DEF 14A 1 d115894ddef14a.htm DEFINITIVE PROXY STATEMENT Definitive Proxy Statement
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.    )

Filed by the Registrant      x                                        Filed by a Party other than the Registrant    ¨

Check the appropriate box:

 

¨

Preliminary Proxy Statement

 

¨

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

 

x

Definitive Proxy Statement

 

¨

Definitive Additional Materials

 

¨

Soliciting Material Pursuant to §240.14a-12

DARDEN RESTAURANTS, INC.

(Name of Registrant as Specified In Its Charter)

 

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

Payment of Filing Fee (Check the appropriate box):

 

x

No fee required.

 

¨

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

  (1)

Title of each class of securities to which the transaction applies:

 

  (2)

Aggregate number of securities to which the transaction applies:

 

  (3)

Per unit price or other underlying value of the transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

  (4)

Proposed maximum aggregate value of transaction:

 

  (5)

Total fee paid:

 

¨

Fee paid previously with preliminary materials.

 

¨

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

 

  (1)

Amount Previously Paid:

 

  (2)

Form, Schedule or Registration Statement No.:

 

  (3)

Filing Party:

 

  (4)

Date Filed:

 

 

 


Table of Contents

LOGO

August 5, 2015

Dear Shareholders:

On behalf of your Board of Directors, it is our pleasure to invite you to attend the 2015 Annual Meeting of Shareholders of Darden Restaurants, Inc. We will hold the Annual Meeting on Thursday, September 17, 2015, at 10:00 a.m., Eastern Time, at Rosen Shingle Creek, 9939 Universal Blvd, Orlando, FL 32819. All holders of our outstanding common shares as of the close of business on July 24, 2015, are entitled to vote at the meeting.

We will furnish proxy materials to shareholders via the Internet, which allows us to provide you with the information you need while lowering the costs of delivery and reducing the environmental impact of our Annual Meeting.

The notice of meeting and Proxy Statement contain details about the business to be conducted at the Annual Meeting. Please read these documents carefully. We will set aside time at the meeting for discussion of each item of business and provide you with the opportunity to ask questions. If you will need special assistance at the meeting because of a disability, please contact Anthony G. Morrow, Corporate Secretary, Darden Restaurants, Inc., 1000 Darden Center Drive, Orlando, Florida 32837, phone (407) 245-5005.

Whether or not you plan to attend, it is important that your shares be represented and voted at the meeting. Please refer to the proxy card or Notice of Availability of Proxy Materials for more information on how to vote your shares at the meeting.

Your vote is important. Thank you for your support.

Sincerely,

 

LOGO

Jeffrey C. Smith

Chairman of the Board of Directors

 

LOGO


Table of Contents

DARDEN RESTAURANTS, INC.

1000 Darden Center Drive

Orlando, Florida 32837

 

 

NOTICE OF

2015 ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON SEPTEMBER 17, 2015

 

Time:

  

10:00 a.m., Eastern Time, on Thursday, September 17, 2015

Place:

  

Rosen Shingle Creek, 9939 Universal Blvd, Orlando, FL 32819

Items of Business:

  

1.    To elect a full Board of 12 directors from the named director nominees to serve until the next annual meeting of shareholders and until their successors are elected and qualified;

 

2.    To obtain advisory approval of the Company’s executive compensation;

 

3.    To ratify the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending May 29, 2016;

 

4.    To amend the Company’s Articles of Incorporation (the “Charter”) to reduce the percentage of shares required to call a special meeting of shareholders;

 

5.    To amend the Charter to eliminate the supermajority voting requirement for shareholder amendments to provisions of the Charter;

 

6.    To amend the Charter to eliminate the supermajority voting requirement for shareholders to remove directors for cause;

 

7.    To amend the Charter to eliminate the supermajority voting requirement for certain business combinations with interested shareholders;

 

8.    To ratify the provision of the Company’s Bylaws designating Orange County, Florida as the exclusive forum for certain shareholder litigation;

 

9.    To approve the Darden Restaurants, Inc. 2015 Omnibus Incentive Plan;

 

10.  To vote on a shareholder proposal described in the accompanying proxy statement, if properly presented at the meeting; and

 

11.  To transact such other business, if any, as may properly come before the meeting and any adjournment.

Who Can Vote:

  

You can vote at the Annual Meeting and any adjournment if you were a holder of record of our common stock at the close of business on July 24, 2015.

Website:

  

Important Notice Regarding the Availability of Proxy Materials for the Shareholders Meeting to be held on September 17, 2015: The accompanying Proxy Statement and our 2015 Annual Report to Shareholders are available at www.darden.com. In addition, you may access these materials at www.proxyvote.com. Instructions for requesting a paper copy of these materials are set forth on the Notice of Availability of Proxy Materials sent to our shareholders of record as of July 24, 2015.

Date of Mailing:

  

This Notice of the Annual Meeting of Shareholders and the Proxy Statement are first being distributed or otherwise furnished to shareholders on or about August 5, 2015.

By Order of the Board of Directors

 

LOGO

Anthony G. Morrow

Corporate Secretary


Table of Contents

DARDEN RESTAURANTS, INC.

PROXY STATEMENT

TABLE OF CONTENTS

 

     Page  

CORPORATE GOVERNANCE AND BOARD ADMINISTRATION

     1   

Corporate Governance Guidelines

     2   

Director Independence

     3   

Related Party Transactions

     4   

Director Election Governance Practices

     5   

Board Leadership Structure

     5   

Succession Planning

     6   

Director Education

     6   

Board Role in Oversight of Risk Management

     6   

Compliance & Ethics Office and Codes of Business Conduct and Ethics

     7   

Diversity

     7   

PROPOSALS TO BE VOTED ON

     9   

PROPOSAL 1 — ELECTION OF TWELVE DIRECTORS FROM THE NAMED DIRECTOR NOMINEES

     9   

PROPOSAL 2 — ADVISORY APPROVAL OF THE COMPANY’S EXECUTIVE COMPENSATION

     14   

PROPOSAL 3 — RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     15   

PROPOSAL 4 — APPROVAL OF AMENDMENT TO THE COMPANY’S CHARTER TO REDUCE THE PERCENTAGE OF SHARES REQUIRED TO CALL A SPECIAL MEETING OF SHAREHOLDERS

     17   

PROPOSAL 5 — ELIMINATE THE SUPERMAJORITY VOTING REQUIREMENT FOR SHAREHOLDER AMENDMENTS TO PROVISIONS OF THE CHARTER

     18   

PROPOSAL 6 — ELIMINATE THE SUPERMAJORITY VOTING REQUIREMENT FOR SHAREHOLDERS TO REMOVE DIRECTORS FOR CAUSE

     19   

PROPOSAL 7 — ELIMINATE THE SUPERMAJORITY VOTING REQUIREMENT FOR CERTAIN BUSINESS COMBINATIONS WITH INTERESTED SHAREHOLDERS

     20   

PROPOSAL 8 — RATIFICATION OF THE PROVISION OF THE COMPANY’S BYLAWS DESIGNATING ORANGE COUNTY, FLORIDA AS THE EXCLUSIVE FORUM FOR SHAREHOLDER LITIGATION

     24   

PROPOSAL 9 — APPROVAL OF THE DARDEN RESTAURANTS, INC. 2015 OMNIBUS INCENTIVE PLAN

     25   

PROPOSAL 10 — SHAREHOLDER PROPOSAL REGARDING LOBBYING DISCLOSURE

     36   

MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES

     39   

Board of Directors

     39   

Board Committees and Their Functions

     40   

DIRECTOR COMPENSATION

     45   

Compensation of Non-Employee Directors

     45   

Current Director Compensation Program

     45   

Prior Director Compensation Program

     46   

Fiscal 2015 Compensation of Non-Employee Directors

     47   

STOCK OWNERSHIP OF MANAGEMENT

     50   

STOCK OWNERSHIP OF PRINCIPAL SHAREHOLDERS

     52   

LETTER FROM THE COMPENSATION COMMITTEE

     53   

COMPENSATION DISCUSSION AND ANALYSIS

     55   

Overview

     55   

Key Leadership Changes During Fiscal 2015

     55   

Process For Determining Fiscal 2015 Executive Compensation

     56   

Fiscal 2015 Executive Compensation Philosophy and Strategy

     58   

Fiscal 2015 Executive Compensation Program Elements

     58   

CEO Compensation

     63   

Former and Departing Named Executive Officer Compensation

     64   

Other Programs, Policies, and Practices

     64   

New Chief Financial Officer

     66   

Departure of President of LongHorn Steakhouse

     66   

Shareholder Engagement & Results of Say On Pay Advisory Vote

     66   

 

i


Table of Contents
     Page  

COMPENSATION COMMITTEE REPORT

     67   

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     67   

ASSESSMENT OF RISK OF COMPENSATION PROGRAMS

     67   

EXECUTIVE COMPENSATION

     68   

Summary Compensation Table

     68   

Grants of Plan-Based Awards for Fiscal 2015

     70   

Outstanding Equity Awards at Fiscal Year-End

     72   

Option Exercises and Stock Vested for Fiscal 2015

     74   

Pension Benefits

     74   

Non-Qualified Deferred Compensation

     75   

Potential Payments Upon Termination or Change in Control

     77   

AUDIT COMMITTEE REPORT

     86   

QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING

     87   

OTHER BUSINESS

     92   

SOLICITATION OF PROXIES

     92   

HOUSEHOLDING OF ANNUAL SHAREHOLDERS’ MEETING MATERIAL

     92   

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     92   

AVAILABILITY OF ANNUAL REPORT TO SHAREHOLDERS

     92   

Appendix A — Amendment to the Articles of Incorporation of Darden Restaurants, Inc.

     A-1   

Appendix B — Article VI, Section 7 of Bylaws

     B-1   

Appendix C — Glossary of Terms

     C-1   

Appendix D — Darden Restaurants, Inc. 2015 Omnibus Incentive Plan

     D-1   

 

ii


Table of Contents

DARDEN RESTAURANTS, INC.

PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON SEPTEMBER 17, 2015

 

 

The Board of Directors (the “Board”) of Darden Restaurants, Inc. (“Darden,” the “Company,” “we,” “us” or “our”) is soliciting your proxy for use at the Annual Meeting of Shareholders to be held on September 17, 2015. This Proxy Statement summarizes information concerning the matters to be presented at the meeting and related information that will help you make an informed vote at the meeting. This Proxy Statement and the proxy card are first being distributed or otherwise furnished to shareholders on or about August 5, 2015.

CORPORATE GOVERNANCE AND BOARD ADMINISTRATION

Our Board is Committed to the Highest Standards of Corporate Governance and Ethical Business Conduct

During fiscal 2015, the Company made great strides in implementing a number of corporate governance changes designed to ensure that the Company’s policies are aligned with shareholder interests and corporate governance best practices. The process began in October 2014 upon the election of a new Board of Directors at our annual shareholders meeting (the “2014 Annual Meeting”). In the first 30 days after the 2014 Annual Meeting, the Board worked diligently to identify areas where the Company could start to improve its corporate governance practices to increase transparency, improve accountability and enhance shareholder engagement. On November 11, 2014, the Company implemented the following changes to our corporate governance structure:

 

   

Termination of the Company’s Shareholder Rights Plan (“Poison Pill”): The Board eliminated the Poison Pill by amending the Rights Agreement to expire on November 28, 2014 rather than May 25, 2015.

 

   

Majority Voting Standard for Election of Directors: The Board adopted a majority voting standard in uncontested elections.

 

   

Repeal of Advance Notice Bylaw Amendments: The Board repealed the March 2014 amendments related to the holding and adjournment of shareholder meetings and the disclosures required for shareholders to propose director nominations or business to be considered at a meeting.

 

   

Approval of Anti-Hedging and Anti-Pledging Policy: The Board adopted an amendment to the Company’s Insider Trading Policy to prohibit executive officers, directors and employees from engaging in hedging transactions or pledging the Company’s securities as collateral for loans.

 

   

Enhanced Political Contributions and Lobbying Report: The Board amended its political engagement and disclosure policy to provide additional disclosure of its political contributions and lobbying efforts.

 

   

Changes to Shareholder Communication and Interaction: The Board adopted an amendment to the Policy Statement on Dissemination of Company Information (the “Policy Statement”) to bring the Policy Statement in line with best practices.

 

   

Director Compensation: Upon the recommendation of the Nominating and Governance Committee and the Compensation Committee’s independent compensation consultant, the Board changed and approved the compensation levels for the directors for fiscal 2015 as further described in the section entitled “Director Compensation.”

 

   

Elimination of Requirement to Constitute an Executive Committee: The Board eliminated the requirement for an Executive Committee of the Board, as well as the Executive Committee itself.

 

   

Enhance Duties of Lead Director and Independent Chairman: The Board amended the Corporate Governance Guidelines to (i) list the authority to call the meetings of independent directors as a duty of the Lead Director and (ii) provide that the independent Chairman have all of the duties of the Lead Director as listed in the Corporate Governance Guidelines.

 

1


Table of Contents

In June 2015, the Board approved amendments to the Company’s Audit Committee Charter, Compensation Committee Charter, Finance and Real Estate Committee Charter and Nominating and Governance Committee Charter, as well as the Company’s Corporate Governance Guidelines. The amendments to each charter and the guidelines were designed to further clarify the duties and responsibilities of each committee and in most circumstances, to enhance the risk oversight duties of each committee as further described in the section “Meetings of the Board of Directors and its Committees.”

Although the Company terminated its prior rights plan in November 2014, in June 2015 the Company announced a proposed REIT transaction, and in connection with that transaction the Board approved a new short-term Rights Agreement. The Rights Agreement is designed to deter ownership of more than 9.8 percent of our common stock during the period leading up to the REIT transaction, as any such ownership would prohibit qualifying as a REIT. The new Rights Agreement is narrowly tailored to protect the ability to effect the REIT transaction, even in contrast to other rights plans adopted in connection with REIT transactions. The rights are redeemable by the Board under certain circumstances and expire on the earlier of the first business day after closing of the REIT transaction or June 23, 2016. The Rights Agreement will not prohibit tender or exchange offers for all of the common stock of the Company.

In addition to the Company’s governance initiatives implemented in fiscal 2015, the Board is fulfilling its commitment to seek shareholder approval of the following amendments to the Company’s charter at the Annual Meeting, as further described in the section entitled “Proposals to be Voted On”:

 

   

Allow Shareholders to Call a Special Meeting at 10% Threshold: If approved by the requisite vote of shareholders, the amendment would provide that holders of not less than 10% of all the votes entitled to be cast may call a special meeting of shareholders, instead of requiring a voting threshold of 50% of all of the votes entitled to be cast.

 

   

Eliminate Supermajority Voting Standards for Certain Charter Amendments: If approved by the requisite vote of shareholders, the amendment would replace the supermajority voting requirement for any actions of shareholders to amend provisions of the Charter with a simple majority of the votes cast to the extent permitted under Florida law.

 

   

Eliminate Supermajority Voting Standard For the Removal of Directors by Shareholders for Cause: If approved by the requisite vote of shareholders, the amendment would replace the supermajority voting requirement for the ability of shareholders to remove directors for cause with a simple majority of the votes cast to the extent permitted under Florida law.

 

   

Eliminate Supermajority Vote for Certain Business Combinations with Interested Shareholders/Fair Price Provision: If approved by the requisite vote of shareholders, the amendment would delete the provision on business combinations with interested shareholders from the Charter and, instead, leaving only the requirements of Section 607.0901 of the Florida Business Corporation Act to apply.

 

   

Ratification of Exclusive Forum Selection Provision in the Company’s Bylaws: At the Annual Meeting, the Board is also fulfilling its commitment to seek shareholder ratification of the Company’s designation of Orange County, Florida, as the exclusive forum for certain shareholder litigation.

Corporate Governance Guidelines

The Board has adopted Corporate Governance Guidelines that specifically address the Company’s key governance practices and policies. The Nominating and Governance Committee of the Board oversees governance issues and recommends changes to the Company’s governance guidelines, policies and practices as appropriate. Our Corporate Governance Guidelines cover many important topics, including:

 

   

Director responsibilities;

 

   

Director qualification standards;

 

   

Director independence;

 

2


Table of Contents
   

Director access to senior management and independent advisors;

 

   

Director compensation;

 

   

Director orientation and continuing education;

 

   

Code of Business Conduct and Ethics;

 

   

Risk oversight;

 

   

Related party transactions;

 

   

Approval of CEO and senior management succession plans;

 

   

Annual compensation review of CEO and senior management;

 

   

An annual evaluation in executive session of the CEO by the independent directors, led by the Chairman of the Nominating and Governance Committee; and

 

   

An annual performance evaluation of the Board and each of the Board committees, and an even more in-depth performance evaluation of the Board led by an outside consultant no less often than every two years.

The Corporate Governance Guidelines also include policies on certain specific subjects, including those that:

 

   

Require meetings at least four times annually of the non-employee directors in executive session without our CEO or other members of management present;

 

   

Require a letter of resignation from directors upon a significant change in their personal circumstances, including a change in or termination of their principal job responsibilities;

 

   

Limit the number of other boards that directors may serve on;

 

   

Provide that no member of the Audit Committee may serve on the audit committee of more than three public companies, including the Company’s; and

 

   

Provide a mandatory retirement age for directors.

The Corporate Governance Guidelines are available at www.darden.com under Investors — Corporate Governance.

Director Independence

Our Corporate Governance Guidelines require that at least two-thirds of the Board be independent directors, as defined under the rules of the New York Stock Exchange (“NYSE”). Our Corporate Governance Guidelines include categorical standards of independence to assist the Board in making determinations regarding the independence of our directors. The NYSE rules and Rule 10A-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) include the additional requirement that members of the Audit Committee may not accept directly or indirectly any consulting, advisory or other compensatory fee from the Company other than their director compensation. The Corporate Governance Guidelines also provide that when determining the independence of members of the Compensation Committee, the Board must consider all factors specifically relevant to determining whether a director has a relationship to the Company which is material to the director’s ability to be independent from management in connection with Compensation Committee duties, including, but not limited to, consideration of the sources of compensation of Compensation Committee members, including any consulting, advisory or other compensatory fees paid by the Company, and whether any Compensation Committee member is affiliated with the Company or any of its subsidiaries or affiliates. Compliance by Audit Committee members and Compensation Committee members with these requirements is separately assessed by the Board.

 

3


Table of Contents

The Board has reviewed, considered and discussed each current director’s and each director nominee’s relationships, both direct and indirect, with the Company in order to determine whether such current director or director nominee meets the independence requirements of the applicable sections of the NYSE Listed Company Manual (the “NYSE Rules”). The Board has affirmatively determined that, other than Mr. Lee, who is employed by the Company, 13 of the 14 current directors (Mses. B. Atkins, M. Atkins, Birch and Jamison and Messrs. Blum, Fogarty, Lenehan, Nowell, Simon, Smith, Sonsteby and Stillman) and 11 of the 12 nominees for election as directors at the Annual Meeting (Mses. M. Atkins, Birch and Jamison and Messrs. Blum, Fogarty, Lenehan, Nowell, Simon, Smith, Sonsteby and Stillman) have no direct or indirect material relationship with us (other than, their service as directors) and qualify as independent under the NYSE Rules.

In making the respective independence determinations for members of the Board, the Board has concluded that although certain of our directors are affiliated with Starboard, a large shareholder of the Company, a relationship with a shareholder of the Company in and of itself does not impair such director’s independent judgment in connection with his duties and responsibilities as a director of the Company. Accordingly, the Board has determined that the directors affiliated with Starboard, Messrs. Feld and Smith, are independent.

The Board has also determined that while in the ordinary course of business, transactions may occur between the Company, including its subsidiaries, and entities with which some of our directors are or have been affiliated, the Board has concluded that any such transactions were immaterial in fiscal 2015. In making its affirmative determination that Mr. Simon is independent, the Board considered the fact that we have routine commercial relationships with Mr. Simon’s former employer, Wal-Mart Stores, Inc., and its subsidiaries and affiliates, including Sam’s Club. These relationships include the sale of restaurant gift cards and certain consumer packaged goods, such as Olive Garden salad dressing, which were facilitated through third party service providers. During fiscal 2015, the aggregate face dollar value of our gift cards sold by Wal-Mart and Sam’s Club through the third party service provider was approximately $153 million, and the royalties we earned on the sale of consumer packaged goods were approximately $3 million. The Board determined that the relationships with Wal-Mart Stores, Inc. and Sam’s Club, were immaterial and that our categorical standards of independence were met.

Related Party Transactions

Pursuant to the Company’s Corporate Governance Guidelines, the Company has adopted a policy pertaining to Related Party Transactions in which Interested Transactions with a Related Party, as those terms are defined below, are prohibited without prior approval of the Board. The Board will review the material facts of the proposed transaction and will either approve or disapprove of the transaction. In making its determination, the Board considers whether the Interested Transaction is consistent with the best interests of the Company and its shareholders and whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances, as well as the extent of the Related Party’s interest in the transaction. Directors may not participate in any discussion or approval of an Interested Transaction for which he or she is a Related Party, except to provide all material information as requested. If an Interested Transaction will be ongoing, the Board may establish guidelines for the Company’s management to follow in its dealings with the Related Party.

An “Interested Transaction” as defined in the policy is any transaction, arrangement or relationship (or series of similar transactions, arrangements or relationships) in which (i) the amount involved exceeds $120,000 in any calendar year, (ii) the Company is a participant, and (iii) any Related Party has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of another entity), but does not include any salary or compensation paid by the Company to a director or for the employment of an executive officer that is required to be reported in the Company’s proxy statement.

A “Related Party” as defined in the policy is any (i) person who is or was since the beginning of the last fiscal year an executive officer, director or nominee for election as a director of the Company, (ii) beneficial owner of more than five percent of the Company’s common stock, or (iii) immediate family member of any of the foregoing.

An “immediate family member” as defined in the policy is any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of the person in question and any person (other than a tenant or employee) sharing the household of the person in question.

 

4


Table of Contents

In fiscal 2015, the Board authorized reimbursement to Starboard, a 8.8% shareholder of our Company, of its reasonable and documented out-of-pocket expenses (including legal expenses) in connection with the 2014 Annual Meeting. The Company reimbursed Starboard $5,000,000 for its documented out of pocket expenses.

Director Election Governance Practices

We do not have a “classified board,” or other system where directors’ terms are staggered; instead our full Board is elected annually. As noted in the subsection above entitled “Our Board is Committed to the Highest Standards of Corporate Governance and Ethical Business Conduct,” the Board amended the Company’s Bylaws in November 2014 to modify the governance practices for director elections. The Company’s Bylaws now provide that in an uncontested election, each director will be elected by a majority of the votes cast; provided that, if the election is contested, the directors will be elected by a plurality of the votes cast. In an uncontested election, if a nominee for director who is a director at the time of election does not receive the vote of at least the majority of the votes cast at any meeting for the election of directors at which a quorum is present, the director will promptly tender his or her resignation to the Board and remain a director until the Board appoints an individual to fill the office held by such director.

The Nominating and Governance Committee will recommend to the Board whether to accept or reject the tendered resignation or whether other action should be taken. The Board is required to act on the tendered resignation, taking into account the Nominating and Governance Committee’s recommendation, and publicly disclose (by a press release, a filing with the SEC or other broadly disseminated means of communication) its decision and the rationale within 90 days from the date of certification of the election results. If a director’s resignation is not accepted by the Board, such director will continue to serve until his or her successor is duly elected, or his or her earlier resignation or removal. If a director’s resignation is accepted by the Board, then the Board, in its sole discretion, may fill the vacancy or decrease the size of the Board. To be eligible to be a nominee for election or reelection as a director of the Company, a person must deliver to our Corporate Secretary a written agreement that he or she will abide by these requirements.

Under our Bylaws, the Board will consist of not less than three nor more than fifteen members as determined from time to time by resolution of the Board. The size of the Board is currently fourteen members. Effective after the Annual Meeting, as further discussed in the section entitled “Proposal 1 — Election of Twelve Directors From The Named Director Nominees, the Board, upon the recommendation of the Nominating and Governance Committee has determined to reduce its size from 14 to 12 members.

Board Leadership Structure

In July 2014, the Company announced that Clarence Otis, Jr. would be stepping down as Chairman of the Board as well as, upon the earlier of the appointment of his successor or December 31, 2014, as CEO. In connection with Mr. Otis’s resignation, the Board appointed former Independent Lead Director, Charles A. Ledsinger, Jr., as Independent Non-Executive Chairman of the Board. Upon the appointment of Mr. Ledsinger as Independent Non-Executive Chairman of the Board, the Board amended the Company’s corporate governance policies to provide for the separation of the Chairman and CEO roles. The Company’s current Independent Non-Executive Chairman of the Board, Jeffrey C. Smith, was appointed in October 2014 and in February 2015, after having served as the Company’s President and Interim CEO since October 2014, the Board appointed Eugene I. Lee, Jr. as CEO and a director of the Company.

The Company’s Corporate Governance Guidelines provide that the positions of Chairman of the Board and CEO be held by separate persons and that the position of Chairman be held by an independent director. The Board believes that separating the roles of Chairman and CEO allows for better alignment of corporate governance with shareholder interests and aids in the Board’s oversight of management and the Board’s ability to carry out its roles and responsibilities on behalf of the shareholders. The Board also believes that the separation of the roles of Chairman and CEO allows the CEO to focus more of his time and energy on operating and managing the Company and leverages the Chairman’s experience. The Company’s Chairman, Mr. Smith, along with the other independent non-employee directors, brings experience, oversight and expertise from outside the Company and industry, while our CEO, Mr. Lee, brings company and industry-specific experience and expertise.

In the event the Chairman is not independent, the independent directors will designate one independent director to serve as the Lead Director until an independent Chairman is appointed. The Lead Director, if any, will preside at all meetings

 

5


Table of Contents

of the Board at which the non-independent Chairman of the Board is not present, including the Board’s executive sessions of independent directors, and serve as liaison between a non-independent Chairman of the Board and the independent directors. The independent Chairman or if the Chairman is not independent, the Lead Director, will approve Board meeting agendas, including approving meeting schedules to assure that there is sufficient time for discussion of all agenda items, and other information sent to the Board, advise the committee chairs with respect to agendas and information needs relating to committee meetings, and perform other duties as the Board may from time to time delegate to assist the Board in fulfilling its responsibilities. The Lead Director, if any, will serve for a term as the Board determines but not less than one year. The independent directors may meet without management present at any other times as determined by the independent Chairman or Lead Director, as applicable.

Succession Planning

After the 2014 Annual Meeting, the Board initiated a search to identify Mr. Otis’s successor as CEO. Internal and external candidates were considered and the search process was led by Mr. Smith, the Company’s Non-Executive Chairman, and the Board’s Nominating and Governance Committee, which consists solely of independent directors, with the assistance of an executive search firm. In February 2015, the Board appointed Mr. Lee as CEO and a director of the Company due to his significant contributions to the Company while serving as the Company’s President and Interim CEO, beginning in October 2014, and his previous experience as the Company’s President and COO from September 2013 to October 2014.

The Board is actively engaged and involved in talent management. The Board reviews the Company’s people strategy in support of its business strategy at least annually. This includes a detailed discussion of the Company’s leadership bench and succession plans with a focus on key positions at the senior officer level. Annually, the CEO provides the Board with an assessment of senior executives and their potential to succeed him, and an assessment of persons considered successors to senior executives. The Nominating and Governance Committee also recommends policies regarding succession in the event of an emergency impacting the CEO or retirement of the CEO. Strong potential leaders are given exposure and visibility to Board members through formal presentations and informal events. More broadly, the Board is regularly updated on key talent indicators for the overall workforce, including diversity, recruiting and development programs.

Director Education

To foster our value of always learning – always teaching, the Corporate Governance Guidelines encourage director education. The Board also receives regular updates regarding new developments in corporate governance.

Board Role in Oversight of Risk Management

The ultimate responsibility for risk oversight rests with the Board. The Board assesses major risks facing the Company and reviews options for their mitigation. Each Committee of the Board reviews the policies and practices developed and implemented by management to assess and manage risks relevant to the Committee’s responsibilities, and reports to the Board about its deliberations.

The Compensation Committee (i) provides oversight of the risks associated with the Committee responsibilities in its charter; (ii) reviews our incentive and other compensation arrangements to confirm that compensation does not encourage unnecessary or excessive risk taking and review and discuss, at least annually, the relationship between risk management policies and practices, corporate strategy and executive compensation; (iii) participates at least annually in a joint meeting with the Audit Committee to oversee management’s risk assessment of the Company’s compensation policies and practices; and (iv) discusses with the Company’s management any disclosures required by Item 402(s) of Regulation S-K relating to the Company’s compensation risk management.

The Nominating and Governance Committee oversees risks related to the Company’s corporate governance; director succession planning; political and charitable contributions; insider trading and reputational risk to the extent such risk arises from the topics under discussion.

The Finance and Real Estate Committee oversees the Company’s major financial risk exposures and management’s monitoring, mitigation activities and policies in connection with financial risk, including, capital structure; investment portfolio, including employee benefit plan investments; financing arrangements, credit and liquidity; proposed major

 

6


Table of Contents

transactions, such as mergers, acquisitions, reorganizations and divestitures; share repurchase programs; hedging or use of derivatives; commodity risk management; cash investment; liquidity management; short term borrowing programs; interest rate risk; foreign exchange risk; off balance sheet arrangements, if any; proposed material financially-related amendments to the Company’s indentures, bank borrowings and other instruments; and reputational risk to the extent such risk arises from the topics under discussion, as well insurance coverage on the Company’s assets.

The charter for the Audit Committee requires, among other responsibilities, that it review the integrity of the Company’s financial reporting processes and internal controls, including the process for assessing risk of fraudulent financial reporting and significant financial risk exposures, and the steps management has taken to monitor and report those exposures. Accordingly, in addition to its other duties, the Audit Committee periodically reviews risk assessment and management, including legal compliance and internal auditing and financial controls. The Audit Committee also oversees the Company’s enterprise risk management (“ERM”) process and the comprehensive assessment of key financial, operational and regulatory risks identified by management. The Audit Committee discusses ERM with the full Board, which is ultimately responsible for oversight of this process.

Compliance & Ethics Office and Codes of Business Conduct and Ethics

Our Compliance & Ethics Office (“Compliance Office”), with the support of our management and Board, aims to ensure that all of our employees, business partners, franchisees and suppliers adhere to high ethical business standards, and is currently under the direction of our Senior Vice President, Division General Counsel. At the core of the Compliance Office is our Code of Business Conduct and Ethics that applies to all Company employees (“Employee Code of Conduct”). It addresses many topics and highlights specific responsibilities of our CEO and senior financial officers. We also have a Code of Business Conduct and Ethics for the members of your Board. A major objective of the Compliance Office is to educate and raise awareness of our Employee Code of Conduct, applicable regulations, and related policies. Our Employee Code of Conduct is posted on our website at www.darden.com under Investors — Corporate Governance. We require all of our officers, director level employees, and certain other employees to complete an annual questionnaire and certification regarding compliance with the Employee Code of Conduct and other Company policies.

We promote ethical behavior by all employees and encourage our employees to talk to supervisors or other personnel when in doubt about the best course of action in a particular situation. To encourage employees to report violations of laws or our Employee Code of Conduct, we will not allow retaliation for reports made in good faith. We are also committed to promoting compliance and ethical behavior by the third parties with whom we conduct business, and have implemented Third Party Codes of Business Conduct and Ethics with our franchisees and certain suppliers. Moreover, we are committed to ethical behavior in the communities we serve and our industry generally. The Darden Restaurants Foundation Diversity and Business Ethics Endowment, the first comprehensive diversity and business ethics endowment in the hospitality industry, was created by the University of Florida’s Warrington College of Business with financial support from the Darden Restaurants, Inc. Foundation.

Diversity

The foundation for shareholder value creation at Darden remains the Company’s culture. With approximately 150,000 employees, we are recognized for having a winning culture that emphasizes caring for and responding to people. It is a culture that is defined by diversity and inclusiveness, that values our team members and that is deeply committed to sustainability.

 

   

Close to half of our restaurant team members are minority and more than half are female.

 

   

We believe we are competitively superior to our restaurant industry peers in the diversity of our operations leadership teams.

 

   

At the vice president and above level, more than 20 percent of our leaders are minorities and approximately 30 percent are female.

 

   

At least one-third of Darden Board members are minorities and/or female.

 

7


Table of Contents
   

Internal promotions account for more than 50 percent of our restaurant managers, 98 percent of our general managers and directors of operations and 75 percent of our leaders at the vice president and above level.

 

   

We scored 100 out of 100 on the Human Rights Campaign (HRC) 2015 Corporate Equality Index (CEI) for our inclusive business practices and policies, being recognized as a “Best Places to Work for LGBT Equality.”

 

   

Hispanic Business Magazine named us one of its “2014 Best Companies for Diversity” and LATINA Style Magazine ranked us among the 50 best companies on its “2014 LATINA Style 50 Report.”

 

   

The Company’s “People, Planet & Plate” framework encompasses culture and community involvement, resource conservation, food safety, animal welfare, and thoughtful consideration of the nutritional content of the meals we serve.

 

   

Black Enterprise selected us as one of the “2014 Top 40 Companies for Diversity” and Working Mother Media ranked us as one of the “Best Companies for Multi-cultural Women” for the second year in a row.

 

   

We received the Minority Corporate Counsel Association’s “2015 Employer of Choice Award” for the South Region in recognition of our commitment to create and maintain an inclusive legal department and for our contributions in furtherance of diversity and inclusion in the legal profession.

 

8


Table of Contents

PROPOSALS TO BE VOTED ON

PROPOSAL 1 — ELECTION OF TWELVE DIRECTORS FROM THE NAMED

DIRECTOR NOMINEES

As the Board looks beyond its first year of oversight after all new members were elected in October 2014, the Board, upon the recommendation of the Nominating and Governance Committee, has determined to reduce its size from 14 to 12 members effective after the 2015 Annual Meeting. Upon their own recommendations as members of the Nominating and Governance Committee, directors Betsy S. Atkins and Peter A. Feld are not standing for reelection.

The Nominating and Governance Committee believes that a 12 person Board of Directors is currently appropriate for Darden. However, the Board will continue to seek a diversity of talent and experience to draw upon and to ensure its ability to appropriately staff committees of the Board. The Board also will continue to self-evaluate and to consider various matters as to its size. As appropriate, the Board may determine to increase or decrease its size, including in order to accommodate the availability of an outstanding candidate.

The following 12 directors are standing for election this year to hold office until the 2016 Annual Meeting of Shareholders or until their successors are elected and qualified. All were nominated by our Nominating and Governance Committee and have previously served on the Board. The Board has determined, based on his significant restaurant experience and expertise, particularly as an entrepreneur and innovator, that notwithstanding the provision in the Company’s Corporate Governance Guidelines stating that directors will not be nominated for election to the Board after their 73rd birthday, special circumstances exist to warrant the renomination of Mr. Stillman. Each of the director nominees has consented to being named in this Proxy Statement and to serve as a director if elected. If a director nominee is not able to serve, proxies may be voted for a substitute nominated by the Board. However, we do not expect this to occur.

Your Board recommends that you vote FOR each of the nominees to the Board.

Board Nominees

The following information is as of the date of this Proxy Statement. Included is information provided by each director, such as his or her age, all positions currently held, principal occupation and business experience for the past five years, and the names of other publicly-held companies of which he or she currently serves as a director or has served as a director during the past five years. In addition to the specific information presented below regarding the experience, qualifications, attributes and skills that led our Board to the conclusion that the nominee should serve as a director, we also believe that each of our director nominees has a reputation for integrity, honesty and adherence to high ethical standards. Darden’s core purpose is to nourish and delight everyone we serve, as supported by our core values of integrity and fairness, respect and caring, diversity, always learning – always teaching, being “of service,” teamwork and excellence. As noted in our Corporate Governance Guidelines, our directors should reflect these core values, possess the highest personal and professional ethics, and be committed to representing the long-term interests of our shareholders. They must also have an inquisitive and objective perspective, practical wisdom and mature judgment.

MARGARET SHÂN ATKINS

Director since 2014.

Ms. M. Shân Atkins (no relation to Betsy Atkins), age 58, is a Co-Founder and Managing Director of Chetrum Capital LLC, a private investment firm, a position she has held since 2001. Prior to founding Chetrum, she spent most of her executive career in the consumer/retail sector, including various positions with Sears, Roebuck & Co., a major North American retailer, from 1996 to 2001 where she was promoted to Executive Vice President in 1999. Prior to joining Sears, Ms. Atkins spent fourteen years with Bain & Company, the international management consultancy, as a leader in the consumer and retail practice. She began her career as a public accountant at what is now PriceWaterhouseCoopers LLP, a major accounting firm, and holds designations as a Chartered Professional Accountant and Chartered Accountant (Ontario) and as a Certified Public Accountant (Illinois). Ms. Atkins currently serves on the board of directors of SpartanNash Company, a national grocery wholesaler/retailer and distributor of food products to the worldwide U.S. military commissary system and SunOpta, Inc., a North American manufacturer of natural and organic food products. She previously served on the boards of directors of The Pep Boys — Manny, Moe & Jack (2004 – 2015), an operator of automotive parts and service stores, Tim Hortons (2007 – 2014), a leading North American quick-serve restaurant chain, Shoppers Drug Mart Corporation (2005 – 2012), a Canadian drugstore chain, and Chapters, Inc. (1999 – 2001), a Canadian bookstore chain.

 

9


Table of Contents

The Nominating and Governance Committee concluded that Ms. Atkins is qualified and should serve, in part, because of her retail industry, operations, strategic planning and financial expertise, public-company director experience.

JEAN M. BIRCH

Director since 2014.

Ms. Birch, age 55, is currently CEO and President of Birch Company, LLC, a specialized strategy and leadership consulting firm focused on the hospitality industry. From June 2009 to August 2012, she was President of IHOP Restaurants, one of the largest full service restaurant companies and a division of DineEquity, Inc. From 2007 to 2009, Ms. Birch was an independent restaurant and hospitality consultant at Birch Company, LLC. From January 2005 to August 2007, she was president of Romano’s Macaroni Grill, a casual dining restaurant chain specializing in Italian-American cuisine, and from August 2003 until January 2005, President of Corner Bakery Café, a casual dining restaurant company, both divisions of Brinker International, Inc. From 1991 to 2003, Ms. Birch held various roles with YUM! Brands, global quick service restaurant company, including V.P. Operations for Taco Bell. Since November 2013, she has served on the board of directors of Cosi Inc., a national fast casual restaurant chain, and since April 2015, she has served as a director of Papa Murphy’s Holdings, Inc., the fifth largest pizza company in the United States. She has also served on the board of directors of the Children’s Miracle Network Hospitals since 2013. Previously, Ms. Birch served on the boards of directors of Meals on Wheels Association of America Foundation, Women’s Foodservice Forum, Centralized Supply Chain Services, the California Council for Economic Education and E La Carte.

The Nominating and Governance Committee concluded that Ms. Birch is qualified and should serve, in part, because of her more than 23 years of restaurant operations and executive leadership experience with several major brands, along with a broad-based background in and extensive knowledge of operations, marketing, and brand strategy development.

BRADLEY D. BLUM

Director since 2014.

Mr. Blum, age 61, has served as CEO for several major brands and companies in the restaurant industry. Since September 2005, Mr. Blum has served as Founder and CEO of BLUM Enterprises, LLC, a restaurant company focused on restaurant strategy, concept development, and investing. In July 2013, Mr. Blum was appointed to the Supervisory Board of AmRest Holdings SE, a publicly traded global fast-food and casual dining operator with six different restaurant brands. In May 2012, Mr. Blum co-founded FIVE TO SEVEN, a transatlantic partnership, whose mission is to provide Good Food for the Planet™. In January 2012, Mr. Blum became board director, strategic partner and investor at LEON Restaurants, a restaurant group specializing in seasonal, naturally fast food. Prior to that, Mr. Blum served as CEO of Romano’s Macaroni Grill, a U.S. casual dining restaurant chain specializing in Italian cuisine, from December 2008 through July 2010. Mr. Blum served as CEO of the global fast food enterprise, Burger King Corporation, from December 2002 through July 2004. Mr. Blum served as President of the Company’s restaurant chain, Olive Garden, from December 1994 through March 2002, after which he served as Vice Chairman of the Company through December 2002. While at the Company, Mr. Blum served on its board of directors from September 1997 through December 2002. Mr. Blum helped launch Cereal Partners Worldwide, a 50/50 global joint venture between Nestlé and General Mills specializing in breakfast cereals, serving from 1990 through 1994 as Senior Vice President of Marketing and having operating responsibilities for various countries in Western Europe. Prior to that, Mr. Blum progressed through various marketing and brand management executive positions in the U.S. from 1978 through 1990 for General Mills, Inc., an American multinational manufacturer and marketer of branded consumer goods.

The Nominating and Governance Committee concluded that Mr. Blum is qualified and should serve, in part, because of his extensive executive leadership experience in the restaurant industry and his operating, branding and turnaround expertise, including his success and familiarity with our Company during his previous tenure on the board.

JAMES P. FOGARTY

Director since 2014.

Mr. Fogarty, age 47, was the CEO and a Director of Orchard Brands, a multi-channel marketer of apparel and home products, from November 2011 until its sale in July 2015, at which time he became a Senior Advisor to Bluestem Group Inc., the acquirer of Orchard Brands. Prior to that, Mr. Fogarty was a private investor from November 2010 to November 2011.

 

10


Table of Contents

From April 2009 until November 2010, Mr. Fogarty was President, CEO and Director of Charming Shoppes, Inc., a multi-brand, specialty apparel retailer. Other prior executive positions held by Mr. Fogarty include Managing Director of Alvarez & Marsal, an independent global professional services firm, from August 1994 until April 2009, President and COO of Lehman Brothers Holdings (subsequent to its Chapter 11 bankruptcy filing) from September 2008 until April 2009, President and CEO of American Italian Pasta Company, the largest producer of dry pasta in North America from September 2005 through February 2008, CFO of Levi Strauss & Co., a brand-name apparel company from 2003 until 2005, and from December 2001 through September 2003, he served as Senior Vice President and CFO and for a period as a Director of The Warnaco Group, a global apparel maker. Since October 2011, Mr. Fogarty has served as a director of Regis Corporation, which owns, operates and franchises hair and retail product salons.

The Nominating and Governance Committee concluded that Mr. Fogarty is qualified and should serve, in part, because of his operational and turnaround experience, and his significant executive officer and director experience at a variety of public and private companies.

CYNTHIA T. JAMISON

Director since 2014.

Ms. Jamison, age 55, was the CFO of AquaSpy, Inc., an Australian environmentally responsible irrigation company from 2009 to 2012, when she retired. From 1999 to 2009, she was a partner with Tatum, LLC, an executive services firm focused exclusively on providing CFO support to public and private companies. Prior to joining Tatum, she served as CFO of Chart House Enterprises (now AM-CH, Inc.), a publicly traded restaurant company, from May 1998 until June 1999 and previously held various CFO or COO positions at Allied Domecq Retailing USA, a spirits, wine and quick-service restaurant operator, Kraft General Foods, a food and beverage company, and Arthur Andersen LLP, a major accounting firm. Since 2002, Ms. Jamison has served as a member of the board of directors for Tractor Supply Company, an operator of retail farm and ranch stores, where she currently serves as Non-Executive Chairman. Ms. Jamison also serves as a director of Office Depot, Inc., a global supplier of office products and services, since August 2013, and BigLots, Inc., a discount retailer, since May 2015. Ms. Jamison’s experience includes her service, from 2004 until 2015, as a director of B&G Foods, Inc., a manufacturer, seller and distributor of high quality, shelf-stable food and household products.

The Nominating and Governance Committee concluded that Ms. Jamison is qualified and should serve, in part, because of her status as a Financial Expert and experienced Audit Committee member and Chair, senior management, leadership, financial and strategic planning, corporate governance and public company executive compensation experience.

EUGENE (GENE) I. LEE, JR.

Director since 2015.

Mr. Lee, age 54, has been our CEO since February 2015. Prior to that, Mr. Lee served as President and Interim CEO since October 2014, and as President and COO of the Company from September 2013 to October 2014. He served as President of our Specialty Restaurant Group since our acquisition of RARE on October 1, 2007. Prior to the acquisition, he served as RARE’s President and COO from January 2001 to October 2007. From January 1999 until January 2001, he served as RARE’s Executive Vice President and COO.

The Nominating and Governance Committee concluded that Mr. Lee is qualified and should serve, in part, because of his extensive senior management and leadership experience with our Company.

WILLIAM H. LENEHAN

Director since 2014.

Mr. Lenehan, age 39, is an independent real estate industry professional with significant experience in net leased properties and public company corporate governance matters. From June 2012 until its sale in late 2014, Mr. Lenehan served as a special advisor to the Board of Directors of EVOQ Properties, Inc., the owner of a substantial portfolio of development assets in downtown Los Angeles, California. Previously, Mr. Lenehan was the Interim Chief Executive Officer of MI Developments, Inc., a real estate operating company with a global net lease portfolio, from June 2011 to December 2011. From August 2001 to February 2011, Mr. Lenehan was an investment professional at Farallon Capital Management, LLC, a global institutional asset management firm. Mr. Lenehan has served as a director of Gramercy Property Trust Inc., a

 

11


Table of Contents

commercial real estate investment company focused on acquiring and managing net leased office and industrial assets, since January 2012. From May 2012 until May 2015, Mr. Lenehan served on the Board of Directors of Stratus Properties Inc., a real estate development company.

The Nominating and Governance Committee concluded that Mr. Lenehan is qualified and should serve, in part, because of his extensive real estate experience and public company director experience.

LIONEL L. NOWELL, III

Director since 2014.

Mr. Nowell, age 60, served as the Senior Vice President and Treasurer of PepsiCo, Inc., one of the world’s largest food and beverage companies, from August 2001 to May 2009, where he was responsible for PepsiCo’s worldwide corporate treasury function, including worldwide financial activities, capital markets strategies, foreign exchange, cash forecasting and planning. Prior to that, Mr. Nowell served as CFO and Senior Vice President for The Pepsi Bottling Group, a position he assumed in 2000 after serving as Controller for PepsiCo since July 1999. He was Senior Vice President, Strategy and Business Development from January 1998 to July 1999 at RJR Nabisco, Inc., an American conglomerate selling tobacco and food products. Prior to that, Mr. Nowell served as CFO of Pillsbury North America from 1991 to 1998, then owned by Diageo PLC, a multinational alcoholic beverages company. Mr. Nowell currently serves as a director of American Electric Power Company, Inc., one of the largest electric utilities in the United States, a position he has held since 2004. He has also served on the boards of directors of Reynolds American Inc., a holding company of some of the largest tobacco companies in the United States, since September 2007 and Bank of America Corporation, one of the world’s largest financial institutions, since January 2013.

The Nominating and Governance Committee concluded that Mr. Nowell is qualified and should serve, in part, because of his capital markets, accounting, financial reporting, and risk management skills and experience as a public company director.

WILLIAM S. SIMON

Director since 2014.

Mr. Simon, age 55, served as Executive Vice President of Wal-Mart Stores, Inc., a global retailer, and as President and CEO, Walmart U.S., the largest division of Wal-Mart Stores, Inc., which consists of retail department stores, from July 2010 to August 2014. Previously, he served as Executive Vice President and COO of Walmart U.S. from March 2007 to June 2010 and Executive Vice President of Professional Services and New Business Development from March 2006 to March 2007. Prior to joining Walmart, Mr. Simon held senior executive positions at Brinker International, Inc., a casual dining restaurant company, Diageo North America, Inc., a multinational alcoholic beverages company, and Cadbury Schweppes plc, a multinational confectionery company. Mr. Simon also served as Secretary of the Florida Department of Management Services and served 25 years in the U.S. Navy and Naval Reserves. Mr. Simon previously served on Darden’s Board of Directors from 2012 until 2014 and rejoined the Board of Directors in October 2014.

The Nominating and Governance Committee concluded that Mr. Simon is qualified and should serve, in part, because of his senior level executive experience in large, complex, retailing and global brand management companies and his extensive experience in retail operations, food service and restaurants, as well as consumer packaged goods.

JEFFREY C. SMITH

Director since 2014.

Mr. Smith, age 43, is currently the Chairman of our Board. He is a Managing Member, CEO, and Chief Investment Officer of Starboard Value LP, a New York-based investment adviser that invests in publicly traded U.S. companies, a position he has held since April 2011. Prior to founding Starboard, he was a Partner Managing Director of Ramius LLC, an investment adviser, and the Chief Investment Officer of the Ramius Value and Opportunity Master Fund Ltd., a private investment fund. Prior to joining Ramius in January 1998, he served as Vice President of Strategic Development and a member of the board of directors of The Fresh Juice Company, Inc., a company engaged in the production, marketing, and sale of fresh and frozen fresh-squeezed fruit juices and other non-carbonated beverages to both food service and retail customers. Previously, he served on the boards of directors of Quantum Corporation, a global expert in data protection and

 

12


Table of Contents

big data management, from May 2013 to May 2015, Office Depot, Inc., an office supply company, from August 2013 to September 2014, Regis Corporation, which owns, operates and franchises hair and retail product salons, from October 2011 to October 2013, Surmodics, Inc., a provider of drug delivery and surface modification technologies to the healthcare industry, from January 2011 to August 2012, Zoran Corporation, a provider of digital solutions in the digital entertainment and digital imaging market from March 2011 until its merger that same year with CSR plc, Phoenix Technologies Ltd., a provider of core systems software products, services, and embedded technologies, from November 2009 until its sale in November 2010, Actel Corporation, a provider of power management solutions, from March 2009 until its sale in October 2010, S1 Corporation, a provider of customer interaction software for financial and payment services, from May 2006 to September 2008, and Kensey Nash Corporation, a medical technology company, from December 2007 to February 2009. Mr. Smith began his career in the Mergers and Acquisitions department at Societe Generale.

The Nominating and Governance Committee concluded that Mr. Smith is qualified and should serve, in part, because of his executive and board experience and his financial and management expertise.

CHARLES (CHUCK) M. SONSTEBY

Director since 2014.

Mr. Sonsteby, age 61, has served as the CFO and Chief Administrative Officer of The Michaels Companies, Inc., the largest arts and crafts specialty retailer in North America, and Michaels Stores, Inc., which became an indirect wholly-owned subsidiary of Michaels as part of a reorganization in July 2013, since October 2010. Prior to that, Mr. Sonsteby served as the CFO and Executive Vice President of Brinker International, Inc., a casual dining restaurant company, from May 2001 to October 2010. He joined Brinker in 1990 as Director of the Tax, Treasury and Risk Management departments and thereafter served in various capacities, including as Senior Vice President of Finance from 1997 to 2001 and as Vice President and Treasurer from 1994 to 1997. Mr. Sonsteby also previously served on the board of directors of Zale Corporation, a specialty retailer of diamond and other jewelry products in North America, from November 2006 to February 2011.

The Nominating and Governance Committee concluded that Mr. Sonsteby is qualified and should serve, in part, because of his restaurant operations and executive leadership experience with several major brands, and his experience as a public company director.

ALAN N. STILLMAN

Director since 2014.

Mr. Stillman, age 78, founded Fourth Wall Restaurants in 2007 and the group is comprised of upscale restaurants in New York City, including the flagship Smith & Wollensky location. Mr. Stillman founded Smith & Wollensky in 1977 and served as its President and Chairman from 1977 to 1997. From 1997 until 2007, he served as Chairman and Chief Executive Officer of The Smith & Wollensky Restaurant Group, Inc., a publicly traded company which developed and operated high-end, high-volume restaurants in major cities across the United States. Mr. Stillman developed and founded his first restaurant, T.G.I. Fridays, an American restaurant chain focused on casual dining, in 1965. During his career, Mr. Stillman developed a series of restaurant concepts in Manhattan, including Manhattan Ocean Club, Maloney & Porcelli, and The Post House. Mr. Stillman has also served as a director of Meals on Wheels USA for over 20 years.

The Nominating and Governance Committee concluded that Mr. Stillman is qualified and should serve, in part, because of his significant restaurant experience and expertise, particularly as an entrepreneur and innovator, coupled with his extensive experience serving in senior executive positions and as a director of both public and private companies.

 

13


Table of Contents

PROPOSAL 2 — ADVISORY APPROVAL OF THE COMPANY’S EXECUTIVE COMPENSATION

In accordance with SEC rules, the Board asks shareholders for advisory approval of the Company’s executive compensation on an annual basis. Accordingly, we are asking our shareholders to provide an advisory, nonbinding vote to approve the compensation awarded to our NEOs, as we have described it in the “Compensation Discussion and Analysis” and “Executive Compensation” sections of this Proxy Statement, beginning on pages 55 and 68, respectively.

As described in detail in the “Compensation Discussion and Analysis” section beginning on page 55, the Compensation Committee oversees the executive compensation program and compensation awarded, adopting changes to the program and awarding compensation as appropriate to reflect Darden’s circumstances and to promote the main objectives of the program. These objectives include: to help us attract, motivate, reward and retain superior leaders who are capable of creating sustained value for our shareholders, and to promote a performance-based culture that is intended to align the interests of our executives with those of our shareholders.

We are asking our shareholders to indicate their support for our NEO compensation. We believe that the information we have provided in this Proxy Statement demonstrates that our executive compensation program was designed appropriately and is working to ensure that management’s interests are aligned with our shareholders’ interests to support long-term value creation.

You may vote for or against the following resolution, or you may abstain. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our NEOs and the philosophy, policies and procedures described in this Proxy Statement.

Resolved, that the compensation awarded to Darden’s NEOs for fiscal 2015, as disclosed in this Proxy Statement pursuant to SEC rules, including the Compensation Discussion and Analysis, compensation tables and related narrative discussion, is hereby APPROVED.

While this vote is advisory and not binding on our Company, the Board and the Compensation Committee expect to consider the outcome of the vote, along with other relevant factors, when considering future executive compensation decisions.

Your Board recommends that you vote FOR approval of the foregoing resolution.

 

14


Table of Contents

PROPOSAL 3 — RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

The Audit Committee of the Board has appointed KPMG LLP as our independent registered public accounting firm for the fiscal year ending May 29, 2016. KPMG LLP has served as our independent registered public accounting firm since 1995. Shareholder approval of this appointment is not required, but the Board is submitting the selection of KPMG LLP for ratification in order to obtain the views of our shareholders. If the appointment is not ratified, the Audit Committee will reconsider its selection. Even if the appointment is ratified, the Audit Committee, which is solely responsible for appointing and terminating our independent registered public accounting firm, may in its discretion, direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of our Company and our shareholders. Representatives of KPMG LLP are expected to be present at the Annual Meeting and will be given an opportunity to make a statement and to respond to appropriate questions by shareholders.

Your Board recommends that you vote FOR ratification of the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending May 29, 2016.

Independent Registered Public Accounting Firm Fees and Services

Fees

The following table sets forth the aggregate fees billed or estimated to be billed to us by KPMG LLP for fiscal 2015 and fiscal 2014:

 

     Fiscal 2015      Fiscal 2014  

Audit Fees

   $ 2,362,500       $ 3,661,000   

Audit-Related Fees

     137,000         114,000   

Tax Fees

     1,020,000         2,122,000   

All Other Fees

     1,650         308,850   
  

 

 

    

 

 

 

Total Fees

   $ 3,521,150       $ 6,205,850   
  

 

 

    

 

 

 

Audit Fees consisted of fees paid to KPMG LLP for the audit of our annual financial statements included in the Annual Report on Form 10-K, review of our interim financial statements included in our Quarterly Reports on Form 10-Q, and services normally provided by our accountants in connection with statutory and regulatory filings or engagements. Fiscal 2015 audit fees were lower than the prior year, reflecting the additional services performed in connection with the separation of the Red Lobster business in fiscal 2014.

Audit-Related Fees consisted of fees for assurance and related services that were reasonably related to the performance of the audit or review of our financial statements and are not reported under Audit Fees. The services provided consisted of audits of our employee benefit plans and the Darden Restaurants, Inc. Foundation.

Tax Fees in fiscal 2015 consisted of fees for tax compliance, and in fiscal 2014 consisted of fees for tax compliance of $1,022,000 and tax consulting services of $1,100,000. Fiscal 2015 tax fees were lower than the prior year, reflecting the additional tax consulting services performed in connection with the separation of the Red Lobster business in fiscal 2014.

All Other Fees consisted of fees other than the services reported above. The services provided in fiscal 2015 consisted of a subscription to an accounting website and in fiscal 2014 consisted of technical accounting advisory services associated with the separation of the Red Lobster business and a subscription to an accounting website.

Pre-Approval Policy

Pursuant to our policy on Pre-Approval of Audit and Non-Audit Services, we discourage the retention of our independent registered public accounting firm for non-audit services. We will not retain our independent registered public accounting firm for non-audit work unless:

 

   

In the opinion of senior management, the independent registered public accounting firm possesses unique knowledge or technical expertise that is superior to that of other potential providers;

 

15


Table of Contents
   

The approvals of the Chair of the Audit Committee and the CFO are obtained prior to the retention; and

 

   

The retention will not affect the status of the independent registered public accounting firm as “independent accountants” under the applicable rules of the SEC, Independence Standards Board and NYSE.

The details regarding any engagement of the independent registered public accounting firm for non-audit services are provided promptly to the full Audit Committee. During fiscal 2015 and fiscal 2014, all of the services provided by KPMG LLP for the services described above related to Audit-Related FeesTax Fees, and All Other Fees were pre-approved using the above procedures and none were provided pursuant to any waiver of the pre-approval requirement.

 

16


Table of Contents

PROPOSAL 4 — APPROVAL OF AMENDMENT TO THE COMPANY’S CHARTER TO REDUCE THE

PERCENTAGE OF SHARES REQUIRED TO CALL A SPECIAL MEETING OF SHAREHOLDERS

We are seeking approval of a proposed amendment to our Articles of Incorporation (also referred to as the Charter) to reduce the percentage of shares required to call a special meeting of shareholders.

Your Board recommends that you vote FOR approval of the Charter amendment, to reduce the percentage of shares required to call a special meeting of shareholders from 50% to 10%.

Background

Article XI of the Charter states that a special meeting of the shareholders may be called by shareholders if the holders of not less than 50% of all votes entitled to be cast on any issue proposed to be considered at the proposed special meeting sign, date and deliver to the Secretary one or more written demands for the meeting. Pursuant to the terms of a Memorandum of Understanding(“MOU”) between the Company and Teamsters Local 443 Health Services & Insurance Plan in November 2014, on its behalf and on behalf of a putative class of shareholders, pursuant to which the parties have agreed to settle the outstanding derivative litigation brought against the Company (the “Settlement”), it is requested that the Company permit its shareholders at the 2015 Annual Meeting to approve a proposal to amend the Charter to reduce the percentage of outstanding shares necessary to call a special meeting from 50% to 10%.

On November 11, 2014, the Board adopted resolutions approving and authorizing the proposed Charter amendment and directing that the amendment be submitted to a vote of the stockholders at the 2015 Annual Meeting. The Board determined that it is in the best interests of the Company and its shareholders to amend Article XI of the Charter to provide for a lower threshold of 10% substantially in the form provided below. This amendment empowers shareholders with greater accessibility to call a meeting and aligns the Company’s policy with recognized corporate governance best practices.

Amendment

If approved, the amendment would amend Article XI of the Charter as follows:

ARTICLE XI

A special meeting of shareholders of the Corporation shall be held

(a) on call of its Board of Directors or the person or persons authorized to do so by the bylaws, or

(b) if the holders of not less than 5010% of all the votes entitled to be cast on any issue proposed to be considered at the proposed special meeting sign, date and deliver to the Corporation’s Secretary one or more written demands for the meeting describing the purpose or purposes for which it is to be held. Notwithstanding the foregoing, whenever holders of one or more series of Preferred Shares shall have the right, voting separately as a class or series, to elect directors, such holders may call, pursuant to the terms of the resolution or resolutions adopted by the Board of Directors pursuant to Article III, special meetings of holders of such Preferred Shares.

The Proposed Articles of Incorporation of Darden Restaurants, Inc., reflecting all amendments to the Charter being proposed at the Annual Meeting and assuming all such amendments are approved, is attached to this Proxy Statement as Appendix A.

 

17


Table of Contents

PROPOSAL 5 — ELIMINATE THE SUPERMAJORITY VOTING REQUIREMENT FOR SHAREHOLDER

AMENDMENTS TO PROVISIONS OF THE CHARTER

We are seeking approval of a proposed amendment to our Charter to eliminate the supermajority voting requirement for shareholder amendments to provisions of the Charter.

Your Board recommends that you vote FOR approval of the Charter amendment, to eliminate the supermajority voting requirement for shareholder amendments to provisions of the Charter.

Background

Article XIII of the Charter currently requires the affirmative vote of not less than 66 2/3% of all outstanding common shares of the Company to amend provisions of the Charter. Pursuant to the terms of the MOU, it is requested that the Company permit its shareholders at the 2015 Annual Meeting to approve a proposal to amend the Charter to remove the supermajority voting standards for any actions of shareholders to amend provisions of the Charter.

On November 11, 2014, the Board adopted resolutions approving and authorizing the proposed Charter amendment and directing that the amendment be submitted to a vote of the stockholders at the 2015 Annual Meeting. The Board determined that it is in the best interests of the Company and its shareholders to amend Article XIII of the Charter to apply a simple majority voting standard to amend provisions of the Charter, substantially in the form provided below. This amendment empowers a majority of the Company’s shareholders to have greater influence over the Company’s governance and aligns the Company’s policy with recognized corporate governance best practices.

Amendment

If approved, the amendment would amend Article XIII of the Charter as follows:

ARTICLE XIII

(1) Any action required or permitted to be taken by shareholders of the Corporation may be taken only upon the vote of shareholders at an annual or special meeting of shareholders duly noticed and called in accordance with Florida Law, and no such action may be taken without a meeting by written consent of shareholders.

(2) No amendment to the Articles of Incorporation shall amend, alter, change or repeal any of the provisions of Article IV, X, XI or this Article XIII hereof unless such amendment shall receive the affirmative vote of not less than 66 2/3% of the Voting Securities, excluding the Voting Securities of any Related Person, as defined in Article IV.

The Proposed Articles of Incorporation of Darden Restaurants, Inc., reflecting all amendments to the Charter being proposed at the Annual Meeting and assuming all such amendments are approved, is attached to this Proxy Statement as Appendix A.

 

18


Table of Contents

PROPOSAL 6 — ELIMINATE THE SUPERMAJORITY VOTING REQUIREMENT FOR SHAREHOLDERS TO

REMOVE DIRECTORS FOR CAUSE

We are seeking approval of a proposed amendment to our Charter to eliminate the supermajority voting requirement for shareholders to remove directors for cause.

Your Board recommends that you vote FOR approval of the Charter amendment, eliminating the supermajority voting requirement to remove directors for cause.

Background

Article X of the Charter currently requires the affirmative vote of not less than 66 2/3% of all outstanding common shares of the Company to remove a director for cause. Pursuant to the terms of the MOU, it is requested that the Company permit its shareholders at the 2015 Annual Meeting to approve a proposal to amend the Charter to remove the supermajority voting standards for any actions of shareholders to remove directors for cause.

On November 11, 2014, the Board adopted resolutions approving and authorizing the proposed Charter amendment and directing that the amendment be submitted to a vote of the stockholders at the 2015 Annual Meeting. The Board determined that it is in the best interests of the Company and its shareholders to amend Article X of the Charter to apply a simple majority voting standard to the removal of directors by shareholders for cause, substantially in the form provided below. This amendment removes an unnecessary burden for shareholders to act in the case of cause.

Amendment

If approved, the amendment would amend Article X of the Charter as follows:

ARTICLE X

No director of the Corporation may be removed from office by the shareholders except

(i) for cause and

(ii) by the affirmative vote, at a special meeting of shareholders held for that purpose, of not less than 66 2/3% a majority of the shareholders entitled to vote for the election of directors (or, if a director is elected by a voting group of shareholders, 66 2/3% a majority of the shareholders entitled to vote for the election of such director). Upon any such removal, the term of the director who shall have been so removed shall forthwith terminate and there shall be a vacancy in the Board of Directors to be filled in such manner as shall be provided herein and by the bylaws of the Corporation.

The Proposed Articles of Incorporation of Darden Restaurants, Inc., reflecting all amendments to the Charter being proposed at the Annual Meeting and assuming all such amendments are approved, is attached to this Proxy Statement as Appendix A.

 

19


Table of Contents

PROPOSAL 7 — ELIMINATE THE SUPERMAJORITY VOTING REQUIREMENT FOR CERTAIN BUSINESS

COMBINATIONS WITH INTERESTED SHAREHOLDERS

We are seeking approval of a proposed amendment to our Charter to eliminate the supermajority voting requirement for certain business combinations with interested shareholders.

Your Board recommends that you vote FOR approval of the Charter amendment, eliminating the supermajority voting requirement for certain business combinations with interested shareholders.

Background

Article IV of the Charter provides that the affirmative vote of not less than 66 2/3% of the outstanding common shares of the Company, excluding the voting securities beneficially owned by any shareholder who is party to the business combination, shall be required for approval or authorization of certain business combinations with interested shareholders, and Article VIII, Section 3 of the Charter provides that the Company has elected not to be governed by Section 607.0901 of the Florida Business Corporation Act (collectively, the “Fair Price Provision”).

On November 11, 2014, the Board adopted resolutions approving and authorizing the proposed Charter amendment and directing that the amendment be submitted to a vote of the stockholders at the 2015 Annual Meeting. The Board determined that it is in the best interests of the Company and its shareholders to delete the Fair Price Provision from the Charter, substantially in the form provided below, and allow shareholders to rely on the protections provided under Florida law. If approved by shareholders, this amendment would eliminate another Charter provision that would have required a supermajority vote of the Company’s shareholders, leaving the requirements of Florida’s statutory Fair Price Provision to apply to the approval of this type of business combination.

Amendment

If approved, the amendment would amend Articles IV and VIII of the Charter as follows:

ARTICLE IV

(1)

(a) In addition to any affirmative vote required by law or otherwise, and except as expressly provided in this Article IV, the affirmative vote of not less than 66 2/3% of the Voting Securities, excluding the Voting Securities beneficially owned by a Related Person who is party to the Business Combination, shall be required for the approval or authorization of any Business Combination. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law, in these Articles of Incorporation or in any agreement with any national securities exchange or otherwise.

(b) The provisions of subsection (1)(a) of this Article IV shall not apply to any Business Combination involving only (x) the acquisition or issuance by the Corporation or a Subsidiary of securities of the Corporation in a transaction in which all holders of securities of the same class or series (other than a Related Person) are entitled to participate on identical terms and the Related Person is entitled to participate, if at all, on terms not more favorable than the terms upon which the other holders of securities of the same class or series are entitled to participate; provided that any such acquisitions or issuance is not made pursuant to an agreement or understanding with the Related Person; or (y) the acquisition of goods or services by or from the Corporation or a Subsidiary on terms no less favorable to the Corporation or such Subsidiary, as the case may be, than the terms on which such goods or services may be acquired in the ordinary course of business by or from a Person unaffiliated with the Corporation.

(c) The provisions of subsection (1)(a) of this Article IV shall not apply to any Business Combination, and such Business Combination shall require only such affirmative vote, if any, as is required by law or otherwise, if such Business Combination shall have been approved by a majority (whether such approval is made prior or subsequent to the acquisition of beneficial ownership of the Voting Securities that caused the Related Person to become a Related Person) of the Disinterested Directors.

 

20


Table of Contents

(d) The provisions of subsection (1)(a) of this Article IV shall not apply to any Business Combination, and such Business Combination shall require only such affirmative vote, if any, as is required by law or otherwise, if all of the following conditions are met:

(i) The Business Combination shall provide for consideration to be received by all holders of Common Shares in exchange for all their Common Shares, and the aggregate amount of cash and the Fair Market Value as of the date of consummation of the Business Combination of consideration other than cash, to be received per share by holders of Common Shares in such Business Combination shall be at least equal to the higher of the amounts determined under clauses (A) and (B) below (subject to appropriate adjustment for any recapitalization, stock dividend, stock split, combination of shares or similar event):

(A) if applicable, the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers’ fees) paid by or on behalf of the Related Person for any Common Shares within the two-year period immediately prior to the Announcement Date; and

(B) the Fair Market Value per share of the Common Shares on the Announcement Date or on the Determination Date, whichever is higher;

(ii) If the Business Combination provides for consideration to be received by holders of any class or series of Voting Securities other than Common Shares, whether or not the Related Person has previously acquired any shares of such class or series, the aggregate amount of cash and the Fair Market Value as of the date of consummation of the Business Combination of consideration other than cash to be received per share by holders of shares of such class or series shall be at least equal to the higher of the amount determined under clauses (A) and (B) below (subject to appropriate adjustment for any recapitalization, stock split, stock dividend, combination of shares or similar event):

(A) if applicable, the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers’ fees) paid by or on behalf of the Related Person for any share of such class or series in connection with the acquisition by the Related Person of beneficial ownership of shares of such class or series within the two-year period immediately prior to the Announcement Date; and

(B) the Fair Market Value per share of such class or series on the Announcement Date or on the Determination Date, whichever is higher;

(iii) The consideration to be received by holders of a particular class or series of outstanding Voting Securities (including Common Shares) shall be in cash or in the same form as previously has been paid by or on behalf of the Related Person in connection with its direct or indirect acquisition of beneficial ownership of shares of such class or series of Voting Securities. If the consideration so paid for shares of any class or series of Voting Securities varied as to form, the form of consideration for such class or series of Voting Securities shall be either cash or the form used to acquire beneficial ownership of the largest number of shares of such class or series of stock previously acquired by the Related Person; and

(iv) After such Related Person has become a Related Person, such Related Person shall not have received the benefit, directly or indirectly (except proportionately as a shareholder of the Corporation), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise.

(2) If any vote of holders of Voting Securities is required for the adoption or approval of any Business Combination, a proxy or information statement describing the Business Combination and complying with the requirements of the 1934 Act shall be mailed at a date determined by the Disinterested Directors to all shareholders of the Corporation whether or not such statement is required under the 1934 Act. The statement shall contain any recommendations as to the advisability of the Business Combination which the Disinterested Directors, or any of them, may choose to state and, if deemed advisable by the Disinterested Directors, an opinion of an investment banking firm as to the fairness of the terms of such Business Combination. Such firm shall be selected by the Disinterested Directors and paid a fee for its services by the Corporation as approved by the Disinterested Directors.

 

21


Table of Contents

(3) For purposes of this Article IV:

(a) “Affiliate” and “beneficial owner” are used herein as defined in Rule 12b-2 and Rule 13d-3, respectively, under the Securities Exchange Act of 1934 as in effect on the date of adoption of this Article IV by the shareholders of the Corporation (the “1934 Act”). The term “Affiliate” as used herein shall exclude the Corporation, but shall include the definition of “Associate” as contained in Rule 12b¬2.

2.

(b) “Announcement Date”, with respect to any Business Combination, is the first public announcement of the proposed Business Combination.

(c) A “Business Combination” is

(i) a merger or consolidation of the Corporation or any of its subsidiaries with a Related Person;

(ii) the sale, lease, exchange, pledge, transfer or other disposition

(A) by the Corporation or any of its subsidiaries of all or a Substantial Part of the Corporation’s Assets to a Related Person, or

(B) by a Related Person of any of its assets, except in the ordinary course of business, to the Corporation or any of its subsidiaries;

(iii) the issuance of shares or other securities of the Corporation or any of its subsidiaries to a Related Person, other than on a pro rata basis to all holders of Voting Securities of the same class held by the Related Person pursuant to a share split, share dividend or distribution of warrants or rights; (iv) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of a Related Person; (v) any reclassification of securities, recapitalization, merger or consolidation or other transaction which has the effect, directly or indirectly, of increasing the proportionate share of any Voting Securities beneficially owned by a Related Person; or (vi) any agreement, contract or other arrangement providing for any of the foregoing transactions.

[Reserved]

(d) “Determination Date”, with respect to any Related Person, is the date on which the Related Person became a Related Person.

(e) A “Disinterested Director” is a member of the Board of Directors of the Corporation (other than the Related Person) who was a director prior to the time the Related Person became a Related Person, or any director who was recommended for election by the Disinterested Directors. Any action to be taken by the Disinterested Directors shall require the affirmative vote of a majority of the Disinterested Directors.

(f) “Fair Market Value” is (a) in the case of shares, the highest closing sale price per share during the 30-day period immediately preceding the date in question of such shares on the principal United States securities exchange registered under the Exchange Act on which such shares are listed; or, if such shares are not listed on any such exchange, the highest closing bid quotation per share with respect to such shares during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotation System or any similar system then in use; or if no such quotations are available, the fair market value per share on the date in question of such shares as determined by at least two-thirds of the Disinterested Directors in good faith; and (b) in the case of property other than shares, the fair market value of such property on the date in question as determined in good faith by at least two-thirds of the Disinterested Directors.

(g) A “Person” is a natural person or a legal entity of any kind, together with any Affiliate of such person or entity, or any person or entity with whom such person, entity or an Affiliate has any agreement or understanding relating to acquiring, voting or holding Voting Securities.

 

22


Table of Contents

(h) A “Related Person” is (i) any Person which, together with its Affiliates, is the beneficial owner of an aggregate of 10% or more of the Common Shares or of the total voting power of all outstanding Voting Securities, (ii) any officer, director or employee of a Related Person, (iii) any Person which, together with its Affiliates, shall become, in a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933, the beneficial owner of Voting Securities of which a Related Person was the beneficial owner at any time during the two years prior to the time such Person or Affiliate became such beneficial owner and (iv) any Affiliate of any such Person, provided, that the term “Related Person” shall not include the Corporation; any savings, employee stock ownership or other employee benefit plan of the Corporation or any trustee or fiduciary when acting in such capacity with respect to any such employee benefit plan of the Corporation; or any subsidiary all the capital stock of or equity interest in which is owned by the Corporation, by one or more such subsidiaries or by the Corporation and one or more such subsidiaries.

(i) A “Substantial Part of the Corporation’s Assets” shall mean assets of the Corporation or any of its subsidiaries in an amount equal to 20% or more of the fair market value, as determined by the Disinterested Directors, of the total consolidated assets of the Corporation and its subsidiaries taken as a whole as of the end of its most recent fiscal year ended prior to the time the determination is made.

(j) “Voting Securities” means all outstanding Common Shares and all other outstanding securities of the Corporation, if any, which are then entitled to vote generally in the election of directors or which have been designated as Voting Securities by a majority of the Disinterested Directors.

ARTICLE VIII

The following provisions are inserted for the regulation and conduct of the affairs of the Corporation, but it is expressly provided that the same are intended to be and shall be construed to be in furtherance and not in limitation or exclusion of the powers conferred by law:

(1) Subject always to such bylaws as may be adopted from time to time by the shareholders, the Board of Directors is expressly authorized to adopt, alter, amend and repeal the bylaws of the Corporation, but any bylaw adopted by the Board of Directors may be altered, amended or repealed by the shareholders. The bylaws or any particular bylaw may fix a greater quorum or voting requirement for shareholders (or voting groups of shareholders) than is required by the Florida Law.

(2) All corporate powers of the Corporation shall be managed by or under the authority of, and its business and affairs shall be managed under the direction of, its Board of Directors. Directors need not be shareholders. The bylaws may prescribe the number of directors, not less than three; may provide for the increase or reduction thereof but not less than three; and may prescribe the number necessary to constitute a quorum, which number may be less than a majority of the whole Board of Directors, but not less than the number required by law. Whenever a vacancy occurs on the Board of Directors, including a vacancy resulting from an increase in the number of directors, it may be filled only by the affirmative vote of a majority of the remaining directors, though less than a quorum of the board of directors.

(3) The Corporation hereby elects not to be governed by Section 607.0901 (relating to affiliated transactions) or by Section 607.0902 (relating to control share acquisitions) of the Florida Law, and the provisions of such statutes statute shall not apply to the Corporation.

The Proposed Articles of Incorporation of Darden Restaurants, Inc., reflecting all amendments to the Charter being proposed at the Annual Meeting and assuming all such amendments are approved, is attached to this Proxy Statement as Appendix A.

 

23


Table of Contents

PROPOSAL 8 — RATIFICATION OF THE PROVISION OF THE COMPANY’S BYLAWS DESIGNATING

ORANGE COUNTY, FLORIDA AS THE EXCLUSIVE FORUM FOR SHAREHOLDER LITIGATION

We are seeking ratification of the provision of the Company’s Bylaws designating Orange County, Florida as the exclusive forum for shareholder litigation.

Your Board recommends that you vote FOR ratification of the provision of the Company’s Bylaws designating Orange County, Florida as the exclusive forum for shareholder litigation.

Background and Considerations of the Board

On March 19, 2014, the prior Board approved an amendment to Article VI, Section 7 of the Bylaws to provide for the designation of Orange County, Florida, as the exclusive forum for certain stockholder litigation such as derivative claims, breach of fiduciary duty claims, claims pursuant to the Florida Business Corporation Act or the Charter or Bylaws and claims governed by the internal affairs doctrine (the “Exclusive Forum Provision”). In order to promote corporate governance best practices, in November 2014 the new Board adopted a resolution to have the Exclusive Forum Provision ratified by our shareholders. We believe the shareholders should ratify the provision because it is an important issue and is in the best interests of the Company.

The Exclusive Forum Provision is intended to avoid subjecting the Company to multiple lawsuits in multiple jurisdictions on matters relating to the corporate law in Florida, the Company’s state of incorporation. Because the Company’s restaurants are located throughout the country, there is a heightened risk that we will encounter such duplicative litigation. The ability to require such actions to be brought in a single forum provides numerous benefits to the Company and its stockholders.

The Exclusive Forum Provision addresses plaintiff forum shopping and the related, well-documented phenomenon of plaintiffs’ attorneys filing parallel lawsuits in multiple jurisdictions, primarily to obtain additional attorneys’ fees. The Board approved the Exclusive Forum Provision as a good governance measure in light of the incidence of such frivolous “strike” suits and multi-forum litigation. The Board believes that the Exclusive Forum Provision will reduce the risk of the Company’s involvement in duplicative litigation with the associated duplication of litigation expenses, the potential for inconsistent outcomes of cases brought in multiple forums and the possibility that courts in other states will misconstrue Florida law. The Board believes that, by ensuring that lawsuits relating to intra-corporate disputes are heard in a state or federal court located in Florida, an exclusive forum provision furthers the Company’s goal of fair, predictable and cost-effective outcomes. The Exclusive Forum Provision also gives the Board the discretion to consent to an alternative forum when appropriate under specific facts and circumstances.

Although exclusive jurisdiction provisions such as the one the Board has adopted are becoming increasingly common, and the Board knows of no reason a court in another state would not be willing to enforce its terms, the Board cannot be sure that all state courts would enforce the provision and transfer any covered proceeding to the Florida courts.

The Board has determined that the Exclusive Forum Provision is in the best interests of the Company and its shareholders and recommends that it be ratified by the shareholders.

The Exclusive Forum Provision to our Bylaws is attached to this Proxy Statement as Appendix B.

 

24


Table of Contents

PROPOSAL 9 — APPROVAL OF DARDEN RESTAURANTS, INC. 2015 OMNIBUS INCENTIVE PLAN

We are seeking approval of our Darden Restaurants, Inc. 2015 Omnibus Incentive Plan (the “2015 Plan”). The Board believes that the adoption of the 2015 Plan is in the best interests of our shareholders and the Company because equity-based awards help to attract, motivate, and retain talented employees, directors and other service providers, align employee and shareholder interests, link employee compensation with performance, and maintain a culture based on employee share ownership.

Shareholder approval of the 2015 Plan is necessary in order for the Company to (1) meet the NYSE shareholder approval requirements; (2) meet the shareholder approval requirements for the grant of stock options which qualify as “incentive stock options” under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”); and (3) take tax deductions for certain compensation resulting from awards granted thereunder intended to qualify as performance-based compensation under Section 162(m) of the Code. Approval of the 2015 Plan will constitute approval of the material terms of the 2015 Plan pursuant to the shareholder approval requirements of Section 162(m) of the Code.

Your Board recommends that you vote FOR approval of the 2015 Plan.

Background

On July 15, 2015, the Board of Directors adopted the 2015 Plan, a copy of which is attached as Appendix D to this Proxy Statement. The 2015 Plan will become effective on September 17, 2015 (the “Effective Date”), subject to approval by the Company’s shareholders. The 2015 Plan is intended to replace the Company’s existing equity compensation plan, the 2002 Stock Incentive Plan (the “2002 Plan”). If the Company’s shareholders approve the 2015 Plan, no additional awards will be granted under the 2002 Plan after the date of such approval. Outstanding awards under the 2002 Plan, however, will continue to be governed by the 2002 Plan and the agreements under which they were granted.

The 2015 Plan is intended to (a) provide eligible individuals with an incentive to contribute to the success of the Company and to operate and manage the Company’s business in a manner that will provide for the Company’s long-term growth and profitability and that will benefit its shareholders and other important stakeholders, including its employees and customers, and (b) provide a means of recruiting, rewarding, and retaining key personnel. The 2015 Plan provides for the grant of awards of options (nonqualified stock options or incentive stock options), stock appreciation rights, restricted stock, restricted stock units, deferred stock units, unrestricted stock, dividend equivalent rights, performance shares and other performance-based awards, other equity-based awards, and cash bonus awards (each, an “Award” and collectively, the “Awards”). Subject to adjustment as provided in the 2015 Plan, the maximum number of shares of stock reserved for issuance under the 2015 Plan will be equal to the sum of (i) nine hundred thousand (900,000) shares of stock, plus (ii) the number of shares of stock available for future awards under the 2002 Plan as of the Effective Date, plus (iii) the number of shares of stock related to awards outstanding under the 2002 Plan as of the Effective Date that thereafter terminate by expiration or forfeiture, cancellation, or otherwise without the issuance of such shares of Stock. We are seeking to include additional shares of our common stock under the 2015 Plan beyond the shares of stock that remain available for future awards under the 2002 Plan in order to provide us with flexibility in structuring our compensation arrangements going forward and to enable us to grant equity compensation at a level that allows us to continue to attract and retain employees in the competitive labor markets in which we compete.

The following summary of the 2015 Plan is qualified in its entirety by reference to the full text of the 2015 Plan.

Description of the 2015 Plan

Purpose

The Board believes that our success depends in large measure on our ability to attract and retain highly qualified officers, employees and non-employee directors who are motivated to put forth maximum effort on our behalf and on behalf of our shareholders. Compensation based on common stock encourages these persons to align their interest with that of shareholders. The Board believes that stock-based compensation programs are essential in attracting, retaining and motivating these individuals to enhance the growth of Darden and our subsidiaries, and the 2015 Plan allows for the use of stock-based compensation.

 

25


Table of Contents

Eligibility and Term

Any employee, director, or consultant of the Company or an affiliate, as the Committee (as defined below) determines and designates from time to time, and any other individual whose participation in the 2015 Plan is determined to be in the best interests of the Company by the Committee, is eligible to receive Awards under the 2015 Plan. The 2015 Plan will become effective as of the Effective Date and will terminate on the first to occur of (a) the tenth (10th) anniversary of the Effective Date, (b) the date determined in accordance with the Board’s authority to amend, suspend, or terminate the 2015 Plan; and (c) the date determined in accordance with a Change in Control (as defined below). Upon such termination of the 2015 Plan, all outstanding Awards will continue to have full force and effect in accordance with the provisions of the terminated 2015 Plan and the applicable award agreement (or other documents evidencing such Awards).

Administration

The 2015 Plan is administered by a Committee, which is composed of not fewer than two (2) directors of the Company designated by the Board to administer the 2015 Plan (the “Committee”). Each member of the Committee will be (a) a “non-employee director” within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), (b) an “outside director” within the meaning of Section 162(m) of the Code and (c) an independent director in accordance with the rules of any stock exchange on which the Company’s stock is listed.

The Committee may (subject to express limitations in the 2015 Plan):

 

   

Designate persons eligible for Awards under the 2015 Plan;

 

   

Determine the type of Award and number of shares covered by each Award;

 

   

Determine the terms and conditions of any Award;

 

   

Prescribe the form of each award agreement evidencing an Award;

 

   

Amend, modify or supplement the terms of any outstanding Award; and

 

   

Interpret and administer the 2015 Plan and any award agreement.

The Committee may also determine whether an Award may be canceled, forfeited or suspended, and may amend or waive the terms and conditions of an outstanding Award, but may not, except in connection with a corporate transaction involving the Company, (a) amend the terms of outstanding options or SARs to reduce the option price or SAR price, as applicable, of such outstanding options or SARs; (b) cancel outstanding options or SARs in exchange for or substitution of options or SARs with an option price or SAR price, as applicable, that is less than the option price or SAR price, as applicable, of the original options or SARs; or (c) cancel outstanding options or SARs with an option price or SAR price, as applicable, above the current fair market value in exchange for cash or other securities, in each case, unless such action is subject to and approved by the Company’s shareholders. To the extent permitted by applicable laws, the Committee may delegate some or all of its authority with respect to the 2015 Plan and Awards to the Chief Executive Officer of the Company and/or any other officer of the Company designated by the Committee, provided that the Committee may not delegate its authority (a) to make Awards to directors of the Company, (b) to make Awards to any employee who (i) is an “officer” within the meaning of Rule 16a-1(f) of the Exchange Act, (ii) is or could become a “covered employee” within the meaning of Section 162(m)(3) of the Code, or (iii) is an officer of the Company who is delegated authority by the Committee as discussed above, or (c) to interpret the 2015 Plan, any Award, or any award agreement.

Minimum Vesting Period. Except with respect to a maximum of five percent (5%) of the Share Limit, as may be adjusted pursuant to the terms of the 2015 Plan, and except in connection with a Change in Control, no Award will provide for vesting which is any more rapid than vesting on the one (1) year anniversary of the grant date or, with respect to Awards that vest upon the attainment of performance goals, a performance period that is less than twelve (12) months.

Shares Available for Issuance

Subject to adjustment as provided in the 2015 Plan, the maximum number of shares of stock reserved for issuance under the 2015 Plan will be equal to the sum of (i) nine hundred thousand (900,000) shares of stock, plus (ii) the number of shares of stock available for future awards under the 2002 Plan as of the Effective Date, plus (iii) the number of shares of stock related to awards outstanding under the 2002 Plan as of the Effective Date that thereafter terminate by expiration or forfeiture, cancellation, or otherwise without the issuance of such shares of Stock (the “Share Limit”). Any of the shares of

 

26


Table of Contents

common stock reserved and available for issuance under the 2015 Plan may be used for any type of Award under the 2015 Plan, and any or all of the shares of common stock reserved for issuance under the 2015 Plan will be available for issuance pursuant to the incentive stock options.

In connection with stock splits, distributions, recapitalizations, spin-offs, stock dividends and certain other events, the Committee will make proportionate adjustments that it deems appropriate in the aggregate number and kind of shares of stock that may be issued under the 2015 Plan and the number and kind of shares of stock that are subject to outstanding awards. The Committee will have the right to cause the Company to assume awards previously granted under a compensatory plan of another business entity that is a party to such transaction and to grant substitute awards under the 2015 Plan for such awards. The Share Limit will be increased by the number of shares of common stock subject to any such assumed awards and substitute awards. Shares available for issuance under a shareholder-approved plan of a business entity that is a party to such transaction (as appropriately adjusted, if necessary, to reflect such transaction) may be used for Awards under the 2015 Plan and will not reduce the number of shares of stock otherwise available for issuance under the 2015 Plan, subject to applicable rules of any stock exchange or securities market on which the stock is listed or publicly traded.

Shares of stock covered by an Award will be counted as used as of the grant date for purposes of calculating the number of shares of stock available for issuance. Any shares of stock that are subject to Awards, including shares of stock acquired through dividend reinvestment pursuant, will be counted against the Share Limit as one (1) share of stock for every one (1) share of stock subject to an Award. The number of shares of stock subject to an Award of SARs will be counted against the Share Limit as one (1) share of stock for every one (1) share of stock subject to such Award regardless of the number of shares of stock actually issued to settle such SARs upon the exercise of the SARs. The target number of shares issuable under a performance share grant will be counted against the Share Limit as of the grant date, but such number will be adjusted to equal the actual number of shares issued upon settlement of the performance shares to the extent different from such target number of shares. Awards that do not entitle a participant to receive or purchase shares of stock and Awards that are settled in cash will not be counted against the Share Limit.

If any shares of stock covered by an Award are not purchased or are forfeited or expire or if an Award otherwise terminates without delivery of any stock subject thereto or is settled in cash in lieu of shares, then the number of shares of stock counted against the Share Limit with respect to such Award will, to the extent of any such forfeiture, termination, expiration, or settlement, again be available for making Awards under the 2015 Plan.

The number of shares of stock available for issuance under the 2015 Plan will not be increased by the number of shares of stock (i) tendered, withheld, or subject to an Award granted under the 2015 Plan surrendered in connection with the purchase of shares of stock upon exercise of an option, (ii) that were not issued upon the net settlement or net exercise of a stock-settled SAR granted under the 2015 Plan, (iii) deducted or delivered from payment of an Award granted under the 2015 Plan in connection with the Company’s tax withholding obligations, or (iv) purchased by the Company with proceeds from option exercises.

The maximum number of shares of stock subject to options or SARs that can be granted under the 2015 Plan in any one fiscal year to any person, other than a non-employee director, is one million (1,000,000). The maximum number of shares of stock subject to Awards other than options or SARs that can be granted under the 2015 Plan in any one fiscal year to any person, other than a non-employee director, is two hundred thousand (200,000). The maximum fair market value of shares of stock that may be granted under the 2015 Plan in any one fiscal year to any non-employee director is five hundred thousand dollars ($500,000). The maximum amount that may be paid as a cash-denominated performance-based award (whether or not cash-settled) for a performance period to any person is ten million dollars ($10,000,000).

Types of Awards

Under the 2015 Plan, the Committee may award options (including nonqualified stock options or incentive stock options), stock appreciation rights, restricted stock, restricted stock units, deferred stock units, unrestricted stock, dividend equivalent rights, performance shares and other performance-based awards, other equity-based awards, and cash bonus awards. Any of the Awards may, but need not, be made as performance incentives to reward the holders of such Awards for the achievement of performance goals in accordance with the terms of the 2015 Plan. Each Award granted pursuant to the 2015 Plan will be evidenced by an award agreement containing the terms and conditions of the Award.

 

27


Table of Contents

Options. The holder of an option will be entitled to purchase a number of shares of our common stock at a specified option price during a specified time period, all as determined by the Committee. The option price of each option will be fixed by the Committee and stated in the award agreement evidencing such option. Except in the case of substitute awards, the option price of each option will be at least the fair market value of one (1) share of stock on the grant date; provided that, in the event that a participant is a ten percent (10%) stockholder, the option price of an option granted to such participant that is intended to be an incentive stock option will be not less than one hundred ten percent (110%) of the fair market value of one (1) share of stock on the grant date. In no case will the option price of any option be less than the par value of one (1) share of stock. Subject to certain limitations set forth in the 2015 Plan, each option granted under the 2015 Plan will become vested and/or exercisable at such times and under such conditions as determined by the Committee and stated in the award agreement, in another agreement with the participant or otherwise in writing. Each Option granted under the 2015 Plan will terminate, and all rights to purchase shares of stock thereunder will cease, on the tenth (10th) anniversary of the grant date of such option, or under such circumstances and on such date prior thereto as is set forth in the 2015 Plan or as may be fixed by the Committee and stated in the award agreement relating to such option, subject to certain limitations as set forth in the 2015 Plan.

Stock Appreciation Rights (SARs). The holder of a SAR will be entitled to receive, upon exercise thereof, the excess of (a) the fair market value of one (1) share of our common stock on the date the SAR is exercised, over (b) the SAR price as determined by the Committee. The award agreement for a SAR will specify the SAR price, which will be no less than the fair market value of one (1) share of stock on the grant date of such SAR. Subject to certain limitations set forth in the 2015 Plan, SARs may be granted in tandem with all or part of an option granted under the 2015 Plan or at any subsequent time during the term of such option, in combination with all or any part of any other Award, or without regard to any option or other Award. The Committee will determine, on the grant date or thereafter, the time or times at which, and the circumstances under which, a SAR may be exercised in whole or in part (including based on achievement of performance goals and/or future service requirements), the time or times at which SARs will cease to be or become exercisable following termination of service or upon other conditions, whether or not a SAR will be granted in tandem or in combination with any other Award, and any and all other terms and conditions of any SAR. Each SAR granted under the 2015 Plan will terminate, and all rights thereunder will cease, on the tenth (10th) anniversary of the grant date of such SAR or under such circumstances and on such date prior thereto as is set forth in the 2015 Plan or as may be fixed by the Committee and stated in the award agreement relating to such SAR.

Restricted Stock, Restricted Stock Units, and Deferred Stock Units. Awards of restricted stock, restricted stock units and deferred stock units will be subject to such restrictions as are imposed by the Committee (including, for example, establishing a restricted period applicable to such restricted stock, restricted stock units, or deferred stock units or prescribing restrictions in addition to or other than the expiration of the restricted period, including the achievement of corporate or individual performance goals, which may be applicable to all or any portion of such restricted stock, restricted stock units, or deferred stock units). Unless the Committee provides otherwise in an award agreement, holders of restricted stock will have the right to vote such shares of restricted stock and the right to receive any dividend payments or distributions declared or paid with respect to such shares of restricted stock. Holders of restricted stock units and deferred stock units will have no rights as stockholders of the Company. Holders of restricted stock units and deferred stock units will have the right, subject to any restrictions imposed by the Committee, to receive shares of our common stock, cash or a combination thereof in settlement of such units.

Upon the termination of a participant’s service to the Company or an affiliate, any restricted stock, restricted stock units, or deferred stock units held by such participant that have not vested, or with respect to which all applicable restrictions and conditions have not lapsed, will immediately be deemed forfeited, unless the Committee provides for otherwise in an award agreement, in another agreement with the participant, or otherwise in writing after such award agreement is issued, but prior to termination of the participant’s service. Upon forfeiture of such restricted stock, restricted stock units, or deferred units, the participant will have no further rights with respect thereto, including any right to vote such restricted stock or any right to receive dividends or dividend equivalent rights, as applicable, with respect to such restricted stock, restricted stock units, or deferred stock units.

Unrestricted Stock and Other Equity-Based Awards. Subject to the minimum vesting period described in the “Administration” section of this proposal, the Committee may, in its sole discretion, grant (or sell at the par value of a share of stock or at such other higher purchase price as determined by the Committee) an Award to any participant pursuant to which such participant may receive shares of unrestricted stock under the 2015 Plan or grant Awards in the form of other

 

28


Table of Contents

equity-based awards, as deemed by the Committee to be consistent with the purposes of the 2015 Plan, subject to terms and conditions determined by the Committee. Awards of unrestricted stock may be granted or sold to any participant in respect of service rendered or, if so provided in the related award agreement or a separate agreement, to be rendered by the participant to the Company or an affiliate or other valid consideration, in lieu of or in addition to any cash compensation due to such participant.

Dividend Equivalents. The holder of a dividend equivalent with respect to an Award will be entitled to receive payments (in cash, shares of our common stock, or a combination thereof) in a single installment or in multiple installments, all as determined in the sole discretion of the Committee and subject to the terms and conditions specified in the applicable award agreement. Dividend equivalents credited to the holder of a dividend equivalent right may be paid currently (with or without being subject to forfeiture or a repayment obligation) or may be deemed to be reinvested in additional shares of stock or Awards, which may thereafter accrue additional dividend equivalent rights (with or without being subject to forfeiture or a repayment obligation). Any such reinvestment will be at the fair market value thereof on the date of such reinvestment. No dividend equivalent rights may be granted in connection with, or related to, an award of options or SARs. A participant’s rights in all dividend equivalent rights will automatically terminate upon such participant’s termination of service for any reason, unless the Committee provides otherwise in an award agreement, in another agreement with the participant, or otherwise in writing after such award agreement is issued.

Performance-Based Awards. The Committee, at any time and from time to time, may grant performance-based awards in such amounts and upon such terms as the Committee determines, as set forth in an applicable award agreement. Each grant of a performance-based award will have an initial cash value or an actual or target number of shares of stock that is established by the Committee as of the grant date. The Committee will set performance goals in its discretion which, depending on the extent to which they are achieved, will determine the value and/or number of shares of stock subject to a performance-based award that will be paid out to the participant. Payment of the value earned under performance-based awards will be made, as determined by the Committee, in the form, at the time, and in the manner described in the applicable award agreement. Payment of performance-based awards will be in the form of cash, shares of stock, other awards, or a combination thereof, including shares of stock and/or awards that are subject to any restrictions deemed appropriate by the Committee, in each case as determined in the sole discretion of the Committee.

Forfeiture. The Committee may reserve the right in an award agreement to cause a forfeiture of the gain realized by a participant with respect to an Award thereunder on account of actions taken by, or failed to be taken by, such participant in violation or breach of, or in conflict with, any (a) employment agreement, (b) non-competition agreement, (c) agreement prohibiting solicitation of employees or clients of the Company or an affiliate, (d) confidentiality obligation with respect to the Company or an affiliate, (e) Company or affiliate policy or procedure, (f) other agreement, or (g) other obligation of such participant to the Company or an affiliate, as and to the extent specified in such award agreement. If the recipient of an outstanding Award is an employee of the Company or an affiliate and such participant’s service is terminated for Cause (as defined in the 2015 Plan), the Committee may annul such the participant’s outstanding Award as of the date of termination for Cause.

Recoupment. Any Awards granted pursuant to the 2015 Plan will be subject to mandatory repayment by the participant to the Company (x) to the extent set forth in the 2015 Plan or an award agreement or (y) to the extent the participant is, or in the future becomes, subject to (1) any Company or affiliate “clawback” or recoupment policy that is adopted to comply with the requirements of any applicable laws, or (2) any applicable laws which impose mandatory recoupment, under circumstances set forth in such applicable laws.

Change in Control. Except as otherwise provided in the applicable award agreement, in another agreement with the participant, or as otherwise set forth in writing, upon the occurrence of a Change in Control (as defined below) in which outstanding Awards are not being assumed or continued the following will occur: (i) immediately prior to the occurrence of such Change in Control, in each case with the exception of performance-based awards, all outstanding shares of restricted stock, and all restricted stock units, deferred stock units, and dividend equivalent rights will be deemed to have vested, and all shares of Stock and/or cash subject to such Awards will be delivered; (ii) at the Committee’s discretion one or both of the following two actions will be taken: (x) all options and SARs will become exercisable at least 15 days before the Change in Control and terminate upon the consummation of the Change in Control, and/or (y) any options, SARs, restricted stock, restricted stock units, deferred stock units and/or dividend equivalent rights may be canceled and cashed out in connection with the Change in Control for an amount in cash or securities having a value, in the case of restricted stock, restricted stock

 

29


Table of Contents

units, deferred stock units and dividend equivalent rights, equal to the formula or fixed price per share paid to the shareholders pursuant to such Change in Control and, in the case of options or SARs, equal to the product of the number of shares subject to such options or SARs multiplied by the amount, if any, by which the formula or fixed price per share paid to shareholders pursuant to such Change in Control exceeds the exercise price applicable to such shares (in the event the option exercise price or SAR exercise price of an Award exceeds the price per share paid to shareholders in the Change in Control, such options and SARs may be terminated for no consideration); (iii) performance-based awards will be treated as though target performance has been achieved; and (iv) other equity-based awards will be governed by the terms of the applicable award agreement.

Except as otherwise provided in the applicable award agreement, in another agreement with the participant, or as otherwise set forth in writing, upon the occurrence of a Change in Control in which outstanding Awards are being assumed or continued the following will occur: the 2015 Plan and the options, SARs, restricted stock, restricted stock units, deferred stock units, dividend equivalent rights, and other equity-based awards granted under the 2015 Plan will continue in the manner and under the terms so provided in the event of any Change in Control to the extent that provision is made in writing in connection with such Change in Control for the assumption or continuation of such Awards, or for the substitution for such Awards with new awards, with appropriate adjustments as to the number of shares (disregarding any consideration that is not common stock) and exercise prices of options and stock appreciation rights.

A Change in Control under the 2015 Plan means the occurrence of any of the following:

 

  (a)

Any individual, entity or group (within the meaning of Section 13d(3) or 14(d)(2) of the Exchange Act) becomes the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty percent (30%) or more of either (i) the then-outstanding shares of Stock (the “Outstanding Company Common Stock”) or (ii) the combined voting power of the then-outstanding Voting Stock of the Company (the “Outstanding Company Voting Securities”); provided, however, that, the following acquisitions will not constitute a Change in Control: (A) any acquisition directly from the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any company controlled by, controlling or under common control with the Company or (D) any acquisition pursuant to certain transactions set forth in the 2015 Plan.

 

  (b)

Consummation of a reorganization, merger, statutory share exchange or consolidation or similar transaction involving the Company or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or securities of another entity by the Company or any of its subsidiaries (each, a “Business Combination”), in each case unless, following such Business Combination, (i) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than fifty percent (50%) of the then-outstanding shares of common stock (or, for a non-corporate entity, equivalent securities) and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors (or, for a non-corporate entity, equivalent governing body), as the case may be, of the entity resulting from such Business Combination in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, (ii) no individual, entity or group (within the meaning of Section 13d(3) or 14(d)(2) of the Exchange Act) (excluding any entity resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, thirty percent (30%) or more of, respectively, the then-outstanding shares of common stock (or, for a non-corporate entity, equivalent securities) of the entity resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such entity, except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors (or, for a non-corporate entity, equivalent governing body) of the entity resulting from such Business Combination were members of the Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or

 

  (c)

Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

 

30


Table of Contents

Section 162(m) of the Code. Section 162(m) of the Code (“Section 162(m)”) limits publicly-held companies to an annual deduction for U.S. federal income tax purposes of $1.0 million for compensation paid to each of their chief executive officer and their three highest compensated executive officers (other than the chief financial officer) determined at the end of each year. However, certain “qualified performance-based compensation” under Section 162(m) is excluded from this limitation. The 2015 Plan is designed to permit the Committee to grant awards that constitute qualified performance-based compensation under Section 162(m), but the Committee is not required under the 2015 Plan to grant awards that are intended to qualify for this exception.

For awards that are intended to satisfy the Section 162(m) exception for qualified performance-based compensation, the awards will be subject to one or more, or any combination, of the following performance goals, as selected by the Committee: net earnings or net income; operating earnings; pretax earnings; earnings per share; share price, including growth measures and total stockholder return; new unit growth; new unit return on investment; earnings before interest and taxes; earnings before interest, taxes, depreciation, and/or amortization; earnings before interest, taxes, depreciation, and/or amortization as adjusted (“Adjusted EBITDA”) to exclude any one or more of certain items listed in the 2015 Plan (i.e., rent costs; stock-based compensation expense; income from discontinued operations; gain on cancellation of debt; debt extinguishment and related costs; restructuring, separation, and/or integration charges and costs; reorganization and/or recapitalization charges and costs; impairment charges; merger-related events; gain or loss related to investments; sales and use tax settlements; and gain on non-monetary transactions); sales or revenue growth or targets, whether in general or by type of product, service, or customer; gross or operating margins; return measures, including return on assets, capital, investment, equity, sales, or revenue; cash flow, including certain measures listed in the 2015 Plan (i.e., operating cash flow; free cash flow, defined as earnings before interest, taxes, depreciation, and/or amortization (as adjusted to exclude any one or more of the items that may be excluded pursuant to the Adjusted EBITDA performance goal described above) less capital expenditures; levered free cash flow, defined as free cash flow less interest expense; cash flow return on equity; and cash flow return on investment); productivity ratios; costs, reductions in cost, and cost control measures; expense targets; market or market segment share or penetration; financial ratios as provided in credit agreements of the Company and its subsidiaries; working capital targets; completion of acquisitions of businesses or companies; completion of divestitures and asset sales; regulatory achievements or compliance; customer satisfaction measurements; execution of contractual arrangements or satisfaction of contractual requirements or milestones; product development achievements; and any combination of the foregoing business criteria.

Performance under any of the performance goals described in the preceding paragraph (a) may be used to measure the performance of (i) the Company and its subsidiaries and other affiliates as a whole, (ii) the Company, any subsidiary, and/or any other affiliate or any combination thereof, or (iii) any one or more business units of the Company, any subsidiary, and/or any other affiliate, as the Committee, in its sole discretion, deems appropriate, (b) may be compared to the performance of one or more other companies or one or more published or special indices designated or approved by the Committee for such comparison, as the Committee, in its sole discretion, deems appropriate, and (c) may be stated as a combination of one or more performance goals, and on an absolute or relative basis.

To qualify as performance-based compensation under Section 162(m):

 

  (a)

the compensation must be paid solely on account of the attainment of one or more pre-established, objective performance goals;

 

  (b)

the performance goal under which compensation is paid must be established by a compensation committee comprised solely of two or more directors who qualify as outside directors for purposes of the exception (the Committee is expected to meet this requirement);

 

  (c)

the material terms under which the compensation is to be paid must be disclosed to and subsequently approved by shareholders before payment is made (the approval of the 2015 Plan will constitute approval of the material terms of the compensation granted thereunder); and

 

  (d)

the Committee must certify in writing before payment of the compensation, that the performance goals and any other material terms were in fact satisfied.

 

31


Table of Contents

Transferability

Awards of options or SARs may only be transferred by will or by the laws of descent and distribution, except that a participant may transfer, not for value, all or part of an option which is not an incentive stock option or a SAR to any “family member” as defined by the 2015 Plan, if authorized in the applicable award agreement and by the Committee, in its sole discretion. Following a transfer, any option or SAR will continue to be subject to the same terms and conditions as were in effect immediately prior to such transfer and any subsequent transfers of transferred options or SARs will be prohibited except to “family members” of the original participant or by will or the laws of descent and distribution. Awards of restricted stock, restricted stock units, and deferred stock units may not be sold, transferred, assigned, pledged, or otherwise encumbered or disposed of during the restricted period or prior to the satisfaction of any other restrictions prescribed by the Committee with respect to such awards.

Amendments

The Board may amend, suspend, or terminate the 2015 Plan at any time, provided that, with respect to Awards granted under the 2015 Plan, no amendment, suspension, or termination of the 2015 Plan will, without the consent of the participant, impair the rights or obligations under any such Award. The effectiveness of any amendment to the 2015 Plan will be contingent on approval of such amendment by the Company’s shareholders to the extent provided by the Board or required by applicable laws.

Federal Income Tax Consequences

The federal income tax consequences of Awards under the 2015 Plan for participants and the Company will depend on the type of Award granted. The following description of tax consequences is intended only for the general information of shareholders. This discussion is general in nature; we have not taken into account a number of considerations which may apply in light of the circumstances of a particular participant. A participant in the 2015 Plan should not rely on this description and instead should consult his or her own tax advisor.

Options. Under current law the grant of an option generally will have no federal income tax consequences for the participant or the Company. Upon the exercise of an option, the participant will recognize ordinary income in an amount equal to the excess of the fair market value of our common stock on the exercise date over the exercise price. Generally, the Company will be entitled to a deduction equal to the amount of ordinary income recognized by the participant and at the time the participant recognizes such income for tax purposes, if the Company complies with applicable reporting requirements and subject to the limit on the deductibility under Section 162(m), as described above.

Incentive Stock Options. Under current law, the grant of an incentive stock option will not be a taxable event for the participant or for the Company. In addition, a participant generally will not recognize taxable income upon exercise of an incentive stock option. A participant’s alternative minimum taxable income, however, will be increased by the amount by which the aggregate fair market value of the shares of our common stock underlying the option, which is generally determined as of the date of exercise, exceeds the aggregate exercise price of the option. Any gain realized upon a disposition of the shares of common stock received pursuant to the exercise of an incentive stock option will be taxed as long-term capital gain if the participant holds the shares for at least two years after the date of grant and for one year after the date of exercise (the “holding period requirement”). The Company will not be entitled to any income tax deduction with respect to the exercise of an incentive stock option, except as discussed below.

For the exercise of an incentive stock option to qualify for the foregoing tax treatment, the participant generally must be our employee or an employee of our subsidiary from the date the option is granted through a date within three months before the date of exercise of the option. If all of the foregoing requirements are met except the holding period requirement mentioned above, the participant will recognize ordinary income upon the disposition of the shares of common stock in an amount generally equal to the excess of the fair market value of the shares at the time the incentive stock option was exercised over the option exercise price (but not in excess of the gain realized on the sale). The balance of the realized gain, if any, will be capital gain.

The Company will generally be allowed an income tax deduction to the extent the participant recognizes ordinary income, subject to the Company’s compliance with Section 162(m) and to certain reporting requirements.

 

32


Table of Contents

Stock Appreciation Rights (SARs). Under current law, the grant of a SAR generally will have no federal income tax consequences for the participant. Upon the exercise of a SAR, the participant will recognize ordinary income equal to the amount of cash paid and the fair market value of any of our shares of common stock delivered to the participant. Generally, the Company will be entitled to a deduction equal to the amount of ordinary income recognized by the participant and at the time the participant recognizes such income for tax purposes, if the Company complies with applicable reporting requirements and subject to the limit on the deductibility under Section 162(m), as described above.

Restricted Stock. Under current law, the grant of restricted stock generally will have no federal income tax consequences to the participant or the Company. The participant will generally recognize ordinary income on the date the award vests, in an amount equal to the value of the shares on the vesting date. Under Section 83 of the Code, a participant may elect to recognize income on the date of grant rather than the date of vesting in an amount equal to the fair market value of the shares on the date of grant (less the purchase price for such shares, if any). Generally, the Company will be entitled to a deduction equal to the amount of ordinary income recognized by the participant and at the time the participant recognizes such income for tax purposes, if the Company complies with applicable reporting requirements and subject to the limit on the deductibility under Section 162(m), as described above.

Restricted Stock Units, Deferred Stock Units and Performance-Based Awards. Under current law, the grant of a restricted stock unit award, a deferred stock unit award or a performance-based award generally will have no federal income tax consequences to the participant or the Company. The participant generally will recognize ordinary income when payment is actually or constructively received by the participant in satisfaction of the restricted stock unit award, deferred stock unit award or performance-based award, in an amount equal to the amount of cash paid and the fair market value of any shares delivered to the participant. Generally, the Company will be entitled to a deduction equal to the amount of ordinary income recognized by the participant and at the time the participant recognizes such income for tax purposes, if the Company complies with applicable reporting requirements and subject to the limit on the deductibility under Section 162(m), as described above.

Unrestricted Stock. Under current law, upon the grant of an award of unrestricted stock, a participant will be required to recognize ordinary income in an amount equal to the fair market value of the shares on the date of grant, reduced by the amount, if any, paid for such shares. Upon a participant’s disposition of such shares, any gain realized in excess of the amount reported as ordinary income will be reportable by the participant as a capital gain, and any loss will be reportable as a capital loss. Capital gain or loss will be long-term if the participant held the shares for more than one year (otherwise, the capital gain or loss will be short-term). Generally, the Company will be entitled to a deduction equal to the amount of ordinary income recognized by the participant and at the time the participant recognizes such income for tax purposes, if the Company complies with applicable reporting requirements and subject to the limit on the deductibility under Section 162(m), as described above.

Dividend Equivalents. Under current law, the grant of dividend equivalents generally will have no federal income tax consequences for the participant. Generally, the participant will recognize ordinary income on the amount distributed to the participant pursuant to the award of dividend equivalent rights. Generally, the Company will be entitled to a deduction equal to the amount of ordinary income recognized by the participant and at the time the participant recognizes such income for tax purposes, if the Company complies with applicable reporting requirements and subject to the limit on the deductibility under Section 162(m), as described above.

Certain payments made to employees and other service providers in connection with a change in control may constitute “parachute payments” subject to tax penalties imposed on both the Company and the recipient under Sections 280G and 4999 of the Code. In general, when the value of parachute payments equals or exceeds three times the employee’s “base amount,” the employee is subject to a 20% nondeductible excise tax on the excess over the base amount and the Company is denied a tax deduction for the excess payments. The base amount is generally defined as the employee’s average compensation for the five calendar years prior to the date of the change in control. The value of accelerated vesting of restricted stock, options, or other Awards in connection with a change in control can constitute a parachute payment. The 2015 Plan contains a modified form of a “safe harbor cap,” which limits the amount of potential parachute payments that a recipient may receive to no more than 299% of the recipient’s base amount, but only if the after-tax value of the unreduced payments would be equal to or less than 110% of the after-tax value of the reduced payments.

 

33


Table of Contents

New Plan Benefits

As of August 5, 2015, no Awards have been made under the 2015 Plan. Because benefits under the 2015 Plan are discretionary and will depend on the actions of the Committee, the performance of the Company and the value of our common stock, it is not possible to determine the benefits that will be received if shareholders approve the 2015 Plan.

Equity Compensation Plan Information

The following table gives information about shares of our common stock issuable as of May 31, 2015 under the 2002 Plan, the RARE Hospitality International, Inc. Amended and Restated 2002 Long-Term Incentive Plan (the “RARE Plan”), our Stock Option and Long-Term Incentive Plan of 1995 (the “1995 Plan”), our Restaurant Management and Employee Stock Plan of 2000 (the “2000 Plan”), the Director Compensation Plan and our Employee Stock Purchase Plan.

 

     (a)      (b)      (c)  

Plan Category

   Number of securities  to
be issued upon exercise
of outstanding options,
warrants and rights (1)
     Weighted-average
exercise  price of
outstanding options (2)
     Number of  securities
remaining

available for future issuance
under equity compensation
plans (excluding securities
reflected in column (a))
 

Equity compensation plans approved by security holders (3)

     7,324,834       $ 44.74         7,947,051 (4) 

Equity compensation plans not approved by security holders (5)

     604,992       $ 37.55         0   

Total

     7,929,826       $ 44.18         7,947,051   

 

  (1)

Includes stock options exercisable for common shares and deferred compensation obligations and unvested restricted stock units that may be paid out in common shares.

 

  (2)

Relates solely to stock options exercisable for common shares.

 

  (3)

Consists of the 2002 Plan, 1995 Plan and our Employee Stock Purchase Plan. The 2002 Plan has a “fungible share pool” approach to account for authorized shares. With respect to stock options and SARs, the number of shares available for awards is reduced by one share for each share covered by such award or to which the award relates. With respect to awards granted after September 15, 2006, other than stock options and SARs, the number of shares available for awards is reduced by two shares for each share covered by such award or to which such award relates. Awards that do not entitle the holder to receive or purchase shares and awards that are settled in cash are not counted against the aggregate number of shares available for awards under the 2002 Plan.

 

  (4)

Includes up to 6,777,606 shares of common stock that may be issued under awards under the 2002 Plan, and up to 1,169,445 shares of common stock that may be issued under our Employee Stock Purchase Plan. No new awards may be made under the 1995 Plan.

 

  (5)

Consists of the RARE Plan and the Director Compensation Plan, each of which is further described below.

RARE Plan. We acquired RARE on October 1, 2007. The RARE Plan has not been approved by our shareholders, but was approved by the shareholders of RARE on May 8, 2007. No new awards may be granted under the RARE Plan after May 10, 2014, but the plan shall remain in effect as long as any awards under the plan are outstanding. The RARE Plan is administered by the Compensation Committee. The RARE Plan provided for the issuance of common stock in connection with awards of non-qualified stock options, incentive stock options, restricted stock and restricted stock units. Persons eligible to receive awards under the RARE Plan were any employee, officer, director, consultant or advisor of the Company who, as of September 30, 2007, was an employee, officer, director, consultant or advisor to RARE or its subsidiaries or affiliates. The RARE Plan is designed to meet the requirements of Section 162(m) of the Code regarding the deductibility of executive compensation. The RARE Plan provides that the exercise price of stock options shall be determined by the Compensation Committee, but shall not be less than the fair market value of a share of common stock as of the grant date. The Compensation Committee further amended the RARE Plan on June 19, 2008, to provide a “fungible share pool” approach to manage authorized shares under the RARE Plan. The RARE Plan did not provide for “net share counting,” so that shares that are used to pay the exercise price of a stock option or are withheld upon exercise of a stock option to satisfy tax withholding requirements were not be added to the number of shares available for granting awards under the RARE Plan.

 

34


Table of Contents

Director Compensation Plan. The Director Compensation Plan provides for the issuance of up to 105,981 shares of common stock out of our treasury. No awards could be made under the Director Compensation Plan after September 30, 2005, but awards granted prior to that time remain outstanding and will vest in accordance with their terms. The Director Compensation Plan allowed us to award cash, deferred cash or common stock. Our non-employee directors were the only persons eligible to receive awards under the Director Compensation Plan. The purpose of the Director Compensation Plan is to provide incentives and awards to non-employee directors to align their interests with those of our shareholders. The Director Compensation Plan is administered by the Compensation Committee and was approved by the Board.

 

35


Table of Contents

PROPOSAL 10 — SHAREHOLDER PROPOSAL REGARDING LOBBYING DISCLOSURE

The AFL-CIO Reserve Fund, 815 Sixteenth Street, N.W., Washington, DC 20006, beneficial owner of 91 of our common shares, has notified us that it intends to present the following proposal for consideration at the Annual Meeting. In accordance with federal securities regulations, we have included the text of the proposal and supporting statement exactly as submitted by the proponent. We are not responsible for the content of the proposal or the supporting statement or any inaccuracies they may contain.

Shareholder Proposal and Supporting Statement

Whereas, corporate lobbying exposes our company to risks that could adversely affect the company’s stated goals, objectives, and ultimately shareholder value, and

Whereas, we rely on the information provided by our company to evaluate goals and objectives, and we, therefore, have a strong interest in full disclosure of our company’s lobbying to assess whether our company’s lobbying is consistent with its expressed goals and in the best interest of shareholders and long-term value.

Resolved, the shareholders of Darden Restaurants, Inc. (“Darden”) request the Board authorize the preparation of a report, updated annually, disclosing:

 

1.

Company policy and procedures governing lobbying, both direct and indirect, and grassroots lobbying communications.

 

2.

Payments by Darden used for (a) direct or indirect lobbying or (b) grassroots lobbying communications, in each case including the amount of the payment and the recipient.

 

3.

Darden’s membership in and payments to any tax-exempt organization that writes and endorses model legislation.

 

4.

Description of the decision making process and oversight by management and the Board for making payments described in section 2 and 3 above.

For purposes of this proposal, a “grassroots lobbying communication” is a communication directed to the general public that (a) refers to specific legislation or regulation, (b) reflects a view on the legislation or regulation and (c) encourages the recipient of the communication to take action with respect to the legislation or regulation. “Indirect lobbying” is lobbying engaged in by a trade association or other organization of which Darden is a member.

Both “direct and indirect lobbying” and “grassroots lobbying communications” include efforts at the local, state and federal levels.

The report shall be presented to the Audit Committee or other relevant oversight committees of the Board and posted on Darden’s website.

Supporting Statement

As shareholders, we encourage transparency and accountability with corporate funds used to influence legislation and regulation both directly and indirectly. Absent a system of accountability, company assets could be used for objectives contrary to Darden’s long-term interests.

The Center for Responsive Politics reported that Darden spent over $1 million in direct federal lobbying in 2014, including $300,000 on two lobbying firms (https://www.opensecrets.oroilobbv/clientsum.php?id=D000021949&vear=2014). These figures do not include state lobbying expenditures. For example, Darden spent over $112,000 lobbying in California for 2014 (http://cal-access.ss.ca.00v/).

The New York Times cited Darden as a client of one of these lobbying firms and reported that the National Restaurant Association, (Darden is a prominent member), “did not disclose upfront its role in helping draft and circulate a statement signed by more than 500 prominent economists including four winners of the Nobel Prize, urging the federal

 

36


Table of Contents

government to reject the proposal by the Obama administration to increase the minimum wage to $10.10 an hour.” (“Industry Behind Anti-Wage-Hike Letter,” The New York Times, March 15, 2014).

The National Restaurant Association spent over $2.5 million on lobbying in 2014 (http://www.opensecrets.oro/lobbv/clientsum.php?id=D000000150&vear=2014). Darden does not disclose its memberships in, or payments to, trade associations, or the portions of such amounts used for lobbying.

We urge you to vote FOR this proposal.

Board of Directors’ Response

The Board recommends a vote AGAINST this proposal because:

 

   

We have a robust policy on Civic Engagement and Disclosure of Political and Advocacy Expenditures that provides for meaningful accountability and requires, on an annual basis, disclosure about the Company’s lobbying activities and procedures and lobbying expenditures to trade associations and other tax-exempt organizations;

 

   

Lobbying activities are already subject to comprehensive regulations at both the federal and state levels; and

 

   

We believe that the additional disclosure requested by the shareholder proponent would not provide tangible benefits to shareholders and could put us at a competitive disadvantage by revealing our long-term business strategies and objectives.

Our Robust Policy on Civic Engagement and Disclosure of Political and Advocacy Expenditures

We have developed effective policies for the appropriate disclosure and oversight of our lobbying activities and are fully committed to complying with all laws concerning lobbying activities, including laws requiring public disclosure. Decisions about what issues to include in our lobbying agenda are generated by our government relations team, following consultation with subject matter experts and business unit leaders within the Company. The Board receives regular reports on the public policy agenda important to the Company and on progress made on achieving those legislative goals. Our Board regularly monitors and reviews our compliance procedures for, and oversight of, our political and lobbying activity.

Following the 2014 Annual Meeting, even though a nearly identical proposal was rejected by our shareholders, we affirmatively changed our policy on Civic Engagement and Disclosure of Political and Advocacy Expenditures and have made our lobbying disclosure more robust. Changes to the policy include: additional disclosure of payments made to trade associations used for political purposes and “social welfare” organizations under section 501(c)(4) of the Internal Revenue Code that engage in political activities, and disclosure of the Company’s lobbying policy and payments made for direct or indirect lobbying. These changes become effective January 1, 2016 for calendar year 2015.

We Already Adhere to Comprehensive Regulations at Both Federal and State Levels

Our lobbying activities are subject to comprehensive regulation at both the federal and state levels. We are in full compliance with all laws governing lobbying activities, including the Lobbying Disclosure Act and Honest Leadership and Open Government Act, which require reporting on lobbying activities and certification of compliance with Congressional gift rules. At the federal level, we file quarterly reports disclosing our lobbying expenditures and detailing our lobbying activities, the entities we lobbied and the subject matters upon which we lobbied. These reports are publicly available at http://lobbyingdisclosure.house.gov/. State lobbying activities also are subject to extensive registration and disclosure requirements, and such reports are also publicly available through the applicable state authorities.

Additional Disclosure Would Not Benefit Shareholders and May Put Us At A Competitive Disadvantage

After reviewing relevant disclosure laws, and taking into consideration our recently revised policies and internal approval processes, we have concluded that we provide ample disclosure of our lobbying activities. Preparing and maintaining the additional information requested by this proposal would impose unnecessary and duplicative burdens and expend Company resources while providing no tangible benefit to shareholders.

Further, like most major corporations, we are a member of several trade associations that represent the restaurant industry, professional associations, segments of our supply chain and the business community at large in an effort to bring

 

37


Table of Contents

about consensus on policy issues that impact our business, our employees and our guests. We believe these organizations give us a collective voice and enable us to communicate with government officials more effectively; however, any contribution we make to these groups does not infer an endorsement of their entire agenda or record. In the event a group takes a position inconsistent with our views, we will continue to represent our views within the organization and may advocate independently on behalf of our employees, shareholders and business interests as necessary. Although lobbying is not the primary purpose of these associations, the membership dues paid by us and other members may be part of the funds they use to engage in lobbying activities. Accordingly, we believe that additional disclosures regarding the specific payments made to these trade associations would not necessarily present an accurate reflection of our positions on certain public policy issues.

Finally, we believe that any additional disclosure, beyond what we currently provide or that which is mandated by federal and state law, could put us at a competitive disadvantage by revealing our long-term business strategies and objectives. Competitors, unions and other parties with interests adverse to ours also engage in the political process to further their business or strategic priorities. Imposing more stringent disclosure and reporting requirements on us could benefit those parties to the detriment of our Company and our shareholders. We do not believe that a special report beyond what we have already committed to provide to the public is necessary or an efficient use of Company resources.

Accordingly, your Board recommends that you vote AGAINST this proposal.

 

38


Table of Contents

MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES

Board of Directors

Meetings. At the 2014 Annual Meeting the following 12 directors were elected to the Company’s Board of Directors: Mses. B. Atkins, M. Atkins, Birch and Jamison and Messrs. Blum, Feld, Fogarty, Lenehan, Nowell, Smith, Sonsteby and Stillman. The size of the Board was subsequently increased to 14 directors due to two additional director appointments: Mr. Simon in October 2014, who had previously served on the Company’s Board, and Mr. Lee, Jr. in February, 2015, upon his appointment as CEO of the Company.

During the fiscal year ended May 31, 2015, the Board met 19 times. For the period of his or her Board service in fiscal 2015, each incumbent director attended at least 75 percent of the aggregate of the total number of meetings of the Board and the standing committees on which the director served.

Communications with Board. We believe that communication between the Board, shareholders and other interested parties is an important part of our corporate governance process. To this end, the Board has adopted Shareholder Communication Procedures that are available at www.darden.com under Investors — Corporate Governance. In general, shareholders and other interested parties may send communications to the attention of the Board, any individual director or the non-employee directors as a group, through the Independent Chairman of the Board. Communications may be sent in writing or via email to: Jeffrey C. Smith, Chairman of the Board, Darden Restaurants, Inc., c/o Anthony G. Morrow, Corporate Secretary, 1000 Darden Center Drive, Orlando, Florida 32837, email: chairman@darden.com.

The Corporate Secretary will act as agent for the Independent Chairman in facilitating direct communications to the Board. The Corporate Secretary will review, sort and summarize the communications. The Corporate Secretary will not, however, “filter out” any direct communications from being presented to the Independent Chairman without instruction from the Independent Chairman, and in such event, any communication that has been filtered out will be made available to any non-employee director who asks to review it. The Corporate Secretary will not make independent decisions with regard to what communications are forwarded to the Independent Chairman. The Corporate Secretary will send a reply to the sender of each communication acknowledging receipt of the communication.

Identifying and Evaluating Director Nominees. Our Nominating and Governance Committee has adopted a Director Nomination Protocol that, together with our Bylaws, describes in detail the process we use to fill vacancies and add new members to the Board. The Protocol is available at www.darden.com under Investors — Corporate Governance, as Appendix A to the Nominating and Governance Committee charter.

Under the Director Nomination Protocol, in general, while there are no specific minimum qualifications for nominees, any candidate for service on the Board should possess the highest personal and professional ethics and be committed to representing the long-term interests of our shareholders. Director candidates should be committed to our core values (integrity and fairness, respect and caring, diversity, always learning — always teaching, being “of service,” teamwork and excellence) and possess a wide range of experience in the business world. We also will consider the candidate’s independence under applicable NYSE listing standards and our Corporate Governance Guidelines. In identifying and evaluating nominees for the Board, the Board assesses the background of each candidate in a number of different ways including a wide variety of qualifications, attributes and other factors and recognizes that diverse viewpoints and experiences enhance the Board’s effectiveness. When reviewing and making initial recommendations on new candidates, the Nominating and Governance Committee considers how each prospective member’s unique background, expertise and experience will contribute to the Board’s overall perspective and ability to govern. In identifying or selecting nominees for the Board, the Company’s Corporate Governance Guidelines and related Director Nomination Protocol attached to the charter of our Nominating and Governance Committee provide that the Company seeks board members who will bring to the board a deep and wide range of experience in the business world, and have diverse problem-solving talents. We seek people who have demonstrated high achievement in business or another field, so as to enable them to provide strategic support and guidance for the Company. The guidelines further provide that the Company strives to maintain a board that reflects the gender, ethnic, racial and other diversity of our work force and restaurant guests, and also fosters diversity of thought. The guidelines further note that recruiting, hiring and nurturing the careers of women and minorities and increasing the diversity of our suppliers are top priorities, and that the Company also intends to maintain the diversity of its Board.

 

39


Table of Contents

The Nominating and Governance Committee will identify potential candidates to recommend to the full Board and a search firm may be engaged to identify additional candidates and assist with initial screening. The Nominating and Governance Committee and the Chairman of the Board will perform the initial screening and review the credentials of all candidates to identify candidates that they feel are best qualified to serve. The Chairman of the Nominating and Governance Committee, working with the Chairman of the Board, will obtain background and reference information, as appropriate, for the candidates under consideration. The Nominating and Governance Committee will review all available information concerning the candidates’ qualifications and, in conjunction with the Chairman of the Board, will identify the candidate(s) they feel are best qualified to serve on the Company’s Board. The Chairman of the Nominating and Governance Committee, the CEO, and the Chairman of the Board (or the Chairman of the Board’s delegate from the Board) will meet with the leading candidates to further assess their qualifications and fitness, and to determine their interest in joining the Board. Following the meeting, the Board member participants and the Chairman of the Board will make a recommendation concerning the candidate to the Nominating and Governance Committee, which will consider whether to recommend the candidate to the full Board for election.

Director Candidates Recommended by Shareholders. The Nominating and Governance Committee will consider candidates recommended by shareholders. The procedures that shareholders should use to nominate directors are provided in our Bylaws. There are no differences in the manner of evaluation if the nominee is recommended by a shareholder.

Director Attendance at Annual Meeting of Shareholders. Our Corporate Governance Guidelines provide that directors are expected to attend all scheduled Board and committee meetings and the annual meeting of shareholders. Only one of our current directors was a director at the time of the 2014 Annual Meeting and therefore subject to the provision of the Corporate Governance Guidelines regarding attendance at the annual meeting of shareholders. All but three of the directors standing for reelection this year attended the 2014 Annual Meeting.

Board Committees and Their Functions

General. Our Board has four standing committees that operate under charters adopted by the Board: Audit, Compensation, Finance and Real Estate, and Nominating and Governance. Each charter is available at www.darden.com under Investors — Corporate Governance. Copies are available in print free of charge to any shareholder upon written request addressed to our Corporate Secretary. Each member of every committee is an independent director as defined in our Corporate Governance Guidelines and the NYSE listing standards. All Board committees have the authority to retain outside advisors. Unless otherwise required by applicable laws, regulations or listing standards, all major decisions are considered by the Board as a whole.

We previously had an Executive Committee consisting of five members (former directors Mr. Otis (Chair), Mr. Ledsinger, Victoria D. Harker, William M. Lewis, Jr. and Michael D. Rose). In November 2014, we amended our Bylaws to eliminate the requirement for an Executive Committee and subsequently eliminated the Committee.

Audit Committee. Our Audit Committee was established in accordance with Section 3(a)(58)(A) of the Exchange Act. During fiscal 2015, the Audit Committee consisted of five members prior to the 2014 Annual Meeting, including former directors Ms. Harker (Chair), Christopher J. Fraleigh, David H. Hughes, Senator Connie Mack, III, and current member Mr. Simon.

In July 2014, Mr. Hughes, a member of our Audit Committee, notified the Board that he would not stand for reelection to the Board at the Company’s 2014 Annual Meeting.

In September 2014, the Company announced that Ms. Harker and Mr. Simon, both members of our Audit Committee, would not stand for reelection at the 2014 Annual Meeting. Senator Mack, a member of our Audit Committee, reached the mandatory retirement age for directors and did not stand for reelection at the 2014 Annual Meeting.

After the 2014 Annual Meeting, the Board appointed Ms. Jamison as the Chair of the Audit Committee and Ms. M. Atkins and Messrs. Simon and Sonsteby to serve on the Audit Committee.

The Board has determined that Mses. M. Atkins and Jamison and Mr. Sonsteby are each an “audit committee financial expert” as such term is defined by SEC rules, and therefore possess financial management expertise as required of

 

40


Table of Contents

at least one Audit Committee member by the NYSE listing standards. In addition, the Board has determined that all members of the Audit Committee are financially literate under the NYSE listing standards. The Audit Committee met 12 times during fiscal 2015 and has sole responsibility for appointing and terminating our independent registered public accounting firm. The Audit Committee’s primary purpose is to assist the Board in its oversight responsibilities to shareholders, specifically with respect to:

 

   

The integrity of our financial statements;

 

   

The qualifications and independence of our independent registered public accounting firm and internal auditing function;

 

   

The provision of a channel of communication among the Board, the independent auditor, internal audit function, management and other concerned individuals;

 

   

The assistance to the Board in meeting its fiduciary duties to shareholders and the Company;

 

   

The performance of our internal audit function and independent registered public accounting firm; and

 

   

The risks associated with the foregoing.

Another purpose of our Audit Committee is to furnish the report required by the SEC’s proxy rules that appears below in this Proxy Statement under the heading “Audit Committee Report.”

Compensation Committee. During fiscal 2015, our Compensation Committee consisted of five members prior to the 2014 Annual Meeting, including former directors Mr. Ledsinger (Chair), Michael W. Barnes, Leonard L. Berry, Mr. Rose, and Maria A. Sastre.

In September 2014, the Company announced that Messrs. Berry and Ledsinger, both members of our Compensation Committee, would not stand for reelection at the 2014 Annual Meeting.

After the 2014 Annual Meeting, the Board appointed Mr. Fogarty as the Chair of the Compensation Committee and Messrs. Feld and Nowell and Mses. M. Atkins, Birch and Jamison to serve on the Compensation Committee.

The Compensation Committee met 11 times during fiscal 2015. The primary responsibilities of our Compensation Committee include the following:

 

   

Annually review and approve corporate goals and objectives relevant to the CEO’s compensation, evaluate the CEO’s performance in light of those goals and objectives, and make recommendations to the other independent directors who will, together with the Compensation Committee, determine and approve the CEO’s compensation based on this evaluation (the CEO may not be present during any Compensation Committee deliberations or voting with respect to his compensation);

 

   

Make recommendations to the other independent directors who will, together with the Compensation Committee, review and approve the compensation for employee directors other than the CEO;

 

   

Periodically, as and when appropriate, recommend to the other independent directors who will, together with the Compensation Committee, review and approve the following as they affect the CEO and other employee-directors: (a) any employment agreements and severance arrangements; (b) any change-in-control agreements and change-in-control provisions affecting any elements of compensation and benefits; and (c) any special or supplemental compensation and benefits, including supplemental retirement benefits and the perquisites provided during and after employment;

 

   

Review and approve the compensation of and compensation policy for the executive officers and such other employees of the Company and its subsidiaries as directed by the Board, other than the CEO and other employee-directors, including but not limited to: (a) the annual base salary level, (b) the annual cash bonus opportunity level under the applicable annual incentive bonus plan, and (c) the long-term incentive opportunity level for each executive officer (other than the CEO and other employee-directors);

 

41


Table of Contents
   

Periodically, as and when appropriate, review and approve the following as they affect the executive officers other than the CEO and other employee-directors: (a) any employment agreements and severance arrangements; (b) any change-in-control agreements and change-in-control provisions affecting any elements of compensation and benefits; and (c) any special or supplemental compensation and benefits, including supplemental retirement benefits and the perquisites provided during and after employment;

 

   

Annually review and approve the objective performance measures and the performance targets for executive officers participating in the Company’s annual incentive bonus plans and long-term incentive plans and certify the performance results under such measures and targets;

 

   

Determine executive officer stock ownership guidelines and monitor compliance by the executive officers with such stock ownership guidelines;

 

   

Review and discuss with management the Compensation Discussion and Analysis required to be included in our Proxy Statement and Annual Report on Form 10-K and, based on such review and discussion, make a recommendation to the Board that the Compensation Discussion and Analysis be so included;

 

   

Prepare a Compensation Committee Report for inclusion in our Proxy Statement and/or annual Form 10-K;

 

   

Provide recommendations to the Board of Directors on compensation-related proposals to be considered at the Company’s annual meeting, including the frequency of advisory votes on executive compensation;

 

   

Review and consider the results of any advisory vote on executive compensation and otherwise oversee the Company’s engagement with shareholders on the subject of executive compensation;

 

   

Review and make recommendations to the Board with respect to adopting, amending and overseeing the policies and practices related to the Company’s recoupment, or the forfeiture by employees, of incentive compensation;

 

   

Annually, receive reports on the Company’s employee benefit plans, including but not limited to any Section 401(k) plan, supplemental employee retirement plan, deferred compensation plans and employee stock purchase plan, and make recommendations to the Board in accordance with the requirements of the governing plan documents; and

 

   

Provide oversight of the risks associated with the foregoing.

The Compensation Committee may delegate its power under the Darden Restaurants, Inc. 2002 Stock Incentive Plan, as amended (the “2002 Plan”), to one or more directors, including a director who is also a senior executive officer of Darden, except that the Compensation Committee may not delegate its powers under the 2002 Plan with regard to our executive officers or directors who are subject to Section 16 of the Exchange Act, or in such a manner as would cause the Plan to not comply with the requirements of Section 162(m) of the Code. Under its charter, the Compensation Committee may delegate any of its administrative responsibilities under our compensation and benefit plans, subject to the applicable rules of the SEC, NYSE and the Internal Revenue Code, to any other person or persons, to the extent permitted by law.

See “Compensation Discussion and Analysis — Process for Determining Fiscal 2015 Executive Compensation — Prior Independent Consultant” and “Compensation Discussion and Analysis — Process for Determining Fiscal 2015 Executive Compensation — New Independent Consultant” for information with regard to the role of consultants in the Compensation Committee’s decision making process.

Finance and Real Estate Committee. During fiscal 2015, our Finance and Real Estate Committee (known as the Finance Committee until October 2014) consisted of six members prior to the 2014 Annual Meeting, including former directors Messrs. Lewis (Chair), Barnes, Fraleigh and Ledsinger, Senator Mack and Ms. Harker.

In September 2014, the Company announced that Messrs. Ledsinger and Lewis, and Ms. Harker, all members of our Finance and Real Estate Committee, would not stand for reelection at the 2014 Annual Meeting. Senator Mack, a member of our Finance and Real Estate Committee, reached the mandatory retirement age for directors and did not stand for reelection at the 2014 Annual Meeting.

 

42


Table of Contents

After the 2014 Annual Meeting, the Board appointed Mr. Lenehan as the Chair of our Finance and Real Estate Committee and Messrs. Feld, Fogarty and Sonsteby and Ms. Birch to serve on the Finance and Real Estate Committee.

The Finance and Real Estate Committee met 8 times during fiscal 2015. The primary responsibilities of our Finance and Real Estate Committee are to:

 

   

Review financial policies and performance objectives developed by management pertaining to cash flow, capital spending and finance requirements; cash and debt balances, other key credit metrics, and credit ratings; dividend policy; investment criteria, including capital investment hurdle rates; and financial risk management strategies, including hedging and the use of derivatives;

 

   

Review significant changes to our capital structure, financial arrangements, capital spending and acquisition and disposition plans and making recommendations as needed to the Board regarding the financial structure, financial condition and financial strategy of the Company including the timing and maturity of debt, terms and interest rates of individual issues; common stock sales, repurchases or splits and any changes in dividends; proposed mergers, acquisitions, divestitures, joint ventures and strategic investments; any material diversification of the Company’s business; and authorization for any material prepayment, redemption or repurchase of debt for the purpose of satisfying sinking fund obligations;

 

   

Review the Company’s proposed annual consolidated budget included in its business plan, recommending such budget to the full Board for approval, and periodically reviewing the Company’s performance against such budget as reasonably required or requested by the Board;

 

   

Review material banking relationships and lines of credit; and

 

   

Review periodic reports on the Company’s overall real estate strategy, including significant leasing arrangements, potential impairment issues and review of new restaurant strategies and format changes.

Nominating and Governance Committee. During fiscal 2015, our Nominating and Governance Committee consisted of six members prior to the 2014 Annual Meeting, including former directors Messrs. Rose (Chair), Berry, Hughes and Lewis, and Ms. Sastre, and current director Mr. Simon.

In July 2014, Mr. Hughes, a member of the Nominating and Governance Committee, notified the Board that he would not stand for reelection to the Board at the Company’s 2014 Annual Meeting. In September 2014, the Company announced that Messrs. Berry, Lewis and Simon, all members of the Nominating and Governance Committee, would not stand for reelection at the 2014 Annual Meeting.

After the 2014 Annual Meeting, the Board appointed Ms. B. Atkins as the Chair of our Nominating and Governance Committee and Messrs. Blum, Feld, Lenehan, Nowell and Stillman to serve on our Nominating and Governance Committee.

The Nominating and Governance Committee met 12 times during fiscal 2015. The primary responsibilities of the Nominating and Governance Committee are to:

 

   

Identify individuals qualified to become Board members, consistent with criteria approved by the Board, and select, or recommend that the Board select, the director nominees for the next annual meeting of shareholders, or in the case of a vacancy on the Board, recommend an individual to fill such vacancy;

 

   

Review and recommend to the Board the appropriate organizational and board leadership structure;

 

   

Review the adequacy of our corporate governance principles on a regular basis;

 

   

Develop and recommend to the Board a set of corporate governance guidelines applicable to the Company;

 

   

Review the Company’s stock ownership guidelines for non-employee directors and recommending to the Board revisions to such guidelines as it deems desirable or appropriate, and monitoring compliance with such guidelines;

 

43


Table of Contents
   

Oversee the Board’s self-evaluation process, and provide the Board advice regarding Board succession;

 

   

Recommend to the Board membership for each Board Committee and any changes to the Board’s committee structure as it deems advisable;

 

   

Review the Company’s compliance with SEC and NYSE rules and other applicable legal or regulatory requirements pertaining to corporate governance; and

 

   

Provide oversight of the risks associated with the foregoing.

Among the Nominating and Governance Committee’s other specific duties, it also is responsible for:

 

   

Reviewing resignations tendered by a director if, in an uncontested election, the director does not receive the vote of at least a majority of the votes cast at any meeting for the election of directors, and recommending to the Board whether to accept or reject the tendered resignation, or whether other action should be taken; and

 

   

Making recommendations to the other independent directors who will, together with the Nominating and Governance Committee, determine and approve the compensation for the non-employee independent directors.

The Nominating and Governance Committee has adopted a Director Nomination Protocol that, together with our Bylaws, describes the process by which we intend to fill vacancies and add new members to the Board. The Protocol is described in more detail above under the subheading “Board of Directors — Identifying and Evaluating Director Nominees.” The Nominating and Governance Committee also considers questions of possible conflicts of interest involving our directors and our senior executive officers, recommends to the Board those directors determined to satisfy the requirements for “independence” as set forth in our Corporate Governance Guidelines and the NYSE listing standards.

 

44


Table of Contents

DIRECTOR COMPENSATION

Compensation of Non-Employee Directors

The terms of the Director Compensation Program apply to all directors who are elected to the Board and are not employees of the Company or any of its subsidiaries. Directors who also are our employees do not receive additional compensation for serving on the Board. Shares for equity awards pursuant to the Director Compensation Program are drawn from our shareholder-approved equity compensation plan in effect at the time and pursuant to which we are authorized to grant shares of our common stock and share-based awards to directors. Currently, grants of common stock and share-based awards to directors are made from the 2002 Plan. All of our non-employee directors have been determined by your Board to be independent under applicable NYSE listings standards and our Corporate Governance Guidelines.

Our Nominating and Governance Committee periodically reviews our Director Compensation Program. The Nominating and Governance Committee acts with the assistance of a consultant retained by the committee to provide market data on director compensation programs at comparable companies, including companies in the peer group described in the “Compensation Discussion and Analysis.”

Current Director Compensation Program

In October 2014, the Company hired an independent compensation consultant, Pearl Meyer and Partners, to advise on executive compensation matters. Pearl Meyer and Partners also conducted a review of our Director Compensation Program. In November 2014, based on that review, the Board, upon the recommendation of the Nominating and Governance Committee, approved and set the compensation for directors as follows:

 

   

An annual cash retainer of $75,000, paid in quarterly installments, in arrears;

 

   

An annual cash retainer for the Chairs of the Audit, Finance and Real Estate, Compensation, and Nominating and Governance Committees of $30,000, $30,000, $20,000 and $15,000, respectively;

 

   

An annual cash retainer for the members of the Audit, Finance and Real Estate, Compensation, and Nominating and Governance Committees of $15,000, $15,000, $10,000 and $7,500, respectively;

 

   

An annual equity grant of common shares, which will be paid 75% in the form of restricted stock units (“RSUs”) and 25% in the form of stock options and will have a fair market value of $120,000 at the date of grant; and

 

   

An initial equity grant upon election to the Board, which will be paid 75% in RSUs and 25% in stock options, valued at $35,000.

Jeffrey C. Smith and Peter A. Feld agreed to have their compensation level set to be equal to the lowest paid director (other than Mr. Smith or Mr. Feld). William S. Simon did not receive the initial election equity grant, as he was not a newly elected director.

The annual cash retainers are due and paid quarterly, unless the director elects to defer the payment. Directors may elect to receive, in lieu of their cash compensation, RSUs to be of equal value to the foregone cash fees. If the director chooses to defer payment by receiving RSUs, he or she will receive dividends on such RSUs.

For the portion of the annual and initial equity grants delivered in RSUs, the number of RSUs received equals the award value divided by the fair market value of our common stock on the date of grant. The RSUs vest on the earlier of (i) the first anniversary of the grant date or (ii) the date of the next annual meeting of shareholders. A director may elect to defer receipt of these RSUs until completion of Board service. Directors receive dividend equivalents on the RSUs to the extent the RSUs vest. For the portion of the annual and initial equity grants delivered in stock options, the number of stock options are determined by dividing award value by a Black-Scholes value based on the fair market value of our common stock on the date of grant. The stock options vest on the earlier of (i) the first anniversary of the grant date or (ii) the date of the next annual meeting of shareholders.

Each of our directors is required to own the Company’s common shares with a value of at least five times the annual cash retainer, with a mandatory hold on all shares until the ownership guideline is achieved. However, the directors may sell enough shares to pay taxes in connection with their awards, even if the ownership guideline has not yet been achieved.

 

45


Table of Contents

The Company reimburses directors for travel to Board meetings and related expenses, and for costs incurred in connection with attending the Board’s annual planning meeting and continuing education programs. In addition, the Company provides a dining benefit to our directors because we believe it is important for our directors to experience dining in our restaurants in order to better perform their duties to our Company. Until March 18, 2015 this dining benefit also included dining in our competitors’ restaurants.

Prior Director Compensation Program

Under the prior Board, the compensation arrangement below was effective for the portion of fiscal 2015 from May 26, 2014 through October 12, 2014:

 

   

An annual retainer for the Lead Director of $25,000;

 

   

An annual award of common stock with a fair market value of $120,000 on the date of grant upon election or reelection to the Board;

 

   

An annual retainer of $85,000, and $2,000 for each committee meeting and special Board meeting (“cash compensation”); and

 

   

An annual retainer for the Chairs of the Audit, Compensation, and Nominating and Governance Committees of $15,000, and for Chairs of the other Board committees of $7,500.

Following the separation of the Chairman of the Board and CEO roles and the appointment of Charles A. Ledsinger, Jr. to Independent Non-Executive Chairman of the Board effective July 28, 2014, the prior Board approved the following compensation for the Independent Non-Executive Chairman of the Board in addition to the retainer(s) and fees paid as described above:

 

   

An annual retainer of $125,000; and

 

   

A one-time award of common stock with a fair market value of $50,000.

With the exception of the annual equity grant and the one-time award to the Independent Non-Executive Chairman of the Board described above, the non-employee directors’ remuneration was due and paid quarterly, unless the director elected to defer the payment. Non-employee directors may have elected to have their cash compensation paid in any combination of current or deferred cash, common stock or stock options. Deferred cash compensation may have been invested on a tax-deferred basis in the same manner as deferrals under our FlexComp Plan, a non-qualified deferred compensation plan that currently allows for different investment fund options, including a Darden common stock fund. In addition, each director may have chosen to receive, in lieu of their cash compensation, stock options determined to be of equal value to the foregone cash fees, which options were exercisable six months after grant. All of these stock options have an exercise price equal to the closing price of our common shares on the date of grant and have a term of ten years.

For the one-time award granted to the Independent Non-Executive Chairman of the Board valued at $50,000 the number of common shares received equaled the award value divided by the fair market value of our common stock on the date of grant. The shares vested immediately, but were restricted from transfer for one year. The annual common stock grant was prorated for the portion of Board service in the event a director joins the Board between annual elections. A director may have elected to defer receipt of these shares until completion of Board service or beyond, in which case the director receives deferred phantom stock units that settle in shares of our common stock and are entitled to dividend equivalents.

 

46


Table of Contents

Fiscal 2015 Compensation of Non-Employee Directors

The table below sets forth, for each non-employee director, the amount of fees earned or paid in cash, the number of stock awards granted and all other compensation for his or her service in fiscal 2015. Fees earned that were paid in the form of stock or stock options are detailed in the notes to the table.

 

Name

  Fees
Earned or
Paid in
Cash
($)(1)
    Stock
Awards
($)(2)(3)
    Option
Awards
($)(3)
    Non-Equity
Incentive Plan
Compensation
($)
    Change in
Pension Value
and
Nonqualified
Deferred
Compensation
($)
    All Other
Compensation
($)(4)
    Total
($)
 

Current Board

             

Betsy S. Atkins

    55,250        116,232        35,977        —          —          —          207,459   

M. Shân Atkins

    61,389        116,232        35,977        —          —          —          213,598   

Jean M. Birch

    61,389        116,232        35,977        —          —          —          213,598   

Bradley D. Blum

    50,646        116,232        35,977        —          —          —          202,855   

Peter A. Feld

    50,646        116,232        35,977        —          —          —          202,855   

James P. Fogarty

    67,528        116,232        35,977        —          —          —          219,737   

Cynthia T. Jamison

    70,597        116,232        35,977        —          —          —          222,806   

William H. Lenehan

    69,063        116,232        35,977        —          —          —          221,272   

Lionel C. Nowell III

    56,785        116,232        35,977        —          —          —          208,994   

William S. Simon

    81,069        89,988        27,851        —          —          —          198,908   

Jeffrey C. Smith

    49,792        116,232        35,977        —          —          —          202,001   

Charles M. Sonsteby

    64,458        116,232        35,977        —          —          —          216,667   

Alan N. Stillman

    50,646        116,232        35,977        —          —          —          202,855   

Prior Board

             

Michael W. Barnes

    56,819        —          —          —          —          —          56,819   

Leonard L. Berry

    78,819        —          —          —          —          —          78,819   

Christopher J. Fraleigh

    64,819        —          —          —          —          9,885        74,704   

Victoria D. Harker

    78,611        —          —          —          —          —          78,611   

David H. Hughes

    72,819        —          —          —          —          18,626        91,445   

Charles A. Ledsinger, Jr.

    113,567        49,996        —          —          —          63,086        226,649   

William M. Lewis, Jr.

    81,715        —          —          —          —          51,265        132,980   

Senator Connie Mack, III

    68,819        —          —          —          —          1,936        70,755   

Michael D. Rose

    92,611        —          —          —          —          109,083        201,694   

Maria A. Sastre

    78,819        —          —          —          —          23,613        102,432   

 

  (1)

Includes all fees earned, including annual retainer fees, Board and committee chairperson retainers and Board and committee meeting fees.

For Directors of the current Board, the annual retainers were payable at the end of each fiscal quarter and the amounts shown may have been delivered as cash, or restricted stock units. The restricted stock units granted are immediately vested, however the settlement of the restricted stock units may be deferred. Amounts received as restricted stock units were as follows: Ms. Betsy Atkins, 887 units with a market value of $55,159; Mr. Feld, 813 units with a market value of $50,555; Mr. Fogarty, 1,085 units with a market value of $67,468; Mr. Lenehan, 1,110 units with a market value of $69,026; Mr. Nowell, 911 units with a market value of $56,650, Mr. Smith, 797 units with a market value of $49,661; Mr. Sonsteby, 1,035 units with a market value of $64,358 The number of units delivered is based on the amount of compensation earned divided by the closing price for our common stock on the NYSE on the grant date.

 

47


Table of Contents

For Directors of the prior Board, the annual retainers and Board and committee meeting fees were payable at the end of each fiscal quarter and the amounts shown may have been delivered as cash, common stock, deferred cash or stock options. Stock options (“SOs”) are non-qualified stock options that are immediately vested but restricted from exercise for a period of six months. The number of stock options delivered is based on the amount of compensation foregone divided by 30 percent of the exercise price (determined by the closing price for our common stock on the NYSE on the grant date). The stock options expire ten years from the grant date. Amounts foregone for SOs and the number of SOs issued were as follows: Mr. Ledsinger, $56,784 and 3,717 SOs; Mr. Lewis, $81,715 and 5,368 SOs; and Mr. Rose, $92,611 and 6,099 SOs. Cash amounts that are deferred are credited with the same rates of return and investment alternatives as amounts in the FlexComp Plan, our non-qualified deferred compensation plan. Cash amounts deferred for fiscal 2015 were as follows: Mr. Barnes, $56,819; Mr. Ledsinger, $56,783; and Ms. Sastre, $19,705. Amounts received as shares of common stock were as follows: Mr. Fraleigh, 1,270 shares with a market value of $64,819; and Ms. Sastre, 1,163 shares with a market value of $59,115. The number of shares delivered is based on the amount of compensation earned divided by the closing price for our common stock on the NYSE on the grant date.

 

  (2)

Amounts in this column represent the grant date fair value of awards computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation — Stock Compensation (“ASC Topic 718”) for fiscal 2015. The assumptions used in calculating these amounts in accordance with ASC Topic 718 are included in Note 1 (under the heading “Stock-Based Compensation”) to the Company’s audited financial statements included in the Company’s 2015 Annual Report to Shareholders. For Directors of the current Board, the stock award is delivered in restricted stock units which vest on the earlier of (i) the first anniversary of the grant date or (ii) the date of the next annual meeting of shareholders. Mses. B. Atkins, M. Atkins, Birch and Jamison and Messrs. Blum, Feld, Fogarty, Lenehan, Nowell, Simon, Smith, Sonsteby and Stillman received an annual restricted stock unit award of 1,615 units on November 11, 2014, with a fair market value of $89,988 based on the closing price of our common stock ($55.72) on the NYSE on November 11, 2014. Due to their initial election to the Board on October 13, 2014, the Directors listed above with the exception of Mr. Simon, each received an award of 471 restricted stock units on November 11, 2014, with a fair market value of $26,244 based on the closing price of our common stock ($55.72) on the NYSE on November 11, 2014.

For Directors of the prior Board, the stock award is immediately vested but not transferable for one year. Mr. Ledsinger received a stock award of 1,113 shares on July 28, 2014, the date of his appointment to Independent Non-Executive Chairman of the Board, with a fair market value of $49,996 based on the closing price of our common stock ($44.92) on the NYSE on July 28, 2014. Mr. Ledsinger elected to defer his award.

 

  (3)

Amounts in this column represent the grant date fair value of awards computed in accordance with ASC Topic 718 for fiscal 2015. The assumptions used in calculating these amounts in accordance with ASC Topic 718 are included in Note 1 (under the heading “Stock-Based Compensation”) to the Company’s audited financial statements included in the Company’s 2015 Annual Report to Shareholders. The stock option award vests on the earlier of (i) the first anniversary of the grant date or (ii) the date of the next annual meeting of shareholders. Mses. B. Atkins, M. Atkins, Birch and Jamison and Messrs. Blum, Feld, Fogarty, Lenehan, Nowell, Simon, Smith, Sonsteby and Stillman received an annual stock option award of 2,149 stock options on November 11, 2014, with a fair market value of $27,851 based on the closing price of our common stock ($55.72) on the NYSE on November 11, 2014. Due to their initial election to the Board on October 13, 2014, the Directors listed above with the exception of Mr. Simon, each received an award of 627 stock options on November 11, 2014, with a fair market value of $8,126 based on the closing price of our common stock ($55.72) on the NYSE on November 11, 2014.

 

48


Table of Contents

The aggregate number of shares subject to outstanding stock-based awards as of May 25, 2014 for each director is provided in the table below:

 

     Outstanding Awards  

Name

   Stock
Options
     Deferred Phantom
Stock  Units
     Restricted
Stock Units
 

Current Board

        

Betsy S. Atkins

     2,776         —           2,973   

M. Shân Atkins

     2,776         —           2,086   

Jean M. Birch

     2,776         —           2,086   

Bradley D. Blum

     2,776         —           2,086   

Peter A. Feld

     2,776         —           2,899   

James P. Fogarty

     2,776         —           3,171   

Cynthia T. Jamison

     2,776         —           2,086   

William H. Lenehan

     2,776         —           3,196   

Lionel C. Nowell III

     2,776         —           2,997   

William S. Simon

     2,149         —           1,615   

Jeffrey C. Smith

     2,776         —           2,883   

Charles M. Sonsteby

     2,776         —           3,121   

Alan N. Stillman

     2,776         —           2,086   

Prior Board

        

Michael W. Barnes

     —           —           —     

Leonard L. Berry

     —           —           —     

Christopher J. Fraleigh

     —           3,884         —     

Victoria D. Harker

     —           —           —     

David H. Hughes

     11,254         —           —     

Charles A. Ledsinger, Jr.

     45,211         24,786         —     

William M. Lewis, Jr.

     19,673         20,142         —     

Senator Connie Mack, III

     —           833         —     

Michael D. Rose

     60,410         11,754         —     

Maria A. Sastre

     15,274         —           —     

 

  (4)

The amounts in this column reflect dividend equivalents paid and reinvested into deferred phantom stock units for each director’s deferred phantom stock unit account. Except for dividend equivalents paid to Mr. Hughes of $18,626; Mr. Ledsinger of $63,086; Mr. Lewis of $51,265; Mr. Rose of $109,083; and Ms. Sastre of $23,613, no other director had dividend equivalents paid with a value exceeding $10,000. The Company provides a dining benefit to our directors to experience dining in our restaurants. Until March 18, 2015 this dining benefit also included dining in our competitors’ restaurants. This benefit does not appear in the Director Compensation Table because the value did not meet the minimum disclosure requirements established by the SEC.

 

49


Table of Contents

STOCK OWNERSHIP OF MANAGEMENT

This table shows the beneficial ownership of our common shares as of May 31, 2015 by our directors, director nominees, executive officers named in the Summary Compensation Table, with the exception of Mr. Otis, whose beneficial ownership of common shares is as of October 13, 2014, Ms. Sebastian, whose beneficial ownership of common shares is as of July 23, 2014, and Mr. McAdam whose beneficial ownership of common shares is as of October 28, 2014, and all of our directors and executive officers as a group. Under applicable SEC rules, the definition of beneficial ownership for purposes of this table includes shares over which a person has sole or shared voting power, or sole or shared power to invest or dispose of the shares, whether or not a person has any economic interest in the shares, and also includes shares for which the person has the right to acquire beneficial ownership within 60 days of May 31, 2015. Except as otherwise indicated, a person has sole voting and investment power with respect to the common shares beneficially owned by that person.

 

Name of Beneficial Owner

  Amount and
Nature of
Beneficial
Ownership
of Common
Shares (1)
    Common
Shares
Beneficially
Owned as
Percent of
Common
Shares
Outstanding (2)
 

Betsy S. Atkins

    1,296        *   

M. Shân Atkins

    360        *   

Jean M. Birch

    700        *   

Bradley D. Blum

    2,500        *   

Peter A. Feld

    11,635,813 (3)      9.19

James P. Fogarty

    3,075        *   

Cynthia T. Jamison

    420        *   

Dave C. George

    251,807        *   

Harald Herrmann

    —          *   

Valerie Insignares

    196,527        *   

Eugene I. Lee, Jr.

    392,312        *   

William H. Lenehan

    3,218        *   

Robert McAdam

    4,987        *   

Lionel C. Nowell III

    1,311        *   

Clarence Otis, Jr.

    1,236,973 (4)      *   

C. Bradford Richmond

    247,939        *   

Teresa Sebastian

    147,892        *   

William S. Simon

    4,732        *   

Jeffrey C. Smith

    11,635,797 (3)      9.19

Charles M. Sonsteby

    4,535        *   

Alan N. Stillman

    5,100        *   

All directors and executive officers as a group (20 persons) (5)

    12,834,532        10.05

 

  *

Less than one percent.

 

  (1)

Includes common shares subject to stock options exercisable within 60 days of May 31, 2015, as follows: Mr. George, 238,572; Ms. Insignares,157,622 shares; Mr. Lee, 325,519 shares; Mr. Otis, 897,978; Mr. Richmond, 225,208 shares and Ms. Sebastian, 146,892; and all directors and executive officers as a group, 2,063,938 shares.

Includes common shares held by the trustee of the Darden Savings Plan in the Employee Stock Ownership Plan for the accounts of our executive officers, with respect to which the officers have sole voting power and sole investment power, as follows: all directors and executive officers as a group, 834 shares.

 

50


Table of Contents

Includes restricted stock awarded under our Management and Professional Incentive Plan (“MIP”) as of May 31, 2015 with respect to which the officers have sole voting power but no investment power, as follows: all directors and executive officers as a group, 6,153 shares.

Includes restricted stock units which will settle in stock awarded to directors which are vested or will vest within 60 days of May 31, 2015, as follows: Ms. B. Atkins, 887; Mr. Feld, 813; Mr. Fogarty, 1,085; Mr. Lenehan, 1,110; Mr. Nowell, 911; Mr. Smith, 797; and Mr. Sonsteby, 1,035.

 

  (2)

For any individual or group excluding former officers, the percentages are calculated by dividing (a) the number of shares beneficially owned by that individual or group, which includes shares underlying options exercisable within 60 days, restricted stock units settled in stock described in footnote 1 above, by (b) the sum of (i) the number of shares outstanding on May 31, 2015, plus (ii) the number of shares underlying options exercisable within 60 days and phantom stock units and restricted stock units described in footnote 1 above held by just that individual or group. This calculation does not include phantom stock units settled in cash or PSUs described in footnote 2 above. For former officers, the percentages are calculated by dividing (a) the number of shares beneficially owned by that individual or group, which includes shares underlying options exercisable within 60 days, and the phantom stock units and restricted stock units settled in stock described in footnote 1 above, by (b) the sum of (i) the number of shares outstanding on May 31, 2015, plus (ii) the number of shares underlying options exercisable within 60 days and phantom stock units and restricted stock units described in footnote 1 above held by just that individual or group. This calculation does not include phantom stock units settled in cash or PSUs described in footnote 2 above.

 

  (3)

Includes common shares owned directly by Starboard Value LP through certain managed accounts (the “Managed Accounts”), Starboard Leaders Delta LLC (“Starboard Delta LLC”), Starboard Value and Opportunity C LP (“Starboard C LP”), Starboard Value and Opportunity Master Fund Ltd (“Starboard V&O Fund”) and Starboard Value and Opportunity S LLC (“Starboard S LLC”). Each of Messrs. Feld and Smith, solely by virtue of his position as a member of the Management Committee of Starboard Value GP LLC (“Starboard Value GP”), the general partner of Starboard Value LP, and as a member and member of the Management Committee of Starboard Principal Co GP LLC (“Principal GP”), the general partner of the member of Starboard Value GP, may be deemed to beneficially own the shares held in the Managed Accounts. Each of Messrs. Feld and Smith, solely by virtue of his position as a member of the Management Committee of Starboard Value GP, the general partner of the investment manager of Starboard Delta LLC, and as a member and member of the Management Committee of Principal GP, the general partner of the member of Starboard Value GP, may be deemed to beneficially own the shares owned directly by Starboard Delta LLC. Each of Messrs. Feld and Smith, solely by virtue of his position as a member of the Management Committee of Starboard Value GP, the general partner of the investment manager of Starboard C LP, and as a member and member of the Management Committee of Principal GP, the general partner of the member of Starboard Value GP, may be deemed to beneficially own the shares owned directly by Starboard C LP. Each of Messrs. Feld and Smith, solely by virtue of his position as a member of the Management Committee of Starboard Value GP, the general partner of the investment manager of Starboard V&O Fund, and as a member and member of the Management Committee of Principal GP, the general partner of the member of Starboard Value GP, may be deemed to beneficially own the shares owned directly by Starboard V&O Fund. Each of Messrs. Feld and Smith, solely by virtue of his position as a member of the Management Committee of Starboard Value GP, the general partner of the manager of Starboard S LLC, and as a member and member of the Management Committee of Principal GP, the general partner of the member of Starboard Value GP, may be deemed to beneficially own the shares owned directly by Starboard S LLC. Each of Messrs. Feld and Smith expressly disclaims beneficial ownership of all such shares, 11,635,000 shares in total, except to the extent of his pecuniary interest therein.

 

  (4)

Includes shares held in a trust for Mr. Otis, 95,000 shares.

 

  (5)

Excludes former directors and former executive officers named in the Summary Compensation Table.

 

51


Table of Contents

STOCK OWNERSHIP OF PRINCIPAL SHAREHOLDERS

This table shows all shareholders that we know to beneficially own more than five percent of our outstanding common shares as of May 31, 2015. As indicated in the footnotes, we have based this information on reports filed by these shareholders with us and with the SEC.

 

Name and Address of Beneficial Owner

   Amount and
Nature of
Beneficial
Ownership (1)
    Percent of Class (2)  

Starboard Value LP

     11,635,000 (3)      9.19

777 Third Avenue, 18th Floor

    

New York, NY 10022

    

BlackRock, Inc.

     10,627,065 (4)      8.39

40 East 52nd Street

    

New York, NY 10022

    

The Vanguard Group, Inc.

     9,363,854 (5)      7.39

100 Vanguard Blvd.

    

Malvern, PA 19355

    

FMR LLC

     9,143,790 (6)      7.22

245 Summer Street

    

Boston, MA 02210

    

 

  (1)

“Beneficial ownership” is defined under the SEC rules to mean more than ownership in the usual sense. Under applicable rules, you beneficially own our common shares not only if you hold them directly but also if you indirectly (such as through a relationship, a position as a director or trustee, or a contract or understanding) have or share the power to vote, sell or acquire them within 60 days.

 

  (2)

The figure reported is a percentage of the total of 126,668,976 common shares outstanding on May 31, 2015, excluding treasury shares.

 

  (3)

Based on a Schedule 13D/A filed October 14, 2014, as of October 13, 2014, Starboard Value LP and its affiliates beneficially owned an aggregate of 11,635,000 shares, and had sole power to vote and dispose of all those shares.

 

  (4)

Based on a Schedule 13G/A filed January 23, 2015, as of December 31, 2014, BlackRock, Inc. beneficially owned an aggregate of 10,627,065 shares, and had sole power to vote 9,534,278 shares and sole dispositive power over 10,627,065 shares.

 

  (5)

Based on a Schedule 13G/A filed February 10, 2015, as of December 31, 2014, The Vanguard Group, Inc. beneficially owned an aggregate of 9,363,854 shares, and had sole power to vote 222,808 shares, sole dispositive power over 9,148,953 shares, and shared dispositive power over 214,901 shares.

 

  (6)

Based on a Schedule 13G filed February 13, 2015, FMR LLC beneficially owned an aggregate of 9,143,790 shares, and had sole power to vote 484,641, and sole dispositive power over 9,143,790 shares.

 

52


Table of Contents

LETTER FROM THE COMPENSATION COMMITTEE

Dear Darden Shareholder:

Fiscal 2015 was a year of tremendous change at Darden, highlighted by the election of a new Board of Directors at the annual shareholders meeting in October. Given that the Board transition took place more than four months into the fiscal year, the fiscal 2015 executive compensation program had already been approved by the prior Compensation Committee and implemented by the prior leadership team. Notwithstanding, your new Board — including the new Compensation Committee — have taken the following immediate steps to impact positive change at Darden in relation to executive leadership and compensation:

 

   

Conducted an extensive CEO search process culminating with the appointment of a new CEO

 

   

Enabled a successful leadership transition plan

 

   

Hired a new independent executive compensation consultant

 

   

Initiated a comprehensive review of the Company’s compensation practices, policies, and plan designs to inform decision making with respect to fiscal 2016 and beyond

 

   

Restructured fiscal 2016 executive compensation programs with a view toward a more appropriate peer group, and enhanced pay for performance alignment in its long term incentive plan

Summary of Fiscal 2015 Performance and Pay Results

Darden’s performance by the end of fiscal 2015 was much improved as a result of important actions taken by our new leadership with the support of our new Board to improve operations, reduce costs and focus on opportunities with the highest potential. In particular, the new Board worked hard to shift the Company’s focus from enterprise- driven operations to brand-driven operations. By the end of fiscal 2015, the Company reported:

 

   

Consolidated Adjusted EPS increased 54% from $1.71 to $2.63

 

   

Consolidated Same-Restaurant Sales increased 2.4%

 

   

Consolidated Total Revenue increased 8% to $6.76 billion

 

   

Consolidated Free Cash Flow of $577.8 million

These results were accompanied by a 38% increase in Darden’s stock from $47.76 on the first day of fiscal 2015 (May 27, 2014) to $65.80 on June 1, 2015; and yielded the following compensation results for corporate executives:

 

   

Short-term incentives tied to fiscal 2015 performance were earned at 161% of target.

 

   

Performance Shares tied to fiscal 2013-2015 performance were earned at 50% of target, representing a blended three year performance with weaker performance in fiscal 2013 and fiscal 2014 followed by improved performance in fiscal 2015.

 

   

Stock options that were granted in July 2014 had accrued in-the-money value of $21.31 per option, but remained unvested; the realizable value of each executive’s total stock and option holdings increased in value commensurate with the increase in Darden’s stock price.

 

53


Table of Contents

Summary of Fiscal 2016 Executive Compensation Program Changes

Following our comprehensive review of the executive compensation program, the Compensation Committee has significantly restructured and improved fiscal 2016 executive compensation programs with a view toward a more appropriate peer group and enhanced pay for performance alignment in its long-term incentive plan. The Compensation Committee has approved the following changes for fiscal 2016:

 

Compensation Program Element    Primary Changes for Fiscal 2016

Philosophy and Strategy

  

•      Aligned pay with performance targets

Executive Compensation Peer Group

  

•      Changed the peer group to better reflect restaurants and retailers of comparable size and operations as measured by system-wide revenue, market capitalization and enterprise value

Short-Term Incentive Plan Design

  

•      Removed the individual performance factor, resulting in a program that is 100% tied to financial results, specifically 70% Adjusted EPS or Operating Income and 30% Same Restaurant Sales

•      Lowered the maximum payout from 300% to 200% of target

•      Enhanced executive accountability

Long-Term Incentive Plan Design

  

•      Enhanced pay for performance with emphasis on performance
shares — equity award mix to be 1/3 stock options, 1/3 performance shares tied to return on invested capital (ROIC) and 1/3 performance shares tied to relative total shareholder return (TSR) versus publicly traded restaurants

•      Lengthened the performance period on performance shares from 1 year to 3 years

•      Changed from cash-settled to stock-settled performance shares in order to further align executive and shareholder interests

Corporate Aircraft

  

•      Sold remaining corporate aircraft

Stock Ownership Requirements

  

•      Adopted a mandatory hold on 100% of all net, after tax shares until the ownership guideline is achieved

•      Stock ownership requirements for senior officers range from 2-6x salary

Change in Control Agreements

  

•      Adopted new agreements that reflect governance best practices and market competitive benefits to replace the prior Management Continuity Agreements (MCA) as they expire

The Compensation Committee of your Board is committed to an executive compensation program designed to serve the long-term interests of our shareholders. Within the context of our Total Rewards Program, we believe that these changes will serve to further align executive pay and company performance, while providing a compelling total compensation package that will enable the organization to attract and retain superior executive talent.

We are committed to an open dialogue with our shareholders and we encourage your feedback.

Members of the Compensation Committee:

James P. Fogarty, Committee Chair

Margaret Shân Atkins

Jean M. Birch

Peter A. Feld

Cynthia T. Jamison

Lionel L. Nowell III

 

54


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

Overview

This compensation discussion and analysis provides information about our fiscal 2015 compensation program for our fiscal 2015 named executive officers (“NEOs”), several of whom are no longer with the Company (as described below). The information that follows primarily covers the fiscal 2015 programs that were set and approved by the prior Compensation Committee and Board.

Our named executive officers for fiscal 2015 were the following eight individuals, three of whom currently serve as executive officers of the Company, two of whom served as executive officers of the Company throughout fiscal 2015 but are no longer executive officers, and three of whom formerly served as executive officers of the Company.

 

Name

  

Position with Company at Fiscal 2015 Year-End

Eugene I. Lee, Jr.

  

Chief Executive Officer

C. Bradford Richmond

  

Senior Vice President and Chief Financial Officer (until July 16, 2015)

David C. George

  

President, Olive Garden

Valerie L. Insignares

  

President, LongHorn Steakhouse (until July 24, 2015)

Harald E. Herrmann

  

President, Specialty Restaurant Group

Clarence Otis, Jr.

  

Former Chief Executive Officer

Teresa M. Sebastian

  

Former Senior Vice President and General Counsel

Robert S. McAdam

  

Former Senior Vice President, Government and Community Affairs

Key Leadership Changes During Fiscal 2015

We had several key leadership changes in fiscal 2015. Clarence Otis, Jr., our Former Chairman and Chief Executive Officer (CEO), stepped down from his position as Chairman, effective July 28, 2014, but continued his position as CEO until October 13, 2014, at which point Eugene I. Lee, Jr. was selected for the role of interim Chief Executive Officer. Mr. Lee previously had served as Chief Operating Officer for Darden. On February 22, 2015, the Board of Directors named Mr. Lee Chief Executive Officer of Darden after conducting an extensive search process. The compensation arrangement for Mr. Otis is provided under the subsection below entitled “Former and Departing Named Executive Officer Compensation” and is provided for Mr. Lee under the subsection below entitled “CEO Compensation.”

In addition, we had one retirement and two departures of senior executive officers announced during fiscal 2015:

 

   

C. Bradford Richmond served as our Senior Vice President and Chief Financial Officer until July 16, 2015, when he became Senior Vice President, Finance Transition and subsequently retired on July 28, 2015. In November 2014, Mr. Richmond announced that he would retire on March 29, 2015, or earlier upon the appointment of his successor. In March of 2015, Mr. Richmond agreed to continue with the Company and retire on the later of July 28, 2015, or the appointment of his successor. After the fiscal year end and following the arrival of our new Chief Financial Officer on July 16, 2015, Mr. Richmond retired from the Company on July 28, 2015. Please see the subsection entitled “New Chief Financial Officer” below for additional information regarding the appointment of our new Chief Financial Officer.

 

   

Robert S. McAdam was Senior Vice President, Government and Community Affairs until November 24, 2014 when he left the Company.

 

   

Teresa M. Sebastian was Senior Vice President, General Counsel until March 15, 2015, when she left the Company.

 

55


Table of Contents

Process For Determining Fiscal 2015 Executive Compensation

The fiscal 2015 executive compensation program was approved by the prior Compensation Committee and Board in June and July of 2014. The following were the primary roles and responsibilities in the establishment and approval of the fiscal 2015 executive compensation program:

Prior Compensation Committee and Board

The prior Compensation Committee was responsible for the executive Total Rewards program design and decision-making process for fiscal 2015. The Committee solicited input from the independent members of the Board, the CEO and other members of management, and its independent compensation consultant to assist with its responsibilities. The specific responsibilities of the prior Compensation Committee with respect to fiscal 2015 included (a) approving base salaries; (b) approving short-term incentive opportunities, performance goals, and other plan design features of the Management Incentive Plan (MIP); and (c) approving long-term incentive grant levels, form, mix, and features. With respect to compensation levels, the prior Committee approved these items for all executive officers other than the CEO, and recommended these items to the Board for the CEO position.

Prior Independent Consultant

The prior Compensation Committee retained Towers Watson as its independent consultant with respect to fiscal 2015 executive compensation. In their role as independent consultants, Towers Watson reported to and was directed by the prior Compensation Committee. The primary services performed by Towers Watson included peer group development, periodic competitive market studies, periodic advice regarding variable pay program designs, periodic review and advice regarding executive compensation policies, updates on emerging practices and trends, and attendance at Compensation Committee meetings.

Prior Peer Group and Benchmarking Strategy

The prior Compensation Committee periodically reviewed the pay levels and practices of peer companies in order to assess the competitive positioning of Darden’s pay levels and plan designs. Based on the advice of Towers Watson, the prior Compensation Committee approved the following peer group for executive compensation benchmarking:

 

Restaurant

  

Retail

   Hospitality    Consumer Packaged Goods

Bob Evans Farms Inc.

Brinker International, Inc.

Buffalo Wild Wings, Inc.

Cracker Barrel Old Country Store, Inc.

Denny’s Corporation

Jack-in-the-Box, Inc.

McDonald’s Corp.

P.F. Chang’s China Bistro

Panera Bread Company

Papa John’s International Inc.

Starbucks Corporation

Texas Roadhouse, Inc.

The Cheesecake Factory Incorporated

The Wendy’s Company

YUM! Brands, Inc.

  

Gap, Inc.

Limited Brands, Inc.

Nordstrom Inc.

V.F. Corporation

   Carnival Corporation

Hilton Hotels Corporation

Marriott International, Inc.

Royal Caribbean Cruises Ltd.

Starwood Hotels & Resorts
    Worldwide Inc.

Wyndham Worldwide
    Corporation

   ConAgra Foods, Inc.

General Mills, Inc.

The Hershey Company

Kellogg Company

Although the prior Compensation Committee reviewed and considered the data and information prepared by Towers Watson, it was only one of many factors that the prior Compensation Committee considered when making compensation decisions. Furthermore, the new Compensation Committee approved a new peer group that was used by the new Independent Consultant for the comprehensive review and assessment of the executive compensation program that took place during

 

56


Table of Contents

fiscal 2015. Please see the subsections entitled “New Compensation Committee and Board” and “New Independent Consultant” for additional information.

Prior Executive Leadership Team

The prior Compensation Committee received additional analysis, input, and recommendations from the prior executive leadership team — primarily including the prior CEO, the CFO, the prior General Counsel, and the prior Chief Human Resources Officer. These individuals regularly attended Compensation Committee meetings, but the CEO and executive leadership team were not present during conversations regarding CEO pay.

New Compensation Committee and Board

Following the Board transition in October 2014, the new Compensation Committee and Board became responsible for the executive compensation program. With respect to fiscal 2015 executive compensation, the new Compensation Committee and Board was primarily responsible for (a) approving the interim and full-time compensation arrangements for the new CEO; (b) approving payouts under the Company’s fiscal 2015 Management Incentive Plan (the design of which was approved by the prior Compensation Committee); and (c) approving payouts under outstanding performance stock units that were earned over the three year period ending with fiscal 2015. In connection with, and subsequent to, the annual meeting, shareholders have given us feedback that the new Compensation Committee considered when developing the fiscal 2016 programs. Much of fiscal 2015 was spent reviewing and assessing all aspects of the Company’s executive compensation program, and as a result, the Committee approved significant changes to the executive compensation program for fiscal 2016 (see “Letter from the Compensation Committee” which precedes this section for further details).

New Independent Consultant

Following the Board transition in October 2014, the new Compensation Committee, after assessing its needs and undergoing a thorough selection process, hired Pearl Meyer and Partners as its independent consultant. In selecting Pearl Meyer and Partners, the new Committee considered the independence factors prescribed by the SEC, and the stock exchanges, and concluded that Pearl Meyer and Partners was independent and that its work did not raise any conflict of interest. In its role as independent consultants, Pearl Meyer and Partners reports to, and is directed by, the new Compensation Committee. The primary services performed by Pearl Meyer and Partners have been with respect to (a) assisting with the interim and full-time CEO compensation arrangements; (b) assisting with the comprehensive review and redesign of the executive compensation program for fiscal 2016; (c) assisting with the review and redesign of the Board of Director compensation program and; (d) assisting with the drafting of this Compensation Discussion & Analysis.

With respect to the comprehensive review and redesign of the compensation program for fiscal 2016, Pearl Meyer and Partners recommended, and the new Committee approved, the following executive compensation peer group:

 

The Wendy’s Company

   The Gap, Inc.

Dunkin’ Brands Group

   Nordstrom, Inc.

DineEquity, Inc.

   L Brands, Inc.

Brinker International, Inc.

   AutoZone, Inc.

Panera Bread Company

   PetSmart, Inc.

Bloomin Brands, Inc.

   Dick’s Sporting Goods, Inc.

Chipotle Mexican Grill, Inc.

   Tractor Supply Company

Buffalo Wild Wings, Inc.

   Wyndham Worldwide Corporation

Cracker Barrel Old Country Store, Inc.

   William-Sonoma, Inc.

The Cheesecake Factory, Inc.

   Starwood Hotels and Resorts

Texas Roadhouse, Inc.

  

The new peer group of 21 companies reflected a significant modification to the Company’s previous peer group of 28 companies with 16 deletions, 12 carried forward, and 9 new companies. These changes removed unrelated industries (e.g. manufacturing and cruise lines) from the group, and importantly more appropriately narrowed the level of dispersion in the group’s financial characteristics. For example, the prior peer group reflected a group where the company with the largest market capitalization ($92 billion) was 126x the lowest as compared to approximately 13x in our revised peer group. In addition, our revised peer group reflects a median market capitalization of $6 billion as compared to the predecessor’s peer group of $14 billion.

 

57


Table of Contents

The peer group extends beyond restaurant operators because there are a limited number of restaurant operators of comparable size to Darden and because the Company competes for talent with, and has some business model similarities to, companies in the retail and broader hospitality industries.

In subsequent years, Pearl Meyer and Partners’ services generally are expected to include peer group development, periodic competitive market studies, periodic advice regarding variable pay program designs, periodic review and advice regarding executive compensation policies, updates on emerging practices and trends, and attendance at Compensation Committee meetings.

Fiscal 2015 Executive Compensation Philosophy and Strategy

As established by the prior Compensation Committee, Darden’s executive talent and Total Rewards philosophy has been and continues to be focused on attracting well-qualified executives and to motivate and reward them for achieving business results and demonstrating leadership behaviors that drive our business. We are committed to a pay for performance culture that includes high standards of ethical behavior and corporate governance and we structure compensation designs with the following principles in mind:

 

   

Compensation Design Supports Our Business Strategy and Is Aligned with Shareholders’ Interests — We have designed our Total Rewards Program, and our incentive plans in particular, to meet our primary goal of aligning with shareholders; specifically, to drive strong and sustainable sales and earnings growth and maximize total shareholder return.

 

   

Incentive Compensation Is Aligned with Performance — Total direct compensation (salary, annual incentives and long-term incentives) for our NEOs is structured so that at least two-thirds of the total value at target is attributable to Company and individual performance.

The target pay opportunities approved by the prior Compensation Committee reflect this emphasis on pay for performance, with between 72% and 80% of target total direct compensation for NEOs tied to performance:

CEO and All Other NEO Total Direct Compensation Mix at Target

 

LOGO

Fiscal 2015 Executive Compensation Program Elements

As established by the prior Compensation Committee, our Total Rewards program for NEOs was and continues to be comprised of base salary, annual incentives, long-term incentives, modest perquisites, retirement savings and non-qualified deferred compensation plans. Our NEOs also are eligible to participate in the health benefits available to our U.S. salaried employees.

 

58


Table of Contents

Base Salary

We provide competitive base salaries to our NEOs in recognition of their job responsibilities. In addition to external competitive market data (what our peer companies pay for similar positions), we consider individual work experience, leadership, knowledge and internal parity among those performing like jobs when setting salary levels. Annual salary increases are primarily driven by individual performance and market adjustments based on the relative position of the individual’s salary to market data.

Annual Incentives

We provide annual cash incentive opportunities to our NEOs under our Management Incentive Plan (MIP). The MIP requires that the Company have positive consolidated earnings for the fiscal year in order for awards to be made for that year. Assuming that condition is satisfied, the Committee has the discretion to establish the elements used to determine individual annual incentive awards and payments, if any, to be made, subject to certain limitations. The maximum awards payable for any plan year to any individual MIP participant may not exceed two tenths of one percent (0.2 percent) of the Company’s annual sales for the year. The bonus amounts actually paid for fiscal 2015 to our NEOs were based on both individual and Company or Business Unit performance, as described below.

The annual incentive plan design approved by the prior Compensation Committee used the following formula to calculate individual executive incentive awards:

Base Salary x Target Bonus Opportunity x Company Performance Rating x Individual Performance Rating

Company Performance Rating

Company performance ratings were determined based solely on Darden results for NEOs other than business unit or group presidents, whose Company ratings were based on business unit or group results (80 percent) and Darden results (20 percent). Company performance measures for fiscal 2015 were:

 

Performance Metric

   Weighting  

Corporate

  

Adjusted EPS

     70 percent   

Same Restaurant Sales

     30 percent   

Business Unit

  

Adjusted Operating Income

     70 percent   

Same Restaurant Sales

     30 percent   

The prior Compensation Committee established threshold, target, stretch and maximum performance goals for each measure, with potential payouts ranging from 0 to 200% of each participants target bonus opportunity.

Individual Performance Rating

Individual performance ratings were based on both the achievement of specific annual objectives (the “what”) and the leadership behaviors the individual demonstrated in achieving the objectives (the “how”), subject to overall discretion of the Compensation Committee. The objectives are based on unique contributions an individual is expected to make to the Company as a result of his or her position, expertise and experience. Individual annual objectives fall into four categories: financial, guest, employee and process excellence. Our leadership behaviors fall into four categories: personal leadership, people leadership, business leadership and results leadership.

The prior Compensation Committee reviewed and approved the individual performance criteria, with a potential modifier factor ranging from 0 to 150% of the calculated bonus based on the Company Performance Rating. Accordingly, the maximum payout opportunity for an individual participant was capped at 300% of target (i.e., 200% Company Performance Rating and a 150% Individual Performance Modifier).

 

59


Table of Contents

Performance and Pay Results for Fiscal 2015

The prior Committee approved the performance targets at the beginning of fiscal 2015, and the new Compensation Committee reviewed and certified the following Company Performance results for fiscal 2015:

 

Performance Metric

     Weight      Target      Actual      Rating1

Darden

                    1.61

SRS

     30%      1.2%      2.4%     

Adjusted EPS

     70%      $2.25      $2.52     
                   

Olive Garden

                    1.56

SRS

     30%      0.7%      1.3%     

Adjusted OI

     70%      $377.90      $415.60     
                   

LongHorn

                    1.90

SRS

     30%      1.8%      4.4%     

Adjusted OI

     70%      $71.60      $90.20     
                   

SRG

                    1.54

SRS

     30%      1.8%      3.7%     

Adjusted OI

     70%      $71.30      $81.30     

1Rating = Payout as a Percent of Target

Adjusted EPS for purposes of the MIP was derived from the publicly reported adjusted diluted net EPS, reduced for bonus purposes to exclude the net impact of strategic action plan savings, restructuring charges and certain impairment charges.

 

Diluted Net EPS from Continuing Operations

   $1.51

Red Lobster-Related Shared Support Costs

   $0.02

Other Strategic Action Plan Costs

   $0.15

Debt Breakage Costs

   $0.42

Asset Impairments and Other One-time Costs

   $0.53

Adjusted Diluted Net EPS from Continuing Operations

   $2.63

Further Net Adjustments for Bonus Purposes

   -$0.11

Adjusted EPS for MIP

   $2.52

The new Compensation Committee reviewed the CEO’s assessment of individual performance for each NEO, other than himself, and assessed the individual performance for the CEO, in deriving the resulting individual awards, which are summarized below.

 

Name Executive Officer

   Target
% of  Salary
    Actual
Award1
 

Eugene I. Lee Jr

     100   $ 1,251,785 2 

C. Bradford Richmond

     65   $ 684,606   

David C. George

     60   $ 683,690   

Valerie L. Insignares

     55   $ 578,789   

Harald E. Herrmann

     60   $ 506,283   

1Based on company rating and individual performance.

2Reflects the prorated incentive for time as COO, Interim CEO and CEO.

 

60


Table of Contents

The Target Award for Mr. Lee reflects his target award opportunity as Chief Operating Officer for approximately 40% of fiscal 2015 and his target award opportunity as Interim Chief Executive Officer and Chief Executive Officer for 60% of fiscal 2015. See the subsection below entitled “CEO Compensation” for additional information regarding the compensation arrangements in place for Mr. Lee during fiscal 2015 as he served as COO, Interim CEO and CEO.

Summary of Changes to the Annual Incentive Plan for Fiscal 2016

For fiscal 2016, the new Compensation Committee has approved an annual incentive plan design that eliminates the Individual Performance Rating component so that 100% of the annual incentive opportunity is tied directly to the financial results of the Company and the Business Units. In addition, the new plan reduces the maximum payout under the Plan for fiscal 2016 from 300% to 200% of target.

Long-Term Incentives

We provide long-term incentive opportunities to our NEOs under our 2002 Plan. The purpose of the long-term incentive program is to motivate and reward achievement of our long-term objectives of winning financially and creating long-term value for our shareholders.

For fiscal 2015, each NEO had a target grant value that was approved by the prior Compensation Committee based on external market data and relevant internal considerations such as experience, tenure, internal equity, etc. The actual grant value in any given year varies in size based primarily on individual performance, and the ultimate realizable value of the awards varies based on Company performance, stock price appreciation and overall total shareholder return.

For fiscal 2015, the prior Compensation Committee approved a program design whereby 2/3 of the grant value was provided in the form of stock options and 1/3 was provided in the form of performance stock units. The following is a summary of the material terms of each award type:

Stock Options (Options)

 

   

Granted with an exercise price equal to the stock price on the grant date

 

   

Vesting 50% after 3 years and 50% after 4 years

 

   

Maximum term of 10 years

Performance Stock Units (PSUs)

 

   

Share denominated units

 

   

Vesting tied 50% to Total Revenue and 50% to Free Cash Flow

 

   

Settled in cash at the end of a 3 year performance period based on the average achievement over the preceding three consecutive 1 year performance periods; subject to a 10% adjustment based on Darden’s relative Total Shareholder Return over the 3 year period compared to the S&P 500 (multiplied by 110% if in the top quartile and by 90% if in the bottom quartile).

 

61


Table of Contents

Annual Grants

For fiscal 2015, the prior Compensation Committee approved the following grants to the NEOs:

 

Named Executive Officer

   Target
Grant
Value
     Awarded
Grant
Value
     Number of
Options1
     Number  of
PSUs2
 

Eugene I. Lee Jr

   $ 1,700,000       $ 1,700,000         91,641         11,483   

C. Bradford Richmond

   $ 1,400,000       $ 1,500,000         80,860         10,132   

David C. George

   $ 1,000,000       $ 1,150,000         61,992         7,768   

Valerie L. Insignares

   $ 900,000       $ 900,000         48,516         6,079   

Harald E. Herrmann

   $ 900,000       $ 765,000         41,238         5,167   

1Number of options based on the Black-Scholes valuation and the average closing stock price for the fiscal month preceding grant.

2Number of PSUs based on the average closing stock price for the fiscal month preceding grant.

The Grant Values and Number of Options and PSUs in the above table reflect the annual grant that was approved by the prior Compensation Committee in July of 2014. In October 2014, the new Compensation Committee approved additional grants to Mr. Lee for his services as Interim CEO. The specifics of these grants are provided in the subsection below entitled “CEO Compensation.”

Performance Results and Payouts for Prior Grants

Fiscal 2015 was the final year of the three year period for PSUs that were granted at the beginning of fiscal 2013 for the performance period covering fiscal 2013-2015. The new Compensation Committee certified the following performance results for the fiscal 2015 period of the three-year period:

 

Darden

   Weight     Target      Actual      Rating1  

Total Revenue

     50   $ 6,707       $ 6,764         1.20   

Free Cash Flow

     50   $ 306       $ 578         1.80   

Weighted Avg

             1.50   

1 Rating of 1.4 would equal 100% of target vesting, rating of 1.5 equals 113% of target vesting.

The new Compensation Committee also certified that Darden’s three-year total shareholder return for the period ending in May 2015 was between the bottom and top quartile of the S&P 500; and therefore no adjustment to the fiscal 2015 rating was required.

Based on the prior Compensation Committee’s certification of results for fiscal 2013 and 2014, and the new Compensation Committee’s certification of results for fiscal 2015 and for the three-year period ending with fiscal 2015, the new Compensation Committee approved a payout equal to 50% of target, as summarized by the following table:

 

     FY2013     FY2014     FY2015     3 Yr Avg  

Percent of Target Earned

     8     29     113     50

The following is the PSU payout for each NEO for the PSUs that were granted for the performance cycle beginning fiscal 2013 and that vested on July 30, 2015 unless otherwise noted.

 

Named Executive Officer

   Target
PSUs
     Actual
PSUs
     Stock Price
on Vesting
Date
     Actual
Payment
 

Eugene I. Lee Jr

     8,840         4,420       $ 73.80       $ 354,705   

C. Bradford Richmond1

     9,556         9,556       $ 72.43       $ 753,777   

David C. George

     9,389         4,695       $ 73.80       $ 375,922   

Valerie L. Insignares2

     4,697         4,697       $ 73.07       $ 373,505   

Harald E. Herrmann

     —           —           —           —     

1 Due to Mr. Richmond’s retirement on July 28, 2015, his PSUs became fully vested at 100% and were valued on that date per the termination provisions upon Change-in-Control in the award agreement.

2 Due to Ms. Insignares’ departure from the Company on July 24, 2015, her PSUs became fully vested at 100% and were valued on that date per the termination provisions upon Change-in-Control in the award agreement.

 

62


Table of Contents

Summary of Changes to the Long-Term Incentive Plan for Fiscal 2016

For fiscal 2016, the new Compensation Committee has approved a new long-term incentive plan design. The new long-term incentive plan design enhanced pay for performance with an emphasis on performance shares (with 2/3 performance shares and 1/3 stock options). The fiscal 2016 long-term incentive program provides 1/3 in performance-based restricted stock units tied to ROIC, 1/3 of the grant value in performance-based restricted stock units tied to relative TSR and 1/3 of the grant value in stock options. The performance period on the performance-based restricted stock units is three fiscal years, and all units will be stock settled. The new Compensation Committee approved grants effective July 29, 2015 to the NEOs in accordance with this new design.

CEO Compensation

Clarence Otis, Jr.

With respect to fiscal 2015, Mr. Otis was the Chief Executive Officer through October 13, 2015. His compensation arrangements and program design were established by the prior Compensation Committee in accordance with the process outlined above for all NEOs. With respect to his separation agreement put in place by the prior Compensation Committee, please see the subsection entitled “Former and Departing Named Executive Officer Compensation” below.

Eugene I. Lee, Jr.

With respect to fiscal 2015, Mr. Lee served as President and Chief Operating Officer from May 26, 2014 to October 12, 2014; Interim CEO from October 13, 2014 to February 21, 2015; and CEO from February 22, 2015 to May 31, 2015. Mr. Lee’s compensation as President and Chief Operating Officer was established by the prior Compensation Committee in accordance with the process outlined above for all NEOs.

On October 13, 2014, the new Compensation Committee and Board named Mr. Lee the Interim CEO. In addition to his then current compensation, the new Compensation Committee approved the following additional compensation for the period during which Mr. Lee serves as Interim CEO:

 

   

$25,000 per month in cash compensation

 

   

$25,000 per month restricted stock unit award vesting over one year from the grant date based on Mr. Lee’s performance as Interim CEO as determined by the Board

 

   

$300,000 in restricted stock unit award vesting over one year from the grant date based on Mr. Lee’s performance as Interim CEO as determined by the Board, and prorated for his time as Interim CEO

This additional compensation was intended to compensate Mr. Lee for the additional responsibilities associated with serving as the Interim CEO and to provide additional retention incentives during the CEO selection process.

After a comprehensive search, on February 22, 2015, the new Compensation Committee and Board named Mr. Lee the CEO. At this time, the new Compensation Committee and Board approved the following compensation arrangement for Mr. Lee for the remainder of fiscal 2015:

 

   

Base salary was increased from $714,000 to $925,000

 

   

Target annual incentive opportunity was increased from 70% to 100% of base salary

 

   

Target long-term incentive value was increased from $1,700,000 to $2,650,000

These changes result in target total direct compensation of $4,500,000 which positioned his pay below the market median of the peer group. As part of the Committee’s customary fiscal year-end review, Mr. Lee received an increase effective August 3, 2015 to $950,000 base salary and an increase to $3,100,000 in his target long-term incentive value, representing an 11.1% increase in his total direct compensation but still positioned below market median of the peer group.

 

63


Table of Contents

The Compensation Committee intends to review Mr. Lee’s compensation annually, and to make appropriate adjustments as time and performance warrant.

Former and Departing Named Executive Officer Compensation

Clarence Otis, Jr., our former Chairman and Chief Executive Officer, left the Company on October 13, 2014. Pursuant to a separation agreement entered into in lieu of his Management Continuity Agreement (MCA), Mr. Otis will, for a period of 24 months, receive his regular weekly gross base salary, remain eligible to participate in medical, dental, and vision programs similar to his current coverage level, and had the vesting of equity awards accelerated in accordance with the terms of the applicable award agreements. In addition, Mr. Otis will retain certain other ancillary benefits for limited periods, including physical examination and financial counseling benefits. The separation agreement with Mr. Otis also provided that he would remain eligible for an award under the fiscal 2015 MIP, prorated for the number of months of his active service as CEO during the fiscal year, although none was awarded. The separation agreement includes customary confidentiality, non-solicitation, non-competition, non-disparagement and release provisions, with forfeiture of the benefits described above in the event of a breach of the agreement.

Robert S. McAdam, our former Senior Vice President, Government and Community Affairs, left the Company on November 25, 2014. His MCA is described in more detail on pages 79-81. Under the agreement, Mr. McAdam received a lump sum equal to three times his base salary plus average bonus, will remain eligible to participate in medical, dental and vision programs similar to his current coverage level for 36 months, had the vesting of equity awards accelerated in accordance with the terms of the applicable award agreements, and received payments for services rendered under a post-termination consulting agreement. The agreement includes customary confidentiality, non-solicitation, non-competition, non-disparagement and release provisions. Mr. McAdam was not eligible for an annual MIP bonus award for fiscal 2015.

Teresa M. Sebastian, our former Senior Vice President and General Counsel left the Company on March 15, 2015. Under the MCA, Ms. Sebastian received a lump sum equal to three times her base salary plus average bonus, will remain eligible to participate in medical, dental and vision programs similar to her current coverage level for 36 months, had the vesting of equity awards accelerated in accordance with the terms of the applicable award agreements, and the reimbursement of certain legal expenses. The agreement includes customary confidentiality, non-solicitation, non-competition, non-disparagement and release provisions. Ms. Sebastian was not eligible for an annual MIP bonus award for fiscal 2015.

C. Bradford Richmond was our Senior Vice President and Chief Financial Officer during fiscal 2015 and until July 16, 2015, when he became Senior Vice President, Finance Transition until his retirement on July 28, 2015. In December, 2013, the Company entered into an agreement with Mr. Richmond with the expectation that he would become the Chief Financial and Administrative Officer of Red Lobster upon its spin-off in 2015. Under that agreement, Mr. Richmond was to receive among other things a signing bonus of $250,000. Ultimately, the previous Board determined to sell Red Lobster, so under his agreement, Mr. Richmond received the signing bonus in fiscal 2015. On November 25, 2014, Mr. Richmond announced his plan to retire on March 29, 2015, or earlier upon the appointment of his successor. In March of 2015, Mr. Richmond agreed to remain as CFO until the later of July 28, 2015 or the appointment of his successor. Due to the change-in-control that occurred in September 2014, Mr. Richmond was eligible to receive benefits under his MCA, but agreed to forgo these benefits in place of our regular severance benefits. Pursuant to his separation agreement, Mr. Richmond received a lump sum amount equal to 18 months of gross base salary and remains eligible to participate in medical, dental, and vision programs for a period of 18 months. Pursuant to the terms of his equity award agreements, as a result of his termination subsequent to a change in control, the vesting of outstanding awards accelerated. In addition, Mr. Richmond will retain certain other ancillary benefits for limited periods, including physical examination and financial counseling benefits. The separation agreement includes customary confidentiality, non-solicitation, non-competition, non-disparagement and release provisions, with forfeiture of the benefits described above in the event of a breach of the Agreement.

Other Programs, Policies, and Practices

Perquisites

We provide limited perquisites to our NEOs that we believe are appropriate to enable business continuity and minimize work distractions. During fiscal 2015, these benefits included personal use of the company owned plane, an

 

64


Table of Contents

allowance toward a company car, limited reimbursement for financial planning assistance, an annual executive physical, and a miscellaneous business expenses allowance.

The new Compensation Committee approved and completed the sale of all remaining company owned aircraft and the elimination of the miscellaneous business expense allowance.

Other Benefits

Our NEOs receive the same employee benefits provided to other salaried U.S. employees, but are not eligible to participate in Darden’s qualified retirement plans. Instead, our NEOs participate in the non-qualified FlexComp Plan. The FlexComp Plan allows participants (approximately 650) to defer receipt of up to 25 percent of their base salaries and up to 100 percent of their annual incentive compensation. We make contributions into the FlexComp Plan for our NEOs in place of benefits under our qualified retirement and savings plans.

Stock Ownership Guidelines

In keeping with our objective of aligning our executives’ interests with our shareholders’ interests, we require our executives to hold equity in the Company equal in value to a designated multiple of their salaries. The required ownership values vary based on the executive’s level of responsibility. Our CEO is required to hold stock equal to six times his base salary. Our other NEOs are required to hold stock equal in value to four and a half times base salary.

The new Compensation Committee has approved a policy amendment adopting a mandatory hold that requires that the NEOs hold 100% of any net after tax shares issued to them until they achieve the required stock ownership level.

Policy on Granting Equity Awards

Our equity awards policy provides that incentive equity grants to employees, including stock option grants, are made once per year and are effective on the last Wednesday in fiscal July. Any other interim or ad hoc equity awards such as retention awards, including stock option grants, are made effective on such date as the Committee, the Board or authorized individual approving the award may determine. The grant date for equity awards is never a date prior to approval. The exercise price of stock options is the fair market value of our common stock on the date of the grant as measured by the closing sales price of our common stock on the NYSE.

Recoupment and Forfeiture of Compensation

We have adopted claw-back provisions which provide that an officer is required to repay performance-based rewards to the Company if he or she knowingly participates in a fraud that requires the Company to restate its financial statements. Performance-based rewards include annual incentive awards under our MIP, PSU awards and gains on stock option exercises.

Management Continuity Agreements

We do not have employment contracts or general severance agreements with our NEOs, other than the agreement with Mr. Lee described in “Executive Compensation — Potential Payments Upon Termination or Change in Control — Agreement With Mr. Lee.” However, the prior Compensation Committee approved MCAs for senior executives, which are limited to a Change in Control of the Company. The MCA provides for enhanced severance benefits in the event of a termination of employment within 24 months of a Change in Control. The Board transition which occurred in October 2014 qualified as a Change in Control under the MCAs. For additional information regarding the MCA, please see the section entitled “Executive Compensation — Potential Payments Upon Termination or Change in Control.”

Excluding Mr. Richmond, who waived his rights to his MCA, all of the other current NEOs have MCAs. However, the new Compensation Committee has provided notice of non-renewal of the MCAs to all participants. The effect of the notice of non-renewal is that the MCAs will expire on October 1, 2016, at which time a new form of Change in Control Agreement may be provided to such individuals.

 

65


Table of Contents

Compliance with Section 162(m) of the Internal Revenue Code

In designing our compensatory programs, we take into account the various tax, accounting and disclosure rules associated with various forms of compensation. The Compensation Committee also reviews and considers the deductibility of executive compensation under section 162(m) of the Internal Revenue Code. The Committee generally seeks to preserve tax deductions for executive compensation. Nonetheless, the Committee has awarded compensation that is not fully tax deductible when it believes such grants are in the best interests of our shareholders and reserves the right to do so in the future. There is no guarantee that compensation payable pursuant to any of the Company’s compensation programs will ultimately be deductible by the Company.

New Chief Financial Officer

On July 3, 2015, we appointed Jeffrey A. Davis as Senior Vice President and Chief Financial Officer of the Company, effective July 16, 2015. In this role, Mr. Davis has responsibility for the financial functions of the Company, including finance and accounting, corporate reporting, corporate tax, treasury and investor relations, as well as internal audit, supply chain, and real estate and development. Mr. Davis reports to Mr. Lee and succeeded Mr. Richmond, who had served as our Senior Vice President, Finance Transition from July 16, 2015 until his retirement on July 28, 2015. Prior to July 16, 2015, Mr. Richmond served as our Chief Financial Officer.

In connection with his appointment as Senior Vice President and Chief Financial Officer, Mr. Davis and the Company have agreed that Mr. Davis’ annual base salary will be $560,000 and Mr. Davis will be eligible to participate in the Company’s annual incentive and equity compensation programs. Mr. Davis’ target annual incentive will be 80% of his annual base salary. Mr. Davis’ target long-term incentive will be in the form of a combination of stock options and performance-based restricted stock units and will have an aggregate target value of $1,000,000. He will receive the first such long-term incentive grant on July 29, 2015. On July 16, 2015, Mr. Davis received a special equity grant of restricted stock units with an aggregate value of $1,000,000 as well as a sign on bonus of $100,000. Mr. Davis will also receive certain perquisites, including a company car allowance.

Departure of President of LongHorn Steakhouse

On July 23, 2015, the Company agreed with Ms. Insignares, who was the President of LongHorn Steakhouse, that her employment would end effective as of the close of business on July 24, 2015. Ms. Insignares will receive benefits pursuant to her MCA, which include a lump sum equal to three times her base salary plus average bonus, medical, dental and vision coverage similar to her current coverage level for 36 months and accelerated vesting of equity awards in accordance with the terms of the applicable award agreements. For additional information regarding Ms. Insignares’ MCA, please see the section entitled “Executive Compensation — Potential Payments Upon Termination or Change in Control.”

Shareholder Engagement And Results Of Say On Pay Advisory Vote

At the 2014 Annual Meeting of Shareholders, approximately 66 percent of the votes cast were in favor of the advisory vote to approve executive compensation. Additionally, the shareholders approved an entirely new slate of independent directors to oversee and guide the Company. The new Compensation Committee and Board are committed to serving Darden’s shareholders, and look forward to continued dialogue with shareholders as we move forward.

 

66


Table of Contents

COMPENSATION COMMITTEE REPORT

The Compensation Committee of the Board of Directors reviewed and discussed the Compensation Discussion and Analysis with Darden’s management. Based on this review and discussion, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis 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 May 31, 2015.

Respectfully submitted,

The Compensation Committee

James P. Fogarty, Committee Chair

Margaret Shân Atkins

Jean M. Birch

Peter A. Feld

Cynthia T. Jamison

Lionel L. Nowell III

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During fiscal 2015, the Compensation Committee was comprised of the following now-former directors prior to the 2014 Annual Meeting: Messrs. Ledsinger (Chair), Barnes, Berry and Rose, and Ms. Sastre. After the 2014 Annual Meeting, the Board appointed Mr. Fogarty as the Chair of the Compensation Committee and Messrs. Feld and Nowell and Mses. M. Atkins, Birch and Jamison to serve on the Compensation Committee. During fiscal 2015, all former and current members of the Compensation Committee were independent directors, and no member was an employee or former employee of the Company. In addition, none of the Company’s executive officers served on the board of directors or compensation committee (or other committee serving an equivalent function) of another entity whose executive officer served on the Company’s Board of Directors or Compensation Committee.

ASSESSMENT OF RISK OF COMPENSATION PROGRAMS

We believe that our compensation programs for executives and other employees are designed with the appropriate balance of risk and reward in relation to the Company’s overall business strategy and do not incent executives or other employees to take unnecessary or excessive risks. Specifically, we believe that the following features of our compensation programs (discussed in more detail in the Compensation Discussion and Analysis section below) help manage or mitigate risk:

 

   

The Company has allocated compensation among base salary and short- and long-term compensation target opportunities for executives in such a way as to not encourage excessive risk taking. Incentive compensation is not overly weighted toward short-term incentives. In addition, both short-term and long-term incentives are subject to maximum payment amounts;

 

   

The mix of equity award instruments used under our long-term incentive program (a) includes full value awards; and (b) rewards different performance measures (currently, total shareholder return for stock options and, sales and free cash flow growth as well as total shareholder return relative to the S&P 500 for performance stock units (“PSUs”));

 

   

Our annual and long-term compensation plans are reviewed by the Compensation Committee and any risks embedded in those plans are discussed and evaluated for appropriateness. Our incentive opportunities are designed to drive strong, sustainable growth and shareholder return;

 

   

The multi-year vesting of our equity awards aligns incentive compensation with shareholders’ interests by rewarding long-term stock appreciation rather than short-term performance;

 

   

Our performance criteria and objectives balance performance and sustainability of performance by setting a variety of goals, including same restaurant sales growth, earnings per share growth, sales, and free cash flow;

 

   

Our Stock Ownership Guidelines encourage a focus on long-term growth in shareholder value; and

 

   

Our policies regarding recoupment and forfeiture of compensation discourage excessive or inappropriate risk taking.

 

67


Table of Contents

EXECUTIVE COMPENSATION

Summary Compensation Table

The table below summarizes the total compensation paid or earned by each of the NEOs for the fiscal years ended May 31, 2015, May 25, 2014, and May 26, 2013.

 

Name and Principal Position

  Year     Salary
($) (1)
    Bonus
($) (2)
    Stock
Awards
($) (3)
    Option
Awards
($) (3)
    Non-Equity
Incentive Plan
Compensation
($)
    Change in
Pension Value
and Non-
Qualified
Deferred
Compensation
Earnings

($) (4)
    All Other
Compensation
($) (5)
    Total  

Eugene I. Lee, Jr.

    2015        891,462        —          935,887        948,484        1,251,785        —          241,296        4,268,914   

Chief Executive Officer

    2014        658,317        —          610,588        966,538        337,570        —          137,578        2,710,591   
    2013        565,577        —          433,602        649,029        255,732        —          152,956        2,056,896   
                 

C. Bradford Richmond (6)

    2015        568,858        250,000        450,773        836,901        684,606        —          1,179,828        3,970,966   

Former Senior Vice President

    2014        542,842        —          446,451        706,795        198,030        —          206,796        2,100,914   

and Chief Financial Officer

    2013        530,988        —          468,722        701,624        77,100        —          200,149        1,978,583   
                 

David C. George

    2015        558,296        —          345,598        641,617        683,690        —          157,240        2,386,441   

President, Olive Garden

                 
                 

Valerie L. Insignares

    2015        457,044        —          270,455        502,141        578,789        —          165,862        1,974,291   

Former President, LongHorn

                 

Steakhouse

                 
                 

Harald E. Herrmann

    2015        452,492        —          229,880        426,813        506,283        —          326,161        1,941,629   

President, Specialty

                 

Restaurant Group

                 
                 

Clarence Otis, Jr.

    2015        469,212        —          —          —          —          —          2,903,951        3,373,163   

Former Chief Executive

    2014        1,204,512        —          1,785,803        2,827,192        732,344        —          430,296        6,980,147   

Officer

    2013        1,168,885        —          1,874,936        2,806,494        —          —          500,213        6,350,528   
                 

Teresa M. Sebastian

    2015        358,654        —          180,318        334,760        —          —          2,463,103        3,336,835   

Former SVP General Counsel

                 
                 

Robert S. McAdam

    2015        198,500        —          150,243        278,964        —          —          2,184,195        2,811,902   

Former SVP Government and

                 

Community Affairs

                 

 

  (1)

Amounts reflect the actual base salary paid to the NEO in fiscal 2015, fiscal 2014 and fiscal 2013, including any deferred amounts reported in the Non-Qualified Deferred Compensation Table. Our 2014 and 2013 fiscal years had 52 weeks while 2015 was a 53 week fiscal year.

 

  (2)

The Company made a bonus payment to Mr. Richmond pursuant to the agreement with Mr. Richmond which is more fully described in “Compensation Discussion and Analysis — Former and Departing Named Executive Officer Compensation.”

 

  (3)

Amounts in these columns represent the grant date fair value of awards computed in accordance with ASC Topic 718 for each of fiscal 2015, fiscal 2014 and fiscal 2013. The assumptions used in calculating these amounts in accordance with ASC Topic 718 are included in Note 1 (under the heading Stock-Based

 

68


Table of Contents
 

Compensation) to the Company’s audited financial statements included in the Company’s 2015 Annual Report to Shareholders. The PSUs granted in fiscal 2015 will vest after the 2018 fiscal year-end, based on our free cash flow, sales growth and total shareholder return relative to the Standard & Poor’s 500 index for fiscal 2016, 2017 and 2018. The grant value of PSUs is shown at target payout. Actual awards may range from 0 percent to 165 percent of the targeted incentive. For fiscal 2015, the following amounts represent the grant date fair value of PSU awards assuming achievement of maximum (165%) payout: Mr. Lee — $842,950; Mr. Richmond — $743,775; Mr. George — $570,237; Ms. Insignares — $446,250; Mr. Herrmann — $379,302, Ms. Sebastian — $297,525, and Mr. McAdam — $247,901. For fiscal 2014, the following amounts represent the grant date fair value of PSU awards assuming achievement of maximum (160%) payout: Mr. Lee — $976,940; Mr. Richmond — $714,321; Mr. Otis — $2,857,284. For fiscal 2013, the following amounts represent the grant date fair value of PSU awards assuming achievement of maximum (155%) payout: Mr. Lee — $672,083; Mr. Richmond — $726,519; Mr. Otis — $2,906,151.

 

  (4)

Amounts deferred into the FlexComp Plan do not receive above market or preferential earnings, but rather receive rates of return that match the returns on the investment options available under the Darden Savings Plan as described under the subheading “Non-Qualified Deferred Compensation.”

 

  (5)

All Other Compensation for fiscal 2015 consists of the following amounts:

 

     Perks
and
Other
Personal
Benefits
($) (a)
     Company
Contributions
to Defined
Contribution
Plans ($) (b)
     Insurance
Premiums
($) (c)
     Dividends or
Earnings on
Stock or
Option
Awards

($) (d)
     Other
($) (e)
     Totals ($)  

Eugene I. Lee, Jr.

     37,076         177,889         6,882         19,449         —           241,296   

C. Bradford Richmond

     23,082         269,495         10,429         19,829         856,993         1,179,828   

David C. George

     26,889         103,085         12,045         15,221         —           157,240   

Valerie L. Insignares

     27,603         120,778         5,463         12,018         —           165,862   

Harald E. Herrmann

     201,113         79,578         5,992         39,478         —           326,161   

Clarence Otis, Jr.

     43,903         29,748         4,723         380,913         2,444,664         2,903,951   

Teresa M. Sebastian

     11,593         28,764         8,265         57,544         2,356,937         2,463,103   

Robert S. McAdam

     9,832         13,697         4,920         37,879         2,117,867         2,184,195   

 

  (a)

Includes the aggregate incremental costs to the Company for personal use of a Company car or a limited car allowance, a retirement discount on the price to purchase a company car, the aggregate incremental costs to the Company for personal use of Company aircraft, an annual executive physical, financial counseling, and a business expense allowance. Mr. Otis also received a dining benefit given to retired Board members to be used at Company restaurants. None of these perquisites had a value exceeding the greater of $25,000 or 10 percent of total perquisites for an NEO. Includes relocation benefits of $180,427 to Mr. Herrmann including shipment of household goods, automobile shipment, and insurance. Darden’s previous policy was to leverage Company aircraft for business and business-related travel. The value of the aggregate supplemental incremental cost of the Company aircraft shown above relates to attendance at external board meetings, executive development conferences and executive networking forums, which benefit Darden but are considered by the tax and SEC rules to be personal use. The Company calculates the aggregate incremental cost of the personal use of Company aircraft based on an hourly charge that includes the cost of fuel, trip-related maintenance, crew travel, onboard catering, landing and license fees and contract labor.

 

  (b)

Amounts in this column represent Company contributions made in August 2015 for fiscal 2015 Company performance under the FlexComp Plan, our non-qualified deferred compensation plan. Company contributions are made under the provisions of the FlexComp Plan and are deferred in accordance with participants’ elections pursuant to the terms of the FlexComp Plan, other than the awards to Messrs Otis and McAdam, whose awards were paid directly to them due to their separation from the company prior to end of the FlexComp plan year (December 31, 2014). Salary or bonus deferred by an NEO into the FlexComp Plan is reported in the “Salary” column or the “Non-Equity Incentive Plan Compensation” column.

 

69


Table of Contents
  (c)

Represents the cost to the Company for providing life insurance and long-term disability insurance.

 

  (d)

Since May 31, 2009, our NEOs do not receive dividends or dividend equivalents on unvested restricted stock units or PSUs, but rather accrue them for payment when the units or PSUs are earned and vested and only on units or PSUs that actually vest.

 

  (e)

Includes amounts due and payable to Mr. Otis, Mr. Richmond, Ms. Sebastian, and Mr. McAdam under agreements with the Company governing their separation or pending separation from the Company. See “Compensation Discussion and Analysis — Former and Departing Named Executive Officer Compensation” for information regarding the agreements between Mr. Otis, Mr. Richmond, Ms. Sebastian and Mr. McAdam and the Company during fiscal 2015.

 

  (6)

See “Compensation Discussion and Analysis — Key Leadership Changes During Fiscal 2015” and “Compensation Discussion and Analysis — Former and Departing Named Executive Officer Compensation” for details regarding Mr. Richmond’s service during fiscal 2015 and separation from service in fiscal 2016.

Grants of Plan-Based Awards for Fiscal 2015

The following table sets forth certain information with respect to equity and non-equity plan-based awards granted during fiscal 2015 under the MIP and the 2002 Plan to each of the NEOs.

 

Name

  Grant
Date
    Approval
Date (1)
   

 

Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards (2)

   

 

Estimated Future Payouts
Under Equity Incentive Plan
Awards (3)

    All
Other

Stock
Awards:
Number
of
Shares

of Stock
or Units
(#)
    All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#) (4)
    Exercise
or Base
Price of
Option
Awards
($/Sh)
(5)
    Grant
Date
Fair
Value
of Stock
and
Option
Awards
(6)
 
      Threshold
($)
    Target
($)
    Maximum
($)
    Threshold
(#)
    Target
(#)
    Maximum
(#)
         

Eugene I. Lee, Jr.

    —            —          622,004        1,866,012                 
    7/23/2014        6/17/2014              —          11,483        18,947        —          91,641        44.49        1,459,363   
    10/13/2014        10/13/2014                6,372          —              299,994   
    10/13/2014        10/13/2014                531          —              24,999   
    11/13/2014        10/13/2014                444          —              24,997   
    12/13/2014        10/13/2014                436          —              25,018   
    1/13/2015        10/13/2014                422          —              25,004   
    2/13/2015        10/13/2014                405          —              24,997   
                       

C. Bradford Richmond

    —            —          369,758        1,109,273                 
    7/23/2014        6/17/2014              —          10,132        16,718        —          80,860        44.49        1,287,674   
                       

David C. George

    —            —          334,978        1,004,933                 
    7/23/2014        6/17/2014              —          7,768        12,187        —          61,992        44.49        987,216   
                       

Valerie L. Insignares

    —            —          251,374        754,123                 
    7/23/2014        6/17/2014              —          6,079        10,030        —          48,516        44.49        772,595   
                       

Harald E. Herrmann

    —            —          271,495        814,486                 
    7/23/2014        6/17/2014              —          5,167        8,526        —          41,238        44.49        656,693   
                       

Clarence Otis, Jr.

    —            —          1,234,594        3,703,783                 
                       

Teresa M. Sebastian

    —            —          249,615        748,846                 
    7/23/2014        6/17/2014              —          4,053        6,687        —          32,344        44.49        515,078   
                       

Robert S. McAdam

    —            —          203,096        609,288                 
    7/23/2014        6/17/2014              —          3,377        5,572        —          26,953        44.49        429,206   

 

70


Table of Contents
  (1)

The column sets forth the date on which the Committee took action to grant the reported awards.

 

  (2)

The amounts in these columns represent the potential annual cash incentive that may be earned under the MIP by each NEO. The annual ranges are calculated with the actual salary earned during the fiscal year and the target bonus opportunity for each NEO in effect during the fiscal year. Where the NEO’s target bonus opportunity increases during the fiscal year (for example, in the event of a promotion), the target bonus opportunity is based on a proration using the target bonus opportunity in effect for each portion of the fiscal year, and such proration is used in the actual bonus award calculation. Actual payouts to the NEOs based on fiscal 2015 performance are reported under the “Non-Equity Incentive Plan Compensation” column in the Summary Compensation Table.

 

  (3)

The NEOs received grants of PSUs under the 2002 Plan. These units will vest only if certain performance thresholds relating to sales growth, free cash flow, and total shareholder return measures are achieved. The units have the ability to vest at the end of a three-year performance period. When performance exceeds targeted results, additional units vest; conversely, when performance is below targeted levels, fewer or no units vest. These PSUs are described more fully under the heading “Compensation Discussion and Analysis — Fiscal 2015 Executive Compensation Program Elements —Long-Term Incentives.”

 

  (4)

The NEOs received grants of non-qualified stock options under the 2002 Plan. These non-qualified stock options vest 50 percent on the third and fourth anniversaries of the grant date.

 

  (5)

All stock options are granted with an exercise price equal to the fair market value of our common stock on the date of grant. Fair market value under the 2002 Plan has been determined by the Committee to be the closing price of the common stock on the NYSE as reported in the consolidated transaction reporting system on the grant date or, if such exchange is not open for trading on such date, on the most recent preceding date when such exchange is open for trading.

 

  (6)

Assumptions used in the calculation of these amounts are included in Note 1 to the Company’s audited financial statements included in the Company’s 2015 Annual Report to Shareholders.

 

71


Table of Contents

Outstanding Equity Awards at Fiscal Year-End

The following table summarizes the total outstanding equity awards as of May 31, 2015 for each of the NEOs.

 

Name

  Option Awards (1)     Stock Awards  
  Grant
Date
    Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
    Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
    Option
Exercise
Price
($)
    Option
Expiration
Date
    Restricted Stock     PSU Awards  
            Number
of
Shares
or Units
of Stock
Held
That
Have
Not
Vested
(#) (2)
    Market
Value of
Shares or
Units of
Stock Held
That Have
Not Vested
($) (2)
    Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#) (3)
    Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That Have
Not Vested
($) (3)
 

Eugene I. Lee, Jr.

                 
    10/1/2007        129,055        —          43.00        10/1/2017           
    7/29/2009        64,964        —          32.55        7/29/2019           
    7/28/2010        51,240        —          42.58        7/28/2020           
    7/27/2011        26,852        26,852        51.26        7/27/2021           
    7/25/2012        —          53,112        49.05        7/25/2022           
    7/24/2013        —          54,169        48.38        7/24/2023           
    9/25/2013        —          27,264        46.00        9/25/2023           
    7/23/2014        —          91,641        44.49        7/23/2024        6,910        452,881        33,155        2,172,979   
                 

C. Bradford Richmond

                 
    7/23/2008        30,620        —          33.44        7/23/2018           
    7/29/2009        67,225        —          32.55        7/29/2019           
    7/28/2010        48,169        —          42.58        7/28/2020           
    7/27/2011        25,243        25,243        51.26        7/27/2021           
    7/25/2012        —          57,416        49.05        7/25/2022           
    7/24/2013        —          58,558        48.38        7/24/2023           
    7/23/2014        —          80,860        44.49        7/23/2024        —          —          28,916        1,895,155   
                 

David C. George

                 
    2/8/2006        18,523        —          35.51        2/8/2016           
    2/13/2007        10,947        —          35.94        2/13/2017           
    10/1/2007        36,143          43.00        10/1/2017           
    7/23/2008        34,879        —          33.44        7/23/2018           
    7/29/2009        39,999        —          32.55        7/29/2019           
    7/28/2010        32,960        —          42.58        7/28/2020           
    7/27/2011        21,015        21,015        51.26        7/27/2021           
    7/25/2012        —          46,183        49.05        7/25/2022           
    1/30/2013        —          10,230        46.59        1/30/2023           
    7/24/2013        —          49,459        48.38        7/24/2023           
    7/23/2014        —          61,992        44.49        7/23/2024        —          —          24,951        1,635,289   
                 

 

72


Table of Contents

Name

  Option Awards (1)     Stock Awards  
  Grant
Date
    Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
    Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
    Option
Exercise
Price
($)
    Option
Expiration
Date
    Restricted Stock     PSU Awards  
            Number
of
Shares
or Units
of Stock
Held
That
Have
Not
Vested
(#) (2)
    Market
Value of
Shares or
Units of
Stock Held
That Have
Not Vested
($) (2)
    Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#) (3)
    Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That Have
Not Vested
($) (3)
 

Valerie L. Insignares

                 
    6/15/2006        5,090        —          35.81        6/15/2016           
    7/25/2007        24,893        —          42.68        7/25/2017           
    7/23/2008        26,628        —          33.44        7/23/2018           
    7/29/2009        27,761        —          32.55        7/29/2019           
    7/28/2010        27,589        —          42.58        7/28/2020           
    7/27/2011        17,842        9,193        51.26        7/27/2021           
    7/25/2012        9,313        18,911        49.05        7/25/2022           
    7/24/2013        —          40,039        48.38        7/24/2023           
    7/23/2014        —          48,516        44.49        7/23/2024        —          —          17,086        1,119,816   
                 

Harald E. Herrmann

                 
    8/29/2013        —          16,359        46.55        8/29/2023