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

Proxy Statement Pursuant to Section 14(a)

of the Securities Exchange Act of 1934

(Amendment No.      )

 

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Check the appropriate box:

 

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Preliminary Proxy Statement

 

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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

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Definitive Proxy Statement

 

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Definitive Additional Materials

 

¨

Soliciting Material Pursuant to §240.14a-12

 

 

The Procter & Gamble Company

 

(Name of Registrant as Specified In Its Charter)

 

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

 

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LOGO

THE PROCTER & GAMBLE COMPANY

 

 

Notice of Annual Meeting

and

Proxy Statement

 

 

Procter & Gamble Hall

at the Aronoff Center for the Arts

Annual Meeting of Shareholders

October 13, 2009

 


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LOGO

THE PROCTER & GAMBLE COMPANY

P.O. Box 599

Cincinnati, Ohio 45201-0599

August 28, 2009

Fellow Procter & Gamble Shareholders:

It is our pleasure to invite you to this year’s annual meeting of shareholders, which will be held on Tuesday, October 13, 2009.

The meeting will start at 9:00 a.m., Eastern Daylight Time, at the Procter & Gamble Hall at the Aronoff Center for the Arts, 650 Walnut Street, in Cincinnati.

We appreciate your continued confidence in our Company and look forward to seeing you on October 13.

 

Sincerely,

 

LOGO

 

LOGO

A. G. LAFLEY

 

ROBERT A. MCDONALD

CHAIRMAN OF THE BOARD

 

PRESIDENT AND CHIEF EXECUTIVE OFFICER


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LOGO

THE PROCTER & GAMBLE COMPANY

P.O. Box 599

Cincinnati, Ohio 45201-0599

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

August 28, 2009

 

Date:

  

Tuesday, October 13, 2009

Time:

  

9:00 a.m., Eastern Daylight Time

Place:            

  

Procter & Gamble Hall at the Aronoff Center for the Arts

  

650 Walnut Street, Cincinnati, Ohio

Purposes of the meeting:

 

   

To review the minutes of the 2008 annual meeting of shareholders;

 

   

To receive reports of officers;

 

   

To elect thirteen members of the Board of Directors;

 

   

To vote on a Board proposal to ratify appointment of the independent registered public accounting firm;

 

   

To vote on a Board proposal to amend the Company’s Code of Regulations;

 

   

To vote on a Board proposal to approve The Procter & Gamble 2009 Stock and Incentive Compensation Plan;

 

   

To vote on two shareholder proposals; and

 

   

To consider any other matters properly brought before the meeting.

Who may attend the meeting:

Only shareholders, persons holding proxies from shareholders, and invited representatives of the media and financial community may attend the meeting.

Shareholders attending the meeting who are hearing-impaired should identify themselves during registration so they can sit in a special section where an interpreter will be available.

What to bring:

If your shares are registered in your name, and you requested and received a printed copy of the proxy materials, you should bring the enclosed Admission Ticket to the meeting. If you received a Notice of Internet Availability of Proxy Materials and will not be requesting a printed copy of the proxy materials, please bring that Notice with you as your Admission Ticket.

If your shares are held in the name of a broker, trust, bank, or other nominee, you will need to bring a proxy or letter from that broker, trust, bank or nominee that confirms that you are the beneficial owner of those shares.


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Audiocast of the annual meeting:

If you are not able to attend the meeting in person, you may join a live audiocast of the meeting on the Internet by visiting www.pg.com/investors at 9:00 a.m., Eastern Daylight Time on October 13, 2009.

Record Date:

August 14, 2009, is the record date for the meeting. This means that owners of Procter & Gamble stock at the close of business on that date are entitled to:

 

   

receive notice of the meeting; and

 

   

vote at the meeting and any adjournments or postponements of the meeting.

Information About the Notice of Internet Availability of Proxy Materials:

Again this year, instead of mailing a printed copy of our proxy materials, including our Annual Report, to each shareholder of record, we have decided to provide access to these materials in a fast and efficient manner via the Internet. This reduces the amount of paper necessary to produce these materials, as well as the costs associated with mailing these materials to all shareholders. On August 28, 2009, we began mailing a Notice of Internet Availability of Proxy Materials (the “Notice”) to all shareholders of record as of August 14, 2009, and posted our proxy materials on the website referenced in the Notice (www.proxyvote.com). As more fully described in the Notice, all shareholders may choose to access our proxy materials on the website referred to in the Notice or may request a printed set of our proxy materials. In addition, the Notice and website provide information regarding how you may request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis. For those who previously requested printed proxy materials or electronic materials on an ongoing basis, you will receive those materials as you requested.

Householding Information:

We have adopted a procedure approved by the Securities and Exchange Commission (“SEC”) called “householding.” Under this procedure, shareholders of record who have the same address and last name and have not previously requested electronic delivery of proxy materials will receive a single envelope containing the Notices for all shareholders having that address. The Notice for each shareholder will include that shareholder’s unique control number needed to vote his or her shares. This procedure reduces our printing costs and postage fees.

If, in the future, you do not wish to participate in householding and prefer to receive your Notice in a separate envelope, please call us toll-free at 1-800-742-6253 in the U.S., or inform us in writing at: The Procter & Gamble Company, Shareholder Services, P.O. Box 5572, Cincinnati, OH 45201-5572, or by email at shareholders.im@pg.com. We will respond promptly to such requests.

For those shareholders who have the same address and last name and who request to receive a printed copy of the proxy materials by mail, we will send only one copy of such materials to each address unless one or more of those shareholders notifies us, in the same manner described above, that they wish to receive a printed copy for each shareholder at that address.

Beneficial shareholders can request information about householding from their banks, brokers or other holders of record.


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Proxy Voting:

Your vote is important. Please vote your proxy promptly so your shares can be represented, even if you plan to attend the annual meeting. You can vote by Internet, by telephone or by requesting a printed copy of the proxy materials and using the enclosed proxy card.

Our proxy tabulator, Broadridge Financial Solutions, must receive any proxy that will not be delivered in person to the annual meeting by 11:59 p.m., Eastern Daylight Time on Monday, October 12, 2009.

 

By order of the Board of Directors,

STEVEN W. JEMISON

Chief Legal Officer and Secretary


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Table of Contents

 

Voting Information

   2

Election of Directors

   5

The Board of Directors

   9

Committees of the Board

   9

Corporate Governance

   11

Director Compensation Table

   15

Report of the Compensation & Leadership Development Committee

   17

Compensation Discussion and Analysis

   18

Executive Compensation

   37

Summary Compensation Table

   37

Grants of Plan-Based Awards Table

   40

Outstanding Equity at Fiscal Year-End Table

   42

Option Exercises and Stock Vested Table

   46

Pension Benefits Table

   47

Nonqualified Deferred Compensation Table

   49

Payments upon Termination or Change in Control

   51

Security Ownership of Management and Certain Beneficial Owners

   54

Section 16(a) Beneficial Ownership Reporting Compliance

   57

Report of the Audit Committee

   58

Board Proposal to Ratify Appointment of the Independent Registered Public Accounting Firm

   60

Board Proposal to Amend the Company’s Code of Regulations

   60

Board Proposal to Approve The Procter & Gamble 2009 Stock and Incentive Compensation Plan

   61

Shareholder Proposals

   70

2010 Annual Meeting Date

   73

Other Matters

   73

Exhibit A—Audit Committee Charter

   A-1

Exhibit B—Guidelines of The Procter & Gamble Company Audit Committee for Pre-Approval of Independent Auditor Services

   B-1

Exhibit C—The Procter & Gamble Company 2009 Stock and Incentive Compensation Plan

   C-1


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Proxy Statement

As more fully described in the Notice, the Board of Directors of The Procter & Gamble Company (the “Company”) has made these materials available to you over the Internet or, upon your request, has mailed you printed versions of these materials in connection with the Company’s 2009 annual meeting of shareholders, which will take place on October 13, 2009. The Notice was mailed to Company shareholders beginning August 28, 2009, and our proxy materials were posted on the website referenced in the Notice on that same date. The Company, on behalf of its Board of Directors, is soliciting your proxy to vote your shares at the 2009 annual meeting of shareholders. We solicit proxies to give all shareholders of record an opportunity to vote on matters that will be presented at the annual meeting. In this proxy statement, you will find information on these matters, which is provided to assist you in voting your shares.

Voting Information

Who can vote?

You can vote if, as of the close of business on Friday, August 14, 2009, you were a shareholder of record of the Company’s:

 

   

Common Stock;

 

   

Series A ESOP Convertible Class A Preferred Stock; or

 

   

Series B ESOP Convertible Class A Preferred Stock.

Each share of Company stock gets one vote. On August 14, 2009, there were issued and outstanding:

 

   

2,919,005,238 shares of Common Stock;

 

   

73,135,261 shares of Series A ESOP Convertible Class A Preferred Stock; and

 

   

63,512,854 shares of Series B ESOP Convertible Class A Preferred Stock.

For The Procter & Gamble Shareholder Investment Program participants:

If you are a participant in The Procter & Gamble Shareholder Investment Program, you can vote shares of common stock held for your account through the custodian for that program.

For participants in The Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan and/or The Procter & Gamble Savings Plan:

If you are a participant in The Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan and/or The Procter & Gamble Savings Plan, you can instruct the Trustees how to vote the shares of stock that are allocated to your account. If you do not vote your shares, the Trustees will vote them in proportion to those shares for which they have received voting instructions. Likewise, the Trustees will vote shares held by the trust that have not been allocated to any account in the same manner.

How do I vote by proxy?

Most shareholders can vote by proxy in three ways:

 

   

By Internet—You can vote by Internet by following the instructions in the Notice or by accessing the Internet at www.proxyvote.com and following the instructions contained on that website;

 

   

By Telephone—In the United States and Canada you can vote by telephone by following the instructions in the Notice or by calling 1-800-690-6903 (toll free) and following the instructions; or

 

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By Mail—You can vote by mail by requesting a full packet of proxy materials be sent to your home address. Upon receipt of the materials, you may fill out the enclosed proxy card and return it per the instructions on the card.

Please see the Notice or the information your bank, broker or other holder of record provided you for more information on these options.

If you authorize a proxy to vote your shares over the Internet or by telephone, you should not return a proxy card by mail (unless you are revoking your proxy).

If you vote by proxy, your shares will be voted at the annual meeting in the manner you indicate on your proxy card. If you sign your proxy card but do not specify how you want your shares to be voted, they will be voted as the Board of Directors recommends.

Can I change or revoke my vote after I return my proxy card?

Yes. You can change or revoke your proxy by Internet, telephone or mail at any time before the annual meeting or by attending the annual meeting and voting in person.

Can I vote in person at the annual meeting instead of voting by proxy?

Yes. However, we encourage you to vote your proxy by Internet, telephone or mail prior to the meeting.

Voting Procedures

Election of Directors—Each of the thirteen nominees for Director who receive a majority of votes cast will be elected as a member of the Board of Directors. A “majority of votes cast” means that the number of shares cast “for” a nominee must exceed the number of votes cast “against” that nominee. Abstentions and broker non-votes will have no effect. Pursuant to the By Laws of the Board of Directors, if a non-incumbent nominee for Director receives a greater number of votes cast “against” than votes cast “for” such nominee, such nominee shall not be elected as a member of the Board of Directors. Any incumbent nominee for Director who receives a greater number of votes cast “against” than votes cast “for” such nominee shall continue to serve on the Board pursuant to Ohio law, but shall immediately tender his or her resignation as a Director to the Board of Directors. Within 90 days, the Board will decide, after taking into account the recommendation of the Governance & Public Responsibility Committee (in each case excluding the nominee in question), whether to accept the resignation. Absent a compelling reason for the Director to remain on the Board, the Board of Directors shall accept the resignation. The Board’s explanation of its decision shall be promptly disclosed on a Form 8-K submitted to the SEC.

Board Proposal to amend the Company’s Code of Regulations—The affirmative vote of a majority of the Company’s issued and outstanding shares is required for adoption. Accordingly, abstentions and broker non-votes have the same effect as votes against these proposals.

Board Proposal to approve The Procter & Gamble 2009 Stock and Incentive Compensation Plan—The affirmative vote of a majority of shares participating in the voting on this proposal is required for adoption. Abstentions and broker non-votes will not be counted as participating in the voting, and will therefore have no effect.

Other Proposals—The affirmative vote of a majority of shares participating in the voting on each proposal is required for adoption. Abstentions and broker non-votes will not be counted as participating in the voting, and will therefore have no effect.

 

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Who pays for this proxy solicitation?

The Company does. We have hired Georgeson Shareholder Communications, Inc., a proxy solicitation firm, to assist us in soliciting proxies for a fee of $22,000 plus reasonable expenses. In addition, Georgeson and the Company’s Directors, officers, and employees may also solicit proxies by mail, telephone, personal contact, email or other online methods. We will reimburse their expenses for doing this.

We will also reimburse brokers, fiduciaries and custodians for their costs in forwarding proxy materials to beneficial owners of Company stock. Other proxy solicitation expenses that we will pay include those for preparing, mailing, returning and tabulating the proxies.

 

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Election of Directors

All of the Board’s nominees for Director are incumbent nominees who will be elected for a one-year term. Kenneth I. Chenault, Scott D. Cook, Rajat K. Gupta, A. G. Lafley, Charles R. Lee, Lynn M. Martin, W. James McNerney, Jr., Johnathan A. Rodgers, Ralph Snyderman, Patricia A. Woertz and Ernesto Zedillo were elected for one year terms at the 2008 annual meeting. Robert A. McDonald was appointed to the Board effective July 1, 2009, and Mary Agnes Wilderotter was appointed to the Board effective August 11, 2009. The terms of all nominees for Director will expire at the 2009 annual meeting. The Board has nominated each of these individuals for new terms that will expire at the 2010 annual meeting.

Each of the nominees for Director has accepted the nomination and agreed to serve as a Director if elected by the Company’s shareholders. If any nominee becomes unable or unwilling to serve between the date of the proxy statement and the annual meeting, the Board may designate a new nominee and the persons named as proxies will vote for that substitute nominee.

The Board of Directors recommends a vote FOR Kenneth I. Chenault, Scott D. Cook, Rajat K. Gupta, A. G. Lafley, Charles R. Lee, Lynn M. Martin, Robert A. McDonald, W. James McNerney, Jr., Johnathan A. Rodgers, Ralph Snyderman, Mary Agnes Wilderotter, Patricia A. Woertz and Ernesto Zedillo as Directors to hold office until the 2010 annual meeting of shareholders and until their successors are elected.

 

Nominees for Election as Directors with Terms Expiring in 2010

 

LOGO

   Kenneth I. Chenault    Director since 2008
  

Mr. Chenault is Chairman and Chief Executive Officer of the American Express Company (financial services). He is also a Director of International Business Machines Corporation. Age 58.

 

Member of the Audit and Compensation & Leadership Development Committees.

  
  
  
  

LOGO

   Scott D. Cook    Director since 2000
  

Mr. Cook is Chairman of the Executive Committee of the Board of Intuit Inc. (software and web services). He is also a Director of eBay Inc. Age 57.

 

Member of the Compensation & Leadership Development and Innovation & Technology Committees.

  
  
  
  

 

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LOGO

   Rajat K. Gupta    Director since 2007
  

Mr. Gupta is Senior Partner Emeritus at McKinsey & Company (international consulting). He is also a Director of American Airlines, Genpact, Ltd., The Goldman Sachs Group, Inc., Harman International Industries, Inc. and Sberbank. Age 60.

 

Member of the Audit and Innovation & Technology Committees.

  
  
  

 

LOGO

   A. G. Lafley    Director since 2000
  

Mr. Lafley is Chairman of the Board and former Chief Executive Officer of the Company. He is also a Director of General Electric Company. Age 62.

  
  
  
  
  
  
  
  

LOGO

   Charles R. Lee    Director since 1994
  

Mr. Lee is retired Chairman of the Board and Co-Chief Executive Officer of Verizon Communications Inc. (telecommunication services). He is also a Director of The DIRECTV Group, Inc., Marathon Oil Corporation, United Technologies Corporation and U.S. Steel Corporation. Age 69.

 

Chair of the Audit Committee and member of the Compensation & Leadership Development Committee.

  
  
  

LOGO

   Lynn M. Martin    Director since 1994
  

Ms. Martin is a former Professor at the J. L. Kellogg Graduate School of Management, Northwestern University and former Chair of the Council for the Advancement of Women and Advisor to the firm of Deloitte & Touche LLP for Deloitte’s internal human resources and minority advancement matters. She is also a Director of AT&T Inc., Ryder System, Inc., Dreyfus Funds and Constellation Energy Group, Inc. Age 69.

 

Member of the Governance & Public Responsibility and Innovation & Technology Committees.

  
  

 

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LOGO

   Robert A. McDonald    Director since 2009
  

Mr. McDonald is the President and Chief Executive Officer of the Company. He was appointed to the Board effective July 1, 2009. He is also a Director of Xerox Corporation. Age 56.

  
  
  
  
  
  

 

LOGO

   W. James McNerney, Jr.    Director since 2003
  

Mr. McNerney is Chairman of the Board, President and Chief Executive Officer of The Boeing Company (aerospace, commercial jetliners and military defense systems). Age 60.

 

Presiding Director, Chair of the Compensation & Leadership Development Committee and member of the Governance & Public Responsibility Committee.

  
  
  
  

LOGO

   Johnathan A. Rodgers    Director since 2001
  

Mr. Rodgers is President and Chief Executive Officer of TV One, LLC (media and communications). He is also a Director of Nike, Inc. Age 63.

 

Member of the Innovation & Technology Committee.

  
  
  
  
  
  

LOGO

   Ralph Snyderman, M.D.    Director since 1995
  

Dr. Snyderman is Chancellor Emeritus, James B. Duke Professor of Medicine at Duke University. He is also a Director of Targacept, Inc. and a Venture Partner of New Enterprise Associates. Age 69.

 

Chair of the Innovation & Technology Committee and member of the Audit Committee.

  
  
  
  

 

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LOGO

   Mary Agnes Wilderotter    Director since 2009
  

Ms. Wilderotter is Chairman of the Board, President and Chief Executive Officer of Frontier Communications Corporation (a communications company specializing in providing services to rural areas and small and medium-sized towns and cities). Ms. Wilderotter was appointed to the Board on August 11, 2009. She is also a Director of Xerox Corporation and Yahoo! Inc. Age 54.

 

Member of the Compensation & Leadership Development and Governance & Public Responsibility Committees.

  

 

LOGO

   Patricia A. Woertz    Director since 2008
  

Ms. Woertz is Chairman, Chief Executive Officer and President of Archer Daniels Midland Company (agricultural processors of oilseeds, corn, wheat and cocoa). Age 56.

 

Member of the Audit and Governance & Public Responsibility Committees.

  
  
  
  
  

LOGO

   Ernesto Zedillo    Director since 2001
  

Dr. Zedillo is the former President of Mexico, Director of the Center for the Study of Globalization and Professor in the field of International Economics and Politics at Yale University. He is also a Director of Alcoa Inc. Age 57.

 

Chair of the Governance & Public Responsibility Committee and member of the Innovation & Technology Committee.

  
  
  

Messrs. Chenault, Lafley, McDonald and Rodgers have been executive officers of their respective employers for more than the past five years. Messrs. Cook and Lee have been retired from executive officer positions with their respective former employers for more than the past five years.

Mr. Gupta was named Senior Partner Emeritus at McKinsey & Company in 2007, where he previously held the positions of Senior Partner Worldwide and Managing Director. Ms. Martin was a Professor at Northwestern University from 1993 until her retirement in 1999. Mr. McNerney was Chairman of the Board and Chief Executive Officer of 3M Company from 2001 until July 2005. Dr. Snyderman previously served as Chancellor for Health Affairs and Dean of the Duke University School of Medicine from 1985 until 2004. Ms. Wilderotter has served as President and Chief Executive Officer of Frontier Communications Corporation since November 2004 and previously served as Senior Vice President – Worldwide Public Sector of Microsoft Corporation from February 2004 to November 2004. Ms. Woertz was Executive Vice President of Chevron Texaco from 2001 until 2006. Dr. Zedillo was President of Mexico from 1994 until 2000.

 

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The Board of Directors

The Board of Directors has general oversight responsibility for the Company’s affairs pursuant to Ohio’s General Corporation Law, the Company’s Amended Articles of Incorporation and Code of Regulations and the Board of Directors’ By Laws. In exercising its fiduciary duties, the Board of Directors represents and acts on behalf of the Company’s shareholders. Although the Board of Directors does not have responsibility for the day-to-day management of the Company, it stays informed about the Company’s business and provides guidance to Company management through periodic meetings, site visits and other interactions. The Board is deeply involved in the Company’s strategic planning process, leadership development and succession planning. Additional details concerning the role and structure of the Board of Directors are contained in the Board’s Corporate Governance Guidelines, which can be found in the corporate governance section of the Company’s website at www.pg.com/investors.

Committees of the Board

To facilitate deeper penetration of certain key areas of oversight, the Board of Directors has established four committees. Membership on these Committees, as of August 14, 2009, is shown in the following chart:

 

Audit

    

Compensation &

Leadership Development

   Governance &
Public Responsibility
  Innovation & Technology

Mr. Lee*

    

Mr. McNerney*

  

Dr. Zedillo*

 

Dr. Snyderman*

Mr. Chenault

    

Mr. Chenault

  

Ms. Martin

 

Mr. Cook

Mr. Gupta

    

Mr. Cook

  

Mr. McNerney

 

Mr. Gupta

Dr. Snyderman

    

Mr. Lee

  

Ms. Wilderotter

 

Ms. Martin

Ms. Woertz

    

Ms. Wilderotter

  

Ms. Woertz

 

Mr. Rodgers

         

Dr. Zedillo

 

*

Committee Chair

All Directors served on the respective Committees listed above, including Committee Chairs, for the Company’s entire fiscal year, with two exceptions. Dr. Zedillo was appointed Chair of the Governance & Public Responsibility Committee at the February 10, 2009 Board of Director’s meeting, following the resignation of Ms. Margaret C. Whitman from the Board effective December 31, 2008. From July 1, 2008 through December 31, 2008, Ms. Whitman served as a member of the Board of Directors, Chair of the Governance & Public Responsibility Committee and as a member of the Compensation & Leadership Development Committee. Ms. Wilderotter was appointed as a member of the Compensation & Leadership Development and Governance & Public Responsibility Committees effective August 11, 2009.

The Company’s Committee Charter Appendix applies to all Committees and can be found in the corporate governance section of the Company’s website at www.pg.com/investors.

The Audit Committee met nine times during the fiscal year ended June 30, 2009 to carry out its responsibilities under its charter. At all of these meetings, representatives of Deloitte & Touche LLP, the Company’s independent registered public accounting firm, and financial management were present to review accounting, control, auditing and financial reporting matters. During these meetings, the Committee held five sessions where only representatives of Deloitte & Touche, LLP were present and five sessions with only the Company’s Vice President of Internal Audit present. All members of the Committee are independent under the New York Stock Exchange (“NYSE”) listing standards and the Board of Directors’ Guidelines for Determining the Independence of its Members (the “Independence Guidelines,” which can be found in the corporate governance section of the Company’s website at www.pg.com/investors). The Audit Committee has the responsibilities set forth in its charter with respect to the quality and integrity of the Company’s financial statements; the Company’s compliance with legal and regulatory requirements; the Company’s

 

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overall risk management process; the independent registered public accounting firm’s qualifications and independence; the performance of the Company’s internal audit function and the independent registered public accounting firm; preparing the annual Report of the Audit Committee to be included in the Company’s proxy statement; and assisting the Board of Directors and the Company in interpreting and applying the Company’s Worldwide Business Conduct Manual. In addition to these responsibilities, during fiscal year 2008-09, in response to actions taken by external regulatory authorities, the Company launched an internal investigation into potential violations of competition laws in Europe, and the Board assigned the Committee responsibility for the oversight of that investigation. In that capacity, the Committee met four additional times to discuss and review the Company’s internal investigation, as well as the external investigations, during which it held four sessions where no members of management were present. The Audit Committee’s charter can be found in the corporate governance section of the Company’s website at www.pg.com/investors and is attached to this proxy statement as Exhibit A.

The Compensation & Leadership Development Committee met six times during the fiscal year ended June 30, 2009, during which it held five executive sessions with no member of management present. All members of this Committee are independent under the NYSE listing standards and the Independence Guidelines. The Compensation & Leadership Development Committee has a charter, under which it has full authority and responsibility for the Company’s overall compensation policies, their specific application to principal officers elected by the Board of Directors (including review and evaluation of their compensation) and the compensation of the non-employee members of the Board of Directors. This Committee also assists the Board in the leadership development and evaluation of principal officers. As a practical matter, the Chief Executive Officer makes recommendations to the Committee regarding the compensation elements of the principal officers (other than his own compensation) based on Company performance, individual performance and input from Company management and the Committee’s independent compensation consultant. All final decisions regarding compensation for principal officers are made by this Committee. For more details regarding principal officer compensation or this Committee’s process for making decisions regarding the compensation of principal officers, please see the Compensation Discussion and Analysis section of this proxy statement found on pages 18 to 37. This Committee also approves all stock-based equity grants made under The Procter & Gamble 2001 Stock and Incentive Compensation Plan and The Gillette Company 2004 Long-Term Incentive Plan to non-principal officers. This Committee has delegated to the Chief Executive Officer the authority to make equity grants to non-principal officers and determine the specific terms and conditions of such grants within the guidelines set forth by the Committee. This Committee retains an independent compensation consultant, hired directly by the Committee, to advise it regarding executive compensation matters. For more details on this arrangement, please see the section entitled “How is competitiveness established for executive compensation?” found on page 23 of this proxy statement. The Compensation & Leadership Development Committee’s charter can be found in the corporate governance section of the Company’s website at www.pg.com/investors.

The Governance & Public Responsibility Committee met five times during the fiscal year ended June 30, 2009. All members of the Governance & Public Responsibility Committee are independent under the NYSE listing standards and the Independence Guidelines. The Governance & Public Responsibility Committee has the responsibilities set forth in its charter with respect to identifying individuals qualified to become members of the Board of Directors; recommending when new members should be added to the Board; recommending individuals to fill vacant Board positions; recommending the Director nominees for the next annual meeting of shareholders; recommending to the Board whether to accept the resignation of any incumbent Director nominee who received a greater number of “against” votes than “for” votes in a non-contested election; periodically developing and recommending updates to the Board’s Corporate Governance Guidelines; other issues related to Director governance and ethics; evaluation of the Board of Directors and its members; reviewing plans and making recommendations to the Board on the Company’s corporate sustainability efforts (including environmental quality, economic development and corporate social responsibility); and overseeing matters of importance to the Company and its stakeholders, including

 

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employees, consumers, customers, suppliers, shareholders, governments, local communities and the general public. Public responsibility topics considered by this Committee include organization diversity, sustainable development, community and government relations, product quality and quality assurance systems and corporate reputation. The Governance & Public Responsibility Committee’s charter can be found in the corporate governance section of the Company’s website at www.pg.com/investors.

The Innovation & Technology Committee met twice during the fiscal year ended June 30, 2009. The Innovation & Technology Committee has the responsibilities set forth in its charter with respect to overseeing and providing counsel on matters of innovation and technology. Topics considered by this Committee include the Company’s approach to technical and commercial innovation; the innovation and technology acquisition process; and tracking systems important to successful innovation. The Innovation & Technology Committee’s charter can be found in the corporate governance section of the Company’s website at www.pg.com/investors.

Board and Committee Meeting Attendance

During the fiscal year ended June 30, 2009, the Board of Directors held seven meetings and the Committees of the Board of Directors held 26 meetings for a total of 33 meetings. Average attendance at these meetings by members of the Board during the past year exceeded 95%. All Directors attended greater than 88% of the meetings of the Board and the Committees on which they serve, except for Mr. Cook, who was only able to attend 73% of the meetings due to prior commitments.

Corporate Governance

Corporate Governance Guidelines

The Board of Directors has adopted Corporate Governance Guidelines to set forth its commitments and guiding principles concerning overall governance practices. These guidelines can be found in the corporate governance section of the Company’s website at www.pg.com/investors.

Director Independence

The Board of Directors has determined that the following Directors are independent under the NYSE listing standards and the Independence Guidelines because they have either no relationship with the Company (other than being a Director and shareholder of the Company) or only immaterial relationships with the Company: Kenneth I. Chenault, Scott D. Cook, Rajat K. Gupta, Charles R. Lee, Lynn M. Martin, W. James McNerney, Jr., Ralph Snyderman, Mary Agnes Wilderotter, Patricia A. Woertz and Ernesto Zedillo. In addition, Ms. Whitman was independent during the period in which she served as Director. As noted previously, all members of the Board’s Audit, Compensation & Leadership Development and Governance & Public Responsibility Committees are independent.

In making these independence determinations, the Board applied the NYSE listing standards and the categorical independence standards contained in the Independence Guidelines. Under the Independence Guidelines, certain relationships were considered immaterial and, therefore, were not considered by the Board in determining independence but were reported to the Chair of the Governance & Public Responsibility Committee. Applying the NYSE listing standards and the Independence Guidelines, the Board determined that there are no transactions, relationships or arrangements that would impair the independence or judgment of any of the directors deemed independent by the Board.

Effective July 1, 2009, Mr. Lafley moved full-time into the role of Chairman of the Board and Mr. McDonald was elected President and Chief Executive Officer of the Company. As such, they cannot be

 

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deemed independent under the NYSE listing standards and the Independence Guidelines. Mr. Rodgers is the President and CEO of TV One, LLC, a cable television network. The Board has declared Mr. Rodgers not independent under the Independence Guidelines, which contain a three-year look-back provision, because during 2006, the Company paid TV One, LLC for advertising time in an amount that exceeded 2% of TV One, LLC’s gross revenue for that year.

Code of Ethics

For a number of years, the Company has had a code of ethics for its employees. The most recent version of this code of ethics, which is consistent with SEC regulations and NYSE listing standards, is contained in the Worldwide Business Conduct Manual, which applies to all of the Company’s employees, officers and Directors, and is available on the Company’s website at www.pg.com. The Worldwide Business Conduct Manual is firmly rooted in the Company’s long-standing Purpose, Values and Principles, which can also be found on the Company’s website at www.pg.com. During the fiscal year ended June 30, 2009, the Company continued its deployment of the Worldwide Business Conduct Manual throughout the Company in 29 different languages, including online training.

Review and Approval of Transactions with Related Persons

The Company’s Worldwide Business Conduct Manual requires that all employees and Directors disclose all potential conflicts of interest and promptly take actions to eliminate any such conflict when the Company requests. In addition, the Company has adopted a written Related Person Transaction Policy that prohibits any of the Company’s executive officers, Directors or any of their immediate family members from entering into a transaction with the Company, except in accordance with the policy.

Under our Related Person Transaction Policy, the Chief Legal Officer is charged with primary responsibility for determining whether, based on the facts and circumstances, a related person has a direct or indirect material interest in a proposed transaction. To assist the Chief Legal Officer in making this determination, the policy sets forth certain categories of transactions that are deemed not to involve a direct or indirect material interest on behalf of the related person. If, after applying these categorical standards and weighing all of the facts and circumstances, the Chief Legal Officer determines that the related person would have a direct or indirect material interest in the transaction, the Chief Legal Officer must present the proposed transaction to the Audit Committee for review or, if impracticable under the circumstances, to the Chair of the Audit Committee. The Audit Committee must then either approve or reject the transaction in accordance with the terms of the policy. In the course of making this determination, the Audit Committee shall consider all relevant information available to it and, as appropriate, must take into consideration the following:

 

   

Whether the proposed transaction was undertaken in the ordinary course of business of the Company;

 

   

Whether the proposed transaction was initiated by the Company or the related person;

 

   

Whether the proposed transaction contains terms no less favorable to the Company than terms that could have been reached with an unrelated third party;

 

   

The purpose of, and the potential benefits to the Company of, the proposed transaction;

 

   

The approximate dollar value of the proposed transaction, particularly as it involves the related person;

 

   

The related person’s interest in the proposed transaction; and

 

   

Any other information regarding the related person’s interest in the proposed transaction that would be material to investors under the circumstances.

 

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The Audit Committee may only approve the proposed transaction if it determines that the transaction is not inconsistent with the best interests of the Company as a whole. Further, in approving any such transaction, the Audit Committee has the authority to impose any terms or conditions it deems appropriate on the Company or the related person. Absent this approval, no such transaction may be entered into by the Company with any related person.

Mr. Jon R. Moeller, the Company’s Chief Financial Officer, is married to Lisa Sauer, a long-tenured employee of the Company who currently holds the position of Vice President—Global Product Supply, Purchases, Organic Materials. Her total compensation in the last year was approximately $750,000, consisting of salary, bonus, equity grants and retirement benefits. Her compensation is consistent with the Company’s overall compensation principles based on her years of experience, performance and position within the Company. Prior to Mr. Moeller becoming Chief Financial Officer, the Audit Committee approved the continued employment of Ms. Sauer with the Company under the Company’s Related Person Transaction Policy, concluding that her continued employment was not inconsistent with the best interests of the Company as a whole.

Other than as noted above, there were no transactions, nor are there any currently proposed transactions, in which the Company or any of its subsidiaries was or is to be a participant, the amount involved exceeded $120,000, and any Director, Director nominee, executive officer or any of their immediate family members had a direct or indirect material interest reportable under applicable SEC rules or that required approval of the Audit Committee under the Company’s Related Person Transaction Policy.

Presiding Director and Executive Sessions

Upon recommendation of the Governance & Public Responsibility Committee, the non-employee members of the Board of Directors reappointed W. James McNerney, Jr. to serve as the Presiding Director for fiscal year 2009-10. Mr. McNerney began his service as Presiding Director on August 14, 2007. The Presiding Director acts as the key Board liaison with the Chief Executive Officer, assists in setting the Board agenda, chairs the executive sessions of the Board and communicates the Board of Directors’ feedback to the Chief Executive Officer.

The non-employee members of the Board of Directors met six times during fiscal year 2008-09 in executive session (without the presence of employee Directors or other employees of the Company) to discuss various matters related to the oversight of the Company, the management of Board affairs, succession planning for the Company’s top management (including the Chief Executive Officer position), and the Chief Executive Officer’s performance. It also met in semi-executive session (with the Chief Executive Officer present for portions of the discussion) on five occasions.

Communication with Directors and Executive Officers

Shareholders and others who wish to communicate with the Board of Directors or any particular Director, including the Presiding Director, or with any executive officer of the Company, may do so by writing to the following address:

[Name of Director(s)/Executive Officer or “Board of Directors”]

The Procter & Gamble Company

c/o Secretary

One Procter & Gamble Plaza

Cincinnati, OH 45202-3315

All such correspondence is reviewed by the Secretary’s office, which logs the material for tracking purposes. The Board of Directors has asked the Secretary’s office to forward to the appropriate Director(s) all correspondence, except for items unrelated to the functions of the Board of Directors, business solicitations, advertisements and materials that are profane.

 

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Availability of Corporate Governance Documents

In addition to their availability on the Company’s website at www.pg.com, copies of all Committee Charters, the Committee Charter Appendix, the Corporate Governance Guidelines, the Independence Guidelines, the Worldwide Business Conduct Manual, the Company’s Purpose, Values and Principles and the Related Person Transaction Policy are available in print upon request by writing to the Company Secretary at One Procter & Gamble Plaza, Cincinnati, OH 45202-3315.

Shareholder Recommendations of Board Nominees and Committee Process for Recommending Board Nominees

The Governance & Public Responsibility Committee will consider shareholder recommendations for candidates for the Board, which should be submitted to:

Chair of the Governance & Public Responsibility Committee

The Procter & Gamble Company

c/o Secretary

One Procter & Gamble Plaza

Cincinnati, OH 45202-3315

Shareholder recommendations should include the name of the candidate, as well as relevant biographical information. The minimum qualifications and preferred specific qualities and skills required for Directors are set forth in Article II, Sections B through E of the Board’s Corporate Governance Guidelines. The Committee considers all candidates using these criteria, regardless of the source of the recommendation. The Committee’s process for evaluating candidates includes the considerations set forth in Article II, Section B of the Committee’s Charter. After initial screening for minimum qualifications, the Committee determines appropriate next steps, including requests for additional information, reference checks and interviews with potential candidates. In addition to shareholder recommendations, the Committee also relies on recommendations from current Directors, Company personnel and others. From time to time, the Committee may engage the services of outside search firms to help identify candidates. During the fiscal year ended June 30, 2009, no such engagement existed (and none currently exists), and no funds were paid to outside parties in connection with the identification of nominees. All nominees for election as Directors who currently serve on the Board are known to the Committee and were recommended by the Committee to the Board as Director nominees. Ms. Wilderotter was recommended to the Governance & Public Responsibility Committee by various non-employee members of the Board of Directors, the Chief Executive Officer and other executive officers.

Annual Meeting Attendance

The Board’s expectation is that all its members attend the annual meeting of shareholders. All Directors, except Scott D. Cook who was unavailable due to personal reasons, attended the 2008 annual meeting.

 

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Director Compensation

The following table and footnotes provide information regarding the compensation paid to the Company’s non-employee Directors in fiscal year 2008-09. Directors who are employees of the Company receive no compensation for their services as Directors.

Director Compensation Table

 

     Fees                      

Name1

 

  Annual
Retainer
($)
 

Committee
Meeting
Fees

($)

  Committee
Chair Fees2
($)
 

Total Fees
Earned or Paid
in Cash

($)

    Stock
Awards3
($)
  All
Other
Compen-
sation4
($)
 

Total

($)

Kenneth I. Chenault

  100,000   34,000   0   134,000 5    125,000   215   259,215

Scott D. Cook

  100,000   12,000   0   112,000 6    125,000   215   237,215

Rajat K. Gupta

  100,000   30,000   0   130,000      125,000   215   255,215

Charles R. Lee

  100,000   38,000   15,000   153,000      125,000   215   278,215

Lynn M. Martin

  100,000   14,000   0   114,000      125,000   120   239,120

W. James McNerney, Jr.

  100,000   22,000   10,000   132,000 7    125,000   120   257,120

Johnathan A. Rodgers

  100,000   4,000   0   104,000 8    125,000   120   229,120

Ralph Snyderman

  100,000   30,000   10,000   140,000 9    125,000   215   265,215

Margaret C. Whitman

  50,000   8,000   5,000   63,000      0   120   63,120

Patricia A. Woertz

  100,000   36,000   0   136,000      125,000   120   261,120

Ernesto Zedillo

  100,000   12,000   5,000   117,000 10    125,000   120   242,120

 

1

Mary Agnes Wilderotter was appointed to the Board effective August 11, 2009 and therefore did not receive any compensation during fiscal year 2008-09.

2

The Committee Chair Fee for Ms. Whitman, who was Chair of the Governance & Public Responsibility Committee until her resignation from the Board on December 31, 2008, was prorated for July through December 2008. The Committee Chair Fee for Dr. Zedillo, who was named Chair of the Governance & Public Responsibility Committee at the Board of Directors meeting on February 10, 2009, was prorated for February through June 2009.

3

This grant date fair value of the restricted stock units (RSUs) awarded is recognized in the fiscal year for financial statement reporting purposes in accordance with Statement of Financial Accounting Standards 123, as revised (SFAS 123(R)). Because Ms. Whitman resigned from the Board effective December 31, 2008, she forfeited her 2008 award in accordance with the terms of The Procter & Gamble 2003 Non-Employee Directors’ Stock Plan. As of the end of fiscal year 2008-09:

  a.

Mr. Chenault has 3,433 unvested stock awards outstanding.

  b.

Mr. Cook has 16,587 unvested stock awards outstanding and 10,674 option awards outstanding.

  c.

Mr. Gupta has 3,835 unvested stock awards outstanding.

  d.

Mr. Lee has 36,909 unvested stock awards outstanding and 16,712 option awards outstanding.

  e.

Ms. Martin has 18,878 unvested stock awards outstanding and 16,712 option awards outstanding.

  f.

Mr. McNerney has 16,708 unvested stock awards outstanding.

  g.

Mr. Rodgers has 21,306 unvested stock awards outstanding and 6,644 option awards outstanding.

  h.

Dr. Snyderman has 37,188 unvested stock awards outstanding and 16,712 option awards outstanding.

  i.

Ms. Whitman has 10,740 unvested stock awards outstanding.

  j.

Ms. Woertz has 1,996 unvested stock awards outstanding.

  k.

Dr. Zedillo has 16,188 unvested stock awards outstanding and 6,644 option awards outstanding.

Unvested stock awards include RSUs that have not yet delivered in shares and restricted stock for which the restrictions have not lapsed. RSUs earn dividend equivalents which are accrued in the form of additional RSUs each quarter and credited to each Director’s holdings. These RSUs have the same vesting restrictions as the underlying RSUs and are ultimately deliverable in shares. Restricted stock earns cash dividends that are paid quarterly.

4

The All Other Compensation total includes certain costs associated with Directors and their guests (spouse, family member or similar guest) attending Board meetings and/or Board activities. For the December 2008 Board meeting, each Director was encouraged to bring a guest. The Company incurred costs associated with providing a minor commemorative item to the

 

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Directors and certain activities for their accompanying guests. For all other regular Board meetings throughout the fiscal year, Directors were entitled to bring a guest so long as the Director used the Company aircraft to attend the meeting and the guest’s attendance did not result in any incremental aircraft costs. Directors and their guests are also covered under the same insurance policy as all Company employees for accidental death while traveling on Company business (coverage is $750,000 for each Director and $300,000 for a guest). There is no incremental cost to the Company for this benefit. In addition, the Company maintains a Charitable Awards Program for current and retired Directors who were participants prior to July 1, 2003. Under this program, at their death, the Company donates $1,000,000 per Director to up to five qualifying charitable organizations selected by each Director. Directors derive no financial benefit from the program because the charitable deductions accrue solely to the Company. The Company funds this contribution from general corporate assets and made no payments during fiscal year 2008-09. This program was discontinued for any new Director effective July 1, 2003.

5

Mr. Chenault took his fees for the first half of the fiscal year in cash, and for the second half of the fiscal year in retirement restricted stock, which had a grant date fair value of $70,000.

6

Mr. Cook took his fees for the first half of the fiscal year in unrestricted stock which had a grant date fair value of $56,000 and for the second half of the fiscal year in retirement restricted stock, which had a grant date fair value of $56,000.

7

Mr. McNerney took all of his fees for fiscal year 2008-09 in unrestricted stock, which had a grant date fair value of $132,000.

8

Mr. Rodgers took 25% of his fees for fiscal year 2008-09 in cash and 75% of his fees for fiscal year 2008-09 in retirement restricted stock, which had a grant date fair value of $78,000.

9

Dr. Snyderman took his fees for the first half of the fiscal year as retirement restricted stock which had a grant date fair value of $69,000 and for the second half of the fiscal year in cash.

10

Dr. Zedillo took 50% of his retainer as cash and 50% of his retainer as retirement restricted stock, and 100% of his committee fees as cash. The retirement restricted stock had a grant date fair value of $50,000.

The objective of the Compensation & Leadership Development Committee of the Board of Directors is to provide non-employee members of the Board of Directors a compensation package consistent with the median of the Peer Group (as this group is further described on page 23 of this proxy statement). In fiscal year 2008-09, non-employee members of the Board of Directors received the following compensation:

 

   

A grant of restricted stock units (RSUs) on October 14, 2008, following election to the Board at the Company’s 2008 annual meeting of shareholders, with a grant date fair value of $125,000. These units are forfeitable if the Director resigns during the year, will not deliver in shares until at least one year after the Director leaves the Board, and cannot be sold or traded until delivered in shares, thus encouraging alignment with the Company’s long-term interests and the interests of shareholders. These RSUs earn dividend equivalents at the same rate as dividends paid to shareholders;

 

   

An annual retainer fee of $100,000 paid in quarterly increments;

 

   

A committee meeting fee of $2,000 for every Committee meeting attended; and

 

   

An additional annual retainer paid to the Chair of each committee as follows: Chair of the Audit Committee, $15,000; Chairs of the Compensation & Leadership Development, Governance & Public Responsibility and Innovation & Technology Committees, $10,000.

Directors can elect to receive any part of their fees or retainer (other than the grant of RSUs) as cash, retirement restricted stock, or unrestricted stock. The Company did not grant any stock options to Directors in fiscal year 2008-09.

Non-employee members of the Board of Directors must own Company stock and/or RSUs worth six times their annual cash retainer. Except for Mr. Gupta, who was appointed in June 2007, Ms. Woertz, who was appointed in January 2008, Mr. Chenault, who was appointed in April 2008, and Ms. Wilderotter who was appointed in August 2009, all non-employee Directors have already achieved this ownership requirement. Ms. Woertz and Messrs. Gupta and Chenault are on track to achieve this goal within the five-year period established by the Compensation & Leadership Development Committee for achieving this level of ownership.

 

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Report of the Compensation & Leadership Development Committee

The Compensation & Leadership Development Committee of the Board of Directors has reviewed and discussed the following section of this proxy statement entitled “Compensation Discussion and Analysis” with management. Based on this review and discussion, the Committee has recommended to the Board that the section entitled “Compensation Discussion and Analysis” as it appears below, be included in this proxy statement and incorporated by reference into the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2009.

W. James McNerney, Jr. (Chair)

Kenneth I. Chenault

Scott D. Cook

Charles R. Lee

 

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Compensation Discussion and Analysis

Executive Summary

Fiscal year 2008-09 was a challenging year due to the global financial crisis and recession that included record-high commodity costs, a freezing of the U.S. and global credit markets, and unprecedented volatility in world currencies. During the year, U.S. gross domestic product suffered its largest quarterly drop in more than 25 years, and economies in developing markets experienced significant contraction. During this difficult period—the worst economic environment since World War II—we made choices to balance short-term financial results with the Company’s long-term performance.

We continued to invest in research and development and capital spending. We continued to support our brands with appropriate trade and consumer marketing spending. We continued to invest in the future of the business knowing that such decisions would impact our short-term financial results. As a result, organic sales growth was 2% and core earnings per share increased 8%.1 Excluding a negative foreign exchange impact, core EPS grew strong double digits. All-in earnings per share growth, including the successful divestiture of the Company’s coffee business, was 17%. Importantly, free cash flow generation was strong at $11.7 billion.2

We also increased our dividend 10% at a time when many companies reduced or eliminated their dividends. This marks the 119th consecutive year we paid a dividend, and the 53rd consecutive year that we increased the dividend—at an average compound annual growth rate of over 9%. Our stock price outperformed the S&P 500 and the Dow Jones Industrial Average during this period, and we modestly outperformed the S&P 500 Consumer Staples Index. Most importantly, we generally maintained our market share, and we continued to focus on our long-term goals as we positioned the Company to win during these tough times.

Our longstanding compensation principles of supporting the business strategy, paying for performance and paying competitively remain unchanged. Our annual cash and long-term incentive programs link the compensation of our Named Executive Officers to the overall success of the Company. Our fiscal year organic sales and core earnings per share growth results were understandably below our long-term growth goals. As a result, our annual cash incentive program (STAR) paid out at a lower percentage compared with the previous year for all of our Named Executive Officers. Similarly, the first interim payment under our long-term incentive program (BGP) paid at just 25% of target because only one of four performance measures was on track to meet the three-year goals. These lower payouts show that we remain true to our principles—we pay for performance. In addition, the decline of the Company’s stock price this year will obviously affect Named Executive Officers’ compensation. At least 60% of their target annual compensation is directly linked to the performance of our stock. Stock option grants from the prior five fiscal years had no current value as of June 30, 2009 because their exercise price exceeded the Company’s stock price. These numbers clearly show that our shareholders and senior management share an interest in the Company’s long-term growth and success.

Despite the obstacles that we face, we remain focused on the fundamentals that we know are critical to the long-term success of our Company—fundamentals like superior consumer value, innovation, cost and cash discipline and productivity improvement. We are committed to winning the consumer value

 

 

1

Organic sales is a non-GAAP measure of sales that excludes the impacts of acquisitions, divestitures and foreign exchange. Core EPS is a non-GAAP measure of earnings per share that excludes the $0.14 per share net tax benefits from a number of significant adjustments to tax reserves during the fiscal year 2007-08 and the $0.59 per share net impact from the sale of the Company’s coffee business. The net impact from the sale of the coffee business includes the results of the coffee business reflected in discontinued operations, the gain on the sale of the coffee business and incremental restructuring charges incurred to offset the dilutive impact of the coffee divestiture.

2

Free cash flow is defined as operating cash flow less capital spending.

 

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equation every day in every store and every home around the world. Our entire management team is fully engaged and focused on these proven fundamentals that are important in our industry. Why? The answer is simple. We believe these actions will allow us to deliver more products to more consumers in more places around the world, resulting in long-term success for the Company and its shareholders.

We also remain confident that the Company’s compensation programs are appropriately designed to motivate our executives to win during these tough economic times. Our Named Executive Officers showed tremendous leadership in addressing the external crisis over the past year, and are focused on the fundamentals as they work to turn the current external crisis into a long-term advantage for the Company and its shareholders.

What are the Company’s overall compensation principles?

The Compensation & Leadership Development Committee designs and oversees the Company’s compensation policies and approves compensation for all senior officers, including the Named Executive Officers. The Committee has established the following principles for compensating all Company employees:

 

   

Support the business strategy—We align compensation programs with business strategies focused on long-term growth and creating value for shareholders. We motivate executives to overcome challenges, to deliver commitments and to exceed Company goals;

 

   

Pay for performance—We pay higher compensation when goals are exceeded and lower compensation when goals are not met; and

 

   

Pay competitively—We set target compensation to be competitive with other multinational corporations of similar size, value and complexity.

These principles serve the Company well and enable us to deliver strong shareholder value over time. Application of these principles also ensures the development and retention of talented employees who are committed to the Company’s long-term success.

What are the Company’s executive compensation objectives?

The Committee established the following objectives to continue the Company’s history of superior management and leadership:

 

   

Drive superior business and financial performance—Inspire executives to achieve or exceed Company, business unit and individual goals;

 

   

Focus on long-term success—Ensure executives’ accountability for long-term success so the Company continues to provide superior returns for shareholders over time;

 

   

Ownership—Align executives with shareholders’ long-term interests by building significant ownership of Company stock into executive pay programs; and

 

   

Retention—Retain talented executives with demonstrated records of superior performance whose continued employment is key to overall Company success.

Who are the Company’s Named Executive Officers?

The Company’s Named Executive Officers for fiscal year 2008-09 are: A. G. Lafley, Chairman of the Board and Chief Executive Officer; Jon R. Moeller, Chief Financial Officer; Robert A. McDonald, Chief Operating Officer; Werner Geissler, Vice Chairman—Global Operations; E. Dimitri Panayotopoulos, Vice Chairman—Global Household Care; Susan E. Arnold, former President, Global Business Units; and Clayton C. Daley, Jr., Vice Chairman and former Chief Financial Officer.

 

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Effective July 1, 2009, Mr. Lafley stepped down as Chief Executive Officer, and Mr. McDonald became President and Chief Executive Officer. Mr. Lafley will continue as Chairman of the Board. Ms. Arnold and Mr. Daley were no longer executive officers of the Company at fiscal year-end and have announced their intention to retire. Since announcing their retirements, both have continued to report to Mr. Lafley, working on assignments and projects as required.

Throughout this Compensation Discussion and Analysis and the compensation tables that follow, except where noted, we refer to the title of each Named Executive Officer in effect on the last day of the fiscal year, June 30, 2009.

What are the elements of the Company’s executive compensation programs?

The Company achieves its executive compensation objectives through the following programs in which some or all of our Named Executive Officers participate. A more detailed discussion of each program is provided later in this Compensation Discussion and Analysis.

LOGO

How do we assure that compensation keeps executives focused on long-term success?

For our employees, focus on the long-term success of the Company begins at hire and is built over careers which often span decades. Because we have a longstanding practice of building the organization from within, most employees spend their entire career at the Company. Our people are the cornerstone of the Company’s success.

Employee stock ownership has long been an important aspect of the Company’s culture of commitment to long-term success. William Cooper Procter established the Company’s employee stock ownership plan in 1887, and today it is the oldest continuous profit sharing plan of its kind in the United States. For more than 120 years, this innovative plan has connected employees to the Company’s long-term success. The Company makes annual contributions of P&G stock to the retirement accounts of all

 

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U.S.-based employees from the time that they complete their first two fiscal years of service until the end of their careers. Employees think and act like owners from the day they are hired until the day they retire. As a result, those who rise to the senior executive levels in the Company have been focused on the long-term success of the Company from the outset and continue this focus as their equity-based compensation increases over time. Our Named Executive Officers have an average of almost 30 years of service at the Company—long-term careers during which these individuals—first as employees, then as managers, then as senior executives—build shareholder value and benefit from the value they help to create. This is enhanced by talented employees who join the Company through acquisitions.

In addition to PST, the Company makes an annual grant of stock options and RSUs to the Company’s key managers. These awards reinforce the executives’ focus on the long-term success of the Company by tying their personal success to that of other shareholders. Our key managers hold stock options for an average of eight years (five years beyond the vesting date) before they exercise. These behaviors reflect a culture that is focused on, and confident in, the long-term success of the Company.

Many companies use employment contracts for their top executives. Generally, the Committee believes these arrangements are not necessary for our executives because most have spent the majority of their professional careers with the Company, and have developed a focus on the Company’s long-term success.

Ownership and Holding Requirements Focus on Long-Term Success

The Committee established the Executive Share Ownership Program and Stock Option Exercise Holding Requirement Policy to ensure that our most senior executives, including the Named Executive Officers, continue to own and hold a significant amount of Company stock. This aligns management’s interests with shareholders’ interests and further focuses executives on the long-term success of the Company.

The Executive Share Ownership Program requires executives to own shares of Company stock and/or RSUs valued at eight times base salary for the Chief Executive Officer, and five times base salary for the other Named Executive Officers. The Committee reviews the holdings of our Named Executive Officers annually, and in 2009 they each exceeded these requirements with the exception of the newly appointed Chief Financial Officer, who is on track to meet these requirements. The Stock Option Exercise Holding Requirement Policy ensures executives remain focused on sustained shareholder value, even after exercising stock options. Under this policy, the Chief Executive Officer must hold the net shares received from stock option exercises for at least two years, and the other Named Executive Officers must hold such net shares for at least one year after exercise. This policy reinforces our executives’ focus on the long-term business and financial performance of the Company. Incentive plan awards that executives elect to take as stock options instead of cash or unrestricted stock are not subject to the holding requirement.

Finally, to further align our executives with the interests of our shareholders, the Company’s Insider Trading Policy prohibits pledging, collars, short sales, hedging investments and other derivative transactions involving Company stock. Purchases and sales of Company stock by Named Executive Officers can only be made during the one-month period following public earnings announcements or, if outside these window periods, with express permission from the Company’s Chief Legal Officer or in accordance with a previously established trading plan that meets SEC requirements. Only Mr. Lafley currently has such a plan, which began in 2003 and is updated periodically, most recently in May 2007.

 

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The Company Emphasizes Pay for Performance

Our long-term success depends on excellent financial and operational performance year after year. Therefore, the Committee ties approximately 75-80% of our senior executives’ compensation to the achievement of short and long-term goals, taking into consideration the individual’s impact on delivering those goals. If short-term and long-term financial and operational goals are not achieved, then performance-related compensation decreases. If goals are exceeded, then performance-related compensation increases.

Moreover, all compensation in the form of Company stock, RSUs or stock options changes in value with changes in the Company’s stock price. Because such a large percentage of the Company’s executive compensation is tied both to performance and to the Company’s stock price, our executives have a significant stake in the long-term success of the Company—just like other shareholders.

The chart below shows that 90% of the Chief Executive Officer’s total compensation was performance-based and a full 78% of his total compensation was paid in stock, RSUs or options—forms of compensation tied to the Company’s stock price. Since becoming Chief Executive Officer in 2000, Mr. Lafley has received 80% of his compensation in equity, and has not sold any of these shares (except those used to pay taxes). On average, 78% of the other Named Executive Officers’ compensation was performance-based and 64% of their total compensation was paid in stock, RSUs or stock options. Tying pay to the Company’s and the individual’s performance, as well as to the Company’s stock price, motivates Company executives to drive superior business and financial performance for the long-term, while retaining talented executives and encouraging stock ownership.

LOGO

 

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LOGO

How is competitiveness established for executive compensation?

The Committee structures executive compensation so that total targeted annual cash and long-term compensation opportunities are competitive with comparable positions at 25 companies considered to be our peers (based on criteria described below) (“Peer Group”). The Committee sets targets for each element of compensation based on the same elements of compensation paid to those holding similar jobs at companies in our Peer Group, focusing on positions with similar management and revenue responsibility. The Committee uses a regression analysis to adjust for the differences in revenue size within the Peer Group. For the Chief Executive Officer, the Committee also reviews a regression analysis adjusting for the differences in market capitalization.

The Peer Group consists of companies that generally meet the following criteria:

 

   

Revenue comparable to the Company ($82 billion in fiscal year 2007-08) and/or market capitalization comparable to the Company (approximately $185 billion as of June 30, 2008);

 

  n  

Peer Group revenues range from $15 billion to $425 billion with a median of $61 billion; and

 

  n  

Peer Group market capitalization ranges from $20 billion to $328 billion with a median of $61 billion.

 

   

Compete with the Company in the marketplace for business and investment capital;

 

   

Compete with the Company for executive talent; and

 

   

Have generally similar pay models (we do not compare with financial services, insurance or gas and electric utility companies where the mix of pay elements or program structure is materially different).

 

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Each year, the Committee evaluates and, if appropriate, updates the composition of the Peer Group to ensure it remains relevant and is not skewed by over-representation of any non-consumer products industry. Changes to the Peer Group are carefully considered and made infrequently to assure continuity from year to year. The Peer Group currently consists of the following companies:

 

 

3M

Altria Group

AT&T

Boeing

Chevron

 

Coca-Cola

Colgate-Palmolive

ConocoPhillips

Du Pont

Exxon Mobil

 

General Electric

Hewlett-Packard

Home Depot

IBM

Johnson & Johnson

 

Kimberly-Clark

Kraft Foods

Lockheed Martin

Merck

PepsiCo

 

Pfizer

Target

United Technologies

Verizon Communications

Wal-Mart Stores

At its annual review in April 2009, the Committee replaced General Motors and Motorola with ConocoPhillips and United Technologies which better fit the Committee’s criteria for market capitalization and pay models.

While Named Executive Officers’ total compensation targets are set consistent with total compensation in our Peer Group, actual compensation varies depending on business unit and individual performance. This may result in substantial differences among the Named Executive Officers’ pay. Consistent with our principles to pay competitively and to pay for performance, the Committee does not set guidelines for the ratio of any one position’s pay to another such as Chief Executive Officer pay relative to other Named Executive Officers.

The Committee has directed Frederic W. Cook & Co., its outside and independent compensation consultant, to advise it on various compensation matters, including peer group identification, competitive practices and trends, specific program design, and Committee actions with respect to principal officer compensation. Under the terms of its agreement with the Committee, Frederic W. Cook & Co. is prohibited from doing any other business for the Company or its management, and the Committee may contact Frederic W. Cook & Co. without any interaction from Company management. This is meant to ensure the independence of the Committee’s compensation consultant. Consistent with the terms of the Committee’s agreement with Frederic W. Cook & Co., the Committee has adopted a policy prohibiting any compensation consultant retained by the Committee from doing any other business for the Company or its management.

Company management uses a separate compensation consultant, Hewitt Associates, to provide compensation advice, competitive survey data and other benchmark information related to trends and competitive practices in executive compensation.

Details regarding each element of executive compensation

Annual Cash Compensation

The building blocks of the Company’s annual cash compensation program are base salary and annual bonus (“STAR”). We collect and analyze data from the Peer Group on the total annual cash compensation (base salary plus annual bonus target) of positions comparable to those at the Company. For each position, we set a target amount for both base salary and STAR, where the STAR Target is the amount payable as a percentage of annual base salary if all goals are met. The sum of the base salary and STAR targets for each position is generally set at the median annual cash compensation of our Peer Group for each position, adjusted for size using a regression analysis of Peer Group revenues.

Base Salary

Base salary provides a competitive fixed rate of pay, recognizing different levels of responsibility within the Company. Salaries are the basis for the other performance-driven programs discussed below, as well as the basis for retirement programs, executive group life insurance and certain benefits available to all employees. On July 1, 2008, Mr. Lafley’s salary was increased for the first time in five years from $1,700,000 to $1,800,000 to more closely align his base salary with chief executive officers in the Peer

 

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Group and to recognize his performance, experience and scope and complexity of leadership responsibilities. Mr. Moeller’s salary was increased to $600,000 when he became the Chief Financial Officer in January 2009 to more closely align his salary with chief financial officers of similar tenure in the Peer Group. The other Named Executive Officers did not receive salary increases during the fiscal year.

STAR Annual Bonus

The STAR bonus program provides an incentive for approximately 14,000 senior managers to achieve and exceed the annual business goals set for the business units and the Company as a whole. The program rewards outstanding business results and pays reduced awards when target business goals are not met. The program primarily focuses on the achievement of business unit results, as well as total Company performance. STAR Awards are paid in cash, RSUs, stock options or deferred compensation, at the executive’s election.

STAR Awards are based on three factors: 1) STAR Target, 2) business unit performance, and 3) total Company performance. By multiplying these factors, as shown in the formula below, both individual business unit and Company performance are recognized. The measures that determine each factor are discussed below. The STAR Award calculation is:

 

    

STAR

Target
($)

 

  

  X  

  

Business Unit
Performance

Factor
(%)

 

  

  X  

 

Total
Company
Performance

Factor
(%)

 

  

  =  

  

STAR

Award
($)

 

   

The basis for each element of the STAR Award is:

 

   

STAR Target—STAR Targets, expressed as a percentage of base salary, are set by the Committee for Named Executive Officers based on the target bonus for similar positions at Peer Group companies. At the beginning of the fiscal year, based on an analysis of annual cash compensation and bonus targets at Peer Group companies, the Committee increased Mr. Lafley’s STAR Target from 170% to 175% of base salary. Mr. Moeller’s STAR Target was 45% for the first six months of the fiscal year and was set at 105% for the last six months of the fiscal year after his promotion to Chief Financial Officer. Ms. Arnold’s and Mr. McDonald’s STAR Targets were increased from 115% to 125% of base salary. Messrs. Geissler and Panayotopoulos had STAR Targets of 90%, consistent with the prior year. Mr. Daley’s STAR Target also remained flat versus the prior year at 115%.

 

   

Business Unit Performance Factor—The Business Unit Performance Factor determined for each business unit ranges from 53% to 167% (with a target level of 100%). The Business Unit Performance Factor has a wider range and the greatest potential impact on the amount of the final award. The targets for each business unit vary, reflecting a variety of factors such as the different industries in which the Company’s businesses compete, their competitive position within those industries and their growth potential. The targets are determined based on the long-term goals in relation to each business’ role in the Company’s portfolio. The Committee carefully considers the metrics used to measure performance to minimize the risk of too much focus on one result to the detriment of building long-term shareholder value. Each Business Unit’s performance against these targets is discussed and evaluated by at least two of the following: the Chairman of the Board, the Chief Executive Officer, the Chief Financial Officer and the Global Human Resources Officer. Based on their review, they provide a recommendation for each Business Unit Performance Factor to the Committee for review and approval. None of these officers participates in the determination or recommendation for any Business Unit Performance Factor that could impact his or her STAR Award. Each Business Unit Performance Factor is determined by:

 

  n  

Quantitative measurements of top-line growth in volume, sales and market share, and bottom-line measures of profit, operating cash flow and operating total shareholder return

 

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(a cash flow return on investment model that measures sales growth, earnings growth and cash flow to determine the rate of return that a business earns); and

 

  n  

Qualitative measures which are retrospective assessments of performance relative to competitors, coordination and collaboration with other Company business units, the quality of business strategy and business model, the strength of the innovation program and portfolio and other considerations such as adherence to ethical standards and response to the external economic environment and unpredictable events like natural disasters.

Fiscal Year 2008-09 Results: The table below summarizes: 1) the primary quantitative measures used to determine each Business Unit Performance Factor, 2) the fiscal year results for those quantitative measures, and 3) the Business Unit Performance Factor recommended to the Committee for each Named Executive Officer other than Messrs. Lafley, Moeller and McDonald. Because the Business Unit Performance Factors are based on retrospective assessments of results in light of all the circumstances impacting the business during the fiscal year, these factors can exceed target even when the Total Company Performance Factor is below target. The Business Unit Performance Factors set forth below are slightly above target, reflecting solid performance by these Business Units despite a very difficult external economic environment.

 

Named Executive
Officer
  Role  

Business Unit Performance

Factor Inputs

  Relevant Results  

Business
Unit
Performance
Factor

(%)

Werner Geissler

  Vice Chairman—Global Operations  

•   Weighted average of performance factors for market development organizations (country organizations and sales forces)

 

•   Organic sales growth of 2%

 

•   Solid earnings growth excluding the impact of foreign currencies

  101%

E. Dimitri Panayotopoulos

  Vice Chairman— Household Care  

•   Weighted average of the Household Care businesses

 

•   Organic sales growth of 4%

 

•   Strong earnings growth excluding the impact of foreign currencies

  121%

Susan E. Arnold

  Former President— Global Business Units  

•   Weighted average of all three GBU results

 

•   Organic sales growth of 2%

 

•   Solid earnings growth excluding the impact of foreign currencies

  105%

Clayton C. Daley, Jr.

  Vice Chairman and Former Chief Financial Officer  

Equal weighting of:

 

•   weighted average of all Business Unit Performance Factors

 

•   assessment of the performance of the Finance & Accounting Corporate Function

 

•   Solid contribution of the Finance & Accounting Corporate Function

  108%

 

   

Total Company Performance Factor—Based on a numeric formula ranging from 80% to 130% (with a target level of 100%), this factor is determined by equally weighting two measures against targets predetermined by the Committee: 1) organic sales growth, and 2) adjusted earnings per share (“Adjusted EPS”) growth. The Committee selected metrics that in combination encourage a balanced focus on both short and long-term results.

Organic sales growth: Organic sales growth excludes the impact of acquisitions, divestitures and foreign exchange. The Committee selected organic sales growth because it drives total shareholder return, is a tangible measure for which managers take ownership and is directly linked to the performance of each business. For fiscal year 2008-09, the target was 5%, which is at the midpoint of the Company’s long-term goal of 4% to 6%.

 

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Adjusted EPS growth: This measure is used in the STAR calculation because it assures continued Company alignment with shareholder interests. The target for fiscal year 2008-09 was 10% Adjusted EPS growth, consistent with the Company’s long-term EPS growth goal.

Fiscal Year 2008-09 Results: Organic sales growth for the Company was 2%, below the 5% target, and Adjusted EPS growth was below target at 6%.1 These two results are equally weighted and, when entered into a formula previously approved by the Committee, derived a Total Company Performance Factor of 80%, which was below the target of 100%.

The recommended STAR Awards for Ms. Arnold and Messrs. Geissler, Panayotopoulos and Daley were set using the multiplicative formula shown and described above. The Committee reviewed the recommendations for the Business Unit Performance Factors and total STAR Awards and considering Company performance results, determined final payments for these Named Executive Officers.

Because they evaluate and recommend Business Unit Performance Factors for the other Named Executive Officers, the STAR Awards for Messrs. Lafley, Moeller and McDonald are determined separately and directly by the Committee. The Committee retains the authority to make no award in a given year and the discretion to accept, modify, or reject management’s recommendations for any or all employees, including the Named Executive Officers.

For fiscal year 2008-09, the combined STAR performance factors resulted in a Company average STAR Award of 82% of STAR Target. For the reasons described below, the Committee awarded Messrs. Lafley, McDonald and Moeller STAR Awards above the Company average.

The Committee concluded that Mr. Lafley should receive a STAR Award of $3,100,000 based largely on his leadership of the Company through a difficult economic period. Though the Company maintained operating margins and delivered strong free cash flow, organic sales and core earnings per share growth were below the Company’s long-term targets resulting in an award slightly below target. The Committee recognized Mr. Lafley’s strategic foresight to invest in capacity, innovation and consumer value so that the Company could emerge from these difficult times poised for future growth. In addition, the Committee rewarded Mr. Lafley for his leadership of the succession planning process and the development of a senior management team ready to lead P&G into the decade ahead. Finally, the Committee acknowledged Mr. Lafley’s role in the seamless transition of his leadership responsibilities to Mr. McDonald and the smooth transitions of several members of the leadership team throughout the year.

The Committee set Mr. McDonald’s STAR Award at $1,125,000 after considering the Business Unit results for each organization that reported to him as Chief Operating Officer, including the Market Development Organizations, Global Business Services and Corporate Functions. The Committee also recognized the outstanding operating results achieved under his leadership even in a difficult external environment. Finally, this award acknowledges his leadership of simplification efforts across the Company that reduced costs and helped to maintain operating margins.

Because Mr. Moeller was appointed Chief Financial Officer in the middle of the fiscal year, the Committee based his award of $388,800 on an assessment of the performance of the Finance & Accounting Corporate Function combined with the average of all Business Unit Performance Factors.

 

1

Consistent with the compensation programs approved by the Committee, 2008-09 Adjusted EPS growth is based on diluted net earnings per share excluding net tax benefits in the prior year related to certain significant adjustments to tax reserves in the U.S. and other countries, the gain on the sale of the Company’s coffee business and the current year impact of incremental restructuring costs incurred to offset the dilutive impact of the sale of the coffee business.

 

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The following shows the actual STAR calculation for each Named Executive Officer:

STAR Annual Bonus

 

Named Executive Officer   STAR
Target
($)
 

Total
Company
Performance

Factor

 

Business
Unit

Performance

Factor

  STAR
Award
($)
  STAR
Award
as % of
Target
 

A. G. Lafley

  3,150,000   Committee Decision Based on Performance   3,100,000   98

Jon R. Moeller

  450,000   Committee Decision Based on Performance   388,800   86

Robert A. McDonald

  1,250,000   Committee Decision Based on Performance   1,125,000   90

Werner Geissler

  783,000   80%   101%   632,664   81

E. Dimitri Panayotopoulos

  819,000   80%   121%   792,792   97

Susan E. Arnold

  1,250,000   80%   105%   1,050,000   84

Clayton C. Daley, Jr.

  1,047,000   80%   108%   904,176   86

Summary of Total Annual Cash Compensation

The total annual cash compensation for each of our Named Executive Officers is the sum of each officer’s base salary and STAR Award and considers the scope and complexity of the business he or she leads. Mr. Lafley’s total annual cash compensation was $4,900,000, which was slightly above the size-adjusted median of actual annual cash compensation of chief executive officers in the Peer Group. The Committee believes this properly compensates Mr. Lafley given his leadership through these challenging economic times. We compare the annual cash compensation of the remaining Named Executive Officers to the median cash compensation of those holding similar roles in the Peer Group, accounting for different responsibilities relative to the size of the business for which each is responsible. On average, the total annual cash compensation of these remaining officers was slightly below the market median, and reflects STAR Awards below target. This calculation does not include Mr. Moeller’s annual cash compensation because he was appointed Chief Financial Officer in the middle of the fiscal year.

Long-Term Incentive Programs

Long-term incentive compensation comprises the majority of total compensation for senior executives and is paid through two programs—the Key Manager Annual Stock Grant and the BGP three-year incentive plan. The Committee establishes an annual target for total long-term compensation consistent with the median, total long-term compensation of comparable positions at Peer Group companies regressed for revenue size. It then allocates this overall target into a target for each of the two programs. BGP allocations are annualized based on salaries at the beginning of each BGP three-year cycle. The amounts allocated to the Key Manager program are established by subtracting these BGP allocations from the median total long-term compensation of similar positions in the Peer Group described above. Actual amounts earned depend upon Company and individual performance.

Key Manager Stock Grant

The Key Manager Stock Grant, which is paid in stock options and RSUs, focuses senior executives’ attention on the long-term performance of the Company and directly links executives’ interests to those of the shareholders. Stock options are not exercisable (do not vest) until three years from the grant and expire ten years from the date of grant. RSUs deliver in shares five years from the date of grant. These restrictions enhance retention because employees who voluntarily resign from the Company during the specified periods prior to retirement forfeit their grants.

 

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Once the Key Manager Grant target is established based on Peer Group competitive data, the Chief Executive Officer recommends specific grants to the Committee for Named Executive Officers based on their individual performance. These recommendations can be up to 50% above or 50% below target. In exceptional cases, no grant will be awarded. The Committee retains full authority to accept, modify or reject these recommendations.

For the 2008-09 fiscal year, the Committee awarded the following grants to the Named Executive Officers. Mr. Moeller’s grant was $1,122,840, recognizing his promotion to Chief Financial Officer and his strong performance as Treasurer prior to that promotion. Mr. McDonald’s grant of $3,822,401 reflects his strong leadership and performance as Chief Operating Officer. Mr. Geissler’s grant of $2,479,945 reflects his leadership and the performance of the Market Development Organizations globally. Mr. Panayotopoulos received a grant of $2,866,803 based on his performance and leadership of the Global Household Care business unit. Ms. Arnold received a grant of $3,344,608 reflecting her experience and leadership in her position as President-Global Business Units as well as the overall performance of the Company’s Global Business Units. Mr. Daley’s grant of $2,727,941 was based on his experience and performance as Chief Financial Officer. Named Executive Officers receive 50% of their respective award in stock options, and the remaining 50% may be taken in stock options or RSUs at the election of the Named Executive Officer.

The Committee determined Mr. Lafley’s Key Manager Grant based on total Company and individual performance as described on pages 34 to 35 of this proxy statement. Mr. Lafley’s Key Manager Grant of $13,526,899 was awarded in 50% RSUs and 50% stock options.

Business Growth Program (“BGP”) Three-Year Incentive

BGP is the second component of the Company’s long-term incentive compensation for its senior executives. It focuses executives on the long-term goals most critical to the overall success of the Company. BGP compensation is contingent upon the achievement of specific Company growth objectives over a three-year performance period. On June 30, 2008, the Company’s current BGP program expired on its own terms. The Committee renewed BGP, incorporating the Company’s current business objectives for the new three-year performance period beginning July 1, 2008 and ending on June 30, 2011 (“Performance Period”). In setting the performance metrics for the new Performance Period, the Committee chose four key drivers of building shareholder value: organic sales growth, before tax operating profit, adjusted earnings per share growth and free cash flow productivity. Utilizing these individual drivers makes each metric more visible to participants, allowing them to focus on delivering each of these important long-term goals.

The three-year BGP Awards are based on the Company’s performance in each of the following four performance categories measured against the three-year performance goals established by the Committee at the beginning of the Performance Period:

 

Performance Category    Description    Three-Year Goal

Organic Sales Growth

   Sales growth that excludes the impact of acquisitions, divestitures and foreign exchange    5% compound annual growth

Before Tax Operating Profit

   Net sales, less the cost of product sold and less selling, general and administrative expense    9% compound annual growth

Adjusted EPS Growth

   Diluted earnings per share growth    10% compound annual growth

Free Cash Flow Productivity

   Operating cash flow, less capital spending, divided by net earnings    95% annually

 

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Basing BGP Awards on these four metrics encourages sound business decisions for the long-term health of the Company and minimizes the risk that participants over-emphasize one success measure to the detriment of others.

At the end of the Performance Period, the Committee determines the Payout Factor for each performance category by comparing the Company’s results to a sliding payout scale ranging from 0%-200%. Using this sliding scale to reward improvements in Company results, as opposed to “all or nothing” three-year goals, discourages participants from taking unnecessary risks to ensure a Final Payment under the program. This aligns the interests of the Named Executive Officers with shareholders by encouraging participants to focus on the long-term performance of the Company over a multi-year period.

The target BGP award for the three-year performance period is six times base salary for the Chief Executive Officer and three times base salary for the other Named Executive Officers. Target BGP awards are based on the participant’s salary at the beginning of the Performance Period or when they enter the program. Because Mr. McDonald was elected Chief Executive Officer effective July 1, 2009, the Committee increased his target BGP award consistent with his new role and salary for years two and three of the Performance Period.

The payout formula for the BGP Award is:

 

       

 1/4 of Target

x

Organic Sales

Payout Factor

    +    

 1/4 of Target

x

Operating Profit

Payout Factor

 

  +  

 

 1/4 of Target

x

EPS Growth

Payout Factor

 

  +  

 

 

 1/4 of Target

x

Free Cash Flow Productivity

Payout Factor

While the BGP payout formula is based on results at the end of the Performance Period, the Committee may make an Interim Payment at the end of year one for any performance category where Company results are on track to meet or exceed the three-year performance goals. At the end of year two, the Committee may make an Interim Payment for each performance category where the Company’s cumulative results for years one and two are on track to meet or exceed the three-year performance goals. For Interim Payments, the Payout Factor for each performance category is 0% if results are not on track and 100% if results are on track to meet or exceed the three-year performance goals. The total amount of any Interim Payment is calculated using these Payout Factors (0% or 100%) in the payout formula above to obtain a total, and then dividing this total by three (since any Interim Payment is based on annual performance against the three-year program). The Committee uses these Interim Payments to even out compensation over the three-year period when performance is on track.

At the end of the third year of the Performance Period, the Final Payment of the BGP Award is calculated by inserting the applicable Payout Factors (from the 0%-200% payout scale) in the above payout formula to obtain a total, and then subtracting any Interim Payments made during the Performance Period. In the unlikely event that total Interim Payments exceed the amount of the BGP Award Final Payment, the Committee will require repayment of any amount overpaid. The Committee may make adjustments for program participants who did not participate for the entire Performance Period and may make any necessary adjustments to the payments pursuant to program accounting guidelines. The Committee retains discretion to reduce or eliminate Final or Interim Payments if it determines that such payments are inconsistent with shareholders’ best interests.

Any Interim Payment will be paid 75% in RSUs and 25% in cash. Any Final Payment will be made in 100% cash. Participants may elect to receive RSUs or deferred compensation instead of cash. BGP RSUs deliver in shares on the day of the Final Payment, if any. Paying a portion of BGP Awards in RSUs aligns

 

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participants with shareholder interests and promotes the retention of key top talent who will forfeit undelivered RSUs if they resign.

Fiscal Year 2008-09 Results

For the first year of the Performance Period, the Company was on track to meet or exceed the three-year performance goals set by the Committee in one out of the four performance categories—free cash flow productivity. As a result, the Interim Payment was 1/4 of 1/3 of the total BGP target award.

 

Performance Category    Target     Result     Payout Factor  

Organic Sales Growth

   +5   +2   0   

Before Tax Operating Profit Growth

   +9   -1 %1    0   

Adjusted EPS Growth

   +10   +6 %2    0   

Free Cash Flow Productivity

   95   101 %3     100

The chart below shows the three-year BGP Target and the first Interim Payment for each Named Executive Officer based on the results above. Mr. McDonald’s Target and Interim Payment were based on his position as Chief Operating Officer for fiscal year 2008-09.

BGP Payment Summary

 

Named Executive Officer

  

Three-year

BGP

Target

($)

   Interim Payment
($)

A. G. Lafley

   10,800,000    900,000

Jon R. Moeller

   1,800,000    150,000

Robert A. McDonald

   3,000,000    250,000

Werner Geissler

   2,610,000    217,500

E. Dimitri Panayotopoulos

   2,730,000    227,500

Susan E. Arnold

   3,000,000    250,000

Clayton C. Daley, Jr.

   2,730,000    227,500

Summary of Total Long-Term Incentive Compensation

Our Named Executive Officers’ total long-term incentive compensation includes the Key Manager Stock Grant and any payments under the three-year BGP. The Committee considers the performance of these individuals in the context of the size and scope of the business that they lead. Mr. Lafley’s total annualized long-term incentive compensation of $14,426,899 (excluding the special equity award described below) was above the 2008 Peer Group median and is a reflection of the performance considerations described on pages 34 to 35 of this proxy statement. On average, the other Named Executive Officers’ total long-term incentive compensation was below the 2008 Peer Group median for long-term incentive compensation for those holding comparable positions. This calculation does not include Mr. Moeller’s long-term incentive compensation because he was appointed Chief Financial Officer in the middle of the fiscal year.

 

1

Consistent with the compensation programs approved by the Committee, 2008-09 before tax operating profit growth from continuing operations excludes the current year impact of incremental restructuring costs to offset the dilutive impact of the sale of the coffee business.

2

Please see footnote 1 on page 27 of this proxy statement for additional information on Adjusted EPS growth.

3

Free cash flow productivity is defined as the ratio of free cash flow to net earnings. Consistent with the program approved by the Committee, this measure of free cash flow productivity excludes the gain on the sale of the coffee business and incremental restructuring charges incurred to offset the dilutive impact of the coffee divesture.

 

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Special Equity Awards

On rare occasions, the Committee makes special equity grants in the form of restricted stock or RSUs to senior executives to assure retention of the talent necessary to manage the Company successfully or to recognize superior performance. In 2008-09 the Committee awarded two special equity grants in the form of RSUs to recognize superior performance by Mr. Lafley and Mr. Daley in connection with one of the largest and most successful transactions in the Company’s history—the acquisition and integration of The Gillette Company. Specifically, the Committee recognized Mr. Lafley’s foresight for initiating the acquisition and his leadership throughout the acquisition and integration process by granting him a $3,500,000 award paid in RSUs on February 27, 2009. These RSUs are forfeitable until August 27, 2009 and will deliver in shares on February 27, 2012. The Committee separately granted Mr. Daley a $1,500,000 award paid in RSUs on August 12, 2008, recognizing the integral role that he played in the valuation, negotiation and acquisition of Gillette as well as his role in the integration of Gillette into P&G. Mr. Daley’s RSUs are forfeitable until August 12, 2010, although retirement prior to that date will not result in forfeiture.

Retirement Programs

PST is the Company’s primary retirement program for U.S.-based employees. PST is a qualified defined contribution plan providing retirement benefits for full-time U.S. employees, including the Named Executive Officers. Under the PST program, each employee’s PST account receives an annual grant of Company stock, upon which dividends are earned. The amount of the stock grant varies based upon individual base salaries and years of service.

Some participants in PST (including the Named Executive Officers) do not receive their full grant due to federal tax limitations and participate in the nonqualified PST Restoration Program. These individuals receive RSUs equal to the difference between the amount granted under PST and what would have otherwise been granted under PST, but for the tax limitations. Participants are vested in their PST accounts after five years and their PST Restoration RSUs are forfeitable until they become eligible for retirement.

We are proud of the way PST and PST Restoration have created ownership at all levels of our Company. We believe these programs continue to serve the Company and its shareholders well by focusing employees on the long-term success of the business. We do not have Special Executive Retirement Programs (“SERP”) for our senior executives. Because the accumulation of retirement benefits for all other U.S. employees is dependent upon the Company’s share price and PST contributions, we believe it is appropriate for the Named Executive Officers to share the same risk and reward.

For non U.S.-based employees, individual country plans provide retirement benefits. In addition, the Company offers the International Retirement Plan (“IRP”) and the Global International Retirement Arrangement which provide supplemental benefits to senior executives who work in multiple countries during their careers. Employees on extended expatriate assignments or who transfer out of their home country on a permanent basis also receive competitive retirement benefits under international retirement plans. Messrs. Geissler and Panayotopoulos participate in these programs.

Executive Benefits

The Company provides limited benefits to certain executives to fulfill particular business purposes. Benefits such as home security systems, secured workplace parking and an annual physical health examination are provided to safeguard Named Executive Officers. While Company aircraft are generally used for Company business only, for security reasons Mr. Lafley is required by the Board to use Company

 

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aircraft for all air travel, including personal travel. To increase executive efficiency, in limited circumstances, Named Executive Officers may travel to outside board meetings on Company aircraft, in which case the Company generally receives some reimbursement from the companies on whose boards our executives serve. In addition, if a Company aircraft flight is already scheduled for business purposes and can accommodate additional passengers, Named Executive Officers and their spouse/guests may join flights for personal travel. To the extent any travel on Company aircraft results in imputed income to the Named Executive Officer, the Company does not provide gross-up payments to cover the Named Executive Officer’s personal income tax due on such imputed income. We also reimburse Named Executive Officers for tax preparation and some financial counseling to focus their attention on Company business and assure accurate personal tax reporting. To remain competitive and retain our top executives, we offer executive group whole life insurance coverage (equal to base salary plus STAR Target). Finally, to further increase executive efficiency, we provide limited local transportation within Cincinnati.

In general, executive benefits make up a very small percentage of total compensation (less than 1%) for the Named Executive Officers. The Company does not gross-up payments to cover personal income taxes that may pertain to any of the executive benefits. The Committee reviews these arrangements regularly to assure they continue to fulfill business needs.

Total Compensation for Named Executive Officers

Given the Company’s emphasis on stock-based compensation and because the SEC requires stock-based compensation to be reported based on what is expensed in our financial statements, we provide the table below to facilitate understanding of the actual compensation awarded to our Named Executive Officers in the fiscal year. The table summarizes all compensation awarded to Named Executive Officers in the fiscal year and reconciles amounts shown in the table to amounts in the Summary Compensation Table that follows this Compensation Discussion and Analysis. Inclusion of this table is not designed to replace the Summary Compensation Table, but rather to reflect the Committee’s decisions about compensation awarded to the Named Executive Officers during the fiscal year and to better illustrate the relationship between compensation and performance for the period reported.

Actual Compensation Awarded 2008-09

 

 

     Actual Compensation Awarded in 2008-09   Adjustments Required for Summary Compensation Table

Name

 

 

Salary

($)

 

STAR

Annual

Bonus

($)

 

Value of

Key

Manager

Award1

($)

 

BGP

Award

($)

 

Special

Equity

Award2

($)

 

PST

Restor-

ation

or IRP

Award

($)

 

Other

Compen-

sation3

($)

 

Total

Compen-

sation

Awarded

($)

 

Plus prior

stock

option

grants

expensed

this FY

($)

 

Plus prior
RS/RSU
grants
expensed
this FY

($)

 

Less 2009
stock
options/

RSUs
to be
expensed
in future
FY

($)

 

Plus tax
and other
payments
for prior
expatriate
assign-
ment

($)

 

Plus
Change
in
Pension
Value

($)

 

Plus
PST
account
adjust-
ments

for
prior
years4

($)

 

Net
Difference

($)

   

Total in
Summary
Compen-
sation
Table

($)

A. G. Lafley

  1,800,000   3,100,000   13,526,899   900,000   3,500,032   346,631   431,891   23,605,453   0   0   0   0   0   0   0      23,605,453

Jon R. Moeller

  550,000   388,800   1,122,840   150,000   0   67,961   53,379   2,332,980   778,208   112,502   935,700   0   0   0   (44,990   2,287,990

Robert A.

  McDonald

  1,000,000   1,125,000   3,822,401   250,000   0   170,005   75,440   6,442,846   0   300,004   0   85,546   0   0   385,550      6,828,396

Werner Geissler

  870,000   632,664   2,479,945   217,500   0   141,311   68,429   4,409,849   0   200,006   0   2,016,249   81,000   98,066   2,395,321      6,805,170
E. Dimitri   Panayotopoulos   910,000   792,792   2,866,803   227,500   0   150,140   82,148   5,029,383   244,607   200,003   0   573,298   0   0   1,017,908      6,047,291

Susan E. Arnold

  1,000,000   1,050,000   3,344,608   250,000   0   170,005   106,937   5,921,550   2,921,858   0   0   0   0   0   2,921,858      8,843,408

Clayton C.

  Daley, Jr.

  910,000   904,176   2,727,941   227,500   1,500,001   150,140   69,954   6,489,712   0   0   300,000   0   0   0   (300,000   6,189,712

 

1

Represents the grant date fair value of the 2009 Key Manager Stock Award determined in accordance with SFAS 123(R).

2

Represents the grant date fair value of Special Equity Awards determined in accordance with SFAS 123(R).

3

Represents total of PST contribution and executive benefits.

4

Represents an adjustment to retirement accounts for grants made in prior years.

 

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Table of Contents

Chief Executive Officer Compensation

Mr. Lafley’s compensation is determined by the Committee using the same principles applied to all Company executives. The Committee’s process for assessing Mr. Lafley’s performance is rigorous and objective, with performance standards based on what is important to the Company’s success. The entire process is supported by the Committee’s independent compensation consultant, Frederic W. Cook & Co.

Mr. Lafley’s total compensation is linked directly to his personal contribution to the Company’s performance. Through STAR and BGP, his compensation is aligned with business strategies and focused on rewarding sustained, long-term growth in shareholder value. Since 2001, under Mr. Lafley’s leadership, Company sales have more than doubled to $79 billion, average reported annual earnings per share growth has been 14%, and the Company has generated about $70 billion in free cash flow. Twenty-three brands and 13 countries each produce over $1 billion in sales. In addition, the Company’s compound annual TSR over the past eight years ranked in the top third of its TSR peer group.

As Chief Executive Officer, Mr. Lafley has accomplished much for the Company, its employees and its shareholders. His accomplishments include a renewed focus on the consumer as boss, an unparalleled pursuit of innovation as the critical driver of long-term growth and the development of the most diverse, experienced and talented leadership team in the Company’s 171 year history.

The Committee primarily considered the following factors in determining Mr. Lafley’s short and long-term incentive compensation in fiscal year 2008-09: 1) the Company’s overall results for the fiscal year; 2) the Company’s compensation principles and objectives as discussed on page 19 of this proxy statement; and 3) the compensation awarded to other chief executives in our Peer Group producing similar results. The Committee also considered Mr. Lafley’s individual performance during the year.

In evaluating Mr. Lafley’s individual performance, the Committee considered the following:

 

   

Balanced decisions during this global recession, focusing on providing consumer value and long- term strategy to continue to build the business;

 

   

Effective and balanced business strategies aimed at delighting the consumer and investing in the future;

 

   

Increased focus on the Company’s capability to innovate, create, and build leading brands;

 

   

Successful management of the transition to Mr. McDonald as the new Chief Executive Officer;

 

   

Leadership of the succession planning process and the development of a senior management team ready to lead P&G into the next decade and beyond;

 

   

Continued focus on employee, customer, supplier and consumer diversity as recognized by several global publications;

 

   

Continued focus on ethical business conduct throughout the Company; and

 

   

External recognition of Mr. Lafley and the Company’s leadership, including notable positions on the lists of:

 

  n  

Business Week’s “World’s Most Innovative Companies”

  n  

Fortune’s “World’s Most Admired” Companies

  n  

Fortune’s “Top Companies for Leaders”

  n  

Chief Executive magazine’s “Top 20 Best Companies for Leaders”

  n  

Barron’s “World’s Most Respected Companies List”

  n  

Barron’s “World’s Best CEOs”

  n  

Global 100 Most Sustainable Corporations in the World

  n  

IRI 2008 New Product Pacesetters: 5 of the top 10 Non-food brands

 

34


Table of Contents

Before making decisions on each element of his total compensation, the Committee reviews a summary of all elements of Mr. Lafley’s total compensation, including base salary, STAR annual bonus, Key Manager Stock Grant, BGP three-year incentive award, any special equity award, unrealized gains from stock options, restricted stock and RSUs, and the cost to the Company of all retirement programs, benefits and executive benefits. Based on its review of this summary and in consultation with its independent compensation consultant, the Committee determined that the individual compensation elements and Mr. Lafley’s total compensation were consistent with his performance.

Additional Information

This additional information may assist the reader in better understanding the Company’s compensation practices and principles.

Role of the Chief Executive Officer in Setting Other Named Executive Officers’ Compensation

The Committee has broad authority over the compensation of the Company’s Named Executive Officers, including the review and evaluation of their total compensation. The Chief Executive Officer makes recommendations to the Committee regarding the annual cash and long-term incentive compensation of the Company’s Named Executive Officers (other than his own) based on Company performance, individual performance and input from the Company’s compensation consultant and the Committee’s independent compensation consultant. All final decisions regarding compensation for Named Executive Officers are made by the Committee.

Tax Gross-Ups

Generally, the Company does not increase payments to any employees, including Named Executive Officers, to cover non business-related personal income taxes. However, certain expatriate allowances, relocation reimbursements and tax equalization payments are made to employees assigned to work outside their home countries, and the Company will cover the personal income taxes due on these items in accordance with expatriate policy. In addition, from time to time, the Company may be required to pay personal income taxes for certain separating executives hired through acquisitions in conjunction with contractual obligations.

Governing Plans, Timing and Pricing of Stock-Based Grants

All grants of stock options, restricted stock and/or RSUs are made under The Procter & Gamble 2001 Stock and Incentive Compensation Plan (as amended) (“2001 Plan”) or The Gillette Company 2004 Long-Term Incentive Plan (“Gillette Plan”). The 2001 Plan was approved by Company shareholders in 2001. The Gillette Plan was approved by Gillette shareholders in 2004 and adopted by the Company in 2005 as part of our merger with The Gillette Company.

Under the current versions of the 2001 Plan and The Gillette Plan, all stock options vest immediately, and all RSUs are immediately deliverable in shares upon a change in control. The purpose of this “single-trigger” vesting provision is to protect employees if a change in control occurs by accelerating the vesting schedule for their outstanding equity awards. The Company is presenting a new stock plan to shareholders for approval which refines this approach (see Exhibit C to this proxy statement). The new plan contains a “second trigger” vesting provision which limits accelerated vesting to involuntary terminations of employment for reasons other than cause and for terminations of employment for good reason when equity awards are assumed as part of a change in control.

With the exception of any Special Equity Awards discussed on page 32, the Company grants stock, RSUs and stock options on dates that are consistent from year to year. If the Committee changes a grant date, it is done in advance and only after careful review and discussion. The Company has never repriced stock options and is not permitted to do so without prior shareholder approval.

 

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Table of Contents

We use the closing price of the Company’s stock on the date of grant to determine the grant price for executive compensation awards. However, because PST uses the value of shares based on the average price of Company stock for the last five days in June, the grants of RSUs made under PST Restoration and IRP follow this same grant price practice. The pre-established grant dates for the programs are as follows: PST Restoration and IRP, first Thursday in August; STAR and BGP, last business day on or before September 15; Key Manager Stock Grants, last business day of February (and, if necessary for corrections, on the last business day on or before May 9).

Recoupment Policy

The Committee has adopted the Senior Executive Officer Recoupment Policy that permits the Company to recoup or “claw back” STAR or BGP payments made to executives in the event of a significant restatement of financial results for any reason. This authority is in addition to the Committee’s authority under the 2001 Plan to suspend or terminate any outstanding stock option if the Committee determines that the participant acted significantly contrary to the best interests of the Company or its subsidiaries.

Deferred Compensation Plan

The Procter & Gamble Company Executive Deferred Compensation Plan (“EDCP”) allows executives to defer receipt of up to 100% of their STAR annual bonus, up to 25% of their interim BGP payments and 100% of their final BGP payment, and/or up to 50% of their annual base salary. Beginning in 2008-09 executives may also elect to convert a portion of their PST Restoration RSUs into notional cash contributions to the EDCP with investment choices that mirror those available to all U.S. employees who participate in the Company’s 401(k) plan. No above-market or preferential interest is credited on deferred compensation, as those terms are defined by the SEC.

Tax Treatment of Certain Compensation

Section 162(m) of the Internal Revenue Code limits the Company deductibility of executive compensation paid to certain Named Executive Officers to $1,000,000 per year, but contains an exception for certain performance-based compensation.

For fiscal year 2008-09, awards granted under the STAR, Key Manager and BGP programs satisfied the performance-based requirements for deductible compensation. The Committee approved award pools for STAR and BGP based on net earnings with a maximum portion of each pool set for each of the Named Executive Officers subject to Section 162(m). The Committee then used its discretion to determine STAR Awards and BGP payments based on Company and business results. Each of the amounts approved for Named Executive Officers subject to Section 162(m) were below the maximums established, and are therefore deductible by the Company.

Company deductibility of compensation was taken into account by the Committee when setting compensation levels for current Named Executive Officers. While the Committee’s general policy is to preserve the deductibility of compensation paid to the Named Executive Officers, the Committee nevertheless authorizes payments that might not be deductible if it believes they are in the best interests of the Company and its shareholders. The Committee determined that it was appropriate to pay Mr. Lafley a competitive base salary of $1,800,000, although $800,000 was not deductible by the Company. Named Executive Officers are eligible for certain grants that may not be deductible by the Company, including Special Equity Awards. In addition, in certain years individuals may receive non-deductible payments resulting from awards made prior to becoming a Named Executive Officer.

 

36


Table of Contents

2009-10 Executive Compensation Changes

Effective July 1, 2009, Mr. McDonald’s base salary was increased to $1,400,000, and his STAR and BGP targets were increased to reflect the formulae for the Chief Executive Officer. As of July 1, 2009, both Messrs. McDonald and Lafley were subject to the same chief executive officer compensation and benefits, philosophies, policies and restrictions.

Mr. Moeller’s salary was increased to $675,000 effective July 1, 2009 to more closely align his compensation to other chief financial officers of similar tenure in the Peer Group.

As further described in this proxy statement on pages 61 to 70, the Board is proposing that Company shareholders approve The Procter & Gamble 2009 Stock and Incentive Compensation Plan, attached here as Exhibit C.

Executive Compensation

The following tables, footnotes and narratives, found on pages 37 to 53, provide information regarding the compensation, benefits and equity holdings in the Company for the Named Executive Officers. The tables reflect each Named Executive Officer’s title as of June 30, 2009.

Summary Compensation

The following table and footnotes provide information regarding the compensation of the Named Executive Officers for the fiscal years shown.

Summary Compensation Table

 

Name and

Principal Position

 

 

Year

 

 

Salary1

($)

 

Bonus2

($)

 

Stock
Awards3

($)

 

Option
Awards4

($)

 

Non-
Equity
Incentive

Plan

Com-

pensation5
($)

 

Change in
Pension

Value and
Nonqualified
Deferred
Com-

pensation
Earnings6
($)

 

All Other
Com-

pensation7
($)

 

Total

($)

A. G. Lafley

  2008-09   1,800,000   3,100,000   11,533,103   6,515,459   225,000   0   431,891   23,605,453

Chairman of the Board

  2007-08   1,700,000   4,000,000   9,139,783   7,782,736   566,100   0   343,791   23,532,410

and Chief Executive Officer

  2006-07   1,700,000   3,500,000   9,230,459   10,327,514   2,601,000   0   376,761   27,735,734

Jon R. Moeller

  2008-09   550,000   388,800   292,963   965,348   37,500   0   53,379   2,287,990

Chief Financial Officer

                                   

Robert A. McDonald

  2008-09   1,000,000   1,125,000   657,509   3,822,401   62,500   0   160,986   6,828,396

Chief Operating Officer

  2007-08   1,000,000   1,640,619   621,575   7,187,889   151,515   0   350,179   10,951,777
    2006-07   910,000   1,064,274   1,147,466   3,484,793   696,150   0   321,591   7,624,274

Werner Geissler

  2008-09   870,000   632,664   1,887,942   1,194,511   54,375   81,000   2,084,678   6,805,170

Vice Chairman—Global Operations

                                   

E. Dimitri Panayotopoulos

Vice Chairman—Global

Household Care

  2008-09

2007-08

  910,000

910,000

  792,792

1,313,164

  520,768

499,579

  3,111,410

2,935,217

  56,875

133,200

  0

0

  655,446

2,241,145

  6,047,291

8,032,305

Susan E. Arnold

  2008-09   1,000,000   1,050,000   357,505   6,266,466   62,500   0   106,937   8,843,408

Former President—Global Business Units

  2007-08

2006-07

  1,000,000

910,000

  1,524,469

946,021

  471,580

1,047,474

  4,346,219

2,445,322

  151,515

696,150

  0

0

  59,487

65,840

  7,553,270

6,110,807

Clayton C. Daley, Jr.

  2008-09   910,000   904,176   2,934,757   1,313,950   56,875   0   69,954   6,189,712

Vice Chairman and Former Chief Financial Officer

  2007-08

2006-07

  910,000

895,000

  1,453,327

1,005,550

  1,262,555

790,604

  2,751,751

4,167,534

  139,860

642,600

  0

0

  66,893

93,761

  6,584,386

7,595,049

 

1

Mr. Moeller’s salary was increased to $600,000 in January 2009.

2

For fiscal year 2008-09, Bonus reflects 2008-09 STAR awards made in the form of cash or deferred compensation. Each Named Executive Officer can elect to take his or her STAR award in cash, deferred compensation, RSUs or stock options. For fiscal year 2008-09, each Named

 

37


Table of Contents
 

Executive Officer elected 100% cash except Mr. Lafley, who elected 100% deferred compensation and Mr. Geissler, who elected 50% cash and 50% deferred compensation. The totals above reflect the amounts earned for fiscal year 2008-09 that will be paid on September 15, 2009.

3

For fiscal year 2008-09, Stock Awards includes any of the 2008-09 BGP award earned in the fiscal year that will be paid in RSUs on September 15, 2009, including 75% of the award required to be paid in RSUs. Stock Awards also includes amounts expensed in the fiscal year for PST Restoration Program awards and IRP awards earned during the fiscal year and granted in the form of RSUs on August 6, 2009. For Mr. Lafley, 2008-09 Stock Awards also includes the amounts expensed in the fiscal year for his February 2009 Key Manager RSU award. For Messrs. Geissler and Daley, 2008-09 Stock Awards includes the amount expensed in the fiscal year for the 50% of each of their Key Manager awards that they elected to take as RSUs. For Messrs. Lafley and Daley, 2008-09 Stock Awards includes amounts expensed during the fiscal year for the Special Equity award of RSUs that each received during the fiscal year. For Messrs. Moeller, McDonald, Geissler, and Panayotopoulos, 2008-09 Stock Awards also includes amounts expensed during the fiscal year for Special Equity awards of restricted stock or RSUs granted to each of them in a prior year. The fair value of these awards is determined in accordance with SFAS 123(R). Please see Note 7 to the Consolidated Financial Statements contained in the Company’s 2009 Annual Report for more information.

4

Option Awards for fiscal year 2008-09 includes the dollar amount recognized for financial statement reporting purposes with respect to fiscal year 2008-09, in accordance with SFAS 123(R). Executives must remain employed for six months after the date of a Key Manager Stock Grant in order to retain the award (“retention period”) and Key Manager option grants vest three years from the date of grant (“vesting period”). For retirement eligible executives, the fair value of the award is fully expensed over the retention period. For executives who become retirement eligible during the vesting period, the fair value of the award is expensed over the longer of the retention period or the period from the grant date until the date of retirement eligibility. For executives not yet retirement eligible and who will not become retirement eligible during the vesting period, the fair value is expensed over the vesting period. Where applicable, amounts expensed during fiscal year 2008-09 for grants made in prior years are also included in this column. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For additional information on the assumptions made in the valuation for the current year awards reflected in this column, please see Note 7 to the Consolidated Financial Statements contained in the Company’s 2009 Annual Report. For information on the valuation assumptions with respect to grants made in prior fiscal years, please see the corresponding note to the Consolidated Financial Statements contained in the Company’s Annual Report in the respective fiscal year. Because Ms. Arnold and Messrs. Lafley, McDonald, Geissler, Panayotopoulos, and Daley received a grant in the January-March quarter and were retirement eligible within the retention period for that grant, the full grant value was expensed over the retention period which fell within the fiscal year and is reflected in the totals above. Because Mr. Panayotopoulos received a portion of his February 2008 Key Manager option grant in the April-June quarter of 2008, half of that grant was expensed in this fiscal year and reflected in the total above. In addition, Ms. Arnold’s total also reflects the portions of prior awards expensed in the fiscal year. Because Mr. Moeller is not yet retirement eligible, the fair value of his award will be expensed over the vesting period. Accordingly, the total above reflects only the portion of the fair value of the current year Key Manager option award that was expensed during the fiscal year, as well as portions of prior awards expensed in the fiscal year.

5

Non-Equity Incentive Plan Compensation for fiscal year 2008-09 includes any portion of the 2008-09 BGP award earned in the fiscal year that will be paid in the form of cash or deferred compensation on September 15, 2009, as elected by the individual Named Executive Officer. Executives must take 75% of their award in RSUs, noted above in the Stock Awards column, and the remaining 25% can be paid in cash, deferred compensation or RSUs. All Named Executive Officers except for Mr. Geissler elected cash for this 25% of their 2008-09 BGP award. Mr. Geissler elected to take the 25% in deferred compensation.

6

Reflects aggregate changes in the actuarial present value of Messrs. Geissler’s and Panayotopoulos’ pension benefits under all defined benefit and actuarial pension plans. The aggregate change in the actuarial present value of Mr. Panayotopoulos’ pension benefits under all plans was ($82,000). None of the other Named Executive Officers has a pension plan. None of the Named Executive Officers had above-market earnings on deferred compensation.

7

Please see the table below for information on the numbers that comprise the All Other Compensation column.

 

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Table of Contents

All Other Compensation

 

Name

 

 

Year

 

 

Retirement
Plan Contri-

butionsi

($)

 

Executive

Group
Life
Insuranceii

($)

 

Flexible
Compensation
Program
Contributionsiii

($)

 

Expatriate,
Relocation
and Tax
Equalization
Paymentsiv

($)

 

Executive
Benefitsv

($)

 

Total

($)

A. G. Lafley

  2008-09

2007-08

2006-07

  50,347

49,052

47,958

  15,199

12,825

10,628

  4,550

4,450

6,400

  0

26,963

63,309

  361,795

250,501

248,466

  431,891

343,791

376,761

Jon R. Moeller

  2008-09   48,405   999   3,975   0   0   53,379

Robert A. McDonald

  2008-09

2007-08

2006-07

  50,347

49,052

47,958

  3,888

3,037

2,397

  4,550

4,450

6,400

  85,546

274,925

254,504

  16,655

18,715

10,332

  160,986

350,179

321,591

Werner Geissler

  2008-09   50,347   2,918   4,550   2,016,249   10,614   2,084,678

E. Dimitri Panayotopoulos

  2008-09

2007-08

  50,347
33,065
  3,743

3,046

  4,550

4,450

  573,298

2,183,852

  23,508

16,732

  655,446

2,241,145

Susan E. Arnold

  2008-09

2007-08

2006-07

  50,347

49,052

47,958

  3,556

2,832

2,230

  4,550

4,450

5,350

  0

0

0

  48,484

3,153

10,302

  106,937

59,487

65,840

Clayton C. Daley, Jr.

  2008-09

2007-08

2006-07

  50,347

49,052

47,958

  4,236

3,447

2,520

  4,550

4,450

6,400

  0

0

0

  10,821

9,944

36,883

  69,954

66,893

93,761

 

i

Amounts contributed by the Company pursuant to PST, a qualified defined contribution plan providing retirement benefits for U.S.-based employees. Named Executive Officers also receive contributions in the form of RSU grants pursuant to the PST Restoration Program or IRP, each nonqualified defined contribution plans. These awards are included in the Stock Awards column of the Summary Compensation Table.

ii

Under the Executive Group Life Insurance Program (“EGLIP”), the Company offers key executives who have substantially contributed to the success and development of the business and upon whom the future of the Company chiefly depends, life insurance coverage equal to salary plus their STAR target. These policies are owned by the Company. Because premium payments are returned to the Company when the benefit is paid out, we believe the annual premiums paid by the Company overstate the Company’s true cost of providing this life insurance benefit. Accordingly, the amounts shown in the table are an average based on Internal Revenue Service tables used to value the term cost of such coverage for calendar year 2008 and calendar year 2009, which reflect what it would cost the executive to obtain the same coverage in a term life insurance policy. The average of the two calendar years was used because fiscal year data is not available. The average of the dollar value of the premiums actually paid by the Company in calendar years 2008 and 2009 under these policies were as follows: Mr. Lafley, $272,736; Mr. Moeller, $14,644; Mr. McDonald, $53,298; Mr. Geissler, $43,548; Mr. Panayotopoulos, $38,590; Ms. Arnold, $54,276; Mr. Daley, $47,002. This program is in addition to any other Company-provided group life insurance in which a Named Executive Officer may enroll that is also available to all employees on the same basis.

iii

Flexible Compensation Program Contributions are given to U.S.-based employees in the form of credits to pay for coverage in a number of benefit plans including, but not limited to, medical insurance and additional life insurance. Employees may also receive unused credits as cash. Credits are earned based on PST years of service.

iv

The Company makes tax equalization payments to cover incremental taxes required to be paid in certain countries in connection with employees’ current and/or prior expatriate assignments. Mr. McDonald’s tax equalization payments resulted from previous assignments in Belgium and Japan. Messrs. Geissler’s and Panayotopoulos’ tax equalization payments resulted from their respective prior expatriate assignments in Switzerland. The total above also includes minor relocation reimbursements paid to Messrs. Geissler and Panayotopoulos in the amounts of $1,263 and $1,211, respectively, in connection with their Company-required relocations to the U.S.

v

The Named Executive Officers are entitled to the following personal benefits: financial counseling (including tax preparation), an annual physical examination, occasional use of a Company car, secure workplace parking and home security and monitoring. While Company aircraft is generally used for Company business only, Mr. Lafley is required to use Company aircraft for all air travel, including travel to outside board meetings and personal travel, pursuant to the Company’s executive security program established by the Board of Directors. While traveling on Company aircraft, Mr. Lafley may bring a limited number of guests (spouse, family member or similar guest) to accompany him. The aggregate incremental aircraft usage costs associated with Mr. Lafley’s personal use of Company aircraft, including the costs associated with travel to outside board meetings not fully reimbursed by the other company, were $346,168 for fiscal year 2008-09 and are included in the total above. Ms. Arnold and Messrs. Moeller, McDonald, Geissler, Panayotopoulos and Daley are permitted to use the Company aircraft for travel to outside board meetings and, if the Company aircraft is already scheduled for business purposes and can accommodate additional passengers, may use it for personal travel and guest accompaniment. Ms. Arnold and Mr. Daley utilized the Company aircraft for travel to outside board meetings and any cost associated with travel to those meetings not fully reimbursed by the other company, is included above. Mr. Panayotopoulos utilized the Company aircraft for personal stops on two different occasions while traveling for business, with only one of the stops resulting in incremental cost to the Company, which is included above. Each of the Named Executive Officers, except Mr. Moeller, utilized the Company aircraft for personal travel and/or guest accompaniment when the aircraft was scheduled for business purposes, but there was no incremental cost to the Company associated with these trips. In addition, the Company holds two or three senior management meetings per year, where the Company allows each executive to bring a guest. In some of these cases, the guest travel costs may be considered incremental or may involve commercial flights. For these meetings, the Company incurred costs associated with providing minor commemorative items, sightseeing and other similar activities for both the executive and the

 

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guest. The incremental costs to the Company for these benefits, other than use of Company aircraft, are the actual costs or charges incurred by the Company for the benefits. The incremental cost to the Company for use of the Company aircraft is calculated by using an hourly rate for each flight hour. The hourly rate is based on the variable operational costs of each flight, including fuel, maintenance, flight crew travel expense, catering, communications and fees, including flight planning, ground handling and landing permits. For any flights that involved mixed personal and business usage, any personal usage hours that exceed the business usage are utilized to determine the incremental cost to the Company. Mr. Lafley also serves on the Board of Directors as the Chairman of the Board, and as such he is a participant in the Company’s Charitable Gifts Program, which does not have an aggregate incremental cost and is more fully described on page 16 of this proxy statement.

The material factors necessary for an understanding of the compensation detailed in the above two tables are described in the Compensation Discussion and Analysis section of this proxy statement and the footnotes to the two tables above.

Grants of Plan-Based Awards

The following table and footnotes provide information regarding grants of equity under Company plans made to the Named Executive Officers during fiscal year 2008-09.

Grants of Plan-Based Awards Table

 

Name  

Grant

Date

   

Compensation
& Leadership
Development
Committee

Action

Date1

    Plan Name2   Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards3
   

Estimated Future Payouts

Under Equity Incentive

Plan Awards3

   

All
Other
Stock
Awards:
Number
of
Shares
or Stock
Units

(#)

   

All Other
Option
Awards:
Number of
Securities
Underlying
Options

(#)

   

Exercise
or Base
Price of
Option
Awards4

($ per

share)

   

Grant

Date
Fair
Value
of Stock
and

Option
Awards5

($)

 
        Threshold     Target     Maximum     Threshold     Target     Maximum          

A. G. Lafley

  02/27/2009      02/10/2009      Key Manager Options6                           n/a      566,177      48.17      6,515,459   
    02/27/2009      02/10/2009      Key Manager RSUs7                           161,765      n/a      n/a      7,011,440   
    02/27/2009      02/10/2009      Special Equity Award8                           72,660      n/a      n/a      3,500,032   
    09/15/2008      08/12/2008      BGP 3-Year RSUs9                           7,848      n/a      n/a      566,155   
    08/07/2008      04/20/2008      PST Restoration RSUs10                           5,190      n/a      n/a      323,648   
    07/01/2008      09/22/2008      BGP 2008-2011   32,400      5,400,000      16,200,000      0      5,400,000      5,400,000                           

Jon R. Moeller

  02/27/2009      02/10/2009      Key Manager Options6                           n/a      97,572      48.17      1,122,840   
    08/07/2008      04/20/2008      PST Restoration RSUs11                           692      n/a      n/a      43,153   
    07/01/2008      09/22/2008      BGP 2008-2011   5,400      900,000      2,700,000      0      900,000      900,000                           

Robert A.

  02/27/2009      02/10/2009      Key Manager Options6                           n/a      332,157      48.17      3,822,401   

  McDonald

  09/15/2008      08/12/2008      BGP 3-Year RSUs12                           2,101      n/a      n/a      151,566   
    08/07/2008      04/20/2008      PST Restoration RSUs13                           2,727      n/a      n/a      170,056   
    07/01/2008      09/22/2008      BGP 2008-2011   19,800      3,750,000      10,350,000      0      2,850,000      2,850,000                           

Werner Geissler

  02/27/2009      02/10/2009      Key Manager Options6                           n/a      103,800      48.17      1,194,511   
    02/27/2009      02/10/2009      Key Manager RSUs7                           29,657      n/a      n/a      1,285,434   
    01/13/2009      —        IRP RSUs14                           1,649      n/a      n/a      98,066   
    09/15/2008      08/12/2008      BGP 3-Year RSUs12                           1,316      n/a      n/a      94,936   
    09/15/2008      08/12/2008      BGP Elected RSUs13                           1,316      n/a      n/a      94,936   
    08/07/2008      04/20/2008      PST Restoration RSUs13                           2,015      n/a      n/a      125,655   
    08/07/2008      04/20/2008      IRP RSUs13                           256      n/a      n/a      15,964   
    07/01/2008      09/22/2008      BGP 2008-2011   7,830      1,305,000      3,915,000      0      1,305,000      1,305,000                           
E. Dimitri   02/27/2009      02/10/2009      Key Manager Options6                           n/a      249,118      48.17      2,866,803   

  Panayotopoulos

  09/15/2008      08/12/2008      BGP 3-Year RSUs12                           1,847      n/a      n/a      133,243   
    08/07/2008      04/20/2008      IRP RSUs13                           2,668              166,376   
    07/01/2008      09/22/2008      BGP 2008-2011   8,190      1,365,000      4,095,000      0      1,365,000      1,365,000                           

Susan E. Arnold

  02/27/2009      02/10/2009      Key Manager Options6                           n/a      290,638      48.17      3,344,608   
    09/15/2008      08/12/2008      BGP 3-Year RSUs12                           2,101      n/a      n/a      151,566   
    08/07/2008      04/20/2008      PST Restoration RSUs13                           2,727      n/a      n/a      170,056   
    07/01/2008      09/22/2008      BGP 2008-2011   9,000      1,500,000      4,500,000      0      1,500,000      1,500,000                           

Clayton C.

  02/27/2009      02/10/2009      Key Manager Options6                           n/a      114,179      48.17      1,313,950   

  Daley, Jr.

  02/27/2009      02/10/2009      Key Manager RSUs7                           32,623      n/a      n/a      1,413,991   
    09/15/2008      08/12/2008      BGP 3-Year RSUs15                           1,939      n/a      n/a      139,879   
    08/12/2008      08/12/2008      Special Equity Award16                           21,325      n/a      n/a      1,500,001   
    08/07/2008      04/20/2008      PST Restoration RSUs10                            2,411      n/a      n/a      150,350   
    07/01/2008      09/22/2008      BGP 2008-2011   8,190      1,365,000      4,095,000      0      1,365,000      1,365,000                           

 

1

Grant dates for equity awards are consistent from year to year, as described on page 35 of this proxy statement.

2

Key Manager Stock Grants and Special Equity Awards were granted in fiscal year 2008-09. BGP awards, PST Restoration Program awards, and IRP RSUs were earned in fiscal year 2007-08 but granted in 2008-09 unless otherwise noted below. For awards granted under BGP, Special Equity, PST Restoration Program and IRP, dividend equivalents are earned at the same rate as dividends paid on the Company's common stock. All references below to delivery of RSUs in shares reflect the current election of the Named Executive Officer and may be changed at a later date, subject to applicable tax rules and regulations.

3

Estimated Future Payouts are required because this is the first year of a new three-year BGP cycle. Payouts may be made in both equity and cash. The threshold, target and maximum payouts under BGP, respectively, are the sum of each as set forth in the equity and non-equity columns above. The threshold represents the minimum payout available under the three-year program. The target represents the payout if all performance goals are met. The maximum represents the highest payout available to participants if all performance goals significantly exceed the targets under the program. Estimated Future Payouts for Mr. McDonald reflect an increased BGP Target resulting from his election as Chief Executive Officer. Estimated Future Payouts for Ms. Arnold and Mr. Daley may be reduced due to pending retirements. For a further description of BGP, please see page 29 of this proxy statement.

 

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Table of Contents
4

The options granted were awarded using the closing price of the Company stock on the date of grant.

5

This column reflects the grant date fair value of each award computed in accordance with SFAS 123(R).

6

These options vest on February 27, 2012 and expire February 27, 2019.

7

These units deliver in shares on February 27, 2014.

8

These units are forfeitable until August 27, 2009 and will deliver in shares on February 27, 2012.

9

These units are forfeitable until September 15, 2011 and will deliver in shares in ten annual installments beginning one year following retirement.

10

These units will deliver in shares in ten annual installments beginning one year following retirement.

11

These units are forfeitable until Mr. Moeller is eligible for retirement, and will deliver in shares one year following retirement.

12

These units are forfeitable until September 15, 2011 at which time they will deliver in shares.

13

These units will deliver in shares one year following retirement.

14

These units will deliver in shares one year following retirement. They represent an adjustment to retirement accounts for grants made in prior years.

15

These units are forfeitable until September 15, 2011 and will deliver in shares in ten annual installments beginning one year following retirement but no earlier than September 15, 2011.

16

These units are forfeitable until August 12, 2010 at which time they will deliver in shares.

 

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Table of Contents

Outstanding Equity at Fiscal Year-End

The following table and footnotes provide information regarding unexercised stock options and stock that has not yet vested as of the end of fiscal year 2008-09.

Outstanding Equity at Fiscal Year-End Table

 

            Option Awards     Stock Awards  

Name

 

 

Grant
Date1

 

   

Number of

Securities
Underlying
Unexercised
Options
Exercisable2

(#)

   

Number of

Securities
Underlying
Unexercised
Options
Unexercisable2

(#)

 

Option
Exercise
Price

($)

   

Option
Expiration
Date

 

   

Number of

Shares or

Units of

Stock That

Have Not
Vested3

(#)

 

Market
Value of
Shares or
Units That
Have Not
Vested4

($)

 

A. G. Lafley

  02/26/1999      33,550         44.2656       02/26/2014              
    07/01/1999      1,908         43.2423      07/01/2014             
    07/09/1999      7,496         42.7329      07/09/2014             
    09/15/1999      83,301         49.4759      09/15/2014             
    07/10/2000      21,720         27.4459      07/10/2015             
    09/15/2000      204,691         31.0118      09/15/2015             
    09/24/2001      384,061   (1)         34.5688      09/24/2016             
    09/13/2002      336,712         45.6625      09/13/2012             
    09/15/2003      97,890         45.9700      09/15/2013             
    02/27/2004      352,917         51.4150      02/27/2014             
    09/15/2004      92,896         56.5150      09/15/2014             
    09/15/2004                    68,041   3,476,895   (3
    09/15/2004                    48,218   2,463,940   (4
    02/28/2005      573,229         53.5950      02/28/2015             
    08/04/2005                    3,189   162,958    
    09/15/2005                    46,918   2,397,510   (7
    09/15/2005                    30,962   1,582,158   (6
    12/01/2005                    129,185   6,601,354    
    02/28/2006      430,441         60.5000      02/28/2016             
    02/28/2006                    69,560   3,554,516    
    08/03/2006                    2,936   150,030    
    09/15/2006                    64,146   3,277,861   (9
    02/28/2007            579,906   63.4900      02/28/2017             
    02/28/2007                    85,313   4,359,494    
    08/02/2007                    5,253   268,428    
    09/14/2007                    38,050   1,944,355   (12
    02/29/2008            480,783   66.1800      02/28/2018             
    02/29/2008                    130,568   6,672,025    
    08/07/2008                    5,094   260,303    
    09/15/2008                    7,622   389,484   (17
    02/27/2009            566,177   48.1700      02/27/2019             
    02/27/2009                    73,289   3,745,068   (18
    02/27/2009                                161,765   8,266,192   (19

Jon R. Moeller

  02/26/1999      2,016         44.2656      02/26/2014             
    07/01/1999      832         43.2423      07/01/2014             
    09/15/1999      7,528         49.4759      09/15/2014             
    02/27/2004      37,722         51.4150      02/27/2014             
    02/28/2005      43,474         53.5950      02/28/2015             
    08/04/2005                    402   20,542    
    12/01/2005                    257   13,133    
    02/28/2006      43,665         60.5000      02/28/2016             
    08/03/2006                    509   26,010    
    10/10/2006                    8,015   409,567   (11
    02/28/2007            58,720   63.4900      02/28/2017             
    08/02/2007                    573   29,280    
    02/29/2008            56,709   66.1800      02/28/2018             
    08/07/2008                    708   36,179    
    02/27/2009                97,572   48.1700      02/27/2019                 

 

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Table of Contents
          Option Awards     Stock Awards  

Name

 

 

Grant Date1

 

   

Number of

Securities
Underlying
Unexercised
Options
Exercisable2

(#)

   

Number of

Securities
Underlying
Unexercised
Options
Unexercisable2

(#)

   

Option
Exercise
Price

($)

   

Option
Expiration
Date

 

   

Number of

Shares or

Units of

Stock That

Have Not
Vested3

(#)

   

Market Value of
Shares or
Units That
Have Not
Vested4

($)

 

Robert A. McDonald

  02/26/1999      14,886         44.2656      02/26/2014             
    09/15/1999      46,256         49.4759      09/15/2014             
    07/10/2000      20,256         27.4459      07/10/2015             
    09/15/2000      161,204         31.0118      09/15/2015             
    09/24/2001      154,210   (2)         34.5688      09/24/2016             
    09/13/2002      161,034         45.6625      09/13/2012             
    09/15/2003      28,284         45.9700      09/15/2013             
    02/27/2004      223,672         51.4150      02/27/2014             
    09/15/2004                    26,542      1,356,296      (5
    02/28/2005      158,597         53.5950      02/28/2015             
    08/04/2005                    3,176      162,294       
    12/01/2005                    14,873      760,010       
    02/28/2006      140,496         60.5000      02/28/2016             
    08/03/2006                    2,880      147,168       
    09/15/2006                    13,405      684,996      (8
    02/28/2007            160,656      63.4900      02/28/2017             
    08/02/2007                    845      43,180       
    09/14/2007                    10,463      534,659      (12
    02/29/2008            264,431      66.1800      02/28/2018             
    08/07/2008                    2,660      135,926       
    09/15/2008                    2,034      103,937      (15
    02/27/2009                332,157      48.1700      02/27/2019                     

Werner Geissler

  02/26/1999      14,626         44.2656      02/26/2014             
    07/09/1999      5,540         42.7329      07/09/2014             
    09/15/1999      43,786         49.4759      09/15/2014             
    07/10/2000      14,378         27.4459      07/10/2015             
    09/15/2000      116,148         31.0118      09/15/2015             
    09/24/2001      101,260   (1)         34.5688      09/24/2016             
    09/13/2002      54,750         45.6625      09/13/2012             
    09/15/2004                    30,158      1,541,074      (4
    02/27/2004      92,388         51.4150      02/27/2014             
    08/04/2005                    3,990      203,889       
    02/28/2005      69,970         53.5950      02/28/2015             
    09/15/2005                    26,455      1,351,851      (6
    12/01/2005                    4,121      210,583       
    02/28/2006      70,248         60.5000      02/28/2016             
    08/03/2006                    2,449      125,144       
    09/15/2006                    16,796      858,276      (9
    10/10/2006                    17,111      874,372      (10
    02/28/2007            94,504      63.4900      02/28/2017             
    08/02/2007                    941      48,085       
    09/14/2007                    6,296      321,726      (13
    09/14/2007                    6,572      335,829      (14
    02/29/2008            113,328      66.1800      02/28/2018             
    02/29/2008                    10,133      517,796       
    08/07/2008                    2,198      112,318       
    09/15/2008                    1,263      64,539      (16
    09/15/2008                    1,263      64,539      (17
    01/13/2009                    1,436      73,380       
    02/27/2009            103,800      48.1700      02/27/2019             
    02/27/2009                                  29,657      1,515,473      (19

E. Dimitri Panayotopoulos

  02/26/1999      26,194         44.2656      02/26/2014             
    07/01/1999      13,860         43.2423      07/01/2014             
    07/09/1999      9,834         42.7329      07/09/2014             
    09/15/1999      64,574         49.4759      09/15/2014             
    07/10/2000      28,516         27.4459      07/10/2015             
    09/15/2000      179,206               31.0118      09/15/2015                     

 

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Table of Contents
          Option Awards     Stock Awards  

Name

 

 

Grant Date1

 

   

Number of

Securities
Underlying
Unexercised
Options
Exercisable2

(#)

   

Number of

Securities
Underlying
Unexercised
Options
Unexercisable2

(#)

   

Option
Exercise
Price

($)

   

Option
Expiration
Date

 

   

Number of

Shares or

Units of

Stock That

Have Not
Vested

(#)

   

Market Value of
Shares or
Units That
Have Not
Vested4

($)

 

E. Dimitri Panayotopoulos (cont.)

  09/24/2001      202,644   (1)         34.5688      09/24/2016             
    09/13/2002      163,464         45.6625      09/13/2012             
    09/15/2003      55,758         45.9700      09/15/2013             
    02/27/2004      143,442         51.4150      02/27/2014             
    09/15/2004      44,253         56.5150      09/15/2014             
    02/28/2005      111,951         53.5950      02/28/2015             
    08/04/2005                    3,363      171,849    
    09/15/2005      30,531         55.4050      09/15/2015             
    12/01/2005                    21,267      1,086,744    
    02/28/2006      103,306         60.5000      02/28/2016             
    05/01/2006                    17,178      877,796    
    08/03/2006                    3,275      167,353    
    09/15/2006            46,314      61.3250      09/15/2016             
    09/15/2006                    11,755      600,681   (8
    02/28/2007            118,129      63.4900      02/28/2017             
    08/02/2007                    2,972      151,869    
    09/14/2007                    9,175      468,843   (12
    09/14/2007            45,198      67.8100      09/14/2017             
    02/29/2008            166,214      66.1800      02/28/2018             
    05/09/2008            30,671      65.2100      05/09/2018             
    08/07/2008                    2,609      133,320    
    09/15/2008                    1,771      90,498   (15
    02/27/2009                249,118      48.1700      02/27/2019                   

Susan E. Arnold

  02/26/1999      13,012         44.2656      02/26/2014             
    09/15/1999      37,062         49.4759      09/15/2014             
    09/15/2000      96,752         31.0118      09/15/2015             
    09/24/2001      130,192   (1)         34.5688      09/24/2016             
    09/13/2002      98,550         45.6625      09/13/2012             
    02/27/2004      136,150         51.4150      02/27/2014             
    09/15/2004                    14,392      735,431   (4
    02/28/2005      135,274         53.5950      02/28/2015             
    08/04/2005                    3,077      157,235    
    09/15/2005                    16,763      856,589   (6
    12/01/2005                    11,324      578,656    
    02/28/2006      136,364         60.5000      02/28/2016             
    08/03/2006                    2,791      142,620    
    09/15/2006                    13,032      665,935   (8
    02/28/2007            157,506      63.4900      02/28/2017             
    08/02/2007                    2,445      124,940    
    09/14/2007                    10,169      519,636   (12
    02/29/2008            226,655      66.1800      02/28/2018             
    08/07/2008                    2,641      134,955    
    09/15/2008                    2,036      104,040   (15
    02/27/2009                290,638      48.1700      02/27/2019                   

Clayton C. Daley, Jr.

  02/26/1999      23,816         44.2656      02/26/2014             
    07/01/1999      5,894         43.2423      07/01/2014             
    07/09/1999      8,358         42.7329      07/09/2014             
    09/15/1999      88,580         49.4759      09/15/2014             
    07/10/2000      27,180         27.4459      07/10/2015             
    09/15/2000      204,964         31.0118      09/15/2015             
    09/24/2001      197,480   (1)         34.5688      09/24/2016             
    09/13/2002      109,500         45.6625      09/13/2012             
    02/27/2004      153,168         51.4150      02/27/2014             
    09/15/2004                    19,549      998,954   (4
    02/28/2005      149,268         53.5950      02/28/2015             
    08/04/2005                                  2,563      130,969      

 

44


Table of Contents
          Option Awards     Stock Awards  

Name

 

 

Grant
Date1

 

   

Number of

Securities
Underlying
Unexercised
Options
Exercisable2
(#)

   

Number of

Securities
Underlying
Unexercised
Options
Unexercisable2
(#)

   

Option
Exercise
Price

($)

   

Option
Expiration
Date

 

   

Number of

Shares or

Units of

Stock That

Have Not
Vested3
(#)

 

Market
Value of
Shares or
Units That
Have Not
Vested4

($)

 

Clayton C. Daley, Jr. (cont.)

  09/15/2005                  14,423   737,015   (6
    12/01/2005                  39,241   2,005,215    
    02/28/2006      132,232           60.5000      02/28/2016             
    08/03/2006                  2,572   131,429    
    09/15/2006                  12,096   618,106   (9
    02/28/2007          163,806      63.4900      02/28/2017             
    08/02/2007                  2,395   122,385    
    09/14/2007                  9,452   482,997   (14
    02/29/2008          169,991      66.1800      02/28/2018             
    02/29/2008                  15,462   790,108    
    08/07/2008                  2,369   121,056    
    08/12/2008                  20,907   1,068,348    
    09/15/2008                  1,894   96,783   (17
    02/27/2009          114,179      48.1700      02/27/2019             
    02/27/2009                              32,623   1,667,035   (19

 

1

On December 1, 2005, the Company converted all outstanding retirement restricted stock to RSUs that are deliverable in shares one year following retirement. The numbers contained in this table for December 1, 2005 reflect this conversion. They do not represent an incremental grant of stock awards on that date.

2

The following provides details regarding the vesting date for each of the option grants included in the table. The Vest Date indicates the date the options become exercisable.

 

    Option Awards
    Grant Date   

Vest Date

   Grant Date   

Vest Date

  02/26/1999    02/26/2002    09/15/2004    09/15/2007
  07/01/1999    07/01/2002    02/28/2005    02/28/2008
  07/09/1999    07/09/2002    09/15/2005    09/15/2008
  09/15/1999    09/15/2002    02/28/2006    02/28/2009
  07/10/2000    07/10/2003    09/15/2006    09/15/2009
  09/15/2000    09/15/2003    02/28/2007    02/28/2010
(1)   09/24/2001    09/24/2004    09/14/2007    09/14/2010
(2)   09/24/2001    01/01/2005    02/29/2008    02/28/2011
  09/13/2002    09/13/2005    05/09/2008    05/09/2011
  09/15/2003    09/15/2006    02/27/2009    02/27/2012
  02/27/2004    02/27/2007      

 

3

Restricted stock earns cash dividends that are paid quarterly. RSUs awarded pursuant to BGP, STAR, PST Restoration, IRP and Special Equity earn dividend equivalents which are accrued in the form of additional RSUs each quarter, credited to each Named Executive Officer’s holdings and subject to the same vesting and other applicable restrictions. These dividend equivalents are included in the amounts shown. The following provides detail regarding the vesting date for Restricted stock and RSU holdings included in the table. The Vest Date for RSUs indicates the date such units are deliverable in shares. The Vest Date for restricted stock indicates the date that restrictions lapse.

 

45


Table of Contents
    Stock Awards
    Grant Date  

Vest Date

      Grant Date  

Vest Date

(3)   09/15/2004   09/15/2019     02/28/2007   One year following retirement; no earlier than 02/28/2010
(4)   09/15/2004   One year following retirement     08/02/2007   One year following retirement
(5)   09/15/2004   09/15/2009     (12)   09/14/2007   09/14/2010
  08/04/2005   One year following retirement     (13)   09/14/2007   One year following retirement
(6)   09/15/2005   One year following retirement     (14)   09/14/2007   One year following retirement; not before 09/15/2010
(7)   09/15/2005   09/15/2020     02/29/2008   02/28/2013
  12/01/2005   One year following retirement     08/07/2008   One year following retirement
  02/28/2006   2009 or as soon as practical after retirement; whichever is later  

  (15)

  08/12/2008

09/15/2008

 

08/12/2010

09/15/2011

  05/01/2006   05/01/2011     (16)   09/15/2008   One year following retirement
  08/03/2006   One year following retirement     (17)   09/15/2008   One year following retirement; not before 09/15/2011
(8)   09/15/2006   09/15/2009     01/13/2009   One year following retirement
(9)   09/15/2006   One year following retirement     (18)   02/27/2009   02/27/2012
(10)   10/10/2006   10/10/2011     (19)     02/27/2009   02/27/2014
(11)     10/10/2006   50% 10/10/2010; 50% 10/10/2011      

 

4

The Market Value of shares or RSUs that have not vested was determined by multiplying the closing market price of Company stock on June 30, 2009 ($51.10) by the number of shares or RSUs, respectively.

Option Exercises and Stock Vested

The following table and footnotes provide information regarding stock option exercises and stock vesting during fiscal year 2008-09 for the Named Executive Officers.

Option Exercises and Stock Vested Table

 

     Option Awards  

Stock Awards

Name
    

  Option
Grant Date  
    
 

Number of Shares
Acquired on
Exercise

(#)

 

Value Realized
on Exercise

($)

  Stock Award
Grant Date
    
 

Number of
Shares Acquired
on Vesting1

(#)

 

Value Realized
on Vesting2

($)

A. G. Lafley

  —     —     —     —     —     —  

Jon R. Moeller

  —     —     —     —     —     —  

Robert A. McDonald

  —     —     —     09/15/2005   17,071   1,243,708

Werner Geissler

  —     —     —     —     —     —  

E. Dimitri Panayotopoulos 

  —     —     —     09/15/2005   14,045   1,023,248

Susan E. Arnold

  —     —     —     —     —     —  

Clayton C. Daley, Jr.

  —     —     —     —     —     —  

 

1

Numbers of Shares Acquired on Vesting is the gross number of shares acquired. Please see footnote 3 in the Outstanding Equity at Fiscal Year-End Table for the definition of vesting for Stock Awards.

2

Value Realized on Vesting was determined by multiplying the number of shares of stock by the average of the high and low price of the Company’s common stock on the vesting date.

 

46


Table of Contents

Pension Benefits

The following table and footnotes provide information regarding the Company’s pension plans for Messrs. Geissler and Panayotopoulos as of the end of fiscal year 2008-09. None of the other Named Executive Officers had any such arrangements with the Company.

Pension Benefits Table

 

Name   Plan Name   Number of Years of
Credited Service1
 

Present Value of
Accumulated
Benefit2

($)

   

Payments During
Last Fiscal Year

($)

Werner Geissler

  The Procter & Gamble Company Global IRA3   21 years 9 months4   2,182,000      0
       
    The Procter & Gamble Pension Fund (Germany)   21 years 9 months4   2,137,000      0

E. Dimitri Panayotopoulos 

  The Procter & Gamble Company Global IRA3   20 years 5 months5   3,272,000 6    0
       
    The Procter & Gamble Pension Fund (UK)7   17 years 5 months8   1,505,000      0
1

Numbers in this column are computed as of the same pension plan measurement date used for financial statement reporting purposes for the Company’s audited financial statements as found in Note 8 to the Consolidated Financial Statements contained in the Company’s 2009 Annual Report.

2

The following details the assumptions used in each plan to calculate present value:

 

    Assumptions   Global IRA   German Pension Plan   UK Pension Plan
 

Retirement age

  60   65   65
 

Discount rate

  6.50%   6.25%   6.25%
 

Salary increase rate

  4.75%   N/A   N/A
 

Social security increase rate

  2.25%   N/A   3.50%
 

Pension increase rate

  N/A   2.00%   3.50%
 

Pre-Retirement Decrements

  None   None   None
 

Post-Retirement Mortality
Table      

  RP 2000 Combined Healthy White Collar table, sex distinct   Heubeck 2005G   105% of PMA92 base table, with short cohort projections to calendar year 2025
3

Because Messrs. Geissler and Panayotopoulos have reached age 55, they are eligible for early retirement under this plan. However, their benefits would be reduced by 5% for each year retirement precedes age 60. The earliest age at which either may retire with full benefits is age 60.

4

Years of credited service under this plan represent the number of years from the date that Mr. Geissler became eligible to participate in the plan until March 1, 2001, when he was transferred to The Procter & Gamble Company.

5

Years of credited service accrued under this plan represent the number of years worked outside of his home country from the date of hire until July 1997, when he began to be paid on a U.S.-home basis.

6

Includes the present value of a contingent spouse’s pension benefit of $174,000 which is equal to approximately 50% of the participant’s pension payable at participant’s death.