March 31, 2011

 

Dear Stockholder:

 

You are cordially invited to attend Masco Corporation’s Annual Meeting of Stockholders on Tuesday, May 10, 2011 at 10:00 A.M. at our corporate offices in Taylor, Michigan. The following pages contain information regarding the meeting schedule and the matters proposed for your consideration and vote. Following our formal meeting, we expect to provide a review of our Company’s operations and respond to your questions.

 

Please vote on the matters presented in the accompanying Notice and Proxy Statement. Your vote is important, regardless of whether or not you are able to attend the Annual Meeting. Voting instructions can be found on the enclosed Proxy Card. Please review the enclosed Proxy materials carefully and submit your vote today by mail, telephone or internet.

 

On behalf of our entire Board of Directors, I thank you for your continued support of Masco Corporation and look forward to seeing you on May 10.

 

Sincerely,

 

Richard A. Manoogian

Chairman of the Board

MASCO CORPORATION

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

Date:		May 10, 2011
Time:		10:00 A.M.
Place:		Masco Corporation 21001 Van Born Road Taylor, Michigan 48180

 

The purposes of the Annual Meeting are:

 

1. To elect three Class II Directors;

 

2. To consider and act upon a proposal to approve executive compensation;

 

3. To consider and act upon a proposal to select the frequency with which stockholders will vote upon executive compensation;

 

4. To ratify the selection of PricewaterhouseCoopers LLP as independent auditors for Masco for 2011; and

 

5. To transact such other business as may properly come before the meeting.

 

The Company recommends that you vote “For” all of the Director nominees, “For” the approval of executive compensation, for “1 Year” as the frequency with which stockholders will vote upon executive compensation, and “For” the selection of PricewaterhouseCoopers LLP as the Company’s independent auditors.

 

Stockholders of record at the close of business on March 15, 2011 are entitled to vote at the meeting or any adjournment of the meeting. Whether or not you plan to attend the meeting, you can ensure that your shares are represented at the meeting by promptly voting by telephone or by internet, or by completing, signing, dating and returning your Proxy Card in the enclosed postage prepaid envelope. Instructions for each of these methods and the control number that you will need are provided on the Proxy Card. You may withdraw your Proxy before it is exercised if you do so in the manner specified in the Proxy Statement. Alternatively, you may vote in person at the meeting. Directions to our offices where the meeting will be held are on the back cover of the Proxy Statement.

 

By Order of the Board of Directors

 

 

Gregory D. Wittrock

Secretary

 

March 31, 2011

 

 

 

 

TABLE OF CONTENTS

 

PROXY STATEMENT

ANNUAL MEETING OF STOCKHOLDERS OF
MASCO CORPORATION

May 10, 2011

 

 

The Board of Directors of Masco Corporation is soliciting the enclosed Proxy for use at the Annual Meeting of Stockholders of Masco Corporation to be held at its offices at 21001 Van Born Road, Taylor, Michigan 48180, on Tuesday, May 10, 2011 at 10:00 A.M., and at any adjournment of the Annual Meeting. This Proxy Statement and the enclosed Proxy Card are being mailed or otherwise made available to stockholders on or about April 1, 2011.

 

We are paying the expenses of this solicitation. Our executive officers and other employees of Masco may solicit Proxies, without additional compensation, personally and by telephone and other means of communication. In addition, we have retained Morrow & Co., LLC, 470 West Avenue, Stamford, Connecticut 06902, to assist in the solicitation of Proxies for a fee of $12,000, plus expenses. We will reimburse brokers and other persons holding Masco common stock in their names or in the names of their nominees for their reasonable expenses in forwarding Proxy materials to beneficial owners.

 

Stockholders of record at the close of business on March 15, 2011 are entitled to vote at the Annual Meeting. On that date, there were 358,700,743 shares of Masco common stock, $1 par value, outstanding and entitled to vote. Each share of outstanding Masco common stock entitles the holder to one vote. We will conduct the meeting if a majority of the outstanding shares is represented in person or by proxy. Broker non-votes and abstentions will be counted toward the establishment of the quorum. A broker “non-vote” occurs when the shares that a broker nominee holds for a beneficial owner are represented at the meeting, but are not voted on a proposal because the broker nominee has not received specific instruction from the beneficial owner and the broker nominee does not have discretionary voting power to vote on the proposal.

 

All shares of our common stock represented by properly executed and unrevoked proxies will be voted by the persons named as proxies in accordance with the direction given. If no instructions are indicated on a Proxy, properly executed Proxies will be voted “For” all of the Director nominees, “For” the approval of executive compensation, for “1 Year” as the frequency with which stockholders will vote upon executive compensation, and “For” the selection of PricewaterhouseCoopers LLP as the Company’s independent auditors.

 

You can ensure that your shares are voted at the meeting by submitting Proxy instructions by telephone, by internet, or by mail. To vote online or by telephone before the Annual Meeting, go to the www.proxyvote.com website or call 1-800-690-6903 (toll-free) and follow the instructions. If you choose not to vote by telephone or electronically, please complete, sign, date and return the enclosed Proxy Card in the envelope provided. Submitting your Proxy by any of these methods will not affect your right to attend the meeting and vote. The telephone and internet voting procedures are designed to authenticate your identity, to allow you to give your voting instructions and to confirm that your instructions have been recorded properly. Specific instructions for stockholders of record (that is, stockholders who hold their shares in their own name) who wish to use the telephone or internet voting procedures are on the enclosed Proxy Card. You may revoke your Proxy at any time before it is exercised by voting in person at the meeting, by delivering a subsequent Proxy or by notifying us in writing of such revocation (Attention: Gregory D. Wittrock, Secretary, at 21001 Van Born Road, Taylor, Michigan 48180).

 

Our Board of Directors is divided into three classes. The term of office of the Class II Directors, who are Verne G. Istock, J. Michael Losh and Timothy Wadhams, expires at this meeting. The Board proposes the re-election of Messrs. Istock, Losh and Wadhams.

 

David Johnston, who had been a Director since 2003, was appointed as Governor-General of Canada in 2010 and resigned from our Board of Directors effective September 30, 2010. We wish to express our sincere appreciation to Mr. Johnston for his dedication and diligent service as a Director. In October 2010, the Board of Directors reduced its size to nine members.

 

Upon election of the Class II Directors nominated at the Annual Meeting, the terms of office of Class I, Class II and Class III Directors will expire at the Annual Meeting of Stockholders in 2013, 2014 and 2012, respectively, or when their respective successors are elected and qualified. The Board of Directors expects that the persons named as proxies on the Proxy Card will vote the shares represented by each Proxy for the election of the above nominees as Directors unless a contrary direction is given. If, prior to the meeting, a nominee is unable or unwilling to serve as a Director, which the Board of Directors does not expect, the persons named as proxies will vote for such alternate nominee, if any, as may be recommended by the Board of Directors.

 

Our Bylaws provide that Directors are elected by a majority of votes cast (except in the case of contested elections, in which case Directors are elected by a plurality). In a majority vote, if the votes cast for a nominee exceed the votes cast against that nominee, the nominee is elected. Abstentions and broker non-votes will not affect the election since they are not treated as votes cast. Proxies cannot be voted for a greater number of persons than the number of nominees named.

 

Each nominee has tendered an irrevocable resignation that becomes effective if the majority of the votes cast are against such nominee and if, within 90 days after the election results are certified, the Board of Directors (excluding nominees who did not receive a majority of votes for their election) accepts such resignation, which it will do in the absence of a compelling reason otherwise.

 

In addition to meeting the criteria that is described under “Corporate Governance — Corporate Governance and Nominating Committee,” each continuing director and nominee brings a strong and unique background and set of skills to the Board, giving the Board as a whole competence and experience in a wide variety of areas, including corporate governance and board oversight, executive management, finance and accounting, executive compensation, risk management, manufacturing, marketing, governmental relations, law and real estate development. Biographical information regarding each of our nominees and continuing Directors is set forth below, including the specific business experience, qualifications, attributes and skills that led the Board to conclude that each should serve as a Director.

The Board of Directors recommends a vote FOR the election to the Board of Directors of each Class II Director nominee.

 

 

The Board of Directors continues to focus on Masco’s corporate governance principles and practices and is committed to maintaining high standards of ethical business conduct and corporate governance for Masco.

 

Richard Manoogian retired from employment as our Executive Chairman in 2009 and since then has served as Chairman of the Board as a non-employee Director. Until 2007, Mr. Manoogian served as both our Chairman and Chief Executive Officer, and the non-employee directors selected Mr. Istock to serve as the Presiding Director. Mr. Istock continues to serve in that capacity. As a result of his long-term leadership of Masco, Mr. Manoogian has extensive Company-specific knowledge as well as a deep understanding of the new home construction and home improvement markets. He and Mr. Istock have a strong working relationship with each other and with the other members of the Board. Although the Board believes that this Board leadership structure is in the best interest of the Company and its stockholders at this time, the Board has no policy with respect to the separation of the roles of CEO and Chairman and believes that these are matters that should be discussed and determined by the Board from time to time, based on all of the then-current facts and circumstances. If the roles of Chairman and CEO are combined in the future, the role of Presiding Director would likely continue to be part of the Board leadership structure.

 

Masco’s Corporate Governance Guidelines require that a majority of our Directors qualify under the independence and experience requirements of applicable law and the New York Stock Exchange (“NYSE”). For a Director to be considered independent, the Board must determine that the Director does not have any direct or indirect material relationship with us. The Board, pursuant to the recommendation of the Corporate Governance and Nominating Committee, adopted categorical independence standards to assist it in making a determination of independence for Directors. Our independence standards are posted on our website at www.masco.com. The information on our website is not a part of this Proxy Statement or incorporated into any other filings we make with the Securities and Exchange Commission (the “SEC’’).

 

The Board has made an affirmative determination that all of our non-employee Directors, other than Mr. Manoogian, are independent. The independent Directors are Messrs. Archer, Denomme, Earley, Istock and Losh, Ms. Payne and Ms. Van Lokeren. In making its independence determination for each non-employee Director, the Board reviewed all transactions, relationships and arrangements for the last three fiscal years involving each Director and the Company. With respect to Mr. Earley, the Board considered the annual amount of energy product sales to Masco by DTE Energy Company, where he serves as Executive Chairman of the Board, and determined that the amount of sales in each fiscal year was significantly below 2% of that company’s annual revenues. With respect to Messrs. Archer, Earley and Istock and Ms. Payne, the Board considered the annual amount of our discretionary charitable contributions to charitable organizations where those individuals serve as directors, and determined that those individuals were not active in the day-to-day operations of the charitable organizations and that our contributions were significantly less than the greater of $1 million or 2% of the respective organization’s revenues.

 

Standing committees of the Board of Directors include the Audit Committee, the Organization and Compensation Committee, and the Corporate Governance and Nominating Committee. Each member of each of these committees qualifies as independent under Masco’s Corporate Governance Guidelines. These committees function pursuant to written charters adopted by the Board. The committee charters, as well as Masco’s Corporate Governance Guidelines and Masco’s Code of Business Ethics, are posted on our website at www.masco.com and are available to you in print from the website or upon request. Amendments to or waivers of the Code of Business Ethics, if any, will be posted on our website.

 

During 2010, the Board of Directors held five meetings and each Director attended at least 75% of the Board meetings and applicable committee meetings. It is our policy to encourage Directors to attend the Annual Meeting of Stockholders. All of our Directors attended the 2010 Annual Meeting of Stockholders.

The non-employee Directors frequently meet in executive session without management. The independent Directors meet at least once per year without Mr. Wadhams or Mr. Manoogian. Mr. Istock was selected by the non-employee Directors to serve as the Presiding Director for these executive sessions.

 

Any interested party that wishes to communicate directly with the Presiding Director or the non-employee Directors as a group may send such communication to: Presiding Director, Masco Board of Directors, in care of Gregory D. Wittrock, Secretary, Masco Corporation, 21001 Van Born Road, Taylor, Michigan 48180. Stockholders may also send communications to the full Board of Directors, in care of Mr. Wittrock, at the above address.

 

Management continually monitors four general categories of risk related to our business: financial reporting risk, strategic risk, operational risk, and legal and compliance risk. At each of its meetings, the Audit Committee discharges its oversight of financial reporting risk through review and discussion of management’s reports and analyses of financial reporting risk and risk management practices. At a majority of its meetings, the Audit Committee also reviews and discusses certain additional financial and non-financial risks which are most germane to our business activities. The entire Board discharges its oversight of risk through an annual review and discussion of a comprehensive report and analysis prepared by management on material risks facing us, including strategic risk, operational risk and legal and compliance risk. The Organization and Compensation Committee considers risk issues related to compensation, and has determined that risks arising from our compensation policies and practices are not reasonably likely to have a material adverse effect on us. Our executive officers and other members of management report to the Organization and Compensation Committee on business unit executive compensation programs to assess whether these programs or practices expose us to excessive risk taking. Our President and Chief Executive Officer (our “CEO”), as the head of our management team and a member of the Board, assists the Board in its risk oversight function and leads those discussions.

 

The Audit Committee of the Board of Directors, consisting of Messrs. Archer, Denomme, Earley, Istock and Losh and Ms. Payne, held five meetings during 2010. In addition to risk oversight described above, the Audit Committee assists the Board in its oversight of the integrity of our financial statements, the effectiveness of our internal control over financial reporting, the qualifications, independence and performance of our independent auditors, the performance of our internal audit function, and our compliance with legal and regulatory requirements, including employee compliance with our Code of Business Ethics.

 

The Board has determined that each member of the Audit Committee is financially literate and that five members of the Audit Committee, Messrs. Denomme, Earley, Istock, Losh and Ms. Payne, qualify as “audit committee financial experts” as defined in Item 407(d)(5)(ii) of Regulation S-K. Although Mr. Losh serves on the audit committee of more than three publicly traded companies, the Board has determined that such service does not impair his ability to serve on Masco’s Audit Committee.

 

Interested parties may send complaints relating to accounting, internal accounting controls or auditing matters to the Chairman of the Masco Audit Committee, in care of Gregory D. Wittrock, Secretary, Masco Corporation, 21001 Van Born Road, Taylor, Michigan 48180.

 

The Organization and Compensation Committee of the Board of Directors, consisting of Messrs. Earley, Istock and Losh and Ms. Van Lokeren, held six meetings during 2010. The Organization and Compensation Committee determines executive compensation, evaluates the performance of Masco’s management, determines and administers restricted stock awards and options granted under our stock incentive plan and directs Masco’s succession planning process. The Organization and Compensation Committee has exercised its authority to engage independent outside advisors and, for the past six years, has retained Aon Hewitt (formerly Hewitt Associates), a global human resource consulting firm. Information about the Organization and Compensation Committee’s process and procedures for consideration and determination of executive compensation, including further discussion of the role of Aon Hewitt, is presented in the “Compensation Discussion and Analysis” below.

 

The Corporate Governance and Nominating Committee of the Board of Directors (the “Governance Committee”), currently consisting of Messrs. Archer, Denomme and Istock, Ms. Payne and Ms. Van Lokeren, held five meetings during 2010. The Governance Committee advises the Board on the governance structure and conduct of the Board and has responsibility for developing and recommending to the Board appropriate corporate governance guidelines. In addition, the Governance Committee identifies qualified individuals for nomination to the Board, recommends Directors for appointment to Board committees and evaluates current Directors for re-nomination to the Board or re-appointment to Board committees.

 

The Governance Committee periodically assesses Board composition, including whether any vacancies are expected on the Board due to retirement or otherwise. The Governance Committee believes that Directors should possess exemplary personal and professional reputations, reflecting high ethical standards and values. The expertise and experience of Directors should provide a source of advice and guidance to Masco’s management. A Director’s judgment should demonstrate an inquisitive and independent perspective with acute intelligence and practical wisdom. Directors should be free of any significant business relationships which would result in a potential conflict in judgment between the interests of Masco and the interests of those with whom Masco does business. Each Director should be committed to serving on the Board for an extended period of time and to devoting sufficient time to carry out the Director’s duties and responsibilities in an effective manner for the benefit of our stockholders. The Governance Committee also considers additional criteria adopted by the Board for Director nominees and the independence, financial literacy and financial expertise standards required by applicable law and by the NYSE.

 

Neither the Board nor the Governance Committee has adopted a formal Board diversity policy. However, the Governance Committee periodically considers, as part of its assessment of Board composition and evaluation of potential candidates for Board membership, whether the Board is comprised of individuals who hold diverse viewpoints, professional experiences, education and other skills and attributes which are necessary to enhance Board effectiveness. In addition, the Governance Committee believes that it is desirable for Board members to possess diverse characteristics of race, national and regional origin, ethnicity, gender and age, and considers such factors in the Governance Committee’s evaluation of candidates for Board membership.

 

The Governance Committee uses a number of sources to identify and evaluate nominees for election to the Board. It is the Governance Committee’s policy to consider Director candidates recommended by stockholders. These candidates are evaluated at regular or special meetings of the Governance Committee, and all candidates, including those recommended by stockholders, are evaluated against the criteria described above. Stockholders wishing to have the Governance Committee consider a candidate should submit the candidate’s name and pertinent background information to Gregory D. Wittrock, Secretary, Masco Corporation, 21001 Van Born Road, Taylor, Michigan 48180. Stockholders who wish to nominate Director candidates for election to the Board should follow the procedures set forth in our charter and Bylaws. For a summary of these procedures, see “2012 Annual Meeting of Stockholders” below.

 

Our compensation program for non-employee Directors includes both cash and equity compensation which is designed to reinforce their focus on long-term stockholder value and to recognize their long-term commitment to serve the Company. In July 2010, after reviewing the competitiveness of our Director compensation with the Organization and Compensation Committee’s independent outside advisor, Aon Hewitt, the Governance Committee recommended to the Board of Directors that director compensation be increased to generally approximate director compensation at a group of peer companies. As a result, effective July 1, 2010, both the cash and equity components of non-employee Director compensation were adjusted for the first time since 2004. The annual retainer and chairmanship fees were increased, as described below. One-half of the annual retainer continues to be paid in cash. To continue to align the compensation of non-employee Directors with the long-term enhancement of stockholder value, the other half of the retainer continues to be paid in the form of restricted stock granted under our Non-Employee Directors Equity Program (the “Directors Equity Program”). Additionally, we eliminated the granting of stock options to non-employee Directors. Finally, the Board eliminated consulting arrangements and the related payments for non-employee Directors following their term of service on the Board. Mr. Wadhams, who is an employee of the Company, does not receive additional compensation for his service as a Director.

 

The Board has established stock ownership guidelines for non-employee Directors that require Directors to retain at least 50% of the shares of restricted stock they receive until their termination from service as a Director. The stock retention requirement is intended to assure that non-employee Directors maintain a financial interest in Masco over an extended period of time. The Directors Equity Program prohibits former Directors from engaging in activities detrimental to us while they hold restricted stock we awarded to them. The restricted stock may be forfeited if a former Director breaches this obligation. Further, the program restricts Directors from engaging in certain competitive activities while serving as a Director and for one year after service as a Director. If a former Director breaches this non-compete agreement, we may require him or her to pay us amounts realized within two years prior to termination from awards of restricted stock and stock option exercises.

 

Non-employee Directors are eligible to participate in our matching gifts program until December 31 of the year in which their service as a Director ends. Under this program, we will match up to $5,000 of a Director’s contributions to eligible 501(c)(3) tax-exempt organizations each year. Directors are also eligible to participate in our employee purchase program, which enables them to obtain rebates on our products they purchase for their personal use. Each of these programs is available to all of our employees. In addition, if space is available, a Director’s spouse is permitted to accompany a Director who travels on our aircraft to attend Board or committee meetings.

 

In accordance with the terms of our June 2009 agreement with Mr. Manoogian, we make available to him office space, administrative support and supplies and equipment necessary for him to carry out his duties as Chairman of the Board. As long as he continues as Chairman of the Board, he is entitled to personal use of our aircraft (subject to availability and approval of our CEO) and our automobile and driver, each at our expense. We also pay the dues for a club used for business purposes by Mr. Manoogian, who pays any expenses for his personal use of that club.

 

The following table shows 2010 compensation for our Directors, other than Mr. Wadhams, who is also a Masco employee and who receives no additional compensation for his service as Director. Mr. Johnston received compensation until September 30, 2010, when he resigned as a Director to serve as Governor-General of Canada. Effective July 1, 2010, the cash portion of the annual retainer for non-employee Directors was increased from $40,000 to $90,000. Chairmanship fees were increased as follows: Audit Committee chair fee increased from $15,000 to $20,000 (for Mr. Losh); Organization and Compensation Committee chair fee increased from $12,500 to $15,000 (for Ms. Van Lokeren); and Corporate Governance and Nominating Committee chair fee increased from $7,500 to $10,000 (for Mr. Istock). Attendance fees remained unchanged at $1,500 per board or committee meeting. Also effective July 1, 2010, the equity (restricted stock) portion of the annual retainer was increased from $40,000 to

$90,000. Mr. Manoogian receives an additional $350,000 annual cash retainer for his service as Chairman of the Board. No grants of stock options were made to non-employee Directors in 2010.

 

2010 Director Compensation

 

 

 

 

The following table shows the beneficial ownership of Masco common stock as of March 15, 2011 by (i) each of our Directors, (ii) each named executive officer in the “2010 Summary Compensation Table,” (iii) all of our Directors and executive officers as a group (14 individuals), and (iv) all persons whom we know to be beneficial owners of five percent or more of Masco common stock. Except as indicated below, each person exercises sole voting and investment power with respect to the shares listed.

 

 

 

 

The Audit Committee assists the Board of Directors in fulfilling its responsibility for oversight of the integrity of the Company’s financial statements, the effectiveness of the Company’s internal control over financial reporting, the qualifications, independence and performance of the Company’s independent registered public accounting firm (“independent auditors”), the performance of the Company’s internal audit function, and compliance by the Company with legal and regulatory requirements and by employees and officers with the Company’s Code of Business Ethics. Management has the primary responsibility for the financial statements and the reporting process, including the Company’s system of internal control over financial reporting. In discharging its oversight responsibility as to the audit process, the Audit Committee reviewed and discussed with management the audited financial statements of the Company as of and for the year ended December 31, 2010, including a discussion of the quality and the acceptability of the Company’s financial reporting and disclosure controls and procedures and internal control over financial reporting, as well as the selection, application and disclosure of critical accounting policies.

 

The Audit Committee obtained from the Company’s independent auditors, PricewaterhouseCoopers LLP, the letter required by Rule 3526 of the Public Company Accounting Oversight Board “Communication with Audit Committees Concerning Independence,” and discussed with the independent auditors any relationships that may impact their objectivity and independence and satisfied itself as to PricewaterhouseCoopers LLP’s independence. The Audit Committee considered and determined that such independent auditors’ provision of non-audit services to the Company is compatible with maintaining their independence. The Audit Committee reviewed various matters with the independent auditors, who are responsible for expressing an opinion on the Company’s financial statements as of and for the year ended December 31, 2010, and the effectiveness of the Company’s internal control over financial reporting, based on their audit. The Audit Committee met with the independent auditors and discussed the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, AICPA Professional Standards, Vol. 1 (AU Section 380) as adopted by the Public Company Accounting Oversight Board in Rule 3200T. The Audit Committee also met with the independent auditors without management present.

 

Based on the above-mentioned reviews and discussions with management and the independent auditors, the Audit Committee recommended to the Board of Directors that the Company’s financial statements as of and for the year ended December 31, 2010 be included in its Annual Report on Form 10-K for the year ended December 31, 2010 for filing with the SEC. The Audit Committee also reappointed PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm, which stockholders are being asked to ratify.

 

J. Michael Losh, Chairman
Dennis W. Archer
Thomas G. Denomme
Anthony F. Earley, Jr.
Verne G. Istock
Lisa A. Payne

 

We are committed to maintaining executive compensation programs that promote the long-term interests of our stockholders by attracting and retaining talented employees, particularly our named executive officers (whom we refer to in this Compensation Discussion and Analysis as “executive officers”) and motivating them to work collaboratively to achieve our business objectives. Our compensation programs, therefore, reward our executive officers to a significant degree based on our performance and the creation of stockholder value, particularly over the long-term. In 2010, 75% of our CEO’s total target compensation (defined as annual base salary, target cash bonus opportunity and target restricted stock opportunity) was comprised of performance-based target cash bonus and restricted stock opportunities. We did not attain our earnings per share target in 2010, which represented one-half of the formula for our performance-based cash bonus and restricted stock opportunities. As a result, performance-based cash bonuses and restricted stock awards earned by our executive officers declined approximately 60%, and their total direct compensation declined almost 30%, compared to 2009.

 

In addition to pay for performance, our executive compensation programs incorporate many best practices, as follows:

 

 

2010 was another extremely challenging year. We continued to be affected by the prolonged and substantial decline in home improvement spending and new home construction. While sales were up slightly in the first half of 2010, as the year progressed, the expiration of the home buyer tax credit, increasing commodity costs and continued economic challenges impacted our performance. Our installation and cabinet businesses, which are dependent on new home construction and repair and remodel activity, were particularly impacted. Even in this difficult environment, our 2010 adjusted gross margins and operating profit were essentially flat compared to 2009, largely due to cost reductions, despite the fact that sales declined three percent. Additionally, we have focused on improving our working capital management, and in 2010 working capital as a percentage of sales (defined as receivables plus inventories less payables) decreased over one percent to its lowest level in several years.

 

As limitations in credit availability persisted in 2010, liquidity preservation and strong cash flow have continued to be particularly important. Strong cash flow ensures our ability to sustain our business strategies during a critical time and to benefit from new growth opportunities that may arise as the economy recovers. A strong cash position also provides us with flexibility with respect to our existing debt obligations. We generated approximately $290 million of free cash flow (cash from operations, less capital expenditures, before dividends) during 2010. At the end of 2010 we had over $1.7 billion of cash on our balance sheet and approximately $1 billion of borrowing capacity.

 

In response to industry and economic conditions, we continued to focus on strengthening our brands by introducing new products and driving product innovation. Additionally, we continued the strategic rationalization

of our businesses, including business consolidations, plant closures, headcount reductions and systems implementations and investments in our business to position us for long-term growth. Notably, we began the combination of our North American cabinet business units to form Masco Cabinetry. We believe the creation of Masco Cabinetry will help us maintain our leading position in the cabinet category within the repair and remodel and new home construction markets. We also continued the implementation of the Masco Business System (“MBS”) across our business units. MBS provides a more disciplined approach to managing our businesses by emphasizing customer focus, innovation, lean principles, quality and talent management, which we believe are fundamental to our long-term success.

 

Our performance in 2010, as reviewed by the Organization and Compensation Committee (referred to in this Compensation Discussion and Analysis as the “Committee”) in determining incentive compensation to be paid to our executive officers, was lower than our 2009 performance. While we exceeded our target performance level of $240 million of cash flow in 2010, our earnings per common share of $0.01, as adjusted, was lower than the minimum performance level of $0.15. This was primarily due to a decline in sales volume and increased commodity costs. As a result of our 2010 performance, total direct compensation for our executive officers declined almost 30% from 2009, as described below.

 

After freezing base salaries in 2008 and 2009, the Committee increased each executive officer’s base salary in 2010. In determining the appropriate salary adjustments, the Committee reviewed market compensation, consisting of analyses of executive compensation data for companies with annual revenue similar to ours, as well as our peer group (see “Compensation Practices and Procedures — Comparative Compensation” below). The Committee determined that Mr. Wadhams’ base salary of $900,000, which was established when he was promoted to President and CEO in 2007, should be increased approximately 11% to $1 million. Mr. Wadhams’ current salary now approximates the bottom quartile of market compensation for his position as CEO. Based on a similar analysis of compensation for our other executive officers, the Committee increased Mr. DeMarie’s salary approximately 8.5%, from $750,000 to $815,000, Mr. Sznewajs’ salary approximately 11.5%, from $475,000 to $530,000, and Mr. Greenwood’s salary approximately 16%, from $285,000 to $330,000. The increase for Mr. Anderson, and the average increase for our other corporate executives as a group, was less than 3%.

 

Our executive officers are provided with the opportunity to earn a cash bonus and awards of restricted stock each year if we meet performance targets established by the Committee. In the first quarter of each year, our CEO and the Committee review our operating forecast for the year, taking into account general economic and industry conditions. As it had done in 2009, the Committee established cash flow and earnings per share performance targets for 2010. The Committee selected these metrics because it believed that cash flow and earnings per share were particularly important in a challenging economic environment and it wanted to incentivize our executive officers to focus specifically on these critical measures.

 

When the Committee established the 2010 performance targets, it was expected that housing starts and consumer spending for home improvement projects would improve slightly in 2010 compared to 2009. As a result, the earnings per share target was set at a level above both target and actual 2009 earnings per share for compensation purposes. The cash flow target was reduced slightly from 2009 in anticipation that we would increase capital expenditures and generate less cash from working capital management in 2010. The maximum cash bonus and restricted stock award we would pay under this schedule was capped, even if our performance exceeded the maximum performance levels. Each of the performance targets is weighted equally, so that one-half of the executive officer’s opportunity to earn the maximum bonus and restricted stock award is attributable to each metric.

 

We were successful in generating cash flow that exceeded the target level of performance in 2010. However, our earnings per common share was under the threshold level of performance of $0.15. 2010 earnings per common

share and cash flow performance measures used to calculate cash bonuses and restricted stock awards are as follows:

 

 

For purposes of determining achievement of the performance target, our reported earnings per common share is adjusted to exclude the effects of special charges, gains and losses from corporate divestitures, certain other non-operating income and expenses and the benefit resulting from any stock repurchases in excess of a predetermined amount. Cash flow is defined as reported cash flow from operations, less any capital expenditures, prior to the payment of cash dividends, and is adjusted to exclude the effects of special charges, gains and losses from corporate divestitures and certain other non-operating income and expenses. The adjustments to cash flow reduced the value used to determine achievement of the performance target by $20 million from our free cash flow of $290 million.

 

The Committee determined that we achieved 120% of the target performance level for the cash flow metric, but that the threshold level of performance for the earnings per common share metric was not achieved. Applying an equal weighting to the two metrics, the Committee authorized cash bonus payments and restricted stock awards to our executive officers at 60% of the target amounts (or 30% of their maximum opportunity). While the Committee may exercise negative discretion to reduce cash bonuses and restricted stock awards regardless of the earnings and cash flow results actually attained, the Committee did not elect to do so.

 

The Committee establishes the cash bonus and restricted stock award opportunities available to each executive officer as a percent of his annual base salary. The opportunity targets are developed by the Committee based on its review of our peer companies and executive compensation survey data. As a result of this review, Mr. Sznewajs’ target opportunities as a percent of his annual salary was increased by the Committee from 65% in 2009 to 75% in 2010 based on an analysis of market compensation practices for CFOs in our peer group. Following are the executive officers’ minimum, target and maximum opportunities for each of the cash bonus opportunity and the restricted stock opportunity for 2010:

 

 

As a result of our emphasis on pay-for-performance, each executive officer’s potential variable compensation of cash bonus and restricted stock represents a significant percentage of his total annual compensation. In 2010, the percentage of total target compensation (defined as annual base salary, target cash bonus opportunity and target restricted stock opportunity) represented by the target cash bonus and restricted stock opportunities was 75% for Mr. Wadhams, 67% for Mr. DeMarie, 60% for Mr. Sznewajs and 57% for each of Messrs. Anderson and Greenwood.

To determine actual cash bonuses paid and restricted stock awards granted, we multiply the target opportunities for each executive officer by the actual performance percentage achieved. The following table shows this calculation based on our actual 2010 performance.

 

 

 

 

In 2010, the performance-based cash bonuses and restricted stock awards earned by our executive officers declined approximately 60% compared to 2009.

 

In March 2011, the Committee again decided to tie 50% of the cash bonus and stock award opportunities to earnings per common share and 50% to cash flow for our 2011 incentive compensation plan. These performance metrics were retained from previous years because the Committee believes these metrics are particularly important as we continue to operate in a challenging economic environment.

 

We generally grant stock options annually to our executive officers. We believe that stock options align the long-term interests of our executive officers with those of our stockholders by reinforcing the goal of long-term share price appreciation. Stock options are also granted to ensure the overall competitiveness of each executive officer’s total compensation package with those of our peer companies. Grants are made with a view to making each executive officer’s target total compensation competitive with the median target compensation for executives holding similar positions at our peer companies.

 

In February 2011, the Committee again determined to grant stock options to all of our executive officers. The number and value of stock options granted to each executive officer are shown in the supplemental compensation table below. With the exception of stock options granted to our executive officers in February 2009, all of the vested stock options held by our executive officers on December 31, 2010 were “underwater” because the closing price of our common stock on that day ($12.66) was less than the closing price of our common stock on the day the options were granted (the “strike price”). These stock options will provide future value to our executive officers only if the price of our common stock increases and exceeds the strike price.

 

The terms of our equity award grants are described below under “Equity Compensation - Restricted Stock and Stock Options.”

 

The supplemental compensation table below shows how the Committee assessed total direct compensation for our executive officers in 2010 and 2009. It is consistent with the Committee’s analysis of information presented to it in tally sheets (see “Compensation Practices and Procedures — Use of Tally Sheets” below) and the Committee’s evaluation of our performance relative to established performance targets. The Committee approves restricted stock and stock option awards when financial results for the previous year are finalized, which occurs early in the following year. According to SEC rules, “backward-looking” awards of restricted stock are shown in the 2010 Summary Compensation Table below as compensation in the year that the awards are made, even if those awards are based on the prior year’s performance. Accordingly, restricted stock that we granted in 2011 based on our performance in 2010 will not be included as compensation in the 2010 Summary Compensation Table. Instead,

restricted stock that was granted in February 2010 based on our performance in 2009 is shown as compensation received by our executive officers in 2010.

 

The supplemental compensation table is not intended to be a substitute for the 2010 Summary Compensation Table. The primary difference between this supplemental compensation table and the 2010 Summary Compensation Table is that the supplemental compensation table includes grants of restricted stock and stock options in the performance year to which they relate and does not include the change in pension value for the year, as that amount represents the annual change in present value of future payments to be made to our executive officers under our frozen defined benefit pension plans.

 

Supplemental Compensation Table

 

 

 

 

The fundamental principles of the executive compensation programs administered by the Committee are to align our executive officers’ interests with the long-term interests of stockholders, to reward our executive officers to a significant degree based on our performance, to incentivize our executive officers to focus on critical business objectives, to appropriately balance the risks and rewards of our executive compensation programs and to attract and retain executive officers who can effectively lead our business, particularly in difficult times.

 

Our approach to executive compensation emphasizes corporate rather than individual performance without encouraging excessive risk-taking, echoing our operating strategy which encourages collaboration and cooperation among our businesses and corporate functions for our overall benefit. We believe that the effectiveness of our executive compensation programs requires not only objective, formula-based arrangements, but also the exercise of discretion and sound business judgment by the Committee. Accordingly, the Committee retains discretion to adjust base salary, grant special equity awards, adjust the mix of cash and equity compensation, adjust the mix of restricted stock and stock options awarded, and offer different forms of equity-based compensation. With this discretion, the

Committee is best able to reward the individual contributions of each executive officer and to respond to our changing business needs.

 

Following are the elements and objectives of compensation paid to our executive officers:

 

 

We believe that having an ownership interest in our stock is critical to aligning the interests of our executive officers with the interests of our stockholders. Accordingly, equity grants in the form of restricted stock awards and stock options are a significant component of compensation for our executive officers. We make equity grants pursuant to our 2005 Long Term Stock Incentive Plan (the “2005 Plan”); outstanding grants made prior to 2005 were made pursuant to our 1991 Long Term Stock Incentive Plan (the “1991 Plan”). We refer to the 1991 Plan and the 2005 Plan collectively in this Proxy Statement as the “Long Term Incentive Plan.” Equity awards are priced based on the closing price on the date of grant, unless the grant date occurs within seven days prior to the release of our financial results. In that event, the grant is effective at the end of the second trading day after the release of the results and priced based on the closing price of our common stock on that date. Equity awards vest in 20% installments over five years (restricted stock awards made prior to 2010 generally vest in 10% installments over 10 years; however, the number of shares that vest annually is adjusted when the participant turns age 66 so that awards are fully vested by the end of the year in which the participant turns 70). Once vested, all stock options under a given award must be exercised within ten years of the initial award date, or the options expire.

 

We believe we continue to receive benefits from equity awards even after a recipient retires. Our equity awards do not vest immediately upon retirement. Instead, following retirement, equity awards generally continue to vest in accordance with the remaining vesting period (except for restricted stock awards made before February 2010, as described above). The frequency, value and vesting terms of awards are designed to provide executive officers with

the potential for significant accumulation of our common stock over the course of their careers with us; executive officers also understand that our performance will continue to impact them financially even after their active careers with us end, thereby reinforcing their focus on the long-term enhancement of stockholder value.

 

Restricted Stock Awards.  As described above, our executive officers have the opportunity to earn awards of restricted stock each year based on the achievement of performance targets established by the Committee. The potential benefit received by executive officers from the restricted stock awards is contingent and largely deferred because the shares vest over a period of time. The value ultimately realized from the restricted stock awards depends on the long-term value of our common stock. This encourages our executive officers to remain with us, since all unvested shares of restricted stock are forfeited upon termination unless we waive the forfeiture. Unvested restricted shares are held in the executive officer’s name and the executive officer has the right to vote and receive dividends on the restricted shares during the vesting period, but the restricted shares may not be sold until vested.

 

The Committee also has the discretion to award additional shares of restricted stock to our executive officers, other than our CEO and our Executive Vice President and Chief Operating Officer (our “COO”), for outstanding individual contributions. The total value of these awards cannot exceed 20% of the combined annual base salaries of the executive officers (excluding the salaries of our CEO and COO). No individual awards were recommended in 2011 for the 2010 fiscal year.

 

We have historically purchased a sufficient number of shares of our common stock in the open market to offset any common share dilution resulting from restricted stock awards.

 

Stock Options.  Stock options are granted to our executive officers to align their long-term interests with those of our stockholders by reinforcing the goal of long-term share price appreciation. Further, stock options are granted to ensure the overall competitiveness of each executive officer’s total target compensation package, as described below under “Compensation Practices and Procedures — Comparative Compensation.” The Committee does not determine the appropriate level of executive compensation based on actual compensation paid by our peer companies. The Committee focuses on the value of total target compensation, including long-term incentive arrangements, of our peer group, and also reviews data from compensation surveys published by Aon Hewitt. The value of each executive officer’s stock option grant (based on the economic value of the stock options at the grant date using the Black-Scholes model) is equal to the value the Committee estimates is needed to make each executive officer’s target total compensation generally equal to the median target compensation packages provided to executives in comparable positions at our peer companies. Finally, the Committee evaluates whether there are individual factors (primarily taking into account any deviations from expectations of performance) that warrant increasing or decreasing the number of options granted to each executive officer. In 2010, there were no such individual factors.

 

We provide a limited number of perquisites to our executive officers, which are reviewed by the Committee on a regular basis. We maintain Company aircraft for business purposes, and the Committee has evaluated our policies and valuation practices for personal use of these aircraft. The Board has requested that Mr. Wadhams and Mr. DeMarie use our aircraft for both business and personal travel, subject to prior approval by the Chairman of the Board (for Mr. Wadhams’ personal travel) or by the CEO (for Mr. DeMarie’s personal travel). Notwithstanding this requirement, personal use of our aircraft is considered a perquisite for SEC reporting purposes. Our CEO may occasionally permit other executive officers to use our aircraft, if available, for personal travel. The Committee reviews the total personal usage of our aircraft by all executive officers. Note 7 to the 2010 Summary Compensation Table describes how we calculate incremental cost for personal use of Company aircraft.

 

Our executive compensation and benefit programs (particularly our equity and retirement arrangements) are complex and have significant tax, legal and financial implications for participants. Our executive officers are eligible to participate in an estate and financial planning program to assist them in achieving the benefit of these programs. This program provides up to $10,000 per year for financial planning and tax preparation, with a carry-forward provision to cover additional costs associated with the development of an estate and long-term financial plan.

 

We maintain retirement plans for our employees, including 401(k) savings plans and profit sharing plans. Our executive officers are eligible to participate in our tax-qualified 401(k) savings plan (the “401(k) Savings Plan”) and a tax-qualified Future Service Profit Sharing Plan (the “Profit Sharing Plan”), as well as a benefits restoration plan (the “BRP”). The BRP enables highly-compensated employees to obtain the full financial benefit of the 401(k) Savings Plan and the Profit Sharing Plan, notwithstanding various limitations imposed on the plans under the Internal Revenue Code (the “Code”).

 

Our executive officers are also entitled to receive benefits under our defined benefit plans, which are the Masco Corporation Pension Plan, the portion of the BRP applicable to the Masco Corporation Pension Plan, and (other than Mr. Greenwood) a Supplemental Executive Retirement Plan (“SERP”). In 2010, we froze accruals in these plans, as well as in all of our other defined benefit plans offered to our U.S. employees. Consequently, the pension benefits ultimately payable to our executive officers are essentially fixed, although vesting in the frozen accrued benefits has continued. Mr. DeMarie and Mr. Sznewajs will not be fully vested in their frozen SERP benefits unless they continue employment with us over the next 6 and 11 years, respectively, or we have a change in control, as described under “Payments Upon Change in Control.”

 

Our retirement plans and our frozen defined benefit plans are described in detail in “Retirement Plans” below.

 

Our compensation programs are generally broadly-based and applicable to all of our key employees, including our executive officers. These programs are principally developed and administered by our executive officers, with independent oversight, direction and approval by the Committee, which ultimately establishes and is responsible for all compensation policies.

 

Our executive compensation programs incorporate many best practices, including pay for performance, a compensation mix that is weighed toward long-term incentives, stock ownership requirements for executive officers, prohibition on derivative trading, no employment, change in control or severance agreements with our executive officers, long-term vesting of restricted stock and stock option awards, market analysis of executive compensation relative to peer companies, and a risk analysis and the use of tally sheets by the Committee.

 

In addition to the annual awards of restricted stock and stock options described above, to further reinforce the alignment of our executive officers’ long-term financial interests with those of stockholders, the Board has established stock ownership guidelines for our executive officers. These guidelines require our executive officers to maintain a substantial investment in our common stock. This investment requirement is designed to ensure that a meaningful amount of each executive’s personal net worth is invested in the Company. Unvested shares of restricted stock count towards achieving the requirement because of their current and potential benefit to the executive officers. The guidelines require stock ownership ranging from a minimum of two times base salary to five times base salary for our CEO. The Committee generally reviews executive officers’ ownership of our common stock annually. As of March 15, 2011, when the closing price of our common stock was $13.69, all of our executive officers met their stock ownership requirement, and their ownership of our common stock ranged from four to twelve times base salary.

 

Our insider trading policy prohibits our executive officers from engaging in transactions involving derivative securities relating to our stock, such as put and call options, and certain other arrangements, such as forward sales and short sales, which could have the effect of reducing or neutralizing their investment in our common stock.

 

Our executive officers do not have employment contracts and are “at-will” employees who may be terminated at our discretion. We believe this preserves greater flexibility in our employment arrangements with our executive

officers. Our executive officers also do not have change in control or severance contracts. However, if a change in control occurs, regardless of whether an employee’s employment continues or terminates, all outstanding shares of restricted stock and stock options granted to all employees would fully vest, and each of our participating executive officers would receive a lump-sum payment equal to the present value of his accrued benefit under our SERP and the BRP.

 

After a change in control, executive officers may be considered to have received “golden parachute payments” to the extent the amount received as a result of the change in control exceeds certain thresholds. Under the Code, “golden parachute payments” are subject to a 20% excise tax, in addition to normally applicable income and other payroll taxes. If an employee, including any executive officer, becomes entitled to receive payments that trigger the application of the excise tax, we will make an additional cash payment to make the employee whole for such excise tax. The tally sheet used by the Committee to review executive compensation notes our obligations to the executive officers under these programs in the event of any change in control. See “Payments Upon Change in Control” below.

 

We believe several features of our equity plans improve our retention of our executive officers and also reduce the potential that executive officers might engage in post-termination conduct that would be harmful to us. Our executive officers generally forfeit unvested awards of restricted stock and stock options when their employment terminates prior to retirement. Executive officers may exercise vested options for a limited period of time following termination. The terms of our awards prohibit our executive officers from competing with us for one year after termination. If an executive officer violates this restriction, we can recover the gain the executive officer realized from awards that vested two years prior to termination.

 

For each executive officer, the Committee compares the overall competitiveness of total target compensation, as well as each major component of compensation and the mix of components, with executives in comparable positions at our peer companies. We include companies in the peer group that are representative of the types of firms with which we compete for executive talent; a number of the companies operate one or more lines of business that compete with us. We believe we also compete for talent with private equity and other non-public companies, since the core skills and responsibilities required in our executive officers are generally not unique to our industries or markets. Other major factors we use to select companies in the peer group include revenues, net income and market capitalization. Our revenues, net income, and market capitalization are generally within the mid-range of this peer group.

 

Our peer group includes the following companies:

 

 

Generally, when the Committee considers the competiveness of our total compensation packages of our executive officers to those of our peers, it gives the most weight to information regarding the median level of base salary, target annual cash compensation, and target total compensation. The Committee also reviews the actual

compensation paid by the peer companies and considers factors that may have influenced that compensation, such as any contractual compensation commitments, and the peer companies’ corporate financial performance and performance of their publicly traded stock.

 

In establishing compensation packages we use a variety of resources, including publicly available data and generally available compensation surveys. The Committee has exercised its authority to retain its own independent advisors, and since 2003 it has separately engaged Aon Hewitt to provide advice on executive compensation matters. In 2009 and 2010, the Committee consulted Aon Hewitt regarding the use of cash flow as a performance metric in our incentive plan, the restructuring of our retirement plans, the shortening of the vesting schedule of restricted stock awards from ten to five years, the adoption of a new provision in the benefit restoration plan for Company matching 401(k) contributions and the market competitiveness of total compensation packages for our executive officers. In addition to responding to its specific requests, Aon Hewitt meets with the Committee in executive sessions without our executive officers and other members of management, assists the Committee in its review of peer group compensation and advises the Committee on its overall implementation of our compensation objectives.

 

On an annual basis, we purchase non-customized compensation surveys from Aon Hewitt. In 2010, the cost of these surveys was approximately $13,000. Our executive officers and other members of management have not requested, and do not intend to request, that Aon Hewitt provide additional services to us.

 

During 2010, the Committee conducted a risk assessment of our executive compensation programs. The Committee concluded that the programs do not encourage excessive risk taking. While the total compensation program is designed to balance short- and long-term rewards, the largest portion of the compensation opportunity for our executive officers is through stock-based long-term incentives. Executive officers are also required to own a substantial amount of our stock to further encourage a long-term perspective. The annual cash bonus and stock award programs have established caps in place in line with competitive practice.

 

During 2010, the Committee continued its practice of using a tally sheet that comprehensively summarizes the various components of total compensation for the executive officers and other members of management. The tally sheet, which is prepared by our human resources department and is provided to the Committee early each year, includes base salary, annual performance-based cash bonus, long-term stock incentive compensation, dividends on unvested shares of restricted stock, and our costs for the foregoing and for perquisites and other benefits, including the annual costs under retirement plans. The tally sheet allows the Committee to compare an executive officer’s compensation with the compensation of our other executive officers and executives at our peer companies as part of its consideration of internal and external pay equity. Amounts actually realized by an executive officer from prior equity grants are not necessarily a factor in establishing current compensation, although the current value of outstanding equity awards may be considered by the Committee when assessing pay equity.

 

We review base salary, annual performance-based cash bonus and restricted stock awards and stock option grants in the first quarter of the year. We believe that determining all four elements of annual compensation together at the beginning of the year gives us a better foundation for establishing our performance criteria and opportunity levels for the current year performance-based cash bonus and restricted stock awards. This also better enables the Committee to determine the executive officers’ appropriate compensation mix and to align compensation with ongoing talent review and development.

 

Our talent review and development process is used by the Committee, our CEO and COO as they review all members of management with a view towards succession planning and executive development and assess each manager’s performance. As part of this program, our CEO and COO develop a written assessment of each of the

managers who reports to them. The assessment evaluates the manager’s performance, development progress and plans and potential for advancement, and also considers market demand for the manager’s skill set. These assessments are provided to and discussed with the Committee and are considered by the Committee in connection with executive compensation determinations and promotions.

 

In evaluating Mr. Wadhams, our CEO, and determining his compensation, the Committee considers the factors noted above for other members of management, and also considers the qualities of leadership and responsibility necessary for the chief executive officer position. The Committee also evaluates his relationships with employees, customers and suppliers, and his relationship with the Board of Directors, stockholders and the investment community. Other factors considered by the Committee include Mr. Wadhams’ contribution to our performance and governance, the impact of his leadership on the performance of our executive officers and management team and his reputation for representing us in the community.

 

When determining compensation to be paid to our executive officers and management team, the Committee receives information, analyses and recommendations from our CEO (with respect to the other executive officers), from our COO (with respect to our management team) and from our Vice President — Human Resources. The Committee gives significant weight to the evaluations by our CEO and our COO. However, the final determination of compensation to be paid to the executive officers, including our CEO, rests solely with the Committee.

 

Section 162(m) of the Code limits deductibility of annual compensation in excess of $1 million paid to our executive officers, unless this compensation qualifies as “performance-based.” The stock options and, in most situations, cash bonus and grants of restricted stock under the performance-based programs described above, qualify under Section 162(m) and are therefore deductible. The Committee, however, believes it is in our interest to retain flexibility in our compensation programs. Consequently, in some circumstances, we have paid and intend to continue to pay compensation that exceeds the limitation of Section 162(m).

 

We recognize the importance of attracting and retaining executive officers who can effectively lead our business, particularly in difficult times, and in motivating them to maximize corporate performance and create long-term stockholder value. We believe we have competitive, performance-driven compensation programs that align our executive officers’ interests with the long-terms interests of stockholders, reward our executive officers based on our performance and incentivize them to focus on our critical business objectives.

 

The Organization and Compensation Committee, which is responsible for overseeing the Company’s executive compensation programs, has reviewed and discussed the Compensation Discussion and Analysis with management. Based on such review and discussion, the Organization and Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in Masco’s Proxy Statement.

 

Mary Ann Van Lokeren, Chairperson
Anthony F. Earley, Jr.
Verne G. Istock
J. Michael Losh

 

The following table reports compensation earned during the past three years by our principal executive officer and principal financial officer (Messrs. Wadhams and Sznewajs, respectively) and three other most highly compensated executive officers (collectively, our “named executive officers”).

 

2010 Summary Compensation Table

 

 

 

 

The following table sets forth information concerning the potential payouts that were available to our named executive officers under our 2010 performance-based cash bonus opportunity, and actual grants of restricted stock and stock options we made in 2010 to our named executive officers under the Long Term Incentive Plan.

 

2010 Grants of Plan-Based Awards

 

 

 

 

The “Compensation Discussion and Analysis” describes our performance-based cash bonuses and stock awards, performance targets, and grants of stock options, including the proportion of variable compensation to total compensation. Restricted stock awards granted in February 2010 vest in equal annual installments of 20% over a period of five years. The stock options granted in 2010 vest in five equal annual installments commencing on the first anniversary of the date of grant and remain exercisable until ten years from the date of grant.

 

The following table shows, for each named executive officer as of December 31, 2010, (i) each stock option outstanding, (ii) the aggregate number of unvested shares of restricted stock, and (iii) the market value of unvested shares of restricted stock based on the closing price of our common stock on December 31, 2010 ($12.66 per share). The value each named executive officer will realize when his restricted shares vest will depend on the value of our common stock on the vesting date.

 

2010 Outstanding Equity Awards at Fiscal Year-End