Schedule 14A

(Rule 14A-101)

Information Required In Proxy Statement

SCHEDULE 14A INFORMATION

 

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934
(AMENDMENT NO. )

 

Filed by the Registrant  þ

 

Filed by a Party other than the Registrant  o

 

Check the appropriate box:

 

 

Sonoco Products Company

(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):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SONOCO PRODUCTS COMPANY

 

1 NORTH SECOND STREET
HARTSVILLE, SOUTH CAROLINA 29550 USA

 

March 14, 2008

 

To Our Shareholders:

 

You are cordially invited to attend our Annual Shareholders’ Meeting to be held at the Center Theater, 212 North Fifth Street, Hartsville, South Carolina, on Wednesday, April 16, 2008, at 11:00 a.m. (Eastern time).

 

We have enclosed a Notice of 2008 Annual Meeting of Shareholders and Proxy Statement that cover the details of matters to be presented at the meeting.

 

In addition to acting on the matters listed in the Notice of Annual Meeting of Shareholders, we will discuss the Company’s progress, and you will be given an opportunity to ask questions of general interest to all shareholders.

 

We have also enclosed a copy of our 2007 Annual Report , which reviews the Company’s past year’s events and discusses strategy and the outlook for the future (or we delivered one copy of the Annual Report for all shareholders at your address).

 

We hope that you will come to the 2008 Annual Meeting of Shareholders in person; however, even if you plan to attend, we strongly encourage you to complete the enclosed proxy card or brokers’ voting instruction form and return it in the enclosed business reply envelope. If you are a shareholder of record, you can also vote by telephone (if you live in the United States or Canada) or via the Internet. Instructions are shown on your proxy card. If you are a shareholder of record and later find you can be present or if for any reason you desire to revoke your proxy, you can do so at any time before the voting. Your vote is important and will be greatly appreciated.

 

 

Harris E. DeLoach, Jr.
Chairman, President &
Chief Executive Officer

 

NOTICE OF 2008 ANNUAL

MEETING OF SHAREHOLDERS

and

PROXY STATEMENT

 

 

TABLE OF CONTENTS

 

SONOCO PRODUCTS COMPANY

 

1 NORTH SECOND STREET

HARTSVILLE, SOUTH CAROLINA 29550 USA

 

NOTICE OF 2008 ANNUAL MEETING OF SHAREHOLDERS

 

 

By order of the Board of Directors,

 

Charles J. Hupfer
Secretary

March 14, 2008

 

SONOCO PRODUCTS COMPANY

 

1 NORTH SECOND STREET
HARTSVILLE, SOUTH CAROLINA 29550 USA

 

PROXY STATEMENT

 

 

We are sending you these proxy materials in connection with the solicitation by the Board of Directors of Sonoco Products Company of proxies to be used at the Annual Meeting of Shareholders (“Annual Meeting”) to be held on Wednesday, April 16, 2008, at 11:00 a.m. (Eastern time) at The Center Theater, 212 North Fifth Street, Hartsville, S.C., and at any adjournment or postponement of the meeting. The terms “we,” “our,” “us,” “Sonoco” and “the Company” all refer to Sonoco Products Company. The proxy materials are first being mailed on or about March 14, 2008.

 

Who May Vote

 

You will only be entitled to vote at the Annual Meeting if our records show that you were a record shareholder on February 22, 2008. At the close of business on February 22, 2008, a total of 99,486,369 shares of our common stock were outstanding and entitled to vote. Each share of common stock has one vote.

 

Voting

 

If your shares are held in street name by a broker, bank or other nominee, it will send you instructions that you must follow to have your shares voted at the Annual Meeting. If you hold your shares in your own name as a record shareholder, you may instruct the proxy agents how to vote your shares by completing, signing, dating and mailing the proxy card in the enclosed postage-paid envelope; by dialing the toll-free telephone number shown on your proxy card (if you live in the United States or Canada); or by accessing the Web site shown on your proxy card. Of course, if you are a record shareholder, you can always attend the meeting and vote your shares in person.

 

If you wish to attend the meeting in person, you may obtain directions to our office at our Web site: www.sonoco.com/sonoco/Home/About+Us/cor_directions.htm . The site of the annual meeting is only a short distance from the Sonoco office and directions from the office to the annual meeting site may be obtained at the reception desk.

 

The proxy agents will vote your shares as you instruct. If you are a record shareholder and you sign and return your proxy card without giving instructions, the proxy agents will vote your shares FOR each person named in this Proxy Statement as a nominee for election to the Board of Directors, FOR approval of the 2008 Long-Term Incentive Plan, and FOR ratification of the selection of PricewaterhouseCoopers LLP (“PWC”) as our independent registered public accounting firm for the fiscal year ending December 31, 2008. The proxy agents will vote according to their best judgment on any other matter that properly comes before the Annual

Meeting. At present, the Board of Directors does not know of any other such matters. As discussed below under the caption “How Votes Will Be Counted”, if your shares are held in street name by a broker and you do not give the broker voting instructions pursuant to the directions the broker gives you, the broker will not be permitted to vote on the proposal to approve the 2008 Long Term Incentive Plan, though it will be permitted to vote on the other matters to be presented.

 

How to Revoke Your Proxy

 

You may revoke your proxy at any time before it is voted. If you hold your shares in your own name as a record shareholder, you may revoke your proxy in any of the following ways:

 

 

Subsequent voting by telephone or via the Internet cancels your previous vote. If you are a shareholder of record, you may also attend the meeting and vote in person, in which case your proxy vote will not be used.

 

If your shares are held in street name by a broker, bank or other nominee, you may revoke your voting instructions by submitting new voting instructions to the broker or other nominee who holds your shares.

 

How Votes Will Be Counted

 

The Annual Meeting will be held if a majority of the outstanding shares of common stock entitled to vote (a “quorum”) is represented at the meeting. If you have submitted valid proxy instructions or are a record shareholder and attend the meeting in person, your shares will be counted for the purpose of determining whether there is a quorum, even if you wish to abstain from voting on some or all matters introduced. “Broker non-votes” also count in determining whether a quorum is present. A “broker non-vote” occurs when a broker, bank or nominee who holds shares for a beneficial owner attends the meeting in person or by proxy but does not vote on a particular proposal because the broker, bank or nominee does not have discretionary voting power for that proposal and has not received voting instructions from the beneficial owner.

 

If your shares are held in street name by a broker, the broker is permitted to vote your shares on the election of directors and the ratification of PWC as our independent auditor even if the broker does not receive voting instructions from you. Under the New York Stock Exchange rules, your broker may not, however, vote your shares on the proposal relating to the 2008 Long-Term Incentive Plan absent instructions from you. Without your voting instructions on this proposal, a broker non-vote will occur with respect to your shares.

 

If a quorum is present at the Annual Meeting, directors will be elected by a plurality of the votes cast by shares present and entitled to vote at the Annual Meeting. “Plurality” means that, if there were more nominees than positions to be filled, the persons who received the largest number of votes would be elected. Because there are the same number of nominees as positions to be filled, we expect all nominees to be elected. Votes that are withheld or that are not voted in the election of directors will have no effect on the outcome of the election. Cumulative voting is not permitted.

 

Approval of the proposal to adopt the 2008 Long-Term Incentive Plan requires the affirmative vote of a majority of the total votes cast on the proposal, provided that the total votes cast on the proposal represent

over 50% of all shares entitled to vote on the proposal. With respect to shares that are present and entitled to vote, any votes that are withheld or any shares that are not voted for adoption of the plan will have the effect of votes against the plan.

 

Any other matter, including ratification of the selection of PWC as our independent registered public accounting firm, that may be brought before the meeting will be approved if the votes cast in favor of the matter exceed the votes cast against the matter. Votes that are withheld or shares that are not voted will have no effect on the outcome of such matters.

 

Cost of this Proxy Solicitation

 

We will pay the cost of this proxy solicitation. In addition to soliciting proxies by mail, we expect that some of our officers and regular employees will solicit proxies by telephone, fax, email or personal contact. None of these officers or employees will receive any additional or special compensation for doing this. We also plan to engage W.F. Doring & Co., a proxy solicitation firm, to help identify street name shareholders and encourage their voting. Costs of the proxy solicitor will be approximately $5,000.

 

 

The Board of Directors has fixed the number of directors of the Company at 13. At our Annual Meeting, five directors will be elected. Messrs. C.J. Bradshaw, J.L. Coker, M.D. Oken and General L.W. Newton have been nominated to hold office for the next three years, their terms expiring at the Annual Shareholders’ Meeting in 2011, or when their successors are duly elected and qualify to serve. Mr. P.R. Rollier has been nominated to hold office for the next two years, his term expiring at the Annual Shareholders’ Meeting in 2010, or when his successor is duly elected and qualifies to serve. General Newton was elected by the Board in February, 2008 and Mr. Rollier was elected by the Board in July, 2007. Neither General Newton nor Mr. Rollier has previously been elected by shareholders. General Newton was recommended for election to the Board by our Chief Executive Officer, and Mr. Rollier was recommended for election by a non-management director. The proxy agents intend to vote FOR the election of the five persons named above unless you withhold authority to vote for any or all of the nominees. The Board of Directors recommends that you vote FOR each nominee.

 

 

Although Mr. Bradshaw has been nominated for election to a three-year term, he will reach mandatory retirement age in July, 2008, and is only eligible to serve on the Board until that time.

INFORMATION CONCERNING DIRECTORS WHOSE TERMS CONTINUE

 

Members of the Board of Directors whose terms of office will continue until our Annual Shareholders’ Meeting in 2009 are:

 

 

Members of the Board of Directors whose terms of office will continue until our Annual Shareholders’ Meeting in 2010 are:

 

 

Our listing agreement with the New York Stock Exchange requires that at least a majority of the members of our Board of Directors be independent. Under the Exchange’s standards, “independent” means that a director has been determined by the Board to have no material relationship with us (either directly, or indirectly through an immediate family member or as a partner, shareholder or officer of an organization that has a relationship with us). To assist us in making these determinations we have adopted the following guidelines, which are also the guidelines set forth in the New York Stock Exchange Listing Standards.

 

A director will not be considered independent if:

 

 

The following relationships will not be considered to be material relationships that would impair a director’s independence:

 

 

Based on these criteria, our Board of Directors has determined that the following directors, who constitute a majority of the Board, are independent:

 

C.J. Bradshaw, J.L. Coker, P.L. Davies, C.C. Fort, E.H. Lawton, III, J.E. Linville, J.M. Micali, J.H. Mullin, III, L.W. Newton, M.D. Oken, P.R. Rollier and T.E. Whiddon.

 

Our non-management directors meet at regularly scheduled executive sessions without management present. Four such meetings were held during 2007; there was also one meeting of the independent directors. The presiding director for each meeting is elected by those directors in attendance at that meeting. Shareholders and other interested parties may communicate with the non-management (or independent) directors by writing to Non-Management (or Independent) Directors, c/o Corporate Secretary, Sonoco Products Company, 1 North Second Street, Hartsville, SC 29550 USA or by email to CorporateSecretary@sonoco.com.

 

We have adopted Corporate Governance Guidelines and a Code of Business Conduct and Ethics for our directors, officers and employees. Copies of these governance guidelines and the Code of Business Conduct are available through our Web site at www.sonoco.com. Printed versions are available to our shareholders on request to the Corporate Secretary, Sonoco Products Company, 1 North Second Street, Hartsville, SC 29550 USA or through email to CorporateSecretary@sonoco.com.

 

Our Corporate Governance and Nominating Committee recommends to our Board of Directors nominees to fill vacancies on the Board of Directors as they occur, and recommends candidates for election as directors at Annual Meetings of Shareholders. Such candidates are routinely identified through personal and business relationships and contacts of the directors and executive officers.

 

In recommending candidates, the Corporate Governance and Nominating Committee evaluates such factors as it deems appropriate based on our current needs. These factors may include diversity, age, skills such as understanding of appropriate technologies and general finance, decision-making ability, interpersonal skills, experience with businesses and other organizations of comparable size, and the inter-relationship between the candidate’s experience and business background and other Board members’ experience and business background. Additionally, candidates for director should possess the highest personal and professional ethics, and they should be committed to the long-term interests of the shareholders.

 

The Corporate Governance and Nominating Committee will consider director candidates recommended by shareholders, if the shareholders comply with the following requirements. If you wish to recommend a director candidate to the Corporate Governance and Nominating Committee for consideration as a Board of Directors’ nominee, you must submit in writing to the Corporate Governance and Nominating Committee your

recommended candidate’s name, a brief resume setting forth the recommended candidate’s business and educational background and qualifications for service, and a notarized consent signed by the recommended candidate stating the recommended candidate’s willingness to be nominated and to serve. This information must be delivered to the Chair of the Corporate Governance and Nominating Committee at the Company’s address and must be received no later than January 5 in any year to be considered by the Committee as a potential Board of Directors’ nominee. The Corporate Governance and Nominating Committee may request further information if it determines a potential candidate may be an appropriate nominee. Director candidates recommended by shareholders that comply with these requirements will receive the same consideration that the Committee’s other candidates receive.

 

Director candidates recommended by shareholders will not be considered by the Corporate Governance and Nominating Committee for election at an annual meeting unless the shareholder recommendations are received no later than January 5 of the year of the meeting. In addition to making such recommendations, shareholders have the right to nominate candidates for election as directors at an annual meeting if they make a written nomination at least 60 days prior to the meeting. Any such nomination should be submitted to our Corporate Secretary at 1 North Second Street, Hartsville, SC 29550 USA. No such nominations have been made for this Annual Meeting.

 

Any shareholder or other interested person who wishes to send communications to any member of the Board of Directors should mail such communications addressed to the intended recipient by name or position in care of: Corporate Secretary, Sonoco Products Company, 1 North Second Street, Hartsville, SC 29550 USA or by email to CorporateSecretary@sonoco.com. Upon receipt of any such communications, the Corporate Secretary will determine the identity of the intended recipient and whether the communication is an appropriate shareholder communication. The Corporate Secretary will send all appropriate shareholder communications to the intended recipient. An “appropriate shareholder communication” is a communication from a person claiming to be a shareholder in the communication the subject of which relates solely to the sender’s interest as a shareholder and not to any other personal or business interest.

 

In the case of communications addressed to the Board of Directors, the Corporate Secretary will send appropriate shareholder communications to the Chair of the Corporate Governance and Nominating Committee. In the case of communications addressed to the independent or non-management directors, the Corporate Secretary will send appropriate shareholder communications to the Chair of the Corporate Governance and Nominating Committee. In the case of communications addressed to committees of the Board, the Corporate Secretary will send appropriate shareholder communications to the Chair of such committee.

 

The Corporate Secretary is required to maintain a record of all communications received that were addressed to one or more directors, including those determined not to be appropriate shareholder communications. Such record will include the name of the addressee, the disposition by the Corporate Secretary and, in the case of communications determined not to be appropriate, a brief description of the nature of the communication. The Corporate Secretary is required to provide a copy of any additions to the record to the Chair of the Corporate Governance and Nominating Committee quarterly.

 

During 2007, our Board of Directors held four regularly scheduled meetings and four special meetings to review significant developments affecting us and to act on matters requiring the Board of Directors’ approval. During 2007, all directors attended 75% or more of the aggregate number of meetings of the Board of Directors and committees of which they were members.

 

We encourage, but do not require, our directors to attend the Annual Meeting of Shareholders. In 2007, all twelve directors attended the Annual Meeting.

 

To assist it in performing its duties, the Board of Directors has established the six committees discussed below. All committees operate pursuant to written charters. The charters are available to shareholders through the Investor Relations page of our Web site at www.sonoco.com. These charters are also available in print to any shareholder upon request to the Corporate Secretary, Sonoco Products Company, 1 North Second Street, Hartsville, SC 29550 USA or through email to CorporateSecretary@sonoco.com. The Board of Directors has determined that each member of the Audit, Corporate Governance and Nominating, and Executive Compensation committees is independent, as defined in the New York Stock Exchange’s listing standards.

 

 

The Executive Compensation Committee oversees administration of our executive officer compensation programs and sets compensation for the CEO, CFO and other executive officers. Its specific functions are described above.

 

 

Members of the Executive Compensation Committee during the year ended December 31, 2007 were C.J. Bradshaw, C.C. Fort, B.L.M. Kasriel, J.E. Linville, J.M. Micali, J.H. Mullin, III, and M.D. Oken.

 

Mr. Oken was Chief Financial Officer of Bank of America until he retired in January 2006. During the second quarter of 2007, a Bank of America subsidiary managed the syndication and participated as agent in the expansion of a five-year committed revolving line of credit from $350,000,000 to $500,000,000 to support our commercial paper program and for general corporate purposes. Bank of America’s commitment to this facility is $57,857,000. A committed line of credit from Bank of America has been in place since 1987 and has been renewed, amended and increased or decreased according to our needs. Bank of America has extended other lines of credit to us as support for letters of credit, overdrafts and other corporate needs. It also provides treasury management services to us. We pay fees to the bank for these services and for the availability of the lines of credit, as well as interest on any borrowed funds.

 

Sonoco sold $901,000 in products and services to Michelin North America during 2007. Mr. Micali, the Chairman and President of Michelin North America, is one of Sonoco’s directors. In addition, the brother of our Director P.R. Rollier is the Managing General Partner of Michelin Group, the owner of Michelin North America.

 

All transactions were handled on a competitive basis. Management believes that the rates and provisions were as favorable to us as we could have obtained from other sources.

 

Please see the disclosures about Messrs. Micali, Oken and Rollier under the caption “Compensation Committee Interlocks and Insider Participation”. Our management believes the prices and terms of the transactions reported above were comparable to those we could have obtained from other sources. We anticipate engaging in similar business transactions in 2008. The Board of Directors considered these relationships when making its determinations of independence.

 

George S. Hartley, our Assistant Treasurer, is married to Cynthia A. Hartley who is a Senior Vice President. Mr. Hartley had 2007 earnings of $162,000, and he received the usual employee benefits available to all employees at his level.

 

We are currently proposing to enter into an agreement with Mr. Charles W. Coker, our retired Chairman and President, regarding a modification of his existing Company provided split-dollar life insurance benefit plan (the “Split-Dollar Plan”). Mr. Coker is the brother of Mr. F. L. H. Coker, who was our director until October 2007. Under the proposal, the life insurance policies in the existing Split-Dollar Plan will be exchanged for a new survivorship policy. The death benefits that are provided for Mr. Coker under the Split-Dollar Plan will be reduced and the future scheduled premiums we are obligated to pay will be eliminated. In return, we will pay Mr. Coker the amount required each year to cover the taxes on the income imputed to him for the new survivorship policy. In 2008, we expect that the amount will be approximately $4,000, based on the current proposal and the insurance company’s annual renewable term rates. We expect that future payments we make to Mr. Coker will increase each year as long as the insurance is in force, based on the applicable

imputed income rates. We do not expect the total amount of the future tax payments we make related to the new survivorship policy to exceed the total amount of the scheduled future premiums we are presently obligated to pay under the existing Split-Dollar Plan.

 

Related Party Transaction Approval Policy

 

The Board has adopted a written policy that any transaction or series of transactions in which Sonoco is a participant, for which the amount involved exceeds $120,000, and in which any related person will have a direct or indirect material interest must be approved by the Corporate Governance and Nominating Committee. The Board recognizes that such transactions may or may not be in the best interest of Sonoco and, as a result, empowers the Corporate Governance and Nominating Committee to evaluate all such related party transactions or series of transactions. The Committee is to approve only those transactions that it determines provide net economic value to Sonoco or where it is demonstrated to the satisfaction of the Committee that price, quality, service and other terms have been negotiated on an arms-length basis and are comparable to those available from unrelated third parties.

 

Sonoco’s officers are required to notify the Committee of the proposed and ongoing related party transactions prior to each meeting of the Committee and provide the Committee with all relevant information necessary for the Committee’s consideration, including any information requested by the Committee.

 

For purposes of this policy, a “related party is (1) any executive officer or director, (2) any nominee for director, (3) a beneficial owner of more than 5% of the voting securities of Sonoco, or (4) any immediate family member of an officer, director, nominee for director or greater than 5% beneficial owner. An “immediate family member” means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law, or any person (other than a tenant or employee) sharing the household of an executive officer, director, nominee or greater than 5% beneficial owner.

 

We also require that each executive officer, director and director nominee complete an annual questionnaire and report all transactions with us in which such persons (or their immediate family members) had or will have a direct or indirect material interest (except for salaries, directors’ fees and dividends on our stock). Management reviews responses to the questionnaires and, if any such transactions are disclosed, they are reviewed by the Corporate Governance and Nominating Committee as to directors and director nominees or by the Audit Committee as to executive officers. Directors’ responses to the questionnaires are also reviewed annually by the Corporate Governance and Nominating Committee for the purpose of assessing independence under our Corporate Governance Guidelines and the New York Stock Exchange Listing Standards.

 

The types of transactions that have been reviewed in the past include the purchase and sale of goods and services from companies for which our directors serve as executive officers or directors, the purchase of financial services and access to lines of credit from banks for which our directors serve as executive officers or directors, and the employment of family members of executive officers or directors.

 

The following table shows the number of shares of our common stock beneficially owned as of February 13, 2008, directly or indirectly, by each director and by each executive officer named in the Summary Compensation Table.

 

 

 

 

 

On April 15, 2003, the Board of Directors adopted a resolution establishing stock ownership guidelines for outside directors. The guidelines establish a target level of ownership of our common stock based on years of service as a director from the date the guidelines were established. The guidelines are as follows: 3,000 shares, 5,000 shares and 8,000 shares after two, four and six years of service, respectively. Compensation deferred into Sonoco stock equivalent units are included in determining whether these guidelines have been met.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

 

The following table shows information as of December 31, 2007, about persons known to us to be the beneficial owners of more than 5% of our common shares. This information was obtained from a Schedule 13G filed with the Securities and Exchange Commission by the entity named below, and we have not independently verified it.

 

 

 

 

 

Our directors and executive officers are required to file reports with the Securities and Exchange Commission and the New York Stock Exchange showing the number of shares of any class of our equity securities they owned when they became a director or executive officer, and, after that, any changes in their ownership of our securities. These reports are required by Section 16(a) of the Securities Exchange Act of 1934.

 

Based on a review of Section 16(a) reports and any written representations made to us, we believe that all such filings for 2007 were made in a timely manner.

 

The first part of this discussion provides an overview of the compensation program for our executive officers, the material principles underlying our compensation policies and decisions and a description of each compensation element, how these elements fit together and how they further our goals.

 

The second part of the discussion describes and explains the specific actions taken with regard to compensation for executive officers in 2007. This discussion and analysis and the tables that follow focus on all aspects of compensation for our Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and the three other most highly compensated officers. These five individuals are referred to as the Named Executive Officers (“NEOs”).

 

OVERVIEW, PRINCIPLES AND COMPENSATION ELEMENTS

 

The Role of the Executive Compensation Committee

 

The Executive Compensation Committee oversees administration of our executive officer compensation programs and sets compensation for the CEO, CFO and other executive officers. Information about the purposes of the Committee and its processes and procedures for consideration and determination of executive officer and director compensation is outlined under the caption “Board Meetings and Committees of the Board — Executive Compensation Committee” on page 18 of this Proxy Statement. The Executive Compensation Committee does not delegate its decision-making authority relating to executive compensation.

 

Overall Compensation Objectives

 

The primary objectives of our executive compensation program are as follows:

 

 

Each aspect of the overall program is designed to support these objectives to various degrees with the overarching goal of maximizing shareholder value.

 

As discussed below, the executive compensation program has three components:

 

 

 

Direct Compensation Elements

 

The direct compensation elements of the executive compensation program consist of base salary, annual cash incentive compensation, and long-term incentive compensation comprised of stock-settled stock appreciation rights (“SSARs”) and performance contingent restricted stock units (“PCSUs”). With the exception of base salary, all elements of executive compensation are variable and are contingent on achieving performance targets based on one or more of the following key company performance indicators: growth in base earnings per share, growth in revenue, improvement in return on net assets employed, or reduction in working capital.

 

In constructing the direct compensation package for the NEOs and the other executive officers, the Committee adheres to the following principles:

 

The charts below show the use of these three principles in the weightings the Committee has assigned to the 2007 direct compensation components at target. For annual cash incentives, “target” is equal to budget performance. For long-term incentives, “target” is equal to the grant date value of the shares calculated pursuant to Financial Accounting Standard 123R (FAS 123R). Stock-settled stock appreciation rights vest in one year. Performance contingent restricted stock units will vest in three years assuming performance results are achieved as explained in more detail on pages 31-32.

 

Determining Competitive Benchmarks — Total Direct Compensation

 

Our salary ranges and incentive compensation for all salaried positions, including the CEO, CFO and other executive officers, are based on the combination of (1) a structured job evaluation system to provide for internal pay equity, and (2) a market pricing system that matches individual jobs to independent salary surveys to provide for external competitiveness.

 

In order to determine competitive compensation levels, we annually participate in three national surveys conducted by the independent consulting firms of the Hay Group (over 600 participants), Hewitt Associates (over 700 participants) and Towers Perrin (over 250 participants). Collectively these surveys have over 1,000 participating companies, although some companies like us participate in more than one survey. These surveys cover a large number of similar corporate officer positions across United States industry. In most cases, we match our corporate officer positions to survey data from companies with sales in the $1 billion to $5 billion range. Likewise, we match division officer positions to similar positions in the survey data for comparable division revenue ranges. From these surveys, we develop executive compensation levels for base salaries, total cash compensation (base salary plus annual target incentive compensation), and total direct compensation (total cash compensation plus long-term incentives). In addition to these broad surveys, periodically the Committee’s consultant prepares customized compensation studies with respect to our NEOs in comparison to the NEOs of the fourteen peer packaging companies which have median sales, assets and market capitalization similar to that of Sonoco.

 

The fourteen peer packaging companies were:

 

 

The Committee uses information from the broader industry data to set specific compensation levels, but routinely cross checks these levels against the more specific peer company data. In most cases the data from both sources are very comparable.

 

The Committee sets the market rate or competitive benchmark for base salary for each position at the median (50th percentile) of the survey data. This means that on average half of the surveyed companies are likely to pay a higher base salary than we pay for a similar executive position and half will pay less. The Committee believes that targeting base pay at the median of the market is appropriate because base pay is fixed and does not vary each year based on company performance.

 

The Committee then sets and maintains individual base salaries at no less than 80% or more than 120% of the market median based on the overall level of each officer’s management expertise, experience, time in position and performance.

For annual cash incentives and total direct compensation (total cash compensation plus long-term incentives), the Committee sets competitive benchmarks between the median and the 75th percentile of the survey data. The committee believes that if the executives meet challenging goals, they should have the opportunity to earn compensation above the market median. Likewise, if the executives do not fully meet goals, they should earn compensation below the market median. For both annual incentives and the PCSU portion of long-term equity incentives, the Committee also sets minimum levels of performance. If these minimums are not achieved, then no compensation is earned for that element. Similarly, the actual value of SSARs varies depending on the increase or decrease in the price of Sonoco stock. If the stock price does not increase above the grant price, the executive realizes no value from the award.

 

The Committee believes that placing the majority of each executive’s total compensation at risk, with variable levels of payout possible, provides a strong incentive to achieve both short-term and long-term financial goals.

 

For annual cash incentives, we have established maximum annual incentive compensation levels as a percent of base salary for each executive officer position. Normally, officers will earn 50% of this maximum (which 50% approximates the competitive benchmark described above) at budget for each element in the plan, though the Committee can make adjustments to pay 50% of maximum above or below budget depending on the expected degree of difficulty in achieving budget in any one year.

 

Our long-term incentive program provides for awards of SSARs and PCSUs. To determine the target number of award shares in either case for each officer, the Committee uses the total direct compensation competitive benchmark (comprised of base salary, annual cash incentives and long-term equity incentives) for each officer position. The base salary competitive benchmark midpoint or actual base salary (whichever is greater) and the target (50% of the maximum incentive) for annual incentive compensation are subtracted from the total direct compensation competitive benchmark to arrive at the competitive benchmark dollars available for the long-term component of the compensation plan. These dollars are then converted to SSARs and PCSUs and each officer receives a mix of 75% PCSUs and 25% SSARs.

 

Providing this mix of 75% PCSUs and 25% SSARs is in line with the Committee’s philosophy of strongly encouraging long-term stock ownership among the officer group, while still providing some opportunity for the greater leverage inherent in stock-settled stock appreciation rights which are similar to stock options.

 

The Committee may further adjust the size of the award of PCSUs or SSARs above or below target based on individual officer performance. The actual value of the award for any individual officer is ultimately based on the Company’s achieving long term financial targets or increase in stock price. By adjusting actual award size based on individual performance, the Committee can also reward personal achievements and contributions or address other variations in individual performance.

 

Each year the Committee establishes the three-year performance targets for each element in the PCSU portion of the long-term incentive plan. These are based on an analysis of our prior performance, the economic environment and business outlook, and our forecasted growth potential. Incentive scales for vesting PCSUs are established for meeting threshold, target, and maximum goals, which in the judgment of the Committee

represent achievement of acceptable, superior, and outstanding performance levels, respectively. If we do not achieve at least the “acceptable” performance level, no award is earned at the end of the performance period.

 

We do not pay any current dividends or credit any dividend equivalents on unvested PCSUs in our long-term incentive plans. Dividend equivalents are accumulated from the time of vesting until the issuance of actual shares for any PCSUs that vest but are deferred until after separation from service by an individual executive officer. All PCSUs fully vest upon a change in control unless the acquirer assumes outstanding grants. In cases where grants are assumed, PCSUs will vest immediately if the change in control is followed by subsequent involuntary termination of the participant’s employment (except for cause) or voluntary termination for good reason (as defined in the plan) within 24 months of the change in control event.

 

Executive Benefit Elements

 

We have two benefit programs that apply only to executive officers: an Executive Life Insurance Program and a Supplemental Executive Retirement Plan (“SERP”). The SERP is a part of the Omnibus Benefit Restoration Plan of Sonoco Products Company.

 

As stated earlier, the Committee has designed the overall compensation program to balance the attraction/retention objective against the performance oriented objectives. The annual incentive and long-term incentive programs are weighted more toward performance objectives, while the Executive Life Insurance Plan and the SERP are weighted more toward the attraction/retention objective.

 

Executive Life Insurance

 

Prior to 2005, the Executive Life Insurance Program consisted primarily of split-dollar life insurance. Under tax regulations in effect at the time, the cost to us was modest, consisting primarily of the time value of the money we used to pay the premiums. These types of life insurance programs were designed to allow companies to provide a significant benefit that served to enhance the retention of executives until normal retirement age. However, since 2004 regulatory changes have made this form of executive life insurance no longer viable or cost effective.

 

In response to these regulatory changes, in 2004, we took actions to convert split-dollar agreements entered into after 1995 for persons who were executive officers at that time into permanent life insurance policies in order to meet our commitments to the executive officers under the old contracts. The amounts of those new replacement life insurance policies (“Replacement Executive Life”) are fixed. Additional amounts of insurance are provided in the form of term life insurance (“Executive Term Life”). At the same time, the life insurance benefit for future executive officers was reduced and currently consists of term life insurance based on each executive officer’s base salary. For executive officers elected for the first time after April 20, 2004, this amount is equal to three times base salary.

 

The current limit on life insurance for most other active employees is $100,000. The Executive Term Life insurance program allows us to provide new executive officers with a benefit in line with the industry median.

The current CEO and other NEOs have the following amounts of life insurance benefits in effect from prior to April 20, 2004:

 

CEO — Five times base salary and target annual incentive compensation

 

Other NEOs — Three times base salary and target annual incentive compensation

 

The formula above is rounded down to the next $250,000 increment, but any increases in coverage must be equal to or exceed $500,000 before new policies are purchased.

 

In addition, with respect to the Replacement Executive Life policies, NEOs receive a “tax gross-up” payment in an amount sufficient to equal their tax liability on the insurance premiums attributed to them as income for tax purposes and on the gross-up amount.

 

Supplemental Executive Retirement Plan

 

The SERP benefit we provide the NEOs, when combined with other Sonoco retirement benefits and Social Security benefits, is targeted to be equal in value to a Company-paid annuity of 60% of the NEO’s final average cash earnings, assuming age 65 retirement and 15 years of Company service. The calculation formula excludes long-term compensation in any form.

 

Historically, there have been two purposes for providing a SERP to executive officers:

 

 

Our corporate offices are located in a small town setting which provides challenges in attracting and retaining the type of executives we need to operate a global enterprise of our size and complexity. The SERP is a critical component in meeting these challenges because its accrual provisions allow us to attract experienced mid-career executives (the 15-year accrual period) and retain them for the full term (age 65 for maximum pension benefit).

 

In short, the SERP is designed to meet our unique attraction and retention needs and is an effective complement to the short-term and long-term incentive plans that are designed to motivate our executives to perform at the highest level.

 

During 2007, our Compensation Committee approved the changes described below to the SERP for persons promoted to officer after January 1, 2008 (none of the current NEOs participate in this new plan). These changes were made to align the SERP with recent changes in our all-employee retirement program and to more clearly communicate the additional value of the SERP. The changes were as follows:

 

 

 

Consistent with the retirement benefit approach for new officers described above (i.e., a “restoration” benefit and separately identified SERP benefit), the SERP benefit for current officers (including the five NEOs) has been split into a restoration benefit that all employees (whose wages or benefit accruals exceed the annual qualified retirement plan limits) receive and a true supplemental benefit payable only to officers. This separate supplemental benefit may be taken as a life annuity or as a series of annual installments over a three year period. (Annual installments may be extended over more than three years if needed to eliminate adverse accounting treatment to Sonoco.)

 

A more detailed description of the SERP benefit, restoration benefit and the qualified pension plan benefits is set forth under the caption “Pension Restoration Benefit and SERP Benefit in the Restoration Plan” on page 55 of this proxy statement.

 

Executive Perquisites

 

In furtherance of our pay-for-performance philosophy, executive perquisites are very limited. Executive officers are permitted limited, occasional use of the company aircraft for personal travel or family emergencies. The CEO’s usage of the corporate aircraft is modest and helps minimize time involved in commercial travel that could otherwise be directed to our business. For other officers, use of the aircraft is minimal, is reviewed on a case by case basis, and is permitted only under circumstances where there is direct benefit to us to minimize time spent on personal travel or in the case of family emergencies.

 

Officers are also provided very limited “tax gross-ups” that are not provided for all employees. These are provided for taxable income imputed to the officers because of the Replacement Executive Life insurance premiums we pay as described above. These gross-up amounts are reflected in the “All Other Compensation” column in the “Summary Compensation Table” on page 46.

 

Some of the more common perquisites that we do not provide to our executive officers include country club memberships, company cars or drivers, metropolitan city apartments, vacation retreats, executive dining services, or reserved parking. We believe most of these benefits are not closely linked to our overall compensation objectives and would have only marginal impact on either the performance or the attraction/retention objectives of our compensation program.

Other Considerations

 

Employment Contracts and Potential Payments Upon Termination or Change in Control

 

We have a long standing practice of not providing employment contracts, severance agreements, change in control agreements, or other such financial security arrangements for our executive officers. Executive officers are covered by the normal severance compensation policy applicable to our salaried U.S. employees.

 

With some exceptions that do not apply to the NEOs, employees who are involuntarily terminated from the company are eligible for severance payments in the amount of two weeks’ compensation. Qualifying employees with at least three complete years of service who agree to sign and be bound by an agreement releasing us from all liabilities arising from the employment relationship, may receive up to 11 additional weeks’ severance. Compensation for years three through 13 may be paid on the basis of one week’s compensation for each complete year of service. Accordingly, the maximum standard severance payment to which a qualifying employee, including an NEO, could be entitled is 13 weeks’ compensation.

 

We may, however, from time to time negotiate individual severance compensation arrangements linked to non-compete agreements at the time of separation of an executive as circumstances warrant.

 

Our long-term equity incentive plans also contain provisions for prorated or accelerated vesting of equity awards in the event of retirement, death, or disability, and in certain cases, change in control. These provisions apply similarly to all plan participants, including those below the executive officer level.

 

Review of Overall Compensation Components and Aggregate Awards

 

To evaluate the overall competitiveness of the executive compensation program, each year at its April meeting, the Committee reviews the total compensation package for each executive officer. This includes review of a summary sheet showing a history of base salary adjustments, annual incentive awards and total cash compensation for the last ten years (or term as an executive officer, if less), stock options or stock-settled stock appreciation rights outstanding and the option price, vested and unvested restricted stock units, projected annual pension at age 65, and the amount of executive life insurance coverage.

 

The Committee also reviews a tally sheet for each executive officer showing each element of the total amount of compensation awarded and realized during the prior year. The Committee uses tally sheets to assess total executive compensation, to determine where total executive compensation falls in relation to peer companies, and to assess how the Company’s overall compensation programs operate. From this assessment, the committee makes changes in overall plans or individual elements if it determines they are appropriate to meet overall compensation objectives. As a result of this review in 2007, along with the consideration of the changes made in our all-employee retirement plan, the Committee approved changes to the Company’s SERP plan as described above.

 

The Committee does not have a practice of adjusting the size of current and future compensation awards or compensation program components to reflect amounts realized or unrealized by an individual from prior equity grants. In other words, awards are not increased to compensate for prior performance below target, nor are they decreased because of performance above target. Likewise, since earnings on equity compensation are

not included in the pension calculation formula, any gains, or lack thereof, from prior awards are not considered in setting or earning retirement benefits.

 

Tax and Accounting Treatment of Compensation

 

Deductibility of Compensation

 

The Committee has taken, and it intends to continue to take, reasonable steps necessary to assure our ability to deduct for federal tax purposes compensation provided to senior executives. However, such steps may not always be practical or consistent with the Committee’s compensation objectives. Given that the earnings limit for deductibility has remained fixed since 1993, and the value of some compensation elements cannot be determined until year-end, there are circumstances in which some executive compensation may not meet tax deductibility requirements. We can deduct all but $317,386 of the compensation shown in the Summary Compensation Table for 2007, excluding the value of equity-based awards which are subject to taxation in a later period.

 

Nonqualified Deferred Compensation

 

Certain of our nonqualified compensation and benefits arrangements, incentive programs, and corporate practices (such as severance, relocation, and expense reimbursements) are considered nonqualified deferred compensation and subject to IRC Section 409A. In general, Code Section 409A, restricts the timing and manner of payment (as well as the timing of participant elections) under these types of taxable compensation programs. Though final regulations under Code Section 409A are not fully effective, we have made adjustments to the programs to cause them to be in good faith compliance with the statutory provisions. The changes are not expected to have a financial impact on the Company nor a material impact on the way in which we compensate our NEOs.

 

Accounting for Stock-Based Compensation

 

Beginning January 1, 2006, we began accounting for stock-based compensation in accordance with the requirements of FAS 123R, which requires us to expense the estimated value of certain stock-based compensation.

 

Stock Ownership Guidelines

 

To emphasize the importance of linking executive and shareholder interests, the Board of Directors has adopted stock ownership guidelines for executive officers. The target level of ownership of common stock (or Common Stock Equivalents) is established as a fixed number of shares. The target level for the CEO is 140,000 shares. The target for Executive and Senior Vice Presidents is 33,000 and 24,000 shares respectively, and the target for other officers is 7,000 shares. Each executive subject to the guidelines is expected to achieve the ownership target within five years from the date on which he or she became subject to the guidelines. Common stock held in the Sonoco Savings Plan, stock equivalents earned through nonqualified deferred compensation programs, time vesting restricted stock units which vests within five years, and any other beneficially owned shares of common stock are included in determining compliance with the guidelines.

Shares that executives have the right to acquire through the exercise of stock options or stock-settled stock appreciation rights are not included in the calculation of stock ownership for guideline purposes. As of February 12, 2008, the CEO, CFO, and all other officers with more than three years in their current position met the above ownership guidelines.

 

We currently do not have a policy with respect to hedging the economic risks of stock ownership.

 

Relationship with Executive Compensation Consultant

 

Mr. Daniel J. Ryterband, of Frederic W. Cook and Company, has been hired by and serves as the Committee’s executive compensation consultant. Neither he nor other members of his firm provide services to us in any area other than executive compensation. The Committee has the sole authority to dismiss the consultant.

 

Mr. Ryterband is expected to assist the Committee and work on its behalf on matters related to the Committee’s purposes and responsibilities as set forth in the Committee charter summarized under the caption “Corporate Governance — Board Meetings and Committees of the Board — Executive Compensation Committee” on page 18. He advises the Committee as to trends in executive compensation and provides specialized studies or expert advice as requested with respect to executive compensation issues. Mr. Ryterband meets in private session with the Committee at least once per year and attends regular Committee meetings in person or by phone as requested. He also provides advice with respect to Director Compensation.

 

Management contacts with the consultant are limited primarily to the Senior Vice President of Human Resources and the Corporate Director of Compensation, who utilize the firm’s advice in the areas of compensation plan design and corporate governance issues. The CEO, CFO, and other executive officers may have incidental contact with the consultant.

 

The Committee believes this arrangement is appropriate and cost effective in meeting its responsibilities to shareholders and the needs of management for expert guidance and advice.

 

On a routine basis, members of management use consultants from other firms in areas where it is felt their expertise in specific executive compensation matters would be beneficial in developing proposals for the Committee to consider.

 

Role of Executive Officers in Determining Executive Compensation

 

Except for the CEO, the role of executive officers in determining executive compensation is primarily advisory in nature, especially with regard to the structure and composition of the compensation program. Each executive officer may make recommendations with regard to the size of awards for persons who report directly to him or her, but the CEO makes the final decision as to what is submitted to the Committee for its consideration.

 

The CEO attends Committee meetings, but is not present when his own compensation is discussed. He may have incidental contact with the Committee’s compensation consultant. In practice, this means that the CEO may from time to time attend meetings at which the Committee’s consultant is present or at which the consultant makes a presentation, and he may from time to time participate in group conference calls with the

Committee’s consultant. He does not, however, engage in one-on-one communications with the consultant and does not attempt to exercise any influence over the consultant’s recommendations to the Committee. The Committee has sole responsibility for determining the compensation for the CEO and for approving all other executive compensation.

 

Timing of Equity Grants

 

For many years it has been our practice to grant stock options, SSARs, PCSUs, or other equity awards on the date of the first regular Board of Directors meeting in the calendar year, which is the first Wednesday in February. We issue a press release announcing earnings information for the prior year that morning and the option or SSAR exercise price is based on the closing price of our stock on that date. The recipients and the corresponding number of shares of equity awards, including stock options or SSARs and PCSUs, are approved by the Committee at its regular meeting on the day prior to the Board of Directors meeting.

 

We occasionally make special stock option or SSAR awards to new employees. In such case, the exercise price is based on the closing price of our stock on the recipient’s first day of regular employment.

 

We also occasionally make stock option or SSAR awards or grants of restricted stock units to a corporate officer in recognition of a promotion or a change in position status. The effective date of these awards is the day following approval by the Committee.

 

Grants of Restricted Stock Units

 

We have a practice of making a special one-time grant of time vesting restricted stock units to individuals when they are first elected a corporate officer in recognition of this one-time event and the individual’s increased responsibility. The number of shares granted is based on position. The shares are credited with dividend equivalents, which are not paid out until the shares vest. The shares vest in three equal increments on the third, fourth, and fifth anniversary of the grant. The restricted stock units do not have voting rights.

 

No such grants were made in 2007 as no new officers were named.

 

Restatement or Adjustment of Performance Measures

 

The Committee has elected not to adopt a formal policy for adjustment or recovery of bonus awards or payments in the event that the performance measures upon which they are based are restated or otherwise adjusted in a manner that would reduce the size of an award or payment. The Committee prefers to retain the flexibility to address each such situation on its merits and determine the proper and appropriate course of action in fairness to shareholders and award recipients.

 

2007 COMPENSATION ACTIONS BY THE COMMITTEE

 

The following sections of this report include a discussion of the specific actions the Committee has taken with regard to 2007 compensation awarded to the NEOs and the rationale for those actions. The tables, accompanying narrative and footnotes which follow this report reflect the decisions covered by the discussion below.

 

Base Salary

 

Each year at its April meeting, the Committee reviews the base salary of all senior executives, including the CEO, the CFO and the other NEOs. The total amount of merit increases for the executive officer group as a whole takes into account market survey data as to the projected salary movement for executive positions at the surveyed companies during the calendar year, the average wage increase being given to other levels of our employees, and the current economic environment in which we are operating. Individual merit increase awards are based on each executive’s performance in his or her position during the past year, and the relationship of his or her current salary to his or her position’s base salary competitive benchmark midpoint. The Committee used these criteria to determine salary adjustments for the NEOs in 2007.

 

At its April, 2007 meeting, the Committee awarded Mr. DeLoach a base salary merit increase of 4.5% based on its evaluation of his performance and an upward movement of 3.5% in the competitive benchmark for his position. With this increase, his salary equated to 106% of the 2007 base salary midpoint for his position. The Compensation Committee considered the following specific achievements (primarily from 2006) in determining the amount of increase:

 

 

The Committee took into consideration all aspects of Mr. DeLoach’s performance and relative relationship to competitive market in granting a merit increase essentially comparable to that of other superior performers within the company.

 

The four other NEOs received merit increases ranging from 3.5% to 4.5%. NEOs who received merit increase percentages at the lower end of this range met most but not all of their financial or strategic objectives and achieved an overall acceptable performance rating. Those that received increases at the top level of the range exceeded the targets in their financial or strategic objectives and achieved above average performance for the past year. Some additional consideration in determining an individual’s increase was also given to any NEOs base salary that fell below the competitive benchmark assuming at least acceptable performance was achieved. These same criteria are applied across the entire salaried employee population. The average merit increase awarded to all of our United States salaried employees was 3.4% and individual awards in the overall salaried population ranged from 0% to 8.5%.

In addition to the merit increases in base salary, in 2007 the Committee provided a 1.5% base salary increase to each executive officer, including the NEOs, to compensate for elimination of the financial planning tax assistance allowance as discussed below under the caption “Value of Perquisites in 2007” on page 44.

 

Annual Cash Incentive Awards

 

In 2002, the Board of Directors adopted, and the shareholders approved, the Performance-Based Annual Incentive Plan for Executive Officers. Under the terms of this plan, an annual maximum of 2.75% of income from operations, as defined in the plan, was established as an incentive pool for the CEO and the other NEOs. The total amount of annual incentive awards paid to these individuals cannot exceed this maximum. For 2007, this maximum incentive pool was $10,153,605, which exceeded the amount of actual incentive awards made by the Committee to these participants.

 

Set forth below are the performance elements, and their respective weightings as a percentage of annual incentive compensation, the Committee used to arrive at actual 2007 annual incentive awards. The Committee’s philosophy is that annual incentive plan elements should be limited to three or fewer to maximize concentration on those most critical to the success of our business in the forthcoming year. Base earnings per share, revenue growth and working capital management are all considered to be key performance variables essential to maximizing shareholder value.

 

 

Base earnings per share is defined as earnings per share excluding the impact of restructuring charges and certain non-recurring, infrequent or unusual items and are used to place primary focus on year over year operating results. Revenue growth excludes revenue from acquisitions completed during the year.

 

We believe that in most years, base earnings per share will be the most critical measure in driving share price and, in turn, shareholder value. Consequently, the Committee felt that a 60% weighting on this element was appropriate. Revenue growth was weighted at 20%. This is an important Company objective, but profitable revenue growth is of greater importance, hence the lower weighting than that for base earnings per share. Working capital improvement, which the Committee first included as a performance element in 2006 to encourage the pursuit of the opportunity to increase cash flow through reduction in our working capital requirements, was also weighted at 20%.

 

The Committee also established an annual incentive compensation threshold, target and maximum payout expressed as a percentage of base salary for each NEO, as follows:

 

 

These weightings are determined as described under the section titled “Determining Competitive Benchmarks — Total Direct Compensation” on page 30.

 

On February 5, 2008, the Committee reviewed and approved the 2007 annual incentive compensation awards for executive officers based on the predetermined financial measures and the calculations for actual performance against target shown in the tables above. No additional discretionary bonus awards were made to any of the NEOs in 2007.

 

At the end of 2007, our base earnings per share had increased by 11.7% over 2006 base earnings per share. As a result, all of the NEOs earned between target and maximum annual incentive compensation on the base earnings per share measure.

Growth in corporate revenue for 2007 (excluding acquisitions made in the year) was 8.4%, which exceeded the maximum goal of 6.5%. Therefore, all of the NEOs earned maximum annual incentive compensation earnings on this measure of performance.

 

The 2007 working capital results exceeded the maximum goal, contributing a significant increase in cash flow from operations and resulting in a maximum payout on this annual incentive compensation measure.

 

The following table shows the dollar amount of annual incentive compensation awarded to each of the NEOs for 2007 based on our 2007 performance discussed above and the percentage change in annual incentive compensation earnings from the prior year.

 

 

2007 Long-Term Incentive Program

 

As described above under the caption “Determining Competitive Benchmarks — Total Direct Compensation” on page 30, the 2007 long-term incentive program consists of two elements: SSARs and PCSUs, which are awarded pursuant to the shareholder approved 1991 Key Employee Stock Plan. As explained in that section, the base salary midpoint or actual base salary (whichever is greater) and the target (50% of the maximum incentive) for annual incentive compensation are subtracted from total direct compensation to arrive at the target dollars available for long-term compensation for each executive officer, and that target is converted 25% to SSARs and 75% to PCSUs.

 

For SSARs and PCSUs, awards were granted above, at or below the competitive benchmark depending on performance. For 2007, the NEOs who received shares above the competitive benchmark exceeded the targets in their financial or strategic objectives for the past year and demonstrated above average performance. Likewise, the NEOs who received shares at or below the competitive benchmark met all or most targets in their financial or strategic objectives and demonstrated acceptable performance for the year.

 

Stock-Settled Stock Appreciation Rights

 

On February 6, 2007 (the day prior to the full Board of Directors meeting), the Committee approved SSAR grants to 536 key employees, including the NEOs. The SSARs have a one-year vesting period and the grant price was set at $38.11 per share, the closing market price of our common stock on the date of grant (February 7, 2007). Accordingly, these SSARs will be valuable to the recipients only if the market price of our stock increases. The FAS 123R grant date fair values and the number of SSARs granted to each of the NEOs are included in the “Grants of Plan-Based Awards” table on page 49. Target grants were calculated as described under the caption “Determining Competitive Benchmarks — Total Direct Compensation” on page 30.

Based on individual performance factors, the Committee can adjust the actual number of shares granted under the plan either above or below the previously described competitive benchmark number. In this regard, the Committee increased the award of SSARs to Mr. DeLoach, by 5,000 shares to a total of 85,000 shares to reflect our exceeding budgeted sales and earnings, and a double digit increase in earnings per share, as well as Mr. DeLoach’s strong leadership in defining strategy and achieving significant progress in our overall growth objectives.

 

The awards to the other NEOs ranged from 5,500 shares above competitive benchmark to 3,000 shares below the competitive benchmark.

 

Performance-Contingent Restricted Stock Units

 

On February 6, 2007, the Committee also approved PCSU grants to 215 key employees, including the NEOs. The FAS 123R grant date fair values of PCSUs and the number of shares available at threshold, target, and maximum are shown in the “Grants of Plan-Based Awards” table on page 49. The number of PCSUs granted to each individual was based on their target awards as described under the caption “Determining Competitive Benchmarks — Total Direct Compensation” on page 30, and adjusted upward or downward from target based on the Committee’s judgment of the individual’s performance. The actual PCSU award to Mr. DeLoach was 11,500 shares above his target, and the awards for the other NEOs ranged from 2,000 shares above the competitive benchmark to 3,000 shares below the competitive benchmark.

 

The number of these PCSUs that will vest after three years is dependent on our achieving the specified performance levels set forth in the table below of cumulative base earnings per share, net of year to year changes in pension expense (“BEPS”), and average return on net assets employed (“RONAE”) for the three-year performance period. The Committee feels that both elements are critical drivers of long-term shareholder returns and has weighted them equally in the plan.

 

 

 

 

To encourage continued employment, the plan provides that if less than 50% of a participant’s PCSUs vest at the end of the three-year performance period, the remainder of that 50% of PCSUs will time vest in equal amounts in the fourth and fifth years of the plan, subject to the participant’s continued employment for that period. Except for death, disability, or retirement other than for cause, termination of a participant’s employment prior to vesting will result in forfeiture of any unvested award. Officers who do not meet our

stock ownership guidelines for their positions may not dispose of any shares that vest under this plan until such guidelines are met and maintained.

 

The plan does not permit the use of discretion if performance targets are not met. Performance goals will not be adjusted for sales, divestitures, or acquisitions of businesses.

 

Earned PCSU Awards in 2007

 

On February 1, 2005, the Committee granted PCSUs to 28 executives, including the NEOs. The vesting of these shares was dependent on achieving pre-determined levels of cumulative BEPS and average RONAE for the three-year performance period from January 1, 2005 through December 31, 2007.

 

Target performance over the three-year period was set at $5.64 cumulative BEPS as previously described, which equated to a compound annual growth rate of 6% per year, and from 9.0% to 10.0% average RONAE, depending on money spent on acquisitions. The two elements were weighted at 67% and 33%, respectively. Actual performance was $6.24 cumulative BEPS which resulted in 150% of the target cumulative BEPS shares vesting, and 9.68% average RONAE which resulted in 68% of the target RONAE shares vesting. As a result, the overall vesting was 122.7% of the target shares. The value of the shares vesting under this plan for the NEOs is shown in the “Option Exercises and Stock Vested” table on page 52.

 

As provided for under the plan, corporate officers including the NEOs, must defer receipt of all vested shares that are not deductible under Section 162(m). Whether required or not, all of the NEOs except Mr. Sullivan have elected to defer receipt of these shares until at least six months after separation from service with the Company.

 

Value of Perquisites in 2007

 

To further reduce executive perquisites, the Committee decided to eliminate the financial planning tax assistance allowance which allowed reimbursement for each officer the greater of 2% of base salary or $5,000 which was subsequently grossed up for taxes. The Committee eliminated this benefit and provided a 1.5% base pay increase for each officer effective on April 1, 2007.

 

Six executive officers used our aircraft for personal travel in 2007. This use is valued at the “aggregate incremental cost” to us, and was $32,585 in 2007 for the officer group as a whole. Included in this amount was Mr. DeLoach’s personal use of the aircraft which was valued at $26,453.

 

The Executive Compensation Committee has reviewed and discussed the “Compensation Discussion and Analysis” included in this Proxy Statement with management. Based on that review and discussion, the Executive Compensation Committee recommended to our Board of Directors that the “Compensation Discussion and Analysis” be included in our Annual Report on Form 10-K for the year ended December 31, 2007, and in this Proxy Statement.

 

J.H. Mullin, III (Chair)  C.J. Bradshaw  C.C. Fort
J.M. Micali  M.D. Oken

SUMMARY COMPENSATION TABLE

 

 

 

 

 

 

None of the other NEOs received perquisites in excess of $10,000.

 

 

 

 

2007 GRANTS OF PLAN-BASED AWARDS