting matters, shareholders and other interested persons may also call the Company’s toll free, confidential hotline number published at www.taubman.com under Investing—Corporate Governance. Employees may submit such concerns on a confidential and anonymous basis.

 

Communications made through the confidential hotline number are reviewed by the Audit Committee at each regularly scheduled meeting; other communications will be made available to directors at any time upon their request.

Executive Officers

 

The executive officers of the Company serve at the pleasure of the Board. The executive officers of the Company are as follows:

 

 

See “Proposal 1—Election of Directors—Directors” for biographical and other information regarding Mr. Robert Taubman, Ms. Payne and Mr. William Taubman.

 

Esther R. Blum is a Senior Vice President, the Controller, and Chief Accounting Officer of the Company, a position she has held since 1999. Ms. Blum became a Vice President of the Company in January 1998, when she assumed her current principal functions. Between 1992 and 1997, Ms. Blum served as the Manager’s Vice President of Financial Reporting and served the Manager in various other capacities between 1986 and 1992.

 

Stephen J. Kieras is Senior Vice President, Development of the Manager, a position he has held since September 2004. Mr. Kieras was a Group Vice President, Development of the Manager from 2001 to September 2004, a Vice President, Development from 1998 to 2001 and a Director, Development from 1990, when he joined the Manager, to 1998.

 

Robert R. Reese is Senior Vice President, Chief Administrative Officer of the Manager, a position he has held since June 2005. Mr. Reese was Senior Vice President, Strategy and Business Performance of the Manager from 2004 to June 2005. Prior to joining the Company, Mr. Reese was a partner in the Chicago-based management consulting firm of RNW Consulting from 1998 to 2004, where he advised the Company on a range of corporate performance initiatives. Earlier in his career he served as a senior manager with Accenture and a vice president at Citibank.

 

David T. Weinert is Senior Vice President, Leasing of the Manager, a position he has held since July 2004. Mr. Weinert was a Group Vice President, Leasing of the Manager from 2001 to July 2004, a Vice President heading leasing for the Manager’s western region based in San Francisco from 1992 to 2001 and served the Manager’s leasing department in various other capacities between 1986 and 1992.

 

Former Executive Officers in 2009.   Morgan B. Parker was President of Taubman Asia from April 2005 until October 2009.

 

The Compensation Committee (referred to as the “Committee” in this section and the Named Executive Officer Compensation Tables) is composed entirely of independent directors and administers the senior management compensation program of the Company. The Committee’s responsibilities include recommending and overseeing compensation and benefit plans and policies, reviewing and approving equity grants and otherwise administering share-based plans, and reviewing and approving annually all compensation decisions relating to the Company’s senior management, including the Chief Executive Officer, the Chief Financial Officer and the other executive officers named in the Summary Compensation Table (the “named executive officers”). The term “senior management” as used herein refers to the 11 members of the Company’s operating committee in 2009, a key managerial unit for the Company’s business, consisting of the executive officers and other key employees.

 

This Compensation Discussion and Analysis (“CD&A”) explains how the Company’s compensation programs are designed and operate in practice with respect to the named executive officers. One of the Company’s named executive officers, Mr. Parker, resigned as President of Taubman Asia and entered into a separation agreement in October 2009. Prior to such termination, Mr. Parker’s overall compensation was subject to a significantly different compensation program because his sole managerial responsibilities related to opportunities and operations in the Asia-Pacific region. Therefore, the only sections in this Compensation Discussion and Analysis applicable to the compensation of Mr. Parker is “—2009 Compensation—Mr. Parker” and applicable portions of “—Executive Summary—Compensation Program and Philosophy”; all other references to the named executive officers and senior management in this CD&A exclude Mr. Parker.

 

Executive Summary

 

Compensation Program and Philosophy.

 

The Company’s compensation program for its named executive officers is designed to:

 

 

In furtherance of the foregoing objectives, the Committee has designed the compensation program for named executive officers generally to consist of base salary, an annual cash bonus, and long-term incentive awards (collectively, “total direct compensation” or “TDC”), as well as limited perquisites, contributions to defined contribution plans and customary benefits provided to all salaried employees. In 2009, certain named executive officers also received a performance-based option grant. Further, certain named executive officers have a right to contingent compensation relating to change of control and/or employment agreements.

 

2009 Compensation Summary .

 

Impact of Recession .   In late 2008 and early 2009, forecasts for 2009 generally called for a weakening economy in the United States, with the continuation of the severe economic recession. Although management was unable to predict the duration and depth of the economic slowdown and the precise impact on the Company’s business at such time, management noted that a continuing weak economy would strain the resources of the Company’s tenants and their customers, as well as the Company’s joint venture partners, and negatively impact the Company’s ongoing business and future operations. In early 2009, the Company announced guidance for 2009 Funds from Operations (“FFO”) per diluted share of $2.69 to $2.94. Adjusting for the Oyster Bay and Sarasota impairments in 2008 and the related incremental costs in 2009 as well as a workforce reduction in early 2009, 2009 Adjusted FFO guidance represented a range of nearly flat to an 8% decrease from 2008. In addition, there were a significant number of economic indicators, general and industry specific, that indicated the regional shopping center industry and the real estate sector would be negatively affected for a number of years in terms of operations, liquidity and access to the capital markets. As of March 5, 2009, the date the Committee made the 2009 equity

awards to named executive officers, the Company’s common stock was trading at $13.83, a 45.7% decrease from December 31, 2008 and a 72.7% decrease from February 27, 2008, the date the Committee made 2008 option grants to named executive officers. The foregoing factors materially affected the design and implementation of the 2009 compensation program.

 

Target TDC.    In determining compensation changes for named executive officers from year to year, the Committee generally focuses on target total direct compensation (“target TDC”), which consists of base salary, a target annual cash bonus and target long-term incentive awards. In 2009, the Committee was challenged to balance the desire to properly motivate and retain the named executive officers, the importance of being fiscally responsible and ensuring alignment with shareholders. The Committee determined that it was prudent to maintain 2009 target TDC at 2008 levels for the named executive officers.

 

The Committee continues to emphasize the importance of a strong pay-for-performance philosophy. In 2009, the Committee revised the long-term incentive program in part to strengthen this core objective, with the addition of performance share units representing 50% of the target long-term incentive awards for named executive officers, with restricted share units accounting for the remaining 50% of the awards. In the prior long-term incentive award program, restricted share units represented two-thirds of the target award value and time-vesting options represented one-third of such value. Target performance-based compensation equaled 47% to 49% of the target TDC of named executive officers in 2009, with a slight increase in the percentage of at-risk pay for those named executive officers with increased responsibilities. The named executive officers earn the target TDC only to the extent target performance measures are achieved. To the extent target performance measures are not achieved or are exceeded, the named executive officers generally will earn compensation below or above the target TDC, respectively. Notwithstanding the foregoing, the Committee retains the discretion to revise performance-based compensation for individual performance (as utilized for the allocation of the senior management annual bonus pool) or extraordinary circumstances. The Committee also retains discretion to provide bonuses outside the Company’s annual bonus plan, make equity grants other than under the existing long-term incentive program, and to provide other compensation. In 2009, the Committee determined it was appropriate to issue performance-based options to certain members of senior management for retention and incentive purposes, as discussed below.

 

The Committee also ensures that executives focus on a variety of key performance metrics. The 2009 annual bonus plan was predicated on the level of change in FFO per diluted share in 2009 from Adjusted FFO per diluted share in 2008. The 2009 performance share unit grants represent a contingent number of units of stock granted at the beginning of a three-year performance cycle, with actual unit grants 0 to 300% of target grants based on the Company’s relative total shareholder return (compared to 24 other retail REITs) over such performance period. The performance-based options vested based on satisfaction of a $30 closing stock price for 10 consecutive trading days (a 117% increase from the exercise price).

 

The Committee further believes in the importance of balancing short-term and long-term compensation. In 2009, long-term incentive compensation represented 38% to 56% of target TDC, with an increasing percentage of long-term pay as a named executive officer’s level of responsibility increases. In addition, named executive officers have significant amounts of equity awards granted in prior years subject to vesting over a number of years.

 

The following table sets forth target TDC approved for the named executive officers in 2009. The performance-based option grants, discussed below, were considered separately from 2009 target TDC.

 

 

 

Performance-Based Option Grants .   In March 2009, the Committee noted that the significant decrease in the stock price of the common stock in 2008 and early 2009 had a substantially greater impact on senior management due to the high percentage of their pay consisting of equity awards relative to employees generally. In particular, the stock price decline had resulted in a substantial portion of prior equity awards made to senior management being underwater (options) or having lost significant value since grant (restricted share units). The Committee determined that it was important for retention and incentive purposes to provide a special option grant in March 2009 for senior management, excluding Robert Taubman, William Taubman and Morgan Parker, especially since the significant stock price decline was largely due to global macroeconomic events. The Committee noted that Robert Taubman’s and William Taubman’s significant equity ownership in the Company provided sufficient retention and incentive, and Mr. Parker had a significant equity interest in Taubman Asia.

 

Given the significant volatility in the Company’s stock price and its steep decline as of March 2009, the Committee also determined it was important that officers not benefit from short-term market increases and to strengthen shareholder alignment. The options were granted at an exercise price of $13.83, with a vesting condition requiring the closing price of the Company’s common stock to be greater than or equal to $30 for 10 consecutive trading days (corresponding to a stock price increase of at least 117%). Of particular note, such $30 trading price corresponded to the recovery of approximately $800 million of common shareholder wealth from the grant date closing price. The option grants were additive to existing equity grants, and therefore did not represent a repricing or replacement of existing equity awards.

 

The options vested in September 2009, significantly earlier than the Committee had anticipated as of the grant date. Although shareholders equally benefitted from the stock market increase, the Committee determined it was important to ensure the objectives of retention, incentive and shareholder alignment were preserved. Therefore, in October 2009, each of the recipients of the option grants entered into a fair competition agreement, which contains competition and solicitation restrictions and will remain in effect for each person until the earlier of the third anniversary of the date that their respective employment with the Company terminates or March 5, 2014.

 

Earned Compensation .   In 2009, economic conditions in the United States were difficult with global and financial markets experiencing substantial disruption, as well as the retail market. 2009 also was a challenging year for the Company. For 2009, net loss allocable to common shareowners was $(1.31) per diluted common share; adding back $1.99 per share of real estate deprecation and noncontrolling interests arrives at FFO per share of $0.68. For 2008, net loss allocable to common shareowners was $(1.64) per diluted common share; adding back $3.15 per share of real estate deprecation and noncontrolling interests resulted in FFO per share of $1.51. See the Company’s 2009 Annual Report on Form 10-K for full reconciliations of net income (loss) allocable to common shareowners to FFO. The 2009 amounts were significantly impacted by the Company’s share of impairment charges of $160.8 million for the Company’s projects at The Pier and Regency Square, the Company’s share of a litigation charge of $30.4 million relating to Westfarms, and a $2.5 million restructuring charge, whereas the 2008 amounts were significantly impacted by impairment charges of $126.3 million for the Company’s Sarasota and Oyster Bay projects. Adjusted FFO per diluted share (which excludes the impairment, litigation and restructuring charges) in 2009 was $3.06, a less than 1% decrease from Adjusted FFO per diluted share in 2008 of $3.08. See the Company’s 2009 10-K for a description of the material changes between such fiscal years.

 

Without the adjustment of 2009 FFO per diluted share for the impairment, litigation and restructuring charges, there would have been no payout in accordance with the 2009 annual bonus plan formula (subject to use of the authorized discretion). However, the Committee determined it was critical to not penalize participants for charges that management believed were not generally attributable to the poor performance of the certain participants, especially given the Company’s solid operating performance, as exemplified by 2009 Adjusted

FFO per diluted share, in spite of the recessionary economy. On the other hand, the Committee recognized it was necessary to be prudent with compensation expense given the current economic and financial climate generally, and in the retail and regional mall industries specifically. Further, the Committee could not wholly ignore $193.7 million in charges in 2009. Excluding all of the charges would have resulted in an aggregate annual bonus pool of more than 115% of the target annual cash bonus pool. Instead, the Committee utilized negative discretion and established an annual bonus pool of 49% of the target annual cash bonus pool for the Company as a whole, with senior management having an aggregate annual cash bonus pool of 15% of their target annual cash bonus pool based upon the Committee’s determination that senior management should bear a larger portion of the burden of the charges due to their greater control over the Company’s strategic decisions. Overall, the 2009 bonus expense for senior management was approximately $448,000 compared to a target bonus pool of $3.0 million and 2008 expense of $1.0 million compared to a target bonus pool of $2.4 million. In March 2010, the Committee allocated the actual cash bonus pool for senior management based on its subjective determination of individual performance.

 

From the grant of the performance share units in March 2009 through December 31, 2009, the Company’s total shareholder return was 124.0%. As of December 31, 2009, such performance would have resulted in a 236% payout of the target performance share unit awards. The actual payout determination will be made for the three-year period ended December 31, 2011.

 

As noted above, the performance-based options vested in September 2009.

 

Advisors Utilized in Compensation Determinations

 

Management and Other Employees .

 

The Committee takes significant direction from the recommendations of the Manager, including Mr. Robert Taubman and Mr. Reese, regarding the design and implementation of the compensation program for senior management. The Committee relies on the Manager because it has significant involvement in and knowledge of the Company’s business goals, strategies and performance, the overall effectiveness of senior management and each person’s individual contribution to the Company’s performance. For each named executive officer, the Committee is provided a compensation recommendation for target TDC as well as information regarding historical TDC, the individual’s experience, current performance and other subjective factors. The Manager also provides recommendations for the performance metrics to be utilized in the incentive compensation programs, the appropriate performance targets and an analysis of whether such performance targets have been achieved (including recommended adjustments). Further, the Manager provides a general, subjective assessment of each member of senior management to assist the Committee in determining compensation, including the allocation of the earned annual bonus pool of senior management. The Committee retains the discretion to modify the recommendations of the Manager and reviews such recommendations for their reasonableness based on the Company’s compensation philosophy and related considerations.

 

The Company and the Committee together set the meeting dates and agendas for Committee meetings, and Mr. Robert Taubman is invited regularly to attend such meetings. Mr. Reese is invited to attend certain meetings as appropriate. The Committee also meets regularly in executive session outside the presence of management to discuss compensation issues generally, as well as to review the performance of and determine the compensation of Mr. Robert Taubman. The Company’s legal advisors, human resources department and corporate accounting department support the Committee in its work in developing and administering the Company’s compensation plans and programs.

 

Third-Party Consultants .

 

The Committee re-engaged Towers Watson as its compensation consultant for 2009 with respect to the Company’s senior management compensation program (excluding Mr. Parker, consistent with historical practice). Towers Watson’s responsibilities included, among other things, (A) to discuss ‘best practices’ and market trends in compensation; (B) to assess the Company’s competitive position regarding compensation of named executive officers based on proxy data consisting of six regional mall REITs and 13 shopping center and office REITs; (C) to advise with respect to equity awards granted in accordance with the revised long-term incentive program under the

2008 Omnibus Plan; and (D) to review the CD&A in the 2009 proxy statement and assist in calculating the 280G amounts for purposes of the 2009 proxy statement.

 

Peer Group Data

 

The Committee believes it is appropriate to obtain a new study of comparator groups relating to the target TDC of senior management at least every other year to ensure the Committee is properly reflecting market conditions. In addition, proxy statement data and information on material compensation trends is obtained annually with respect to the named executive officers to provide a general understanding of current compensation practices, but such information is not used for benchmarking purposes. Although Towers Watson did provide certain market data to the Committee in 2009, the Committee did not benchmark the target TDC for the named executive officers in 2009. The market data was primarily proxy data from 2008 proxy statements, relating to 2007 compensation, from six regional mall REITs and 13 shopping center and office REITs. The Committee determined that such data was relatively outdated due to the current economic environment and regulatory policies and proposed reforms addressing executive compensation, and therefore based its compensation determinations on individual, Company and macroeconomic factors.

 

 

Timing of Compensation Determinations of TDC .   The following table sets forth the timing of the Committee’s compensation determinations for named executive officers with respect to TDC for 2009.

 

 

The Committee also reviews and proposes changes to post-termination benefits, perquisites and other compensation matters as it deems appropriate. In particular, in March 2009, the Committee authorized the grant of the performance-based options. There were no changes to post-termination benefits or perquisites for the 2009 compensation program for named executive officers.

 

Compensation Differences Among Named Executive Officers .

 

Benchmarking by job responsibilities and position had been a significant factor in the Company’s compensation program for named executive officers in prior years, but it was not a direct factor in the 2009 compensation determinations. However, benchmarking in prior years continued to impact the 2009 program, as the Committee committed to maintain 2008 target TDC levels. The job responsibilities and positions of the named executive officers are as follows. Mr. Robert Taubman, Chairman, President and Chief Executive Officer, leads the management of the Company across all departments as well as serving as leader of the Board . Ms. Payne, Vice Chairman and Chief Financial Officer, and Mr. William Taubman, Chief Operating Officer, are primarily responsible for the financial and operational divisions of the Company; however, they also share significant responsibilities, leadership and decision-making authority with Mr. Robert Taubman in their core areas of responsibility as well as the Company as a whole and both are directors of the Board (with Ms. Payne as Vice Chairman). Mr. Weinert, Senior Vice President, Leasing, and Mr. Kieras, Senior Vice President, Development, are both responsible for key operating divisions of the Company and report to Mr. William Taubman.

 

In addition, the Committee utilized internal pay equity as an additional data point, but does not target specific internal pay equity metrics.

 

In 2009, the Committee also allocated the target cash bonus pool among senior management based on its subjective determination of individual performance.

 

Messrs. Robert Taubman and William Taubman did not receive a grant of performance-based options due to the significant equity holdings of the Taubman family, which the Committee believes provided sufficient retention and performance incentives.

 

Base Salary .

 

General .   The base salaries of named executive officers are reviewed on an annual basis, as well as at the time of a promotion or other change in responsibilities. Merit increases normally take effect in early April.

 

2009 Analysis .   As noted previously, the Committee determined to maintain base salaries at 2008 levels for 2009. The Committee last revised such base salaries by 4.25% in 2007, which was consistent with the overall average wage increase provided to other Company employees at such time. The following table sets forth the base salaries approved for the named executive officers in 2008 and 2009.

 

Annual Bonus Plan .

 

General .   The target bonus for each member of senior management is calculated based on a percentage of each person’s base salary. The Committee then establishes the target cash bonus pool for senior management, which consists of the aggregate target cash bonuses of each member of senior management. Upon the Committee’s approval of any adjustments to reported financial measures for purposes of determining the cash bonus pool, the Committee’s pre-approved payment formula determines the size of the earned cash bonus pool as a percentage of the target pool, ranging from 0% to 200%. Cash bonuses earned by each member of senior management are determined by the Committee upon its allocation of the earned cash bonus pool for senior management based on the Committee’s subjective analysis of an individual’s performance and other factors it deems relevant.

 

The annual bonus plan is predicated on the Company’s satisfaction of one or more annual performance measures. Target performance measures are established based upon the Company’s operating goals and competitive pressures, the anticipated economic climate (including interest rates) and other budgetary risks and opportunities. The Committee generally approved minimum, target and maximum levels such that the relative difficulty of achieving the target cash bonus level was consistent from year to year. In 2006, 2007 and 2008, the earned cash bonus pool was 185%, 155% and 43%, respectively, of the target cash bonus pool, reflecting that the annual bonus is truly at-risk.

 

In 2009, the Committee approved a more flexible and subjective annual bonus plan for the reasons noted above. The 2009 annual bonus plan was subject only to the level of change in FFO per diluted share. Comp Center NOI growth, which was used together with FFO per diluted share as the performance goals from 2004 to 2008 under the annual bonus plan, was eliminated for 2009. Additionally, the performance targets for FFO per diluted share in 2009 included a wider-than-customary payout range of FFO per diluted share, making it relatively harder to receive a bonus above target and relatively easier to receive a bonus below target. The Committee also retained additional discretion to increase or decrease the entire annual bonus pool positively or negatively by 25%, which allowed it to take into account actual market conditions for 2009. Consistent with prior years, the Committee retained authority to adjust reported financial measures for unusual or nonrecurring items that impact the results in a given year and/or that were not contemplated when the original targets were set; the Committee customarily utilizes this discretion as appropriate.

 

NAREIT defines FFO as net income (loss) computed in accordance with generally accepted accounting principles (“GAAP”), excluding gains (or losses) from extraordinary items and sales of properties, plus real estate related depreciation and after adjustments for unconsolidated partnerships and joint ventures. The Company and the Committee believe that FFO is a useful supplemental measure of operating performance for REITs. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, the Company and most industry investors and analysts consider presentations of operating results that exclude historical cost depreciation to be useful in evaluating the operating performance of REITs. FFO is a non-GAAP measure and it should not be considered an alternative to net income as an indicator of the Company’s operating performance, and it does not represent cash flows from operating, investing or financing activities as defined by GAAP. FFO as presented by the Company is not necessarily comparable to similarly titled measures used by other REITs due to the fact that not all REITs use common definitions.

 

2009 Analysis .   Historically, the Company set the performance targets such that the expected outcome resulted in an earned cash bonus pool of 125% of the target cash bonus pool. Beginning in 2009, the Committee set the performance target such that the expected outcome resulted in a 100% payout. Therefore, the target bonus and target bonus as a percentage of base salary were recalibrated to ensure no net effect. Therefore, the discussion of 2008 to 2009 target annual bonuses state there was no change, even though actual amounts have changed.

The following table sets forth the target annual cash bonus approved for the named executive officers for 2008 and 2009 and the earned annual bonus for 2009.

 

 

Subject to the aforementioned discretion, the FFO per diluted share performance goal for 2009 was:

 

 

The threshold and target performance goals represented the low and high range of the Company’s publicly announced guidance as of the grant date. The maximum performance goal represented an 8.5% increase over the high end of the Company’s guidance.

 

As described in detail above in “— Executive Summary—2009 Compensation Summary—Earned Compensation,” the Committee utilized negative discretion under the 2009 annual bonus plan to reinforce its pay-for-performance objective. In particular, the Committee established an earned annual bonus pool of 49% of the target annual cash bonus pool for the Company as a whole, with senior management having an earned annual bonus pool of 15% of their target annual cash bonus pool based upon the Committee’s determination that senior management should bear a larger portion of the burden of the impairment charge related to The Pier and Regency Square projects, and the litigation charge regarding Westfarms, due to their greater control over the Company’s strategic decisions.

 

In March 2010, the Committee allocated the earned cash bonus pool for senior management based upon its subjective determination of individual performance. Mr. Robert Taubman. Ms. Payne and Mr. William Taubman received no bonus primarily due to their responsibility for development activities of the Company (including impairment issues) and overall leadership of the Company. Mr. Weinert and Mr. Kieras received 25% of their target bonus.

 

Long-Term Incentive Program .

 

General .   In March 2007, the Manager conducted a full review of the Company’s existing long-term incentive program, with objectives to simplify the program, maintain the competitiveness of the program over time, enhance the pay-for-performance alignment, balance best practices and ‘best fit’ for the Company and maintain shareholder-management alignment. In connection with such review, the Committee approved the 2008 Omnibus Plan, which was subsequently approved by shareholders at the May 2008 annual meeting. In December 2008, based on the recommendations of the Manager, the Committee approved the revised long-term incentive program, which included: (A) eliminating the separate participation and performance components and replacing them with one target long-term incentive award; and (B) utilizing performance share units and restricted share units as the equity awards to be granted to senior management, thereby replacing time-vesting options from the annual long-term incentive program.

 

Under the revised program, beginning with the equity grants made in March 2009, 50% of the long-term incentive dollar award is converted into performance share units, which represent a contingent number of units of stock granted at the beginning of a specified performance cycle, with actual awards equal to 0 to 300% of the target grants based on the Company’s relative performance with respect to total shareholder return (using a comparator group consisting of companies in the FTSE NAREIT ALL REIT Index, Property Sector: Retail, the “NAREIT Index”) over a three-year period. The performance share units will cliff vest after three years based on the satisfaction of the performance measure. The other 50% of the long-term incentive award is converted into restricted share units.

The companies comprising the NAREIT Index applicable to the 2009 performance share unit grants are as follows:

 

 

The Committee did not change the dollar value of the target long-term incentive award for 2009. The number of restricted share units and performance share units were determined by dividing the dollar award by the average closing price of the common stock for the three trading days prior to and including the grant date. The LTIP grants for the 2009 compensation program were as follows:

 

 

Performance-Based Option Grant .   See “—Executive Summary” for a discussion of the Committee’s determination to issue the performance-based option grant. The option grants were additive to existing equity grants, and therefore do not represent a repricing or replacement of existing equity awards.

 

The number of options granted was determined by dividing the dollar value of the grant, which equaled the amount of the target annual long-term incentive grant of the applicable named executive officers for 2009, by the closing price of the Company’s common stock on the grant date and then multiplying such amount by a specified ratio. The performance-based option grants to named executive officers are as follows:

 

 

Equity Compensation—Other Policies.

 

Stock Ownership Guidelines .   Effective March 2010, the Committee revised the stock ownership guidelines for senior management, which resulted in an increase in the number of shares required to be retained. The prior guidelines were effective since March 2007, except for Mr. Parker. Mr. Parker was excluded from the guidelines at the time of adoption because he was not a participant in the Company’s long-term incentive compensation program and due to his significant equity stake in Taubman Properties Asia LLC (as further described below).

 

The revised guidelines require covered employees to hold a fixed number of shares of the Company’s common stock equal to (A) five times, in the case of the CEO, CFO and COO, and (B) two times, in the case of all other executive officers, their March 2010 base salary divided by $34.35, which represents the Company’s average closing stock price over the 90 trading days prior to March 1, 2010, the date of Board approval. Covered employees generally have a six-year period to comply with the guidelines, with the initial compliance deadline being March 1, 2013. At the end of the compliance period, if a covered employee does not hold the requisite amount of shares, then the Company will pay 50% of such person’s annual cash bonus in restricted share units until the minimum threshold is reached. The Committee will review the minimum equity holding level and other market trends and practices on a

periodic basis. The Committee has confirmed that all employees currently satisfy the guidelines or are making significant progress toward the guidelines.

 

Timing and Pricing of Share-Based Grants .   The Committee and Company do not coordinate the timing of share-based grants with the release of material non-public information. The Committee generally establishes dates for regularly scheduled meetings at least a year in advance, and share-based grants for senior management and other employees generally are granted at the regular Committee meetings in the first and/or second quarter each year.

 

In accordance with The Taubman Realty Group Limited Partnership 1992 Incentive Option Plan, as amended (the “1992 Option Plan”), and 2008 Omnibus Plan, the exercise price of an option is the closing price of the Company’s common stock (as reported by the NYSE) on the date approved by the Committee to be the date of grant (which date is not earlier than the date the Committee approved such grant). The Committee is authorized to modify, extend or renew outstanding options, or accept the cancellation or surrender of such options, except to the extent such actions would constitute a repricing of options without satisfying the applicable shareholder approval requirements of the NYSE. In particular the 1992 Option Plan and the 2008 Omnibus Plan prohibit direct repricings (lowering the exercise price of an option) and indirect repricings (canceling an outstanding option and granting a replacement or substitute option with a lower exercise price, or exchanging options for cash, other options or other awards).

 

Trading Limitations .   In addition to the restrictions set forth in SEC regulations, the Company has an insider trading policy, which among other things, prohibits directors, executive officers and other employees from engaging in hedging or monetization transactions (such as zero-cost collars and forward sale contracts), short sales, trading in puts, calls, options or other derivative securities for speculative purposes or to separate the financial interest in such securities from the related voting rights with respect to the Company’s stock.

 

Perquisites .

 

The Company has historically maintained a conservative approach to providing perquisites to senior management. The available perquisites in 2009 were primarily additional benefits related to health programs and plans, as well as financial planning assistance. These perquisites have been carefully selected to ensure that there is an indirect benefit to the Company and that the value provided to employees is not excessive.

 

The Manager leases a corporate plane and, until August 2009, leased a fractional interest in another plane for business use and was reimbursed by the Taubman Family (including Messrs. Robert Taubman and William Taubman) for personal use of the corporate jets. Such persons are required to fully reimburse the Company for the incremental cost of such use, which is the aggregate of the following expenses related to each flight leg: total pilot expenses (lodging, meals and transportation), fuel costs and landing fees. Therefore, the Company has no incremental cost in providing this benefit.

 

Deferred Compensation Arrangements .

 

The Committee believes nonqualified deferred compensation arrangements are a useful tool to assist in tax planning and ensure retirement income for its named executive officers. Existing deferred compensation arrangements do not provide for above-market or preferential earnings as defined under SEC regulations. The Company did not enter into any new nonqualified deferred compensation arrangements with its named executive officers in 2009. See “Nonqualified Deferred Compensation in 2009” for information regarding the Company’s nonqualified deferred compensation arrangements existing in 2009, as well as contributions, earnings and withdrawals in 2009 and aggregate balances as of December 31, 2009.

 

Severance Payments .

 

See “Potential Payments Upon Termination or Change-in-Control” for a description of potential payments and benefits to the named executive officers under the Company’s compensation plans and arrangements upon termination of employment or a change of control of the Company.

 

Change of Control Agreements .   The Company and TRG are party to change of control agreements with certain members of senior management, including Ms. Payne, Mr. Weinert and Mr. Kieras. These agreements were

originally entered into in connection with a hostile takeover bid in 2003, and the Committee believes these agreements were instrumental in the continued success of the Company during such period and would be instrumental in the success of the Company in the event of any future hostile takeover bid. The Committee believes that such agreements are in the best interests of the Company and its shareholders to ensure the continued dedication of such employees, notwithstanding the possibility, threat or occurrence of a change of control. Further, it is imperative to diminish the inevitable distraction of such employees by virtue of the personal uncertainties and risks created by a pending or threatened change of control, and to provide such employees with compensation and benefits arrangements upon a change of control that ensure that such employees’ compensation and benefits expectations will be satisfied and such compensation and benefits are competitive with those of other companies.

 

A fundamental feature of these agreements is that most of the benefits have a “double-trigger,” which means that two events must occur for payments to be made (a change of control and the actual or constructive termination of employment, in this case within three years from such trigger event). This is consistent with the purpose of the program, which is to provide employees with a guaranteed level of financial protection upon loss of employment. The only exceptions relate to vesting of share-based awards, which the Committee believes is appropriate due to the significant investment change that would likely result from converting such shares into awards of the surviving company. Another fundamental feature of these agreements is the provision of a full tax-gross up, which reinforces the purpose of such agreements, on benefits that exceed 110% of the limits set forth in Section 280G of the IRC. This conditional gross-up ensures excise tax gross-ups are only provided if the amount is at least 110% of the 280G limit, and if so, results in the full payout to applicable employees.

 

Employment Agreements .   Ms. Payne also is party to an employment agreement with the Company, initially entered into in 1997, that provides for specified severance benefits. This employment agreement was entered into in order to recruit Ms. Payne in a competitive market for her services, and the Committee continues to believe the potential severance benefits are consistent with its original objectives and are within current market practices. Mr. Parker’s employment agreement and separation agreement is discussed below.

 

2009 Compensation—Mr. Parker

 

Mr. Parker resigned as President of Taubman Asia and entered into a separation agreement in October 2009. For a description of Mr. Parker’s separation agreement, see “Named Executive Officer Compensation Tables—Potential Payments Upon Termination or Change-in-Control.”

 

Prior to such termination, Mr. Parker’s overall compensation was subject to a significantly different compensation program because his sole managerial responsibilities related to opportunities and operations in the Asia-Pacific region. Mr. Parker had an employment agreement with the Company that was renegotiated in April 2008 in a competitive market for persons with expertise in real estate in the Asia-Pacific region. Mr. Parker’s employment agreement provided for an annual base salary of $1,100,000, with consideration of upward adjustments to be reviewed annually. The agreement also provided Mr. Parker with an opportunity to earn an annual bonus of up to $400,000 if his performance exceeded expectations; this bonus was discretionary and not part of the Company’s annual bonus plan. Mr. Parker did not receive a discretionary bonus for 2009. In addition, Mr. Parker received the following perquisites: a car allowance; a home office allowance; and membership in a business/recreation club acceptable to the Company in its reasonable discretion. Mr. Parker also had a 10% ownership interest in Taubman Properties Asia LLC, a consolidated subsidiary of the Company. As a result of such equity interest as well as his relatively high base salary, the Committee determined that Mr. Parker would not generally participate in the Company’s long-term incentive program otherwise utilized for senior management.

 

Policy Regarding Retroactive Adjustments

 

Section 304 of the Sarbanes-Oxley Act of 2002 authorizes a company to claw back certain incentive-based compensation and stock profits of the Chief Executive Officer and Chief Financial Officer if the company is required to prepare an accounting restatement due to the material noncompliance of the company, as a result of misconduct, with any financial reporting requirement under the securities laws. The Committee does not otherwise have a formal policy regarding whether the Committee will make retroactive adjustments to, or attempt to recover, cash or share-based incentive compensation granted or paid to senior management in which the payment was

predicated upon the achievement of certain financial results that are subsequently the subject of a restatement. The Committee may seek to recover any amount determined to have been inappropriately received by the individual executive to the extent permitted by applicable law.

 

Accounting and Tax Considerations

 

Deductibility of Executive Officer Compensation .   Section 162(m) of the Internal Revenue Code of 1986, as amended (the “IRC”), provides that subject to certain exceptions (the most significant of which is performance-based compensation), a publicly-held corporation may not deduct compensation exceeding $1 million in any one year paid to its chief executive officer and its three other most highly compensated executive officers. However, the Company’s chief executive officer and all of its other executive officers are employed by the Manager, and Section 162(m) does not apply to the Manager because it is a partnership for federal income tax purposes. The executive officers perform limited services for the Company pursuant to a services agreement between the Company and the Manager. The Committee does not anticipate that any portion of Manager’s compensation expense that may be allocable to the Company will be limited by Section 162(m). Even if the Company’s compensation expense deduction were limited by Section 162(m), as long as the Company continues to qualify as a real estate investment trust under the IRC, the payment of non-deductible compensation should not have a material adverse impact on the Company. The 2008 Omnibus Plan is designed to permit the Committee to grant awards that qualify for purposes of satisfying the conditions of Section 162(m).

 

Nonqualified Deferred Compensation .   Section 409A of the Code provides that amounts deferred under nonqualified deferred compensation arrangements will be included in an employee’s income when vested unless certain conditions are met. If the conditions are not satisfied, amounts subject to such arrangements will be immediately taxable and employees will be subject to additional income tax, penalties and a further additional income tax calculated as interest on income taxes deferred under the arrangement. In December 2008, the Company revised certain of its compensation agreements to ensure that all of the Company’s employment, severance and deferred compensation arrangements satisfy the requirements of Section 409A to allow for deferral without accelerated taxation, penalties or interest.

 

Change in Control Payments .   Section 280G of the IRC disallows a company’s tax deduction for “excess parachute payments,” generally defined as payments to specified persons that are contingent upon a change of control in an amount equal to or greater than three times the person’s base amount (the five-year average of Form W-2 compensation). Additionally, IRC Section 4999 imposes a 20% excise tax on any person who receives excess parachute payments.

 

The Company’s share-based plans entitle participants to payments in connection with a change in control that may result in excess parachute payments. Further, Ms. Payne, Mr. Weinert and Mr. Kieras have employment agreements and/or change in control agreements which entitle them to payments upon termination of their employment following a change in control of the Company that may qualify as excess parachute payments. As noted earlier, the change in control agreements provide a full tax-gross up on benefits that exceed 110% of the limits set forth in Section 280G of the IRC.

Compensation Committee Report

 

The Compensation Committee of the Company has reviewed and discussed the CD&A in this proxy statement with management, including the Chief Executive Officer. Based on such review and discussion, the Compensation Committee recommended to the Board of Directors that the CD&A be included in the Company’s annual report on Form 10-K for the year ended December 31, 2009 and the proxy statement for the 2010 annual meeting of shareholders.

 

The Compensation Committee

 

Craig M. Hatkoff, Chairman
Jerome A. Chazen
Peter Karmanos, Jr.

Compensation Committee Interlocks and Insider Participation

 

None of the members of the Compensation Committee is or has been an officer or an employee of the Company. In addition, during 2009, none of the Company’s executive officers served on the board of directors or compensation committee (or committee performing equivalent functions) of any other company that had one or more executive officers serving on the Board or Compensation Committee.

Named Executive Officer Compensation Tables

 

The table below summarizes the total compensation paid or earned by the named executive officers in 2009, 2008 and 2007.

 

 

 

 

Narrative Discussion of Summary Compensation Table .

 

Employment Agreement—Ms. Payne .   See “Potential Payments Upon Termination or Change-in-Control” for a description of the material terms of Ms. Payne’s employment agreement.

 

Employment Agreement and Separation Agreement—Mr. Parker .   Mr. Parker became a named executive officer in 2008 and therefore the Summary Compensation Table is only required to include his compensation

information for 2008 and 2009. Mr. Parker resigned in October 2009 and entered into a separation agreement. The amounts earned under the separation agreement as of December 31, 2009 are included in “All Other Compensation.” See “Potential Payments Upon Termination or Change-in-Control” for additional information regarding the material terms of Mr. Parker’s separation agreement. Prior to such resignation, Mr. Parker was subject to a different compensation program than the other named executive officers, as further described in “Compensation Discussion and Analysis—2009 Compensation—Mr. Parker.”

 

Stock Awards and Option Awards .   In 2009, stock awards were made under the revised long-term incentive program, pursuant to which 50% of the dollar value of the long-term incentive award was paid in restricted share units and 50% of the dollar value of the long-term incentive award was paid in performance share units. The number of restricted share units and performance share units were determined by dividing the dollar award by the average closing price of the common stock for the three trading days prior to and including the grant date. Discretionary performance-based option awards were also made in March 2009.

 

In 2007 and 2008, stock and option awards were generally made under the long-term incentive program in effect at such time, pursuant to which two-thirds of the dollar value of the long-term incentive award was paid in restricted share units and one-third of the dollar value of the long-term incentive award was paid in nonqualified options.

 

Non-Equity Incentive Plan Compensation .   For amounts earned in 2009, the Committee utilized negative discretion and established an annual bonus pool of 49% of the target annual cash bonus pool for the Company as a whole, with senior management having an aggregate annual bonus pool of 15% of their target annual cash bonus pool. In March 2009, the Committee allocated the actual cash bonus pool for senior management based on its subjective determination of individual performance. The amounts earned in 2007 and 2008 also consist of payments earned under the annual bonus plan.

Grants of Plan-Based Awards in 2009

 

The following table provides information about equity and non-equity awards granted to the named executive officers in 2009.

 

 

 

 

Narrative Discussion of Grants of Plan-Based Awards in 2009 .

 

Mr. Parker .   Mr. Parker did not participate in the annual bonus plan and generally did not participate in the long-term incentive program.

 

Annual Bonus Plan .   The annual bonus plan in effect for 2009 was predicated on the Company’s satisfaction of one annual performance measure, FFO per diluted share. Historically, upon the Committee’s approval of any adjustments to actual performance for purposes of determining the cash bonus pool, the Committee’s pre-approved payment formula determines the size of the earned cash bonus pool as a percentage of the target pool, ranging from 0% to 200%. However, in 2009, the Committee utilized negative discretion to establish a smaller earned cash bonus pool than the formula would have otherwise provided. See “Compensation Discussion and Analysis—Executive Summary—2009 Compensation Summary.”

 

The Committee utilizes a target cash bonus pool for senior management, which consists of the aggregate target cash bonuses of each member of senior management. Cash bonuses earned by each member of senior management are determined by the Committee upon its allocation of the earned cash bonus pool for senior management based on the Committee’s subjective analysis of an individual’s performance and other factors it deems relevant. Since there was no maximum established for the allocation of bonus amounts to individual members of senior management, the Company has determined not to disclose a maximum amount in the table

above. Earned bonus amounts for 2009 were approved by the Committee on March 2, 2010; such amounts are reported in the “Non-Equity Incentive Plan Compensation” column of the “Summary Compensation Table.”

 

Long-Term Incentive Program .   50% of the dollar value of the long-term incentive award was paid in restricted share units and 50% of the dollar value of the long-term incentive award was paid in performance share units. The number of restricted share units and performance share units were determined by dividing the dollar award by the average closing price of the common stock for the three trading days prior to and including the grant date.

 

Restricted Share Unit Awards .   Each restricted share unit represents the right to receive upon vesting one share of the Company’s common stock. All restricted share units granted in 2009 provide for vesting on March 1, 2012, subject to the terms of such award.

 

Performance Share Units .   Performance share units represent a contingent number of units of stock granted at the beginning of a specified performance cycle, with actual unit grants 0 to 300% of target grants based on the Company’s relative performance The performance share units utilize total shareholder return as the performance measure, using the NAREIT Index comparator group to limit effect of any one company (e.g. consists of 24 other companies for purposes of 2009 grants). Total shareholder return is measured using the 30-day average stock price before the beginning and end of the performance period to mitigate volatility for all comparator group members. Each performance share unit represents the right to receive upon vesting one share of the Company’s common stock. All performance share units granted in 2009 provide for vesting on March 1, 2012, subject to the terms of such award.

 

Performance-Based Option Awards .   The number of options granted was determined by dividing the dollar value of the grant, which equaled the amount of the target annual long-term incentive grant for the applicable named executive officers for 2009, by the closing price of the Company’s common stock on the grant date and then multiplying such amount by a specified ratio. Each option represents the right to receive one TRG unit upon vesting and payment of the exercise price. The performance-based options granted in 2009 provided for vesting based on satisfaction of a $30 closing stock price for 10 consecutive trading days.

 

Upon exercise of options, all employees, other than Messrs. Robert Taubman and William Taubman (who did not receive performance-based options in 2009), are required to exchange each underlying TRG unit for one share of the Company’s common stock under the Company’s Continuing Offer.

Outstanding Equity Awards at December 31, 2009

 

The following table provides information on the current holdings of option and stock awards by the named executive officers as of December 31, 2009. Unless otherwise noted, all option awards vest in one-third annual increments on March 1 of the applicable year beginning approximately one year from the grant date.