DEF 14A 1 ddef14a.htm DEFINITIVE PROXY STATEMENT Definitive Proxy Statement
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934

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Check the appropriate box:

 

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x Definitive Proxy Statement

 

¨ Definitive Additional Materials

 

¨ Soliciting Material under Rule 14a-12


Starbucks 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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LOGO

Seattle, Washington

January 28, 2011

Dear Shareholders:

You are cordially invited to attend the Starbucks Corporation 2011 Annual Meeting of Shareholders on March 23, 2011 at 10 a.m. (Pacific Time). The meeting will be held at Marion Oliver McCaw Hall at the Seattle Center, located on Mercer Street, between Third and Fourth Avenues, in Seattle, Washington. Directions to McCaw Hall and transportation information appear on the back cover of the notice of annual meeting and proxy statement.

Under the Securities and Exchange Commission rules that allow companies to furnish proxy materials to shareholders over the Internet, Starbucks has elected to deliver our proxy materials to the majority of our shareholders over the Internet. This delivery process allows us to provide shareholders with the information they need, while at the same time conserving natural resources and lowering the cost of delivery. On February 4, 2011, we mailed to our shareholders a Notice of Internet Availability of Proxy Materials (the “Notice”) containing instructions on how to access our proxy statement for our 2011 Annual Meeting of Shareholders and 2010 annual report to shareholders. The Notice also provides instructions on how to vote online or by telephone and includes instructions on how to receive a paper copy of the proxy materials by mail. The Notice will serve as an admission ticket for one shareholder to attend the 2011 Annual Meeting of Shareholders. On February 4, 2011, we also first mailed this proxy statement and the enclosed proxy card to certain shareholders. If you received a paper copy of the proxy materials in the mail, the proxy statement includes an admission ticket for one shareholder to attend the Annual Meeting of Shareholders. Each attendee must present the Notice, an admission ticket or other proper form of documentation (as described in the section “Annual Meeting Information” in the proxy statement) to be admitted.

The matters to be acted upon are described in the notice of annual meeting and proxy statement. At the Annual Meeting of Shareholders, we will also report on our operations and respond to questions from shareholders.

As always, we anticipate a large number of attendees at the Annual Meeting of Shareholders. Again this year, seating will be limited to McCaw Hall only, and we cannot guarantee seating for all shareholders. Shareholders may also log onto a live webcast of the meeting; please see details on our Investor Relations website at http://investor.starbucks.com. Doors will open at 8 a.m. (Pacific Time) the day of the event.

YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the Annual Meeting of Shareholders, we urge you to vote and submit your proxy by the Internet, telephone or mail in order to ensure the presence of a quorum. If you attend the meeting you will, of course, have the right to revoke the proxy and vote your shares in person. If you hold your shares through an account with a brokerage firm, bank or other nominee, please follow the instructions you receive from them to vote your shares.

Very truly yours,

LOGO

Howard Schultz

chairman, president and chief executive officer


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STARBUCKS CORPORATION

2401 Utah Avenue South

Seattle, Washington 98134

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

The Annual Meeting of Shareholders of Starbucks Corporation will be held at Marion Oliver McCaw Hall at the Seattle Center, located on Mercer Street, between Third and Fourth Avenues, in Seattle, Washington, on March 23, 2011 at 10 a.m. (Pacific Time) for the following purposes:

 

  1. To elect ten directors nominated by the board of directors to serve until the 2012 Annual Meeting of Shareholders;

 

  2. To approve an advisory resolution on executive compensation;

 

  3. To conduct an advisory vote on the frequency of future advisory votes on executive compensation;

 

  4. To approve revised performance criteria under the 2005 Long-Term Equity Incentive Plan;

 

  5. To approve an amendment and restatement of the 2005 Long-Term Equity Incentive Plan, including an increase in the number of authorized shares under the plan;

 

  6. To ratify the selection of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending October 2, 2011;

 

  7. To consider one shareholder proposal described in the accompanying proxy statement, if properly presented at the Annual Meeting of Shareholders; and

 

  8. To transact such other business as may properly come before the Annual Meeting of Shareholders.

Only shareholders of record at the close of business on January 13, 2011 will be entitled to notice of and to vote at the Annual Meeting of Shareholders and any adjournments thereof.

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be Held on March 23, 2011. Our proxy statement is attached. Financial and other information concerning Starbucks is contained in our annual report to shareholders for the fiscal year ended October 3, 2010. The proxy statement and our fiscal 2010 annual report to shareholders are available on our website at http://investor.starbucks.com. Additionally, and in accordance with Securities and Exchange Commission rules, you may access our proxy materials at www.proxyvote.com.

YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the Annual Meeting of Shareholders, we urge you to vote and submit your proxy in order to ensure the presence of a quorum.

Registered holders may vote:

 

  1. By Internet: go to www.proxyvote.com;

 

  2. By toll-free telephone: call 1-800-690-6903; or

 

  3. By mail (if you received a paper copy of the proxy materials by mail): mark, sign, date and promptly mail the enclosed proxy card in the postage-paid envelope.


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Any proxy may be revoked at any time prior to its exercise at the Annual Meeting of Shareholders.

Beneficial Shareholders. If your shares are held in the name of a broker, bank or other holder of record, follow the voting instructions you receive from the holder of record to vote your shares.

By order of the board of directors,

LOGO

Paula E. Boggs

secretary

Seattle, Washington

January 28, 2011


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TABLE OF CONTENTS

 

     Page  

PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS

     1   

Voting Information

     1   

Majority Vote Standard in Uncontested Director Elections

     2   

PROPOSAL 1 — ELECTION OF DIRECTORS

     2   

Nominees

     4   

CORPORATE GOVERNANCE

     7   

Board Leadership

     7   

Risk Oversight

     7   

Affirmative Determinations Regarding Director Independence and Other Matters

     8   

Board Committees and Related Matters

     8   

Attendance at Board and Committee Meetings, Annual Meeting

     9   

Audit Committee

     9   

Compensation Committee

     10   

Succession Planning

     13   

Nominating Committee

     13   

Our Director Nominations Process

     14   

Corporate Governance Materials Available on the Starbucks Website

     17   

Contacting the Board of Directors

     18   

Compensation of Directors

     18   

Fiscal 2010 Director Compensation

     20   

PROPOSAL 2 — ADVISORY RESOLUTION ON EXECUTIVE COMPENSATION

     21   

PROPOSAL 3 — ADVISORY VOTE ON THE FREQUENCY OF FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION

     22   

EXECUTIVE COMPENSATION

     23   

Compensation Discussion and Analysis

     23   

Compensation Committee Report

     46   

Summary Compensation Table

     47   

Fiscal 2010 Grants of Plan-Based Awards

     49   

Outstanding Equity Awards at Fiscal 2010 Year-End

     52   

2010 Fiscal Year-End Option Values

     53   

Fiscal 2010 Option Exercises and Stock Vested

     53   

Management Deferred Compensation Plan

     54   

Management Deferred Compensation Plan — Measurement Funds

     55   

Fiscal 2010 Nonqualified Deferred Compensation

     56   

Potential Payments upon Termination or Change in Control

     56   

PROPOSAL 4 — APPROVAL OF REVISED PERFORMANCE CRITERIA UNDER THE 2005 LONG-TERM EQUITY INCENTIVE PLAN

     59   

Individuals Eligible to Receive Compensation

     59   

Description of the Business Criteria on which the Performance Goal is Based

     59   

Maximum Amount of Compensation that Can be Paid to an Individual Under the Performance Goal

     60   

 

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     Page  

PROPOSAL 5 — APPROVAL OF AMENDED AND RESTATED 2005 LONG-TERM EQUITY INCENTIVE PLAN, INCLUDING AN INCREASE IN THE NUMBER OF AUTHORIZED SHARES UNDER THE PLAN

     60   

Overview

     60   

Key Changes from the Original Plan

     61   

Promotion of Good Corporate Governance Practices

     61   

Key Data

     62   

Amended Plan Summary

     63   

Effective Date and Termination of the Amended Plan

     67   

Federal Income Tax Treatment

     67   

Company Deduction and Section 162(m)

     68   

New Plan Benefits

     68   

Existing Plan Benefits

     69   

Equity Compensation Plan Information

     69   

PROPOSAL 6 — RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     70   

Independent Registered Public Accounting Firm Fees

     70   

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of the Independent Registered Public Accounting Firm

     71   

Audit and Compliance Committee Report

     71   

PROPOSAL 7 — SHAREHOLDER PROPOSAL  REGARDING RECYCLING STRATEGY FOR BEVERAGE CONTAINERS

     72   

OTHER BUSINESS

     74   

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     75   

Review and Approval of Related-Person Transactions

     75   

Related-Person Transactions Since the Beginning of Fiscal 2010

     76   

BENEFICIAL OWNERSHIP OF COMMON STOCK

     77   

Section 16(a) Beneficial Ownership Reporting Compliance

     79   

ADDITIONAL MEETING INFORMATION

     79   

Internet Availability of Annual Meeting Materials

     80   

PROPOSALS OF SHAREHOLDERS

     80   

SHAREHOLDERS SHARING THE SAME ADDRESS

     80   

ANNUAL REPORT TO SHAREHOLDERS AND FORM 10-K

     81   

APPENDIX A — STARBUCKS CORPORATION 2005 LONG-TERM EQUITY INCENTIVE PLAN

     Appendix A   

Ticketing and Transportation Information for the Starbucks Corporation 2011 Annual Meeting of Shareholders

    
 
See outside
back cover
  
  

 

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STARBUCKS CORPORATION

2401 Utah Avenue South

Seattle, Washington 98134

PROXY STATEMENT

for the

ANNUAL MEETING OF SHAREHOLDERS

We are making this proxy statement available to you on or about February 4, 2011 in connection with the solicitation of proxies by our board of directors for the Starbucks Corporation 2011 Annual Meeting of Shareholders. At Starbucks and in this proxy statement, we refer to our employees as partners. Also in this proxy statement we sometimes refer to Starbucks as the “Company,” “we” or “us,” and to the 2011 Annual Meeting of Shareholders as the “annual meeting.” When we refer to the Company’s fiscal year, we mean the annual period ending on the Sunday closest to September 30 of the stated year. Information in this proxy statement for 2010 generally refers to our 2010 fiscal year, which was from September 28, 2009 through October 3, 2010 (“fiscal 2010”). Fiscal 2010 included 53 weeks, with the 53rd week falling in the fourth fiscal quarter. Fiscal years 2009 and 2008 included 52 weeks.

Voting Information

Record Date.     The record date for the annual meeting is January 13, 2011. On the record date, there were 745,684,269 shares of our common stock outstanding and there were no outstanding shares of any other class of stock.

Voting Your Proxy.     Holders of shares of common stock are entitled to cast one vote per share on all matters. Proxies will be voted as instructed by the shareholder or shareholders granting the proxy. Unless contrary instructions are specified, if the proxy is completed and submitted (and not revoked) prior to the annual meeting, the shares of Starbucks common stock represented by the proxy will be voted: (i) FOR the election of each of the ten director candidates nominated by the board of directors; (ii) FOR approval of the advisory resolution on executive compensation; (iii) to conduct future advisory votes on executive compensation EVERY YEAR; (iv) FOR approval of the revised performance criteria under the 2005 Long-Term Equity Incentive Plan; (v) FOR approval of the amended and restated 2005 Long-Term Equity Incentive Plan, including an increase in the number of authorized shares under the plan; (vi) FOR the ratification of the selection of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending October 2, 2011 (“fiscal 2011”); (vii) AGAINST the shareholder proposal regarding recycling strategy for beverage containers; and (viii) in accordance with the best judgment of the named proxies on any other matters properly brought before the annual meeting.

Revoking Your Proxy.     A shareholder who delivers an executed proxy pursuant to this solicitation may revoke it at any time before it is exercised by (i) executing and delivering a later-dated proxy card to our corporate secretary prior to the annual meeting; (ii) delivering written notice of revocation of the proxy to our corporate secretary prior to the annual meeting; or (iii) attending and voting in person at the annual meeting. Attendance at the annual meeting, in and of itself, will not constitute a revocation of a proxy. If you voted by telephone or the Internet and wish to change your vote, you may call the toll-free number or go to the Internet site, as may be applicable in the case of your earlier vote, and follow the directions for changing your vote.

Vote Required.     The presence, in person or by proxy, of holders of a majority of the outstanding shares of Starbucks common stock is required to constitute a quorum for the transaction of business at the annual meeting. Abstentions and “broker non-votes” (shares held by a broker or nominee that does not have discretionary authority to vote on a particular matter and has not received voting instructions from its client) are counted for

 

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purposes of determining the presence or absence of a quorum for the transaction of business at the annual meeting. If a quorum is present, a nominee for election to a position on the board of directors will be elected as a director if the votes cast for the nominee exceed the votes cast against the nominee. If a quorum is present, approval of the advisory resolution on executive compensation, advisory approval of the frequency of future advisory votes on executive compensation, approval of the revised performance criteria under the 2005 Long-Term Equity Incentive Plan, approval of the amended and restated 2005 Long-Term Equity Incentive Plan, including an increase in the number of authorized shares under the plan, ratification of our independent registered public accounting firm and approval of the shareholder proposal, and any other matters that properly come before the meeting, require that the votes cast in favor of such actions exceed the votes cast against such actions. The following will not be votes cast and will not count towards the election of any director nominee or approval of the other proposals: (i) broker non-votes; (ii) a share whose ballot is marked as abstain; (iii) a share otherwise present at the annual meeting but for which there is an abstention; and (iv) a share otherwise present at the annual meeting as to which a shareholder gives no authority or direction.

Rules that govern how brokers vote your shares have recently changed. Unless you provide voting instructions to any broker holding shares on your behalf, your broker may no longer use discretionary authority to vote your shares on any of the matters to be considered at the annual meeting other than the ratification of our independent registered public accounting firm. Please vote your proxy so your vote can be counted. Proxies and ballots will be received and tabulated by Broadridge Financial Services, our inspector of elections for the annual meeting.

Majority Vote Standard in Uncontested Director Elections

We have adopted majority voting procedures for the election of directors in uncontested elections. In an uncontested election, nominees must receive more “for” than “against” votes to be elected. The term of any incumbent director who does not receive a majority of votes cast in an election held under the majority voting standard terminates on the earliest to occur of (i) 90 days after the date election results are certified; (ii) the date the director resigns; or (iii) the date the board of directors fills the position. As provided in our bylaws, a “contested election” is one in which:

 

   

as of the last day for giving notice of a shareholder nominee, a shareholder has nominated a candidate for director according to the requirements of our bylaws; and

 

   

the board of directors considers that a shareholder candidacy has created a bona fide election contest.

The election of directors at the 2011 annual meeting is an uncontested election.

PROPOSAL 1 — ELECTION OF DIRECTORS

In accordance with our bylaws, our board of directors has set its size at eleven members; there are currently eleven members. Under our bylaws, the number of directors may be changed at any time by a resolution of the board of directors. Each of the eleven current directors was elected at the 2010 annual meeting and their terms expire upon the election and qualification of the directors to be elected at the 2011 annual meeting. Barbara Bass will be retiring from the board of directors as of the conclusion of the annual meeting, at which time the size of the board will be reduced to ten members. The board of directors has nominated the remaining ten directors for re-election at the annual meeting, to serve until the 2012 Annual Meeting of Shareholders and until their respective successors have been elected and qualified.

Unless otherwise directed, the persons named in the proxy intend to vote all proxies FOR the election of the nominees, as listed below, each of whom has consented to serve as a director if elected. If, at the time of the annual meeting, any nominee is unable or declines to serve as a director, the discretionary authority provided in the enclosed proxy will be exercised to vote for a substitute candidate designated by the board of directors, unless

 

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the board chooses to reduce its own size. The board of directors has no reason to believe any of the nominees will be unable or will decline to serve if elected. Proxies cannot be voted for more than ten persons since that is the total number of nominees.

Set forth below is certain information furnished to us by the director nominees. There are no family relationships among any of our current directors or executive officers. None of the corporations or other organizations referenced in the biographical information below is a parent, subsidiary or other affiliate of Starbucks.

We believe that our directors should satisfy a number of qualifications, including demonstrated integrity, a record of personal accomplishments, a commitment to participation in board activities and other traits discussed below in “Our Director Nominations Process.” We also endeavor to have a board representing a range of skills and depth of experience in areas that are relevant to and contribute to the board’s oversight of the Company’s global activities. Following the biographical information for each director nominee, we describe the key experience, qualifications and skills our directors bring to the board that, for reasons discussed below, are important in light of Starbucks businesses and structure. The board considered these experiences, qualifications and skills and the directors’ other qualifications in determining to recommend that the directors be nominated for re-election.

 

   

Food and beverage industry experience.    As the premier roaster and retailer of specialty coffee in the world, we seek directors who have knowledge of and experience in the food and beverage industry, which is useful in understanding the products that we develop and our licensing operations.

 

   

Brand marketing experience.    Brand marketing experience is important for our directors to have because of the importance of image and reputation in the specialty coffee business and our objective to maintain Starbucks standing as one of the most recognized and respected brands in the world.

 

   

International operations and distribution experience.    Starbucks has a strong global presence with retail and/or roasting operations in over 50 countries around the world and approximately 30,000 partners employed outside the U.S. Accordingly, international operations and distribution experience is important for our directors to have, especially as we continue to expand globally and develop new channels of distribution.

 

   

Domestic and international public policy experience.    We believe that it is important for our directors to have domestic and international public policy experience in order to help us address significant public policy issues, adapt to different business and regulatory environments and facilitate our work with governments all over the world.

 

   

Media and communications experience.    As a consumer retail company, it is important for our directors to have media and communications experience, especially as this experience relates to the Internet, technology and social media, which can provide insight and perspective with respect to our marketing operations.

 

   

Public company board experience.    Directors who have served on other public company boards can offer advice and perspective with respect to board dynamics and operations, relations between the board and Starbucks management and other matters, including corporate governance, executive compensation and oversight of strategic, operational and compliance-related matters.

 

   

Senior leadership experience.    We believe that it is important for our directors to have served in senior leadership roles at other organizations, which demonstrates strong abilities to motivate and manage others, to identify and develop leadership qualities in others and to manage organizations.

 

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Nominees

HOWARD SCHULTZ, 57, is the founder of Starbucks Corporation and serves as our chairman, president and chief executive officer. Mr. Schultz has served as chairman of the board of directors since our inception in 1985, and in January 2008, he reassumed the role of president and chief executive officer. From June 2000 to February 2005, Mr. Schultz also held the title of chief global strategist. From November 1985 to June 2000, he served as chairman of the board and chief executive officer. From November 1985 to June 1994, Mr. Schultz also served as president. From January 1986 to July 1987, Mr. Schultz was the chairman of the board, chief executive officer and president of Il Giornale Coffee Company, a predecessor to the Company. From September 1982 to December 1985, Mr. Schultz was the director of retail operations and marketing for Starbucks Coffee Company, a predecessor to the Company.

Director Qualifications:     As the founder of Starbucks, Mr. Schultz has demonstrated a record of innovation, achievement and leadership. This experience provides the board of directors with a unique perspective into the operations and vision for Starbucks. Through his experience as the chairman, president and chief executive officer, Mr. Schultz is also able to provide the board of directors with insight and information regarding Starbucks strategy, operations and business. In addition, Mr. Schultz’s almost 30 years of experience with Starbucks brings to the board extensive experience in the food and beverage industry, brand marketing and international distribution and operations.

WILLIAM W. BRADLEY, 67, has been a Starbucks director since June 2003. Since 2000, Mr. Bradley has been a managing director of Allen & Company LLC, an investment banking firm. From 2001 until 2004, he acted as chief outside advisor to McKinsey & Company’s non-profit practice. In 2000, Mr. Bradley was a candidate for the Democratic nomination for President of the United States. He served as a senior advisor and vice chairman of the International Council of JP Morgan & Co., Inc. from 1997 through 1999. During that time, Mr. Bradley also worked as an essayist for CBS Evening News, and as a visiting professor at Stanford University, Notre Dame University and the University of Maryland. Mr. Bradley served in the U.S. Senate from 1979 until 1997, representing the State of New Jersey. Prior to serving in the U.S. Senate, he was an Olympic gold medalist in 1964, and from 1967 through 1977 he played professional basketball for the New York Knicks, during which time they won two world championships. Mr. Bradley previously served on the board of directors of Seagate Technology and currently serves on the boards of directors of Willis Group Holdings Limited and QuinStreet, Inc.

Director Qualifications:     Based on over 18 years in the U.S. Senate, Mr. Bradley has a deep understanding of U.S. governmental and regulatory affairs and public policy. He is able to provide the board of directors with unique insights into Starbucks strategy, operations and business. Mr. Bradley also has extensive experience in the private sector, including in financial services and media, as well as experience as a director on the boards of other publicly-traded companies.

MELLODY HOBSON, 41, has been a Starbucks director since February 2005. Ms. Hobson has served as the president and a director of Ariel Investments, LLC, a Chicago-based investment management firm since 2000, and as the chairman since 2006 and a trustee since 1993 of the mutual funds it manages. She previously served as senior vice president and director of marketing at Ariel Capital Management, Inc. from 1994 to 2000, and as vice president of marketing at Ariel Capital Management, Inc. from 1991 to 1994. Ms. Hobson works with a variety of civic and professional institutions, including serving as a director of the Chicago Public Library as well as its foundation and as a board member of the Field Museum and the Chicago Public Education Fund. Ms. Hobson also serves on the boards of directors of DreamWorks Animation SKG, Inc. and The Estee Lauder Companies, Inc. Additionally, she is on the board of governors of the Investment Company Institute.

Director Qualifications:     As the president and a director of a large investment company, Ms. Hobson brings significant operational, investment and financial expertise to the board of directors. Ms. Hobson also possesses media experience based on her role as an on-air financial contributor for ABC’s “Good Morning America” and valuable knowledge of corporate governance and similar issues from her service on other publicly-traded companies’ boards of directors as well as her prior service on the Securities and Exchange Commission (“SEC”) Investment Advisory Committee.

 

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KEVIN R. JOHNSON, 50, has been a Starbucks director since March 2009. Mr. Johnson has served as the Chief Executive Officer of Juniper Networks, Inc., a leading provider of high-performance networking products and services, since September 2008. Mr. Johnson also serves on the board of directors of Juniper Networks. Prior to joining Juniper Networks, Mr. Johnson served as President, Platforms and Services Division for Microsoft Corporation, a worldwide provider of software, services and solutions. Mr. Johnson was a member of Microsoft’s Senior Leadership Team and held a number of senior executive positions over the course of his 16 years at Microsoft. Prior to joining Microsoft in 1992, Mr. Johnson worked in International Business Machine Corp.’s systems integration and consulting business.

Director Qualifications:     Mr. Johnson has extensive experience in the technology industry and is able to provide the board of directors with his unique insights related to Starbucks strategy, operations and business. Through his various senior leadership positions, including his experience as Chief Executive Officer of Juniper Networks, Mr. Johnson also has experience with the challenges inherent in managing a complex organization, leading global businesses focused on both consumer and business needs and utilizing technology to drive business productivity and experience.

OLDEN LEE, 69, has been a Starbucks director since June 2003. Mr. Lee also served as our interim executive vice president, Partner Resources from April 2009 to March 2010. Mr. Lee undertook the role of interim head of Partner Resources while the Company searched for an executive vice president, Partner Resources. Mr. Lee previously worked with PepsiCo, Inc., a global food, snack and beverage company, for 28 years in a variety of positions, including serving as senior vice president of human resources of its Taco Bell division and senior vice president and chief personnel officer of its KFC division. Mr. Lee retired from PepsiCo in 1998. Since 1998, Mr. Lee has served as principal of Lee Management Consulting, a management consulting firm he founded. Mr. Lee also served on the board of directors of TLC Vision Corporation.

Director Qualifications:     Through his prior experience with PepsiCo, including his position as senior vice president of human resources, Mr. Lee offers the board of directors a unique perspective and insight into issues and strategies related to Starbucks, including leadership, executive compensation, risk assessment, compliance and corporate governance. Mr. Lee also has significant experience in dealing with operational and management issues.

SHERYL SANDBERG, 41, has been a Starbucks director since March 2009. Ms. Sandberg has served as the Chief Operating Officer of Facebook, Inc., an online social utility company, since March 2008. From 2001 to March 2008, Ms. Sandberg was the Vice President of Global Online Sales and Operations for Google Inc., an Internet search engine company. Ms. Sandberg also is a former Chief of Staff of the U.S. Treasury Department and previously served as a management consultant with McKinsey & Company and as an economist with The World Bank. Ms. Sandberg serves on a number of nonprofit boards including The Brookings Institution, The AdCouncil, Women for Women International and V-Day. In 2008, Ms. Sandberg was named as one of the “50 Most Powerful Women in Business” by Fortune and one of the “50 Women to Watch” by The Wall Street Journal. Ms. Sandberg previously served on the board of directors of eHealth, Inc. and currently serves on the board of directors of The Walt Disney Company.

Director Qualifications:     Ms. Sandberg’s position with Facebook, as well as her prior experience at Google and as the Chief of Staff of the U.S. Treasury Department, provides the board of directors with a unique insight related to Starbucks strategy, operations and business. Ms. Sandberg brings considerable advertising and marketing skills to the board of directors. She also possesses extensive knowledge in a number of important areas, including leadership and corporate governance through her service on the boards of various nonprofit organizations and her service on other publicly-traded companies’ boards of directors.

JAMES G. SHENNAN, JR., 69, has been a Starbucks director since March 1990. Mr. Shennan served as a general partner of Trinity Ventures, a venture capital organization, from September 1989 to July 2005, when he became general partner emeritus. Prior to joining Trinity Ventures, he served as the chief executive of Addison Consultants, Inc., an international marketing services firm, and two of its predecessor companies. Mr. Shennan also serves on the board of directors of P.F. Chang’s China Bistro, Inc.

 

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Director Qualifications:     As a member of our board of directors since 1990, Mr. Shennan brings valuable experience to the board of directors. Mr. Shennan provides the benefits of service on the boards of other publicly- traded companies, including experience and extensive knowledge of compensation and corporate governance issues. He has experience serving as the lead independent director of P.F. Chang’s China Bistro and he also has a strong finance, marketing and consumer products background gained through his experience with Trinity Ventures, Addison Consultants and Procter & Gamble.

JAVIER G. TERUEL, 60, has been a Starbucks director since September 2005. Mr. Teruel served as vice chairman of Colgate-Palmolive Company, a consumer products company, from July 2004 to April 2007, when he retired. Prior to being appointed vice chairman, Mr. Teruel served as Colgate-Palmolive’s executive vice president responsible for Asia, Central Europe, Africa and Hill’s Pet Nutrition. After joining Colgate in Mexico in 1971, Mr. Teruel served as vice president of Body Care in Global Business Development in New York, and president and general manager of Colgate-Mexico. He also served as president of Colgate-Europe, and as chief growth officer responsible for the company’s growth functions. Mr. Teruel currently serves as a partner of Spectron Desarrollo, SC, an investment management and consulting firm. He previously served on the boards of directors of The Pepsi Bottling Group, Inc. and Corporacion Geo S.A.B. de C.V. He currently serves on the boards of directors of J.C. Penney Company, Inc. and the Nielsen Company B.V.

Director Qualifications:     Mr. Teruel has extensive executive experience, including financial experience, in the consumer products industry. He brings to the board of directors considerable product development, merchandising and marketing skills and perspectives. His international background provides unique insights relevant to Starbucks strategy, operations and business. He also possesses extensive knowledge in a number of important areas, including leadership and risk assessment through his service on the boards of other publicly-traded companies.

MYRON E. ULLMAN, III, 64, has been a Starbucks director since January 2003. Mr. Ullman has served as the chairman of the board of directors and chief executive officer of J.C. Penney Company, Inc., a chain of retail department stores, since December 2004. Mr. Ullman served as directeur general, group managing director of LVMH Möet Hennessy Louis Vuitton, a luxury goods manufacturer and retailer, from July 1999 to January 2002. From January 1995 to June 1999, he served as chairman and chief executive officer of DFS Group Limited, a retailer of luxury branded merchandise. From 1992 to 1995, Mr. Ullman served as chairman and chief executive officer of R.H. Macy & Co., Inc. Mr. Ullman previously served on the boards of directors for Polo Ralph Lauren Corporation and Pzena Investment Management, Inc. He currently serves as the vice chairman of the Federal Reserve Bank of Dallas.

Director Qualifications:     Through Mr. Ullman’s senior executive and board experience with U.S. and international retailers, he brings to the board of directors extensive knowledge in important areas, including leadership of global businesses, finance, executive compensation, risk assessment and compliance. He also brings insights and perspectives from positions he has held in the technology and real estate industries and the public sector. Mr. Ullman’s experiences as chairman and chief executive officer of various entities during his career provide the board of directors with insight into the challenges inherent in managing a complex organization.

CRAIG E. WEATHERUP, 65, has been a Starbucks director since February 1999. Mr. Weatherup worked with PepsiCo, Inc. for 24 years and served as chief executive officer of its worldwide Pepsi-Cola business and President of PepsiCo, Inc., retiring in 1999. He also led the initial public offering of The Pepsi Bottling Group, Inc., where he served as chairman and chief executive officer from March 1999 to January 2003. Mr. Weatherup also serves on the board of directors of Macy’s, Inc.

Director Qualifications:     Through Mr. Weatherup’s experience on the board of directors of Macy’s, as well as his prior experience as a chairman and chief executive officer, he is able to bring to the board of directors extensive knowledge in important areas, including finance, leadership, executive compensation, risk assessment and compliance. Mr. Weatherup also possesses valuable knowledge of corporate governance and similar issues from his service on other publicly-traded companies’ boards of directors.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ELECTION OF EACH OF THE NOMINEES TO THE BOARD OF DIRECTORS.

 

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CORPORATE GOVERNANCE

Board Leadership

The board of directors is responsible for overseeing the exercise of corporate power and seeing that Starbucks business and affairs are managed to meet the Company’s stated goals and objectives and that the long-term interests of the shareholders are served.

Howard Schultz currently serves as both the chairman of the board and our president and chief executive officer. In addition, the independent directors of the board have elected Myron E. Ullman, III, a non-employee, independent director, to serve as the presiding (lead) independent director pursuant to our Corporate Governance Principles and Practices. Mr. Ullman’s term as presiding independent director expires at the board meeting immediately following the 2012 Annual Meeting of Shareholders. Mr. Ullman will not be eligible to be elected again as presiding independent director, as the presiding independent director is limited to serving two consecutive two-year terms.

Our board leadership structure also includes active independent directors. The independent directors meet in an executive session at each board meeting, and each of the standing board committees (discussed below) is comprised solely of and led by independent directors. The presiding independent director presides at each executive session, as well as all meetings of the board of directors at which the chairman is not present. The presiding independent director also has the authority to call meetings of the independent directors. Pursuant to our Corporate Governance Principles and Practices, the duties of the presiding independent director also include:

 

   

serving as a liaison between the independent directors and the chairman;

 

   

approving the scheduling of Board meetings, as well as the agenda and materials for each Board meeting and executive session of the independent directors;

 

   

approving and coordinating the retention of advisors and consultants to the Board; and

 

   

such other responsibilities as the independent directors may designate from time to time.

The board believes that combining the chairman and chief executive officer positions is currently the most effective leadership structure for Starbucks given Mr. Schultz’s in-depth knowledge of Starbucks business and industry and his ability to formulate and implement strategic initiatives. As chief executive officer, Mr. Schultz is also intimately involved in the day-to-day operations of the Company and is thus in a position to elevate the most critical business issues for consideration by the independent directors of the board. In addition, having a combined chairman and chief executive officer enables Starbucks to speak with a unified voice to shareholders, customers and the media. The board believes that the combination of the chairman and chief executive officer roles as part of a governance structure that includes a presiding independent director, as well as the exercise of key board oversight responsibilities by independent directors, provides an effective balance for the management of the Company in the best interests of Starbucks shareholders.

Risk Oversight

The board of directors has overall responsibility for risk oversight, including, as part of regular board and committee meetings, general oversight of executives’ management of risks relevant to the Company. A fundamental part of risk oversight is not only understanding the material risks a company faces and the steps management is taking to manage those risks, but also understanding what level of risk is appropriate for the company. The involvement of the board of directors in reviewing Starbucks business strategy is an integral aspect of the board’s assessment of management’s tolerance for risk and also its determination of what constitutes an appropriate level of risk for the Company.

 

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While the full board has overall responsibility for risk oversight, the board has delegated responsibility related to certain risks to the Audit and Compliance Committee (the “Audit Committee”) and the Compensation and Management Development Committee (the “Compensation Committee”). The Audit Committee is responsible for reviewing the Company’s risk assessment and risk management policies, as well as discussing the major risk exposures Starbucks faces and the steps management takes to monitor and control such exposures. The Audit Committee receives regular reports from management at its regularly scheduled meetings and other reports as requested by the Audit Committee from time to time. The Compensation Committee is responsible for reviewing and overseeing the management of any risks related to Starbucks compensation policies and practices. The Compensation Committee reviews such risks annually and in connection with discussions of various compensation elements and benefits throughout the year.

The board’s role in risk oversight has not had any effect on the board’s leadership structure.

Affirmative Determinations Regarding Director Independence and Other Matters

Our board of directors has determined that Ms. Bass and each of the following director nominees is an “independent director” as such term is defined under NASDAQ rules:

 

William W. Bradley

   James G. Shennan, Jr.

Mellody Hobson

   Javier G. Teruel

Kevin R. Johnson

   Myron E. Ullman, III

Olden Lee

   Craig E. Weatherup

Sheryl Sandberg

  

In determining that Ms. Sandberg is independent, the board of directors considered her position as an officer of a private company from which Starbucks purchased advertising space and marketing products in a transactional relationship in fiscal 2010. In determining that Mr. Lee is independent, the board of directors considered that he served at Starbucks as interim executive vice president, Partner Resources, at the request of the Company. In considering Mr. Johnson’s independence, the board of directors considered his son’s internship with Starbucks. The board of directors determined that none of these relationships constitutes a “related-person transaction” under applicable SEC rules or would interfere with the director’s exercise of independent judgment in carrying out his or her responsibilities as a director.

The board of directors also has determined that each member of its three committees meets applicable independence requirements as prescribed by NASDAQ and the SEC. The board determined that Mr. Lee does not meet the independence requirements prescribed by the IRS and as such, is not considered an “outside director” for purposes of Section 162(m) of the Internal Revenue Code. In April 2009, Mr. Lee resigned from the Compensation Committee in order to serve as our interim executive vice president, Partner Resources until March 31, 2010. We asked Mr. Lee to serve as our interim executive vice president for a short period of time while we were in the process of hiring and transitioning a new executive vice president, Partner Resources. Please see page 11 for a description of Mr. Lee’s role on the Compensation Committee.

Board Committees and Related Matters

During fiscal 2010, our board of directors had three standing committees: the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee (the “Nominating Committee”). The board of directors makes committee and committee chair assignments annually at its meeting immediately following the annual meeting of shareholders, although further changes to committee assignments are made from time to time as deemed appropriate by the board. Reports from the Audit Committee and Compensation Committee appear below. The committees operate pursuant to written charters, which are available on our website at www.starbucks.com/aboutus/corporate_governance.asp.

 

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The current composition of each board committee is set forth below.

 

Director   Audit Committee     Compensation Committee     Nominating Committee    Board of  Directors

Howard Schultz

                 Chair

Barbara Bass(1)

       Chair   X   X

William W. Bradley

            X   X

Mellody Hobson

  X             X

Kevin R. Johnson

  X   X        X

Olden Lee

       X        X

Sheryl Sandberg

            X   X

James G. Shennan, Jr.

       X   Chair   X

Javier G. Teruel

  Chair   X        X

Myron E. Ullman, III

       X        X

Craig E. Weatherup

  X        X   X

Fiscal 2010 Meetings

  12   7   5   11

 

(1)

As discussed above, Ms. Bass will be retiring from the board as of the conclusion of the annual meeting.

Attendance at Board and Committee Meetings, Annual Meeting

During fiscal 2010, each director attended at least 75% of all meetings of the board and board committees on which he or she served. Our Corporate Governance Principles and Practices require each board member to attend our annual meeting of shareholders except for absences due to causes beyond the reasonable control of the director. All directors attended the 2010 Annual Meeting of Shareholders.

Audit Committee

The Audit Committee annually reviews and reassesses the adequacy of its charter. As such, in June 2010, the Audit Committee reviewed and approved an updated Audit Committee charter. As more fully described in its charter, the primary responsibilities of the Audit Committee are to:

 

   

Oversee our accounting and financial reporting processes, including the review of the Company’s quarterly and annual financial results.

 

   

Appoint the Company’s independent registered public accounting firm and oversee the relationship, including monitoring the auditor’s independence and reviewing the scope of the auditor’s work, including preapproval of audit and non-audit services.

 

   

Review the annual audit and quarterly review processes with management and the independent registered public accounting firm.

 

   

Review management’s assessment of the effectiveness of the Company’s internal controls over financial reporting and the independent registered public accounting firm’s related attestation.

 

   

Oversee the Company’s internal audit function, including review of internal audit staffing and approval of the internal audit plan.

 

   

Review and approve or ratify all related party transactions and potential conflicts of interests that are required to be disclosed in the proxy statement.

 

   

Review the Company’s risk assessment and risk management policies.

 

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Each of Ms. Hobson and Messrs. Johnson, Teruel and Weatherup (i) meets the independence criteria prescribed by applicable law and the rules of the SEC for audit committee membership and is an “independent director” as defined by NASDAQ rules; (ii) meets NASDAQ’s financial knowledge and sophistication requirements; and (iii) has been determined by the board of directors to be an “audit committee financial expert” under SEC rules. The “Audit and Compliance Committee Report” describes in more detail the Audit Committee’s responsibilities with regard to our financial statements and its interactions with Deloitte.

Compensation Committee

The Compensation Committee annually reviews and reassesses the adequacy of its charter. As such, in September 2010, the Compensation Committee reviewed and approved an updated Compensation Committee charter. As more fully described in its charter, the primary responsibilities of the Compensation Committee are to:

 

   

Conduct an annual review of and recommend to the independent directors for their review and approval the compensation package for the chairman, president and chief executive officer.

 

   

Conduct an annual review and approve all compensation elements for our executive officers (other than our chairman, president and chief executive officer).

 

   

Annually review and approve performance measures and targets for all executive officers participating in the annual incentive bonus plan and long-term incentive plans; certify achievement of performance goals after the measurement period.

 

   

Approve, modify and administer partner-based equity plans, the Executive Management Bonus Plan and deferred compensation plans.

 

   

After consulting with the panel of independent directors, together with the chair of the Nominating Committee, the chair of the Compensation Committee annually reviews the performance of our chairman, president and chief executive officer and meets with him to share the findings of the review.

 

   

Annually review and approve our management development and succession planning practices and strategies.

 

   

Annually approve the Company’s comparator group companies and may review market data.

 

   

Provide recommendations to the board of directors on compensation-related proposals to be considered at the Company’s annual meeting, including Say-on-Pay.

 

   

Determine management stock ownership guidelines and periodically review ownership levels for compliance.

 

   

Annually review a report from management regarding material risks, if any, created by the Company’s compensation policies and practices.

At least annually, the Compensation Committee reviews and approves our executive compensation strategy and principles to ensure that they are aligned with our business strategy and objectives, shareholder interests, desired behaviors and corporate culture. In addition, the Compensation Committee’s charter allows it to delegate its authority to subcommittees of the committee, as may be necessary or appropriate.

In March 2010, the Compensation Committee formed a special subcommittee, the Performance Compensation Committee (the “Subcommittee”), which is responsible for establishing, administering, reviewing

 

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and approving any award intended to qualify for the “performance-based compensation” exception of Section 162(m) of the Internal Revenue Code (“Section 162(m)”). The Subcommittee may establish, administer, review and approve any compensation or compensatory award as may be requested by the Compensation Committee from time to time. The current composition of the Subcommittee is: Ms. Bass and Messrs. Johnson, Shennan, Teruel and Ullman. Each member of the Subcommittee meets applicable independence requirements as prescribed by NASDAQ, the SEC and the IRS. Since Mr. Lee was an executive officer of the Company for a period of time, he does not sit on the Subcommittee and does not vote on performance-based compensation. Since March 2010, all decisions related to performance-based compensation were made by the Subcommittee.

Summary of the Role of Management and Consultants in the Executive Compensation Process

In fiscal 2010, several members of senior management participated in the Compensation Committee’s executive compensation process. To assist in carrying out its responsibilities, the Compensation Committee also regularly received reports and recommendations from an outside independent compensation consultant, Frederic W. Cook & Co., Inc. (“F.W. Cook & Co.”). The Compensation Committee did not request, and management did not provide, specific compensation recommendations for fiscal 2010 compensation for Mr. Schultz. Towers Watson & Co. (formerly Towers Perrin, before its merger with Watson Wyatt Worldwide, Inc., effective January 1, 2010), a consulting firm engaged by management, provided market data and historical compensation information to the Compensation Committee and its consultant. F.W. Cook & Co. provided advice regarding best practices in executive compensation and compensation trends for chief executive officers to Barbara Bass, the committee’s chair. Ms. Bass, with data provided by Towers Watson and input and review by F.W. Cook & Co., then developed specific compensation recommendations for Mr. Schultz for fiscal 2010. The independent directors, including the members of the Compensation Committee, discussed those recommendations and reached consensus during an executive session without management present. All references to Towers Watson and F.W. Cook & Co. in this proxy statement refer, respectively, to management’s compensation consultant and the Compensation Committee’s consultant.

Management’s Role in the Executive Compensation Process

Mr. Schultz, our chairman, president and chief executive officer, our executive vice president, Partner Resources, for a portion of fiscal 2010 our interim executive vice president, Partner Resources, and other key members of Partner Resources each played an important role in the Compensation Committee’s executive compensation process for fiscal 2010 and regularly attended committee meetings. “Partner Resources” refers to our human resources function. For fiscal 2010, Mr. Schultz provided his perspective to the Compensation Committee regarding executive compensation matters generally and the performance of the executives reporting to him. Members of the Partner Resources team presented recommendations to the Compensation Committee on the full range of annual executive compensation decisions, including (i) annual incentive bonus plan structure and participants; (ii) long-term incentive compensation strategy; (iii) target competitive positioning of executive compensation based on Company and individual performance; and (iv) target total direct compensation for each executive officer, including base salary adjustments, target incentive bonus and equity grants. At the Compensation Committee’s November 2009 meeting, the first meeting after the end of the fiscal year 2009, members of the Partner Resources team presented the committee with specific compensation recommendations for all executives other than Mr. Schultz for fiscal 2010. These recommendations were developed in consultation with Mr. Schultz and were accompanied by market data provided by Towers Watson, which was also reviewed by F.W. Cook & Co. During the November 2009 meeting, the Compensation Committee exercised its independent discretion whether to accept management’s recommendations and made final approvals about each executive officer’s compensation in an executive session of the independent directors without management present. Barbara Bass, the Compensation Committee’s chair, also met periodically with members of the Partner Resources team to confer on current and upcoming topics likely to be brought before the committee.

In accordance with NASDAQ rules, Mr. Schultz did not vote on executive compensation matters or attend executive sessions of the Compensation Committee nor was he present when his compensation was being

 

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discussed or approved. Mr. Lee resigned from the Compensation Committee effective April 2009 in order to serve as our interim executive vice president, Partner Resources through March 2010. While a member of the Compensation Committee, Mr. Lee was not present when his consulting agreement was being discussed or approved. While an executive officer, he did not vote on executive compensation matters. Effective April 1, 2010, Mr. Lee rejoined the Compensation Committee as an independent director under applicable NASDAQ independence requirements. Mr. Lee does not meet the independence requirements prescribed by the IRS and as such, is not considered an “outside director” for purposes of Section 162(m) of the Internal Revenue Code. As discussed above, a special Subcommittee was formed at the same time to approve performance-based compensation under Section 162(m) since Mr. Lee does not qualify as an “outside director” under Section 162(m). Mr. Lee does not participate on the Subcommittee and does not vote on performance-based compensation.

The Role of Consultants in the Executive Compensation Process

For fiscal 2010, the Compensation Committee engaged an outside independent compensation consultant. The Compensation Committee’s consultant regularly attends committee meetings and attends executive sessions as requested by Ms. Bass.

F.W. Cook & Co. has served as the Compensation Committee’s consultant since June 2007 to assist it, as requested, in fulfilling various aspects of the committee’s charter. Without the Compensation Committee’s prior approval, F.W. Cook & Co. will not perform any services for Starbucks management, although the committee has directed that F.W. Cook & Co. work in cooperation with management as required to gather information necessary to carry out its obligations to the committee. During fiscal 2010, F.W. Cook & Co. did not perform any services for Starbucks other than making recommendations with respect to executive and director compensation. While the Compensation Committee does not ask F.W. Cook & Co. for its own market data, the Compensation Committee has F.W. Cook & Co. validate the market data received from Towers Watson, management’s consultant, supporting management’s recommendations.

During fiscal 2010, the Compensation Committee asked F.W. Cook & Co. to review, validate and provide input on the following tasks that Towers Watson completed at management’s request:

 

   

Conduct an analysis of compensation for executive positions and assess how target and actual compensation positioning to the market aligned with Starbucks compensation philosophy and objectives;

 

   

Prepare an analysis of and provide considerations regarding the list of peer group companies used for benchmarking executive and director compensation, using the criteria established by the committee, and provide input on changes to the peer group as requested;

 

   

Review management proposals for fiscal 2010 annual bonus targets;

 

   

Provide market data, historical compensation information and internal equity comparisons to the committee for its compensation decisions for Mr. Schultz; and

 

   

Review and provide input on management’s compensation proposals for new hires, promotions and other executive position moves within Starbucks.

For more information about the Compensation Committee’s activities, see “Compensation Discussion and Analysis” and “Compensation and Management Development Committee Report.”

 

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Compensation Committee Interlocks and Insider Participation

Messrs. Johnson, Lee, Shennan, Teruel and Ullman and Mses. Bass and Hobson served on the Compensation Committee during fiscal 2010. None of these individuals, other than Mr. Lee, was at any time during fiscal 2010 or at any other time an officer or employee of Starbucks, and none had any relationship with Starbucks requiring disclosure as a related-person transaction in the section “Certain Relationships and Related Transactions” on page 75. As discussed above, Mr. Lee served as our interim executive vice president, Partner Resources for a portion of fiscal 2010. Mr. Lee rejoined the Compensation Committee in April 2010 as an independent director under the applicable NASDAQ independence requirements. During fiscal 2010, none of our executive officers served on the compensation committee (or its equivalent) or board of directors of another entity whose executive officer served on our Compensation Committee.

Succession Planning

Senior Management Succession Planning

In light of the critical importance of executive leadership to Starbucks success, we have an annual succession planning process that we refer to as Organization & Partner Planning (“OPP”). The OPP process is enterprise wide for managers up to and including our president and chief executive officer. Reflecting the significance the board attaches to succession planning, our Compensation Committee is named the Compensation and Management Development Committee.

Our board of directors’ involvement in the annual OPP process is outlined in our Corporate Governance Principles and Practices. The Principles provide that each year, the chair of the Compensation Committee, together with the chairman, president and chief executive officer, will review succession plans with the board, and provide the board with a recommendation as to succession in the event of each senior officer’s termination of employment with Starbucks for any reason (including death or disability).

Our Compensation Committee, pursuant to its charter, annually reviews the performance of the executive officers and the succession plans for each such officer’s position. As noted above, this information is then presented to the board of directors. The Compensation Committee also conducts an annual review of, and provides approval for, our management development and succession planning practices and strategies.

ceo Succession Planning

The chairman, president and chief executive officer provides an annual report to the board of directors assessing senior managers and their potential to succeed him. This report is developed in consultation with our executive vice president, Partner Resources and the chair of our Compensation Committee and includes contingency plans in the event of our chief executive officer’s termination of employment with Starbucks for any reason (including death or disability). The report to the board also contains the chief executive officer’s recommendation as to his successor. The full board has the primary responsibility to develop succession plans for the ceo position.

Nominating Committee

The Nominating Committee annually reviews and reassesses the adequacy of its charter. As such, in June 2010, the Nominating Committee reviewed and approved an updated Nominating Committee charter. As described more fully in its charter, the Nominating Committee is responsible for developing and implementing policies and procedures that are intended to constitute the board of directors and organize it appropriately to meet its fiduciary obligations to Starbucks and our shareholders on an ongoing basis. Among its specific duties, the Nominating Committee:

 

   

Makes recommendations to the board about our corporate governance processes;

 

   

Assists in identifying and recruiting board candidates;

 

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Administers the Director Nominations Policy;

 

   

Considers shareholder nominations to the board;

 

   

Makes recommendations to the board regarding membership and chairs of the board’s committees;

 

   

Oversees the annual evaluation of the effectiveness of the board and each of its committees;

 

   

Biennially recommends the board’s presiding independent director;

 

   

Biennially reviews the type and amount of board compensation for independent directors; and

 

   

Makes recommendations to the full board regarding such compensation.

The Nominating Committee also annually assists the board of directors with its affirmative independence and expertise determinations. After consulting with the panel of independent directors, together with the chair of the Compensation Committee, the chair of the Nominating Committee annually reviews the performance of our chairman, president and chief executive officer and meets with him to share the findings of the review.

Our Director Nominations Process

Our Policy on Director Nominations is available at www.starbucks.com/aboutus/corporate_governance.asp. The purpose of the nominations policy is to describe the process by which candidates for possible inclusion in our recommended slate of director nominees (the “candidates”) are selected. The nominations policy was approved by the full board of directors and is administered by the Nominating Committee.

Minimum Criteria for Board Members

Each candidate must possess at least the following specific minimum qualifications:

 

   

Each candidate shall be prepared to represent the best interests of all shareholders and not just one particular constituency;

 

   

Each candidate shall be an individual who has demonstrated integrity and ethics in his or her personal and professional life and has established a record of professional accomplishment in his or her chosen field;

 

   

No candidate, or family member (as defined in NASDAQ rules) or affiliate or associate (as defined in federal securities laws) of a candidate, shall have any material personal, financial or professional interest in any present or potential competitor of Starbucks;

 

   

Each candidate shall be prepared to participate fully in board activities, including active membership on at least one board committee and attendance at, and active participation in, meetings of the board and the committee(s) of which he or she is a member, and not have other personal or professional commitments that would, in the Nominating Committee’s sole judgment, interfere with or limit his or her ability to do so; and

 

   

Each candidate shall be willing to make, and financially capable of making, the required investment in our stock in the amount and within the time frame specified in the director stock ownership guidelines described on page 20 of this proxy statement.

 

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Desirable Qualities and Skills

In addition, the Nominating Committee also considers it desirable that candidates possess the following qualities or skills:

 

   

Each candidate should contribute to the board of directors’ overall diversity — diversity being broadly construed to mean a variety of opinions, perspectives, personal and professional experiences and backgrounds, such as gender, race and ethnicity differences, as well as other differentiating characteristics;

 

   

Each candidate should contribute positively to the existing chemistry and collaborative culture among board members; and

 

   

Each candidate should possess professional and personal experiences and expertise relevant to our goal of being one of the world’s leading consumer brands. At this stage of our development, relevant experiences might include, among other things, large-company CEO experience, senior-level international experience, senior-level multi-unit small box retail or restaurant experience and relevant senior-level expertise in one or more of the following areas: finance, accounting, sales and marketing, organizational development, information technology, social media and public relations.

The Nominating Committee is responsible for reviewing the appropriate skills and characteristics required of directors in the context of prevailing business conditions and for making recommendations regarding the size and composition of the board, with the objective of having a board that brings to Starbucks a variety of perspectives and skills derived from high quality business and professional experience. The Nominating Committee’s review of the skills and experience it seeks in the Board as a whole, and in individual directors, in connection with its review of the board’s composition, enables it to assess the effectiveness of its goal of achieving a board with a diversity of experiences. The Nominating Committee considers these criteria when evaluating director nominees in accordance with the procedures set forth below.

Internal Process for Identifying Candidates

The Nominating Committee has two primary methods for identifying candidates (other than those proposed by shareholders, as discussed below). First, on a periodic basis, the Nominating Committee solicits ideas for possible candidates from a number of sources: members of the board; senior-level Starbucks executives; individuals personally known to the members of the board; and research, including database and Internet searches.

Second, the Nominating Committee may from time to time use its authority under its charter to retain at our expense one or more search firms to identify candidates (and to approve such firms’ fees and other retention terms). If the Nominating Committee retains one or more search firms, they may be asked to identify possible candidates who meet the minimum and desired qualifications expressed in the nominations policy, to interview and screen such candidates (including conducting appropriate background and reference checks), to act as a liaison among the board of directors, the Nominating Committee and each candidate during the screening and evaluation process, and thereafter to be available for consultation as needed by the Nominating Committee. The Nominating Committee did not retain a search firm during fiscal 2010.

The nominations policy divides the process for candidates proposed by shareholders into the general nomination right of all shareholders and proposals by “qualified shareholders” (as described below).

General Nomination Right of All Shareholders

Any Starbucks shareholder may nominate one or more persons for election as a director at an annual meeting of shareholders if the shareholder complies with the advance notice, information and consent provisions

 

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contained in our bylaws. For the fiscal 2012 Annual Meeting of Shareholders, in order for the director nomination to be timely, a shareholder’s notice to our executive vice president, general counsel and secretary must be delivered to our principal executive offices not less than 120 days nor more than 150 days before the anniversary of the date of the 2011 Annual Meeting of Shareholders.

The procedures described in the next paragraph are meant to establish an additional means by which certain shareholders can have access to our process for identifying and evaluating candidates and is not meant to replace or limit shareholders’ general nomination rights in any way.

Proposals by Qualified Shareholders

In addition to those candidates identified through its own internal processes, in accordance with the nominations policy, the Nominating Committee will evaluate a candidate proposed by any single shareholder or group of shareholders that has beneficially owned more than 5% of our common stock for at least one year (and will hold the required number of shares through the annual meeting of shareholders) and that satisfies the notice, information and consent provisions in the nominations policy (a “qualified shareholder”). Any candidate proposed by a qualified shareholder must be independent of the qualified shareholder in all respects as determined by the Nominating Committee or by applicable law. Any candidate submitted by a qualified shareholder must also meet the definition of an “independent director” under NASDAQ rules.

In order to be considered by the Nominating Committee for an upcoming annual meeting of shareholders, notice from a qualified shareholder regarding a potential candidate must be received by the Nominating Committee not less than 120 calendar days before the anniversary of the date of our proxy statement released to shareholders in connection with the previous year’s annual meeting.

Evaluation of Candidates

The Nominating Committee will consider and evaluate all candidates identified through the processes described above, including incumbents and candidates proposed by qualified shareholders, based on the same criteria.

If, based on the Nominating Committee’s initial evaluation, a candidate continues to be of interest to the Nominating Committee, the chair of the Nominating Committee will interview the candidate and communicate the chair’s evaluation to the other Nominating Committee members and the chairman, president and chief executive officer. Later reviews will be conducted by other members of the Nominating Committee and senior management. Ultimately, background and reference checks will be conducted and the Nominating Committee will meet to finalize its list of recommended candidates for the board of directors’ consideration. All candidates (whether identified internally or by a qualified shareholder) who, after evaluation, are then recommended by the Nominating Committee and approved by the board of directors, will be included in our recommended slate of director nominees in our proxy statement.

Timing of the Identification and Evaluation Process

Our fiscal year ends each year on the Sunday closest to September 30. The Nominating Committee usually meets in September and November to consider, among other things, candidates to be recommended to the board of directors for inclusion in our recommended slate of director nominees for the next annual meeting of shareholders and our proxy statement. The board usually meets each November to vote on, among other things, the slate of director nominees to be submitted to and recommended for election by shareholders at the annual meeting, which is typically held in March of the following calendar year.

 

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Future Revisions to the Nominations Policy

The nominations policy is intended to provide a flexible set of guidelines for the effective functioning of our director nominations process. The Nominating Committee intends to review the nominations policy at least annually and anticipates that modifications will be necessary from time to time as our needs and circumstances evolve, and as applicable legal or listing standards change. The Nominating Committee may amend the nominations policy at any time, in which case the most current version will be available on our website.

Corporate Governance Materials Available on the Starbucks Website

Our Corporate Governance Principles and Practices are intended to provide a set of flexible guidelines for the effective functioning of the board of directors and are reviewed regularly and revised as necessary or appropriate in response to changing regulatory requirements and evolving best practices. They are posted on the Corporate Governance section of our website at www.starbucks.com/aboutus/corporate_governance.asp.

In addition to our Corporate Governance Principles and Practices, other information relating to corporate governance at Starbucks is available on the Corporate Governance section of our website, including:

 

   

Restated Articles of Incorporation

 

   

Amended and Restated Bylaws

 

   

Audit and Compliance Committee Charter

 

   

Compensation and Management Development Committee Charter

 

   

Nominating and Corporate Governance Committee Charter

 

   

Policy on Director Nominations

 

   

Standards of Business Conduct (applicable to directors, officers and partners)

 

   

Code of Ethics for CEO and Finance Leaders

 

   

Procedure for Communicating Complaints and Concerns

 

   

Audit and Compliance Committee Policy for Pre-Approval of Independent Auditor Services

You may obtain copies of these materials, free of charge, by sending a written request to: executive vice president, general counsel and secretary, Starbucks Corporation, 2401 Utah Avenue South, Mail Stop S-LA1, Seattle, Washington 98134. Please specify which documents you would like to receive.

 

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Contacting the Board of Directors

The Procedure for Communicating Complaints and Concerns describes the manner in which interested persons can send communications to our board of directors, the committees of the board and to individual directors and describes our process for determining which communications will be relayed to board members. This complaints and concerns procedure provides that interested persons may telephone their complaints and concerns by calling the Starbucks Auditline at 1-800-300-3205 or sending written communications to the board, committees of the board and individual directors by mailing those communications to our third-party service provider for receiving these communications at:

Starbucks Corporation

[Addressee*]

P.O. Box 34507

Seattle, Washington 98124

 

* Audit and Compliance Committee of the Board of Directors

Compensation and Management Development Committee of the Board of Directors

Nominating and Corporate Governance Committee of the Board of Directors

Name of individual director

Compensation of Directors

Compensation Program for Non-Employee Directors

For fiscal 2010, the annual compensation program for non-employee directors provided for a total of $220,000 per year in compensation, composed of (i) a retainer of $110,000, which may be in the form of cash, stock options or a combination of both at the director’s election, and (ii) $110,000 in equity compensation in the form of stock options. The compensation program was approved by our board of directors in June 2009, based on the recommendation of the Nominating Committee following its biennial non-employee director compensation review required by its charter and our Corporate Governance Principles and Practices. We pay at least 50% of non-employee director compensation in the form of stock options in order to align the interests of non-employee directors with shareholders. We do not pay chair or meeting fees as part of our non-employee director compensation program.

New non-employee directors first become eligible to receive the regular annual compensation in the first full fiscal year after they join the board of directors. In addition to the annual compensation program, upon first joining the board, non-employee directors are granted an initial stock option to acquire 30,000 shares of our common stock under the 2005 Non-Employee Director Sub-Plan to our 2005 Long-Term Equity Incentive Plan. The initial stock option grant vests in equal annual installments over a three-year period. Mr. Johnson and Ms. Sandberg were first eligible for the annual compensation in fiscal 2010.

Stock options have an exercise price equal to the closing market price of our common stock on the grant date. Pursuant to the 2005 Non-Employee Director Sub-Plan to our 2005 Long-Term Equity Incentive Plan, the number of options covered by each annual grant is determined by dividing the equity compensation amount for each director by the closing market price of our common stock on the grant date, multiplied by three. For example, for $110,000 of equity compensation and a closing market price of $30 per share on the grant date, the director would receive 11,000 stock options, which is the result of $110,000 divided by $30, or approximately 3,667, multiplied by 3. Annual stock option grants vest one year after the date of grant. Stock options granted to non-employee directors generally cease vesting as of the date he or she no longer serves on the board of directors. However, unvested stock options will vest in full upon a non-employee director’s death or “retirement” (generally defined as leaving the board after attaining age 55 and at least six years of board service) or upon a change in control of Starbucks (described beginning on page 57). Six of the board’s ten current independent directors meet the retirement criteria.

 

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In June 2009, the non-employee director compensation program was amended by our board of directors, based on the recommendation of the Nominating Committee following its biennial non-employee director compensation review required by its charter and our Corporate Governance Principles and Practices. At the time the non-employee director compensation program was reviewed, the board believed that, in light of the economic decline, the downturn in the Company’s performance and the related impact on partner compensation, the non-employee director compensation program should be adjusted downward accordingly. As described above, for fiscal 2010, the annual compensation program for non-employee directors provided for a total of $220,000 per year in compensation (a decrease from $240,000 in fiscal 2009). When the Nominating Committee considered and ultimately recommended the fiscal 2010 non-employee director compensation, the committee reviewed competitive market data prepared by Towers Watson for the same comparator group used to benchmark executive compensation for fiscal 2009. The level of non-employee director total compensation approved by the Nominating Committee for fiscal 2010 was between the 65th and 70th percentile among comparator group companies and the board believed that the level was appropriate to attract and retain top board candidates.

In June 2010, the non-employee director compensation program was amended by our board of directors, on the recommendation of the Nominating Committee. For fiscal 2011, the board determined to reinstate non-employee director compensation to $240,000 per year composed of (i) a retainer of $120,000, which may be in the form of cash, stock options or a combination of both at the director’s election, and (ii) $120,000 in equity compensation in the form of stock options. The board also determined to review non-employee director compensation again in fiscal 2011.

Mr. Schultz does not participate in the compensation program for non-employee directors, but rather is compensated as an executive officer, as described in the section “Executive Compensation” beginning on page 23.

From April 2009 through March 2010, Mr. Lee served as interim executive vice president, Partner Resources. For his services as interim executive vice president, Partner Resources, Mr. Lee was compensated pursuant to a consulting agreement that provided for a consulting fee of $25,000 per month plus reimbursement of certain business expenses. Mr. Lee remained on our board of directors during this period and was thus also compensated pursuant to the non-employee director compensation program. Effective October 1, 2009, the consulting agreement was amended by the Compensation Committee to increase the monthly consulting fee from $25,000 to $50,000 and to provide a one-time lump sum payment of $150,000. Mr. Lee’s consulting arrangement was approved by the Compensation Committee.

 

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Fiscal 2010 Compensation of Non-Employee Directors

The following table shows fiscal 2010 compensation for non-employee directors.

Fiscal 2010 Director Compensation

 

Name

   Fees Earned
or Paid in
Cash
($)
     Option
Awards
($)(1)
     All Other
Compensation
($)
    Total
($)
 

Barbara Bass

             271,258                271,258   

William W. Bradley

     82,500         169,542                252,042   

Mellody Hobson

             271,258                271,258   

Kevin R. Johnson

     110,000         135,633                245,633   

Olden Lee

             271,258         355,342 (2)      626,600   

Sheryl Sandberg

     110,000         135,633                245,633   

James G. Shennan, Jr.

     110,000         135,633                245,633   

Javier G. Teruel

             271,258                271,258   

Myron E. Ullman, III

             271,258                271,258   

Craig E. Weatherup

             271,258                271,258   

 

(1)

The amounts shown in this column represents the aggregate grant date fair values of the stock options awarded November 16, 2009. The grant date fair values have been determined based on the assumptions and methodologies set forth in the Company’s 2010 Form 10-K (note 14).

 

(2)

Amounts paid pursuant to Mr. Lee’s consulting agreement described above, consisted of a $50,000 per month consulting fee as well as the reimbursement of expenses incurred in the course of his service under the agreement, including $23,315 for airfare, $25,678 for lodging and $6,349 for car rental and taxi service.

As of October 3, 2010, the aggregate number of shares of Starbucks common stock underlying outstanding option awards for each non-employee director were: Ms. Bass — 429,290 shares; Mr. Bradley — 209,854 shares; Ms. Hobson — 240,786 shares; Mr. Johnson — 44,960 shares; Mr. Lee — 302,144 shares; Ms. Sandberg — 44,960 shares; Mr. Shennan — 389,451 shares; Mr. Teruel — 240,786 shares; Mr. Ullman — 302,144 shares; and Mr. Weatherup — 460,520 shares.

Former Deferred Compensation Plan

Non-employee directors formerly could defer all or a portion of their compensation in the form of unfunded deferred stock units under the directors’ deferred compensation plan. The board of directors terminated future deferrals under the plan during fiscal 2005, so no further compensation may be deferred. Amounts previously deferred were unaffected and deferred stock units credited to non-employee directors who had previously deferred compensation under the plan remain outstanding. We do not provide above-market or preferential earnings on these amounts. Dividends are credited as additional unfunded deferred stock units based on the market price of our common stock at the time the dividends are paid and are credited to non-employee directors with the other deferred stock units until plan distributions are made in accordance with the terms of the plan. Deferred stock units are settled in an equal number of shares of Starbucks common stock when plan participants leave the board. Deferred stock units cannot be voted or transferred. The number of deferred stock units held by each director is shown in the footnotes to the beneficial ownership table on page 77.

Director Stock Ownership Guidelines

The board of directors adopted stock ownership guidelines for non-employee directors in fiscal 2003. The original guidelines required a $200,000 investment within four years. In May 2007, the board revised the

 

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guidelines to increase the required investment to $240,000 in tandem with the increase to non-employee director compensation. In June 2009, when non-employee director annual compensation was amended to $220,000 for fiscal 2010, the board agreed to maintain the stock ownership guidelines at $240,000. All non-employee directors have four years from their election to the board to achieve the $240,000 investment. Stock options do not count toward meeting the requirement. Each director must continue to hold the shares purchased as a result of the director’s investment for as long as he or she serves on our board. All non-employee directors are in compliance with the guidelines. Mr. Johnson and Ms. Sandberg have not yet served on the board for four years and are working toward making the required investment.

PROPOSAL 2 — ADVISORY RESOLUTION ON EXECUTIVE COMPENSATION

We are asking shareholders to approve an advisory resolution on the Company’s executive compensation as reported in this proxy statement. As described below in the “Compensation Discussion and Analysis” section of this proxy statement, the Compensation Committee has structured our executive compensation program to achieve the following key objectives:

 

Objective   How Our Executive Compensation Program Achieves This Objective

Pay For Performance

 

•  Aligning executive compensation with short-term and long-term Company, business unit and individual performance

•  Setting a significant portion of each named executive officer’s target total direct compensation to be in the form of variable compensation

Stay True to Our Values

 

•  Providing limited executive perquisites

•  Maintaining a clawback policy for incentive compensation awards

•  Requiring our executives to own Starbucks stock and prohibiting them from engaging in hedging transactions with respect to Starbucks stock

Attract and Retain Top Talent

 

•  Targeting total target direct compensation at the 50th percentile range among companies with which we compete for executive talent

•  Competing effectively for the highest quality people who will determine our long-term success

We urge shareholders to read the “Compensation Discussion and Analysis” beginning on page 23 of this proxy statement, which describes in more detail how our executive compensation policies and procedures operate and are designed to achieve our compensation objectives, as well as the Summary Compensation Table and other related compensation tables and narrative, appearing on pages 47 through 58, which provide detailed information on the compensation of our named executive officers. The Compensation Committee and the board of directors believe that the policies and procedures articulated in the “Compensation Discussion and Analysis” are effective in achieving our goals and that the compensation of our named executive officers reported in this proxy statement has contributed to the Company’s recent and long-term success.

In accordance with recently adopted Section 14A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as a matter of good corporate governance, we are asking shareholders to approve the following advisory resolution at the 2011 Annual Meeting of Shareholders:

RESOLVED, that the shareholders of Starbucks Corporation (the “Company”) approve, on an advisory basis, the compensation of the Company’s named executive officers disclosed in the Compensation Discussion and Analysis, the Summary Compensation Table and the related compensation tables, notes and narrative in the Proxy Statement for the Company’s 2011 Annual Meeting of Shareholders.

 

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This advisory resolution, commonly referred to as a “say-on-pay” resolution, is non-binding on the board of directors. Although non-binding, the board and the Compensation Committee will review and consider the voting results when making future decisions regarding our executive compensation program.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE ADVISORY RESOLUTION ON EXECUTIVE COMPENSATION.

PROPOSAL 3 — ADVISORY VOTE ON THE FREQUENCY OF FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION

Pursuant to recently adopted Section 14A of the Exchange Act, we are asking shareholders to vote on whether future advisory votes on executive compensation of the nature reflected in Proposal Number 2 above should occur every year, every two years or every three years.

After careful consideration and dialogue with our shareholders, the board of directors has determined that holding an advisory vote on executive compensation every year is the most appropriate policy for the Company at this time, and recommends that shareholders vote for future advisory votes on executive compensation to occur every year. While the Company’s executive compensation programs are designed to promote a long-term connection between pay and performance, the board of directors recognizes that executive compensation disclosures are made annually. Given that the “say-on-pay” advisory vote provisions are new, holding an annual advisory vote on executive compensation provides the Company with more direct and immediate feedback on our compensation disclosures. However, shareholders should note that because the advisory vote on executive compensation occurs well after the beginning of the compensation year, and because the different elements of our executive compensation programs are designed to operate in an integrated manner and to complement one another, in many cases it may not be appropriate or feasible to change our executive compensation programs in consideration of any one year’s advisory vote on executive compensation by the time of the following year’s annual meeting of shareholders. We believe that an annual advisory vote on executive compensation is consistent with our practice of seeking input and engaging in dialogue with our shareholders on corporate governance matters (including the Company’s practice of having all directors elected annually and annually providing shareholders the opportunity to ratify the Audit Committee’s selection of independent auditors) and our executive compensation philosophy, policies and practices.

This advisory vote on the frequency of future advisory votes on executive compensation is non-binding on the board of directors. Shareholders will be able to specify one of four choices for this proposal on the proxy card: one year, two years, three years or abstain. Shareholders are not voting to approve or disapprove the board’s recommendation. Although non-binding, the board and the Compensation Committee will carefully review the voting results. Notwithstanding the board’s recommendation and the outcome of the shareholder vote, the board may in the future decide to conduct advisory votes on a more or less frequent basis and may vary its practice based on factors such as discussions with shareholders and the adoption of material changes to compensation programs.

THE BOARD OF DIRECTORS RECOMMENDS SHAREHOLDERS VOTE TO CONDUCT FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION EVERY YEAR.

 

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

This Compensation Discussion and Analysis provides important information on our executive compensation program and the amounts shown in the executive compensation tables that follow. In this proxy statement, the term “named executive officers” means the five executive officers named in the compensation tables that follow. “Compensation Committee” or “Committee” means the Compensation and Management Development Committee of the board of directors. We refer to our employees as our “partners,” due to the significant role they play in the success of the Company.

Executive Summary

Fiscal 2010 — The Year in Review

Starbucks achieved record financial results in fiscal 2010. The Company’s fiscal 2010 results were outstanding when considered against the backdrop of the challenging economic and consumer environments in which they were accomplished. The chart below summarizes the key Company financial results for fiscal 2010 compared to fiscal 2009.

 

     Fiscal 2010 (53  weeks)(1)
($ in  millions,
except per share amounts)
     Fiscal 2009 (52  weeks)
($ in millions,
except per share amounts)
     Change (%)  

Revenues(2)

     10,707.4         9,774.6         10   

GAAP Operating Income

     1,419.4         562.0         153   

GAAP EPS

     1.24         0.52         138   

Non-GAAP Operating Income(3)

     1,472.4         894.4         65   

Non-GAAP EPS(3), (4)

     1.28         0.80         60   

Stock Price Per Share as of Fiscal Year-End(5)

     25.94         19.83         31   

 

(1) Our fiscal year ends on the Sunday closest to September 30. The fiscal year ended on October 3, 2010 included 53 weeks with the additional week falling in our fourth fiscal quarter. As discussed on page 32, the objective performance goals under our annual incentive compensation plan were set based on a 53-week fiscal year.

 

(2) Total net revenues increased 7% to $10.5 billion on a 52-week basis.

 

(3) Non-GAAP Operating Income for fiscal 2010 and 2009 excludes restructuring charges of $53.0 million and $332.4 million, respectively, that are included in GAAP Operating Income. Non-GAAP EPS for fiscal 2010 and 2009 excludes restructuring charges of $0.04 and $0.28, respectively, that are included in GAAP EPS. We believe these non-GAAP financial measures better enable investors to understand and evaluate the Company’s historical and prospective operating performance. “GAAP” refers to accounting principles generally accepted in the United States of America.

 

(4) For the 53 weeks ended October 3, 2010, diluted earnings per share included an estimated $0.05 per share benefit from the extra week in September 2010.

 

(5) Represents the closing market price of our common stock on the last trading day (October 1, 2010) prior to our fiscal 2010 year-end and the last trading day (September 25, 2009) prior to our fiscal 2009 year-end.

In line with our executive compensation program’s emphasis on pay for performance, compensation awarded to the named executive officers for fiscal 2010 reflected Starbucks outstanding financial results.

 

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Annual Incentive Plan:    As a result of the Company’s strong fiscal 2010 performance, our named executive officers received an above-target bonus payout under our annual incentive bonus plan. Based on the Company’s performance against each named executive officer’s objective performance measure, with fiscal 2010 income and earnings measures significantly exceeding the target performance goal, each named executive officer achieved a 200% payout on each objective performance measure.

 

   

Performance-based Restricted Stock Units:    As a result of the Company’s actual fiscal 2010 adjusted earnings per share significantly exceeding the target performance goal, the named executive officers earned 200% of their target number of performance-based restricted stock units (“performance RSUs”).

In addition, to reward our partners for their contributions to the Company’s outstanding fiscal 2010 performance, consistent with our “Total Pay” philosophy, the Company:

 

   

paid a special cash bonus to over 88,000 partners who were not participants under any of the Company’s various incentive plans;

 

   

approved an enhanced match under the 401(k) plan at 100% of the first 6% deferred for 2011; and

 

   

enhanced our broad-based long-term incentive compensation program that covers all eligible global partners, which does not include executive officers, by introducing time-based restricted stock units and expanding the eligibility provisions allowing additional partners to participate in the plan; over 100,000 partners in 17 markets, including qualified part-time partners, received time-based restricted stock units in the most recent annual grant in November 2010.

Best Practices

Our executive compensation program is detailed over the next several pages; however, we believe that the following compensation decisions and practices demonstrate how this program reinforces Starbucks culture and values.

 

   

Updated Executive Stock Ownership Guidelines and Introduced a Holding Requirement:    In November 2010, the Compensation Committee approved updates to the executive stock ownership guidelines. Our guidelines now provide that each executive officer must own a multiple of his or her annual base salary in Starbucks stock (as compared to a minimum investment requirement under our previous guidelines). Our chairman, president and chief executive officer must own at least 6 times his base salary, our presidents (U.S. and International) and chief financial officer must own at least 3 times his or her base salary and all other executive officers must own at least 2 times his or her base salary. In addition, our Compensation Committee introduced a holding requirement that requires each executive officer to hold 50% of the net shares received upon the exercise of stock options and 50% of the net shares received upon the vesting of restricted stock units until the executive officer satisfies the ownership requirement. For additional information on our stock ownership guidelines and the level of achievement by our named executive officers, see page 43.

 

   

Established a Recovery of Incentive Compensation Policy:    In fiscal 2010, the board of directors, upon the recommendation of the Compensation Committee, approved a Recovery of Incentive Compensation Policy (or clawback policy). The policy allows the Company to seek reimbursement of incentive compensation paid or awarded to executive officers in certain circumstances. For a full description of the policy, see page 44.

 

   

Adopted a Policy Prohibiting Hedging Transactions:    In November 2010, the board of directors amended the Starbucks Corporation Insider Trading Policy to prohibit Starbucks partners from engaging in hedging transactions designed to off-set decreases in the market value of Starbucks securities, including certain forms of hedging and monetization transactions, such as “zero-cost collars” and “prepaid variable forward contracts.”

 

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Utilized Long-Term Performance-based Restricted Stock Units:    In fiscal 2010, the Compensation Committee continued its use of performance-based RSUs as a significant portion of long-term equity incentive compensation. The Compensation Committee believes that performance RSUs are an appropriate equity vehicle for our executives because performance RSUs align executives’ interests with the interests of shareholders by providing value only if pre-established objective performance goals are met and time-based vesting requirements for earned performance RSUs are satisfied. Performance RSUs will continue to be a portion of long-term equity incentive compensation in fiscal 2011.

 

   

Emphasized Variable Compensation:    In fiscal 2010, the Compensation Committee continued its practice of awarding the majority of total direct compensation to named executive officers in the form of variable compensation that is performance based. Variable compensation is tied to the achievement of performance goals or stock price appreciation and includes elements such as annual incentive bonuses, stock options and performance RSUs. For a calculation of the variable compensation for each named executive officer, see page 29.

 

   

Provided No Employment Agreements:    Although we typically sign a letter arrangement with an executive officer upon hire or promotion noting that the executive is employed “at will,” these agreements typically do not provide for severance upon termination. None of our named executive officers have employment or severance agreements.

 

   

Provided No Change-in-Control Benefits Other Than Double-Trigger Equity Acceleration:    We do not provide change-in-control severance benefits to executives or any related tax gross-ups. Our only change-in-control arrangement, which applies to all partners with equity compensation awards, is “double triggered” accelerated vesting of assumed equity awards only upon termination following a change-in-control. For a description of this benefit, see page 43.

 

   

Reduced Security Costs:    For fiscal 2010, Howard Schultz, our chairman, president and chief executive officer, agreed to reimburse the Company for a portion of his personal security costs. As a result, the Company’s aggregate incremental cost of security benefits for Mr. Schultz was $210,268 in fiscal 2010, which is a significant reduction compared to fiscal 2009. For additional information on security costs, see page 38.

 

   

Discontinued Replacement of Split-Dollar Life Insurance Benefit:    In fiscal 2005, we terminated our obligations to pay premiums with respect to split-dollar life insurance arrangements with Mr. Schultz in exchange for an annual cash payment in an amount sufficient for him to acquire a similar benefit. In fiscal 2010, Mr. Schultz voluntarily agreed to forego the fiscal 2010 annual cash payment and all future annual cash payments that were payable under the 2005 arrangement.

 

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Elements of Executive Compensation Program

The following table lists the elements of our fiscal 2010 executive compensation program and the primary purpose of each.

 

Element   Form    Objectives and Basis

Base Salary

  Cash   

• Base compensation that is competitive for each role, responsibilities and experience.

• Reviewed on an annual basis and at the time of hire or promotion.

• Generally set at approximately the median range of Starbucks comparator group, as described on page 31.

• Other factors considered, including input from our chairman, president and chief executive officer, the level of responsibility and complexity of the executive’s job, individual performance in the prior year and how the executive’s salary compares to the salaries of other Starbucks executives.

Annual Incentive Bonus

  Cash   

• Annual incentive to drive Company, business unit and, where appropriate, individual performance.

• Target bonus amount is set as a percentage of base salary.

• Reviewed on an annual basis and at the time of hire or promotion.

• Generally set at approximately the median range of Starbucks comparator group.

• Other factors considered, including the Company’s prior-year performance, individual performance and retention concerns.

Long-Term Incentive Compensation

  Performance RSUs, stock options   

• Long-term incentive to drive Company performance; align executives’ interests with shareholders’ interests; retain executives through long-term vesting; and provide potential wealth accumulation.

• Reviewed on an annual basis and at the time of hire or promotion.

• Generally set at approximately the median range of Starbucks comparator group.

• Other factors considered, including the Company’s prior-year performance, individual executive performance and retention concerns. In addition, for all partners that receive equity awards, we consider share usage, dilution and shares available under the equity plan.

• We do not consider the realized or unrealized value of prior equity awards when determining the target economic value of new awards because we grant each equity award as an incentive to drive future shareholder return.

Perquisites and Other Executive Benefits

  Various (see discussion below)    • Provide for the safety and wellness of our executives, and other purposes as discussed below.

Discretionary Bonuses and Equity Awards

 

Cash, stock options,

time-based restricted stock units (“time-based RSUs”)

  

• Reward extraordinary performance and attract top executive talent from other companies.

• Retain executives through long-term vesting and potential wealth accumulation.

 

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Element   Form    Objectives and Basis

Deferred Compensation

  Eligibility to participate in 401(k) plan and non-qualified management deferred compensation plan    • Provide tax-deferred means to save for retirement.

General Partner Benefits

  Eligibility to participate in partner health and welfare plans, stock purchase plan and other broad-based partner benefits    • Offer competitive benefits package that includes all benefits offered to partners generally.

Executive Compensation Program Objectives and Design

Our “Total Pay” compensation philosophy is designed to recognize and reward the contributions of all partners, including executives. We offer a comprehensive benefits package, including health care to all eligible full- and part-time partners in the United States and internationally (except in countries where the government provides health care). We also provide a broad-based equity program to all eligible global partners and partner stock purchase programs in the United States and Canada. We believe our Total Pay practices motivate our executives to build long-term shareholder value and to take care of the partners who take care of our customers.

Our executive compensation program is designed to achieve the following key objectives:

 

   

Attract and Retain Top Talent — Compete effectively for the highest quality of people who will determine our long-term success. We have structured our executive compensation program to be competitive with compensation paid by companies in the same market for executive talent. The Compensation Committee’s philosophy is to target total direct compensation (in the aggregate for each executive officer) to executives at approximately the median (or 50th percentile) range among comparator group companies (based on the Company’s performance at its annual operating plan).

 

   

Pay for Performance — Align executive compensation with Company, business unit and individual performance on both a short-term and long-term basis. The majority of our target total direct compensation is in the form of variable compensation, comprised of annual incentive bonuses, stock options and performance RSUs, which aligns executive compensation with shareholder interests by tying a significant majority of total direct compensation to the achievement of performance goals or stock price appreciation. The percentage of pay that is variable compensation is increased with greater levels of responsibility. Variable compensation means the executive will not realize value unless performance goals, the majority of which are directly tied to Company performance, are achieved (for annual incentive bonuses and performance RSUs) or our stock price appreciates (for stock options). In fiscal 2010, at least 74% of each of our named executive officer’s target total direct compensation was “at risk” in the form of variable compensation.

 

   

Be True to Our Values — Support our mission statement and guiding principles. We have structured our compensation program to recognize and reward the contributions of all partners, including executives, in achieving our strategic goals and business objectives, while at the same time aligning the program with shareholder interests and our mission statement and guiding principles. To meet this objective, we provide limited executive perquisites and require our executives to own Starbucks stock worth two to six times the executive’s base salary, depending on the executive’s position. You can find a copy of our mission statement and guiding principles on our website in the “About Us” section.

 

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Risk Considerations

We design our total direct compensation mix to encourage our executives to take appropriate risks aimed at improving Company performance and driving long-term shareholder value. We believe that the design and objectives of our executive compensation program provides an appropriate balance of incentives for executives and thereby avoids inappropriate risks. In this regard, our executive compensation program includes, among other things, the following design features:

 

   

A balanced mix of fixed versus variable compensation and cash-based versus equity-based compensation;

 

   

Variable compensation based on a variety of performance goals, including Company, business unit and, where appropriate, individual performance goals;

 

   

Compensation Committee discretion to lower annual incentive award amounts;

 

   

A balanced mix of short-term and long-term incentives;

 

   

Maximum award limits for annual incentive awards and performance RSUs;

 

   

Additional time-based vesting requirements for earned performance RSUs;

 

   

Stock ownership and holding requirements;

 

   

Prohibition on hedging Company stock that applies to all partners; and

 

   

A clawback policy (our Recovery of Incentive Compensation Policy described on page 44).

Consistent with SEC disclosure requirements, the Compensation Committee has assessed our compensation objectives, philosophy, and forms of compensation and benefits for all partners, including executives, and has concluded that our compensation practices and policies do not create risks that are reasonably likely to have a material adverse effect on the Company.

Determining Executive Compensation at Starbucks

The Compensation Committee determines the compensation objectives, philosophy and forms of compensation and benefits for our executive officers, and recommends to the independent members of the full board of directors the compensation elements for our chairman, president and chief executive officer. The Compensation Committee is supported by F.W. Cook & Co., its outside independent compensation consultant, and several members of senior management (as discussed in the “Compensation Committee” section beginning on page 10).

Considerations in Setting Target Total Direct Compensation

Annual executive compensation decisions for fiscal 2010 were made at the November 2009 Compensation Committee meeting, which was the Committee’s first regular meeting after the 2009 fiscal year end. During this meeting, the Compensation Committee approved target total direct compensation, which is comprised of the following elements:

 

Short-Term Compensation

                  Long-Term
Incentive  Compensation
         

Base

Salary

   +   

Target Annual

Incentive Bonus

   =   

Target Total Cash

Compensation

   +    Stock Options and Target
Performance RSUs
   =   

Target Total Direct

Compensation

 

 

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At the meeting, the Compensation Committee approved base salaries and target annual incentive bonus amounts for fiscal 2010 and, following a review of fiscal 2009 performance, determined the long-term equity incentive award.

When making compensation decisions, the Compensation Committee reviewed competitive market data on a one-year and three-year basis to see how our executive pay levels compared to other companies. However, the Compensation Committee did not use formulas or rigidly set the compensation of our executives based on this data, as the Compensation Committee also looked at other factors (as described below) when setting compensation. The Compensation Committee then considered recommendations and input from management, as well as input from F.W. Cook & Co. as described on page 11. Management did not provide specific compensation recommendations for Mr. Schultz. Recommendations are influenced by factors that may vary from year to year, and for fiscal 2010 included prior-year Company and business unit financial performance and shareholder return, retention, professional experience, internal pay equity, compensation history and individual performance.

Pay for Performance

Our fiscal 2010 variable compensation included target annual incentive bonuses under our annual incentive bonus plan, the Executive Management Bonus Plan, and the economic value of stock options and performance RSUs (at target) awarded in fiscal 2010 under our 2005 Long-Term Equity Incentive Plan.

The graphs below show the balance of the elements that comprised target total direct compensation for each named executive officer for fiscal 2010, including the percentage of variable compensation. The percentage of variable compensation listed below each chart is calculated by dividing (i) the value of variable compensation at target by (ii) the amount of target total direct compensation, which includes variable compensation plus fiscal 2010 base salary.

LOGO

Since Ms. Holmes was hired November 16, 2009, she was not eligible to receive the annual equity award, but instead received an equity award at the time she was hired. As a result, the Compensation Committee did not review an annual target total direct compensation package for her for fiscal 2010, but instead reviewed each element of her compensation at the time she was hired. As such, we did not include a chart for her fiscal 2010 total direct compensation.

 

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Analysis of Executive Compensation Decisions

The table below provides an overview comparing each element of fiscal 2010 target total direct compensation versus fiscal 2010 actual total direct compensation for each of the named executive officers. The performance goals and other factors used in determining these amounts are analyzed further below.

 

Named Executive Officer

  Base
Salary
    Target
Bonus
    Actual
Bonus(1)
    % of
Target(1)
    Long-Term
Incentive(2)
    Actual
Long-Term
Incentive(2)
    % of
Target(3)
    Target
Total
Direct
Comp.
    Actual
Total
Direct
Comp.
    % of
Target(4)
 

Howard Schultz

    1,300,000        1,950,000        3,500,000        179.5     10,500,000        15,750,000        150.0%        13,750,000        20,550,000        149.5%   

Troy Alstead

    550,000        412,500        822,525        199.4     1,400,000        2,100,000        150.0%        2,362,500        3,472,525        147.0%   

Clifford Burrows

    650,000        487,500        972,075        199.4     1,400,000        2,100,000        150.0%        2,537,500        3,722,075        146.7%   

John Culver(5)

    525,000        393,750        787,500        200.0     1,370,000        1,455,000        106.2%        2,288,750        2,767,500        120.9%   

Kalen Holmes(6)

    400,000        216,667        429,433        198.2     N/A        N/A        N/A        N/A        N/A        N/A   

 

(1) Actual bonus includes bonus payouts under the Executive Management Bonus Plan. The bonus payouts under the Executive Management Bonus Plan are disclosed in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table. The named executive officers received above target actual bonus payouts as a result of achieving above target performance under the Executive Management Bonus Plan.

 

(2) The amounts in the “Long-Term Incentive” column represent the total economic value of equity awards. (See page 36.) 50% of the economic value is in the form of stock options and 50% is in the form of target performance RSUs. The amounts in the “Actual Long-Term Incentive” column include the value of the stock options and the adjusted number of performance RSUs earned based on fiscal 2010 performance. The economic value does not represent the full grant date fair value of equity awards as disclosed in the Summary Compensation Table.

 

(3) The named executive officers received above-target long-term incentive compensation as they earned 200% of the target performance RSU award based on fiscal 2010 adjusted earnings per share.

 

(4) The named executive officers received above-target total direct compensation as a result of achieving above-target performance under the Executive Management Bonus Plan and earning 200% of the target performance RSU award.

 

(5) Mr. Culver’s target compensation is based on the benchmarking data reviewed by the Compensation Committee at the time of his promotion. Mr. Culver’s target long-term incentive award includes his annual equity award made in November 2009, which included stock options and performance RSUs, and his promotional stock option award made in December 2009.

 

(6) Ms. Holmes’ compensation is based on the benchmarking data reviewed by the Compensation Committee at the time she was hired. Since Ms. Holmes was hired November 16, 2009, she was not eligible to receive the annual equity award, but instead received an equity award with a total economic value of approximately $1.8 million at the time she was hired. Under the new SEC rules, Ms. Holmes’ grant date fair value of her new hire equity award was used when determining the named executive officers for fiscal 2010. Going forward, Ms. Holmes will participate in the annual equity award process with the other executive officers. For additional detail regarding her equity award, see page 50. Ms. Holmes received a pro-rated bonus (for 10 months) under the Executive Management Bonus Plan based on her hire date. The actual bonus listed in the table above does not include a sign-on bonus of $200,000 paid at the time she was hired. This is reflected in the Bonus column of the Summary Compensation Table.

Base Salary

The Compensation Committee generally reviews and adjusts base salaries annually at its November meeting, with new salaries effective late November or early December. For fiscal 2010, the independent directors

 

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decided to increase Mr. Schultz’s base salary from $1,190,000 to $1,300,000 to align his base salary with the median base salary of his peers at our comparator group companies. For fiscal 2010, the Compensation Committee decided to increase the base salary for Mr. Alstead from $450,000 to $550,000 to recognize his strong performance in fiscal 2009, including his contributions to Starbucks exceeding fiscal 2009 financial performance and savings targets, and to bring his base salary closer to the median base salary of his peers at our comparator group companies; for Mr. Burrows from $595,000 to $650,000 to recognize his strong performance in fiscal 2009, including his contributions to the Company’s turnaround and improvement in store operations and efficiencies, and his significant contributions to the U.S. line of business, which constitutes a significant majority of the Company’s total net revenues, and for Mr. Culver from $425,000 to $525,000, which includes two promotional increases (in February 2009 to executive vice president, Global Consumer Products, Foodservice & Seattle’s Best Coffee and in December 2009 to president, Starbucks Coffee International) and to recognize his strong performance. Ms. Holmes did not receive a base salary increase as she was hired on November 16, 2009.

For fiscal 2010, base salary for each named executive officer was positioned near the median other than for Messrs. Alstead and Burrows. Mr. Alstead’s base salary was below median because he had just completed his first year as chief financial officer and chief administrative officer and because the Compensation Committee decided to transition his compensation gradually to a level commensurate with his new role and responsibilities with the Company. Mr. Burrows’ base salary was above median because the Compensation Committee decided to increase his base salary based on his fiscal 2009 individual performance.

Annual Incentive Bonus

For fiscal 2010, all of the executive officers with a title of executive vice president or above participated in the Executive Management Bonus Plan. Each year the Compensation Committee establishes a target bonus for each executive officer under the Executive Management Bonus Plan expressed as a percentage of year-end base salary. For fiscal 2010, the independent directors set Mr. Schultz’s target annual incentive bonus amount at 150% of his base salary. This was an increase from his bonus target of 100% in fiscal 2008 (Mr. Schultz did not participate in the annual incentive bonus plan in fiscal 2009). For fiscal 2010, the Compensation Committee decided to increase the annual incentive bonus target for Mr. Alstead from 50% to 75%, for Mr. Burrows from 65% to 75% and for Mr. Culver from 50% to 75%. These changes brought each named executive officer’s target annual incentive bonus and target cash compensation in line with the median range of our comparator group companies, while supporting our pay for performance philosophy by placing more emphasis on the incentive components of pay. For Mr. Culver, the increase also reflected his promotion to president, Starbucks Coffee International. Ms. Holmes’ annual incentive bonus target for fiscal 2010 was 65%, in line with the other Starbucks executive officers at her level and her peers at our comparator group companies.

The total annual incentive bonus award actually delivered to each executive was determined based on the extent to which the objective performance goals, both primary and secondary (see below), and individual performance goals were achieved. In addition to determining the amount payable under the primary objective component under the Executive Management Bonus Plan, the primary objective target also acts as a modifier for the individual performance goals; if the primary objective target is exceeded, then the payout with respect to the individual performance goals will be increased by a corresponding extent and if the primary objective target is below target or is not met, then the payout with respect to the individual performance goals will be decreased by a corresponding extent. Performance above or below the primary objective performance goal does not affect the payouts related to the secondary objective performance goal. The Executive Management Bonus Plan does not permit a payout of more than $3.5 million to any executive officer for any single fiscal year based on achievement of objective performance goals. In addition, consistent with our pay for performance philosophy, if participating executive officers achieve below 80% of their individual performance goals, then they do not receive any portion of the annual incentive bonus award under the Executive Management Bonus Plan. The potential payouts for each named executive officer of the annual incentive bonus award based on achievement of threshold, target and maximum performance levels are disclosed in the Fiscal 2010 Grants of Plan-Based Awards table on page 49.

 

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For the named executive officers (other than Mr. Schultz), the annual incentive bonus opportunity was comprised of objective performance goals (both primary and secondary) and individual performance goals. Mr. Schultz’s bonus is based solely on the objective performance goals. The Compensation Committee believes this structure is appropriate because he is responsible for the financial performance of the entire company.

Objective Performance Goals (primary and secondary).    For fiscal 2010, the primary objective performance goal for the named executive officers with responsibilities that cross business units (Messrs. Schultz and Alstead and Ms. Holmes) was “adjusted consolidated operating income;” and for the named executive officers responsible for a single business unit it was “adjusted U.S. business unit operating income” (for Mr. Burrows) and “adjusted International business unit operating income” (for Mr. Culver) (each term is defined below). The secondary objective performance goal for all named executive officers was “adjusted earnings per share” (as defined below). Fiscal 2010 included 53 weeks with the additional week falling in our fourth fiscal quarter. The objective performance goals were set based on a 53-week fiscal year. The weighting (as a percentage of each executive’s target annual incentive bonus amount) among the goals, including the individual performance goal, for each of the named executive officers for fiscal 2010 was as follows:

 

            Weighting  

Named Executive Officer

   Target Bonus (as a
% of Base Salary)
     Primary Objective
Goal  (%)
     Secondary Objective
Goal  (%)
     Individual
Goal (%)
 

Howard Schultz

     150         50         50         N/A   

Troy Alstead

     75         50         30         20   

Clifford Burrows

     75         50         30         20   

John Culver

     75         50         30         20   

Kalen Holmes

     65         50         30         20   

For compensation purposes, consolidated operating income is the total of all business units’ operating income less total unallocated corporate expenses, and business unit operating income equals the revenues of the business unit less their operating expense. These primary objective measures are adjusted to exclude the impact of any (i) restructuring costs, (ii) extraordinary items under US GAAP, (iii) the effect of significant acquisitions or dispositions of businesses, (iv) significant legal claims, (v) accounting changes including early adoption of mandated accounting changes, (vi) the effect of internal reorganizations during the period that change the scope of responsibility of the business unit leader (applicable only to Adjusted Operating Income at the business unit level), (vii) the variance from annual operating plan assumptions for (a) foreign exchange and (b) mark to market adjustment of the Management Deferred Compensation Plan liability, and (viii) the effect of other significant, unusual and/or non-recurring events. Adjusted earnings per share also reflects any stock split, stock dividend or other recapitalization.

We chose these measures because they directly link to Company and business unit performance, are easy to track and are communicated on a quarterly basis through the Company’s earnings press release and conference call. Since business unit operating income and consolidated operating income track core operating performance more closely than earnings per share and because our business unit leaders have direct responsibility over business unit operating income, we based a greater percentage of the total annual incentive bonus on the primary objective performance measure versus the secondary objective performance measure (except for Mr. Schultz, whose goals included only Company performance measures). We used the same adjusted measures for our broader-based management incentive plan.

 

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The possible payouts under the annual incentive bonus plan for achievement of the primary objective performance goals were as follows:

 

Fiscal 2010 Executive Management Bonus Plan Permitted Payout
for Achievement of Primary Objective Performance Goal

Adjusted Operating Income

(in Millions US$)

             

U.S.

  International   Consolidated    % of Payout       

Impact

1,102.1 or greater

  198.8 or greater   1,185.5 or greater    200   LOGO    Positively impacts primary measure and individual goals

1,087.2

  196.1   1,173.8    180     

1,072.5

  193.4   1,162.1    160     

1,058.0

  190.8   1,150.5    140     

1,043.7

  188.2   1,138.8    130     

1,029.6

  185.7   1,127.1    120     

1,015.7

  183.2   1,115.4    110     

978.2-1,002.0

  178.2-180.7   1,080.4-1,100.6    100      Target

966.5

  177.0   1,068.8    80   LOGO    Negatively impacts primary measure and individual goals

955.0

  175.8   1,057.1    60     

943.6

  174.6   1,045.4    40     

932.3

  173.4   1,033.7    30     

921.2

  172.2   1,022.1    20     

910.2

  171.0   1,010.4    10     

Less than 910.2

  Less than 171.0   Less than 1,010.4    0     

The fiscal 2010 primary objective performance measure for the named executive officers was either adjusted business unit operating income or adjusted consolidated operating income. To provide increased incentives for better performance, the primary objective measure had a sliding scale that provided for annual incentive bonus payouts greater than the target bonus if adjusted consolidated operating income or adjusted business unit operating income was greater than the target (up to a maximum 200% payout) or less than the target bonus if adjusted consolidated operating income or adjusted business unit operating income was lower than the target (subject to a threshold amount). Tied to a very challenging fiscal 2010 annual operating plan, the scales were set by the Compensation Committee so that the payout potential accelerated as the target and maximum performance levels were achieved to incentivize participants to reach or exceed these stretch goals.

 

Primary Objective Measure

   Target
(in Millions  US$)
     Adjusted  Actual
Performance
(in Millions US$)
     % Payout  

Adjusted U.S. Business Unit Operating Income

     978.2-1,002.0         1,316.4         200   

Adjusted International Business Unit Operating Income

     178.2-180.7         229.3         200   

Adjusted Consolidated Operating Income

     1,080.4-1,100.6         1,453.2         200   

In addition to the adjustments for restructuring charges as reflected in our non-GAAP numbers, for fiscal 2010, the primary objective performance measures were adjusted under the Executive Management Bonus Plan as follows: U.S. Business Operating Income was adjusted to reflect the change in the composition of our reporting units; International Business Unit Operating Income was adjusted to remove the impact of certain foreign currency fluctuations and Consolidated Operating Income was adjusted to remove the impact of certain foreign currency fluctuations and mark to market adjustments to our Management Deferred Compensation Plan.

The fiscal 2010 secondary objective performance measure was adjusted earnings per share. As shown in the table below, target adjusted earnings per share for fiscal 2010 was $0.93-$0.95. To provide increased incentive for better performance, the secondary objective performance measure had a sliding scale that provided for bonus payouts greater than the target bonus if adjusted earnings per share was $0.96 or more (up to a maximum 200% payout for $1.02 or greater) or less than the target bonus if adjusted earnings per share was $0.92 or lower (subject to a threshold adjusted earnings per share of $0.87). Fiscal 2010 adjusted earnings per share was $1.28, resulting in a maximum 200% payout with respect to the secondary objective performance measure.

 

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Fiscal 2010 Permitted Payout
for Achievement of Secondary Objective Performance Goal

 

Adjusted EPS

   Executive Management Bonus Plan
% of Payout
 

$ 1.02 or greater

     200

$1.01

     180

$1.00

     160

$0.99

     140

$0.98

     130

$0.97

     120

$0.96

     110

$ 0.93-$0.95

     100

$0.92

     80

$0.91

     60

$0.90

     40

$0.89

     30

$0.88

     20

$0.87

     10

Less than $ 0.87

     0

We used adjusted consolidated operating income, adjusted business unit operating income and adjusted earnings per share rather than those measures as calculated in accordance with GAAP because we believe the adjusted measures give executives a more certain target that is within their sphere of control and accountability and thus can more effectively motivate executives to improve Company performance. Using adjusted measures also avoids potentially interfering with the incentive purpose of the awards (i.e., focusing on operating results) by increasing or reducing actual bonus payouts based on accounting impacts of unusual events and changes in accounting rules. We used the same adjusted measures for our broader-based management incentive plan. In setting the objective performance target, we consider target Company performance under the board-approved annual operating and long-term strategic plans, the potential payouts based on achievement at different levels on the sliding scale and whether the portion of incremental earnings paid as bonuses rather than returned to shareholders is appropriate.

Objective performance goals are generally targeted to (i) require meaningful year-over-year growth in our business and (ii) not easily be achieved. For example, in a challenging economic environment, 16-19% growth in adjusted earnings per share from $0.80 in fiscal 2009 was required in order to achieve the target fiscal 2010 adjusted earnings per share of $0.93-$0.95. For every cent of adjusted earnings per share over the target, we believe it is appropriate to provide for increased bonus payouts due to the significant shareholder returns commonly generated by above-target earnings per share performance. The Compensation Committee and the independent directors have the discretion to reduce the awards paid under the Executive Management Bonus Plan, but do not have discretion to increase payouts that are based on achievement of the objective performance goals or make a payout based on the objective performance goals if the threshold targets are not achieved.

 

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Individual Performance Goals.     For fiscal 2010, all named executive officers participating in the annual incentive bonus plan had individual performance goals under the plan, other than Mr. Schultz because we believe his individual performance is best reflected by the overall performance of the Company. We believe individual bonus goals are appropriate primarily to drive individual performance against strategic corporate initiatives. Individual annual incentive bonus goals vary depending on our strategic plan initiatives and each executive’s responsibilities. We set the weighting for individual goals at 20% of the total target annual incentive amount in fiscal 2010 because we wanted to drive individual performance of executives while at the same time maximizing tax deductible performance-based compensation. Individual goals for fiscal 2010 under the Executive Management Bonus Plan for the named executive officers, other than Ms. Holmes and Mr. Culver, were set prior to the beginning of fiscal 2010 and were based on the following four categories: (i) business, (ii) operational excellence, (iii) people and (iv) diversity. Ms. Holmes’ individual goals were set at the time she was hired and Mr. Culver’s were re-set at the time he was promoted. For fiscal 2010, each of the named executive officers achieved above 95% of their individual performance goals. Specific goals for each named officer included:

 

Troy Alstead

 

•    deliver approved operating plan EPS and annualized savings;

•    accelerate quarterly financial reporting and effectively deliver the Company’s key financial messages;

•    improve organizational effectiveness, management bench and the partner experience; and

•    integrate diversity into all talent development and acquisition activities and evaluate mutually beneficial partnerships with diverse suppliers that allow us to deliver superior customer service.

Clifford Burrows

 

•    deliver US profit contribution, exceed US revenue growth targets and develop new store strategy;

•    improve customer satisfaction and store operations and efficiencies through identified initiatives;

•    improve management bench and the partner experience, and focus on growing and retaining store talent; and

•    make good faith efforts toward utilization and retention goals as set forth in the executive workforce diversity plan.

John Culver

 

•    achieve or exceed revenue, operating income and margin goals, successfully launch Starbucks VIA® Ready Brew™ in identified international markets and focus on China business;

•    improve market capability and execution through identified initiatives;

•    improve overall leadership and talent capabilities for key leadership roles, implement key programs to improve local market store-level capabilities and improve the partner experience; and

•    where applicable, increase diversity in leadership positions to match local availability, and increase the number of local partners in regional leadership positions.

Kalen Holmes

 

•    create and lead the partner experience strategy and drive overall capabilities of leadership team;

•    drive effectiveness and efficiency through technology-enabled partner solutions;

•    continue to build the director-and-above bench for the Company; and

•    lead organization and Partner Resources function in diversity and inclusion efforts.

Performance under the Annual Incentive Bonus Plan.    After the end of fiscal 2010, the Compensation Committee decided the extent to which the performance goals were achieved, and subsequently approved and certified the amount of the award to be paid to each participant (other than Mr. Schultz) in the Executive Management Bonus Plan. The Compensation Committee recommended to the independent directors (who approved and certified) the amount of the award to be paid to Mr. Schultz in the Executive Management Bonus Plan. Our outstanding fiscal 2010 financial performance exceeded the target primary and secondary objective

 

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performance goals, and our named executive officers performed well against their individual goals. As a result, consistent with our pay for performance philosophy, annual incentive bonus payouts for fiscal 2010 exceeded target bonuses. The table below shows the fiscal 2010 actual payout levels for each component of the Executive Management Bonus Plan, based on achievement of the performance metrics, and the aggregate fiscal 2010 annual incentive payouts, which are also disclosed in the “Non-Equity Incentive Compensation Plan” column of the Summary Compensation Table on page 47.

 

Fiscal 2010 Executive Management Bonus Plan Payout

 

Named Executive Officer

  Payout for
Primary Objective
Performance Goal
(%)
    Payout for
Secondary Objective
Performance Goal
(%)
    Payout for
Individual
Performance Goals
(%)
    Total
Payout
($)
    Target
Bonus (as  a
% of Base
Salary)
    Total Payout
(as a % of
Base Salary)
 

Howard Schultz

    200        200        N/A        3,500,000 (1)      150        269.2   

Troy Alstead

    200        200        98.5        822,525        75        149.6   

Clifford Burrows

    200        200        98.5        972,075        75        149.6   

John Culver

    200        200        100.0        787,500        75        150.0   

Kalen Holmes

    200        200        95.5        429,433 (2)      65        107.4   

 

(1) Based on fiscal 2010 financial performance, Mr. Schultz earned a 200% payout on both his primary and secondary objective performance measures. The resulting bonus amount exceeded the limit of $3.5 million that may be paid to any executive officer based on accomplishment of the objective performance goals for any single fiscal year under the Executive Management Bonus Plan. As a result, his fiscal 2010 bonus was capped at $3.5 million.

 

(2) Ms. Holmes’ bonus payout was pro-rated for 10 months based on her November 16, 2009 hire date.

Long-Term Incentive Compensation

In fiscal 2010, long-term performance-based compensation for executive officers was comprised of 50% stock option awards and 50% performance RSUs.

 

   

Why We Use Stock Options:    The Compensation Committee believes that stock options are an appropriate equity vehicle for a portion of long-term incentive compensation for our executives because they are performance-based, providing value only if our stock price increases over time, which aligns our executives’ interests with the long-term interests of shareholders. We do not grant “discounted” options.

 

   

Why We Use Performance RSUs:    The Compensation Committee believes that performance RSUs are an appropriate equity vehicle for a portion of long-term incentive compensation for our executives because performance RSUs align executives’ interests with the interests of shareholders by focusing executives on long-term company performance. Performance RSUs are earned based on achievement of objective, pre-established performance goals and, once earned, the performance RSUs are subject to additional time-based vesting requirements. The value of performance RSUs increases if our stock price increases during the vesting period and the value of performance RSUs decreases if the price declines. Performance RSUs also serve to retain executives as they have a more stable value because the executive will receive some economic value (if performance goals are met) even if the stock price declines or stays flat (as value is realized upon vesting).

In November 2009, the Compensation Committee (and with respect to Mr. Schultz, the independent directors) approved an economic value for the fiscal 2010 long-term incentive compensation award for each named executive officer. For fiscal 2010, the independent directors approved an increase in Mr. Schultz’s economic value from $8.2 million to $10.5 million. For fiscal 2010, the Compensation Committee decided to increase the economic value for Mr. Alstead from $610,000 to $1.4 million, for Mr. Burrows from $800,000 to $1.4 million and for Mr. Culver from $570,000 to $1.4 million (which includes Mr. Culver’s annual award and promotional award). These changes reflect the independent directors’ and the Compensation Committee’s desire

 

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to have a higher portion of each executive officer’s compensation tied to increasing shareholder value and take into account that, because the Company does not provide a pension or supplemental executive retirement plan, our equity based awards represent a greater share of long-term wealth accumulation than at some peer companies. It also supports our pay for performance philosophy by placing more emphasis on the incentive components of pay. Ms. Holmes did not receive an annual equity award, but instead received an equity award in the form of stock options and time-based restricted stock units at the time she was hired.

For fiscal 2010, each of the named executive officer’s long-term incentive compensation was above median. The Compensation Committee approved awards above median based on the Company’s fiscal 2009 performance, individual performance and other relevant business reasons, including motivating performance for fiscal 2010. Mr. Schultz’s long-term incentive award value was above median because the independent directors wanted to tie a significant portion of his compensation to driving Company performance and to provide additional incentive to Mr. Schultz as there were several major Company initiatives underway in fiscal 2010 that were key to meeting the Company’s targeted operating performance. Mr. Alstead’s target value was above median because the Compensation Committee wanted to bring his total direct compensation in line with the median. Mr. Burrows’ target value was above median because the Compensation Committee wanted to tie his compensation to driving Company performance as the U.S. business, which constitutes a significant majority of the Company’s total net revenues, was facing significant challenges at the time the fiscal 2010 compensation decisions were made. Mr. Culver’s target value was above median because the Compensation Committee wanted to tie his compensation to driving Company performance as the International business represents a significant growth opportunity for the Company.

 

   

Stock Options. The amount of stock options granted to executive officers for fiscal 2010 was based on a target total equity award value. The number of stock options granted was calculated by dividing 50% of the target total equity award value by a closing price multiplier. The closing price multiplier was equal to the closing market price of Starbucks stock on the date of grant multiplied by a Black-Scholes option value ratio. The number of stock options granted to each named executive officer is disclosed in the Fiscal 2010 Grants of Plan-Based Awards table on page 49.

 

   

Performance RSUs. The target amount of performance RSUs for executive officers for fiscal 2010 was based on a target total equity award value. The number of performance RSUs was calculated by dividing 50% of the target total equity award value by the closing market price of Starbucks stock on the date of grant. The actual number of performance RSUs earned was based on achievement of adjusted earnings per share for fiscal 2010. As shown in the table below, target adjusted earnings per share for fiscal 2010 was $0.93-$0.95. To provide increased incentive for better performance, the fiscal 2010 performance measure for the performance RSUs had a sliding scale so that each named executive officer could achieve from 0% to 200% of the target award amount. For fiscal 2010, we chose adjusted earnings per share as the performance metric for performance RSUs as well as for a portion of our annual incentive bonus plan because we wanted to focus our incentive compensation on driving shareholder value. The number of performance RSUs that could be earned by each named executive officer based on adjusted earnings per share achievement at threshold, target and maximum performance levels are disclosed in the Fiscal 2010 Grants of Plan-Based Awards table on page 49.

 

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Fiscal 2010 Permitted Payout
            for Performance-Based Restricted Stock Units            

Adjusted EPS

  

% of Payout

$ 1.02 or greater

   200%

$1.01

   180%

$1.00

   160%

$0.99

   140%

$0.98

   130%

$0.97

   120%

$0.96

   110%

$ 0.93-$0.95

   100%

$0.92

   80%

$0.91

   60%

$0.90

   40%

$0.89

   30%

$0.88

   20%

$0.87

   10%

Less than $ 0.87

   0%

For each named executive officer, the target number of performance RSUs was multiplied by the applicable percentage of achievement, based on actual adjusted earnings per share performance, to determine the earned performance RSUs. This number constituted the maximum number of RSUs that may be earned under the fiscal 2010 performance RSU award. The Compensation Committee and the independent directors do not have discretion to increase or decrease the number of performance RSUs that are earned based on achievement of the performance goal. Fiscal 2010 adjusted earnings per share was $1.28, which resulted in executive officers earning 200% of the target performance RSU award. The amounts shown in the table below represent the actual number of performance RSUs earned by each participating named executive officer for fiscal 2010. The earned performance RSUs will vest 50% on the second anniversary of the date of grant and 50% on the third anniversary of the date of grant, subject to the executive’s continued employment with Starbucks through each date.

 

Named Executive Officer

   Fiscal 2010 Earned Performance RSUs  

Howard Schultz

     475,974   

Troy Alstead

     63,464   

Clifford Burrows

     63,464   

John Culver

     43,970   

Kalen Holmes

     N/A (1) 

 

(1)

Ms. Holmes was hired on November 16, 2009. As such, she did not receive the annual equity award.

Other Compensation

Perquisites and Other Executive Benefits.     Our executive compensation program includes limited executive perquisites and other benefits. The aggregate incremental cost of providing perquisites and other benefits to the named executive officers is included in the amounts shown in the “All Other Compensation” column of the Summary Compensation Table on page 47 and detailed in the Fiscal 2010 All Other Compensation Table on page 48. We believe the perquisites and other executive benefits we provide are representative of those offered by the companies that we compete with for executive talent, and therefore offering these benefits serves the objective of attracting and retaining top executive talent. In the Compensation Committee’s view, some of the perquisites and other benefits, particularly home and personal security services, are provided primarily for the Company’s benefit notwithstanding the incidental personal benefit to the executive. We provided the following perquisites to named executive officers in fiscal 2010:

 

   

Security.     Under our executive security program, we provide security services to the chairman, president and chief executive officer and certain other executives. Security services include home

 

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security systems and monitoring and, in the case of the chairman, president and chief executive officer, personal security services. These protections are provided due to the range of security issues encountered by senior executives of large, multinational corporations, and particularly with respect to high-profile founders such as our chairman, president and chief executive officer. We believe that the personal safety and security of our senior executives is of the utmost importance to the Company and its shareholders. Therefore, we consider the costs associated with these benefits to be appropriate and necessary business expenses notwithstanding the incidental personal benefit to the executive. For fiscal 2010, Howard Schultz agreed to reimburse the Company for a portion of his personal security costs. As a result, the Company’s aggregate incremental cost of security benefits for Mr. Schultz was $210,268 in fiscal 2010, which is a significant reduction compared to fiscal 2009.

 

   

Personal Use of Corporate Aircraft.     Under our corporate aircraft use policy, the chairman, president and chief executive officer, the chief financial officer and, if approved by the chairman, president and chief executive officer, other members of management are permitted limited personal use of our corporate-owned aircraft, but are required to reimburse Starbucks for the costs attributable to their personal use. Those reimbursements are discussed in the section “Certain Relationships and Related Transactions” on page 75. In addition, family members or other guests occasionally accompany Mr. Schultz on business trips when space is available. We do not incur any aggregate incremental costs for this use, but it is treated as imputed income to Mr. Schultz under IRS rules.

 

   

Executive Physicals.     We offer to pay for an annual physical examination for all partners at the senior vice president level and above, which includes all of our executive officers. We provide these physicals at minimal cost for the Company’s benefit, in an effort to minimize the risk of losing the services of senior management due to unforeseen significant health issues.

 

   

Executive Life and Disability Insurance.     We provide life and disability insurance to all partners at the vice president level and above, including all of our executive officers, at a higher level than is provided to partners generally. We believe this is a common benefit offered to management employees in comparable positions by comparator group companies.

 

   

Expatriate Package.     Under limited circumstances, we provide certain reimbursements and benefits to partners that expatriate to another country for work on the Company’s behalf. Mr. Burrows, prior to assuming his role as president, Starbucks Coffee U.S. in March 2008, was located in the Netherlands as an expatriate from the United Kingdom. In 2010, Mr. Burrows received tax preparation assistance for equity income earned in 2009 covering multiple tax jurisdictions and a nominal tax equalization benefit. Additionally, outstanding reimbursements for household goods shipping and destination services received in 2008 were made in 2010. Mr. Burrows no longer receives expatriate benefits except for certain tax preparation assistance related to equity income taxable due to his Dutch expatriate assignment. Mr. Culver, prior to returning to the U.S. in mid-2009, was located in Hong Kong as an expatriate. In 2010, Mr. Culver received tax preparation services and a tax equalization benefit related to his 2009 income, as well as reimbursement for an outstanding 2009 temporary living expense. Mr. Culver no longer receives expatriate benefits. Starbucks incremental cost in fiscal 2010 for each of these perquisites is reported in the Summary Compensation Table on page 47 and detailed in the Fiscal 2010 All Other Compensation Table on page 48. We believe these are common packages offered to expatriated employees at other large global companies.

Discretionary Bonuses and Equity Awards.     We pay sign-on, first-year guaranteed and other discretionary bonuses and grant new-hire equity awards when necessary or appropriate, including to attract top-executive talent from other companies. Executives we recruit often must forfeit unrealized value in the form of unvested equity and other forgone compensation opportunities provided by their former employers. Sign-on and first-year guaranteed bonuses and special equity awards are an effective means of offsetting the compensation

 

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opportunities executives lose when they leave a former employer to join Starbucks. We typically require newly recruited executives to return a pro rata portion of their sign-on bonus if they voluntarily leave Starbucks within a certain period of time (usually one to two years) after joining us, and new-hire equity awards are subject to a time-based vesting period. We did not award a discretionary cash bonus to any named executive officer in fiscal 2010, other than a sign-on bonus to Ms. Holmes, which is disclosed in the “Bonus” column of the Summary Compensation Table on page 47. Ms. Holmes also received a new-hire equity award in the form of stock options and time-based restricted stock units, which is disclosed in the “Stock Awards” and “Option Awards” columns of the Summary Compensation Table on page 47.

In certain circumstances we grant discretionary equity awards in the form of stock options or time-based RSUs in order to retain key executives or recognize expanded roles and responsibilities. In fiscal 2010, we did not award any such discretionary equity awards to any of the named executive officers.

Deferred Compensation.     Our named executive officers, in addition to some of our other executive officers, are eligible to defer cash compensation under the Management Deferred Compensation Plan, and certain key partners previously were eligible to defer gains from equity awards under the 1997 Deferred Stock Plan.

 

   

Management Deferred Compensation Plan.     We offer participation in the plan to a group of management and highly compensated partners, including, but not limited to, executive officers, because their participation in our 401(k) plan is limited under federal income tax rules and we believe they should have other similar tax-efficient means of saving for retirement. We do not pay or guarantee above-market returns. The appreciation, if any, in the account balances of plan participants is due solely to contributions by participants, any Company matching contributions and the underlying performance of the investment funds selected by the participants. The investment alternatives available to Management Deferred Compensation Plan participants are identical to those available to 401(k) plan participants.

 

   

1997 Deferred Stock Plan.     Under the 1997 Deferred Stock Plan, key partners designated by the Compensation Committee could elect to defer gains from stock option exercises in the form of deferred stock units that became payable in shares of common stock upon the expiration of the deferral period specified by the executive. In September 1997, Mr. Schultz elected to defer receipt of 3,394,184 shares of common stock (as adjusted for stock splits since 1997). In November 2006, with the consent of the Compensation Committee, Mr. Schultz elected to re-defer receipt of the shares until December 2012 (or earlier if his employment with Starbucks terminates). Although the Compensation Committee may consider another re-deferral by Mr. Schultz, we no longer permit new deferrals. Mr. Schultz is entitled to receive cash dividends on the deferred stock units. Cash dividends declared and paid by the Company are paid directly to Mr. Schultz in accordance with the 1997 Deferred Stock Plan.

General Partner Benefits.     Executives are eligible to participate in all benefit plans we offer to partners generally. This helps us attract and retain top executive talent.

 

   

Employee Stock Purchase Plan.     Among the plans we offer to U.S. and Canadian partners generally, including executive officers, is our U.S. tax-qualified employee stock purchase plan. Under the plan, eligible partners may acquire our stock at a discounted price through payroll deductions. The plan allows participants to buy stock at a 5% discount to the market price on the last trading day of the purchase period. No plan participant is allowed to purchase more than $25,000 in market value of our stock under the plan in any calendar year.

Tally Sheets

When making executive compensation decisions, the Compensation Committee reviews tally sheets showing, for each executive officer: (i) targeted value of base pay, annual incentive bonus and equity grants for

 

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the current year and each of the past several years; (ii) actual realized value for each of the past several years (the sum of cash received, gains realized from equity awards, and the value of perquisites and other benefits); (iii) the amount of unrealized value from prior equity grants and accumulated deferred compensation; and (iv) the amount the executive could realize upon a change in control or any severance arrangement, which for Starbucks includes only amounts from the acceleration of equity award vesting. Although tally sheets do not drive individual executive compensation decisions, the Compensation Committee uses tally sheets for several purposes. First, it uses tally sheets as a reference so that Committee members understand the total compensation being delivered to executives each year and over a multi-year period. Tally sheets also enable the Compensation Committee to validate its strategy of paying a substantial majority of executive compensation in the form of equity, by showing amounts realized and unrealized by executives from prior equity grants. In some cases, the Compensation Committee’s review of tally sheets may lead to changes in the named executive officer’s benefits and perquisites. For fiscal 2010, there were no changes to the named executive officers’ benefits and perquisites based on the Compensation Committee’s review of tally sheets.

Internal Pay Equity

The Compensation Committee considers internal pay equity, among other factors, when making compensation decisions. However, the Compensation Committee does not use a fixed ratio or formula when comparing compensation among executive officers. In addition, the Compensation Committee reviews executive compensation in the same manner for each of the named executive officers, including our chairman, president and chief executive officer.

Our chairman, president and chief executive officer is compensated at a higher level than other executive officers due to his significantly higher level of responsibility, accountability and experience. For fiscal 2010, Mr. Schultz’s base salary was set at $1.3 million, a 9% increase and his first increase since fiscal 2004. Mr. Schultz receives more of his pay in the form of long-term incentive compensation, rather than annual cash compensation, as compared to the compensation of the other named executive officers. Given Mr. Schultz’s responsibility for overall Company performance, the independent directors believe greater compensation in the form of long-term incentive compensation will align his compensation with the long-term performance of the Company. The independent directors believe that compensating the chief executive officer at a higher level than the other executive officers and weighting the chief executive officer’s total compensation more heavily toward long-term incentive compensation is consistent with market practices and appropriately reflects the contributions of our chief executive officer.

We believe the fiscal 2010 target total direct compensation for Messrs. Alstead, Burrows and Culver in relation to the compensation targeted for Mr. Schultz and to one another was reasonable and appropriate given each executive’s responsibilities and fiscal 2009 performance. Since Ms. Holmes was hired November 16, 2009, she was not eligible to receive the annual equity award, but instead received an equity award at the time she was hired. As a result, the Compensation Committee did not review an annual target total direct compensation package for her for fiscal 2010, but instead reviewed each element of her compensation at the time she was hired. For fiscal 2010, the differences in pay among our named executive officers relative to each other and Mr. Schultz are based on market differences for the particular job, job responsibilities and scope, professional experience and adjustments for individual performance.

Comparator Group Companies and Benchmarking

The Compensation Committee refers to executive compensation surveys prepared by Towers Watson when it reviews and approves executive compensation. The surveys reflect compensation levels and practices for executives holding comparable positions at targeted comparator group companies, which helps the Compensation Committee set compensation at competitive levels. The Compensation Committee, with assistance from F.W. Cook & Co., annually reviews specific criteria and recommendations regarding companies to add or remove from the comparator group. The Compensation Committee’s primary selection criteria are revenue, market capitalization, industry and international operations; secondary selection criteria are brand recognition and growth in revenue, earnings per share, and total shareholder return.

 

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Based on the above criteria, the Compensation Committee selected a fiscal 2010 comparator group of 18 companies, as shown in the table below. Although changes to the comparator group are made when appropriate, the Compensation Committee prefers to keep the group substantially the same from year to year to produce more consistent and useful compensation benchmarking. In June 2009, when the Compensation Committee conducted its annual review of the comparator group for the next fiscal year, it removed Brinker International from the group as it no longer met a majority of the primary criteria for a period longer than one year. Darden Restaurants and Coach were added to the comparator group list for fiscal 2010 because they were relevant comparators and fit the objective selection criteria.

 

Starbucks Fiscal 2010 Executive Compensation Comparator Group Companies

Specialty Retail

  

Consumer Products

   Restaurants    Supply Chain/Logistics

Bed Bath & Beyond

   Avon Products    Darden Restaurants    FedEx

Best Buy

   Clorox    McDonald’s   

Coach

   Colgate-Palmolive    YUM! Brands   

Gap

   General Mills      

Limited Brands

   Hershey Foods      

Polo Ralph Lauren

   NIKE      

Staples

        

Whole Foods Market

        

The data reviewed by the Compensation Committee in connection with its fiscal 2010 target total direct compensation decisions shows that, among the 19 (the 18 comparator group companies plus Starbucks), we ranked as listed below under 2009. The 2010 data below shows where we ranked at the end of fiscal 2010. In addition, the Company’s total shareholder return over the fiscal 2010 prior one- and three-year periods was 25% and -1%, respectively.

 

One-Year Performance

   2009     2010  

Revenue growth

     16 th      10 th 

Earnings Per Share growth

     2 nd      2 nd 

Net Income growth

     3 rd      2 nd 

Total Shareholder Return

     2 nd      8 th 

Three-Year Performance

   2009     2010  

Revenue growth

     6 th      15 th 

Earnings Per Share growth

     15 th      11 th 

Net Income growth

     16 th      9 th 

Total Shareholder Return

     18 th      14 th 

When determining each element of target total direct compensation, the Compensation Committee reviewed comparator group data on a one-year and three-year basis. Generally, for the annual compensation review, greater weight is given to the three-year-average data due to potential variability in data year-over-year, while one-year data is considered primarily for new hire or promotional compensation decisions.

The Compensation Committee compares each executive officer’s base salary, target annual incentive bonus and long-term incentive compensation value, both separately and in the aggregate, to amounts paid for similar positions at comparator group companies. The Compensation Committee sets target total direct compensation for executives at approximately the median (or 50th percentile) range among comparator group companies (based on the Company’s performance at plan). The Compensation Committee considers the median range to generally be plus or minus 10% for base salary, plus or minus 15% for target total cash compensation and plus or minus 20% for target total direct compensation. The Compensation Committee believes that setting target total direct compensation at the median range helps achieve the executive compensation program objectives and design (as described above). However, target total direct compensation for each executive may vary from the 50th percentile of comparator group companies depending on the factors the Compensation Committee considers

 

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most relevant each year, as previously explained. Fiscal 2010 target total direct compensation for Mr. Alstead was positioned near the median. For all other named executive officers, other than Ms. Holmes, target total direct compensation was above median based on their above median target long-term incentive awards (as described above). Since Ms. Holmes was hired November 16, 2009, she was not eligible to receive the annual equity award, but instead received an equity award at the time she was hired. As a result, the Compensation Committee did not review a target total direct compensation package for her for fiscal 2010, but instead reviewed each element of her compensation at the time she was hired.

Other Policies and Considerations

Change-in-Control and Termination Arrangements

We do not provide any special change-in-control benefits to executives. Consistent with our “Total Pay” philosophy, our only change-in-control arrangement, which applies to all partners with equity compensation awards, is accelerated vesting of equity. Our equity awards contain a “double trigger” accelerated vesting provision, meaning that unvested stock options and unvested restricted stock units will accelerate vesting only if (i) there is a change in control and (ii) stock options and restricted stock units are assumed or substituted with stock options or restricted stock units of the surviving company, the partner is terminated or resigns for good reason within one year after the change in control. If stock options or RSUs are not assumed or substituted with stock options or RSUs of the surviving company, they vest immediately upon a change in control. We believe that it is appropriate to provide double-trigger accelerated vesting benefits because it achieves the intent of our Amended and Restated 2005 Long-Term Equity Incentive Plan to align executives’ interests with the interests of shareholders without providing an undue benefit to executives who continue to be employed following a change-in-control transaction.

We occasionally offer a severance benefit arrangement for a new executive officer to provide for one year’s base salary if we terminate his or her employment for any reason other than “cause” (which generally requires misconduct) within one year of the executive’s hire date. We may also offer severance benefit arrangements for terminated or separated executives as part of a negotiated termination of employment in exchange for a release of claims against the Company and other covenants in the best interests of the Company. None of our named executive officers for fiscal 2010 has any such severance benefit arrangement.

Executive Stock Ownership Guidelines

In September 2007, the Compensation Committee adopted stock ownership guidelines for executive officers to encourage our executives to have a long-term equity stake in Starbucks and align their interests with the interests of shareholders. The Compensation Committee amended the guidelines in November 2010 to provide that each executive officer must own a multiple of his or her annual base salary in Starbucks stock (as compared to a minimum investment requirement under our previous guidelines) and to introduce a holding requirement. Our chairman, president and chief executive officer must own at least 6 times his base salary, each of our presidents (U.S. and International) and chief financial officer must own at least 3 times his or her base salary and each of our other executive officers must own at least 2 times his or her base salary. Each executive officer generally has five years to achieve the minimum ownership requirement. Until the ownership requirement is satisfied, the executive officer is required to hold 50% of the net shares received upon the exercise of stock options and 50% of the net shares received upon the vesting of RSUs.

In addition to shares held outright, the unrealized value of vested, in-the-money stock options counts for up to 25% of the ownership requirement. Unrealized value is measured as the difference between aggregate exercise price and aggregate market value of underlying shares. The Compensation Committee monitors each executive’s progress toward the ownership requirement on an annual basis. Since the ownership requirements were adopted in 2007, we have not reached the end of the five-year requirement period. However, Mr. Schultz significantly exceeds his minimum ownership requirement of 6 times his base salary.

 

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Recovery of Incentive Compensation Policy

During its November 2009 meeting, the board of directors, upon the recommendation of the Compensation Committee, approved the Recovery of Incentive Compensation Policy. The policy allows the Company to seek reimbursement with respect to incentive compensation paid or awarded to executive officers (as designated by the board) where (i) the payment of a bonus or equity award (or the vesting of such award) was predicated upon the achievement of financial results that were the product of fraudulent activity or that were subsequently the subject of a material negative restatement and (ii) a lower bonus payment or equity award would have been made to executive officers (or lesser or no vesting would have occurred with respect to such award) based on the restated financial results or the financial results that would have pertained absent such fraudulent activity. The Compensation Committee believes that the Recovery of Incentive Compensation Policy is in the best interests of the Company. The policy is effective, with respect to equity awards, beginning with awards granted in fiscal 2010 and, with respect to annual incentive bonuses, beginning with bonuses earned for fiscal 2010.

Equity Grant Timing Practices

We grant our equity awards in accordance with the following equity compensation grant timing guidelines:

Regular Annual Grant Dates.     Regular annual grants for partners and non-employee members of the board are approved at the November Compensation Committee and board meetings, and the grant date for such annual grants is the second business day after the public release of fiscal year-end earnings. However, if fiscal year-end earnings are released before the November Compensation Committee and board meetings, then the grant date will be the Monday following such meetings. The grants are approved as formulas based on a specified dollar amount; the number of shares and exercise price for each option grant are determined based on the closing market price of our stock on the grant date and the number of shares for each RSU grant is determined by dividing the dollar amount by the closing market price of our stock on the grant date.

Grant Dates for New Hires and Promotions.     Grant dates for new hire and promotion grants are determined as follows:

 

   

Standard New Hire/Promotion Grants to Vice Presidents and Below.     Grants to newly hired or newly promoted partners with titles of vice president or below that fall within parameters previously approved by the Compensation Committee are approved by written action of the chief executive officer acting under a delegation from the Committee. These grants generally occur on the same date each month and cover partners whose offer letters are signed and who are working in their new positions as of an earlier date in that month.

 

   

All Other New Hire/Promotion Grants.     All other new hire/promotion grants are approved by resolution of the Compensation Committee and, unless a future effective date is specified, are effective as of the date of the meeting at which they are approved or, in the case of written consents, as of the date the last Committee member signs the consent (in the event the date the last Committee member signs the consent falls on a weekend or holiday, the grant will occur on the next trading day). “All other new hire/promotion grants” include grants (i) to senior vice presidents or above under all circumstances and (ii) to vice presidents or below for new hire or promotion grants outside the parameters the Compensation Committee has delegated the chief executive officer authority to approve.

Grant Dates for Other Equity Awards.     Grant dates for equity awards other than annual equity award grants and new hire/promotion grants are determined as follows:

 

   

Grants to Vice Presidents and Below by the Chief Executive Officer with Delegated Authority.     Grants to partners with titles of vice president or below that fall within the parameters previously approved by the Compensation Committee are approved by written consent of the chief executive officer acting under delegation from the Compensation Committee. These grants generally occur on the same date each month.

 

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All Other Equity Award Grants.     All other equity award grants are approved by resolution of the Compensation Committee and, unless a future effective date is specified, are effective as of the date of the meeting at which they are approved or, in the case of written consents, as of the date the last Committee member signs the consent (in the event the date the last Committee member signs the consent falls on a weekend or holiday, the grant will occur on the next trading day).

Initial Grant Dates for Newly Elected Non-Employee Directors.     The grant date for initial grants to newly elected non-employee members of the board of directors is the date of election to the board, if the election date is open for trading under our blackout policy for stock trading, or as of the first open trading day after the election date, if the election date is not open for trading under our blackout policy.

Tax Deductibility of Executive Compensation

The Compensation Committee also considers how it can optimize our tax deductibility of executive compensation under Section 162(m) of the Internal Revenue Code by delivering compensation that is performance-based to the greatest extent possible while also delivering non-performance-based elements at competitive levels. Section 162(m) of the Internal Revenue Code prevents us from taking a tax deduction for non-performance-based compensation in excess of $1 million in any fiscal year paid to the chief executive officer and the three other most highly compensated named executive officers (excluding the chief financial officer). We refer to these executives as the “Section 162(m) covered executives.” In designing our executive compensation program, we carefully consider the effect of Section 162(m) together with other factors relevant to our business needs. We generally design annual incentive and long-term performance awards to be tax-deductible to Starbucks, so long as preserving the tax deduction does not inhibit our ability to achieve our executive compensation objectives. We will pay non-deductible compensation when necessary to achieve our executive compensation objectives. For fiscal 2010, the following elements of compensation were designed to qualify as tax-deductible under Section 162(m):

Annual Incentive Bonus.     The Executive Management Bonus Plan, as in effect during fiscal 2010, was designed to enable 100% of the annual incentive bonus paid to Mr. Schultz and at least 80% of the annual incentive bonus paid to the other named executive officers to qualify as performance-based and therefore be deductible under Section 162(m). We believe it is important for the executive team to have individual performance bonus goals in order to drive specific behaviors and business initiatives, even if it means a portion of their bonuses will not be tax-deductible.

Stock Options.     Stock options granted to the Section 162(m) covered executives are designed to qualify as performance-based compensation, and any gain upon exercise of the options should be fully deductible under Section 162(m).

Performance-Based RSUs.     Performance RSUs granted to the Section 162(m) covered executives are designed to qualify as performance-based compensation, except as described below with respect to performance RSUs granted in fiscal 2011, and any gain upon vesting of the performance RSUs should be fully deductible under Section 162(m).

Compensation paid to the Section 162(m) covered executives that is not considered “performance-based” under Section 162(m) is not deductible to the extent that it, together with other non-performance-based compensation, exceeds $1 million in any fiscal year. For fiscal 2010, the following elements of compensation were not designed to qualify as tax-deductible under Section 162(m): base salary, Ms. Holmes’ sign-on bonus, time-based restricted stock units, the portion under the Executive Management Bonus Plan based on individual performance goals and certain other compensation. For fiscal 2010, other compensation paid to Mr. Schultz included: (i) imputed income related to travel by Mr. Schultz’s family members on certain flights using corporate aircraft and (ii) imputed income for life and long-term disability insurance premiums paid by Starbucks.

 

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Performance RSUs granted in fiscal 2011 will not qualify as Section 162(m) performance-based compensation, but if shareholders approve the revised performance criteria under the 2005 Long-Term Equity Incentive Plan as set forth in Proposal 4, performance RSUs granted in the future will qualify as Section 162(m) performance-based compensation, and any gain upon vesting of such performance RSUs should be fully deductible under Section  162(m).

Compensation Committee Report

The Compensation Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on this review and discussion, the Compensation Committee recommended to the board of directors that the Compensation Discussion and Analysis be included in the Starbucks 2010 10-K and this proxy statement.

Respectfully submitted,

Barbara Bass (Chair)

Kevin R. Johnson

Olden Lee*

James G. Shennan, Jr.

Javier G. Teruel

Myron E. Ullman, III

*Re-joined the Compensation Committee April 1, 2010.

 

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Summary Compensation Table

The following table sets forth information regarding the fiscal 2010 compensation for our chief executive officer, chief financial officer, and our other three most highly compensated executive officers in fiscal 2010 (collectively, our “named executive officers”). Columns required by SEC rules are omitted where there is no amount to report. The table also sets forth information regarding the fiscal 2008 and/or fiscal 2009 compensation for Messrs. Schultz, Alstead and Burrows because they were also named executive officers in fiscal 2008 and/or fiscal 2009.

 

Name and Principal Position

  Year     Salary
($)(1)
    Bonus
($)
    Stock
Awards
($)(2)
    Option
Awards
($)(2)
    Non-Equity
Incentive Plan
Compensation
($)(3)
    All Other
Compensation
($)(4)
    Total
($)
 

Howard Schultz

    2010        1,280,804               10,499,986        6,220,559        3,500,000        231,664        21,733,013   

chairman, president and chief executive officer

    2009        643,954        1,000,000               12,391,520               935,676        14,971,150   
    2008        1,190,000                      7,786,090               764,366        9,740,456   

Troy Alstead

    2010        549,615               1,400,016        681,712        822,525        4,116        3,457,984   

chief financial officer and chief administrative officer

    2009        430,385        59,252        257,998        423,401        243,000        1,119        1,415,155   

Clifford Burrows

    2010        663,154               1,400,016        681,712        972,075        73,388        3,790,345   

president, Starbucks Coffee U.S.

    2009        595,000        139,570        515,997        448,378        436,865        88,415        2,224,225   
    2008        565,990                      494,668               610,151        1,670,809   

John Culver

    2010        523,654               969,978        904,028        787,500        206,680        3,391,840   

president, Starbucks Coffee International

               
               

Kalen Holmes

    2010        346,154        200,000 (5)      749,999        1,133,202        429,433        4,745        2,863,533   

executive vice president, Partner Resources

               

 

(1)

See page 30 for discussion and analysis of base salary levels. Mr. Schultz’s base salary reported for fiscal 2009 represents an annual salary of $1.19 million; however, in January 2009, Mr. Schultz requested his base salary be decreased to $6,900 effective March 30, 2009. His base salary was reinstated to $1.19 million on September 28, 2009 and increased to $1.3 million effective December 1, 2009.

 

(2)

The amounts shown in these columns represent the aggregate grant date fair values of the stock options and performance RSUs awarded in 2010, 2009 and 2008, respectively. The 2009 and 2008 award values were recalculated from the amounts shown in prior proxy statements to reflect the grant date fair value rather than the amount expensed for financial statement reporting purposes for the fiscal year, as required by a change in SEC rules effective beginning this proxy statement. The grant date fair values have been determined based on the assumptions and methodologies set forth in the Company’s 2010 Form 10-K (note 14). The assumed expected term of stock options shown in the Company’s 2010 Form 10-K note 14 is a weighted average expected term covering all optionees. However, Mr. Schultz’s historical practice of not exercising stock options until very late in their term requires us to apply a unique expected term assumption that exceeds eight years when valuing options granted to him for purposes of GAAP. In addition, in accordance with GAAP, the fair value of a stock option granted to a retirement-eligible partner will be expensed earlier than an identical stock option granted to a partner who is not retirement-eligible. Mr. Schultz waived the accelerated vesting feature for options granted subsequent to fiscal year 2006.

 

(3)

These amounts represent annual incentive bonus awards earned for fiscal 2010.

 

(4)

The table below shows the components of “All Other Compensation” for the named executive officers.

 

(5)

Represents the sign-on bonus paid to Ms. Holmes at the time she was hired.

 

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Fiscal 2010 All Other Compensation Table

 

Name

   Insurance
Premiums
($)(A)
     Retirement  Plan
Contributions
($)(B)
     Security
($)(C)
     Tax Gross-ups
($)(D)
     Other
($)(E)
    Total
($)
 

Howard Schultz

     6,396         15,000         210,268                 (F)      231,664   

Troy Alstead

     2,555         300                         1,261        4,116   

Clifford Burrows

     4,515         8,269         4,990         2,517         53,097        73,388   

John Culver

     2,520         7,650                 100,689         95,822        206,681   

Kalen Holmes

     4,745                                        4,745   

 

(A)

As more fully explained on page 39, these amounts include the premiums paid to the named executive officers under our executive life and disability insurance plans.

 

(B)

As more fully explained on page 40, these amounts include Company matching contributions to the accounts of the named executive officers in the Management Deferred Compensation Plan and the Company’s 401(k) plan.

 

(C)

As more fully explained on page 38, these amounts include the aggregate incremental costs to the Company of providing security services and equipment to the chairman, president and chief executive officer and certain other executives.

 

(D)

These amounts represent additional compensation for a tax equalization benefit received by the executive due to increased taxes and imputed income from his expatriate assignment.

 

(E)

As more fully explained on page 39, these amounts include the aggregate incremental costs to the Company of providing annual physical examinations to our named executive officers. For Mr. Burrows, this amount includes $49,416 in expenses related to his expatriate assignment and relocation to the United States in connection with his promotion to president, Starbucks Coffee U.S. and for Mr. Culver, this amount includes $94,561 in expenses related to his expatriate assignment and relocation to the United States in connection with his promotion to president, Starbucks Coffee International.

 

(F)

As discussed on page 76, Mr. Schultz reimbursed us for the aggregate incremental cost of his personal use of corporate aircraft during fiscal 2009. Occasionally, Mr. Schultz’s family members and other guests accompany him on the corporate aircraft when he is traveling on Company business. This use does not result in aggregate incremental costs to the Company, but is treated as imputed income to Mr. Schultz under IRS rules.

 

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Fiscal 2010 Grants of Plan-Based Awards

The following table sets forth information regarding fiscal 2010 annual incentive bonus awards and equity awards granted to our named executive officers in fiscal 2010.

 

Name

  Award   Approval
Date
    Grant
Date(1)
    Potential Future Payouts Under
Non-Equity Incentive Plan
Awards(2)
    Potential Future Payouts
Under Equity Incentive Plan
Awards
    All
Other
Stock
Awards:
Number
of
Shares
of

Stock or
Units
(#)
    All Other
Option
Awards:
Number of
Securities

Underlying
Options (#)
    Exercise
or Base
Price of

Option
Awards
($/Sh)
    Grant
Date Fair
Value of
Stock and

Awards
($)(3)
 
                 
        Threshold
($)
    Target
($)
    Maximum
($)
    Threshold
(#)
    Target
(#)
    Maximum
(#)
         

Howard Schultz

  Annual
Incentive
                  97,500        1,950,000        3,500,000                                                    
  Stock
Options
    11/10/09        11/16/09                                                         610,224        22.06        6,220,559   
  Performance
RSUs
    11/10/09        11/16/09                             23,799        237,987        475,974                             10,499,986   

Troy Alstead

  Annual
Incentive
                  12,375        412,500        825,000                                                    
  Stock
Options
    11/10/09        11/16/09                                                         81,363        22.06        681,712   
  Performance
RSUs
    11/10/09        11/16/09                             3,173        31,732        63,464                             1,400,016   

Clifford Burrows

  Annual
Incentive
                  14,625        487,500        975,000                                                    
  Stock
Options
    11/10/09        11/16/09                                                         81,363        22.06        681,712   
  Performance
RSUs
    11/10/09        11/16/09                             3,173        31,732        63,464                             1,400,016   

John Culver

  Annual
Incentive
                  11,813        393,750        787,500                                                    
  Stock
Options
    11/10/09        11/16/09                                                         56,373        22.06        472,329   
  Promotional
Grant of
Stock
Options
    11/25/09        12/15/09                                                         49,668        22.73        431,698   
  Performance
RSUs
    11/10/09        11/16/09                             2,199        21,985        43,970                             969,978   

Kalen Holmes(4)

  Annual
Incentive
                  6,500        216,667        433,333                                                    
  New Hire
Grant of
Stock
Options
    11/25/09        12/15/09                                                         130,378        22.73        1,133,202   
  New Hire
Grant of
RSUs
    11/25/09        12/15/09                                                  32,996                      749,999   

 

(1)

Annual option awards granted in November 2009 were approved by the independent directors on the recommendation of the Compensation Committee. The grant of options to Mr. Culver in connection with his promotion and the grant of stock options and time-based restricted stock units to Ms. Holmes in connection with her joining the Company were approved by the Compensation Committee. In accordance with our equity grant timing policy in place at the time of the November 2009 grant, the grant date for the regular annual equity grant (which was approved on November 10, 2009) was the second business day after our fiscal 2009 earnings release; however, since the earnings release was before the November Compensation Committee and board meetings, the grant date, according to the policy, was the Monday following such meetings (Monday, November 16, 2009). The equity grant timing policy is described beginning on page 44.

 

(2)

Reflects information regarding awards under the Executive Management Bonus Plan.

 

(3)

The grant date fair value for performance RSUs is calculated assuming the maximum performance (200%). Since Ms. Holmes was hired November 16, 2009, she was not eligible to receive the annual equity award, but instead received an equity award in the form of stock options and time-based RSUs at the time she was hired.

 

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(4)

Since Ms. Holmes started after the beginning of the fiscal year, she received a pro-rated bonus under the Executive Management Bonus Plan. As such, the amounts listed in the “Potential Future Payouts Under Non-Equity Incentive Plan Awards” column have been adjusted to reflect her pro-rated amount.

The following narrative discusses the material information necessary to understand the information in the tables above.

Equity Awards.    The amount of stock options granted to executive officers for the fiscal 2010 annual equity award was based on a target economic value for the total equity award value. The number of stock options granted was calculated by dividing 50% of the total equity award value by a closing price multiplier. The closing price multiplier was equal to the closing market price of Starbucks stock on the date of grant multiplied by a Black-Scholes factor. The stock options shown in the table were awarded in early fiscal 2010. The target amount of performance RSUs for executive officers for fiscal 2010 was based on a target economic value for the total equity award value. The number of performance RSUs granted was calculated by dividing 50% of the total equity award value by the closing price of Starbucks stock on the date of grant.

A discussion and analysis of how award levels were determined begins in the “Long-Term Incentive Compensation” section on page 36. All equity awards shown in this table were granted under the 2005 Key Employee Plan Sub-Plan (“2005 Key Employee Plan”) to our 2005 Long-Term Equity Incentive Plan. The stock options have an exercise price equal to the closing market price of our common stock on the date of grant. The options will vest in four equal annual installments beginning on the first anniversary of the grant date, subject to continued employment with us, and expire 10 years after the date of grant. The time-based restricted stock units granted to Ms. Holmes will vest in four equal installments beginning on the first anniversary of the grant date. The earned performance RSUs will vest 50% on the second anniversary of the date of grant and 50% on the third anniversary of the date of grant, subject to continued employment with us. Threshold amounts for the performance RSUs are based on the achievement of adjusted earnings per share at the threshold of $0.87, permitting 10% of the target performance RSU grant to be earned. Target amounts for the performance RSUs assume 100% achievement of adjusted earnings per share of $0.93-$0.95. Maximum amounts for the performance RSUs are based on the achievement of adjusted earnings per share of $1.02 or greater, permitting 200% of the target performance RSU grant to be earned. For fiscal 2010, the named executive officers, other than Ms. Holmes, achieved 200% of the target performance RSU award resulting in the following number of RSUs earned: Mr. Schultz — 475,974; Mr. Alstead — 63,464; Mr. Burrows — 63,464; and Mr. Culver — 43,970. Since Ms. Holmes was hired November 16, 2009, she was not eligible to receive the annual equity award, but instead received an equity award in the form of stock options and time-based RSUs at the time she was hired.

All stock options will become fully vested and exercisable (i) if the recipient terminates his employment at or after the age of 55 and with at least 10 years of credited service with Starbucks (other than with respect to Mr. Schultz, as explained below) and (ii) under the circumstances described beginning on page 57 under “Equity Acceleration.” Restricted stock units do not accelerate upon retirement or death. Mr. Schultz voluntarily waived accelerated vesting of the options upon termination of employment at or after the age 55 and with at least 10 years of service. Mr. Schultz agreed to forgo this accelerated retirement vesting so the Company would not be required to similarly accelerate the recognition of expense for the award in our financial statements. The grant date fair value of each stock option awarded to Mr. Schultz is significantly greater than the fair value of stock options granted to the other named executive officers because Mr. Schultz’s historical practice of not exercising stock options until very late in their term has resulted in a longer expected term for his options than the other executives. The longer expected life leads to a significantly higher fair value in accordance with GAAP.

Non-Equity Incentive Plan Awards.     These amounts reflect the potential threshold, target and maximum annual incentive bonus awards payable to our named executive officers under the Executive Management Bonus Plan for fiscal 2010. Amounts shown are calculated as a percentage of year-end base salary ($1,300,000 for Mr. Schultz; $550,000 for Mr. Alstead; $650,000 for Mr. Burrows; $525,000 for Mr. Culver and $400,000 for Ms. Holmes). Threshold amounts for the primary objective goal are based on the achievement of the fiscal 2010 adjusted business unit operating income (for executives responsible for a single business unit) or

 

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adjusted consolidated operating income (for executives with responsibilities that cross business units) at the threshold amounts of $910.2 million (adjusted U.S. business unit operating income), $171.0 million (adjusted International business unit operating income), and $1,010.4 million (adjusted consolidated operating income), permitting a payout of 10% of the portion of the total bonus attributable to achievement of the primary objective goal under the Executive Management Bonus Plan. The threshold amount for the secondary objective goal is based on the achievement of the fiscal 2010 adjusted earnings per share at the threshold of $0.87, permitting a payout of 10% of the portion of the total bonus attributable to achievement of the secondary objective goal under the Executive Management Bonus Plan. The threshold amounts disclosed in the table above assume a 0% payout under the primary objective goal, which modifies the individual bonus goals to 0%. As such, the amount listed assumes a minimum payout of 10% of the portion of the total bonus attributable to 10% achievement of the secondary objective goal only. See discussion and analysis regarding the Executive Management Bonus Plan beginning on page 31. Target bonus amounts assume achievement of the objective goals at the target amounts (as described beginning on page 33) and achievement of 100% of individual bonus goals. Maximum bonus amounts assume achievement of the objective goals at the maximum amount of 200% (as described beginning on page 33) and achievement of 100% of individual bonus goals. The named executive officers received a bonus payout under the Executive Management Bonus Plan for fiscal 2010 as shown in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table on page 47.

 

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Outstanding Equity Awards at Fiscal 2010 Year-End

The following table provides information regarding stock options and restricted stock units held by our named executive officers as of October 3, 2010. No named executive officer has any other outstanding form of equity award.

 

                                              Stock Awards  
          Option Awards     Number
of
Shares
or Units
of Stock
that
Have
Not
Vested
(#)
    Market
Value of
Shares or
Units of
Stock that
Have Not
Vested
($)(1)
 

Name

  Grant
Date
    Number of
Securities
Underlying
Options

(#)
Total Grant
    Number of
Securities
Underlying
Unexercised
Options

(#)
Exercisable
    Number of
Securities
Underlying
Unexercised
Options

(#)
Unexercisable
    Number of
Securities
Underlying
Options

(#)
Previously
Exercised
    Option
Exercise
Price
($)
    Option
Expiration
Date
     

Howard Schultz

    11/16/09 (2)      610,224               610,224               22.06        11/16/19                 
    11/16/09 (3)                                                475,974        12,346,766   
    11/17/08 (2)      2,714,947        678,737        2,036,210               8.64        11/17/18                 
    11/19/07 (2)      687,113        343,557        343,556               22.87        11/19/17                 
    11/20/06 (2)      544,218        408,164        136,054               36.75        11/20/16                 
    11/16/05 (4)      966,469        966,469                      30.42        11/16/15                 
    11/16/04 (5)      1,000,000        1,000,000                      27.32        11/16/14                 
    11/20/03 (6)      1,100,000        1,100,000                      15.23        11/20/13                 
    9/30/02 (4)      1,024,000        1,024,000                      10.32        9/30/12                 
    10/1/01 (4)      1,430,000        1,430,000                      7.40        10/1/11                 

Troy Alstead

    11/16/09 (2)      81,363               81,363               22.06        11/16/19                 
    11/16/09 (3)                                                63,464        1,646,256   
    12/18/08 (2)      52,910        13,228        39,682               9.59        12/18/18                 
    11/17/08 (2)      66,138        16,535        49,603               8.64        11/17/18       
    11/17/08 (3)                                                29,861        774,594   
    5/8/08 (7)                                                11,104        288,038   
    11/19/07 (2)      43,725        21,863        21,862               22.87        11/19/17                 
    11/20/06 (2)      33,120        24,840        8,280               36.75        11/20/16                 
    11/16/05 (4)      26,000        26,000                      30.42        11/16/15                 
    11/16/04 (5)      72,000        72,000                      27.32        11/16/14                 
    11/20/03 (6)      70,000        70,000                      15.23        11/20/13                 
    9/30/02 (4)      45,000        45,000                      10.32        9/30/12                 
    10/1/01 (4)      71,000        71,000                      7.40        10/1/11                 

Clifford Burrows

    11/16/09 (2)      81,363               81,363               22.06        11/16/19                 
    11/16/09 (3)                                                63,464        1,646,256   
    11/17/08 (2)      132,275        33,069        99,206               8.64        11/17/18                 
    11/17/08 (3)                                                59,722        1,549,189   
    3/18/08 (2)      37,222        18,612        18,610               18.24        3/18/18                 
    11/19/07 (2)      43,725        21,863        21,862               22.87        11/19/17                 
    9/18/07 (7)                                                17,966        466,038   
    11/20/06 (2)      49,679        37,260        12,419               36.75        11/20/16                 
    11/16/05 (4)      60,000        60,000                      30.42        11/16/15                 
    11/16/04 (5)      68,500        68,500                      27.32        11/16/14                 
    12/12/03 (4)      35,000        35,000                      15.87        12/12/13                 

John Culver

    12/15/09 (2)      49,668               49,668               22.73        12/15/19                 
    11/16/09 (2)      56,373               56,373               22.06        11/16/19                 
    11/16/09 (3)                                                43,970        1,140,582   
    3/17/09 (2)      51,398        12,850        38,548               11.14        3/17/19                 
    11/17/08 (2)      66,138        16,535        49,603               8.64        11/17/18                 
    11/17/08 (3)                                                29,861        774,594   
    5/8/08 (7)                                                12,113        314,211   
    11/19/07 (2)      23,945        11,973        11,972               22.87        11/19/17                 
    3/15/07 (2)      20,947        15,711        5,236               29.59        3/15/17                 
    11/20/06 (2)      13,217        9,913        3,304               36.75        11/20/16                 
    11/16/05 (8)      11,000        8,250               2,750        30.42        11/16/15                 
    11/16/04 (9)      28,000        14,000               14,000        27.32        11/16/14                 
    11/20/03 (5)      18,000        4,500               13,500        15.23        11/20/13                 

Kalen Holmes

    12/15/09 (2)      130,378               130,378               22.73        12/15/19                 
    12/15/09 (10)                                                32,996        855,916   

 

(1)

Value is calculated by multiplying the number of restricted stock units that have not vested by the closing market price of our stock ($25.94) as of the close of trading on October 1, 2010 (the last trading day prior to our October 3, 2010 fiscal year-end).

 

(2)

Options vest in four equal annual installments (subject to rounding of partial shares), beginning on the first anniversary of the grant date.

 

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(3)

Earned performance RSUs vest 50% on the second anniversary of the grant date and 50% on the third anniversary of the grant date.

 

(4)

Options vested in full on the third anniversary of the grant date.

 

(5)

Options vested in full on October 1, 2007.

 

(6)

Options vested in full on October 1, 2006.

 

(7)

Time-based RSUs vest 50% on the second anniversary of the grant date and 50% on the fourth anniversary of the grant date.

 

(8)

Options vested in full on the fourth anniversary of the grant date.

 

(9)

Options vested in full on October 1, 2008.

 

(10)

Time-based RSUs vest in four equal installments (subject to rounding of partial shares) beginning on the first anniversary of the grant date.

2010 Fiscal Year-End Option Values

The table below shows the total value of both vested and unvested in-the-money stock options for each named executive officer as of the end of fiscal 2010. Value is calculated as the difference between the aggregate exercise price of the options and the aggregate market value of the shares of underlying common stock as of the close of trading on October 1, 2010 (the last trading day prior to our October 3, 2010 fiscal year-end) calculated based on the closing market price of our stock on that day ($25.94). There is no guarantee that, if and when these options are exercised, they will have this value.

 

Name

   Vested ($)      Unvested ($)  

Howard Schultz

     67,084,950         38,648,819   

Troy Alstead

     3,338,393         1,889,738   

Clifford Burrows

     1,135,151         2,242,365   

John Culver

     561,188         1,843,558   

Kalen Holmes

     0         418,513   

Fiscal 2010 Option Exercises and Stock Vested

The following table provides information regarding stock options that were exercised by our named executive officers and stock awards (restricted stock units) that vested during fiscal 2010. Option award value realized is calculated by subtracting the aggregate exercise price of the options exercised from the aggregate market value of the shares of common stock acquired on the date of exercise. Stock award value realized is calculated by multiplying the number of shares shown in the table by $27.04, which was the closing price of our stock on May 10, 2010, the first trading date after the stock awards vested on May 8, 2010. As illustrated by the “Grant Date” column in the table below, Value Realized on Exercise and Value Realized on Vesting represent long-term gain over many years; we do not consider it part of fiscal 2010 compensation.

 

                          Stock Awards  
            Option Awards      Number of Shares
Acquired on

Vesting (#)
     Value Realized
on Vesting ($)
 

Name

   Grant Date      Number of Shares
Acquired on Exercise (#)
     Value Realized on
Exercise ($)
       

Howard Schultz

     10/2/00         1,580,000         24,720,740                   

Troy Alstead

     10/2/00         52,000         884,998                   
     1/16/01         70,000         1,112,433                   
     5/8/08                         11,104         300,252   

Clifford Burrows

     10/1/01         6,666         133,253                   
     9/30/02         15,000         255,706                   
     11/20/03         30,000         359,601                   

John Culver

     5/8/08                         12,114         327,563   

Kalen Holmes

                                       

 

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Management Deferred Compensation Plan

The named executive officers are eligible to participate in the Management Deferred Compensation Plan, a nominally funded, non-qualified plan, the benefits of which are paid by Starbucks out of our general assets. The plan is subject to the requirements of Section 409A of the Internal Revenue Code. In September 2008, the board of directors approved an amended and restated plan document to conform it to Section 409A requirements effective January 1, 2009. Deferred compensation earned prior to 2005 is not subject to Section 409A requirements and continues to be governed under the terms of the plan and the tax laws in effect on or before December 31, 2004, as applicable.

We maintain a trust agreement with an independent trustee establishing a rabbi trust for the purpose of funding benefits payable to participants (including each of our named executive officers) under our Management Deferred Compensation Plan. It is currently funded with a nominal amount of cash.

Deferrals

Participants may defer up to 70% of base salary and 95% of bonuses paid under the Executive Management Bonus Plan. In addition, prior to January 1, 2011, certain participants were eligible to receive matching contributions from Starbucks to replace the similar benefits not available to them under our 401(k) plan due to limitations imposed by the Internal Revenue Code and the 401(k) plan document. In December 2008, the board of directors approved changing the matching contributions under the Management Deferred Compensation Plan (and our 401(k) plan) from a fixed formula to a discretionary arrangement effective January 1, 2009. For the Plan year ending December 31, 2009, the board of directors approved matching contributions equal to 25% to 150% of the first 4% of eligible pay deferred into the Management Deferred Compensation Plan. The actual amount of matching contributions was based on the participant’s credited months of service with Starbucks, calculated utilizing the same formula as provided for under our 401(k) plan. The participant generally must be employed on the last day of the calendar year to receive matching contributions, unless he or she retires at or after age 65, becomes disabled or dies during the year, in which case the match will be credited to the participant’s account. No named executive officer was retirement-eligible under the Management Deferred Compensation Plan during fiscal 2010. In June 2010, the board of directors approved the calendar year 2010 matching contribution at the same rate provided for in calendar year 2009.

Also in June 2010, the board of directors approved an amendment and restatement of the Management Deferred Compensation Plan, which eliminates matching contributions to the plan effective beginning with calendar year 2011.

Earnings

As a nominally funded, non-qualified plan, the Management Deferred Compensation Plan uses measurement benchmarks to credit earnings on compensation deferred under the plan. Those measurement benchmarks are based on the investment funds listed below, which are the same funds available under our 401(k) plan. Participants select which measurement funds they wish to have their account allocated to and may change how deferred compensation is allocated to the measurement funds at any time, subject to certain redemption fees and other limitations imposed by frequent trading restrictions and plan rules. Changes generally become effective as of the first trading day following the change.

 

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Management Deferred Compensation Plan — Measurement Funds

 

SEI Stable Asset Fund

   Morgan Stanley Institutional Fund, Inc.

Dodge & Cox Income Fund

   Small Company Growth Portfolio — Class P

American Funds® Fundamental Investors Fund — Class R4

   Fidelity Diversified International Fund

Vanguard Institutional Index Fund — Institutional Class

   Conservative Blend*

American Funds® Growth Funds of America® — Class R4

   Moderate Blend*

Vanguard FTSE Social Index Fund — Investor Class

   Growth Blend*

Harbor Small Cap Value Fund — Institutional Class

   Aggressive Blend*

Wells Fargo Stable Return Fund — Class C

  

 

* Each blend investment option contains a diversified mix of the other individual investment options.

In-Service Withdrawals and Distributions

At the time of making the deferral election for a particular year, a participant elects when the associated deferred compensation will be distributed. In general, the participant can receive scheduled “in-service” withdrawals or hardship withdrawals while still employed or have distributions paid on separation from service. The specific distribution options depend on whether the deferred compensation was earned before or after January 1, 2005 and is subject to other plan rules, including those discussed below. A participant may receive potentially three types of in-service withdrawals:

 

  1. A participant may designate a scheduled payment of his or her deferral accounts (excluding matching contributions) at the time of his or her deferral election. The scheduled payment date cannot occur until after the deferred compensation has been in the plan for three years (for compensation earned on and after January 1, 2005) or five years (for compensation earned prior to January 1, 2005).

 

  2. A participant may request an in-service withdrawal if he or she experiences a qualifying hardship.

 

  3. Only with respect to pre-2005 deferred compensation, a participant may request an in-service withdrawal for any reason by paying a 10% penalty.

For separation from service distributions, account balances resulting from the Company match and deferred compensation earned on and after January 1, 2005 can be paid either in a lump sum or in up to 10 annual installments, in each case beginning within 60 days of separation or one year after separation. If a participant is considered a “specified employee” on his or her separation date, Section 409A requires that the payments be delayed for six months after such separation date. Account balances resulting from pre-2005 deferred compensation can be distributed either in a lump sum within 60 days of separation or, if the participant is at least age 65 on his or her separation date, in up to 10 annual installments.

Distribution elections with respect to account balances from deferred compensation earned on and after January 1, 2005 can be changed up to two times, provided the new election occurs at least one year prior to the original payment date and results in an additional payment delay of five years. The participant also must make a one-year advance election to change distribution elections for pre-2005 deferred compensation.

 

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Fiscal 2010 Nonqualified Deferred Compensation

The following table shows contributions, earnings, withdrawals and distributions during fiscal 2010 and the account balances as of October 3, 2010 for our named executive officers under the Management Deferred Compensation Plan. In addition, the table shows the aggregate balance at fiscal year-end of Mr. Schultz’s deferred stock units under the 1997 Deferred Stock Plan as described on page 40. None of the other named executive officers have deferred stock units.

 

Name

   Executive
Contributions
in

Fiscal 2010
($)(1)
     Starbucks
Contributions
in Fiscal 2010
($)(2)
     Aggregate
Earnings
(Loss)

in Fiscal
2010

($)(3)
    Aggregate
Withdrawals/
Distributions
in

Fiscal 2010
($)
    Aggregate
Balance at
Fiscal 2010
Year-End
($)(4)
 

Howard Schultz

     51,232         14,700         22,922               291,250   

deferred stock units

                     20,738,464 (5)             88,045,133 (6) 

Troy Alstead

                     82,391        (314,294     538,668   

Clifford Burrows

     244,959         7,969         12,410               286,177   

John Culver

     144,540         7,350         41,710               529,320   

Kalen Holmes

                                     

 

 

(1) These amounts were also included in the “Salary” and/or “Non-Equity Incentive Plan Compensation” columns in the Summary Compensation Table on page 47.

 

(2) These amounts were reported as “All Other Compensation” in the Summary Compensation Table on page 47 and as “Retirement Plan Contributions” in the Fiscal 2010 All Other Compensation Table on page 48.

 

(3) We do not provide above-market or preferential earnings on Management Deferred Compensation Plan contributions, so these amounts were not reported in the Summary Compensation Table. Management Deferred Compensation Plan participants can select only from among the same investment funds as are available under our 401(k) plan.

 

(4) Of these balances, the following amounts were reported in Summary Compensation Tables in prior-year proxy statements beginning with the 2007 proxy statement: Mr. Schultz — $161,458; Mr. Alstead — $0; Mr. Burrows — $48,749; Mr. Culver — N/A; and Ms. Holmes — N/A. The information in this footnote is provided to clarify the extent to which amounts payable as deferred compensation represent compensation reported in our prior proxy statements, rather than additional currently earned compensation.

 

(5) Aggregate earnings for fiscal 2010 is the difference between the aggregate balance at fiscal 2009 year-end ($67,306,669) and the aggregate balance at fiscal 2010 year-end and is attributable to appreciation in the price of our stock during fiscal 2010.

 

(6) The aggregate balance at fiscal year-end for deferred stock units is calculated by multiplying deferred stock units of 3,394,184 by the closing market price of our stock on October 1, 2010 ($25.94). Mr. Schultz is entitled to receive cash dividends on the deferred stock units. Cash dividends declared and paid by the Company are paid directly to Mr. Schultz in accordance with the 1997 Deferred Stock Plan.

Potential Payments Upon Termination or Change in Control

We do not provide special change-in-control benefits to executives. Our only change-in-control arrangement, which applies to all partners, is accelerated vesting of certain equity awards. We do, however, occasionally offer a severance benefit arrangement for new senior executives to provide for one year’s base salary if we terminate his or her employment for any reason other than “cause” (which generally requires misconduct) within one year of the executive’s hire date. We may also offer a severance benefit arrangement for

 

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terminated or separated executives as part of a negotiated termination of employment in exchange for a release of claims against the Company and other covenants determined to be in the best interests of the Company. None of our named executive officers for fiscal 2010 had any such severance benefit arrangement.

Equity Acceleration

Acceleration Upon Change in Control.    No named executive officer is entitled to any payment or accelerated benefit in connection with a change in control of Starbucks, or a change in his responsibilities following a change in control, except for accelerated vesting of stock options and restricted stock units granted under our 2005 Key Employee Plan. The 2005 Key Employee Plan has detailed definitions of “change in control” and resigning “for good reason.” Generally speaking, a change in control occurs if (i) we sell or liquidate all our assets; (ii) someone acquires 25% or more of our stock without prior approval of our board of directors; (iii) a majority of our directors is replaced in any 36-month period other than by new directors approved by existing directors; or (iv) Starbucks is not the surviving company after any merger.

The 2005 Key Employee Plan is a “double trigger” plan, meaning that unvested stock options and unvested restricted stock units vest immediately only if (i) there is a change in control and (ii) if stock options and restricted stock units are assumed or substituted with stock options or restricted stock units of the surviving company, the partner is terminated or resigns for good reason within one year after the change in control. Generally speaking, a resignation is “for good reason” if it results from the resigning partner: (i) having materially reduced responsibilities; (ii) being placed in a new role that is inconsistent with the pre-change-in-control role; (iii) having his or her base salary or target incentive compensation reduced; or (iv) having his or her primary work location moved by more than 50 miles. If stock options or restricted stock units are not assumed or substituted with stock options or restricted stock units of the surviving company, they vest immediately upon a change in control. We believe “double-trigger” acceleration is appropriate because vesting is accelerated only if the retention purpose of time-vested equity compensation is defeated, which occurs upon a change in control only for partners who lose their long-term incentive compensation opportunity because the acquiring company does not assume or substitute awards or the partners lose their jobs or resign for good reason. Performance RSUs granted are treated in the same manner as restricted stock units noted above once the performance period is complete and the amount of award is determined. Prior to completion of the performance period, performance RSUs do not accelerate upon a change in control and are forfeited if not assumed or substituted with awards of the surviving company.

Acceleration Upon Retirement or Death.    The vesting of all options accelerates in full upon the voluntary termination of employment of any partner who satisfies the criteria for “retirement” under the 2005 Key Employee Plan, meaning the partner is at least 55 years old and has a minimum of 10 years of credited service with Starbucks, unless otherwise provided in the grant agreement. Vesting of all options also accelerates upon the partner’s death. Restricted stock units do not accelerate upon retirement or death.

The following table shows the estimated potential incremental value of additional stock options and restricted stock units that would have vested for our named executive officers as of October 1, 2010 (the last business day of fiscal 2010) under the acceleration scenarios described above. For stock options, the value is based on the difference between the aggregate exercise price of all accelerated options and the aggregate market value of the underlying shares as of October 1, 2010 calculated based on the closing market price of our stock on that day ($25.94). Accelerated restricted stock unit award value is calculated by multiplying the number of accelerated shares by the closing market price of our stock on October 1, 2010 ($25.94). Of the named executive officers, only Mr. Schultz satisfied the criteria for “retirement” under the 2005 Key Employee Plan as of October 1, 2010. Mr. Schultz has voluntarily waived accelerated vesting of options upon termination of employment at or after the age 55 and with at least 10 years of service for each stock option grant he has received since he has been retirement eligible. Mr. Schultz agreed to forgo this accelerated retirement vesting so the Company would not be required to similarly accelerate the recognition of expense for the award in our financial statements.

 

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Due to the number of factors that affect the nature and amount of any benefits provided upon the events discussed below, any actual amounts paid or distributed may be different. Factors that could affect these amounts include the time during the year of any such event, the Company’s stock price and the executive’s age.

 

     Value of Accelerated Equity Awards ($)  

Name

   Change  in
Control

Only
     Change in
Control

with No
Replacement

Equity
     Change in
Control

plus
Qualifying

Termination
     Death      Retirement  

Howard Schultz

             44,819,867         44,819,867         38,648,819           

Troy Alstead

             3,775,498         3,775,498         1,889,737           

Clifford Burrows

             5,080,720         5,080,720         2,242,366           

John Culver

             3,502,654         3,502,654         1,843,558           

Kalen Holmes

             1,274,430         1,274,430         418,513           

The following table shows the estimated potential aggregate amounts our named executive officers could have realized from stock options, restricted stock units and Management Deferred Compensation Plan account distributions if their employment terminated as of the last business day of fiscal 2010, other than for misconduct (which could cause forfeiture of all vested stock options and Company match contributions under the Management Deferred Compensation Plan), both including and excluding amounts from accelerated vesting of stock options and restricted stock units as detailed in the table above. The “Total — No Acceleration” column assumes none of the acceleration scenarios covered above has occurred. The “Total — With Acceleration” column assumes acceleration of all unvested stock options and restricted stock units under one or more of the scenarios covered above.

Due to the number of factors that affect the nature and amount of any benefits provided upon the events discussed below, any actual amounts paid or distributed may be different. Factors that could affect these amounts include the time during the year of any such event, the Company’s stock price, earnings under the Management Deferred Compensation Plan and the executive’s age.

 

Name

   Aggregate
Value of

Vested
Equity

Awards ($)
     Management
Deferred
Compensation
Plan

Account
Balances

($)(1)
     Total —  No
Acceleration ($)
     Aggregate
Value of

Unvested
Equity

Awards ($)
     Total —  With
Acceleration ($)
 

Howard Schultz

     67,084,950         291,250         67,376,200         44,819,867         112,196,067   

Troy Alstead

     3,338,393         538,668         3,877,061         3,775,498         7,652,559   

Clifford Burrows

     1,135,151         286,177         1,421,328         5,080,720         6,502,048   

John Culver

     561,188         529,320         1,090,508         3,502,654         4,593,162   

Kalen Holmes

                             1,274,430         1,274,430   

 

(1)

These amounts are also shown in the “Aggregate Balance at Fiscal 2010 Year-End” column of the Fiscal 2010 Nonqualified Deferred Compensation table on page 56 and are shown assuming payment in a single lump sum regardless of individual elections to receive payment over time.

 

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PROPOSAL 4 — APPROVAL OF REVISED PERFORMANCE CRITERIA UNDER THE 2005 LONG-TERM EQUITY INCENTIVE PLAN

As discussed below in Proposal 5, we are asking shareholders to approve an amendment and restatement to the Starbucks Corporation 2005 Long-Term Equity Incentive Plan (the “Plan”), including an increase in the number of authorized shares under the plan. Separate from the approval of the amendment and restatement to the Plan, in this Proposal 4 we are asking shareholders to approve revised performance criteria under the Plan so that performance-based awards under the Plan can be tax deductible for the Company. If this Proposal 4 is approved, the Plan will be amended to reflect the revised performance criteria described below under “Description of the Business Criteria on which the Performance Goal Is Based.” Other than the revised performance criteria, shareholders are not being asked under this Proposal 4 to approve any amendments to the Plan or to approve the Plan itself. In particular, shareholders are not being asked to approve an increase in the number of shares available for grant under the Plan under this Proposal 4. This Proposal 4 is separate from, and not contingent upon shareholder approval of, Proposal 5, in which we are asking shareholders to approve an amendment and restatement of the Plan, including an increase in the number of authorized shares under the plan.

The Plan is structured in a manner such that awards granted under it can satisfy the requirements for “performance-based” compensation within the meaning of Section 162(m) (“Section 162(m)”) of the Internal Revenue Code of 1986 (the “Code”). See the discussion on tax deductibility of executive compensation beginning on page 45. In general, under Section 162(m), in order for the Company to be able to deduct compensation in excess of $1,000,000 paid in any one year to the Company’s chief executive officer or any of the Company’s three other most highly compensated executive officers (other than the Company’s chief financial officer), such compensation must qualify as “performance-based.” One of the requirements of “performance-based” compensation for purposes of Section 162(m) is that the material terms of the performance goals under which compensation may be paid be disclosed to and approved by the Company’s shareholders every five years. For purposes of Section 162(m), the material terms include (i) the individuals eligible to receive compensation, (ii) a description of the business criteria on which the performance goal is based, and (iii) the maximum amount of compensation that can be paid to an individual under the performance goal. Each of these aspects is discussed below, and shareholder approval of this Proposal 4 constitutes approval of each of these aspects of the Plan for purposes of the approval requirements of Section 162(m).

The following summary of certain material terms of the Plan are qualified in their entirety by reference to the complete text of the Plan (which also includes the changes to the Plan described below in Proposal 5), which is set forth in Appendix A to this proxy statement. Shareholders should refer to the summary of other material terms of the Plan discussed below in Proposal 5.

Individuals Eligible to Receive Compensation

The Compensation Committee will administer the Amended Plan, with certain actions subject to the review and approval of the full Board or a panel consisting of all of the independent directors (the “Administrator”). Any person who is a partner, officer, consultant or director of the Company or any subsidiary of the Company will be eligible for selection by the Administrator for the grant of awards under the Plan. Options intended to qualify as incentive stock options within the meaning of Section 422 of the Code only may be granted to partners of the Company or any subsidiary.

Description of the Business Criteria on which the Performance Goal Is Based

Awards of restricted stock and RSUs that are intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code will be subject to the attainment of performance goals relating to the performance criteria selected by the Administrator. Performance goals must be based solely on one or more of the following business criteria (as selected and defined by the Administrator): (i) cash flow; (ii) earnings

 

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per share, as adjusted for any stock split, stock dividend or other recapitalization; (iii) earnings measures; (iv) return on equity; (v) total shareholder return; (vi) share price performance, as adjusted for any stock split, stock dividend or other recapitalization; (vii) return on capital; (viii) revenue; (ix) income; (x) profit margin; (xi) return on operating revenue; (xii) brand recognition/acceptance; (xiii) customer satisfaction; (xiv) productivity; (xv) expense targets; (xvi) market share; (xvii) cost control measures; (xviii) inventory turns or cycle time; (xix) balance sheet metrics; or (xx) strategic initiatives; provided, however, that “Performance Criteria” shall include any derivations of these Performance Criteria (e.g., income shall include pre-tax income, net income, operating income, etc.). Any of these performance criteria may be used to measure the performance of the Company as a whole or any business unit or division of the Company. Performance criteria may be stated in absolute terms or relative to comparison companies or indices to be achieved during a period of time.

The Administrator may provide, at the time it establishes performance goals for any award, that any evaluation of performance shall include or exclude any one or more of the following events that occurs during a performance period: (i) significant acquisitions or dispositions of businesses or assets by the Company, (ii) litigation or claim judgments or settlements; (iii) the effect of changes in tax laws, accounting principles, or other laws or provisions affecting reported results; (iv) any reorganization and restructuring programs; (v) extraordinary items as described in FASB Accounting Standards Codification Section 225-20-20; (vi) significant, non-recurring charges or credits; and (vii) foreign exchange rates. To the extent such inclusions or exclusions affect awards to “covered employees” within the meaning of Section 162(m) of the Code, they shall be prescribed in a form that satisfies the requirements for “performance-based compensation” within the meaning of Section 162(m)(4)(C) of the Code, or any successor provision thereto.

Maximum Amount of Compensation that Can Be Paid to an Individual Under the Performance Goal

Subject to certain adjustments, the aggregate number of shares subject to awards granted under the Plan during any one year to any one participant will not exceed 3,500,000. The Administrator shall adjust the maximum annual individual award limit in the case of a stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding shares of Starbucks common stock without the Company’s receipt of consideration, in order to prevent dilution or enlargement of the benefits or potential benefits intended to be provided under the Plan.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE REVISED PERFORMANCE CRITERIA UNDER THE 2005 LONG-TERM EQUITY INCENTIVE PLAN.

PROPOSAL 5 — APPROVAL OF AMENDED AND RESTATED 2005 LONG-TERM EQUITY INCENTIVE PLAN, INCLUDING AN INCREASE IN THE NUMBER OF AUTHORIZED SHARES UNDER THE PLAN

Overview

On December 16, 2010, the board of directors adopted, subject to shareholder approval, an amendment and restatement of the Starbucks Corporation 2005 Long-Term Equity Incentive Plan (as amended and restated, the “Amended Plan”), which originally was approved by shareholders at the 2005 Annual Meeting of Shareholders (as originally approved, the “Plan”). The board recommends that the Company’s shareholders approve the Amended Plan because it believes that partner, officer and non-employee director ownership in the Company serves the best interests of all shareholders by promoting a focus on long-term increase in shareholder value. The Amended Plan continues to support this goal by increasing the flexibility the Company has in awarding equity-based compensation that meets the ongoing objective of aligning compensation with shareholder value. The Amended Plan permits the grant of stock options (including nonqualified stock options and incentive stock options), stock appreciation rights (“SARs”), restricted stock and restricted stock units (“RSUs”).

 

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This Proposal 5 is separate from Proposal 4, in which we are asking shareholders to approve revised performance criteria under the Plan.

Key Changes from the Original Plan

If approved, the Amended Plan would make the following changes to the Plan, as described in more detail under “Amended Plan Summary” below:

 

Maximum Option Terms

   Establish a maximum term of 10 years for nonqualified stock options

Increase in Authorized Shares

   Increase the shares authorized for issuance under the Plan by 15,000,000 shares to 107,098,721 shares

Minimum Vesting Conditions

   Require future awards of restricted stock and RSUs to satisfy minimum vesting conditions

Term of Plan

   Extend the term of the Plan by 10 years

Administrative Changes

   Make certain other administrative changes

Promotion of Good Corporate Governance Practices

We have designed the Amended Plan to include a number of provisions that we believe promote best practices by reinforcing the alignment between equity compensation arrangements for non-employee directors, officers, partners and other service providers and shareholders’ interests. These provisions include, but are not limited to, the following:

 

   

No Discounted Options or SARs.    Stock options and SARs may not be granted with exercise prices lower than the fair market value of the underlying shares on the grant date.

 

   

No Repricing Without Shareholder Approval.     At any time when the exercise price of a stock option or SAR above the market value of the Company’s common stock, the Company cannot, without shareholder approval, “reprice” those awards by reducing the exercise price of such stock option or SAR or exchanging such stock option or SAR for cash, other awards or a new stock option or SAR at a reduced exercise price.

 

   

Minimum Vesting Requirements.     Restricted Stock and RSUs are required to meet minimum vesting requirements. Restricted Stock and RSUs that are not performance-based must have vesting periods over at least three years with certain limited exceptions. If awards are performance-based, then performance must be measured over a period of at least one year.

 

   

No Liberal Share Recycling.     Shares retained by or delivered to the Company to pay the exercise price or withholding taxes in connection with the exercise of an outstanding stock option or SAR, unissued shares resulting from the settlement of SARs in stock, and shares purchased by us in the open market using the proceeds of option exercises do not become available for issuance as future awards under the Amended Plan.

 

   

No Dividends on Unearned Performance Awards.     The Amended Plan prohibits the current payment of dividends or dividend equivalent rights on unearned performance awards.

 

   

Fungible Share Design.    Shares issued in connection with Restricted Stock and RSUs count against the number of shares authorized for issuance under the Amended Plan at a higher rate than shares issued upon exercise of stock options and SARs.

 

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No Transferability.    Awards generally may not be transferred, except by will or the laws of descent and distribution, unless approved by the Compensation Committee.

 

   

No Evergreen Provision.    There is no “evergreen” feature pursuant to which the shares authorized for issuance under the Amended Plan can be automatically replenished.

 

   

No Automatic Grants.    The Amended Plan does not provide for automatic grants to any participant.

 

   

No Tax Gross-ups.    The Amended Plan does not provide for any tax gross-ups.

Key Data

The following table includes information regarding outstanding equity awards and shares available for future awards under the Company’s equity plans as of October 3, 2010 (and without giving effect to approval of the Amended Plan under this Proposal 5):

 

     2005 Plan      Prior Plans(1)  

Total shares underlying outstanding options

     47,407,364         13,278,319   

Weighted average exercise price of outstanding options

     $16.98         $14.87   

Weighted average remaining contractual life of outstanding options

     8.09 years         2.66 years   

Total shares underlying outstanding unvested time-based RSUs

     5,428,376         0   

Total shares underlying outstanding unearned performance-based RSUs

     0         0   

Total shares currently available for grant

     27,881,407           

Total shares currently available for grant as full-value awards

     27,881,407           

 

(1)

Prior Plans includes the Starbucks Corporation Company-Wide 1991 Stock Option Plan, as amended, the Starbucks Corporation Amended and Restated Key Employee Stock Option Plan-1994, as amended, and the Starbucks Corporation Amended and Restated 1989 Stock Option Plan for Non-Employee Directors.

Broad-based equity compensation is an essential and long-standing element of the Company’s culture and success. It continues to be a critical element to attract and retain the most talented partners, officers and directors available to execute the Company’s long-term goals. We grant equity-based compensation to partners at all levels of the organization, including eligible part-time partners. As shown in the following table, the Company’s three-year average annual burn rate has been 3.17%, which is below the Institutional Shareholder Services (“ISS”) burn rate threshold of 4.8% applied to our industry.

 

Year

   Options
Granted
     Time-Based
RSUs
Granted
     Performance-
Based RSUs
Earned(1)
     Total      Weighted
Average
Number of
Common
Shares
Outstanding
     Burn Rate = Total
Granted / Common
Shares
Outstanding
 

2010(2)

     14,921,745         212,985         2,654,013         17,788,743         744,400,000         2.39

2009(3)

     30,883,599         685,483         3,382,831         34,951,913         738,700,000         4.73

2008(4)

     15,433,547         2,031,357         0         17,464,904         731,500,000         2.39

Three-Year Average

  

     3.17

 

(1)

Performance metrics for the performance-based RSUs (“PBRSUs”) are described in this proxy statement under the heading “Compensation Discussion and Analysis — Determining Executive Compensation at Starbucks — Analysis of Executive Compensation Elements — Long-Term Incentive Compensation.”

 

(2)

PBRSUs granted during fiscal 2010 and subsequently forfeited totaling 90,224 are not included here.

 

(3)

PBRSUs granted during fiscal 2009 and subsequently forfeited totaling 409,024 are not included here. Options granted during 2009 as part of our shareholder-approved option exchange program totaling approximately 4.7 million are not included here.

 

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Amended Plan Summary

The following summary of the material terms of the Amended Plan are qualified in their entirety by reference to the complete text of the Amended Plan (which also includes the revised performance criteria described in Proposal 4), which is set forth in Appendix A to this proxy statement.

Administration

The Compensation Committee will administer the Amended Plan, with certain actions subject to the review and approval of the full Board or a panel consisting of all of the independent directors (the “Administrator”). Subject to the express terms of the Amended Plan, the Administrator will have full power and authority to do all things that it determines to be necessary or appropriate in connection with the administration of the Amended Plan, including to determine when and to whom awards will be granted, including the type, amount, form of payment and other terms and conditions of each award. In addition, the Administrator has the authority to interpret the Amended Plan and the awards granted under the Amended Plan, and establish rules and regulations for the administration of the Amended Plan. All decisions, determinations, and interpretations of the Administrator regarding the Amended Plan and awards granted under the Amended Plan will be final and binding on all participants and all other persons. The Administrator may authorize one or more officers of the Company to perform any or all things that the Administrator is authorized and empowered to do or perform under the Amended Plan. In addition, the Administrator may delegate any or all aspects of the day-to-day administration of the Amended Plan to one or more officers of the Company.

Participants

Any person who is a partner, officer, consultant or director of the Company or any subsidiary of the Company will be eligible for selection by the Administrator for the grant of awards under the Amended Plan. Options intended to qualify as incentive stock options (“ISOs”) within the meaning of Section 422 of the Code only may be granted to partners of the Company or any subsidiary. Approximately 94,000 partners (not including officers), 13 officers and 10 non-employee directors currently qualify to participate in the Plan.

Shares Subject to the Plan and to Awards

Subject to changes in the Company’s capitalization, the aggregate number of shares of Starbucks common stock, par value $0.001 per share (the “Common Stock”), issuable pursuant to all awards under the Amended Plan will include approximately 27,881,407 shares of Common Stock remaining, as of October 3, 2010, available for future grant under the Amended Plan, plus any shares subject to options granted under the Prior Plans that are terminated, expire unexercised or are otherwise forfeited, plus an additional 15,000,000 shares of Common Stock for which shareholder approval is being sought; provided that any shares granted under options or SARs will be counted against this limit on a one-for-one basis and any shares granted as awards other than options or SARs will be counted against this limit as 2.1 shares for every one share subject to such award. The shares issued pursuant to awards granted under the Amended Plan may be shares that are authorized and unissued or issued shares that were reacquired by the Company. As of January 13, 2011, the closing price of a share of the Common Stock on NASDAQ was $32.41.

Subject to certain adjustments, the aggregate number of shares subject to awards granted under the Amended Plan during any one year to any one participant will not exceed 5,000,000, and the aggregate number of shares that may be issued pursuant to the exercise of ISOs granted under the Amended Plan will not exceed 21,000,000. The Administrator shall adjust the aggregate number of shares reserved for issuance under the Amended Plan, the number and class of securities covered by and exercise price under outstanding awards, the maximum annual individual award limit and the maximum aggregate ISO limit in the case of a stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding shares of Common Stock without the Company’s receipt of consideration, in order to prevent dilution or enlargement of the benefits or potential benefits intended to be provided under the Amended Plan.

 

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For purposes of determining the share limits described in the paragraphs above, the aggregate number of shares issued under the Amended Plan at any time will equal only the number of shares actually issued upon exercise or settlement of an award. Shares subject to awards that have been canceled, expired, forfeited, settled in cash or otherwise not issued under an award and shares subject to awards settled in cash will not count as shares issued under the Plan. The plan provides that shares retained by or delivered to us to pay the exercise price or withholding taxes in connection with the exercise of an outstanding stock option and/or SAR, unissued shares resulting from the net settlement of SARs in stock and shares purchased by us in the open market with the proceeds of exercised stock options do not become available for issuance as future awards under the plan.

Stock Options

The holder of an option will be entitled to purchase a number of shares of Common Stock at a specified exercise price during a specified time period, all as determined by the Administrator. The Administrator will establish the exercise price per share under each option, which will not be less than the fair market value (or 110% of the fair market value in the case of ISOs granted to individuals who own more than 10% of the Common Stock) of a share on the date the option is granted. The Administrator will establish the term of each option, which in no case may exceed a period of ten (10) years from the date of grant (or five (5) years in the case of ISOs granted to individuals who own more than 10% of the Company’s common stock). Options granted under the Amended Plan may be either ISOs or options that are not intended to qualify as ISOs, nonqualified stock options (“NQSOs”).

Stock Appreciation Rights

A SAR provides the holder with the right to receive the monetary equivalent of the increase in value of a specified number of shares over a specified period of time after the right is granted. SARs may be granted to participants either in connection with an award of options (“tandem SARs”) or not in connection with an award of options (“freestanding SARs”). The holder of a tandem SAR is entitled to elect between the exercise of the underlying option for shares of Common Stock or the surrender of the option in exchange for the receipt of a cash payment equal to the excess of the fair market value on the surrender date over the aggregate exercise price payable for such shares. The holder of stand-alone SARs will be entitled to receive the excess of the fair market value (on the exercise date) over the exercise price for such shares. The Administrator will establish the terms and conditions of SARs. The Administrator will establish the exercise price per share under each stand-alone SAR, which will not be less than the fair market value of a share on the date the SAR is granted. The Administrator will also establish the term of each SAR, which in no case may exceed a period of ten (10) years from the date of grant.

Options and SARs issued under the Amended Plan may not be repriced, replaced, or regranted through cancellation in exchange for cash, other awards, or a new option or SAR at a reduced exercise or base price, or by lowering the exercise price of a previously granted option, except with the prior approval of the Company’s shareholders or in connection with a change in the Company’s capitalization.

Restricted Stock and Restricted Stock Units

Restricted stock is an award or issuance of shares where the grant, issuance, retention, vesting and/or transferability of which is subject during specified periods of time to such conditions and terms (including continued employment or performance conditions) as the Administrator deems appropriate. RSUs are awards denominated in units of shares under which the settlement of the award is subject to such conditions and terms (including continued employment or performance conditions) as the Administrator deems appropriate. RSUs may be settled in shares of Common Stock, cash or a combination of the foregoing, as determined by the Administrator on the grant date. The Administrator will determine whether participants holding shares of restricted stock or RSUs are entitled to receive dividends and other distributions paid with respect to those shares during the period of restriction, prior to the time such shares are reflected as issued and outstanding shares on the Company’s stock ledger. In no event will dividends be paid currently with respect to unearned performance awards.

 

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Subject to certain exceptions, awards of restricted stock and RSUs that vest solely based on a participant’s continuous service may not vest in full earlier than three years from the grant date, and awards of restricted stock and RSUs that vest based on the achievement of performance objectives must be based on performance over a period of not less than one year, in each case, unless accelerated in the event of a change of control or the participant’s death, disability or retirement. Notwithstanding the foregoing, the Administrator may grant awards of restricted stock and RSUs covering up to 5% of the aggregate number of shares authorized for issuance under the Amended Plan without respect to these minimum vesting requirements.

Method of Payment for Awards

The Administrator will determine the form of payment, if any, for any shares of Common Stock issued in exercise or settlement of an award under the Amended Plan, which may include cash, shares of Common Stock owned by the participant, withholding of shares of Common Stock otherwise issuable upon exercise or settlement or a broker-assisted cashless exercise.

Termination of Service

Unless otherwise provided by the Administrator and except in the event of a change of control as described below, unvested Awards granted under the Amended Plan will expire, terminate, or otherwise be forfeited immediately upon termination of a participant’s service for any reason (except that unvested options will accelerate in the event of a participant’s retirement or death), and vested awards gran