PRE 14A 1 d312263dpre14a.htm PRE 14A PRE 14A
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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  x                            Filed by a party other than the Registrant  ¨

Check the appropriate box:

 

x   Preliminary Proxy Statement
¨   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
¨   Definitive Proxy Statement
¨   Definitive Additional Materials
¨   Soliciting Material under §240.14a-12
SPRINT NEXTEL CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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¨   Fee paid previously with preliminary materials.
¨   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.
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PRELIMINARY PROXY STATEMENT – SUBJECT TO COMPLETION

DEFINITIVE PROXY MATERIALS INTENDED TO BE RELEASED ON APRIL 5, 2012

LOGO

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT

MAY 15, 2012

We will hold the annual meeting of shareholders of Sprint Nextel Corporation on Tuesday, May 15, 2012 at 10:00 a.m. Central time at the Sheraton Overland Park Hotel, 6100 College Boulevard; Overland Park, Kansas, 66211 (913-234-2100).

The purpose of the annual meeting is to consider and take action on the following:

 

  1. Election of ten directors named in the proxy statement;

 

  2. Ratification of the selection of the independent registered public accounting firm;

 

  3. Advisory resolution to approve executive compensation;

 

  4. Approval of amendment to Article SEVENTH of our Articles of Incorporation to opt-out of the Kansas Business Combination Statute;

 

  5. Approval of amendment to Article SEVENTH of our Articles of Incorporation to remove our Business Combination Provision;

 

  6. Approval of material terms of performance objectives under 2007 Omnibus Incentive Plan, as amended;

 

  7. Vote on two shareholder proposals, if presented at the meeting; and

 

  8. Any other business that properly comes before the meeting and any adjournment or postponement of the meeting.

We are taking advantage of Securities and Exchange Commission rules that allow us to furnish proxy materials to you via the Internet. Unless you have already requested to receive a printed set of proxy materials, you will receive a Notice Regarding the Availability of Proxy Material, or Notice. The Notice contains instructions on how to access proxy materials and vote your shares via the Internet or, if you prefer, to request a printed set of proxy materials at no additional cost to you. We believe that this approach provides a convenient way for you to access your proxy materials and vote your shares, while lowering our printing and delivery costs and reducing the environmental impact associated with our annual meeting.

Shareholders of record as of March 16, 2012 can vote at the annual meeting. On or about April [    ], 2012, we mailed the Notice or, for shareholders who have already requested to receive a printed set of proxy materials, this proxy statement, the accompanying proxy card and the Annual Report on Form 10-K for the year ended December 31, 2011. Please vote before the annual meeting in one of the following ways to ensure your vote is counted:

 

  1. By Internet—You can vote over the Internet at www.proxyvote.com by entering the control number found on your Notice or proxy card;

 

  2. By Telephone—You can vote by telephone by calling 1-800-690-6903 and entering the control number found on your Notice or proxy card; or

 

  3. By Mail—If you received your proxy materials by mail, you can vote by signing, dating and mailing the proxy card in the pre-paid enclosed envelope.

Your vote is very important. Your proxy may be revoked at any time before the vote at the annual meeting by following the procedures outlined in this proxy statement.

 

    By order of the Board of Directors,
    LOGO

Overland Park, Kansas

    James H. Hance, Jr.

April [    ], 2012

    Chairman of the Board of Directors

 

 

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL

MEETING OF SHAREHOLDERS TO BE HELD ON MAY 15, 2012.

 

The Notice of Annual Meeting, Proxy Statement and Annual Report on Form 10-K for the year ended

December 31, 2011 are available at www.proxyvote.com.

 

 


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TABLE OF CONTENTS   

Proposal 1. Election of Directors

     4   

Director Nomination Process

     4   

Majority Voting

     5   

Nominees for Director

     5   

Board Operations

     9   

Corporate Governance Matters

     9   

Board Communications

     9   

Board Leadership Structure

     10   

Independence of Directors

     10   

Risk Management

     11   

Board Meetings

     11   

Meetings of Outside Directors

     11   

Code of Ethics

     11   

Compensation Committee Interlocks and Insider Participation

     12   

Board Committees

     12   

Director Compensation

     14   

Components of Compensation

     14   

Deferred Compensation Plans

     14   

Stock Ownership Guidelines

     15   

Other Benefits

     15   

2011 Director Compensation Table

     16   

Audit Committee Report

     17   

Executive Compensation

     18   

Compensation Discussion and Analysis

     18   

Compensation Committee Report

     33   

Relationship of Compensation Practices to Risk Management

     33   

2011 Summary Compensation Table

     34   

2011 Grants of Plan-Based Awards

     37   

2011 Option Exercises and Stock Vested

     39   

Outstanding Equity Awards at 2011 Fiscal Year-End

     40   

Pension Benefits

     42   

Nonqualified Deferred Compensation

     42   

Potential Payments upon Termination of Employment or Change of Control

     42   

Certain Relationships and Related Transactions

     46   

Certain Employment Relationships

     47   

Security Ownership

     48   

Security Ownership of Certain Beneficial Owners

     48   

Security Ownership of Directors and Executive Officers

     49   

Section 16(a) Beneficial Ownership Reporting Compliance

     49   

Proposal 2. Ratification of the Selection of the Independent Registered Public Accounting Firm

     50   

Proposal 3. Advisory Approval of the Company’s Executive Compensation

     52   

Proposals 4. and 5. Approval of Amendments to Article SEVENTH of our Articles of Incorporation

     53   
Proposal 6. Approval of Material Terms of Performance Objectives Under 2007 Omnibus Incentive Plan,
as Amended
     56   

Proposal 7. Shareholder Proposal to Adopt a Bonus Deferral Policy

     64   

Proposal 8. Shareholder Proposal Concerning Political Contributions

     66   

General Information

     68   

Information Regarding Solicitation

     68   

Purpose of the Annual Meeting

     68   

Record Date; Shareholders Entitled to Vote

     68   

“Street Name” and Broker Non-Votes

     68   

Quorum

     69   

Votes Required

     69   

Voting of Proxies

     69   

Revocability of Proxies and Changes to a Shareholder’s Vote

     70   

Solicitation of Proxies

     70   

Voting by Our Employees Participating in the Sprint Nextel 401(k) Plan

     70   

Delivery of Proxy Materials to Households Where Two or More Shareholders Reside

     70   

 

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Internet Availability of the Proxy Materials

     71   

Confidential Voting Policy

     71   

Attending the Meeting

     71   

Conference Call and Audio Webcast

     71   

Other Matters to Come Before the Meeting

     72   

Proposals for Inclusion in our 2013 Proxy Statement

     72   

Proposals Not Intended for Inclusion in Sprint’s Proxy Statement

     72   

Nominations of Individuals to Serve as Directors

     72   

Availability of Sprint’s Bylaws

     72   

Form 10-K

     72   

Effects of Voting Against Proposals 4-5

     Annex A   

Sprint Nextel Corporation 2007 Omnibus Incentive Plan as Amended

     Annex B   

 

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Proposal 1 – Election of Directors      LOGO     

 

 

 

PROPOSAL 1. ELECTION OF DIRECTORS

(Item 1 on Proxy Card)

We currently have ten seats on our board. Each of the ten nominees, if elected, will serve until the 2013 annual meeting and until a successor has been duly elected and qualified. The persons named in the accompanying proxy will vote your shares for the election of the nominees named below unless you direct otherwise. Each nominee has consented to be named and to continue to serve if elected. If any of the nominees becomes unavailable for election for any reason, the proxies will be voted for the other nominees and for any substitutes.

All our directors bring to our board significant executive leadership experience derived from their service as executives and, in most cases, chief executive officers, of large corporations. They also all bring extensive board experience and a diversity of views and perspectives derived from their individual experiences working in a broad range of industries and occupations. Certain individual experiences, qualifications and skills of our directors that contribute to our board’s effectiveness as a whole are described under “—Nominees for Director” below.

Director Nomination Process

In evaluating prospective candidates or current board members for nomination, the Nominating and Corporate Governance Committee, or Nominating Committee, considers all factors it deems relevant, including, but not limited to, the candidate’s:

 

   

character, including reputation for personal integrity and adherence to high ethical standards;

 

   

judgment;

 

   

knowledge and experience in leading a successful company, business unit or other institution;

 

   

independence from our company;

 

   

ability to contribute diverse views and perspectives;

 

   

business acumen; and

 

   

ability and willingness to devote the time and attention necessary to be an effective director — all in the context of an assessment of the needs of our board at that point in time.

The Nominating Committee reviews with our board the appropriate characteristics and background needed for directors. This review is undertaken not only in considering new candidates for board membership, but also in determining whether to nominate existing directors for another term. The Nominating Committee determines the current director selection criteria and conducts searches for prospective directors whose skills and attributes reflect these criteria. To assist in the recruitment of new members to our board, the Nominating Committee employs one or more third-party search firms. All approvals of nominations are determined by the full board.

Consistent with our Corporate Governance Guidelines, the Nominating Committee places a great deal of importance on identifying candidates having a variety of views and perspectives arising out of their individual experiences, professional expertise, educational background, and skills. In considering candidates for our board, the Nominating Committee considers the totality of each candidate’s credentials in the context of this standard.

It is the policy of the Nominating Committee also to consider candidates recommended by shareholders, using the same key factors described above for purposes of its evaluation. A shareholder who wishes to recommend a prospective nominee for our Board should notify the Corporate Secretary in writing with supporting material that the shareholder considers appropriate. The Nominating Committee will also consider whether to nominate any person nominated by a shareholder pursuant to the provisions of our bylaws relating to shareholder nominations described in “General Information – Nominations of Individuals to Serve as Directors.”

 

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Majority Voting

Our bylaws provide that each nominee for director in an uncontested election will be elected if the votes cast “for” that nominee exceed the votes cast “against” that nominee. Votes cast, with respect to the election of directors, do not include abstentions and broker non-votes. The date for determining if an election is contested or uncontested has been set at 14 days before we file our definitive proxy statement. This requirement is intended to help us determine for our proxy statement whether director nominees will be elected under a majority or plurality standard prior to soliciting proxies.

Our Corporate Governance Guidelines provide that an incumbent nominee who receives fewer votes “for” than “against” in an uncontested election is expected to tender promptly his or her resignation. The Nominating Committee will recommend, and our board will determine, whether or not to accept the tendered resignation within 90 days of the certification of the shareholder vote with respect to the director election. Our board’s decision will be publicly disclosed.

Nominees for Director

 

LOGO   

  ROBERT R. BENNETT, 53, director since 2006, Principal of Hilltop Investments, LLC, a private investment company.
 

 

Public Company Board Directorships: Discovery Communications, Inc., Demand Media, Inc., and Liberty Media Corporation.

 

Former Directorships Held During the Past Five Years: Discovery Holding Corporation.

Biography: Mr. Bennett served as President of Discovery Holding Company from March 2005 until September 2008, when the company merged with Discovery Communications, Inc. creating a new public company. Mr. Bennett also served as President and CEO of Liberty Media Corporation from April 1997 until August 2005 and continued as President until March 2006. He was with Liberty Media from its inception, serving as its principal financial officer and in various other capacities. Prior to his tenure at Liberty Media, Mr. Bennett worked with Tele-Communications, Inc. and the Bank of New York.

Qualifications: Mr. Bennett has extensive knowledge of the capital markets and other financial and operational issues from his experiences as a principal financial officer and president and chief executive officer of Liberty Media, which allows him to provide an invaluable perspective to our board’s discussions on financial and operational matters.

 

LOGO   

  GORDON M. BETHUNE, 70, director since 2004, retired Chairman and Chief Executive Officer of Continental Airlines, Inc., an international commercial airline company.
 

 

Public Company Board Directorships: Honeywell International, Inc. and Prudential Financial, Inc.

 

 

 

Former Directorships Held During the Past Five Years: Willis Group Holdings, Ltd.

 

 

Biography: Mr. Bethune served as Chief Executive Officer of Continental Airlines from 1994 and as Chairman and Chief Executive Officer from 1996 until December 2004.

Qualifications: Mr. Bethune has extensive experience serving as a chief executive officer and director of large international corporations, which provides our board a perspective of someone familiar with all facets of an international enterprise.

 

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  LARRY C. GLASSCOCK, 63, director since 2007, retired Chairman of the Board of WellPoint, Inc., a health benefits company.
 

 

Public Company Board Directorships: Simon Property Group, Inc., Sysco Corporation, and Zimmer Holdings, Inc.

 

  Biography: Mr. Glasscock served as President and Chief Executive Officer of WellPoint, Inc. from November 2004 (following the merger between Anthem, Inc. and WellPoint Health Networks, Inc.) until

June 2007 and as Chairman of WellPoint, Inc. from November 2005 until March 2010. Prior to Anthem’s merger with WellPoint Health Networks in November 2004, Mr. Glasscock had served as Anthem’s President and Chief Executive Officer since 2001 and also as Anthem’s Chairman since 2003.

Qualifications: Mr. Glasscock’s prior experience as the chairman, president and chief executive officer of WellPoint, Inc. and its predecessor companies, during which time the companies grew from approximately $6 billion in revenue to more than $60 billion in revenue, provides a unique insight into the challenges and opportunities involved in growing a company within a highly competitive industry, and his expertise derived from over 20 years of experience in financial services and as a senior executive and director enables him to provide invaluable assistance to our board on financial and marketing matters. Throughout his career, Mr. Glasscock has developed expertise in the successful completion and integration of mergers, utilization of technology to improve productivity and customer service, and team building and human capital development. Mr. Glasscock also has significant experience as a public company director and as a member of various committees related to important board functions, including audit, finance, governance and compensation.

 

LOGO   

  JAMES H. HANCE, JR., 67, director since 2005, Chairman of the Board of Sprint Nextel, and an Operating Executive with The Carlyle Group, a global alternative asset manager.
 

 

Public Company Board Directorships: Cousins Properties Incorporated, Duke Energy Corporation, Ford Motor Company, and Morgan Stanley.

 

 

Former Directorships Held During the Past Five Years: Rayonier Corporation and EnPro Industries, Inc.

 

Biography: Mr. Hance joined Carlyle in November 2005 and has worked primarily in its Global Market Strategies segment and the financial services sector. Prior to joining Carlyle in 2005, he served as the Vice Chairman of Bank of America Corporation from 1993 until his retirement in January, 2005 and as the Chief Financial Officer of Bank of America Corporation from 1988 until April 2004.

Qualifications: Mr. Hance’s experience as a director for a wide variety of large corporations and his extensive experience in the financial services industry, which included responsibility for financial and accounting matters while serving as Chief Financial Officer of Bank of America Corporation, provide an invaluable perspective into the diverse issues facing an international enterprise, particularly relating to financial matters.

 

LOGO   

  DANIEL R. HESSE, 58, director since 2007, President and Chief Executive Officer of Sprint Nextel.
 

 

Former Directorships Held During the Past Five Years: Clearwire Corporation, Nokia Corporation, and VF Corporation.

 

  Biography: Before becoming the President and Chief Executive Officer of Sprint Nextel on December 17, 2007, Mr. Hesse was Chairman, President, and Chief Executive Officer of Embarq Corporation. He served as Chief Executive Officer of Sprint’s Local Telecommunications Division from

 

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June 2005 until the Embarq spin-off in May 2006. Before that, Mr. Hesse served as Chairman, President and Chief Executive Officer of Terabeam Corp., a wireless telecommunications service provider and technology company, from 2000-2004. Prior to serving at Terabeam Corp., Mr. Hesse spent 23 years at AT&T during which he held various senior management positions, including President and Chief Executive Officer of AT&T Wireless Services. He serves on the board of directors of the National Board of Governors of the Boys and Girls Clubs of America.

Qualifications: As our president and chief executive officer, Mr. Hesse provides our board with unparalleled insight into our company’s operations, and his 35 years of experience in the telecommunications industry provides substantial knowledge of the challenges and opportunities facing our company.

 

LOGO   

  V. JANET HILL, 64, director since 2005, Principal, Hill Family Advisors.
 

 

Public Company Board Directorships: The Wendy’s Company and Dean Foods, Inc.

 

 

Former Directorships Held During the Past Five Years: Wendy’s/Arby’s Group, Inc.

 

 

Biography: In 2010, Mrs. Hill retired from Alexander & Associates, Inc., a corporate consulting firm, after serving as a Vice President since 1981.

Qualifications: Mrs. Hill’s significant experience as a consultant to and director of large commercial enterprises provides our board with the keen insight of someone whose expertise is advising companies on the governance and operational challenges facing international consumer companies.

 

LOGO   

  FRANK IANNA, 63, director since 2009, Chief Executive Officer and Director, Attila Technologies LLC, a mobile networking company that designs wireless communications systems.
 

 

Public Company Board Directorships: Tellabs, Inc.

 

 

Former Directorships Held During the Past Five Years: Clearwire Corporation.

 

  Biography: Mr. Ianna retired from AT&T in 2003 after a 31-year career serving in various executive

positions, most recently as President of Network Services. Following his retirement, Mr. Ianna served as a business consultant, executive and board member for several private and nonprofit enterprises.

Qualifications: Mr. Ianna’s technical background and expertise, and his vast experience in the telecommunications industry as an executive and director for a diverse array of enterprises allows him to provide a unique perspective to our board on a wide variety of issues.

 

LOGO   

  SVEN-CHRISTER NILSSON, 67, director since 2008, Owner and Founder, Ripasso AB, Ängelholm, Sweden, a private business advisory company.
 

 

Public Company Board Directorships: Ceva, Inc. and Assa Abloy AB.

 

 

Former Directorships Held During the Past Five Years: TeliaSonera AB and Tilgin AB.

 

  Biography: Mr. Nilsson serves as an advisor and board member for companies throughout the world.

He previously served in various executive positions for The Ericsson Group from 1982 through 1999, including as its President and Chief Executive Officer from 1998 through 1999. He currently serves as the Chairman of the Swedish Public Service Broadcasting Foundation and of the (Swedish) Defense Materiel Administration.

 

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Qualifications: Mr. Nilsson has a decades-long record of achievement in the international telecommunications marketplace, which gives our board a unique international perspective, and his experience as a chief executive officer and director of several enterprises provides the perspective of a leader familiar with the challenges and opportunities facing our company.

 

LOGO      WILLIAM R. NUTI, 48, director since 2008, Chairman of the Board, Chief Executive Officer and President of NCR Corporation, a global technology company.
 

 

Public Company Board Directorships: NCR Corporation

 

 

Former Directorships Held During the Past Five Years: Symbol Technologies, Inc.

 

 

Biography: Mr. Nuti has served as Chief Executive Officer and President of NCR since August 2005,

and as Chairman of NCR since October 2007. Before joining NCR, Mr. Nuti served as President and Chief Executive Officer of Symbol Technologies, Inc. from 2003 to 2005, and as President and Chief Operating Officer of Symbol Technologies from 2002 to 2003. Mr. Nuti joined Symbol Technologies in 2002 following more than 10 years at Cisco Systems, where he advanced to the dual role of senior vice president of the company’s Worldwide Service Provider Operations and senior vice president of U.S. Theater Operations.

Qualifications: As a current chairman and chief executive officer of a global technology company, Mr. Nuti provides our board an invaluable perspective of someone with primary responsibility for the oversight of all facets of an international enterprise in today’s global economy.

 

LOGO      RODNEY O’NEAL, 58, director since 2007, Chief Executive Officer and President of Delphi Automotive PLC, a global supplier of mobile electronics and transportation systems.
 

 

Public Company Board Directorships: Delphi Automotive PLC.

 

 

Former Directorships Held During the Past Five Years: The Goodyear Tire & Rubber Company.

 

 

Biography: Mr. O’Neal has served as Chief Executive Officer and President of Delphi since January

2007. From January 2005 until January 2007, he served as President and Chief Operating Officer of Delphi. In 2003, he was named president of the Dynamics, Propulsion, and Thermal Sector. Previously, he served in a variety of domestic and international operating assignments for both Delphi and its former parent company, General Motors.

Qualifications: Mr. O’Neal has extensive senior management experience as both a chief executive officer and director, which provides the knowledge and expertise necessary to contribute an important viewpoint on a wide variety of governance and operational issues.

Our Board of Directors recommends that you vote “FOR” the election of the ten nominees for director in this Proposal 1.

 

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Board Operations      LOGO     

 

 

 

BOARD OPERATIONS

 

Corporate Governance Matters

Our board and senior management devote considerable time and attention to corporate governance matters and we are pleased to be recognized by GovernanceMetrics International as one of the 20 Most Responsible Companies. We maintain a comprehensive set of corporate governance initiatives that include the following:

 

 

refinement of our policies and goals with respect to the determination of executive compensation programs, including increasing emphasis on performance-based equity compensation, as further described under “Executive Compensation — Compensation Discussion and Analysis”;

 

 

amending our bylaws to implement a right to call a special meeting of shareholders for the holders of at least ten percent of our outstanding shares of common stock;

 

 

amending our bylaws to permit our shareholders to take certain actions by written consent;

 

 

implementing a majority vote standard in an uncontested election of directors;

 

 

implementing an executive compensation clawback policy, which is discussed on page 31;

 

 

implementing a policy regarding independent executive compensation consultants, which is discussed on page 24;

 

 

conducting annual board, committee and director self-evaluations;

 

 

maintaining a declassified board;

 

 

adhering to strict independence standards for directors that meet or exceed New York Stock Exchange, or NYSE, listing standards;

 

 

requiring the outside directors to hold executive sessions without management present no less than three times a year, at or in conjunction with regularly-scheduled board meetings;

 

 

requiring the Audit Committee, the Finance Committee, the Compensation Committee and the Nominating Committee to be composed entirely of independent directors as determined on an annual basis by our board;

 

publishing on our website our Corporate Governance Guidelines and charters for all standing committees of our board, which detail important aspects of our governance policies and practices;

 

 

maintaining limits on the number of other public company boards and audit committees on which our directors may serve;

 

 

maintaining a policy that prohibits our independent registered public accounting firm from providing professional services, including tax services, to any employee or board member or any of their immediate family members that would impair the independence of our independent registered public accounting firm;

 

 

maintaining stock ownership guidelines for any officer at the level of senior vice president or above and outside directors; and

 

 

maintaining limits on payments made under severance agreements with any officer at the level of senior vice president or above as further described below under “Executive Compensation — Compensation Discussion and Analysis.”

Board Communications

We value the views of our shareholders. Consistent with this approach, our board has established a system to receive, track and respond to communications from shareholders addressed to our board or to our outside directors. A statement regarding our board communications policy is available at www.sprint.com/governance. Any shareholder who wishes to communicate with our board or our outside directors may write to our General Counsel, Senior Vice President and Corporate Secretary, who is our Board Communications Designee, at the following address: Sprint Nextel Corporation, 6200 Sprint Parkway, Overland Park, KS 66251, KSOPHF0302-3B424, or send an email to boardinquiries@sprint.com. Our board has instructed the Board Communications Designee to examine incoming communications and forward to our board, or individual directors as appropriate, communications deemed relevant to our board’s roles and responsibilities. Our board has requested that certain types of

 

 

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communications not be forwarded, and redirected if appropriate, such as: spam, business solicitations or advertisements, resumes or employment inquiries, service complaints or inquiries, surveys, or any threatening or hostile materials. The Board Communications Designee will review all appropriate communications and report on the communications to the chair of or the full Nominating Committee, the full board, or the outside directors, as appropriate. The Board Communications Designee will take additional action or respond to letters in accordance with instructions from the relevant board source. Communications relating to accounting, internal accounting controls, or auditing matters will be referred promptly to members of the Audit Committee in accordance with our policy on communications with our board of directors.

Board Leadership Structure

Since 2007, our board has determined that designating an independent director to act as the non-executive Chairman serves the best interests of the Company and our shareholders. Our board believes, in part because of the unique qualifications and skills of our non-executive Chairman, that this structure enhances our board’s oversight of, and independence from, management, the ability of our board to carry out its roles and responsibilities on behalf of the shareholders, and the Company’s overall corporate governance. In addition, each of our board’s standing committees, except the Executive Committee, consists entirely of independent directors as determined on an annual basis by our board using the criteria set forth in our Corporate Governance Guidelines and described below.

James H. Hance, Jr. currently serves as our Chairman. As detailed in our Corporate Governance Guidelines, the responsibilities and authority of our Chairman are designed to facilitate our board’s oversight of management and ensure the appropriate flow of information between our board and management, and include the following:

 

 

determining an appropriate schedule for board meetings and seeking to ensure that the outside directors can perform their duties responsibly while not interfering with the operations of the Company;

 

 

setting agendas for board meetings, with the understanding that agenda items requested on behalf of the outside directors will be included on the agenda;

 

 

determining the quality, quantity and timeliness of the flow of information from management that is necessary for the outside directors to perform their duties effectively and responsibly, with the understanding that the outside directors will receive any information requested on their behalf by the Chairman;

 

 

coordinating, developing the agenda for, chairing, and moderating meetings of the outside directors;

 

 

acting as principal liaison between outside directors and the Chief Executive Officer, or CEO, on sensitive issues and, when necessary, ensuring the full discussion of those sensitive issues at board meetings;

 

 

providing input to the Compensation Committee regarding the CEO performance and meeting, along with the chair of the Compensation Committee, with the CEO to discuss our board’s evaluation;

 

 

assisting the Nominating Committee, our board, and our Company’s officers in assuring compliance with and implementation of the Corporate Governance Guidelines and providing input to the Nominating Committee on revisions to the guidelines; and

 

 

providing input to the Nominating Committee regarding the appointment of chairs and members of the Audit Committee, the Compensation Committee, the Executive Committee, the Finance Committee and the Nominating Committee.

The Chairman and the other directors may, from time to time, with the CEO’s knowledge and in most instances with members of management present, meet with outside parties on issues of importance to all shareholders.

Independence of Directors

Our board has adopted a definition of director independence that meets the listing standards of the NYSE. Our Corporate Governance Guidelines require that at least two-thirds of our board be independent. A director will not be independent unless our board, considering all relevant circumstances, determines that the

 

 

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director does not have a material relationship with us, including any of our consolidated subsidiaries.

Our outside directors are directors who are not our employees. In determining the independence of the outside directors, our board considered whether our outside directors, their immediate family members, and the companies by which they are employed as an executive officer (if applicable) have any relationships with our company that would prevent them from meeting the independence standards of the NYSE. In performing its review, our board considered the responses provided by the outside directors in their director questionnaires and determined that the following director nominees for re-election at the 2012 annual meeting have no material relationship with our company and are independent using the definition described above: Mrs. Hill and Messrs. Bennett, Bethune, Glasscock, Hance, Ianna, Nilsson, Nuti and O’Neal.

Risk Management

Our board takes an active role in overseeing management of the Company’s risks, both through its own consideration of risks associated with our operations and strategic initiatives and through its committees’ consideration of various risks applicable to such committees’ areas of focus, which committees are comprised solely of independent directors. The Audit Committee reviews enterprise risks as part of its purpose to assist our board in fulfilling our board’s oversight responsibilities with respect to the Company’s enterprise risk management program. The Audit Committee receives regular reports regarding enterprise risk management matters from members of management who oversee the Company’s Corporate Audit Services, or internal audit, and Legal Department and informs our board of such matters through regular committee reports. In addition to receiving regular reports from the Audit Committee concerning our enterprise risk management program, our board also reviews information concerning other risks through regular reports of its other committees, including information regarding financial risk management from the Finance Committee, compensation-related risk from the Compensation Committee and governance-related risk from the Nominating Committee.

Our management is responsible for day-to-day risk management. Our management and internal audit areas serve as the primary monitoring and

testing function for company-wide policies and procedures, and manage the day-to-day oversight of the risk management strategy for our ongoing business. This oversight includes identifying, evaluating, and addressing potential risks that may exist at the enterprise, strategic, financial, operational, compliance, and reporting levels.

We believe the division of risk management responsibilities described above is an effective approach for addressing the risks facing the Company and that our board leadership structure supports this approach.

Board Meetings

During 2011, our board held fifteen meetings. Directors are expected to devote sufficient time to prepare properly for and attend meetings of our board, its committees, and executive sessions and to attend our annual meeting of shareholders. All directors attended at least 75% of the meetings of our board and board committees on which they served during 2011, and all but three of the directors who served on our board at the time of our 2011 annual meeting attended that annual meeting.

Meetings of Outside Directors

In addition to board and committee meetings, our outside directors met without management present seven times in 2011 in conjunction with regularly scheduled board meetings.

Code of Ethics

Our code of ethics, The Sprint Nextel Code of Conduct, is available at www.sprint.com/governance or by email at shareholder.relations@sprint.com. It describes the ethical and legal responsibilities of directors and employees of our company and our subsidiaries, including senior financial officers and executive officers.

All of our directors and employees (including all senior financial officers and executive officers) are required to comply with The Sprint Nextel Code of Conduct. In support of the ethics code, we have provided employees with a number of avenues for the reporting of potential ethics violations or similar concerns or to seek guidance on ethics matters, including a 24/7 telephone helpline. The Audit Committee has established procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or auditing matters, including the

 

 

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confidential, anonymous submission by our employees of any concerns regarding questionable financial and non-financial matters to the Ethics Helpline at 1-800-788-7844, by mail to the Audit Committee, c/o Sprint Nextel Corporation, 6200 Sprint Parkway, Overland Park, KS 66251, KSOPHF0302-3B424, or by email to boardinquiries@sprint.com. Our Chief Ethics Officer reports regularly to the Audit

Committee and annually to the entire board on our ethics and compliance program.

Compensation Committee Interlocks and Insider Participation

There were no compensation committee interlocks or insider participation during 2011.

 

 

Board Committees

Our board has five standing committees: the Audit Committee, the Finance Committee, the Compensation Committee, the Executive Committee, and the Nominating Committee. Each committee is described in the table below and each has a charter that describes such committee’s primary functions and principal responsiblities. A current copy of our Corporate Governance Guidelines and the charter for each standing committee of our board is available at www.sprint.com/governance or by email at shareholder.relations@sprint.com. Our charters and our Corporate Governance Guidelines were adopted by our board and are annually reviewed and revised as necessary. With the exception of Mr. Hesse’s membership on our Executive Committee, our board has determined that each committee member is an independent director under the NYSE listing standards.

 

Committee, Membership and Meetings    Primary Functions

The Audit Committee

Larry C. Glasscock, Chairman

Robert R. Bennett

James H. Hance, Jr.

Frank Ianna

 

Each member of our Audit Committee, with the exception of Mr. Ianna, is an “audit committee financial expert” as defined in the Securities and Exchange Commission, or SEC, rules.

 

Committee met ten times in 2011.

  

Assist our board in fulfilling its oversight responsibilities with respect to:

•   the integrity of our financial statements and related disclosures, as well as related accounting and financial reporting processes;

•   our compliance with legal and regulatory requirements;

•   our independent registered public accounting firm’s qualifications, independence, audit and review scope, and performance;

•   the audit scope and performance of our internal audit function;

•   our ethics and compliance program; and

•   our enterprise risk management program.

 

The Audit Committee also has sole authority for the appointment, retention, termination, compensation, evaluation and oversight of our independent registered public accounting firm.

 

The Finance Committee

Robert R. Bennett, Chairman

Larry C. Glasscock

James H. Hance, Jr.

William R. Nuti

 

Committee met fourteen times in 2011.

  

Include:

•   reviewing and approving our financing activities consistent with the authorization levels set forth in our fiscal policy;

•   reviewing and making recommendations to our board on our capital structure, annual budgets, financial risk management, fiscal policy, investment policy and other significant financial initiatives; and

•   reviewing and approving proposed acquisitions, dispositions, mergers, joint ventures and similar transactions consistent with the authorization

 

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Committee, Membership and Meetings    Primary Functions
    

levels set forth in our fiscal policy.

 

The Compensation Committee

Gordon M. Bethune, Chairman

V. Janet Hill

William R. Nuti

Rodney O’Neal

 

Committee met seven times in 2011.

  

Include:

•  discharging our board’s responsibilities relating to compensation of our executives in general and our principal senior officers in particular;

•  reporting on executive compensation in our annual proxy statement in accordance with applicable rules and regulations; and

•  reviewing with management plans for the development and orderly succession of senior officers.

 

Additional information about these processes and procedures can be found below in “Executive Compensation — Compensation Discussion and Analysis.”

 

Generally, the Compensation Committee’s primary processes for establishing and overseeing outside director compensation and the role of company personnel and compensation consultants are similar to those regarding executive compensation. Any appropriate changes to outside director compensation are made following recommendation to our board by the Compensation Committee. In accordance with its charter, the Compensation Committee may delegate authority to subcommittees or any committee member when appropriate.

 

The Executive Committee

Daniel R. Hesse, Chairman

Robert R. Bennett

Gordon M. Bethune

Larry C. Glasscock

James H. Hance, Jr.

V. Janet Hill

 

Committee did not meet in 2011.

 

   To exercise powers of our board on matters of an urgent nature that arise between regularly scheduled board meetings.

The Nominating and Corporate Governance Committee

V. Janet Hill, Chairwoman

Gordon M. Bethune

Frank Ianna

Sven-Christer Nilsson

Rodney O’Neal

 

Committee met four times in 2011.

  

Include:

•  ensuring that our company has effective corporate governance policies and procedures and an effective board and board review process;

•  assisting our board by identifying individuals qualified to become directors;

•  recommending to our board for approval the director nominees for the next annual meeting of the shareholders;

•  recommending to our board for approval the chairs and members of each board committee; and

•  developing, reviewing, and recommending to our board corporate governance policies and practices designed to benefit our shareholders.

 

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DIRECTOR COMPENSATION

The compensation of our outside directors is partially equity-based and is designed to comply with our Corporate Governance Guidelines, which provide that the guiding principles behind our outside director compensation practices are: (1) alignment with shareholder interests; (2) preservation of outside director independence; and (3) preservation of the fiduciary duties owed to all shareholders. Our outside directors are also reimbursed for direct expenses relating to their activities as members of our board.

Components of Compensation

 

Compensation Element   2011 Compensation  
   
Annual Retainer     $80,000  
   
Chairman Retainer   $150,000  
   
Audit Chair Retainer     $20,000  
   
Compensation Chair Retainer     $15,000  
   
Finance, Nominating and other Special Chair Retainer(1)     $10,000  
   

Meeting Fees (per meeting):

 In Person

 Telephonic

 

    $2,000

    $1,000

 
   
Restricted Stock Units(2)   Annual grant value of $110,000  

 

  (1) Includes any non-standing committee of directors established from time to time, but excludes the Executive Committee.

 

  (2) Generally, the restricted stock units, or RSUs, underlying which are shares of our common stock, are granted each year on the date of the annual meeting of shareholders. Each grant vests in full upon the subsequent annual meeting. Any new outside board member joining our board receives a grant of prorated RSUs upon his or her appointment that vests in full upon the subsequent annual meeting.

The dollar value of the outside directors’ targeted annual grant is prorated for the time period between the date of the director’s initial appointment to our board and the date of the subsequent annual meeting. The prorated RSU grant is intended to offer a competitive compensation package to our outside directors, to immediately align the interests of outside directors with our shareholders’ interests and to be consistent with the manner in which the cash retainers are paid upon an outside director joining our board.

Deferred Compensation Plans

 

We maintain a Deferred Compensation Plan, a nonqualified and unfunded plan under which our outside directors can defer receipt of all or part of their annual and additional retainer fees and meeting fees into various investment funds and stock indices, including a fund that tracks our shares of common stock. In 2011, no directors participated in our Deferred Compensation Plan. Our directors may also participate in our Directors’ Shares Plan, under which they can elect to use all or part of their annual and additional retainer fees and meeting fees to

purchase shares of our common stock in lieu of receiving cash payments. Our outside directors can also elect to defer receipt of these shares. In 2011, no directors participated in our Directors’ Shares Plan.

On an annual basis, our outside directors are given the opportunity to either enroll in or discontinue their participation in one or both of these plans. Our directors are also provided the opportunity to elect before the end of each calendar year to defer the receipt of shares

 

 

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underlying any portion of any RSU awarded in the following calendar year. Two of our directors elected to defer the receipt of shares underlying their 2011 RSU awards vesting in 2012.

Stock Ownership Guidelines

Our director stock ownership guidelines provide that our outside directors should hold equity or equity interests in our shares with a fair value of at least three times the annual retainer fee. Each outside director is expected to meet this ownership level by the third anniversary of the director’s initial election or appointment to our board. Our director stock ownership guidelines provide our board with flexibility to grant exceptions based on its consideration of individual circumstances. As of December 31, 2011, all but one of our outside directors were in compliance with our director stock ownership guidelines. Mr. Nilsson was not in compliance because he uses shares to cover his tax withholding. He is required to withhold taxes because he is not a U.S. citizen. If he did not use shares to cover his withholding taxes, he would have been compliant. The same stock and stock equivalents that count towards the stock ownership guidelines for our executive officers (as described below under “Executive Compensation — Compensation Discussion and Analysis — Stock Ownership Guidelines”) are used to determine our outside directors’ compliance with the director stock ownership guidelines.

In addition, outside directors are required to retain for a period of at least 12 months all shares or share equivalents (for example, stock options) received from us, except for shares sold for the payment of taxes as a result of shares becoming available to the outside director or delivered to pay for the acquisition of additional shares through the exercise of a stock option or otherwise. The 12-month period begins on the date any vesting periods have lapsed on the shares or share equivalents (including stock options). The outside directors are subject to this

holding period until they leave our board.

Other Benefits

We believe that it serves the interests of our company and our shareholders to enable our outside directors to utilize our communications services. Accordingly, each outside director is entitled to receive wireless devices, including accessories and the related wireless service, wireline long distance services, and long distance calling cards with a maximum limit of $12,000 per year. Outside directors may also receive specialized equipment, on an as-needed basis, with equipment valued at greater than $1,000 requiring Compensation Committee approval. In addition to the value of the communications service, the value of any additional services and features (for example, ringers, call tones, directory assistance) and the value of the wireless devices, replacements and associated accessories are included in the value of the communications benefit. There may be other circumstances in which devices are provided to board members (such as demonstration, field testing, and training units, or devices for use while traveling internationally); these devices must be returned or they will be converted to a consumer account and applied toward the wireless devices under this communications benefit.

Under our charitable matching gifts program, the Sprint Foundation matches contributions made to qualifying organizations on a dollar-for-dollar basis, up to the annual donor maximum of $5,000. The annual maximum contribution per donor, per organization is $2,500. As described in the director compensation table, Messrs. Glasscock and Hance were the only outside directors for whom the Sprint Foundation provided matching charitable contributions in 2011.

We do not offer retirement benefits to outside directors.

 

 

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2011 Director Compensation Table

The following table provides compensation information for our outside directors who served during 2011. Compensation information for Mr. Hesse, our President and Chief Executive Officer, can be found in the “Executive Compensation” section of this proxy statement.

 

Name   

Fees Earned

or Paid in Cash

($)(1)

  

Stock

Awards

($)(2)

  

All Other

Compensation

($)(3)

  

Total          

($)            

 

Robert R. Bennett

   138,000    110,000         248,000           

Gordon M. Bethune

   127,000    110,000         237,000           

Larry C. Glasscock

   154,000    110,000    1,500      265,500           

James H. Hance, Jr.

   278,000    110,000    2,500      390,500           

V. Janet Hill

   128,000    110,000         238,000           

Frank Ianna

   123,750    110,000         233,750           

Sven-Christer Nilsson

   106,000    110,000         216,000           

William R. Nuti

   109,000    110,000         219,000           

Rodney O’Neal

   109,000    110,000         219,000           

 

  (1) Consists of annual retainer fees; chairman and committee chair fees; and board and committee meeting fees.

 

  (2) Represents the grant date fair value of 20,755 RSUs granted to our outside directors on May 10, 2011 based on the Company’s closing stock price of $5.30 on that date. The grant date fair value is calculated in accordance with FASB ASC Topic 718.

For a discussion of the assumptions used in determining the compensation cost associated with stock awards, see note 13 of the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2011. We did not issue stock options to outside directors as part of our 2011 outside director compensation program.

As of December 31, 2011, each of the outside directors held 20,755 stock awards in the form of RSUs. Although we issued no cash dividends in 2011, it is our policy that any cash dividend equivalents on the RSUs granted to the outside directors are reinvested into RSUs, which vest when the underlying RSUs vest.

As of December 31, 2011, V. Janet Hill was the only outside director that held outstanding stock option awards. Mrs. Hill held options, all of which are vested, with respect to 72,785 shares. Stock options granted to Mrs. Hill were granted under the Nextel incentive equity plan prior to the Sprint-Nextel merger. Since the merger, we have not issued stock options to our outside directors as part of our outside director compensation program.

 

  (3) Consists of charitable matching contributions made on the director’s behalf in 2011 under our Sprint Foundation matching gift program described on page 15.

 

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AUDIT COMMITTEE REPORT

The Audit Committee has reviewed and discussed our audited consolidated financial statements with management. The Audit Committee has also discussed with the independent registered public accounting firm the matters required to be discussed by the statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1. AU section 380), as adopted by the Public Company Accounting Oversight Board, or PCAOB, in Rule 3200T.

The Audit Committee has received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the PCAOB regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and has discussed with the independent registered public accounting firm its independence.

The Audit Committee met with senior management periodically during 2011 to consider the adequacy of our internal controls and discussed these matters with our independent registered public accounting firm and with appropriate financial personnel. The Audit Committee also discussed with senior management our disclosure controls and procedures and the certifications by our CEO and our Chief Financial Officer, or CFO, which are required for certain of our filings with the SEC. The Audit Committee met privately with the independent registered public accounting firm, our internal auditors and other members of management, each of whom has unrestricted access to the Audit Committee.

Based on the reviews and discussions referred to above, the Audit Committee recommended to the board that our audited consolidated financial statements be included in our annual report on Form 10-K for the year ended December 31, 2011 for filing with the SEC.

The Audit Committee

Larry C. Glasscock, Chair

Robert R. Bennett

James H. Hance, Jr.

Frank Ianna

 

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

This compensation discussion and analysis describes and analyzes our compensation program for our named executive officers, who are: Daniel R. Hesse, President and CEO; Joseph J. Euteneuer, CFO; Keith O. Cowan, President, Strategic Planning and Corporate Initiatives; Steven L. Elfman, President, Network Operations and Wholesale; Robert L. Johnson, Chief Service and Information Technology Officer; and Robert H. Brust, our former CFO, who retired in April 2011.

 

Compensation Overview

  Philosophy and Objectives of Our Executive Compensation Program

 

   

Attract and retain qualified and experienced executives by providing base salaries, target incentives, and benefits that are market competitive, and require that a large portion of direct compensation is earned over a multi-year period with forfeiture to the extent that vesting requirements are not met.

 

   

Pay for performance by tying a substantial portion of our executives’ compensation opportunities directly to our performance through short- and long-term incentive compensation plans that include performance objectives most critical to driving our continued financial and operational improvement and long-term shareholder value.

 

   

Align compensation with shareholder interests by structuring our compensation programs to align executive interests with those of our shareholders, mitigate the possibility that our executives undertake excessively risky business strategies, and adhere to corporate governance best practices.

  Components of Our Executive Compensation Program

The major components of our executive compensation program include base salary, our short-term incentive compensation (STIC) plan, and our long-term incentive compensation (LTIC) plan. The base salary and target opportunities under the STIC and LTIC plans for our named executive officers in 2011 are listed below.

 

 Named Executive Officer

   Base Salary    STIC plan    LTIC plan

 Mr. Hesse

   $1,200,000    $2,400,000    $12,000,000

 Mr. Euteneuer

      $775,000    $1,007,500      $3,500,000

 Mr. Cowan

      $725,000       $906,250      $2,500,000

 Mr. Elfman

      $650,000       $812,500      $3,250,000

 Mr. Johnson

      $510,000       $510,000      $1,400,000

  Delivering on the Sprint Turnaround

We have faced significant headwinds in recent years. Although we are far from finished from delivering Sprint’s turnaround, our progress has been significant. We plan to accomplish this turnaround in three phases: (1) Phase One, the recovery and strengthening of our business; (2) Phase Two, the investment phase; and (3) Phase Three, margin expansion. As Phase One concludes, our Company is recovering and our brand is strengthening. This improvement is illustrated by the measures that existed at the first earnings call after Mr. Hesse became our CEO for the fourth quarter 2007, and our fourth quarter earnings call for 2011, four years later.

 

 

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Delivering the Sprint Turnaround

 

    4Q 2007 Earnings Call   4Q 2011 Earnings Call

  Net Subscriber Additions1

 

  (2.2) million YoY Decline   3.3 million YoY Growth

  Service Revenue2

 

  (1)% YoY Decline   3% YoY Growth

  Customer Satisfaction3

 

  Worst   Best
  Brand Health   Declining   Improving

  (1) Change in Total Year Net Subscriber Additions, (2) Change in Annual Total Service Revenue, (3) ACSI Customer Satisfaction Score among Top 4 National   Wireless Carriers. YoY means year-over-year.

  Phase One

In Phase One, our executive compensation program provided strong incentives for executives to achieve the improvements illustrated above and focused on three priorities: improving the customer experience, strengthening the brand, and generating cash.

2011 STIC Plan

Our STIC plan is our annual cash bonus plan, which creates a strong incentive to achieve or exceed critical operating and financial objectives that are the leading drivers of sustainable increases in shareholder value. The table below summarizes our key priorities in 2011, the metrics selected in support of these priorities, and the rationale for why each was chosen by the Compensation Committee:

 

Priority    Objective    Rationale
Customer Experience    Postpaid subscriber churn, which is a measure of our ability to retain our customers who pay for their wireless service on a contract basis, typically for one- or two- year periods.    Measures the degree to which we retain our most profitable customers.
Strengthening our Brand   

Postpaid Net Additions, which is a measure of the new wireless customers we gain, net of deactivations, for those customers who pay for their services on a contract basis.

 

Prepaid Net Additions, which is the same measure as postpaid net additions but refers to those customers who do not pay for their service on a contract basis.

   Measures the degree to which we have attracted new customers to our brands.
Generating Cash   

Net service revenue, or NSR, which is our operating revenue less equipment revenue.

 

 

Adjusted OIBDA, which means adjusted Operating Income Before Depreciation and Amortization less severance, exit costs and other special items.

  

Measures the degree to which we have stabilized annual revenue, which is the key to driving long-term growth in profitability.

 

Measures our ability to generate cash and profit, which are critical to our ability to invest in our business and service our debt.

 

 

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On October 4, 2011, we announced that we would be offering the iPhone® to our customers. We believe the iPhone® will generate long-term benefits, including growth in valuable postpaid subscribers, a reduction in variable cost of service per unit, and long-term accretion to cash flows from operations. However, because the iPhone® carries a higher equipment net subsidy, it resulted in a reduction in adjusted OIBDA and cash flows from operations in our fourth quarter.

The Compensation Committee endeavors to set targets at aggressive but attainable levels in light of then-current and prospective business conditions. Subject to the limitation of the payout achieved under the Internal Revenue Code Section 162(m), or Section 162(m), objective discussed on page 31, the Compensation Committee retains the discretion to increase or reduce the size of any award or payout under the STIC plan to ensure that extraordinary circumstances do not inequitably increase or decrease compensation.

Our budget and STIC plan targets were set without consideration of any iPhone® impact. Due to the timing of the iPhone® negotiations and confidentiality obligations to Apple, Inc., the Compensation Committee believed that our launch of the iPhone® was an extraordinary circumstance, and, therefore, decided to exclude from our results for STIC plan purposes the total financial impact related to the iPhone®. The adjusted results are detailed in the table below.

In particular, while the exclusion of the positive effect on net service revenue, postpaid churn and, postpaid net additions resulted in a slightly lower performance against that target, the exclusion of adjusted OIBDA results increased the payout under the STIC plan overall. The Compensation Committee believed that reducing bonus payouts to reflect costs related to this strategic decision would have unfairly punished employees, including our named executive officers, and potentially impaired the perception of fairness in our compensation system.

For the 2011 STIC plan, the Compensation Committee approved the aggregate payout percentage, as compared to targeted opportunity, for our employees, including our named executive officers, at approximately 73.7%. Had the adjustment to reflect the iPhone® impact not been made, the payments would have been approximately 63.7%. The incremental payout to our named executive officers with respect to this adjustment was approximately $563,000 in the aggregate.

Our STIC plan objectives, targets, adjustments to account for the iPhone®, and actual results with the iPhone® for 2011 are summarized in the table below:

 

Objective    Weight   Target    

Adjusted
without

iPhone®

Impact

    Actual
with
iPhone
®
Impact
    Difference
between
Adjusted and
Actual
Postpaid Churn    20%     1.74%        1.89%        1.86%        .03%
Postpaid Net Adds    20%     788,000        (397,000     (98,000)      (299,000)
Prepaid Net Adds    20%     2,237,000           2,512,000        2,512,000     
Net Service Revenue    20%     $30,526 mm        $30,741  mm      $30,768  mm    ($27) mm
Adjusted OIBDA    20%     $5,635 mm        $5,707  mm      $5,072  mm    $635 mm

Despite the improvements during the past four years and described above, we underperformed in 2011 on the challenging targets the Compensation Committee set for adjusted OIBDA, postpaid churn, and postpaid net subscriber additions. For most of 2011, we competed in a challenging environment in which two of our largest competitors offered the iPhone®, a highly desirable device that created an advantage in their ability to acquire and retain customers. Notwithstanding this disadvantage, we grew revenues and achieved near-target results for the net service revenue objective.

 

 

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2011 LTIC Plan

Our LTIC plan is designed to encourage retention, linking payment of performance-based awards to achievement of financial objectives critical to our long-term success, and granting equity awards to directly link executive interests with those of our shareholders.

In 2011, we granted three types of awards under our LTIC plan:

 

   

Performance units – Each unit has a value of $1.00, and named executive officers earn a cash payout that vests on December 31, 2013 and will be paid in the 1st Quarter of 2014. The performance unit award is allocated one-third to each of three annual performance periods (2011, 2012, and 2013) with cash payouts ranging from 0% to 150% based on achievement against objectives during the three performance periods.

 

 

   

Performance-based RSUs – RSUs vest on the third anniversary of the grant date. The award is allocated one-third to each of three annual performance periods (2011, 2012, and 2013) with vesting of each third conditioned on achievement against objectives.

 

 

   

Stock options – Non-qualified stock options vest ratably on each of the three anniversaries of the grant date with an exercise price equal to the fair market value (closing price on the NYSE) of our stock on the grant date. To determine the number of stock options to be delivered under the 2011 LTIC plan, we used a Black-Scholes valuation model discussed below in footnote 3 to the 2011 Summary Compensation Table.

 

With respect to the performance units and performance-based RSUs, the Compensation Committee selected objectives to support our turnaround efforts as described below.

 

Priority    Objective    Rationale
Generating Cash              

Net service revenue

 

 

 

Free cash flow, which is the cash provided by our operating activities less the cash used in our investing activities other than short-term investments and equity method investments during the applicable period.

  

Measures the degree to which we have grown annual revenue, which is the key to driving long-term growth in profitability.

 

Measures our ability to generate cash, which is critical to our ability to invest in our business and service our debt.

For the same reasons and subject to the limitation of the payout percentage achieved under Section 162(m) objectives discussed on page 31, the Compensation Committee excluded the positive impact on revenue and the negative impact on free cash flow attributable to the iPhone® for purposes of measuring LTIC performance. In addition, our board-approved budgets and corresponding performance targets were established before we reached the final terms of our “spectrum-hosting” arrangement with LightSquared, Inc., which included an advance cash payment that benefited free cash flow. Therefore, the Compensation Committee also adjusted the free cash flow results to exclude the positive impact of this transaction on payouts.

For the 2011 annual performance period under the 2011 LTIC plan, the Compensation Committee approved the aggregate payout percentage for the performance units, as compared to targeted opportunity, for our named executive officers at approximately 106.5%. Had the adjustments described above not been made, the payments would have been approximately 91.5%. The Compensation Committee also approved the payout percentage for the performance-based RSUs, which was not adjusted and remained at 100%. The incremental payout to our named executive officers with respect to this adjustment was approximately $1,058,600 in the aggregate.

 

 

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Our LTIC plan objectives, targets, adjustments to account for the iPhone® and LightSquared, and actual results with the iPhone® and LightSquared for 2011 are summarized in the table below:

 

         Free Cash Flow

Performance Target

(in millions)

       Net Service Revenue

Performance Target

(in millions)

   
         Target
($)
  Adjusted

without

Impacts

($)(1)

  Actual

with

Impacts

($)

   Difference
between
Adjusted
and

Actual

       Target
($)
  Adjusted

without

Impacts

($)(1)

  Actual

with

Impacts

($)

   Difference
between
Adjusted
and

Actual

   

Performance

Units    

       700   722   429    293        30,526   30,741   30,768    27    

Performance-

based RSUs

         0   N/A   429    N/A        29,026   N/A   30,768    N/A    

 

  (1)  

Adjusted to exclude the impacts of the iPhone® and LightSquared.

Because the payout for the performance-based RSUs is capped at 100% and there is no graduated scale for partial payout for performance below target, the Compensation Committee set the free cash flow and net service revenue targets at a lower but still meaningful level than for the performance units.

As expressed in the table below, the current value of compensation for Mr. Hesse is well below the market-competitive target opportunity. This is primarily reflective our stock price. The current value of compensation for other named executive officers is similarly below the target opportunity, which reflects our philosophy of ensuring that pay is closely correlated with changes in shareholder value over time.

 

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Current Value Compensation means base salary, actual bonus earned and fair market value of outstanding performance-based RSU awards and the intrinsic value of outstanding options (plus any amount realized upon exercise of options) as of December 31, 2011. Mr. Hesse, however, has not exercised any options during his tenure.

Compensation “Target” means base salary, target bonus and grant date fair value of all equity awards granted in the applicable year(s).

Year 2007 includes Mr. Hesse’s base salary, sign-on awards of RSUs and stock options as well as a cash bonus. Mr. Hesse started on December 17, 2007.

 

 

 

 

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Our mix of fixed and performance-based compensation target opportunities under the STIC and LTIC plans for 2011 for Mr. Hesse can be illustrated by the following:

CEO Compensation Ratio

 

 

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Phase Two

As discussed on page 18, we are in the process of a three-stage turnaround. To enhance the focus on Phase Two, investment for future growth, the Compensation Committee made several changes in the design of our STIC and LTIC plans for 2012:

 

   

Performance measurement - during Phase One we measured performance on a semi-annual basis in our STIC plan and an annual basis in our LTIC plan to ensure that goals were set commensurate with our rapidly evolving results. The stabilization of our business enables a return to a more traditional and best practice performance measurement system, and for 2012 we will measure performance in the STIC plan over a one-year period and in the LTIC plan over a three-year period.

 

 

   

Performance metrics - to increase our emphasis on profitability, Adjusted OIBDA will have a 40% weighting in our 2012 STIC plan (twice the amount allocated 2011). The other objectives in the 2012 STIC plan are postpaid churn with a 30% weighting (to maintain our focus on the customer experience) and total net additions with a 30% weighting (to maintain our focus on improving the brand).

 

 

   

To increase our focus on successful investment, our 2012 LTIC plan will have a new objective (with a 33.3% weighting for performance units and performance-based RSUs) that focuses on the implementation of Network Vision (measured by a number of completed cell sites). Network Vision is a multi-year network infrastructure initiative intended to provide subscribers with an enhanced network experience by improving voice quality, coverage, and data speeds, while enhancing network flexibility, reducing operating costs, and improving environmental sustainability through the utilization of multiple spectrum bands onto a single multi-mode base station.

 

 

   

The other two objectives in our 2012 LTIC plan remain net service revenue (with a 33.3% weighting) and free cash flow (with a 33.4%). The weighting change relative to 2011 (which was each at 50%) reflects the shift in our focus from stabilizing top line revenue to investing in the future in order to drive both growth and increased profitability.

 

 

 

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Corporate Governance Highlights

 

We endeavor to maintain good governance standards, including with respect to our executive compensation practices. Several highlights are listed below:

 

    We have stock ownership guidelines and a clawback policy.

 

    Our named executive officers receive few perquisites, entitlements or elements of non-performance-based compensation, except for market-competitive salaries and modest benefits that are comparable to those provided to all employees.

 

    Our severance benefits are moderate: with no benefit in excess of two times base salary plus bonus, change-in-control benefits payable only upon a “double-trigger” qualified termination, and no golden parachute or excise tax gross-ups.

 

    The Compensation Committee retains an independent advisor that performs no other work for the Company.

 

Setting Executive Compensation

Role of Compensation Consultant and Executive Officers

The Compensation Committee has retained Frederic W. Cook & Co., Inc., or Cook, as its independent compensation consultant. Cook provides no services to us other than advisory services for executive and director compensation and has no other relationships with the Company. Cook works with management only at the request and under the direction of the Compensation Committee and only on matters for which the Compensation Committee has oversight responsibility.

To ensure independence, the Compensation Committee has a policy regarding executive compensation consultants that codifies this relationship. Representatives of Cook attend Compensation Committee meetings at the Compensation Committee’s request and provide guidance to the Compensation Committee on a variety of compensation issues. The primary point of contact at Cook frequently communicates with the chair of the Compensation Committee and interacts with all the Compensation Committee members without management present.

Cook has reviewed the compensation components and levels for our named executive officers and advised the Compensation Committee on the appropriateness of our compensation programs, including our incentive and equity-based compensation plans, retention incentives and proposed employment agreements, as these matters arose during the year. The Compensation Committee has directed that Cook provide this advice taking into account our overall executive compensation philosophy as described above. Cook prepares benchmarking data discussed below, reviews the results with the Compensation Committee, and provides recommendations and an opinion on the reasonableness of new compensation plans, programs and arrangements.

In addition to its ongoing support of the Compensation Committee and continuous advice on compensation design, levels and emerging market practices, Cook periodically conducts a comprehensive review of our overall executive compensation program – including direct and indirect elements of compensation – to ensure that the program operates in support of our short- and long-term financial and strategic objectives and that it aligns with evolving corporate governance “best practices.” Cook last completed such a comprehensive study in 2010 and found that, overall, the program supported our specific business and human resource objectives, including unique issues related to our rapidly evolving turn-around initiatives.

 

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Our CEO periodically discusses the design of and makes recommendations with respect to our compensation programs and the compensation levels of our other named executive officers and certain key personnel with the Compensation Committee.

Process for Setting Executive Compensation

The Compensation Committee annually reviews the compensation packages of our named executive officers and other key personnel in the form of “tally sheets.” These tally sheets value each component of compensation and benefits, including a summary of the outstanding equity holdings of each named executive officer as of year-end and the value of such holdings at various assumed stock prices. The tally sheets also set forth the estimated value that each of our named executive officers would realize upon termination under various scenarios.

The Compensation Committee uses these tally sheets when considering adjustments to base salaries and awards of equity-based or other remuneration and in establishing incentive plan target opportunity levels as follows:

 

   

comparing each named executive officer’s total compensation against a similar position in our peer group;

 

   

understanding the impact of decisions on each individual element of compensation on total compensation for each named executive officer;

 

   

evaluating total compensation of each named executive officer from an internal equity perspective; and

 

   

assuring that equity compensation represents a portion of each named executive officer’s total compensation that is in line with our philosophy of motivating the executives to align their interests with our shareholders.

Although the Compensation Committee reviews and considers the amounts realizable by our named executive officers under different termination scenarios, including those in connection with a change in control, as well as the current equity-based award holdings, these are not the primary considerations in the assessment and determination of annual compensation for our named executive officers.

Use of Benchmarking Data

To assist in setting total compensation levels that are reasonably competitive, the Compensation Committee reviews market trends in executive compensation and a competitive analysis prepared by Cook. This information is derived from the most recent proxy statement data of companies in a peer group of telecommunications and high-technology companies and, where limited in its functional position match to our executives, is supplemented with data on our peer group from a published compensation survey prepared by Towers Watson of approximately 80 participating all industry companies with revenues exceeding $4 billion.

Taking into consideration the recommendation of Cook, the Compensation Committee determines companies for our peer group based on similarity of their business model and product offerings as well as comparability from a size perspective, including annual revenue, market capitalization, net income, enterprise value and number of employees. For example, our revenue is above the median of our peer group while our enterprise value is below the median. The Compensation Committee approved the use of the following 14 companies for its 2011 executive compensation benchmarking analyses:

AT&T, Inc., Comcast Corporation, Computer Sciences Corporation, Dell Inc., DIRECTV, Hewlett-Packard Company, Motorola Solutions, Inc., Qwest Corporation, Qualcomm

 

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Incorporated, CenturyLink, Inc., Texas Instruments Incorporated, Time Warner Cable Inc., Verizon Communications Inc., Xerox Corporation

For 2011, we removed Sun Microsystems from our peer group because it was acquired.

For 2011, Cook provided the Compensation Committee with an analysis of the compensation of the named executive officers of each of the peer group companies as well as a summary of data at the 25th percentile, median, and 75th percentile for each element of compensation.

The Compensation Committee does not follow a specific formula in making its pay decisions, but rather uses benchmarks as a frame of reference and generally targets total compensation at the median of our peer group to reflect our relative position within it, with an opportunity to earn total payouts in the 75th percentile for overachievement relative to the peer group. The Compensation Committee exercises its judgment by taking into consideration a multitude of other important factors such as experience, individual performance, and internal pay equity. Furthermore, our executives’ realized pay is ultimately dependent on company performance. With respect to our named executive officers’ total targeted compensation for 2011, Messrs. Elfman, Euteneuer and Johnson were above median and the remaining named executive officers were below the median.

Primary Components of Executive Compensation

What follows is a discussion and analysis of the primary elements of our 2011 named executive officer compensation program.

Base Salary

Base salary is designed to attract and retain executives. Our named executive officers’ salaries are based on a number of factors, including the nature, responsibilities and reporting relationships of the position, individual performance of the executive, salary levels for incumbents in comparable positions at peer companies, as well as other executives within our organization, and experience and tenure of the executive. To minimize fixed costs during our turnaround and emphasize variable, performance-based compensation, the Compensation Committee has not made increases to base salary levels for our named executive officers, except in the case of Mr. Johnson due to many of the above-noted factors as well as the mid-year addition of significant responsibilities to his role. See “– 2011 Summary Compensation Table.”

Short-Term Incentive Compensation Plan

Our STIC plan is our annual cash bonus plan, which we believe will ultimately result in an increase in shareholder value because our incentives under it are linked to business objectives that we believe will deliver our long-term success.

For the 2011 STIC plan, the Compensation Committee continued using two six-month performance periods for determining the amount of plan payments because it wanted to maintain flexibility to revisit the performance criteria at mid-year, if necessary. This flexibility enables the setting of goals that are sufficiently challenging to justify and support the costs associated with payout at various levels of performance. Such flexibility also protects against the possibility of a compensation windfall or deficit during a period in which the economic and telecommunications environment was still highly volatile. The first performance period was from January 1, 2011 through June 30, 2011, and the second was from July 1, 2011 through December 31, 2011. Each performance period had discrete performance objectives, and named executive officers must have been employed through December 31, 2011 in order to be eligible to receive full or prorated compensation for either period unless their termination during the year was the result of death, disability, retirement, or involuntary termination without cause.

In February 2011, the Compensation Committee established financial and operational objectives and their respective weightings and targets for the first half-year performance period, as well as reviewing

 

 

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proposed second half-year performance objectives. In early August, 2011, it approved the objectives, weightings and targets as previously discussed in February for the second half-year performance period. While our 2010 STIC plan emphasized a drive toward revenue generation, the Compensation Committee determined that our 2011 STIC plan should balance our senior management team’s and other plan participants’ focus among our most critical financial and strategic objectives, which remained as growing revenue and earnings while increasing subscriber growth and reducing churn. To that end, the Compensation Committee established the following objectives for our 2011 STIC plan for each six-month performance period, each equally weighted at 20%:

 

   

net service revenue;

 

   

adjusted OIBDA;

 

   

postpaid churn;

 

   

postpaid net additions; and

 

   

prepaid net additions.

To further our goal of tying a significant portion of each named executive officer’s total annual compensation to our business performance, the STIC plan provides for a payment equal to the named executive officer’s targeted opportunity (set at a percentage of his base salary) only if our actual results meet the targets. Similarly, a payment in excess of a named executive officer’s targeted opportunity may be made if our actual performance exceeds the targeted objectives (capped at 200%), a payment below opportunity may be made if our actual performance is below the target objectives but exceeded the minimum threshold level, and no payout would be made if our actual performance does not exceed the minimum threshold level.

Long-Term Incentive Compensation Plan

Our LTIC plan serves our compensation objectives by linking payment to achievement of financial objectives, and by linking executive interests with those of our shareholders.

Following evaluation of our recent LTIC plans and assessment of the near-term factors critical to driving long-term shareholder value, in February 2011, following the board’s approval of the 2011 budget, the Compensation Committee established the terms of the 2011 LTIC plan. This plan continued granting an executive’s targeted 2011 LTIC opportunity in the form of performance-based opportunities: 50% in performance units (approximately 49% for Mr. Hesse), 30% in performance-based RSUs (approximately 36% for Mr. Hesse) and 20% in non-qualified stock options (approximately 15% for Mr. Hesse). In determining the weightings among the LTIC components, the Compensation Committee balanced the desire to incentivize achievement of critical financial objectives, stock price appreciation considerations, and affordability of the LTIC plan from both a share usage and aggregate cost perspective. In particular, placing less weight on the stock option component of the 2011 LTIC plan was intended to mitigate a potential windfall associated with possible significant increases in our stock price that were not tied to our performance but to rising equity markets generally.

 

   

Performance units – Each unit has a value of $1.00, and executives earn a cash payout that vests on December 31, 2013 and would be paid in the 1st Quarter of 2014. The performance unit award is allocated one-third to three annual performance periods (2011, 2012, and 2013) with cash payouts ranging from 0 to 150% based on achievement against objectives during the three performance periods.

 

   

Performance-based RSUs – RSUs vest on the third anniversary of the grant date. The award is allocated one-third to three annual performance periods (2011, 2012, and 2013) with vesting of each third conditioned on achievement against objectives.

 

   

Stock options –Nonqualified stock options vest ratably on each of the three anniversaries of the grant date, with an exercise price equal to the fair market value (closing price on the NYSE) of our stock on the grant date. To determine the number of stock options to be delivered under the

 

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2011 LTIC plan, we used a Black-Scholes valuation model discussed below in footnote 3 to the 2011 Summary Compensation Table.

For Mr. Hesse, the mix of LTIC plan awards was more heavily weighted by the Compensation Committee towards the components in which vesting is dependent on achievement of specific financial objectives. In particular, the number of shares underlying Mr. Hesse’s awards that are subject to performance-based vesting exceeds the number of shares underlying the awards that are subject to time-based vesting. This approach is intended to ensure that long-term compensation earned by our CEO, who is the executive most accountable to shareholders, is most sensitive to performance against long-term goals.

We believe the establishment of three separate performance periods enhanced our ability to maintain ongoing focus on achievement of the most critical milestones for the next three years that are integral to our continued turnaround and allowed our Compensation Committee to set appropriately aggressive, yet attainable, targets, as well as mitigate risk of a windfall if we were to experience unforeseen overachievement over a three-year period. To ensure that our executives remain focused on sustaining long-term performance, however, the payment of these performance-based awards will not occur until after the end of all three performance periods.

The 2011 LTIC plan continued our prior years’ focus on generating cash through establishing free cash flow and net service revenue as the equally-weighted performance objectives for the first annual performance period.

Other Compensation Decisions for 2011

2011 Compensation Opportunities

As part of its annual evaluation of the balance of the primary elements of our executive compensation, in particular in relation to our peer group so as to promote retention and motivation of our executive talent, the Compensation Committee also decided to adjust certain executives’ compensation for 2011. Accordingly, Mr. Hesse’s STIC plan opportunity for 2011 increased to 200% of his base pay and his target LTIC plan opportunity for 2011 increased to $12 million. For 2011, Mr. Elfman’s target LTIC plan opportunity increased to $3.25 million and Mr. Johnson’s target LTIC plan opportunity increased to $1.4 million. Additionally, Mr. Johnson’s annual base salary was increased to $483,000, and then it was increased to $510,000 effective August 1, 2011 to reflect his significant additional responsibilities.

2011 Performance Period for the 2009 and 2010 LTIC Plans

In early 2011, the Compensation Committee approved the results for the 2010 performance period of the 2009 and 2010 LTIC plans. In addition, the Compensation Committee set goals for the 2011 performance period of the Company’s 2009 and 2010 LTIC plans with respect to free cash flow and net service revenue. Please refer to footnotes 2 and 4 of the “2011 Summary Compensation Table” and footnotes 2, 4 and 6 of the “2011 Grants of Plan-Based Awards” for a discussion of these awards.

New CFO Compensation

After finalizing a search for the replacement of Mr. Brust after his departure as CFO in April, 2011, the Compensation Committee approved an employment agreement for Mr. Euteneuer, effective on April 4, 2011, incorporating the terms of his compensation package. The primary components of which are: (1) annual base salary of $775,000; (2) STIC plan target opportunity of 130% of base salary, which for 2011 was $1,007,500, prorated for his hire date; (3) $3,500,000 in LTIC plan target opportunity; (4) $500,000 sign-on bonus payable 50% after his hire date and 50% after six months of employment; and (5) a sign-on award of 125,000 time-based restricted shares of our common stock, which vests on the third anniversary of his hire date. As part of our recruiting efforts, we agreed to reimburse Mr. Euteneuer’s legal fees in connection with the negotiation of his employment agreement.

 

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Other Components of Executive Compensation

Our named executive officers’ total rewards opportunities consist of a number of other elements important to our compensation philosophy for 2011 of attracting, retaining, and motivating our named executive officers:

 

   

Employee Benefit Plans and Programs. Our compensation program includes a comprehensive array of health and welfare benefits in which our eligible employees, including our named executive officers, are eligible to participate. We pay all of the costs for some of these benefit plans and participants contribute a portion of the cost for other benefit plans.

 

   

Retirement Programs. Our retirement program consists of the Sprint Nextel 401(k) Plan, which provides participants, with our help of a profit sharing matching contribution opportunity and, beginning in 2011, a fixed matching contribution on up to 2% of eligible compensation, an opportunity to build financial security for their future. The amount of any matching contributions made by us to participating named executive officers is included in the “All Other Compensation” column of the 2011 Summary Compensation Table.

 

   

Deferred Compensation. Certain employees, including our named executive officers, are offered the opportunity to participate in the Sprint Nextel Deferred Compensation Plan, a nonqualified and unfunded plan, under which they may defer to future years the receipt of certain compensation in addition to that eligible under the 401(k) plan. Participants may elect to defer up to 50% of base salary and 75% of STIC plan payments. We believe this plan helps attract and retain executives by providing the participant another tax efficient retirement plan. Participants elect to allocate deferred and any matching contributions among one or more hypothetical investment options, which include one option that tracks our common stock and other options that track broad-based bond and equity indices. Our plan provides for a matching contribution using the same matching contribution percentage as our 401(k) plan of eligible earnings above the applicable annual limit, which is intended to compensate highly-compensated employees for limitations placed on our 401(k) plan by federal tax law. For 2011, Mr. Hesse was the only named executive officer who participated in the Sprint Nextel Deferred Compensation Plan.

 

   

Personal Benefits and Perquisites. The limited personal benefits and perquisites that we provide to our named executive officers are summarized in footnote 5 to the 2011 Summary Compensation Table below. As a result of the recommendations contained in an independent, third-party security study, the Compensation Committee established an overall security program for Mr. Hesse. Under the security program, we currently provide Mr. Hesse with residential security systems and equipment, and he is required to use our aircraft for business and non-business travel. We believe these measures ensure the safety of Mr. Hesse and enable him to devote his full attention to company business. Mr. Hesse is permitted to have his family accompany him on the corporate aircraft for business and non-business travel. As noted above, Mr. Euteneuer received reimbursement of his legal fees relating to the negotiation of his employment agreement; additionally, in 2011, he had non-business use of our corporate aircraft. Our Officer Relocation Program provides certain benefits, which include some tax gross-up benefits, for relocation at our request. As described in footnote 5 to the 2011 Summary Compensation Table, Mr. Johnson received benefits under this program in 2011. Pursuant to the terms of his employment agreement, Mr. Euteneuer has up to 12 additional months from his hire date to complete his relocation in exchange for the forfeiture of certain other benefits provided under the program.

 

   

Executive Severance Policy. Providing severance to our named executive officers helps attract and retain high quality talent by (1) mitigating the risks associated with leaving their former employer or position and assuming the challenges of a new position with us, and (2) providing income continuity following an unexpected termination of employment. Under our executive severance policy, our board will seek shareholder approval for any future severance agreement or arrangement with an executive officer, including our named executive officers, that provides (a) severance pay in excess of two times the senior executive’s base salary plus bonus and

 

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(b) continuation of group health, life insurance, and other benefits in excess of 24 months following the executive’s termination. The policy permits, without shareholder approval: (x) accelerated vesting of RSUs, stock options and any other LTIC plan awards, and (y) continued vesting during the severance period of any such awards. The policy also requires that we seek shareholder approval of any future severance agreement or arrangement that provides for the reimbursement of excise taxes imposed under Internal Revenue Code Section 4999 to a senior level executive. The severance benefits to which our named executive officers are entitled, as provided in the their employment agreements and described in “—Potential Payments upon Termination of Employment or Change of Control,” allow us to attract and retain a management team and secure our competitive advantage in the event of their departure through corresponding restrictive covenants.

 

   

Change in Control. If a transaction that could result in a change in control were under consideration, we expect that our named executive officers would face uncertainties about how the transaction may affect their continued employment with us. We believe it is in our shareholders’ best interest if our named executive officers remain employed and focused on our business through any transition period following a change in control and remain independent and objective when considering possible transactions that may be in shareholders’ best interests but possibly result in the termination of their employment. Our change in control benefits accomplish this goal by providing each eligible named executive officer with a meaningful severance benefit in the event that a change in control occurs and, within a specified time period of the change in control, his employment is involuntarily terminated without “cause” or voluntarily terminated for “good reason.”

The Sprint Nextel Change in Control Severance Plan, which we refer to as the CIC plan, provides severance benefits to a select group of senior executives, including our named executive officers, in the event of a qualified termination of employment in connection with a transaction that results in a change in control. Mr. Brust did not participate in the CIC plan, but his employment agreement provided for certain benefits in the event of a termination in connection with such a transaction. Any of these benefits payable would be reduced to the extent of any severance benefit otherwise available under any other applicable policy, program, or plan so that there would be no duplication of benefits. The benefits upon termination in connection with a change in control to which our named executive officers are entitled, as described in “—Potential Payments upon Termination of Employment or Change of Control,” are likewise competitive within our peer group.

Tax Deductibility of Compensation

Section 162(m) limits to $1 million the amount of non-performance-based remuneration that we may deduct from our taxable income in any tax year with respect to our CEO and the three other most highly compensated executive officers, other than the CFO, at the end of the year. Section 162(m) provides, however, that we may deduct from our taxable income without regard to the $1 million limit the full value of all “qualified performance-based compensation.”

Our base salary and perquisites and other personal benefits are not considered “qualified performance-based compensation” and therefore are subject to the limit on deductibility. Our STIC plan and LTIC plan awards may be considered “qualified performance-based compensation” if certain requirements are met, including among others that the maximum number of stock option or full value share awards and the maximum amount of other cash performance-based remuneration that may be payable to any one executive officer has been disclosed to and approved by shareholders prior to the award or payment.

The Compensation Committee considers Section 162(m) deductibility in designing our compensation program and incentive-based compensation plans. In general, we design our STIC and LTIC plans to be compliant with the performance-based compensation rules of Section 162(m) in order to maximize deductibility. In certain circumstances, however, the Compensation Committee has determined

 

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it necessary in order to retain executives and attract candidates for senior level positions to offer compensation packages in which the non-performance-based elements exceed the $1 million Section 162(m) limit.

The awards under our 2011 STIC and LTIC plans are considered performance-based compensation under Section 162(m), except for Mr. Hesse’s award under the STIC plan and his performance unit award under the LTIC plan allocated to the 2013 calendar year performance period due to the limits set under our incentive compensation plan, as well as Mr. Johnson’s award under the STIC plan and his performance based RSU award under the LTIC plan due to the terms of his employment agreement.

For the 2011 STIC plan, the Compensation Committee also established an annual Section 162(m) objective for the named executive officer’s potentially subject to Section 162(m), other than Mr. Hesse due to the limits set under our incentive plan, at a small fraction of a percentage of our adjusted operating income. The Compensation Committee is precluded from exercising upward discretion to the payout achieved under this objective. The Compensation Committee exercised its discretion to make payments under the STIC plan at levels below the payout achieved under the Section 162(m) objective for 2011 as guided by the performance metrics discussed on page 20.

For the 2011 LTIC plan, the Compensation Committee also established, for the 2011 performance period, Internal Revenue Code Section 162(m) objectives for the named executive officer’s potentially subject to Section 162(m). The Section 162(m) objective for performance units was a small fraction of a percentage of our adjusted operating income, and for performance-based restricted stock units was a required threshold level of adjusted operating income achievement. The Compensation Committee is precluded from exercising upward discretion to the payout achieved under these objectives. The achieved result under the Section 162(m) objectives met or exceeded the achieved result under the free cash flow and net service revenue objectives. The Compensation Committee exercised its discretion to approve payout percentages under the 2011 LTIC plan at or below the payout percentage achieved under the applicable Section 162(m) objective as guided by the performance metrics discussed on pages 21 and 22.

Clawback Policy

We have a “clawback” policy, which provides that, in addition to any other remedies available to us under applicable law, we may recover (in whole or in part) any bonus, incentive payment, commission, equity-based award, or other compensation received by certain executives, including our named executive officers, if our board or any committee of our board determines that such bonus, incentive payment, commission, equity-based award, or other compensation is or was based on any financial results or operating objectives that were impacted by the officer’s knowing or intentional fraudulent or illegal conduct, and recovery is appropriate.

Stock Ownership Guidelines

We have stock ownership guidelines for our named executive officers and other members of our senior management team. The board believes ownership by executives of a meaningful financial stake in our company serves to align executives’ interests with those of our shareholders. Our guidelines require that our CEO hold shares of our common stock with a value equal to five times his base salary, and that the other named executive officers hold shares of our common stock with a value equal to three times their respective base salaries. Eligible shares and share equivalents counted toward ownership consist of:

 

   

common or preferred stock, including those purchased through our Employee Stock Purchase Plan;

   

restricted stock or RSUs;

 

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intrinsic value (the excess of the current stock price over the option’s exercise price) of vested, in-the-money stock options; and

   

share units held in our 401(k) plan and various deferred compensation plans.

Persons subject to the stock ownership guidelines have five years beginning on the date on which the person becomes subject to the ownership guidelines, or until December 31, 2012 if later, to achieve the ownership requirement. As of December 31, 2011, all of our named executive officers, except Mr. Euteneuer, had met the stock ownership guidelines. Mr. Euteneuer has until April 4, 2016 to meet his ownership requirement.

2011 Shareholder Say-on-Pay Vote

The Company provides its shareholders with the opportunity to cast an annual advisory vote on named executive officer compensation (a “say-on-pay proposal”). At the Company’s annual meeting of shareholders held in May 2011, 85% of the votes cast on the say-on-pay proposal at that meeting were voted in favor of the proposal. The Compensation Committee considered the 2011 voting results at discussions among its members during its meetings, and the Compensation Committee believes this vote affirms shareholders’ support of the Company’s approach to executive compensation. As a result of this consideration, the Company did not change its approach to named executive officer compensation in 2011. The Compensation Committee will continue to consider the outcome of the Company’s say-on-pay votes when making future compensation decisions for the named executive officers.

 

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Compensation Committee Report

The Compensation Committee has reviewed and discussed Sprint Nextel’s Compensation Discussion and Analysis with management. Based on these reviews and discussions, the Compensation Committee recommended to the board that Sprint Nextel’s Compensation Discussion and Analysis be included in this proxy statement and Annual Report on Form 10-K for the year ended December 31, 2011.

The Compensation Committee

Gordon M. Bethune, Chair

V. Janet Hill

William R. Nuti

Rodney O’Neal

Relationship of Compensation Practices to Risk Management

We have assessed whether there are any risks arising from our compensation policies and practices for our employees and factors that may affect the likelihood of excessive risk taking. Based on that review, we have concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company.

In coming to this conclusion, in late 2011 and early 2012, our human resources department reviewed the Company’s incentive plans, surveying sales, and nonsales related compensation programs, as well as executive and nonexecutive compensation programs. Pay philosophies, performance objectives and overall incentive plan designs were reviewed. Human resources discussed plan elements with representatives from the business functions responsible for incentive plan design and administration. Design features were assessed to determine whether there is likelihood that incentive plans could encourage excessive risk-taking resulting in a material adverse effect on the Company and to ensure that appropriate governance is in place to mitigate risk under unforeseen circumstances. The results of this assessment were reviewed by the Compensation Committee on February 22, 2012. In addition, the Compensation Committee’s independent consultant, Cook, considered risk in all aspects of the plans in which our executives participate and advised the Compensation Committee accordingly. Cook confirmed that there are no aspects of the programs described in the preceding Compensation Disclosure and Analysis, or for our employees in general, that create an incentive to take risks that are reasonably likely to have a material adverse effect on the Company.

 

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2011 Summary Compensation Table

The table below summarizes the compensation of our named executive officers that is attributable to the fiscal years ended December 31, 2011, 2010, and 2009. The named executive officers are our CEO and president, our CFO, our former CFO, and our three other most highly compensated executive officers ranked by their total compensation in the table below.

Each of our named executive officers has an employment agreement with us. For more information regarding our compensation philosophy and a discussion of the elements of our compensation program, see “—Compensation Discussion and Analysis.”

 

Name and

Principal Position

  Year    

Salary

 

($)

   

Bonus

 

($)(1)

   

Stock

Awards

 

($)(2)

   

Option

Awards

 

($)(3)

   

Non-Equity

Incentive Plan

Compensation

 

($)(4)

   

All Other

Compensation

 

($)(5)

   

Total

 

($)

 

Daniel R. Hesse

Chief Executive Officer

and President

    2011        1,200,000        829,322        3,222,768        1,692,000        4,844,272        94,289        11,882,651   
                 
    2010        1,200,000        —                1,664,012        1,801,958        4,387,636        15,002        9,068,608   
                 
    2009        1,200,000        —                708,333        9,060,764        1,322,634        42,365        12,334,096   
                   

Joseph J. Euteneuer

Chief Financial Officer

    2011        551,442        688,150        930,557        689,755        895,935        77,088        3,832,927   
                   

Keith O. Cowan

President Strategic Planning

and Corporate Initiatives

    2011        725,000        229,076        735,678        458,536        1,339,781        7,837        3,495,908   
                 
    2010        725,000        —                447,253        450,490        1,550,971        1,536        3,175,250   
                 
    2009        725,000        1,000,000        208,333        2,664,932        587,567        9,800        5,195,632   
                   

Steven L. Elfman

President Network

Operations and Wholesale

    2011        650,000        251,232        868,963        596,097        1,470,688        7,837        3,844,817   
                 
    2010        650,000        300,000        499,203        540,587        1,546,044        1,536        3,537,370   
                 
    2009        650,000        —                212,500        2,718,230        526,784        563,814        4,671,328   
                   

Robert L. Johnson

Chief Service and Information

Technology Officer

    2011        486,308        123,842        372,019        256,780        718,990        47,578        2,005,517   
                 
    2010        460,000        —                212,993        253,999        789,514        33,421        1,749,927   
                 
    2009        460,000        115,000        90,667        1,159,778        298,241        9,800        2,133,486   
                   

Former Executive Officer:

                 

Robert H. Brust

Chief Financial Officer

    2011        365,385        200,000        —                —                461,299        7,837        1,034,521   
                 
    2010        1,000,000        400,000        1,367,034        1,265,918        1,489,670        200,682        5,723,304   
                 
    2009        1,000,000        700,000        —                —                842,855        464,081        3,006,936   

 

 

 

  (1)

For 2011 consists of: (a) the incremental amounts with respect to the iPhone® adjustment described on page 20 for the STIC plan, which in the aggregate totaled approximately $563,000 for the named executive officers; (b) the incremental amounts with respect to the iPhone® and LightSquared adjustments described on pages 21 and 22 for the LTIC plan, which in the aggregate totaled approximately $1,058,600 for the named executive officers; (c) a sign-on bonus for Mr. Euteneuer in the amount of $500,000; and (d) a retention bonus for Mr. Brust of $200,000.

 

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  (2) The value shown for 2011 is the sum of three awards: a performance unit award under the 2009 LTIC plan and performance-based RSU awards under the 2010 LTIC plan and the 2011 LTIC plan.

 

     

2009
Performance
Units

($)

    

2010 RSUs

($)

    

2011 RSUs

($)

    

Restricted

Stock

($)

    

Total

($)

    

Max 2009
Performance

Unit Payout

($)

 

Hesse

     708,333             1,163,435           1,351,000                   3,222,768           1,416,666     

Euteneuer

                     353,057           577,500             930,557             

Cowan

     208,333             290,858           236,487                   735,678           416,666     

Elfman

     212,500             349,030           307,433                   868,963           425,000     

Johnson

     90,667             148,919           132,433                   372,019           181,334     

For the performance unit award, the value represents the target opportunity of performance units for the 2011 annual performance period as of the approval date of the Compensation Committee of the objectives and targets for the 2011 performance period under the 2009 LTIC plan. The performance unit award was allocated one-third to each annual performance period for three years (2009-2011). Each annual performance target was set by the Compensation Committee at the start of each respective single-year performance period, and the payout of the performance unit award may range from 0% to 200% based on the achievement of specified results. The award was payable in cash or unrestricted shares of our common stock at the discretion of the Compensation Committee. The Compensation Committee determined to pay the award in cash. For 2011, the performance unit award was based on the Company’s achievement of specified results with respect to free cash flow and net service revenue, equally weighted, and the achievement on the objectives was 91.5% (adjusted to 106.5%) of target.

For the performance-based RSU award, the value represents the aggregate grant date fair market value computed in accordance with FASB ASC Topic 718 as of the date the Compensation Committee approved the applicable objectives and targets for the 2011 performance period under the 2011 LTIC plan and the 2010 LTIC plan. The RSUs vest on the third anniversary of the grant, but are also subject to performance-based vesting conditions. The RSUs are allocated one-third to each annual performance period for three years, 2010-2012 for the 2010 LTIC plan and 2011-2013 for the 2011 LTIC plan. Each annual performance target is set by the Compensation Committee at the start of each respective single year performance period. Based on achievement of specified results with respect to free cash flow and net service revenue in 2011, for Messrs. Hesse, Cowan, Elfman, and Johnson the RSUs allocated to 2011 under the 2010 LTIC plan will vest on March 16, 2013 and for the 2011 LTIC plan on February 23, 2014 see “—Compensation Discussion and Analysis—Primary Components of Executive Compensation—Long-Term Incentive Compensation Plan.” For Mr. Euteneuer the RSUs awarded under the 2011 LTIC plan will vest on April 4, 2014. The number of performance-based RSUs granted was determined based on the 30-day average closing price of our stock, consistent with our practice in prior years as described more fully in the following footnote, whereas the grant date fair value reported for 2011 reflects the closing price on the grant date.

 

  (3) Represents the grant date fair value of options granted in 2011 computed in accordance with FASB ASC Topic 718. The grant date fair value reported in 2011 is lower than the respective portion of the target opportunities disclosed on page 18 because of the methodology used, consistent with our practice in prior years, to determine the number of stock options to be delivered under the LTIC plan. Under that methodology, which is commonly used to alleviate short-term fluctuations in the stock price used in the conversion from dollar-denominated awards to shares, we calculate an average closing price of our stock over a 30 calendar day period before the grant (for the 2011 LTIC plan, that period ended on February 4, 2011 and the average stock price was $4.44). The Black-Scholes value was $2.05 using this average price per share. The target dollar value to be delivered in stock options is then divided by the Black-Scholes value to determine the number of stock options granted to the participant. With respect to Mr. Euteneuer’s options the Black-Scholes value was $2.02 and the average closing price of our stock over a 30 calendar day period was $4.58. The strike price is the closing price of our common stock on the date the award was granted.

 

  (4) The value shown for 2011 is the sum of three amounts: the payout under the 2011 STIC plan, and a performance unit award under the 2011 LTIC plan and a performance unit award under the 2010 LTIC plan.

 

     

2011 STIC Plan

($)

    

2010 Performance
Units

($)

    

2011 Performance
Units

($)

    

Total

($)

      

Hesse

     1,528,800             1,525,000               1,790,472             4,844,272          

Euteneuer

     362,185                     533,750             895,935          

Cowan

     577,281             381,250               381,250             1,339,781          

Elfman

     517,563             457,500               495,625             1,470,688          

Johnson

     310,290             195,200               213,500             718,990          

With respect to the 2011 STIC plan, each named executive officer earned a payout of approximately 63.7% (adjusted to 73.7%) of their targeted opportunity based on actual performance in 2011 compared to two semi-annual company-wide performance periods under our 2011 STIC plan. For more information regarding our STIC plan, see “—Compensation Discussion and Analysis—Primary Components of Executive Compensation— Short-Term Incentive Compensation Plan.” Mr. Euteneuer’s 2011 STIC plan payout was prorated based on his start date.

 

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With respect to the performance units under the 2010 LTIC plan and 2011 LTIC plan, the amount shown includes, the amount earned with respect to performance units granted by the Compensation Committee on March 16, 2010 and February 23, 2011, respectively. The performance unit award is allocated one-third to each annual performance period for three years (2010-2012) or (2011-2013), as applicable, and is payable in cash after the end of such period. Each annual performance target is set by the Compensation Committee at the start of each respective single-year performance period, and the payout of the performance unit award may range from 0% to 150% based on the achievement of specified results. For 2011, the performance unit award payout was based on the Company’s achievement of specified results with respect to free cash flow and net service revenue, equally weighted, and the achievement on the objective was 91.5% of target (adjusted to 106.5%).

 

  (5) Consists of: (a) amounts contributed by us under our 401(k) and deferred compensation plans; (b) perquisites and other personal benefits; and (c) tax gross-ups for relocation benefits as follows:

 

   

Year

     

Company

Contributions to

401(k) and Deferred

  Compensation Plans  

($)

     

Perquisites

and Other

Personal

Benefits

($)(a)

     

  Tax Gross
Ups

($)(b)

 

Mr. Hesse

  2011     76,629     17,660       —

 

Mr. Euteneuer

  2011         77,088       —

 

Mr. Cowan

  2011     7,837     —               —

 

Mr. Elfman

  2011     7,837     —               —

 

Mr. Johnson

  2011     7,837     23,589     16,152

 

Mr. Brust

  2011     7,837     —               —

 

 

 

  (a) The perquisites and other personal benefits received by Mr. Hesse in 2011 consisted of: non-business use of our corporate aircraft by Mr. Hesse and his family, which had an incremental cost to us of $9,745; costs for security services for Mr. Hesse’s residence, which had an incremental cost to us of $7,915; and personal IT and tech support.

The incremental cost of use of our aircraft is calculated by dividing the total variable costs (such as fuel, aircraft maintenance, engine warranty expense, contract labor expense and other trip expenses) by the total flight hours for such year and multiplying such amount by the individual’s total number of flight hours for non-business use for the year.

The Compensation Committee established an overall security program for Mr. Hesse. Under the security program, we provided Mr. Hesse with residential security systems and equipment and he was required to use our aircraft for business travel as well as non-business travel. Mr. Hesse was permitted to have his family accompany him on the corporate aircraft for business and non-business travel.

The amount disclosed for Mr. Euteneuer includes $71,759 in legal fees relating to the negotiation of his employment contract and $5,329 of non-business use of our corporate aircraft.

Consistent with our objective to attract and retain a high-performing executive management team, we may recruit or relocate candidates from throughout the U.S. to fill executive level openings and will reimburse the executive for relocation costs. The amount disclosed for Mr. Johnson consists of relocation costs of $23,589.

 

  (b) To the extent such relocation benefits are taxable to the recipient, we may also provide a cash payment to the recipient to offset the tax payable on such reimbursement, in whole or in part, taking into account the tax payable by the recipient on such tax gross-up as well.

 

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2011 Grants of Plan-Based Awards

The table below summarizes awards under our short- and long-term incentive plans, and other option awards, to our named executive officers in 2011. These awards consisted of the following:

 

   

Awards granted pursuant to our 2011 STIC plan, which is our annual cash incentive compensation plan;

   

Stock options, performance units, performance-based RSUs granted pursuant to our 2011 LTIC plan, which is our long-term incentive compensation plan; and

   

Restricted stock granted to Mr. Euteneuer in connection with his employment agreement.

 

              

Estimated Possible Payouts

Under Non-Equity Incentive
Plan Awards

 

Estimated Future Payouts Under

Equity Incentive Plan Awards

 

 

All Other
Options
Awards:

# of
Securities
  Underlying  
Options

(#)

 

  Exercise  
of Base
Price of
Option
Awards

($/Sh)

 

Grant

  Date Fair  
Value

of Stock

and

Option
Awards

($)

Name  

  Grant  

Date

    Award  
Type
 

Threshold

$

 

Target

$

 

Maximum

$

 

Threshold

$

 

Target

$

 

Maximum

$

 

Target

#

     

Hesse

  2/23   STI(1)   600,000   2,400,000   4,800,000              
    2/23   LTI(2)   1,250,000   5,000,000   7,500,000              
    2/23   LTI(3)   1,467,600   5,870,400   8,805,600              
    2/23   pRSU(4)   —          —          —                277,008       1,163,435
    2/23   pRSU(5)   —          —          —                321,667       1,351,000
    2/23   PU(6)   —          —          —          177,083   708,333   1,416,667         708,333
    2/23   SO(7)   —          —          —                  900,000   4.20   1,692,000

Euteneuer

  4/4   STI(1)   251,875   1,007,500   2,015,000              
    4/4   LTI(3)   437,500   1,750,000   2,625,000              
    4/4   pRSU(5)   —          —          —                76,419       353,056
    4/4   RSA (8)   —          —          —                  125,000     577,501
    4/4   SO(9)   —          —          —                  341,463   4.62   689,755

Cowan

  2/23   STI(1)   226,563   906,250   1,812,500              
    2/23   LTI(2)   312,500   1,250,000   1,875,000              
    2/23   LTI(3)   312,500   1,250,000   1,875,000              
    2/23   pRSU(4)   —          —          —                69,252       290,858
    2/23   pRSU(5)   —          —          —                56,306       236,487
    2/23   PU(6)   —          —          —          52,083   208,333   416,666         208,333
    2/23   SO(7)   —          —          —                  243,902   4.20   458,536

Elfman

  2/23   STI(1)   203,125   812,500   1,625,000              
    2/23   LTI(2)   375,000   1,500,000   2,250,000              
    2/23   LTI(3)   406,250   1,625,000   2,437,500              
    2/23   pRSU(4)   —          —          —                83,102       349,030
    2/23   pRSU(5)   —          —          —                73,198       307,433
    2/23   PU(6)   —          —          —          53,125   212,500   425,000         212,500
    2/23   SO(7)   —          —          —                  317,073   4.20   596,097

Johnson

  2/23   STI(1)   60,375   241,500   483,000              
    2/23   STI(1)   63,750   255,000   510,000              
    2/23   LTI(2)   160,000   640,000   960,000              
    2/23   LTI(3)   175,000   700,000   1,050,000              
    2/23   pRSU(4)   —          —          —                35,457       148,919
    2/23   pRSU(5)   —          —          —                31,532       132,433
    2/23   PU(6)   —          —          —          22,667   90,667   181,334         90,667
    2/23   SO(7)   —          —          —                  136,585   4.20   256,780
Former Executive Officer:                          

Brust

  2/23   STI(1)   325,000   1,300,000   2,600,000              

 

 

 

  (1)

STI - Represents the threshold, target and maximum estimated possible payouts for fiscal year 2011 under our 2011 STIC plan. Payouts under the 2011 STIC plan, which were based on our 2011 actual performance compared to the financial and operating objectives of the plan, were made at approximately 73.7% (after adjustment) of each named executive officer’s target opportunity, and are reflected in the 2011 Summary Compensation Table in the columns entitled “Non-Equity Incentive Plan Compensation” and “Bonus.” Each performance objective under the plan had a threshold achievement level, below which there would be no payout, a target achievement level, at which the target opportunity

 

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would be paid, and a maximum achievement level, at which 200% of the target would be paid for each half-year performance period. For purposes of this table, the minimum estimated possible payout assumes that the threshold achievement level was satisfied. For more information on the 2011 STIC plan, see “Compensation Discussion and Analysis – Primary Components of Executive Compensation–Short-term Incentive Compensation Plans.” Mr. Johnson’s target for the first half of the 2011 STIC plan was based on a salary of $483,000, which increased in the second half of the 2011 STIC plan to $510,000.

 

  (2) LTI - Represents the threshold, target and maximum estimated possible payouts for performance units granted by the Compensation Committee on March 16, 2010 under the 2010 LTIC plan. In early 2011, the Compensation Committee set goals for the 2011 LTIC plan performance period with respect to free cash flow and net service revenue.

 

  (3) LTI - Represents the threshold, target and maximum estimated possible payouts for performance units granted by the Compensation Committee on February 23, 2011 under the 2011 LTIC plan. In early 2011, the Compensation Committee set goals for the 2011 LTIC plan performance period with respect to free cash flow and net service revenue.

 

  (4) pRSUs - Represents a performance-based RSU award granted under our 2010 LTIC plan, which is subject to adjustment in accordance with the performance objectives. Vesting occurs 100%, as adjusted for achievement in each of the three one-year performance periods ending on December 31, 2010, 2011, and 2012, on March 16, 2013. In early 2011, the Compensation Committee set goals for the 2011 LTIC plan performance period with respect to free cash flow and net service revenue. The total number of performance-based RSUs granted is set forth below:

 

Name    2010 Performance-based RSUs    1/3 for 2011

Daniel R. Hesse

   831,025      277,008

Keith O. Cowan

   207,756        69,252

Steven L. Elfman

   249,307        83,102

Robert L. Johnson

   106,371        35,457

 

  (5) pRSUs - Represents a performance-based RSU award granted under our 2011 LTIC plan, which is subject to adjustment in accordance with the performance objectives. Vesting occurs 100%, as adjusted for achievement in each of the three one-year performance periods ending on December 31, 2011, 2012, and 2013, on February 23, 2014. In early 2011, the Compensation Committee set goals for the 2011 performance period with respect to free cash flow and net service revenue. The total number of performance-based RSUs granted is set forth below:

 

Name    2011 Performance-based RSUs    1/3 for 2011

Daniel R. Hesse

   965,000      321,667

Joseph J. Euteneuer

   229,258        76,419

Keith O. Cowan

   168,919        56,306

Steven L. Elfman

   219,595        73,198

Robert L. Johnson

     94,595        31,532

 

  (6) PUs- Represents the target opportunity of performance units for the 2011 annual performance period as of the approval date of the Compensation Committee under the 2009 LTIC plan. The performance unit award is allocated one-third to each annual performance period for three years (2009-2011). Each annual performance target was set by the Compensation Committee at the start of each respective single-year performance period, and the payout of the performance unit award may range from 0% to 200% based on the achievement of those specified results. The award was payable in cash or unrestricted shares of our common stock, at the discretion of the Compensation Committee, after the end of 2011. For 2011, the performance unit award was based on the Company’s achievement of specified results with respect to free cash flow and net service revenue and was paid out in cash.

 

  (7) SO - Represents stock options granted under our 2011 LTIC plan. Vesting occurs in equal installments on each of February 23, 2012, February 23, 2013 and February 23, 2014.

 

  (8) RSA - Represents a restricted stock award granted as part of his sign-on award. Vesting occurs 100% on April 4, 2014.

 

  (9) SO - Represents stock options granted under our 2011 LTIC plan. Vesting occurs in equal installments on each of April 4, 2012, April 4, 2013 and April 4, 2014.

 

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2011 Option Exercises and Stock Vested

The table below summarizes option awards that were exercised and stock awards that vested in 2011 with respect to each of our named executive officers.

 

      Option Awards    Stock Awards
     

Number of

Shares

Acquired on

Exercise

(#)

  

Value

Realized on

Exercise

($)

  

Number of

Shares

Acquired on

Vesting

(#)(1)

  

Value

Realized on

Vesting

($)(2)

   

Hesse

         322,581    1,461,292
   

Euteneuer

         —      —  
   

Cowan

         161,290       730,644
   

Elfman

           96,774       438,386
   

Johnson

           41,290       187,044

Former Executive Officer:

Brust

         234,742    1,227,701

 

 

  (1) Of the shares acquired on vesting, each named executive officer surrendered a number to satisfy his tax withholding obligations, resulting in his receiving a net number of shares of our common stock as follows:

 

Named Executive Officer   Surrendered      Received

Hesse

          114,763      207,818

Cowan

            50,948      110,342

Elfman

            31,704        65,070

Johnson

            15,252        26,038

Brust

            97,301      137,441

 

  (2) Amounts reflect the average high and low common stock price as reported on the NYSE composite of the underlying common stock on the day the RSU award vested multiplied by the number of shares that vested.

 

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Outstanding Equity Awards at 2011 Fiscal Year-End

The table below summarizes option and equity awards outstanding as of December 31, 2011 held by each of our named executive officers.

 

Option Awards   Stock Awards
Name  

Number of      

Securities     

Underlying     

Unexercised     

Options (#)     

Exercisable      

   

    Number of    

    Securities    

    Underlying    

    Unexercised    

    Options (#)    

    Unexercisable    

   

Option

  Exercise  

Price

($)

   

Option

  Expiration  

Date

 

    Number of      

    Shares or      

    Units of      

    Stock That      

    Have Not      

    Vested      

    (#)       

   

Market

Value

of Shares

or 

Units of

Stock

That Have

  Not Vested  

($)(1)

 

Equity     

Incentive     

Plan     

Awards:     

Number     

of     

Unearned     

Shares,     

Units, or     

Other     

Rights     

That     

    Have Not         

Vested     

(#)      

   

Equity

Incentive

Plan

Awards:

Market or

Payout

Value of

Unearned

Shares,

Units, or

Other

Rights

That Have

  Not Vested 

($)(1)

Hesse

        —        900,000  (2)         4.20           02/23/2021     875,683  (6)       2,049,098     920,342  (7)       2,153,600
      227,272  (3)           681,819  (3)         3.45           03/16/2020            —      —                 —      —          
      1,475,694  (4)           1,475,695  (4)         3.59           02/25/2019            —      —                 —      —          
      513,347  (5)           —            6.52           03/26/2018            —      —                 —      —          
      1,000,000  (5)           —            13.91           12/17/2017            —      —                 —      —          
      1,000,000  (5)           —            16.69           12/17/2017            —      —                 —      —          
      1,275,000  (5)           —            19.47           12/17/2017            —      —                 —      —          

Euteneuer

        —        341,463  (8)         4.62           04/04/2021     201,419  (9)          471,320     152,839 (10)      357,643

Cowan

                243,902  (2)         4.20           02/23/2021     194,810  (6)          455,856     181,865  (7)       425,563
      56,818  (3)           170,455  (3)         3.45           03/16/2020            —      —                 —      —          
      434,028  (4)           434,028  (4)         3.59           02/25/2019            —      —                 —      —          
      256,674  (5)           —            6.52           03/26/2018            —      —                 —      —          
      473,485  (5)           —            21.48           07/09/2017            —      —                 —      —          

Elfman

                317,073  (2)         4.20           02/23/2021     239,402  (6)          560,201     229,500  (7)       537,030
      68,181  (3)           204,546  (3)         3.45           03/16/2020            —      —                 —      —          
      442,708  (4)           442,709  (4)         3.59           02/25/2019            —      —                 —      —          
      154,004  (5)           —            7.89           05/04/2018            —      —                 —      —          
      435,730  (5)           —            9.47           05/04/2018            —      —                 —      —          

Johnson

                136,585  (2)         4.20           02/23/2021     102,446  (6)          239,724     98,520  (7)       230,537
      29,091  (3)           87,273  (3)         3.45           03/16/2020            —      —                 —      —          
      188,889  (4)           188,889  (4)         3.59           02/25/2019            —      —                 —      —          
      65,708  (5)           —            6.52           03/26/2018          
      35,344 (11)               35,371 (11)        4.64           06/17/2017          

Former Executive

Officer:

  

  

               

 

Brust

                681,818 (12)        3.29           02/25/2020     415,512 (13)         972,298            —      —          
      677,201  (5)           —            8.02           05/01/2018            —      —                 —      —          

 

 

 

  (1) Market value is based on the closing price of a share of our common stock of $2.34 on December 30, 2011.

 

  (2) Stock options vest 33 1/3% on February 23, 2012, February 23, 2013 and February 23, 2014.

 

  (3) Stock options vest/vested 25% on March 16, 2011, March 16, 2012, March 16, 2013 and March 16, 2014.

 

  (4) Stock options vest/vested 25% on February 25, 2010, February 25, 2011, February 25, 2012 and February 25, 2013.

 

  (5) Stock options are fully vested.

 

  (6) Consists of performance-based RSU awards that vest on March 16, 2013 and with respect to which the applicable performance periods have been completed:

 

Name       Amount

Daniel R. Hesse

      554,016

Keith O. Cowan

      138,504

Steven L. Elfman

      166,204

 

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Robert L. Johnson

     70,914      

Consists of performance-based RSU awards that vest on February 23, 2014 and with respect to which the applicable performance periods have been completed:

 

Name

   Amount       

Daniel R. Hesse

     321,667      

Keith O. Cowan

     56,306      

Steven L. Elfman

     73,198      

Robert L. Johnson

     31,532      

 

(7) Consists of performance-based RSU awards that vest on March 16, 2013 and with respect to which the applicable performance periods have not been completed:

 

Name

   Amount       

Daniel R. Hesse

     277,009      

Keith O. Cowan

     69,252      

Steven L. Elfman

     83,103      

Robert L. Johnson

     35,457      

Consists of performance-based RSU awards that vest on February 23, 2014 and with respect to which the applicable performance periods have not been completed:

 

Name

   Amount       

Daniel R. Hesse

     643,333      

Keith O. Cowan

     112,613      

Steven L. Elfman

     146,397      

Robert L. Johnson

     63,063      

 

(8) Stock options vest in equal installments on each of April 4, 2012, April 4, 2013 and April 4, 2014.

 

(9) Consists of 76,419 shares underlying a performance-based RSU award and 125,000 shares of restricted stock that vest 100% on April 4, 2014.

 

(10) Performance-based RSU award vests 100% on April 4, 2014.

 

(11) Stock options vest/vested 50% on June 17, 2011 and June 17, 2012.

 

(12) Stock options vest 100% on May 1, 2012.

 

(13) RSU award vests 100% on May 1, 2012.

 

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Pension Benefits

None of our named executive officers are offered pension benefits from us.

Nonqualified Deferred Compensation

Certain employees, including our named executive officers, are entitled to participate in the Sprint Nextel Deferred Compensation Plan, a nonqualified and unfunded plan under which participants may defer to future years the receipt of certain compensation. For 2011, the plan permitted participants to defer up to 50% of base salary and 75% of their STIC plan payout. To compensate participants for federal tax law limitations under our 401(k) plan, we match deferrals to the plan using the same matching contribution formula as our 401(k) plan for eligible compensation above the applicable annual limit, which for 2011 was $245,000. Of our named executive officers, only Mr. Hesse participated in this plan with respect to compensation earned during 2011. The table below summarizes the information with respect to this plan, and the activity and balances with respect to the account of each named executive officer.

 

 

Name   

Executive

Contributions in

Last FY($)(1)

    

Registrant

Contributions in

Last FY($)(2)

    

Aggregate

Earnings in

Last FY($)

    

Aggregate

Withdrawals/

Distributions($)

    

Aggregate

Balance at

Last FYE

($)(3)

 

Mr. Hesse

     60,000        68,792         10,927                 583,319   

Mr. Euteneuer

             —           —                   —     

Mr. Cowan

             —           —                   —     

Mr. Elfman

             —           —                   —     

Mr. Johnson

             —           —                   —     

Mr. Brust

             —           —                   —     

 

  (1) Represents contributions by Mr. Hesse with respect to 2011 base salary compensation, the amount of which is included in the 2011 Summary Compensation Table in the “Salary” column.
  (2) Represents matching contributions by us with respect to 2011 base salary deferrals but not credited to the account of Mr. Hesse until March 30, 2012, the amount of which is included in the 2011 Summary Compensation Table in the “All Other Compensation” column.
  (3) Represents the aggregate balance as of December 31, 2011, adjusted to include the matching contribution noted in footnote 2 above.

Compensation deferred by participants and any matching contributions made by us are credited to a bookkeeping account that represents our unsecured obligation to repay the participant in the future. Participants elect to allocate deferred and matching contributions among one or more hypothetical investment options, which include one option that tracks our common stock and other options that track broad-based bond and equity indices. Participants may change hypothetical investment elections only four times a year and at least three months must elapse between each change. Under the plan, the amount of our unfunded obligation is determined by tracking the value in the bookkeeping account according to the performance of the hypothetical investments.

Potential Payments upon Termination of Employment or Change of Control

Upon a December 30, 2011 termination of employment due to a resignation without good reason or by us with cause, our named executive officers would be entitled to only those payments and benefits provided to all our salaried employees on a non-discriminatory basis, including:

 

   

accrued salary and vacation pay;

 

   

distribution of balances under our 401(k) plan and deferred compensation plan; and

 

   

had their termination not for cause been at their normal retirement, (1) the 2011 STIC plan and the 2009 LTIC plan performance unit award based on actual performance and made after the Compensation Committee determined whether performance targets were achieved, pro-rated for their service during the performance period, (2) continued participation in group life and health plans, and (3) accelerated vesting of options and RSUs granted (at actual performance) and exercisability of vested options for five years.

 

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For more information on the deferred compensation benefits available to our named executive officers, see “—Other Components of Executive Compensation.”

Further, pursuant to the terms of our named executive officers’ respective employment agreements or our Change in Control Severance Plan, they would be entitled to not only their accrued benefits noted above, but other payments and benefits upon terminations of employment in the event of certain situations as described in the narrative, and quantified in the table, below.

While each of the applicable employment agreements and the Change in Control Severance Plan document set forth relevant definitions in full, generally:

Change of control means:

 

   

the acquisition by a person or group of 30% or more of Sprint’s voting stock;

 

   

a change in the composition of a majority of our directors;

 

   

the consummation of a merger, reorganization, business combination or similar transaction after which: Sprint’s shareholders do not hold more than 50% of the combined entity, the members of Sprint’s board of directors do not constitute a majority of the directors of the combined entity, or a person or group holds 30% or more of the voting securities of the combined entity; or

 

   

the liquidation or dissolution of Sprint.

We have cause to terminate the employment of a named executive officer involuntarily where that officer materially breaches his employment agreement, fails to perform his duties, intentionally acts in a manner that is injurious to us, or violates our code of conduct.

Good reason means, the occurrence of any of the following without the named executive officer’s consent:

 

   

our material breach of his employment agreement;

 

   

a reduction in salary or short-term incentive compensation target opportunity, except for across-the board reductions;

 

   

certain relocations; and

 

   

in connection with a change in control:

 

¡

  the reduction of an executive’s duties or responsibilities, organizational status or title;

 

 

¡

  the failure to provide a long-term incentive compensation opportunity comparable to other senior executives or a greater than 10% maximum across-the-board reduction to any of base salary or short- or long-term incentive compensation opportunities; or

¡

  our failure to obtain an agreement from a successor to perform the employment agreement.

 

The following table and narrative describe the potential payments and benefits that would be provided to our named executive officers upon each respective hypothetical December 30, 2011 termination of employment scenario (except that only the information related to an involuntary termination without cause is applicable for Mr. Brust, whose termination of employment with us was effective April 29, 2011).

 

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                  Without Cause or For Good Reason                              
                        

 

Non-CIC(1)

                CIC(2)                 Disability           Death    
              ($)                 ($)                 ($)           ($)    

 

Hesse

   Salary-based              2,400,000            2,400,000            1,200,000            —         
    

 

STI-based

             6,563,520            7,192,800            1,765,960            1,765,960   
     LTI-based(3)              4,986,679            7,244,779            7,244,779            7,244,779   
     Benefits/Perquisites                      —                  —                  —            —         
           Total Value        14,002,896            16,890,276            10,219,588            9,010,739   

 

Euteneuer 

   Salary-based              1,550,000            1,550,000            775,000              
    

 

STI-based

             2,475,618            2,762,565            461,641            461,641   
    

LTI-based(3)

             292,500            828,964            828,964            828,964   
     Benefits/Perquisites              52,449            52,449            8,724            —         
           Total Value        4,370,567            5,193,978            2,074,329            1,290,605   

 

Cowan 

   Salary-based              1,450,000            1,450,000            725,000            —         
    

 

STI-based

             2,478,413            2,716,031            666,834            666,834   
    

LTI-based(3)

             2,689,138            2,689,138            1,776,148            1,776,148   
     Benefits/Perquisites              52,606            52,606            8,803            —         
           Total Value        6,670,157            6,907,775            3,176,785            2,442,982   

 

Elfman 

   Salary-based              1,300,000            1,300,000            650,000            —         
    

 

STI-based

             2,222,025            2,435,063            597,851            597,851   
    

 

LTI-based(3)

             1,496,002            2,009,854            2,009,854            2,009,854   
     Benefits/Perquisites              47,131                  —            6,066            —         
           Total Value        5,065,158            5,792,048            3,263,771            2,607,705   

 

Johnson 

   Salary-based              1,020,000            1,020,000            510,000            510,000   
    

 

STI-based

             1,530,000            1,530,000            510,000            510,000   
    

 

LTI-based(3)

             859,645            859,645            859,645            859,645   
     Benefits/Perquisites              68,126            68,126            9,063            —         
           Total Value        3,477,771            3,477,771            1,888,708            1,879,645   

Brust 

   Salary-based                      —            N/A            N/A            N/A   
    

 

STI-based

             461,299            N/A            N/A            N/A   
    

 

LTI-based(3)

             4,656,952            N/A            N/A            N/A   
     Benefits/Perquisites                      —            N/A            N/A            N/A   
               Total Value          5,118,251              N/A              N/A              N/A   

 

  (1)

With respect to Mr. Johnson, if his termination was for good reason based on relocation, his salary-based benefit would have been $510,000, his STI-based benefit would have been $1,020,000, and his benefits/perquisites would have been $9,063 for a total value of $2,398,708.

 

  (2)

If the change of control had occurred in 2010, the 2011 STIC plan portion of the STI-based payment would have been: for Mr. Hesse, $1,765,960, resulting in a total value of $16,263,436; for Mr. Euteneuer, $461,641, resulting in a total value of $4,908,054; for Mr. Cowan, $666,834, resulting in a total value of $6,671,078; and for Mr. Elfman, $597,851, resulting in a total value of $5,579,836.

 

  (3)

Includes performance units payable in cash, stock options and RSUs. The value of options is based on the intrinsic value of the options, which is the difference between the exercise price of the option and the market price of our shares on December 30, 2011, multiplied by the number of options, and the value of RSUs is based on the market value of our stock on December 30, 2011, multiplied by the number of RSUs.

 

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Resignation for Good Reason or Involuntary Termination without Cause

If our named executive officers’ employment had terminated either by them for good reason or by us without cause, they would have been entitled to:

 

   

continuation of their then-current base salary for their respective payment period through periodic payment with the same frequency as our payroll schedule (or in the event of a termination within 18 months after a change of control, in a lump sum equal to their base salary for such payment period);

 

   

a payment of:

¡  

 

 

their STIC plan award for 2011, based on actual performance (or in the event of a termination within 18 months after a change of control occurring in 2011, at their STI target opportunity) prorated for service during the performance period, plus

 

 

¡

  their STI target opportunity as of December 30, 2011 or that amount of the applicable STIC plan payout based on actual performance, if less (greater, with respect to Mr. Johnson), for their payment period, with each payment being made after the Compensation Committee has determined whether performance targets were achieved, except that, in the event of a termination within 18 months after a change of control, the payment equal to their STI target opportunity for their payment period would instead be paid as a lump sum without regard to achievement of performance targets or timing of the Compensation Committee’s determination thereon;

 

   

a payment of their 2009 LTIC plan (and, with respect to Mr. Cowan, his 2010 LTIC plan) performance unit award based on actual performance and made after the Compensation Committee has determined whether performance targets were achieved, prorated for their service during the performance period;

 

   

continued vesting through their payment period (through the originally-scheduled vesting date with respect to Mr. Cowan’s awards outstanding as of August 5, 2010) (or in the event of a termination within 18 months after a change of control, and with respect to Mr. Johnson, immediate vesting) of options and RSUs granted, exercisability of options vested through the 90th day after such vesting, and with respect to:

 

¡

 

 

Mr. Hesse, receipt of the Sign-On RSU Award (as defined in his employment agreement) on the first business day of the seventh month following his termination;

 

¡

  Mr. Brust, vesting as of May 11, 2011 of the unvested portions of his Sign-On Option Award and Sign-On RSU Award (as defined in his employment agreement); and
¡   Mr. Johnson, exercisability of vested options for 12 months; and

 

   

continued participation at employee rates in our group health and life (and for Mr. Johnson, long-term disability) plans, and (except for Mr. Brust and except for Mr. Johnson if his termination was for good reason based on relocation) outplacement services in an amount not to exceed $35,000 ($50,000 with respect to Mr. Johnson), each for the duration of their payment period.

The payment period for each of the named executive officers is 24 months (12 months with respect to Mr. Johnson if his termination was for good reason based on relocation), with the exception of Mr. Brust, whose payment period was the remainder of his employment term.

Termination as a Result of Disability

If our named executive officers’ employment had terminated as a result of their disability, they would have been entitled to:

 

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continuation of their base salary for 12 months, less (except for Mr. Johnson) any benefits paid under our Long-term Disability Plan, through periodic payment with the same frequency as our payroll schedule;

 

   

a payment of their 2011 STIC plan award and the 2009 LTI plan performance unit award, each based on actual performance and prorated for service during the applicable performance periods;

 

   

immediate vesting of options and RSUs granted, exercisability of vested options for five years (12 months with respect to Mr. Johnson), and with respect to Mr. Hesse, receipt of the Sign-On RSU Award on the first business day of the seventh month following his termination; and

 

   

continued participation at employee rates in our group health and life plans for 12 months.

Termination as a Result of Death

Had our named executive officers’ employment terminated as result of their death, their estates would have been entitled, as with respect to our employees generally, to a payment of the 2011 STIC plan award based on target and the 2009 performance units under the 2009 LTIC plan based on actual performance, each prorated for service during the applicable performance periods, immediate vesting of options and RSUs granted, and exercisability of vested options for 12 months. Mr. Johnson’s estate also would have received continuation of his base salary for 12 months.

Conditions Applicable to the Receipt of Severance Payments and Benefits

As a condition to our named executive officers’ entitlement to receive the amounts above, they would have been:

 

   

required to execute a release in favor of us;

 

   

subject to confidentiality and non-disparagement provisions on a permanent basis following the termination of their employment; and

 

   

for the duration of their payment period, prohibited from:

 

 

¡

  engaging in certain employment activities with a competitor of ours;

 

 

¡

  soliciting our employees and certain other parties doing business with us to terminate their relationship with us; and

¡

  soliciting or assisting any party to undertake any action that would be reasonable likely to, or is intended to, result in a change of control or seek to control our board of directors.

If the named executive officer breached any of these obligations, he would have no rights in, and we would have had no obligation to provide, any severance benefits yet to be paid or provided under his employment agreement and any outstanding equity-based award granted under his employment agreement would have terminated immediately.

Certain Relationships and Related Transactions

Our board has adopted a written policy regarding the review and approval or ratification of transactions involving our company and our directors, nominees for directors, executive officers, immediate family members of these individuals, and shareholders owning five percent or more of our outstanding voting stock, each of whom is referred to as a related party. Our policy covers any transaction, arrangement or relationship where a related party has a direct or indirect material interest and the amount involved exceeds $120,000, except for approved compensation-related arrangements. Our corporate governance and legal staff are primarily responsible for the development and implementation of processes and procedures to obtain information from our directors and executive officers with respect to transactions between related parties.

 

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We have a related party transaction committee comprised of members of management that reviews transactions between related parties to determine, based on the facts and circumstances, the potential amount involved and whether a related party has a direct or indirect material interest in the transaction. If the transaction is covered under our policy, the related party transaction committee then makes a recommendation to the Nominating Committee of our board regarding the appropriateness of the transaction. The Nominating Committee approves or ratifies the transaction only if it determines the transaction is in the best interests of the Company and our shareholders. In 2011, the related party transaction described below was brought before and ratified by the Nominating Committee.

Certain Employment Relationships

Danny L. Bowman, who was an executive officer of Sprint as of December 31, 2011, has a brother-in-law who is employed by a subsidiary of Sprint as a business account manager and in 2011 earned approximately $360,000, including commissions, which is commensurate with his level of experience and other employees having similar responsibilities.

 

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SECURITY OWNERSHIP

Security Ownership of Certain Beneficial Owners

The following table provides information about the only known beneficial owners of five percent or more of our common stock. For purposes of the table below, beneficial ownership is determined based on Rule 13d-3 of the Securities Exchange Act of 1934, which states that a beneficial owner is any person who directly or indirectly has or shares voting and/or investment or dispositive power.

 

Name and Address of Beneficial Owner

  

 

 

 

 

Amount and Nature of

Beneficial Ownership

 

  

  

  

 

Percent
of Class 
(1)

   
   

Capital Research Global Investors

333 South Hope Street

Los Angeles, California 90071

 

     276,983,800 shares (2)       9.2%    

 

Dodge & Cox

555 California Street, 40th Floor

San Francisco, CA 94104

 

     225,844,428 shares(3)       7.5%    

 

BlackRock, Inc.

40 East 52nd Street

New York, New York 10022

 

     166,649,278 shares (4)       5.6%    
   

Franklin Resources, Inc.

One Franklin Parkway

San Mateo, California 94403-1906

 

    

 

158,537,082 shares (5)

 

  

 

   5.3%

 

   

 

 

(1) The ownership percentages set forth in this column are based on our outstanding shares on March 16, 2012 and assumes that each of these shareholders continued to own the number of shares reflected in the table above on March 16, 2012.

 

(2) According to a Schedule 13G filed with the SEC on February 8, 2012, by Capital Research Global Investors (a division of Capital Research and Management Company). According to the Schedule 13G, Capital Research Global Investors is the beneficial owner of, and has sole voting power and sole dispositive power with respect to, all of the shares.

 

(3) According to a Schedule 13G/A filed with the SEC on February 10, 2012 by Dodge & Cox. Dodge & Cox has sole voting power with respect to 213,917,928 shares, and sole dispositive power with respect to, all of the shares.

 

(4) According to a Schedule 13G/A filed with the SEC on February 8, 2012 by BlackRock, Inc. BlackRock, Inc. is the beneficial owner of, and has sole voting power and sole dispositive power with respect to, all of the shares.

 

(5) According to a Schedule 13G filed with the SEC on February 8, 2012, by Franklin Resources, Inc., Charles B. Johnson and Rupert H. Johnson, Jr. According to the Schedule 13G, Franklin Resources, Charles B. Johnson and Rupert H. Johnson, Jr. are beneficial owners of, and have shared voting power with respect to, 150,154,747 shares, and shared dispositive power with respect to 158,537,082 shares.

 

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Security Ownership      LOGO     

 

 

 

Security Ownership of Directors and Executive Officers

The following table states the number of shares of our common stock beneficially owned as of March 16, 2012 by each director, named executive officer, and all directors and executive officers as a group. Except as otherwise indicated, each individual named has sole investment and voting power with respect to the shares owned.

 

Name of Beneficial Owner

   Shares
Owned
    Shares
Covered by
Exercisable
Options and
RSUs to be
Delivered (1)
     Percentage of
Common Stock

Robert R. Bennett

     86,787        20,755       *  

Gordon M. Bethune

     75,305        20,755       *

Robert H. Brust

     0        1,774,531       *

Keith O. Cowan

     650,694        1,576,137       *

Steven L. Elfman

     430,884        1,495,850       *

Joseph J. Euteneuer

     125,000 (2)      113,821       *

Larry C. Glasscock

     91,736        20,755       *

James H. Hance, Jr.

     96,245        20,755       *

Daniel R. Hesse

     1,891,571        6,756,433       *

V. Janet Hill

     76,918        91,956       *

Frank Ianna

     56,584        20,755       *

Robert L. Johnson

     223,093        488,105       *

Sven-Christer Nilsson

     37,182        20,755       *

William R. Nuti

     53,940        20,755       *

Rodney O’Neal

     61,439        20,755       *

Directors and Executive Officers as a group (20 persons)

     4,138,916        6,799,262       *

 

 

  *Indicates ownership of less than 1%.

 

  (1) Represents shares that may be acquired upon the exercise of stock options exercisable, and shares of stock that underlie restricted stock units to be delivered, on or within 60 days after March 16, 2012 under our equity-based incentive plans.

 

  (2) Represents shares of restricted stock as to which Mr. Euteneuer has sole voting power but no dispositive power.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own more than 10% of a registered class of our equity securities, to file with the SEC and the NYSE initial reports of beneficial ownership and reports of changes in beneficial ownership of our shares and other equity securities. These people are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file, and we make these reports available at www.sprint.com/investors/sec.

To our knowledge, based solely on a review of the copies of these reports furnished to us and written representations that no other reports were required, during 2011 all Section 16(a) filing requirements applicable to our directors, executive officers and beneficial owners of more than 10% of our equity securities were met.

 

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Proposal 2 - Ratification of the Selection of the

Independent Registered Public

Accounting Firm

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PROPOSAL 2. RATIFICATION OF THE SELECTION OF THE INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM

(Item 2 on Proxy Card)

Our Audit Committee has voted to appoint KPMG LLP as our independent registered public accounting firm to audit the consolidated financial statements and the effectiveness of internal control over financial reporting for our company and our subsidiaries for the year ending December 31, 2012. Our shareholders are asked to ratify that appointment at the annual meeting. In keeping with good corporate governance, the Audit Committee will periodically assess the suitability of our incumbent independent registered public accounting firm taking into account all relevant facts and circumstances, including the possible consideration of the qualifications of other accounting firms.

Representatives of KPMG are expected to be present at the annual meeting and will have the opportunity to make a statement and to respond to appropriate questions. If the appointment of KPMG is not ratified at the meeting, the Audit Committee will consider the selection of another accounting firm.

The following paragraphs describe the fees billed for professional services rendered by our independent registered public accounting firm for the fiscal years ended December 31, 2011 and 2010.

Audit Fees

For professional services rendered for the audit of our 2011 consolidated financial statements, the report on the effectiveness of internal control over financial reporting as required by the Sarbanes-Oxley Act, the review of the consolidated financial statements included in our 2011 Form 10-Qs and the statutory audits of our international subsidiaries, KPMG billed us a total of approximately $15 million.

For professional services rendered for the audit of our 2010 consolidated financial statements, the report on the effectiveness of internal control over financial reporting as required by the Sarbanes-Oxley Act, the review of the consolidated financial statements included in our 2010 Form 10-Qs and the statutory audits of our international subsidiaries, KPMG billed us a total of approximately $15.5 million.

These amounts also include reviews of documents filed with the SEC, accounting consultations related to the annual audit and preparation of letters for underwriters and other requesting parties.

Audit-Related Fees

For professional audit-related services rendered to us, KPMG billed us a total of approximately $630,000 in 2011. Audit-related services in 2011 generally included the audits of our employee benefit plans, internal control reviews and other attestation services.

For professional audit-related services rendered to us, KPMG billed us a total of approximately $600,000 in 2010. Audit-related services in 2010 generally included the audits of our employee benefit plans, internal control reviews and other attestation services.

Tax Fees

For professional tax services rendered to us, KPMG billed us a total of approximately $ 775,000 in 2011. Tax services in 2011 primarily included tax consultation matters.

For professional tax services rendered to us, KPMG billed us a total of approximately $200,000 in 2010. Tax services in 2010 primarily included tax consultation matters.

All Other Fees

In 2011 and 2010, KPMG did not bill any fees other than the fees described above.

 

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Proposal 2 - Ratification of the Selection of the

Independent Registered Public

Accounting Firm

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The Audit Committee determined that the non-audit services rendered by KPMG in 2011 and 2010 were compatible with maintaining its independence as auditors of our consolidated financial statements.

The Audit Committee has adopted policies and procedures concerning our independent registered public accounting firm, including the pre-approval of services to be provided. Our Audit Committee pre-approved all of the services described above. The Audit Committee is responsible for the pre-approval of all audit, audit-related, tax and non-audit services; however, pre-approval authority may be delegated to one or more members of the Audit Committee. The details of any services approved under this delegation must be reported to the full Audit Committee at its next regular meeting. Our independent registered public accounting firm is generally prohibited from providing certain non-audit services under our policy, which is more restrictive than the SEC rules related to non-audit services. Any permissible non-audit service engagement must be specifically approved in advance by the Audit Committee. We provide quarterly reporting to the Audit Committee regarding all audit, audit-related, tax and non-audit services provided by our independent registered public accounting firm.

Our Board of Directors recommends that you vote “FOR” Proposal 2.

 

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Proposal 2 - Ratification of the Selection of the

 

Independent Registered Public

 

Accounting Firm

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PROPOSAL 3. ADVISORY APPROVAL OF THE COMPANY’S EXECUTIVE COMPENSATION

(Item 3 on Proxy Card)

The Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, and Section 14A of the Exchange Act require that we permit our shareholders to vote to approve, on an advisory (non-binding) basis, the compensation of our named executive officers as disclosed in the “Executive Compensation—Compensation Discussion and Analysis” and accompanying Executive Compensation Tables and related narrative disclosure beginning on page 18. At our 2011 Annual Meeting, our shareholders approved, on an advisory basis, that an advisory vote on executive compensation should be held annually. Based on such result, our board determined that the advisory vote on executive compensation will be held every year until the next advisory vote on the frequency of future advisory votes on executive compensation, which will be no later than the Company’s 2017 annual meeting of shareholders.

Our executive compensation programs are designed to attract, motivate, and retain our named executive officers, who can contribute to our success. We believe our incentive compensation must strike a balance between rewarding achievement of our short-term objectives and rewarding long-term shareholder return and must be highly sensitive to the degree to which those results are realized. Please read the “Executive Compensation—Compensation Discussion and Analysis” for additional details about our executive compensation programs, including information about the fiscal year 2011 compensation of our named executive officers.

We are asking our shareholders to indicate their support for our named executive officer compensation as described in this proxy statement. This proposal, commonly known as a “say-on-pay” proposal, gives our shareholders the opportunity to express their views on our named executive officers’ compensation. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the philosophy, policies and practices described in this proxy statement. Accordingly, we will ask our shareholders to vote “FOR” the following resolution at the 2012 Annual Meeting:

RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby APPROVED.

The say-on-pay vote is advisory, and therefore not binding on Sprint Nextel, the Compensation Committee or our board of directors. Our board of directors and our Compensation Committee value the opinions of our shareholders and expect to take into account the outcome of the vote when considering future executive compensation decisions to the extent they can determine the cause or causes of any significant negative voting results.

Our Board of Directors recommends that you vote “FOR” Proposal 3.

 

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Proposals 4 and 5 – Approval of

 

Amendments to Article Seventh of our

 

Articles of Incorporation

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PROPOSALS 4. AND 5. APPROVAL OF AMENDMENTS TO ARTICLE SEVENTH OF OUR ARTICLES

OF INCORPORATION

(Items 4 and 5 on Proxy Card)

In response to a shareholder proposal requesting that we eliminate supermajority voting provisions that was approved at our 2011 Annual Meeting, our board, upon the recommendation of the Nominating Committee, approved an amendment to the Amended and Restated Articles of Incorporation (the “Articles”), subject to shareholder approval.

In order to establish majority voting on all matters impacting our company, we must eliminate supermajority voting by: (1) opting-out of certain anti-takeover provisions of the Kansas General Corporation Code (“KGCC”) relating to business combinations (the “Business Combination Statute”) (Proposal 4) and (2) eliminating the business combination provision currently contained in Article SEVENTH of the Articles (the “Business Combination Provision”) (Proposal 5).

The following is a summary of the two components of the amendment to the Articles (the “Amendment”), which must be separately considered for approval.

The proposed Amendment would strike current Article SEVENTH in its entirety and replace it as follows:

Business Combinations with Interested Stockholders. The Corporation expressly elects not to be subject to the provisions of contained in Sections 17-12,100 to 17-12,104 of the Kansas General Corporation Code, as it may be amended.

While the text of the Amendment is contained in one new Article SEVENTH, in accordance with Securities Exchange Act Rule 14a-4(a)(3), shareholders will have an opportunity to vote separately on each of the two components of the Amendment: (1) “opts out” of certain anti-takeover provisions of the Business Combination Statute (Proposal 4) and (2) eliminates the Business Combination Provision currently contained in Article SEVENTH. Either one or both or neither of the proposed changes may be approved by the shareholders (Proposal 5).

OVERVIEW OF KANSAS LAW

Under the KGCC, the board of directors and the holders of a majority of the shares entitled to vote must approve a merger, consolidation or sale of all or substantially all of a corporation’s assets. However, unless the corporation provides otherwise in its articles of incorporation, no shareholder vote of a constituent corporation surviving a merger is required if:

 

   

the merger agreement does not amend the constituent corporation’s articles of incorporation;

   

each share of stock of the constituent corporation outstanding before the merger is an identical outstanding or treasury share of the surviving corporation after the merger; and

   

either no shares of common stock of the surviving corporation are to be issued or delivered by way of the merger or, if common stock will be issued or delivered, it will not increase the number of outstanding shares of common stock immediately before the merger by more than 20%.

PROPOSAL 4. APPROVAL TO OPT-OUT OF THE BUSINESS COMBINATION STATUTE

(Item 4 on Proxy Card)

If passed, Proposal 4 would opt-out of the Business Combination Statute. The KGCC contains a “business combination” statute, which restricts “business combinations” between a domestic corporation and an “interested shareholder.” A “business combination” means one of various types of transactions, including mergers and consolidations that increase the proportionate voting power of the interested shareholder. An “interested shareholder” means any person, or its affiliate or associate that owns or controls 15% or more of the outstanding shares of the corporation’s voting stock.

 

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Proposals 4 and 5 – Approval of

Amendments to Article Seventh of our

Articles of Incorporation

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Under this statute, a domestic corporation may not engage in a business combination with an interested shareholder for a period of three years following the time the interested shareholder became an interested shareholder, unless:

 

   

before that time the corporation’s board of directors approved either the business combination or the transaction that resulted in the shareholder becoming an interested shareholder;

   

upon completion of the transaction that resulted in the shareholder becoming an interested shareholder, the interested shareholder owns at least 85% of the corporation’s voting stock outstanding at the time the transaction commenced, excluding shares owned by persons who are directors and also officers and shares held by specified employee stock ownership plans; or

   

at or after that time the business combination is approved by the board of directors and authorized at a shareholders’ meeting by the affirmative vote of at least two-thirds of the outstanding voting stock not owned by the interested shareholder.

The business combination restrictions of this statute do not apply if, among other things:

 

   

the holders of a majority of the corporation’s voting stock approve an amendment to its articles of incorporation or bylaws expressly electing not to be governed by the provisions of the business combination act, which election will be effective 12 months after the amendment’s adoption and would not apply to any business combination with a person who was an interested shareholder at or before the time the amendment was approved; or

   

a shareholder becomes an interested shareholder “inadvertently” and as soon as possible thereafter divests itself of a sufficient number of shares so that such shareholder ceases to be an interested shareholder and would not, at any time within the three-year period immediately before a business combination between the corporation and such interested shareholder, have been an interested shareholder, but for the inadvertent acquisition.

A vote “For” Proposal 4 would opt-out of the Business Combination Statute; however, it would not be effective until twelve (12) months following the shareholders’ approval.

PROPOSAL 5. APPROVAL OF THE ELIMINATION OF THE BUSINESS COMBINATION PROVISION

(Item 5 on Proxy Card)

If approved, Proposal 5, would eliminate the Business Combination Provision contained in Article SEVENTH of our Articles. The Business Combination Provision requires that certain business combinations initiated by a beneficial owner of 10% or more of our voting stock, together with its affiliates and associates (collectively an “interested shareholder”), must be approved by the holders of 80% of the outstanding voting stock, unless (1) approved by a majority of continuing directors at a meeting where at least seven continuing directors are present, or (2) the business combination is a merger or consolidation and the consideration received by our shareholders in the business combination is not less than the highest price per share paid by the interested shareholder for its shares. The types of business combinations covered by this provision include:

 

   

a merger or consolidation of our company or any of our subsidiaries with an interested shareholder or its affiliate;

   

a sale, lease, exchange, pledge, transfer or other disposition (in one transaction or a series of transactions) of assets with a fair market value of $1 million or more to or with an interested shareholder or its affiliate;

   

the issuance or transfer by us or any of our subsidiaries (in one transaction or a series of transactions) of our securities or securities of any of our subsidiaries in exchange for cash, securities or other property having an aggregate fair market value of $1 million or more to an interested shareholder or its affiliate;

   

the adoption of a plan or proposal for our liquidation or dissolution proposed by an interested shareholder or its affiliate; or

 

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Proposals 4 and 5 – Approval of

Amendments to Article Seventh of our

Articles of Incorporation

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any reclassification of securities or recapitalization of our company or other transaction that has the effect of increasing the proportionate share of our equity securities or equity securities of any subsidiary owned directly or indirectly by the interested shareholder or its affiliate.

In order to qualify as a continuing director, a director cannot be affiliated with an interested shareholder and must have been a director before the time the interested shareholder became an interested shareholder (or any successor director recommended by a majority of the continuing directors).

A vote “For” Proposal 5 would eliminate the Business Combination Provision.

CONSIDERATIONS OF THE BOARD IN MAKING ITS RECOMMENDATION

Both the Business Combination Provision and the Business Combination Statute help discourage potential acquirors from purchasing a large block of stock as a means of substantially influencing the outcome of a simple majority vote. Neither applies to any “business combination” that was approved in advance by the corporation’s board of directors prior to the acquiring party’s becoming an interested shareholder.

In making its recommendation, our board considered, among other things, that:

 

   

our shareholders approved a shareholder proposal requesting that we eliminate all supermajority voting provisions that we are subject to;

 

   

some institutional investors look unfavorably upon public companies which avail themselves of state corporate law anti-takeover protections such as the Business Combination Statute or Business Combination Provision;

 

   

the potentially chilling effect on takeover and investment activity in us due to the potential for restrictions and a substantial delay that may be required thereafter in completing a business combination;

 

   

while our board can approve a business combination in advance and exempt it from the Business Combination provisions of the KGCL or the Articles, such approval must be obtained before an investor becomes an “interested shareholder”. Investors are not always cognizant of the Business Combination provisions of the KGCL or the Articles and thus may become subject to its provisions and then be precluded from participating in a business combination for a substantial period of time.

Effects of a Voting “For” and “Against”

 

   

If Proposals 4 and 5 are approved, we will not be covered by either the Business Combination Provision or the Business Combination Statute. However, we would still be covered by the Business Combination Statute for twelve (12) months following the shareholders’ approval. See Annex A – Example 1.

 

   

If both Proposal 4 and Proposal 5 are not approved, our Articles will remain unchanged. See Appendix A – Example 2.

 

   

If Proposal 4 is approved and Proposal 5 is not approved, the Business Combination provision will remain in our Articles and we will opt-out of the Business Combination Statute. See Annex A – Example 3.

 

   

If Proposal 4 is not approved and Proposal 5 is approved, we will not have a Business Combination provision in our Articles, but will continue to be covered by the Business Combination Statute. See Annex A – Example 4.

Our Board of Directors recommends that you vote “FOR” Proposals 4 and 5.

 

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Proposal 6 – Approval of Material Terms of

Performance Objectives under 2007

Omnibus Incentive Plan, as amended

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PROPOSAL 6. APPROVAL OF MATERIAL TERMS OF PERFORMANCE OBJECTIVES UNDER 2007

OMNIBUS INCENTIVE PLAN, AS AMENDED

(Item 6 on Proxy Card)

Description of the Proposal

Section 162(m) generally limits to $1 million the amount that a publicly held corporation is allowed to deduct each year for the compensation paid to its chief executive officer and the three other highest compensated officers (other than the chief financial officer), unless such compensation is deemed to be qualified performance-based compensation. To qualify as “qualified performance-based compensation,” certain criteria must be satisfied and the material terms under which the compensation is to be paid must be disclosed to, and approved by, shareholders before the compensation is paid. Generally, shareholders are required to approve the criteria and the material terms of the plan every five years.

In 2007, the Board adopted and the shareholders approved the Sprint Nextel Corporation 2007 Omnibus Incentive Plan, which we refer to as the 2007 Plan. The Board is now requesting shareholder approval of the material terms of the performance goals for certain future compensation awards that we may grant to certain of our senior executive officers. These material terms are slightly different than those approved by shareholders in 2007 because on February 22, 2012, the Board adopted, upon recommendation of the Compensation Committee and subject to shareholder approval, an amendment of the 2007 Plan, as further described below.

Under NYSE rules, we are required to obtain shareholder approval of the amendments to the 2007 Plan. In addition, we are submitting this proposal to the shareholders at this time pursuant to the requirements of Section 162(m) in order to continue meeting certain requirements of Section 162(m) regarding the deductibility of executive compensation. The following summary is qualified in its entirety by reference to the 2007 Plan, as amended (the “Amended 2007 Plan”), a copy of which is attached to this proxy statement as Annex B.

If the material terms of the performance criteria and goals set forth in the Amended 2007 Plan are approved by the Company’s shareholders, the Amended 2007 Plan will enable the Compensation Committee to continue to grant qualified performance-based compensation awards under the Amended 2007 Plan that may be exempt from the deduction limits of Section 162(m) until 2017. If the material terms of the performance criteria and goals of the Amended 2007 Plan are not approved by the shareholders, then the 2007 Plan will remain in full force and effect, but the amendment will not be made and for awards granted under the 2007 Plan on or after the date of the 2012 annual meeting, we will not be able to deduct the resulting compensation that exceeds the deduction limits of Section 162(m) that would have otherwise qualified as qualified performance-based compensation under Section 162(m), which would result in an additional cost to the company.

The Amended 2007 Plan is an “omnibus” type of equity compensation plan that provides the Board and the Compensation Committee of the Board with the discretion to provide for the award of incentive and nonqualified stock options, tandem and free-standing stock appreciation rights, restricted stock, restricted stock units, performance shares and units, or other share-denominated or cash awards to eligible individuals.

For purposes of Section 162(m), the material terms are (1) the employees eligible to receive compensation, (2) a description of the business criteria on which the performance objective is based, and (3) either the maximum amount of compensation that could be paid to any employee or the formula used to calculate the amount of compensation to be paid to the employee if the performance objective is attained. Material terms are described in the Summary of the Amended 2007 Plan below.

 

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Proposal 6 – Approval of Material Terms of

Performance Objectives under 2007

Omnibus Incentive Plan, as amended

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Text of Amendment to 2007 Plan

On February 22, 2012, in connection with the five-year approval requirement of Section 162(m), the Board adopted, upon recommendation of the Compensation Committee and subject to shareholder approval, an amendment to the 2007 Plan to change the annual limit on Qualified Performance-Based Awards in the form of Performance Units or other awards substantially similar to Performance Units from $7.5 million to $10 million. If shareholders approve this proposal, the text of Section 3(c)(iii) of the 2007 Plan would be amended by adding the amount indicated in underlined text (and deleting the amount indicated in strikethrough text) as follows:

For grants of Qualified Performance-Based Awards, no Participant shall be granted Performance Units, or other awards granted pursuant to Section 10 of this Plan with rights which are substantially similar to Performance Units, in the aggregate for more than $7,500,000 $10,000,000 during any calendar year.

Summary of the Amended 2007 Plan

Shares Authorized under the Amended 2007 Plan. As of March 16, 2012, there were 135,979,303 shares of common stock remaining available for issuance under the Amended 2007 Plan. Any shares underlying full-value awards are counted against the foregoing share limit on a 2.5-to-1 ratio and those underlying any other award are counted against the share limit on a 1-1 ratio. If any stock option or SAR granted under the Amended 2007 Plan or the predecessor plans expires or is forfeited without being fully exercised, or is settled in cash, the shares subject to those awards will again be available for grant under the Amended 2007 Plan. If any full-value award granted under the Amended 2007 Plan or the predecessor plans is forfeited or settled in cash, the shares subject to those awards will again be available for grant under the Amended 2007 Plan on a 2.5-to-1 ratio. For example, if 100 RSUs are forfeited, 250 shares will become available under the Amended 2007 Plan.

Shares surrendered for the payment of the exercise price under stock options or SARs, or withheld for taxes upon exercise or vesting of an award, will not again be available for issuance under the Amended 2007 Plan. In addition, when a SAR is exercised and settled in shares, all of the shares underlying the SAR will be counted against the Amended 2007 Plan limit regardless of the number of shares used to settle the SAR.

Administration and Term of the Amended 2007 Plan. The selection of employee participants in the Amended 2007 Plan and the level of participation of each participant are determined by the Compensation Committee, except that our full board makes these determinations as to outside directors. To comply with applicable securities and tax laws and rules of the NYSE, the Compensation Committee must be comprised of two or more individuals, each of whom must be a “non-employee director” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, an “outside director” within the meaning of Section 162(m), and an “independent director” within the meaning of the rules of the NYSE. Currently, the Compensation Committee is comprised of three directors who satisfy each of these rules and requirements.

The Compensation Committee has the authority to, among other things, interpret the Amended 2007 Plan, to establish and revise rules and regulations relating to the Amended 2007 Plan, and to make any other determinations that it believes necessary or advisable for the administration of the Amended 2007 Plan. The Compensation Committee may delegate any or all of its authority to administer the Amended 2007 Plan as it deems appropriate, except that no delegation may be made to executive officers in the case of awards intended to be qualified under Section 162(m).

 

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Proposal 6 – Approval of Material Terms of

Performance Objectives under 2007

Omnibus Incentive Plan, as amended

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No new awards may be granted under the Amended 2007 Plan after May 8, 2017. The Amended 2007 Plan may be terminated earlier by our board.

Eligibility. From time to time, the Compensation Committee, or as to outside directors the full board, determines who will be granted awards, the number of shares or performance units subject to such grants, and the terms of awards. Under the Amended 2007 Plan, awards may be granted to our employees (approximately 39,539, as of March 16, 2012), our outside directors (nine, as of March 16, 2012), and other individuals providing services to us, including but not limited to consultants, advisors, and independent contractors (approximately 72,888 as of March 16, 2012).

Performance Criteria. The management objectives applicable to any qualified performance-based award may be based on specified levels of or growth in one or more of the following criteria:

 

   

net sales;

   

revenue;

   

revenue growth or product revenue growth;

   

operating income (before or after taxes, including operating income before depreciation and amortization);

   

income (before or after taxes and before or after allocation of corporate overhead and bonus);

   

net earnings;

   

earnings per share;

   

net income (before or after taxes);

   

return on equity;

   

total stockholder return;

   

return on assets or net assets;

   

appreciation in and/or maintenance of share price;

   

market share;

   

gross profits;

   

earnings (including earnings before taxes, earnings before interest and taxes or earnings before interest, taxes, depreciation and amortization);

   

economic value-added models or equivalent metrics;

   

reductions in costs;

   

cash flow or cash flow per share (before or after dividends);

   

return on capital (including return on total capital or return on invested capital);

   

cash flow return on investment;

   

improvement in or attainment of expense levels or working capital levels;

   

operating, gross, or cash margins;

   

year-end cash;

   

debt reductions;

   

stockholder equity;

   

regulatory achievements;

   

operating performance;

   

market expansion;

   

customer acquisition;

   

customer satisfaction;

   

employee satisfaction;

   

implementation, completion, or attainment of measurable objectives with respect to research, development, products or projects, and recruiting and maintaining personnel; or

 

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Proposal 6 – Approval of Material Terms of

Performance Objectives under 2007

Omnibus Incentive Plan, as amended

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a published or a special index deemed applicable by the Compensation Committee or any of the above criteria as compared to the performance of any such index, including, but not limited to, the Dow Jones U.S. Telecom Index.

Participant Limits. In addition to the annual limit on grants of Performance Units that are Qualified Performance Based Awards that was amended as described above, the Plan limits the number of shares underlying grants of (1) Option Rights or Appreciation Rights to 5,000,000 per calendar year, and (2) Qualified Performance Based Awards that are Restricted Stock, Restricted Stock Units, Performance Shares or other awards granted pursuant to Section 10 of the Plan to 2,500,000 per calendar year.

Stock Options and Stock Appreciation Rights. The Compensation Committee determines the terms of each stock option grant at the time of the grant. Stock options granted under the Amended 2007 Plan may be either non-qualified stock options or ISOs qualifying under Section 422 of the Code. The exercise price of any stock option granted may not be less than the market value of our shares (i.e., the closing price on the NYSE, which as of March 16, 2012 was $2.89) on the date the option is granted. The exercise price is payable in cash, by delivery of shares of our common stock, or other methods approved by the Compensation Committee. No stock option will authorize the payment of dividend equivalents or be exercisable for a period of more than ten years from the date of grant. ISOs granted to a 10% shareholder must have an option price at least 110% of the Stock’s FMV at grant, (2) can only be granted to employees, and (3) have an exercise period of no more than 5 years.

SARs may be granted in tandem with stock options or may be freestanding. The Compensation Committee determines the terms of each SAR at the time of the grant. No SAR may be granted at less than the market value of our shares on the date that the SAR is granted nor have a term of longer than ten years. Distributions to a holder of a SAR may be made in shares of our common stock, in cash or in a combination of both. No SAR will authorize the payment of dividend equivalents.

Subject to adjustment as described under “Adjustment” below, the Amended 2007 Plan does not permit “repricing” of stock options or SARs without the approval of our shareholders, except repricing was permitted under an amendment approved by our shareholders in 2010 for a one-time-only value-for-value option exchange offer.

Restricted Stock. Restricted stock may not be disposed of by the participant until certain restrictions established by the Compensation Committee lapse. Restricted stock may be issued for such consideration as the Compensation Committee determines, including no consideration other than the rendering of services. The holder of restricted stock has all of the rights of a shareholder, including the right to vote shares and the right to receive dividends or other distributions.

Restricted Stock Units. An RSU represents the right for the participant to receive one share of our common stock from us or cash at a particular date in the future. Unlike the holder of restricted stock, the holder of an RSU has none of the rights of a holder of any shares of our common stock underlying the RSU until the shares are delivered, but the Compensation Committee may authorize the payment of dividend equivalents on RSUs.

Performance Shares and Performance Units. A performance share is the equivalent of one share of our common stock and a performance unit is the equivalent of $1.00 or another amount determined by the Compensation Committee. Performance shares and performance units may be paid in cash, shares of our common stock, restricted stock, RSUs, or any combination thereof. Performance shares and performance units will be subject to terms and conditions that the Compensation Committee deems advisable or appropriate, consistent with the provisions of the Amended 2007 Plan. The management objectives and performance levels to be achieved for each performance period and the amount of the award to be distributed will be determined by the Compensation Committee.

 

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Table of Contents

Proposal 6 – Approval of Material Terms of

Performance Objectives under 2007

Omnibus Incentive Plan, as amended

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Other Awards. The Amended 2007 Plan also permits grants of awards valued in whole or in part by reference to, or otherwise based on, (1) shares of our common stock or factors that may influence the value of such shares, including convertible or exchangeable debt securities, other rights convertible or exchangeable into shares of our common stock, awards with value and payment contingent upon performance of our company or specified subsidiaries, affiliates, or other business units, or any other factors designated by the Compensation Committee, and awards valued by reference to the book value of shares of our common stock or the value of securities of, or the performance of specified subsidiaries, affiliates or other business units of ours; (2) cash; or (3) any combination of the foregoing. The Compensation Committee determines the terms and conditions of such awards, which may include the achievement of management objectives.

Payment of Outside Directors’ Fees in Common Stock. The Amended 2007 Plan provides that, in lieu of cash payments, outside directors may elect to receive all or part of their annual retainer and their meeting and committee meeting fees in shares of our common stock. The price at which outside directors may acquire shares of stock is the market value of our shares on the last trading day of the quarter in which the fees are earned.

In addition, outside directors may elect annually to defer receipt of such common stock. Shares deferred under this election are transferred by us to a trust, which holds the shares until the outside director’s termination of board service. The outside directors also may elect annually to receive payment out of the trust in a lump sum or installments and in shares of our common stock or cash. During the period the shares are held in trust, the outside director has voting rights with respect to the shares and the trustee reinvests the dividends on the shares in additional shares of our common stock. The trust is subject to the claims of creditors of our company.

Adjustment.  In the event of any change in the number or kind of outstanding shares of our common stock by reason of a recapitalization, merger, consolidation, reorganization, separation, liquidation, stock split, stock dividend, combination of shares, or any other change in our corporate structure or shares of our common stock, an appropriate adjustment will be made consistent with applicable provisions of the IRC and applicable Treasury Department rulings and regulations:

 

   

In the number and kind of shares for which awards may be granted, both in the aggregate and the individual limitations each calendar year;

   

In the number and kind of shares subject to outstanding awards;

   

In the exercise price of a stock option or base price of a SAR; and

   

Other adjustments as the board deems appropriate.

Change in Control. Unless otherwise provided in an award agreement, if there is a change in control of us (as defined in the Amended 2007 Plan) and the resulting entity assumes, converts or replaces the outstanding awards under the Amended 2007 Plan, the awards will become fully vested only upon the participant’s involuntary termination of employment without cause, or resignation with good reason for certain executives, in connection with the change in control. On the other hand, if the resulting entity does not assume, convert or replace awards outstanding under the Amended 2007 Plan, the awards will become fully vested and no longer be subject to any restrictions, and any management objectives will be deemed to have been satisfied at target.

If the acceleration of vesting of outstanding awards, together with all other payments or benefits contingent on the change in control within the meaning of Section 280G of the IRC, results in any portion of the payment or benefits not being deductible by us as a result of the application of Section 280G, the benefits will be reduced until the entire amount of the benefits is deductible, unless a participant’s employment agreement or other arrangement with us provides otherwise.

 

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Table of Contents

Proposal 6 – Approval of Material Terms of

Performance Objectives under 2007

Omnibus Incentive Plan, as amended

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Transferability.  Awards made under the Amended 2007 Plan are generally not transferable by our employees except by will or the laws of descent and distribution. Our board or the Compensation Committee may permit transfers of awards to any one or more family members.

Amendment and Termination.  Our board may amend or terminate the Amended 2007 Plan, but may not, without