UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.  )

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SYSCO CORPORATION

(Name of Registrant as Specified In Its Charter)

 

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PRELIMINARY FILING

 

 

1390 Enclave Parkway

Houston, Texas 77077-2099

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held November 16, 2011

 

To the Stockholders of Sysco Corporation:

 

The Annual Meeting of Stockholders of Sysco Corporation, a Delaware corporation, will be held on Wednesday, November 16, 2011 at 10:00 a.m. at The Houstonian Hotel located at 111 North Post Oak Lane, Houston, Texas 77024, for the following purposes:

 

 

Only stockholders of record at the close of business on September 19, 2011 will be entitled to receive notice of and to vote at the Annual Meeting. You may inspect a list of stockholders of record at the company’s headquarters during regular business hours during the 10-day period before the Annual Meeting. You may also inspect this list at the Annual Meeting.

 

You are, of course, invited to attend the Annual Meeting in person. Whether or not you plan to attend in person, we urge you to promptly vote your shares by telephone, by the Internet or, if this proxy statement was mailed to you, by returning the enclosed proxy card in order that your vote may be cast at the Annual Meeting.

 

By Order of the Board of Directors

 

Manuel A. Fernandez

Chairman of the Board

 

          , 2011

 

PRELIMINARY PROXY STATEMENT

 

Sysco Corporation
1390 Enclave Parkway
Houston, Texas 77077-2099

 

PROXY STATEMENT

 

2011 ANNUAL MEETING OF STOCKHOLDERS

 

          , 2011

 

Information About Attending the Annual Meeting

 

Our Annual Meeting will be held on Wednesday, November 16, 2011 at 10:00 a.m. at The Houstonian Hotel located at 111 North Post Oak Lane, Houston, Texas 77024.

 

Information About This Proxy Statement

 

We are providing you with a Notice of Internet Availability of Proxy Materials and access to these proxy materials, which include this 2011 Proxy Statement, the proxy card for the 2011 Annual Meeting and our Annual Report on Form 10-K for fiscal 2011, because our Board of Directors is soliciting your proxy to vote your shares at the Annual Meeting. Unless the context otherwise requires, the terms “we,” “our,” “us,” the “company” or “Sysco” as used in this proxy statement refer to Sysco Corporation.

 

Information About the Notice of Internet Availability of Proxy Materials

 

In accordance with rules and regulations adopted by the Securities and Exchange Commission (the “SEC”), instead of mailing a printed copy of our proxy materials, including our annual report to stockholders, to each stockholder of record, we may now generally furnish proxy materials, including our annual report to stockholders, to our stockholders on the Internet.

 

 

Receiving Future Proxy Materials Electronically:  Stockholders may also sign up to receive future proxy materials, including E-Proxy Notices, and other stockholder communications electronically instead of by mail. This will reduce our printing and postage costs and eliminate bulky paper documents from your personal files. In order to receive the communications electronically, you must have an e-mail account, access to the Internet through an Internet service provider and a web browser that supports secure connections. Visit http://enroll.icsdelivery.com/syy for additional information regarding electronic delivery enrollment.

Where to Find Information in this Proxy Statement:  For your convenience, set forth below is a listing of the major topics in this proxy statement.

 

 

Who Can Vote

 

You can vote at the Annual Meeting if you owned shares of Sysco’s common stock at the close of business on the record date, September 19, 2011. You are entitled to one vote for each share you owned on the record date on each matter presented at the Annual Meeting, or any adjournments or postponements of the Annual Meeting.

 

What is the Record Date and What Does it Mean

 

The record date for the Annual Meeting is September 19, 2011. The record date was established by the Board of Directors as provided by Sysco’s Bylaws and Delaware law. Owners of record of Sysco’s common stock at the close of business on the record date are entitled to:

 

 

How many Shares of Sysco Common Stock are Outstanding

 

At the close of business on August 30, 2011, there were 591,974,063 shares of Sysco Corporation common stock outstanding and entitled to vote at the Annual Meeting. All of our current directors and executive officers (19 persons) owned, directly or indirectly, an aggregate of 828,508 shares, which was less than 1% of our outstanding stock as of August 30, 2011.

 

How to Vote

 

You may vote your shares as follows:

 

 

If you vote by proxy, the individuals named on the proxy card (your proxies) will vote your shares in the manner you indicate. You may specify whether your shares should be voted for, against or abstain with respect to all, some or none of the nominees for director and with respect to the proposal to approve the compensation paid to Sysco’s named executive officers, the proposal to

amend the Bylaws to implement a staggered declassification of the Board of Directors and ratification of the appointment of the independent accountants. With respect to the proposal to recommend the frequency with which Sysco will conduct stockholder advisory votes on executive compensation, you may specify whether you prefer an annual, biennial or triennial frequency for the vote, i.e., the occurrence of a vote every year, every two years or every three years, or you may abstain.

 

If you sign and return your proxy card without indicating your voting instructions, your shares will be voted as follows:

 

 

If your shares are not registered in your own name and you plan to attend the Annual Meeting and vote your shares in person, you should contact your broker or agent in whose name your shares are registered to obtain a proxy executed in your favor and bring it to the Annual Meeting in order to vote.

 

How to Revoke or Change Your Vote

 

You may revoke or change your proxy at any time before it is exercised by:

 

 

The last vote that we receive from you will be the vote that is counted.

 

Broker Non-Votes

 

A broker non-vote occurs when a broker holding shares for a beneficial owner does not vote on a particular proposal because the broker does not have discretionary voting authority and has not received voting instructions from the beneficial owner. Broker non-votes will count as votes against the proposal to declassify the Board and will be disregarded with respect to all other proposals.

 

Quorum Requirement

 

A quorum is necessary to hold a valid meeting. A quorum will exist if the holders of at least 35% of all the shares entitled to vote at the meeting are present in person or by proxy. All shares voted by proxy are counted as present for purposes of establishing a quorum, including those that abstain or as to which the proxies contain broker non-votes as to one or more items.

 

Votes Necessary for Action to be Taken

 

Sysco’s Bylaws and Corporate Governance Guidelines include a majority vote standard for uncontested director elections. Since the number of nominees timely nominated for the Annual Meeting does not exceed the number of directors to be elected, each director to be elected shall be elected if the number of votes cast “for” election of the director exceeds those cast “against.” Any incumbent director who is not re-elected will be required to tender his or her resignation promptly following certification of the stockholders’ vote. The Corporate Governance and Nominating Committee will consider the tendered resignation and recommend to the Board of Directors whether to accept or reject the resignation offer, or whether other action should be taken. The Board of Directors will act on the recommendation within 120 days following certification of the stockholders’ vote and will promptly make a public disclosure of its decision regarding whether to accept the director’s resignation offer.

 

Pursuant to Sysco’s Bylaws, the affirmative vote of a majority of the votes cast, either for or against, is required for the approval of the compensation paid to Sysco’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion.

 

The advisory vote regarding the frequency with which Sysco will conduct stockholder advisory votes on executive compensation will be determined by a plurality of votes cast by the holders of shares entitled to vote in the election. Stockholders may choose an annual, biennial or triennial frequency, i.e., every year, every two years or every three years, or they may abstain. The frequency option that receives the most votes will be deemed the option chosen by the advisory vote.

Pursuant to Sysco’s Bylaws, the affirmative vote of the holders of a majority of the shares outstanding and entitled to vote is required in order to amend Sysco’s Bylaws to implement a staggered declassification of the Board of Directors.

 

Pursuant to Sysco’s Bylaws, the affirmative vote of a majority of the votes cast, either for or against, is required for approval of the ratification of the appointment of the independent accountants.

 

Broker non-votes and abstentions will count as votes against the proposal to declassify the Board and will be disregarded with respect to the election of directors and all other proposals.

 

Who Will Count Votes

 

We will appoint one or more Inspectors of Election who will determine the number of shares outstanding, the voting power of each, the number of shares represented at the Annual Meeting, the existence of a quorum and whether or not the proxies and ballots are valid and effective.

 

The Inspectors of Election will determine, and retain for a reasonable period a record of the disposition of, any challenges and questions arising in connection with the right to vote and will count all votes and ballots cast for and against and any abstentions or broker non-votes with respect to all proposals and will determine the results of each vote.

 

Cost of Proxy Solicitation

 

We will pay the cost of solicitation of proxies including preparing, printing and mailing this proxy statement, should we choose to mail any written proxy materials, and the E-Proxy Notice. Solicitation may be made personally or by mail, telephone or electronic data transfer by officers, directors and regular employees of the company (who will not receive any additional compensation for any solicitation of proxies).

 

We will also authorize banks, brokerage houses and other custodians, nominees and fiduciaries to forward copies of proxy materials and will reimburse them for their costs in sending the materials. We have retained Georgeson Shareholder Communications to help us solicit proxies from these entities and certain other stockholders, in writing or by telephone, at an estimated fee of $12,000 plus reimbursement for their out-of-pocket expenses.

 

Other Matters

 

We do not know of any matter that will be presented at the Annual Meeting other than the election of directors and the other proposals discussed in this proxy statement. However, if any other matter is properly presented at the Annual Meeting, your proxies will act on such matter in their best judgment.

 

Annual Report

 

We will furnish additional copies of our annual report to stockholders, including our Annual Report on Form 10-K for the year ended July 2, 2011, as filed with the Securities and Exchange Commission (the “Annual Report on Form 10-K”), without charge upon your written request if you are a record or beneficial owner of Sysco Corporation common stock whose proxy we are soliciting in connection with the Annual Meeting. Please address requests for a copy of the annual report to the Investor Relations Department, Sysco Corporation, 1390 Enclave Parkway, Houston, Texas 77077-2099. The Annual Report on Form 10-K is also available on our website under “Investors — Financial Information” at www.sysco.com.

 

Householding

 

If your shares are held in the name of your broker or agent, and you share the same last name and address with another Sysco stockholder, you and the other stockholders at your address may receive only one copy of the E-Proxy Notice and any other proxy materials we choose to mail unless contrary instructions are provided from any stockholder at that address. This is referred to as “householding.” If you prefer to receive multiple copies of the E-Proxy Notice, and any other proxy materials that we mail, at the same address, additional copies will be provided to you promptly upon written or oral request, and if you are receiving multiple copies of the E-Proxy Notice and other proxy materials, you may request that you receive only one copy. Please address requests for a copy of the E-Proxy Notice to the Investor Relations Department, Sysco Corporation, 1390 Enclave Parkway, Houston, Texas 77077-2099. The Annual Report on Form 10-K is also available on our website under “Investors — Financial Information” at www.sysco.com.

 

If your shares are not registered in your own name, you can request additional copies of the E-Proxy Notice and any other proxy materials we mail or you can request householding by notifying your broker or agent in whose name your shares are registered.

 

Board Composition

 

We believe that our directors should possess the highest personal and professional ethics, integrity and values, and be committed to representing the long-term interests of Sysco’s stockholders. They must also have an inquisitive and objective perspective, practical wisdom and mature judgment. We endeavor to have a Board representing a range of backgrounds and experiences in areas that are relevant to the company’s activities so that the Board, as a whole, possesses the combination of skills, professional experience, and diversity of backgrounds necessary to oversee Sysco’s business. Accordingly, the Board and the Corporate Governance and Nominating Committee consider the qualification of directors and director candidates individually and in the broader context of the Board’s overall composition and the Company’s current and future needs. Below we identify and describe some of the key experience, qualifications and skills that our Corporate Governance and Nominating Committee believes individuals serving as directors of Sysco should collectively bring to the Board and that are important in light of our business and structure. The priorities and emphasis of the Corporate Governance and Nominating Committee and of the Board with regard to these factors may change from time to time to take into account changes in our business and other trends, as well as the portfolio of skills and experience of current and prospective Board members.

 

 

 

Included in the individual biographies below is a discussion of the most significant aspects of each director’s background that strengthen the Board’s collective qualifications, skills and experience and that the Corporate Governance and Nominating Committee and the Board considered in reaching their conclusion that he or she should continue to serve as a director of Sysco.

 

Election of Directors at 2011 Annual Meeting

 

Four directors are to be elected at the meeting. The Board of Directors currently consists of 12 members divided into three classes of four directors each. The company’s governing documents provide that the Board of Directors shall be divided into three classes with no class of directors having more than one director more than any other class of directors. The directors in each class serve for a three-year term. A different class is elected each year to succeed the directors whose terms are expiring.

 

The Board of Directors has nominated the following four persons for election as directors in Class I to serve for three-year terms or until their successors are elected and qualified:

 

 

Each of Dr. Craven, Mr. DeLaney and Mr. Tilghman is currently serving as a Class I director of Sysco. Mrs. Phyllis S. Sewell is also a Class I director and will serve out her remaining term, but has notified the Board that she will not be standing for reelection. Mr. Glasscock is currently serving as a Class II director of Sysco. Effective as of the date of the Annual Meeting, the size of the Board of Directors will be reduced from its current size to 11 members. In order to keep the number of directors serving in Class I at four members, the Board will move Mr. Glasscock out of Class II and has nominated him for election for a three-year term in Class I.

 

Each of the nominees is currently serving as a director of Sysco and has consented to serve if elected. Although management does not contemplate the possibility, in the event any nominee is not a candidate or is unable to serve as a director at the time of the election, the proxies will vote for any nominee who is designated by the present Board of Directors to fill the vacancy.

 

Set forth below is biographical information for each director, other than Mrs. Sewell, who is retiring from the Board effective as of the Annual Meeting, including the nominees for election as a director at the 2011 Annual Meeting. Unless otherwise noted, the persons named above have been engaged in the principal occupations shown for the past five years or longer. In addition to the information described below, many of our directors serve as trustees, directors or officers of various non-profit, educational, charitable and philanthropic organizations.

Nominees for Election as Class I Directors for terms expiring at the 2014 Annual Meeting:

 

Judith B. Craven, M.D., 65, has served as a director of Sysco since July 1996. Dr. Craven served as President of the United Way of the Texas Gulf Coast from 1992 until her retirement in September 1998. Dr. Craven is also a director of Belo Corporation, Luby’s, Inc., Sun America Funds and VALIC. Dr. Craven is Chairman of Sysco’s Corporate Sustainability Committee and is also a member of our Corporate Governance and Nominating Committee and our Compensation Committee.

 

Key Director Qualifications:  Dr. Craven earned a B.S. degree in Biology and English from Bowling Green State University, then completed premedical requirements at Texas Southern University before earning a Doctor of Medicine from Baylor College of Medicine and a Master of Public Health from the University of Texas School of Public Health. She also completed the Harvard University Program for Senior Managers in Government at the John F. Kennedy School of Government. Dr. Craven provides a unique viewpoint on Sysco’s Board as a medical doctor and distinguished public health expert. She gained a distinctive understanding of the foodservice industry after serving as Director of Public Health for the City of Houston from 1980 through 1983, which included responsibility for the regulation of all foodservice establishments in the City of Houston, including an emphasis on food safety and food handling. Following this appointment, Dr. Craven served as Dean of the University of Texas School of Allied Health Sciences from 1983 to 1992. She also serves on the Board of Directors of Luby’s, Inc., which operates almost 100 restaurants and provides food services to select hospital and other medical institutions in Texas. Dr. Craven also has a strong commitment to diversity and social responsibility, having led many initiatives to help increase and incorporate diversity in schools, the workplace and the community. Dr. Craven served as Vice President for Multicultural Affairs for the University of Texas Health Science Center at Houston from 1987 to 1992, and served as Chair of the Committee on Diversity for the University of Texas Board of Regents for six years. Under Dr. Craven’s leadership as president for six years, The United Way of The Texas Gulf Coast won the first National Award for diversity from the United Way of America. She has also served as a member of the Board of Directors of Compaq Corporation and the Houston Branch of the Federal Reserve Bank of Dallas. Dr. Craven has received numerous awards and honors, including the NAACP VIP Award for Community Service, Houston’s Thirty Most Influential Black Women Award and induction into the Texas Women’s Hall of Fame in 1989.

 

William J. DeLaney, 55, has been a director of Sysco since January 2009 and began serving as Sysco’s Chief Executive Officer in March 2009. He assumed the additional title of President in March 2010. Mr. DeLaney began his Sysco career in 1987 as Assistant Treasurer at the company’s corporate headquarters. He was promoted to Treasurer in 1991, and in 1993 he was named a Vice President of the company, continuing in those responsibilities until 1994. Mr. DeLaney joined Sysco Food Services of Syracuse in 1996 as chief financial officer, progressed to senior vice president in 1998 and executive vice president in 2002. In 2004, Mr. DeLaney was appointed president and chief executive officer of Sysco Food Services of Charlotte. He held that position until December 2006, when he was named Sysco’s Senior Vice President of Financial Reporting. Effective July 1, 2007, Mr. DeLaney was promoted to the role of Executive Vice President and Chief Financial Officer and continued to serve in such position following his promotion to CEO until October 2009. Mr. DeLaney is a member of Sysco’s Finance Committee.

 

Key Director Qualifications:  Mr. DeLaney earned a Bachelor of Business Administration degree from the University of Notre Dame, and a Master of Business Administration degree from the Wharton Graduate Division of the University of Pennsylvania. Mr. DeLaney has worked in various capacities at Sysco and its subsidiaries for more than 20 years. Through various accounting, finance, operations and management positions within Sysco and its operating companies, Mr. DeLaney has gained valuable insight into the foodservice industry, as well as Sysco’s competitive advantages and how to further build upon them. Throughout his career, Mr. DeLaney has developed experience and knowledge in the areas of leadership and management development, corporate strategy and development, finance and accounting and distribution and supply chain management. Further, the Corporate Governance and Nominating Committee and the Board believe that it is appropriate and beneficial to Sysco to have its Chief Executive Officer serve as management’s voice on the Board.

 

Larry C. Glasscock, 63, was appointed as a director of Sysco in September 2010. In March 2010, Mr. Glasscock retired from his position as Chairman of the Board of Directors of WellPoint, Inc., one of the largest health benefits companies in the United States, after serving in the role since November 2005. He also served as WellPoint’s President and CEO from November 2004 until July 2007. Mr. Glasscock previously served as Chairman, President and CEO of Anthem, Inc., a health benefits company, from 2001 to 2004, assuming additional responsibilities as Chairman from 2003 to 2004. Mr. Glasscock has served as a director of Simon Property Group, Inc., a real estate investment trust, since March 2010; a director of Sprint Nextel Corp. since August 2007; and a director of Zimmer Holdings, Inc., a global leader in the design, development, manufacture and marketing of orthopedic reconstructive implants, dental implants, spinal implants, trauma products and related surgical devices, since August 2001. Mr. Glasscock is a member of Sysco’s Compensation Committee, our Corporate Governance and Nominating Committee and our Corporate Sustainability Committee.

 

Key Director Qualifications:  Mr. Glasscock attended Cleveland State University, where he received a bachelor’s degree in business administration. He later studied at the School of International Banking, participated in the American Bankers

Association Conference of Executive Officers, and completed the Commercial Bank Management Program at Columbia University. Mr. Glasscock has developed significant leadership and corporate strategy expertise through over 30 years of business experience, including former service as President and CEO of WellPoint, Inc., COO of CareFirst, Inc., President and CEO of Group Hospitalization and Medical Services, Inc., President and COO of First American Bank, N.A., and President and CEO of Essex Holdings, Inc. During his tenure at WellPoint, Inc., he played a major role in transforming the company from a regional health insurer into a national healthcare leader and championed company efforts to improve quality and customer service. Throughout his career, Mr. Glasscock has developed expertise in the successful completion and integration of mergers, utilization of technology to improve productivity and customer service, and team building and human capital development. Mr. Glasscock’s expertise in the utilization of technology to improve productivity will be valuable to Sysco as we implement and build upon our Business Transformation Project. His knowledge and experience in team building and human capital development are also extremely valuable to Sysco, as management development was one of our CEO’s key non-financial goals during fiscal 2011 and continues to be one of such goals for fiscal 2012. Mr. Glasscock also has considerable financial experience, as he has supervised the chief financial officers of major corporations. Earlier in his career he served as a bank officer lending to major corporations and supervised assessments of companies’ creditworthiness. Mr. Glasscock also has significant experience as a public company director and as a member of various committees related to important board functions, including audit, finance, governance and compensation.

 

Richard G. Tilghman, 71, has served as a director of Sysco since November 2002. Mr. Tilghman served as Vice Chairman and Director of SunTrust Banks from 1999 until his retirement in 2000. He served as Chairman and Chief Executive Officer of Crestar Financial Corporation, a bank holding company, from 1986 until 1999. Mr. Tilghman is Chairman of Sysco’s Audit Committee and is also a member of our Finance Committee.

 

Key Director Qualifications:  After graduating from the University of Virginia with a B.A. in Foreign Affairs and serving in the U.S. Army as a lieutenant, Mr. Tilghman enjoyed a 34-year banking career, including service as Vice Chairman and Director of Suntrust Banks, as well as the former Chairman and CEO of Crestar Financial Corporation, a bank holding company for fifteen years. His career provided him with experience and expertise in the areas of leadership, corporate strategy and development, finance, banking, accounting and risk management. Mr. Tilghman’s experience overseeing a business and technology transformation for a series of banks acquired through acquisitions is very important to Sysco as we undertake our ERP/Business Transformation Project to streamline our operations using a common technology platform. Mr. Tilghman also gained high tech and regional marketing experience that has been valuable to Sysco as we have redefined oversight of our operating companies by marketing region and focus on the use of e-Commerce technologies to service Sysco customers more efficiently. Mr. Tilghman’s experience also includes approximately 20 years of service on the Board of Directors of Chesapeake Corporation, which was then a leading supplier of cartons, labels, leaflets, and specialty plastic packaging, with manufacturing facilities in Asia, Europe and the U.S. at that time.

 

The Board of Directors recommends a vote FOR the nominees listed above.

 

 

Class II Directors whose terms expire at the 2012 Annual Meeting:

 

Jonathan Golden, 74, has served as a director of Sysco since February 1984. Mr. Golden is a partner of Arnall Golden Gregory LLP, counsel to Sysco. Mr. Golden is a member of Sysco’s Finance Committee and our Corporate Sustainability Committee.

 

Key Director Qualifications:  Mr. Golden is a graduate of Princeton University and Harvard Law School. He also has served as an adjunct professor at Emory Law School in Atlanta for nine years. Mr. Golden, who is not considered an independent director, has developed an extensive knowledge of Sysco’s business through his service as a director of the Company since 1984 and through Arnall Golden Gregory LLP, a firm that has served as legal advisor to the Company on numerous transactions. Mr. Golden has served as Chairman of that firm for approximately eleven years. He personally has a long history of representing participants in the food industry, including manufacturers, distributors and food industry trade associations. Mr. Golden has gained further experience regarding the distribution and supply chain of foodservice companies as a member of the Board of Directors of a major privately-held food manufacturer that is the leader in the frozen food industry and sells to foodservice customers, particularly in-store bakeries and retail marketplaces. In addition to his legal and regulatory experience and focus on corporate responsibility, Mr. Golden has developed a knowledge of other public company Board practices through his past service on the Boards of The Profit Recovery Group International, Inc., Intermedics, Inc., Automatic Service Company and Butler Shoe Corp.

Joseph A. Hafner, Jr., 66, has served as a director of Sysco since November 2003. In November 2006, Mr. Hafner retired as Chairman of Riviana Foods, Inc., a position he had held since March 2005. He served as President and Chief Executive Officer of Riviana from 1984 until March 2004. Mr. Hafner is Chairman of Sysco’s Finance Committee and is also a member of our Audit Committee and our Corporate Sustainability Committee.

 

Key Director Qualifications:  Mr. Hafner attended Dartmouth College, where he graduated cum laude, then earned a master of business administration degree with high distinction from Dartmouth’s Amos Tuck School of Business Administration. After graduation, Mr. Hafner served for two years in the Latin American Internship Program of Cornell University and the Ford Foundation in Lima, Peru, followed by two years with the Arthur Andersen & Co. accounting firm in Houston. In 1972, Mr. Hafner began his career with Riviana Foods, Inc. in Guatemala City as Controller of Riviana’s Central American Division. For over 30 years, Mr. Hafner worked in positions of increasing authority for Riviana, a company that processed, marketed and distributed rice products in the U.S. and Europe, as well as other food products in Central America and Europe. Mr. Hafner continued his international exposure through the oversight of Riviana’s rice operations in South Africa and Australia. His career culminated in his service as President and CEO of Riviana for over 20 years, providing him with experience in the areas of leadership, corporate strategy and development, the foodservice industry, distribution and supply chains, finance and accounting and international operations. In addition, Mr. Hafner has developed finance and accounting expertise during his career at Arthur Andersen and Riviana and is a member of the American Institute of Certified Professional Accountants.

 

Nancy S. Newcomb, 66, has served as a director of Sysco since February 2006. Ms. Newcomb served as Senior Corporate Officer, Risk Management, of Citigroup from May 1998 until her retirement in 2004. She served as a customer group executive of Citicorp (the predecessor corporation of Citigroup) from December 1995 to April 1998, and as a division executive, Latin America from September 1993 to December 1995. From January 1988 to August 1993 she was the principal financial officer, responsible for liquidity, funding and capital management. Ms. Newcomb is also a director of The DIRECTV Group, Inc. and was formerly a director of Moody’s Corporation. Ms. Newcomb is a member of Sysco’s Audit Committee and the Finance Committee.

 

Key Director Qualifications:  Ms. Newcomb is a graduate of Connecticut College and received a Master’s Degree in Economics from Boston University. She also graduated from Harvard Business School’s Program for Management Development. Ms. Newcomb’s 35-year career with Citigroup, a major international financial services company, and its predecessors Citicorp and Citibank, provided her with experience in the areas of leadership, corporate strategy and development, finance, risk management and international operations. Ms. Newcomb developed extensive risk management experience throughout her career, including holding the position of Citigroup’s Senior Corporate Officer of Risk Management for the last six years of her career. In the area of Finance and International Operations, Ms. Newcomb served as Citigroup’s Principal Financial Officer, responsible for liquidity, funding and capital management. She has had extensive international experience as head of worldwide treasury operations in over 100 countries, and co-head of Citigroup’s global, multinational customer business.

 

Class III Directors whose terms expire at the 2013 Annual Meeting:

 

John M. Cassaday, 58, has served as a director of Sysco since November 2004. Since September 1999, Mr. Cassaday has served as President and Chief Executive Officer, as well as a director, of Corus Entertainment Inc., a media and entertainment company based in Canada. He also serves as a director of Manulife Financial Corporation. Mr. Cassaday is Chairman of Sysco’s Compensation Committee and is also a member of our Corporate Governance and Nominating Committee.

 

Key Director Qualifications:  Mr. Cassaday earned a Bachelor of Arts degree from the University of Western Ontario and a Master of Business Administration Degree with honors from the University of Toronto’s Rotman School of Management. Prior to his current position as the founding President and CEO of Corus Entertainment Inc., a Canadian leader in radio and specialty television, Mr. Cassaday served as President and CEO of CTV Television Network Ltd. Mr. Cassaday’s career prior to broadcasting included executive positions in a number of leading packaged goods companies including RJR-Macdonald, Inc., General Foods Corporation and Campbell Soup Company, where he gained food processing and food safety experience while advancing through positions in sales, marketing, and strategic planning in Canada, the United States, and the United Kingdom. His career at Campbell’s culminated in service as President of Campbell Soup Company’s operations in Canada and the United Kingdom. Mr. Cassaday gained additional foodservice experience through his service as a director of Loblaw Companies Limited, Canada’s largest food distributor, and of J.M. Schnieder, a meat processing company. This background has provided Mr. Cassaday with extensive experience and knowledge in the areas of leadership, corporate strategy and development, the foodservice industry, distribution and supply chains, marketing, international operations, accounting, finance and financial reporting. In addition, Mr. Cassaday’s service on the Board of Directors of Manulife Financial Corporation has provided a greater understanding of risk management and global compensation considerations. Mr. Cassaday has received many business, industry and charitable honors, including designation as the most distinguished alumni of the University of Toronto’s

Rotman School of Management in 1998, receipt of the Gold Medal from the Association of Canadian Advertisers in 2004 (which recognizes individuals who have made an outstanding contribution to the advancement of marketing communications in Canada) and induction in the Marketing Hall of Legends of Canada in 2006.

 

Manuel A. Fernandez, 65, has served as a director of Sysco since November 2006 and as the non-executive Chairman of the Board since June 2009. Since 2000, he has been the Managing Director of SI Ventures, a venture capital firm focusing on information technology and communications infrastructure companies that enable e-business, and Chairman Emeritus of Gartner, Inc., a leading information technology research and consulting company. Prior to his present positions, Mr. Fernandez was Chairman, President, and Chief Executive Officer of Gartner. Mr. Fernandez also serves on the board of directors of Brunswick Corporation, Flowers Foods, Inc. and Stanley Black & Decker, Inc. (following his service on the Board of the Black & Decker Company until its acquisition by The Stanley Works in March 2010; following such acquisition, The Stanley Works changed its name to Stanley Black & Decker, Inc.). Mr. Fernandez is a member of Sysco’s Corporate Governance and Nominating Committee and our Compensation Committee. He also previously served on Sysco’s Finance Committee.

 

Key Director Qualifications:  Mr. Fernandez earned a Bachelor’s Degree in electrical engineering from the University of Florida and completed post-graduate studies in solid state engineering. He began his career in engineering positions, eventually becoming a Group Executive Vice President of Fairchild Semiconductor with direct oversight for operations and manufacturing facilities in the US and in several foreign countries. Among the engineering breakthroughs in his career, Mr. Fernandez was part of a design team at Harris Semiconductors that developed the first programmable memory. He later served as President and CEO of three technology-driven companies, including Zilog Incorporated (a publicly-traded semiconductor manufacturer and a leader in the microprocessor industry, with operations in over 20 countries), Gavilan Computer Corporation (a technology company he founded that developed one of the first battery-operated laptop computers in 1982) and Dataquest (an information services company that was later acquired by Gartner). During Mr. Fernandez’s service as CEO and later Chairman of the Board of Gartner, he oversaw the company’s dramatic growth, from a research boutique with revenue of $46 million in 1991 to a global technology research and advisory firm with over $950 million of revenue in 2001, including taking the company public in 1994. At the time of his retirement, Gartner had locations in over 40 international locations serving customers in 80 countries. Together, these positions provided Mr. Fernandez with extensive leadership, corporate strategy and development, information technology, IT strategy, strategic planning and international experience.

 

Mr. Fernandez has gained knowledge of distribution and supply chains as a member of the Board of Directors of:

 

 

Mr. Fernandez’s service on the Board of Directors of Flowers Foods, Inc., one of the largest producers and marketers of bakery products in the United States, has provided him with extensive knowledge of the foodservice industry. At Flowers Foods he also serves as chairman of the Compensation Committee and a member of the Corporate Governance Committee.

 

Mr. Fernandez has invested in over 20 start-up companies in the information technology field, has served on the Boards of Directors of multiple public and private companies and was appointed by the President of the United States as a member of the Presidential Information Technology Action Committee. He is a former Chairman of the Board of Trustees of the University of Florida.

 

Hans-Joachim Koerber, 65, has served as a director of Sysco since January 2008. Dr. Koerber served as the chairman and chief executive officer of METRO Group, Germany’s largest retailer, from 1999 until his retirement in October 2007. Dr. Koerber is chairman of the board of directors of Air Berlin PLC and Esprit Holdings Limited, as well as a director of several private European companies, including Klüh GbR, WEPA Industrieholding SE and Deutsche Amphibolin-Werke von Robert Murjahn Stiftung GmbH & Co KG. Dr. Koerber is a member of Sysco’s Audit Committee and our Finance Committee.

 

Key Director Qualifications:  Dr. Koerber earned a degree as a Master Brewer in Brewing Technology and a Ph.D. in Business Management from the Technical University of Berlin. Dr. Koerber began his career in the beverage industry, including management positions in which he was responsible for finance and accounting, information technology, purchasing and

personnel. He first became involved with the company that would eventually become METRO when he joined the predecessor company’s cash-and-carry, self-service wholesale company in charge of finance and accounting, controlling, logistics and information technology. His responsibilities continued to expand to include international cash-and-carry activities in six countries. When METRO AG was formed in 1996, Dr. Koerber became part of the METRO management board. His responsibilities included corporate development, corporate communications and investor relations and he became chairman and chief executive officer in 1999. Dr. Koerber introduced a new management style, streamlined the company to focus on four of the original 16 business divisions in order to remain competitive and achieve profitability, adopted international accounting standards and rapidly developed METRO’s international presence, including hands-on experience in expanding METRO into Eastern Europe and Asia, including China and India. These efforts helped make METRO Germany’s largest retailer, operating wholesale cash & carry stores, supermarkets, hypermarkets, department stores and consumer electronics shops throughout the world. Throughout his career, Dr. Koerber developed experience and qualifications in the areas of leadership, corporate strategy and development, the foodservice industry, distribution and supply chains, marketing and risk management. Dr. Koerber’s insights on running and expanding a foodservice business with international operations have been, and will continue to be, particularly helpful to Sysco. Dr. Koerber’s career at METRO AG, combined with his 10 years of service on the Board of Skandinaviska Enskilda Banken AB (the parent company of the SEB Group, a North European banking concern catering to corporations, institutions, and private individuals) and the Board of Directors of several other international companies, has provided him with financial expertise, particularly with regard to international financial accounting standards. His service on the Boards of Air Berlin PLC (Germany’s second largest airline) and Esprit Holdings Limited (manufacturer of apparel, footwear, accessories, jewelry and housewares) have deepened his experience in marketing.

 

Jackie M. Ward, 73, has served as a director of Sysco since September 2001. Ms. Ward is the former Chairman, President and Chief Executive Officer of Computer Generation Incorporated (CGI), a company she founded in 1968 that was acquired in December 2000 by Intec Telecom Systems PLC, a technology company based in the United Kingdom. Ms. Ward is a director of Flowers Foods, Inc., Sanmina-SCI Corporation and WellPoint, Inc. Ms. Ward is Chairman of Sysco’s Corporate Governance and Nominating Committee and is also a member of our Compensation Committee. In the last five years, Ms. Ward also served as a director of Bank of America Corporation and Equifax Inc.

 

Key Director Qualifications:  Ms. Ward attended Georgia State College for Women and the University of Georgia Extension Center, where she majored in psychology and mathematics. She later attended the London School of Business and was awarded a Doctor of Laws from Mercer University. Early in her career, Ms. Ward held programming, engineering, marketing and management positions with UNIVAC (a division of Sperry Corporation), General Electric Company and J.P. Stevens Company. Ms. Ward then founded, was elected chairman, president and chief executive officer, and had over 30 years of experience with Computer Generation Incorporated (CGI), a provider of software/hardware solutions to the telecommunications and general industry with operations in the U.S., England and much of Europe, Australia, South Africa, Mexico and Latin America. Ms. Ward’s lengthy career has provided her with extensive leadership, information technology, retail/mass marketing, corporate strategy and development, finance, banking, and international experience. In addition, significant projects undertaken by CGI for governmental and private entities provided unique experience for Ms. Ward in developing and implementing supply chain inventory control systems, fraud detection systems and software/hardware to handle generalized and specific accounting functions. Ms. Ward has gained knowledge of the foodservice industry through her membership on the Board of Directors of Flowers Foods, Inc., one of the largest producers and marketers of bakery products in the U.S., as well as developing systems for related food clients, such as Edwards Baking Company and Eastern Food Services. She also has significant public company board experience as a current or former member of numerous Boards of Directors where she served in various leadership positions, including lead director, presiding director and the chairman of various committees. With respect to Flowers Foods, Ms. Ward currently serves as the Presiding Director, Chair of the Nominating and Corporate Governance Committee and a member of the Compensation and Executive Committees. With respect to WellPoint, Ms. Ward currently serves as Lead Director, Chair of the Corporate Governance Committee and a member of the Compensation and Executive Committees. She also serves on the Nominating and Governance Committee of Sanmina-SCI Corporation. Ms. Ward furthered her expertise in the areas of finance and risk management as Chairman of the Asset Quality Committee of Bank of America’s Board of Directors for 15 years and her expertise in the areas of accounting and internal audit as a member of the Board of PRG-Schultz International, Inc., which provides recovery audit services to organizations with high volumes of payment transactions, including retail and wholesale businesses, manufacturers, health care, and government agencies.

 

Unless otherwise noted, the persons named above have been engaged in the principal occupations shown for the past five years or longer.

 

Corporate Governance Guidelines

 

The Board of Directors has adopted the Sysco Corporation Corporate Governance Guidelines. These guidelines outline the functions of the Board, director responsibilities, and various processes and procedures designed to ensure effective and responsive governance. These guidelines also outline qualities and characteristics we consider when determining whether a member or candidate is qualified to serve on the Board, including diversity, skills, experience, time available and the number of other boards the member sits on, in the context of the needs of the Board and Sysco. We review these guidelines from time to time in response to changing regulatory requirements and best practices and revise them accordingly. The guidelines were last revised in August 2011 for changes to Sysco’s stock ownership guidelines. See “Stock Ownership — Stock Ownership Guidelines” below for a discussion of Sysco’s stock ownership guidelines. We have published the Corporate Governance Guidelines on our website under “Investors — Corporate Governance” at www.sysco.com.

 

Codes of Conduct

 

We require all of our officers and employees, including our principal executive officer, principal financial officer, principal accounting officer and controller, to comply with our Code of Conduct applicable to Sysco employees to help ensure that we conduct our business in accordance with the highest standards of moral and ethical behavior. This Code of Conduct addresses the following, among other topics:

 

 

This Code, which was amended and restated in August 2010, effective as of November 1, 2010, requires strict adherence to all laws and regulations applicable to our business and requires employees to report any violations or suspected violations of the Code. In August 2010, we also adopted a separate Code of Conduct applicable to non-employee directors that is similar in scope to the employee Code but is tailored to the issues and concerns facing Sysco directors. We have published the Codes of Conduct for employees and non-employee directors on our website under “Investors — Corporate Governance” at www.sysco.com. We intend to disclose any future amendments to or waivers of our Code applicable to our principal executive officer, principal financial officer, principal accounting officer and controller, as well as any employees performing similar functions, on our website at www.sysco.com under the heading “Investors — Corporate Governance.”

 

Director Independence

 

Our Corporate Governance Guidelines require that at least a majority of our directors meet the criteria for independence that the New York Stock Exchange has established for continued listing, as well as the additional criteria set forth in the Guidelines. Additionally, we require that all members of the Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee be independent and that all members of the Audit Committee satisfy the additional requirements of the New York Stock Exchange and applicable rules promulgated under the Securities Exchange Act of 1934.

 

Under New York Stock Exchange listing standards, to consider a director to be independent, we must determine that he or she has no material relationship with Sysco other than as a director. The standards specify the criteria by which we must determine whether directors are independent, and contain guidelines for directors and their immediate family members with respect to employment or affiliation with Sysco or its independent public accountants.

In addition to the NYSE’s standards for independence, our Corporate Governance Guidelines contain categorical standards that provide that the following relationships will not impair a director’s independence:

 

 

The Board of Directors has reviewed all relevant relationships of the directors with Sysco. The relationships reviewed included those described under “Certain Relationships and Related Transactions,” and several relationships that did not automatically make the individual non-independent under the NYSE standards or our Corporate Governance Guidelines, either because of the type of affiliation between the director and the other entity or because the amounts involved did not meet the applicable thresholds. These additional relationships include the following (for purposes of this section, “Sysco”, “we,” “us” and “our” include our operating companies):

 

 

After reviewing such information, the Board of Directors has determined that each of Mr. Cassaday, Dr. Craven, Mr. Fernandez, Mr. Glasscock, Mr. Hafner, Dr. Koerber, Ms. Newcomb, Mr. Tilghman and Ms. Ward, as well as Mrs. Sewell, who will retire from the Board effective as of the Annual Meeting, has no material relationship with Sysco and is independent under the NYSE standards and the categorical standards set forth in the Corporate Governance Guidelines and described above. Mr. DeLaney and Mr. Golden are not considered to be independent. The Board has also determined that each member of the Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee is independent. Our Corporate Governance Guidelines also provide that no independent director who is a member of the Audit, Compensation or Corporate Governance and Nominating Committees may receive any compensation from Sysco other than in his or her capacity as a non-employee director or committee member. The Board has determined that none of the above-named directors has received any compensation from Sysco during fiscal 2011, and no member of the Audit Committee has received any compensation from Sysco at any time while he or she has served as such, other than in his or her capacity as a non-employee director, committee member, committee chairman or Chairman of the Board.

 

Director Compensation

 

See “Director Compensation” for a discussion of compensation received by our non-employee directors during fiscal 2011.

 

Risk Oversight

 

One of the primary oversight functions of the Board is to ensure that Sysco has an appropriate risk management process in place that is commensurate with both the short and long-term goals of the company. In order to effectively fulfill this oversight

role, the Board relies on various individuals and committees within management and among our Board members. See “Board Composition” above for a description of individual director qualifications, including risk management experience.

 

Management is responsible for identifying, managing and mitigating risks, and reports directly to the Audit Committee and the Board on a regular basis with respect to risk management. As discussed below under “Committees of the Board,” the Audit Committee reviews Sysco’s process by which management assesses and manages the Company’s exposure to risk. The Audit Committee also makes recommendations to the Board of Directors with respect to the process by which members of the Board and relevant committees will be made aware of the Company’s significant risks, including recommendations regarding what committee of the Board would be most appropriate to take responsibility for oversight of management with respect to the most material risks faced by the Company. On an annual basis management reviews with the Board the key enterprise risks identified in the process, such as strategic, operational, financial, compliance and reputation risks, as well as management’s process for addressing and mitigating the potential effects of such risks. Through this process Sysco has developed enhanced risk management procedures that include frequent discussion and prioritization of key risk issues by the executive management team, enhanced tracking and monitoring of risk information and identification of particular risks for which management intends to develop or enhance Sysco’s management and mitigation plans.

 

The Board’s Committees help oversee the risk management process within the respective areas of the committees’ delegated oversight authority. The Audit Committee is primarily responsible for hiring and evaluating our independent auditor, review of our internal controls, oversight of our internal audit function, management of credit/counterparty risk, reviewing contingent liabilities that may be material to the company and various regulatory and compliance oversight functions. The Compensation Committee is responsible for ensuring that our executive compensation policies and practices do not incentivize excessive or inappropriate risk-taking by employees. The Corporate Governance and Nominating Committee monitors risk by ensuring that proper corporate governance standards are maintained, that the Board is comprised of qualified Directors, and that qualified individuals are chosen as senior officers. The Finance Committee oversees risks involving capital structure of the enterprise, including borrowing, liquidity, allocation of capital, major capital transactions and expenditures, funding of benefit plans and investment risk. The Chairman of the Board coordinates the flow of information regarding risk oversight from each respective committee to the independent Directors and participates in the review of the agenda for each Board and Committee meeting. As the areas of oversight among committees sometimes overlap, committees may hold joint meetings when appropriate and address certain risk oversight issues at the full Board level. The Board considers risk in evaluating the Company’s strategy, including specific strategic and emerging risks, and annually reviews and approves corporate goals and capital budgets. The Board also monitors any specific risks for which it has chosen to retain oversight rather than delegating oversight to one of its committees, such as risks related to our Business Transformation Project.

 

Chairman of the Board

 

Mr. Fernandez, the Chairman of Sysco’s Board of Directors, is an independent director. See “Director Independence” above for a discussion of our independence criteria. While we believe the participation of the CEO on our Board helps foster, among other things, an appropriate level of continuity and fluid communication between the Board and management, we have chosen an independent director as Chairman of the Board in order to ensure that the Board maintains an independent thought process that ultimately benefits stockholders.

 

Mr. Fernandez was chosen to serve as the non-executive Chairman of Sysco’s Board of Directors effective June 28, 2009. Sysco’s Corporate Governance Guidelines provide that the Board shall elect from its members a Chairman of the Board. While the Chairman does not have to be independent, the Corporate Governance Guidelines specify that the Board shall give due consideration to the potential benefits of having an independent director serve in that role. Whenever the Chairman of the Board is also a current or former officer of the Company or is otherwise not an independent director, the Board will choose a separate lead director annually from among the independent directors. Because Mr. Fernandez is an independent Chairman, the Board does not currently have a lead director. During fiscal 2011, the non-management directors held four executive sessions without the CEO or any other member of management present. Mr. Fernandez presided at each of these sessions.

 

The Chairman of the Board, among other things, establishes the agenda for, and presides at, meetings of the non-employee directors. In addition, the independent directors, exclusive of all directors who have not been determined to be independent, meet in executive session at least once a year, and the independent Chairman presides at such meetings. The Chairman also serves as the primary liaison between the independent directors and the Chief Executive Officer, reviews meeting agendas and schedules for meetings of the Board with the Chief Executive Officer, and makes himself available for consultation and director communication.

Board Meetings and Attendance

 

The Board of Directors held six meetings, including five regular meetings and one special meeting, during fiscal 2011, and all directors attended 75% or more of the aggregate of:

 

 

It is the Board’s policy that directors attend the Annual Meeting of Stockholders, to the extent practicable. In fiscal 2011, all directors who were in office at that time attended the Annual Meeting held in November 2010.

 

Committees of the Board

 

As of the date of this proxy statement, each of the individuals continues to serve on the committees listed in his or her biographical information under “Election of Directors.”

 

Audit Committee — The Audit Committee held ten meetings during fiscal 2011. During fiscal 2011, Mr. Hafner, Dr. Koerber, Ms. Newcomb and Mr. Tilghman (Chair) served on the Audit Committee. All committee members served for the full year. The Audit Committee oversees and reports to the Board with respect to various auditing and accounting matters, including:

 

 

The Audit Committee is also responsible for discussing the Company’s policies with respect to risk assessment and risk management, including discussion of enterprise-wide guidelines and policies to govern the process by which risk assessment and management is undertaken. See “Corporate Governance and Board of Directors Matters — Risk Oversight” for a more detailed discussion of the Audit Committee’s role in Sysco’s risk assessment process. Each member of the Audit Committee is financially literate and has been determined by the Board to be independent, as defined in the New York Stock Exchange’s listing standards and Section 10A(m)(3) of the Securities Exchange Act of 1934. No Audit Committee member serves on the audit committees of more than two other companies. The Board has determined that Messrs. Hafner and Tilghman and Ms. Newcomb each meet the definition of an audit committee financial expert as promulgated by the Securities and Exchange Commission.

 

Compensation Committee — The Compensation Committee held six meetings during fiscal 2011. During fiscal 2011, Mr. Cassaday (Chair), Dr. Craven, Mr. Fernandez, Mr. Glasscock, Mrs. Sewell, and Ms. Ward served on the Compensation Committee. All committee members served for the full year, except for Mr. Glasscock, who joined the Compensation Committee upon his appointment to the Board in September 2010. The function of the Compensation Committee is to determine and approve all compensation of the Chief Executive Officer and the other senior officers, including the named executive officers, and to oversee the administration of Sysco’s benefit plans, qualified and nonqualified benefit plans, incentive compensation plans, equity-based plans and Sysco’s group benefit medical plan.

 

Except for decisions that impact the compensation of Sysco’s executive officers, the Compensation Committee is generally authorized to delegate any decisions it deems appropriate to a subcommittee. In such a case, the subcommittee must promptly make a report of any action that it takes to the full Compensation Committee. For a detailed description of the Compensation Committee’s processes and procedures for consideration and determination of executive compensation, including the role of executive officers and compensation consultants in recommending the amount and form of executive compensation, see “— Compensation Consultants,” and “— Compensation Discussion and Analysis.”

 

Corporate Governance and Nominating Committee — The Corporate Governance and Nominating Committee held five meetings during fiscal 2011. During fiscal 2011, Ms. Ward (Chair), Mr. Cassaday, Dr. Craven, Mr. Fernandez, Mr. Glasscock and Mrs. Sewell served on the Corporate Governance and Nominating Committee. All committee members served for the full year, except for Mr. Glasscock, who joined the Corporate Governance and Nominating Committee upon his appointment to the Board in September 2010. The function of the Corporate Governance and Nominating Committee is to:

 

 

Corporate Sustainability Committee — The Corporate Sustainability Committee held three meetings during fiscal 2011. During fiscal 2011, Dr. Craven (Chair), and Messrs. Glasscock, Golden and Hafner served on the Corporate Sustainability Committee. All committee members served for the full year, except for Mr. Glasscock, who joined the Corporate Sustainability Committee upon his appointment to the Board in September 2010. The Corporate Sustainability Committee’s purpose is to provide review and act in an advisory capacity to the Board and management with respect to policies and strategies that affect Sysco’s role as a socially responsible organization and with respect to Sysco’s long-term sustainability.

 

Executive Committee — The Executive Committee did not meet during fiscal 2011. During fiscal 2011, Mr. Cassaday, Mr. DeLaney, Mr. Fernandez (Chair), Mr. Hafner, Mr. Tilghman and Ms. Ward served on the Executive Committee. All committee members served for the full year. The Executive Committee is authorized to exercise all of the powers of the Board when necessary, to the extent permitted by applicable law.

 

Finance Committee — The Finance Committee held four meetings during fiscal 2011. During fiscal 2011, Mr. Hafner (Chair), Mr. DeLaney, Mr. Golden, Dr. Koerber, Ms. Newcomb and Mr. Tilghman served on the Finance Committee. All Committee members served for the full year. The function of the Finance Committee is to assist the Board in satisfying its fiduciary responsibilities relating to Sysco’s financial performance and financial planning. The Finance Committee:

 

 

In addition, the Finance Committee assists the Audit Committee in reviewing and overseeing Sysco’s environmental, health and safety matters and related regulatory compliance. The Finance Committee reports regularly, and makes recommendations to the Audit Committee regarding specific actions to be taken in this area at least annually.

 

Current copies of the charters for the Audit Committee, the Compensation Committee, the Corporate Governance and Nominating Committee, the Finance Committee and the Corporate Sustainability Committee are published on our website under “Investors — Corporate Governance — Committees” at www.sysco.com.

 

Compensation Consultants

 

Since September 2009, the Compensation Committee has retained Compensation Advisory Partners (“CAP”) as its executive compensation consultant. Retained by and reporting directly to the Compensation Committee, CAP has provided the Committee with assistance in evaluating Sysco’s executive compensation programs and policies, and, where appropriate, has assisted with the redesign and enhancement of elements of the programs. The scope of CAP’s assignments in fiscal 2011 included:

 

 

CAP also advises the Corporate Governance and Nominating Committee with respect to non-employee director compensation. At the Corporate Governance and Nominating Committee’s request, CAP has provided data regarding the amounts and type of compensation paid to non-employee directors at the companies in Sysco’s peer group, and has also identified trends in director compensation. All decisions regarding non-employee director compensation are recommended by the Corporate Governance and Nominating Committee and approved by the Board of Directors. In addition to providing background information and written materials, CAP representatives attend meetings at which the Committee Chairmen believe that their expertise would be beneficial to the Committees’ discussions. Neither CAP nor any of its affiliates provided any additional services to Sysco and its affiliates in fiscal 2011 or in fiscal 2012 through the date of the proxy statement. Sysco does not expect CAP to provide any such services to Sysco during the remainder of fiscal 2012.

 

Since September 2010, Towers Watson (“TW”) has provided advice directly to Sysco’s management team and has assisted management in making recommendations to the Compensation Committee and the Board of Directors with respect to certain aspects of executive compensation. In this capacity, TW has consulted directly with management and provided, among other things, reports based on TW’s proprietary data and information regarding market benchmarks. The Compensation Committee’s decisions are indirectly impacted by input from TW that is presented by management, and such information is used by the Committee in its dialogue with CAP representatives.

 

Nominating Committee Policies and Procedures in Identifying and Evaluating Potential Director Nominees

 

In accordance with its Charter, the Corporate Governance and Nominating Committee will observe the procedures described below in identifying and evaluating candidates for election to Sysco’s Board of Directors.

 

In considering candidates for election to the Board, the Committee will determine the incumbent directors whose terms expire at the upcoming Annual Meeting and who wish to continue their service on the Board. The Committee will also identify and evaluate new candidates for election to the Board for the purpose of filling vacancies. The Committee will solicit recommendations for nominees from persons that the Committee believes are likely to be familiar with qualified candidates. These persons may include members of the Board, Sysco’s management and stockholders who beneficially own individually or as a group at least five percent of Sysco’s outstanding shares for at least one year and who have expressed an interest in recommending director candidates. In evaluating candidates, the Committee will consider the absence or presence of material relationships with Sysco that might impact independence, as well as the diversity, age, skills, experience, time available and the number of other boards the candidate sits on in the context of the needs of the Board and Sysco, and such other criteria as the Committee shall determine to be relevant at the time. The Committee may also determine to engage a professional search firm to assist in identifying qualified candidates. Where such a search firm is engaged, the Committee shall set its fees and scope of engagement.

 

The Committee will also consider candidates recommended by stockholders. The Committee will evaluate such recommendations using the same criteria that it uses to evaluate other candidates. Stockholders can recommend candidates for consideration by the Committee by writing to the Corporate Secretary, 1390 Enclave Parkway, Houston, Texas 77077, and including the following information:

 

 

The Committee typically recommends director candidates to the Board in early July of each year. The Committee will consider in advance of Sysco’s next Annual Meeting of stockholders those director candidate recommendations that the Committee receives by May 1st.

With respect to all incumbent and new candidates that the Committee believes merit consideration, the Committee will:

 

 

In its discretion, the Committee may designate one or more of its members, or the entire Committee, to interview any proposed candidate. Based on all available information and relevant considerations, the Committee will recommend to the full Board for nomination those candidates who, in the view of the Committee, are most suited for membership on the Board.

 

The Committee has not received any recommendations for director nominees for election at the 2011 annual stockholders meeting from any Sysco security holder or group of security holders beneficially owning more than five percent of Sysco’s outstanding common stock.

 

If we receive by June 6, 2012 a recommendation of a director candidate from one or more stockholders who have beneficially owned at least five percent of our outstanding common stock for at least one year as of the date the stockholder makes the recommendation, then we will disclose in our next proxy materials relating to the election of directors the identity of the candidate, the identity of the nominating stockholder(s) and whether the Committee determined to nominate such candidate for election to the Board. However, we will not provide this disclosure without first obtaining written consent of such disclosure from both the nominating stockholder and the candidate it is planning to identify. The Committee will maintain appropriate records regarding its process of identifying and evaluating candidates for election to the Board.

 

Majority Voting in Director Elections

 

The Company’s Bylaws provide for majority voting in uncontested director elections. Majority voting means that directors are elected by a majority of the votes cast — that is, the number of shares voted “for” a director must exceed the number of shares voted “against” that director. Any incumbent director who is not re-elected in an election in which majority voting applies shall tender his or her resignation promptly following certification of the stockholders’ vote. The Corporate Governance and Nominating Committee shall consider the tendered resignation and recommend to the Board whether to accept or reject the resignation offer, or whether other action should be taken. The director who tenders his or her resignation shall not participate in the recommendation of the committee or the decision of the Board with respect to his or her resignation. The Board shall act on the recommendation within 120 days following certification of the stockholders’ vote and shall promptly disclose its decision regarding whether to accept the director’s resignation offer. In contested elections, where there are more nominees than seats on the Board as of the record date of the meeting at which the election will take place, directors are elected by a plurality vote. This means that the nominees who receive the most votes of all the votes cast for directors will be elected.

 

Communicating with the Board

 

Interested parties may communicate with the independent Chairman of the Board, the non-management directors as a group and the individual members of the Board by confidential email. All emails will be delivered to the parties to whom they are addressed. The Board requests that items unrelated to the duties and responsibilities of the Board not be submitted, such as product inquiries and complaints, job inquiries, business solicitations and junk mail. You may access the form to communicate by email in the corporate governance section of Sysco’s website under “Investors — Corporate Governance — Contact the Board” at www.sysco.com.

 

The following persons currently serve as executive officers of Sysco. Each person listed below, other than Mr. Kreidler and Mr. Libby, has served as an officer of Sysco and/or its subsidiaries for at least the past five years.

 

 

 

 

William B. Day has served as Executive Vice President, Merchandising and Supply Chain since July 2010. He served as Senior Vice President — Merchandising and Supply Chain from July 2009 to July 2010. He began his Sysco career in 1983 as a staff accountant at Sysco’s Memphis, Tennessee subsidiary. Between 1984 and 1987 he divided his time between Sysco’s corporate headquarters and Sysco’s Atlanta subsidiary, where he served as the Chief Financial Officer. In 1987 Mr. Day officially moved to Sysco’s corporate headquarters in Houston where he served in a variety of roles until 1999, when he was promoted to Assistant Controller. Mr. Day started Sysco’s RDC project in 2000, was named Vice President, Supply Chain Management in 2003 and was promoted to Senior Vice President, Supply Chain in July 2007.

 

William J. DeLaney is described under “Election of Directors.”

 

G. Mitchell Elmer was promoted to Senior Vice President and Controller in November 2008 after serving as Vice President and Controller from 2000 to November 2008 and assumed the added responsibility of Chief Accounting Officer in July 2005. Mr. Elmer began his Sysco career in 1989 as a staff auditor in operations review at Sysco’s corporate office in Houston. In 1991 he transferred to Sysco’s Virginia subsidiary as Director of Finance, and the following year he was named Vice President of Finance and Administration. Mr. Elmer was appointed Vice President of Finance for Sysco’s Louisville, Kentucky operation in 1995 and progressed to Senior Vice President of Marketing, Merchandising and Finance at that company in 1997. The following year he transferred to Sysco’s Denver operation as Vice President of Finance. In 2000 he returned to Sysco’s corporate office to serve as Vice President and Controller.

 

Michael W. Green has served as Executive Vice President, Foodservice Operations, with expanded responsibilities over all of Sysco’s U.S. and Canadian Broadline Foodservice Operations, since July 2010. Mr. Green began his Sysco career in 1991 as a member of the Management Development Program and was named Sysco Chicago’s Vice President of Marketing later that year. In 1992, he was promoted to Senior Vice President of Marketing and Merchandising, and then to Executive Vice President, of Sysco’s Chicago operating company. In 1994, Mr. Green became the President and Chief Executive Officer of Sysco Food Services of Detroit. He was promoted in 2004 to Senior Vice President of Operations for Sysco’s Midwest Region. In January 2008, Mr. Green was promoted to Executive Vice President of Northeast and North Central U.S. Foodservice Operations, a position he held until his promotion to his current title.

 

James D. Hope has served as Executive Vice President, Business Transformation, since January 2010. He served as Senior Vice President, Business Transformation, from November 2008 to January 2010. Mr. Hope started his career at Sysco’s corporate headquarters as a financial analyst in 1987. He advanced through the Operations Review department, becoming Manager in 1992. He transferred to Sysco Food Services of Kansas City, Inc. in 1993 as Chief Financial Officer, where he was named President and Chief Executive Officer in 2000. Mr. Hope served as Group President, Demand, in the company’s Strategic Group from December 2005 until July 2007. He was promoted in July 2007 to Senior Vice President, Sales and Marketing, a position he held until November 2008. Mr. Hope currently serves on the Board of Trustees for the National Restaurant Association Educational Foundation.

 

Robert C. Kreidler has served as Sysco’s Executive Vice President and Chief Financial Officer since October 2009. Prior to joining Sysco, Mr. Kreidler served as Executive Vice President and Chief Financial Officer of C&S Wholesale Grocers, a large privately-held food wholesaler, from February 2007 through March 2009. Between June 1996 and February 2007, he held various senior roles with Yum! Brands, Inc., which includes the worldwide operations of KFC, Pizza Hut, Taco Bell, Long John

Silver’s and A&W All-American Food Restaurants. His last position with Yum! Brands was Senior Vice President of Corporate Strategy and Treasurer from December 2003 to February 2007.

 

Russell T. Libby has served as Sysco’s Vice President, General Counsel and Corporate Secretary since December 31, 2010. From 1997 through September 2007, Mr. Libby worked for the North America unit of COFRA Holding A.G., a Swiss international conglomerate, in various positions of increasing responsibility, culminating in service as President of COFRA North America and Vice President, Legal for Good Energies, Inc., an affiliated investment advisor. He joined Sysco in October 2007 as Assistant Vice President, Mergers and Acquisitions and Real Estate and was promoted to Vice President and Assistant General Counsel in July 2009, a position he held until December 2010.

 

Larry G. Pulliam has served as Sysco’s Executive Vice President, Foodservice Operations since July 2009. In this role, Mr. Pulliam oversees Sysco’s specialty companies and SYGMA (Sysco’s quick-serve restaurant distribution company), Sysco’s sales to contract and multi-unit customers in the casual dining and large venue market segments, Sysco’s distribution services group and Sysco’s non-Canadian international operations. Mr. Pulliam began his foodservice career in 1975 with a regional foodservice company in Fort Worth, Texas. He served in a variety of areas for that company, from warehouse operations to information services, before joining Sysco’s corporate office in 1987. Mr. Pulliam was named Vice President of Operations for Sysco’s Los Angeles operation in 1991, and in 1995 he transferred to the Baltimore subsidiary to serve as Executive Vice President and Chief Operating Officer. He returned to Sysco’s corporate office in 1997 as Vice President and Chief Information Officer, a position he held until he was promoted to President and Chief Executive Officer of Sysco Food Services of Houston, LP in 2000. Mr. Pulliam then returned to Sysco’s corporate office as Senior Vice President, Merchandising Services in 2002 and served in that role until 2005, when he was promoted to Executive Vice President, Merchandising Services. From 2005 to July 2009, he served as Executive Vice President, Global Sourcing and Supply Chain.

 

Management Development and Succession Planning

 

On an ongoing basis, the Board plans for succession to the position of CEO and other key management positions, and the Corporate Governance and Nominating Committee oversees this management development and succession planning process. To assist the Board, the CEO periodically provides the Board with an assessment of senior executives and their potential to succeed to the position of CEO, as well as perspective on potential candidates from outside the company. On an annual basis, the Board and its Corporate Sustainability Committee have engaged in discussions with management regarding increasing the diversity of Sysco’s executive management team. In addition, the CEO periodically provides the Board with an assessment of potential successors to other key positions.

 

In fiscal 2011, Sysco’s effectiveness in management development and succession planning were a part of our CEO’s non-financial performance goals, which are reviewed at the end of each fiscal year by the Compensation and Corporate Governance and Nominating Committees. In addition, the Compensation Committee assessed Sysco’s performance in select non-financial areas, including the overall effectiveness of its management development and succession planning processes in determining the magnitude of the 2011 bonus payment to our CEO for which Mr. DeLaney received credit toward his 2011 bonus payment. Management development and succession planning remain top priorities of executive management and the Board during fiscal 2012, as evidenced by the following:

 

 

The following table sets forth certain information with respect to the beneficial ownership of Sysco’s common stock, as of August 30, 2011, by (i) each current director, (ii) each named executive officer (as defined under “Compensation Discussion and Analysis”), and (iii) all directors and executive officers as a group. To our knowledge, no person or group beneficially owned more than 5% of our common stock as of August 30, 2011. Unless otherwise indicated, each stockholder identified in the table has sole voting and investment power with respect to his or her shares. Fractional shares have been rounded down to the nearest whole share.

 

 

 

 

Stock Ownership Guidelines

 

To align the interests of our executives with those of our stockholders, Sysco’s Board of Directors concluded that our executive officers should have a significant financial stake in Sysco stock. To further that goal, for several years we have maintained stock ownership guidelines for our executives. In August 2011, we amended our Corporate Governance Guidelines in order to provide that the executives should own the number of shares, by position, as described in the following table:

 

 

The five-year period begins the date the officer is promoted or otherwise becomes subject to the guidelines. With respect to officers that were already subject to the ownership guidelines prior to the August 2011 amendment, the five-year period began as of the date of the amendment. These officers are also required to maintain compliance with the previous stock ownership guidelines, which required each individual to maintain certain ownership levels at the fourth and eighth years following his or her promotion, until the new five-year requirement and respective ownership levels are also satisfied. The stock ownership guidelines in effect until August 2016 are as follows:

 

 

For purposes of the guidelines, the shares counted towards ownership include shares owned directly or indirectly by the executive through the Sysco Corporation Employees’ Stock Purchase Plan, as well as any other shares of vested restricted stock

held by the executive officer that may be subject to transfer restrictions or potential clawbacks, but shall not include unvested shares of restricted stock, shares held through any other form of indirect beneficial ownership, or shares underlying unexercised options. However, for purposes of complying with the five-year ownership guidelines approved in the August 2011 amendment, two-thirds of an officer’s shares underlying unvested restricted stock units will count towards the ownership requirement.

 

In addition, each executive officer is expected to retain 25% of the net shares acquired upon exercise of stock options and 25% of the net shares acquired pursuant to vested restricted stock and restricted stock unit grants until the executive officer’s holdings of Company stock equal or exceed the ownership guidelines applicable to the executive officer. For these purposes, “net shares” shall mean the shares remaining after disposition of shares necessary to pay the related tax liability and, if applicable, exercise price.

 

In the event that these ownership guidelines present an undue hardship for an executive, the Chairman of the Corporate Governance and Nominating Committee may make an exception or provide an alternative to address the intent of the guidelines, taking into consideration the executive’s personal circumstances.

 

We adopted guidelines with a specific number of shares rather than a multiple of salary to protect executives from unnecessary concern regarding fluctuations in the stock price, and the Corporate Governance and Nominating Committee will periodically review the guidelines to determine if they need to be updated due to, among other things, significant changes in the price of Sysco stock. Based on an assumed $27 Sysco stock price, the CEO ownership requirement of 175,000 shares equals a value of approximately 4.1 times Mr. DeLaney’s salary. The other officer ownership requirements are set at lower levels that Sysco believes are reasonable given their salaries and responsibility levels. Restricted stock and restricted stock unit incentives, coupled with shares obtained from the exercise of stock options, are anticipated to provide all executives with ample opportunity to satisfy these requirements within the specified time frames.

 

We provide the Board of Directors with the status of the executives’ stock ownership at its regularly-scheduled meetings to ensure compliance with these holding requirements. As of August 30, 2011, all named executive officers met the then-applicable stock ownership requirement.

 

Pursuant to Section 16(a) of the Securities Exchange Act of 1934 and the rules issued thereunder, our executive officers and directors and any persons holding more than ten percent (10%) of our common stock are required to file with the Securities and Exchange Commission and the New York Stock Exchange reports of initial ownership of our common stock and changes in ownership of such common stock. To our knowledge, no person beneficially owns more than 10% of our common stock. Copies of the Section 16 reports filed by our directors and executive officers are required to be furnished to us. Based solely on our review of the copies of the reports furnished to us, or written representations that no reports were required, we believe that, during fiscal 2011, all of our executive officers and directors complied with the Section 16(a) requirements.

 

Related Person Transactions Policies and Procedures

 

The Board has adopted written policies and procedures for review and approval or ratification of transactions with related persons. We subject the following related persons to these policies: directors, director nominees, executive officers, beneficial owners of more than five percent of our stock and any immediate family members of these persons.

 

We follow the policies and procedures below for any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships in which Sysco was or is to be a participant, the amount involved exceeds $100,000, and in which any related person had or will have a direct or indirect material interest. These policies specifically apply without limitation to purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness, guarantees of indebtedness, and employment by Sysco of a related person. The Board of Directors has determined that the following do not create a material direct or indirect interest on behalf of the related person, and are, therefore, not related person transactions to which these policies and procedures apply:

 

 

 

Any of our employees, officers or directors who have knowledge of a proposed related person transaction must report the transaction to our General Counsel. Whenever practicable, before the transaction goes effective or becomes consummated, the Corporate Governance and Nominating Committee of the Board of Directors will review and approve the proposed transaction in accordance with the terms of this policy. If the General Counsel determines that it is not practicable to obtain advance approval of the transaction under the circumstances, the Committee will review and, in its discretion may ratify, the transaction at its next meeting. In addition, the Board of Directors has delegated to the Chair of the Committee the authority to pre-approve or ratify, as applicable, any related person transaction in which the aggregate amount involved is expected to be less than $500,000.

 

In addition, if a related person transaction is ongoing in nature and the Committee has previously approved it, or the transaction otherwise already exists, the Committee will review the transaction during its first meeting of each fiscal year to:

 

 

We will consider a related person transaction approved or ratified if the transaction is authorized by the Corporate Governance and Nominating Committee or the Chair, as applicable, in accordance with the standards described below, after full disclosure of the related person’s interests in the transaction. As appropriate for the circumstances, the Committee will review and consider such of the following as it deems necessary or appropriate:

 

 

The Committee will review such additional information about the transaction as it in its sole discretion shall deem relevant. The Committee may approve or ratify the transaction only if the Committee determines that, based on its review, the transaction is in, or is not inconsistent with, the best interests of Sysco. The Committee may, in its sole discretion, impose such conditions as it deems appropriate on Sysco or the related person when approving a transaction. If the Committee or the Chair, as applicable, does not ratify a related person transaction, we will either rescind or modify the transaction, as the Committee or the Chair, as applicable, directs, as soon as practicable following the failure to ratify the transaction. The Chair will report to the Committee at its next regularly scheduled meeting any action that he or she has taken under the authority delegated pursuant to this policy. If any director has an interest in a related person transaction, he or she is not allowed to participate in any discussion or approval of the transaction, except that the director is required to provide all material information concerning the transaction to the Committee.

Transactions with Related Persons

 

Mr. Golden is the sole stockholder of Jonathan Golden, P.C., a partner in the law firm of Arnall Golden Gregory LLP, Atlanta, Georgia, which provided legal services to Sysco during fiscal 2011 and continues to do so in fiscal 2012. During fiscal 2011, Sysco incurred approximately $3.3 million in legal fees and disbursements related to these services. We believe the amounts were fair and reasonable in view of the level and extent of services rendered. Due to this relationship, Mr. Golden is not considered to be an independent director under the NYSE standards or the categorical standards set forth in Sysco’s Corporate Governance Guidelines.

 

Mr. Green’s brother-in-law works for Red Gold, Inc., which supplies tomato products to Sysco. Sysco paid Red Gold approximately $66.1 million during fiscal 2011.

 

Ms. Twila Day, who is not an executive officer, is the wife of William Day, our Executive Vice President, Merchandising and Supply Chain. Ms. Day served as Sysco’s Vice President and Chief Information Officer from December 2005 until January 2010, when she was promoted to her current position of Senior Vice President and Chief Information Officer. Ms. Day has 19 years of experience in Sysco’s information technology department and has been a corporate officer since 2000. With respect to fiscal 2011, we paid Ms. Day a base salary of $330,000, and she received a MIP bonus of $231,000, which we paid in August 2011, following adjustment of the MIP bonus criteria to exclude certain charges related to Sysco’s partial withdrawals from a multi-employer pension plan. In August 2010, Ms. Day received a $14,779 payment with respect to the September 2007 CPU grant. No payment was made in August 2011 with respect to the September 2008 CPU grant because the minimum performance criteria were not satisfied. Ms. Day received a new CPU grant in November 2010 of 243,600 units with a target value of $1.00 each, which will be payable following conclusion of fiscal 2013 if all specified criteria are met. See “Executive Compensation — Cash Performance Unit Plans.” In November 2010, Ms. Day received a grant of stock options to purchase 42,000 shares of common stock and 8,500 restricted stock units pursuant to our 2007 Stock Incentive Plan. The options had a grant date fair value as calculated in accordance with Accounting Standards Codification (ASC) 718, “Compensation — Stock Compensation” of $167,160 and the restricted stock units were valued at $245,395, based on the closing price of Sysco common stock on the last business day prior to grant of $28.87 per share. In November 2010, 1,000 restricted stock units that were granted to Ms. Day in November 2009 fully vested. Ms. Day is included with other MIP participants under the fiscal 2012 MIP program, with target and maximum bonus percentages equal to those of the named executive officers. See “Executive Compensation — Management Incentive Plan and Fiscal 2011 Discretionary Bonuses.” She is also a participant in the SERP, the EDCP and other regular and customary employee benefit plans, programs and benefits generally available to our officers, including those described in the “Compensation Discussion and Analysis” section, under the heading “Benefits, Perks and Other Compensation.”

 

The Corporate Governance and Nominating Committee has approved all of the above transactions in accordance with the disclosed policies and procedures.

 

The following table sets forth certain information regarding equity compensation plans as of July 2, 2011.

 

 

 

 

Introduction

 

Sysco is the global leader in selling, marketing and distributing food products, equipment and supplies to the foodservice industry. As such, our long-term success depends on our ability to attract, retain and motivate highly talented individuals who are committed to Sysco’s vision and strategy. One of the key objectives of our executive compensation program is to link executives’ pay to their performance and their advancement of Sysco’s overall performance and business strategies. Other objectives include aligning the executives’ interests with those of stockholders and encouraging high-performing executives to remain with Sysco over the course of their careers. The five Sysco executives who are identified in the Summary Compensation Table are referred to as our “named executive officers.” We believe that the amount of compensation for each named executive officer reflects extensive management experience, continued high performance and exceptional service to Sysco and our stockholders.

 

Executive Summary

 

The Committee, in consultation with management and the Committee’s independent compensation consultant, Compensation Advisory Partners, referred to herein as CAP, continues to focus on ensuring that our executive compensation programs reflect pay for performance and enhance shareholder value, and the Committee believes that it accomplished this during fiscal 2011 despite challenging economic conditions. Notwithstanding these challenging conditions, Sysco’s management team has kept its full attention on servicing our customers and effectively managing expenses, resulting in solid financial performance for fiscal 2011, including the following:

 

 

Recent changes to Sysco’s executive compensation programs approved by the Committee include the following:

 

For fiscal 2011,

 

 

For fiscal 2012,

 

 

Oversight of the Executive Compensation Program

 

Unless the context indicates otherwise, references to the “Committee” in this Compensation Discussion and Analysis and the executive compensation section following it refer to the Compensation Committee of Sysco’s Board of Directors. The Committee determines and approves all compensation of the Chief Executive Officer, or CEO, and Sysco’s other senior officers, including the named executive officers. Although the Compensation Committee meets jointly with the Corporate Governance and Nominating Committee to discuss both the CEO’s personal goals and his performance in achieving such goals in each fiscal year, the Compensation Committee solely approves all compensation awards and payout levels. The Committee develops and oversees programs designed to compensate our corporate officers, including the named executive officers, as well as the presidents and executive vice presidents of our operating companies. The Committee is also authorized to approve all grants of restricted stock, restricted stock units, stock options and other awards to executive officers under our equity-based incentive plans for Sysco employees. Further information regarding the Committee’s responsibilities is found under “Committees of the Board” and in the Committee’s Charter, available on the Sysco website at www.sysco.com under “Investors — Corporate Governance — Committees.”

 

For fiscal 2011, the Committee retained CAP as its compensation consultant. See “Corporate Governance and Board of Directors Matters — Compensation Consultant” for a discussion of the role of CAP. Except as otherwise described below, all of the Committee’s executive compensation decisions discussed in this Compensation Discussion and Analysis were made by the Committee, following consultation with CAP, and upon the recommendation of management, without modification.

 

Executive Compensation Philosophy and Core Principles

 

Historically, our executive compensation plans have directly linked a substantial portion of annual executive compensation to Sysco’s performance. These plans are designed to deliver superior compensation for superior company performance; likewise, when company performance falls short of expectations, certain programs deliver lower levels of compensation. However, the Committee tries to balance pay-for-performance objectives with retention considerations, so that even during temporary downturns in the economy and the foodservice industry, the programs continue to ensure that successful, high-achieving employees remain at Sysco. Furthermore, to attract and retain highly skilled management, our compensation program must remain competitive with that of comparable employers who compete with us for talent.

 

The following key principles are the cornerstone of Sysco’s executive compensation philosophy:

 

 

Sysco’s compensation structure has historically included conservative salaries, while placing a significant portion of the premium annual incentives at risk.

 

The value of two of the three components of Sysco’s longer-term incentives, stock options and cash performance units, depend entirely upon Sysco’s performance and Sysco’s stock price over a period of multiple years. In addition, whether or not the annual MIP bonus is paid, and the amount of any such payment, is also wholly dependent on Sysco’s performance. These three performance-based components constituted approximately 62.7% of the actual total direct compensation for fiscal 2011 for each of the named executive officers. For this purpose, longer-term incentives include the following fiscal 2011 grants: stock options valued using an approximation of a Black-Scholes value, restricted stock units valued at the fair market value of Sysco stock on the date of grant and cash performance units valued at $1.00 per unit with assumed payout at the 100% target amount.

 

The Committee supports executive performance and retention by using continued service as a significant determinant of total pay opportunity. For example, in order to receive full vesting under the most commonly applicable vesting provision of the Supplemental Executive Retirement Plan, or SERP, an executive must be at least 55 years old, have at least 15 years of MIP service and have combined age and MIP service totaling 80, such as a 60 year old with 20 years of MIP service. Sysco also

includes time-based factors in its longer-term incentives, with outstanding option grants generally vesting over a period of five years, outstanding restricted stock unit awards vesting over three years, and cash performance unit payouts based on a three-year performance period. We believe that Sysco’s compensation strategies have been effective in promoting performance and retention and are aligned with our company culture, which places a significant value on the tenure of high-performing executives.

 

In developing our pay for performance policies, the Committee generally benchmarks elements of pay against a comparison peer group, discussed under “— External and Internal Analysis” below. However, the Committee has not historically had an exact formula for allocating between fixed and variable, cash and non-cash, or short-term and longer-term compensation, allowing it to incorporate flexibility into our annual and longer-term compensation programs and adjust for the evolving business environment. The Committee has identified, and continues to focus on, the following long-term goals:

 

 

The Committee intends to achieve these goals through, and has built the executive compensation program upon a framework that includes, the following components, each of which is described in greater detail later in this Compensation Discussion and Analysis:

 

Fiscal 2011 Compensation Focus

 

Based on CAP’s May 2010 benchmarking of Sysco’s pay and performance against the peer group discussed below, fiscal 2010 total cash compensation (2010 base salary plus actual 2010 MIP bonus) was positioned near the 25^th percentile for Messrs. DeLaney and Kreidler and near the 75^th percentile for the other named executive officers, while total direct compensation (total cash compensation plus the value of stock options, RSUs and CPU grants with respect to fiscal 2010) paid by Sysco for fiscal 2010 was positioned below the bottom 25^th percentile of the peer group for Mr. DeLaney and between the 25^th percentile and the median for the other named executive officers. In comparison, Sysco’s performance relative to the peer group, based on an assessment of revenue, earnings per share, and return on invested capital, as well as total stockholder return over the four quarters ending March 31, 2010, was positioned near the median of the peer group. As a result, the Committee focused in fiscal 2011 on adjusting the MIP bonus criteria to provide for the payment of a bonus upon obtaining performance that more closely correlates with the peer group median. In addition, beginning in fiscal 2011, at the recommendation of CAP, the Committee began to focus on increasing base salaries, decreasing annual incentive opportunities, maintaining competitive long-term incentives, and targeting total direct compensation between the median and the 75^th percentile, subject to ensuring alignment between financial results and total pay delivered.

 

In preparation for fiscal year 2012, the Committee undertook a redesign of the MIP in order to improve the extent to which plan targets reflect solely its assessment of market conditions, operating expectations, and other relevant factors. In addition the Committee modified pay mix in order to strike a more appropriate balance between participants’ long- and short- term orientation to the business. This has been accomplished through selective base salary increases, reduced annual incentive opportunities, and maintenance of competitive long term incentives with total direct compensation targeted between the median and 75^th percentile when expected financial results are met.

 

External and Internal Analysis

 

For the compensation package to be effective, the Committee must balance the components so that they are both externally competitive and internally equitable.

 

External Analysis

 

Sysco is the largest foodservice distributor in North America, and other companies in the foodservice industry are significantly smaller, with many of such companies also being privately-held. We believe that these smaller businesses would not create a satisfactory comparison group due to the greater skill levels and abilities required to manage a public company of Sysco’s size. Absent an industry peer group, the Committee concluded that the most comparable companies with respect to executive pay are companies whose business size and complexity are similar to ours and with which we compete for top executive positions. Therefore, the peer group developed for the executive compensation analysis is not the same peer group that is used in the stock performance graph in our annual report to stockholders.

 

In order to implement these conclusions regarding external comparison of executive pay, the Committee recommended that Sysco’s management work with CAP to construct a peer group for Sysco’s executive compensation analysis. The peer group utilized by the Committee for fiscal 2011 and fiscal 2012 (through August 2011) executive compensation decisions was the same peer group used for all decisions made during fiscal 2010. The companies included in the peer group are as follows:

 

 

Based on the most recent fiscal year data available, this group had the median market capitalization and revenue levels shown below:

 

 

Sysco’s market capitalization was $18.6 billion as of July 2, 2011 and its revenues were $39.3 billion for fiscal 2011.

 

Peer group compensation data is limited to information that is publicly reported and, to the extent it deems appropriate, the Committee uses it to benchmark the major components of compensation for our named executive officers. The Committee

consulted the following compensation studies in connection with its compensation decisions discussed in this Compensation Discussion and Analysis:

 

 

For purposes of the reports listed above:

 

 

Internal Analysis

 

With respect to annual salary and the various incentive awards available to the named executive officers, the Committee does not perform a formal internal equity analysis, but does consider the internal equity of the compensation awarded by utilizing comparisons within the Sysco organization.

 

Internal Pay Equity

 

On an annual basis, the Committee compares the CEO’s compensation with that of the Executive Vice Presidents to ensure that the CEO compensation, as well as its relationship to the compensation of the CEO’s direct reports, is reasonable. The Committee makes similar evaluations among the Executive Vice Presidents and Senior Vice Presidents. These comparisons only provide a point of reference, as the Committee has not typically used specific formulas to determine compensation levels, which reflect the responsibilities of a particular officer position. Although officers at different levels of the organization receive a different percentage of their base salary as payment of the MIP bonus, the financial performance criteria used for most corporate officers, including the named executive officers, for payment of the bonus are identical.

Annual Compensation

 

Base Salary

 

The table below shows the salaries of each named executive officer at the beginning of fiscal 2010, 2011 and 2012 and the percentage change from period to period:

 

 

 

 

Base Salary Analysis

 

Fiscal 2011 Base Salary

 

Beginning in May 2010, the Committee determined that it will generally review salaries in May of each year and set them for the following fiscal year. Since May 2011, the Committee has been making base salary and annual MIP bonus decisions at the same meeting, and has considered how each executive’s salary affects the other elements of his total cash compensation and total compensation, as well as the impact on future benefits under the SERP.

 

As of May 2010, the current named executive officers had not received regular salary increases since January 2008 except for Mr. DeLaney, who had received salary increases in connection with his promotion to the CEO position, and Mr. Hope, who received an increase in January 2010 in connection with his promotion to Executive Vice President. Given the improvement in economic conditions during fiscal 2010, and after considering each executive’s performance during the year and recent company performance, as well as each executive’s job responsibilities, management experience, individual contributions, number of years in his or her position and current salary, the Committee determined that it was appropriate to grant the salaries shown in the Summary Compensation Table. This action placed the fiscal 2011 base salaries of Messrs. DeLaney, Green and Kreidler below the 25^th percentile relative to the peer group and those of Messrs. Pulliam and Hope between the 25^th percentile and the median of the peer group.

 

Fiscal 2012 Base Salary

 

Given the continuing improvement in economic conditions during fiscal 2011, each executive’s performance during the year and recent company performance, as well as each executive’s job responsibilities, management experience, individual contributions, number of years in his or her position and current salary, the Committee determined that it was appropriate to grant the salary increases described in the chart above. With respect to Mr. DeLaney, the Committee provided an increase as part of its plan to make his pay package more competitive at the Chief Executive Officer level with Sysco’s peer group as his tenure and experience in the CEO role increased. With respect to the other named executive officers, these increases were recommended by CAP and were driven by the Committee’s intent to modify pay mix in order to strike a more appropriate balance between fixed and variable and short- and long-term pay components and to more closely align them with the philosophy and principles outlined above at “— Executive Compensation Philosophy and Core Principles.” These increases placed the fiscal 2012 base salary of Mr. Green at the median, those of Messrs. Pulliam and Hope between the 25^th percentile and median and those of Messrs. DeLaney and Kreidler near the 25^th percentile of the peer group.

 

Annual Bonus

 

The MIP is designed to offer opportunities for compensation tied directly to annual and/or multi-year company performance. Under the terms of the MIP, we pay the annual bonus in cash with payments made in the first quarter of the fiscal year for bonuses earned with respect to performance in the prior fiscal year. The Committee made the fiscal 2011 MIP grants in May 2010 pursuant to the 2009 plan and the fiscal 2012 grants in August 2011 pursuant to the 2009 plan. For further detail regarding the 2009 plan, see “Executive Compensation — Management Incentive Plan and Fiscal 2011 Discretionary Bonuses.”

Each year the Committee approves MIP agreements that are entered into between Sysco and each of the named executive officers. In May 2010 and August 2011, the Committee approved bonus agreements with each of the named executive officers for fiscal 2011 and 2012, respectively. Payouts for Sysco’s CEO and Executive Vice Presidents under the MIP agreements for each of the last five fiscal years are shown below. Excluding Mr. Kreidler’s prorated payout for fiscal 2010, but including the fiscal 2011 discretionary performance-based bonus discussed below. This resulted in an average annual payout for the top corporate officers during the last five fiscal years of approximately 167% of their salary with respect to annual bonuses.

 

Fiscal 2007		Approximately 300% of salary
Fiscal 2008		Approximately 275% of salary
Fiscal 2009		0% of salary
Fiscal 2010		190% of salary in fiscal 2010 (except for Mr. Kreidler, who received a prorated payout for fiscal 2010)
Fiscal 2011		0% of salary under MIP; 68.6-70% of salary with respect to discretionary performance-based bonus

 

Fiscal 2011

 

MIP

 

The named executive officers’ fiscal 2011 MIP bonus calculation was based solely on the following corporate financial objectives, adjusted as described below:

 

 

In approving the agreements for fiscal 2011, the Committee generally targeted each named executive officer’s MIP bonus at approximately 150% of his base salary, as compared to 200% for fiscal 2010. The fiscal 2011 bonus agreements provided for a minimum bonus payout upon an increase in diluted earnings per share of at least 2% and a three-year average return on capital of at least 11%. This was a change from the fiscal 2010 agreements, which provided for a minimum bonus upon an increase in diluted earnings per share of at least 4% and three-year average return on capital of at least 10%. Varying levels of performance would have earned varying levels of bonus between 20% and a maximum of 250% of base salary, as opposed to a maximum of 330% of base salary in fiscal 2010. The various levels of performance and the percentage of base salary they would have yielded as a bonus are set forth in the table described under “Executive Compensation — Management Incentive Plan and Fiscal 2011 Discretionary Bonuses.”

 

In the first and third quarters of fiscal 2011, management approved an aggregate $41.5 million expense for Sysco’s partial withdrawal from an underfunded multi-employer pension plan, or MEPP, in which Sysco employees participated. The withdrawal was determined by management, in consultation with the Board, to be in the best interests of Sysco by significantly reducing stockholder exposure to an uncertain and underfunded potential obligation. The result of the withdrawal was an aggregate of $41.5 million charged to earnings during fiscal 2011, with a corresponding $.04 per share reduction in Sysco’s diluted earnings per share in fiscal 2011. Primarily as a result of these charges, GAAP diluted earnings per share for fiscal 2011 did not meet the minimum increase threshold established by the MIP, and the named executive officers did not earn a MIP bonus in fiscal 2011. If not for these charges, the named executive officers would have earned a non-discretionary MIP bonus at the 70% level.

 

The Committee amended Mr. DeLaney’s fiscal 2011 bonus agreement in August 2010 to provide that, in addition to satisfying the objective performance goals, 20% of his total fiscal 2011 MIP bonus was also subject to his having achieved specified non-financial goals. See “Executive Compensation — Management Incentive Plan and Fiscal 2011 Discretionary Bonuses.”

 

Discretionary Performance-Based Bonuses

 

For the reasons discussed at “— Annual Bonus Analysis-Fiscal 2011-Discretionary Performance-Based Bonuses,” below, the Compensation Committee awarded the named executive officers the following discretionary performance-based bonuses for

fiscal 2011 based on Sysco’s achievement of certain financial performance criteria and the named executive officers’ achievement of certain non-financial performance goals:

 

 

The discretionary performance-based bonuses are subject to Sysco’s incentive clawback policy. In the event the Committee determines within thirty-six (36) months of the payment of the discretionary performance-based bonuses that the factors upon which they were paid have materially changed, including but not limited to a restatement of financial results other than as the result of a change in accounting policy, then the Committee has the right to recoup from each of the named executive officers the amount determined by the Committee, in its sole and absolute discretion, provided that such amount shall not exceed the amount of the discretionary bonuses paid to the named executive officers.

 

Fiscal 2012

 

With the exception of Mr. DeLaney, the named executive officers will earn a fiscal 2012 bonus equal to the sum of the following:

 

 

We refer to this calculation as the Objective Performance Bonus Calculation. Mr. DeLaney’s fiscal 2012 bonus is subject to a maximum amount that is equal to 110% of the Objective Performance Bonus Calculation.

 

The calculation of the adjusted results with respect to each of the performance measures will exclude from each of these measures the following items, the returns from which are generally expected to be outside fiscal 2012: expenditures relating to Sysco’s Business Transformation Project, the impact of major acquisitions and divestitures and any withdrawals by Sysco operating companies from multi-employer pension plans. The Compensation Committee has the discretion to include certain of these excluded items, but only if such inclusion would not cause a named executive officer’s MIP bonus to become non-deductible for federal income tax purposes pursuant to Section 162(m) of the Internal Revenue Code.

 

These three bonus measures are independent of each other, and one portion of the bonus may be earned even if the threshold level of one or both of the other measures is not achieved. If the threshold requirements for one or more of the bonus measures are not met, those portions of the bonus will not be paid.

 

Mr. DeLaney’s fiscal 2012 MIP bonus is initially calculated as equal to the maximum bonus of 110% of the unadjusted Objective Performance Bonus Calculation. The Committee then has the discretion to adjust Mr. DeLaney’s bonus, using as a base the unadjusted Objective Performance Bonus Calculation, as described below. The Committee may adjust the Objective Performance Bonus Calculation to achieve the adjusted bonus based on Mr. DeLaney’s performance with respect to the following non-financial performance goals:

 

 

If Mr. DeLaney’s performance with respect to the above non-financial performance goals meets the target levels established by the Committee, Mr. DeLaney’s fiscal year 2012 adjusted bonus will equal 100% of the Objective Performance Bonus Calculation. If Mr. DeLaney’s performance with respect to the above goals exceeds the target levels established by the Committee, Mr. DeLaney’s fiscal year 2012 adjusted bonus will equal between 100% of the Objective Performance Bonus Calculation and the maximum bonus amount, as determined in the Compensation Committee’s discretion. If Mr. DeLaney’s performance is below the target levels of performance established by the Committee, Mr. DeLaney’s fiscal 2012 adjusted bonus will equal between 80% — 100% of the Objective Performance Bonus Calculation, as determined in the Compensation Committee’s discretion. In no event will Mr. DeLaney’s fiscal 2012 Management Incentive Plan bonus exceed the maximum bonus amount. The Committee believes that any bonus paid to Mr. DeLaney pursuant to the fiscal 2012 award will satisfy the requirements for deductibility for federal income tax purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder.

 

In approving the agreements for fiscal 2012, the Committee targeted each named executive officer’s MIP bonus at the following percentages of base salary: 150% for Mr. DeLaney, 125% for Messrs. Green and Pulliam and 100% for Messrs. Kreidler and Hope. The fiscal 2012 awards are also subject to clawback provisions that provide that, subject to applicable governing law, all or a portion of the bonus paid pursuant to the 2012 awards may be recovered by Sysco if there is a restatement of our financial results, other than a restatement due to a change in accounting policy, within 36 months of the payment of the bonus and the restatement would result in the payment of a reduced bonus if the bonus was recalculated using the restated financial results. The Committee has the sole discretion to determine the form and timing of the repayment. See “— Potential Impact on Compensation of Financial Restatements.”

 

Annual Bonus Analysis

 

Fiscal 2011

 

MIP

 

Sysco’s executive management team prepared the grids used for calculating the earnings per share and average three-year return on capital components of the fiscal 2011 MIP bonuses. With respect to the fiscal 2011 grants, the Committee asked management to modify the performance/payout grid in order to provide a closer correlation between Sysco financial performance and MIP plan payouts than had been the case in prior years. For example, it was the Committee’s intent to avoid a repeat of fiscal 2009, when Sysco performed at the median level relative to its peers but did not pay any bonus because minimum thresholds were not met. This resulted in the performance and payout changes discussed above. The change in the target bonus level from 200% to 150% of base salary, when taken into consideration with the May 2010 base salary increases, was intended to move target total cash compensation nearer to the median for all of the current named executive officers, other than Mr. DeLaney, whose target total cash compensation remained near the 25th percentile. The Committee lowered the maximum payout to 250% of base salary because it felt this was a more reasonable maximum in the event of superior company performance. The Committee also asked CAP to validate minimum, average and superior performance expectations under the revised fiscal 2011 grid to ensure that bonus payout levels would be commensurate with performance.

 

The Committee continues to believe that target bonus levels should only be earned based upon superior performance, and target bonus levels were not set to coincide with expected or average performance. Based upon the CAP May 2010 report, target total cash compensation for fiscal 2011 for Messrs. Green, Pulliam and Hope was between the median and 75th percentile of the peer group. The Committee determined that these target payouts were appropriate in light of the expanded performance payout grid that now provides for bonus payouts at lower performance levels so that payouts will more closely correspond to performance, while median and above-median payouts would only be earned in the case of superior performance. Even after factoring in his base salary increase, Mr. DeLaney’s target total cash compensation for fiscal 2011 remained near the 25th percentile, as the Committee continued to believe that it was appropriate to gradually increase Mr. DeLaney’s compensation as his tenure in the CEO position increases. Mr. Kreidler’s target total cash compensation for fiscal 2011 was only somewhat above the 25^th percentile, which the Committee believed was appropriate since his tenure with Sysco had been relatively short.

 

The Committee amended Mr. DeLaney’s fiscal 2011 bonus agreement as described above following the Board’s annual strategy session because the Committee believes that non-financial goals are extremely important in evaluating the CEO’s performance and that they should therefore also have an impact on his MIP bonus. The performance goals were chosen by the Committee based on the critical components of Sysco’s overall strategy as set out by management and the Board.

Discretionary Performance-Based Bonuses

 

The Committee approved the discretionary bonuses after careful consideration, based on the multiple factors discussed below. During fiscal 2011, Sysco was presented with two unique opportunities to partially withdraw from an underfunded multi-employer pension plan, or MEPP, for an aggregate amount of approximately $41.5 million. The Board supported management’s decision to partially withdraw from the MEPP, as this action significantly reduced stockholder exposure to this uncertain and underfunded potential obligation. When the fiscal 2011 bonus program was established, these opportunities had not been anticipated or considered, and thus the impact of the approximately $41.5 million expenditure resulted in the named executive officers not earning MIP bonuses for fiscal 2011 in accordance with their respective bonus agreements. After taking these actions into consideration, in addition to the management team’s collective responsibility in leading Sysco to achieve the following fiscal 2011 financial performance:

 

 

the Committee made the determination to award discretionary bonuses to the named executive officers in the same amounts that they would have received under the fiscal 2011 MIP bonus agreements but for the impact of the MEPP buyouts, subject to adjustment with respect to Mr. DeLaney. This resulted in Messrs. Kreidler, Green, Pulliam and Hope receiving discretionary bonuses equal to 70% of their base salary, or 46.7% of their target bonuses. The Compensation Committee reviewed Mr. DeLaney’s fiscal 2011 performance, including his satisfaction of his pre-established non-financial goals, and determined that Mr. DeLaney had performed well with respect to each of these goals, although the Committee did note that the expected costs of and time to complete the Business Transformation Project had increased. Although Mr. DeLaney did not earn an MIP bonus, the Committee nonetheless applied the non-financial criteria of the MIP bonus in determining the amount of his discretionary bonus and awarded him a bonus equal to 68.6% of his base salary, or 45.7% of his target bonus.

 

The Committee approved these discretionary bonuses after taking into consideration the anticipated value of the compensation to the named executive officers that will not be deductible for federal income tax purposes for fiscal 2011 as a result of payment of the discretionary bonuses, in accordance with Section 162(m) of the Internal Revenue Code. The Committee considers this loss of the deduction to be warranted in light of the benefits to Sysco and its shareholders of appropriately compensating and incentivizing the named executive officers. CAP confirmed to the Committee that the size of the discretionary performance-based bonuses was reasonable based on Sysco’s underlying fiscal 2011 performance.

 

Fiscal 2012

 

The Committee determined in August 2011 that it would begin to move toward an annual incentive program with performance benchmarks derived from an assessment of market conditions, operating expectations, and other relevant factors. This contrasts with the prior practice of linking targets to the prior year’s results. CAP has informed the Committee that this approach is more in line with the majority of Sysco’s peer group. The fiscal 2012 program is meant to be transitional, in that it still requires an increase in the performance criteria relative to fiscal 2011 for earnings growth and sales growth, but significant changes were made from fiscal 2011, as discussed above. The Committee added the sales component in order to bring the bonus program more in line with Sysco’s peer group, and the change from three year average return on invested capital to an annual calculation was recommended by management and was driven by the inclusion in the fiscal 2012 program of the ability to adjust for major acquisitions and other unusual events, minimizing the need to normalize results over a three-year period. The decision to pay the bonus for each performance component separately, regardless of whether the threshold for the others is achieved, was driven by market practice. The changes in the threshold and maximum bonus levels were based on benchmarking of the peer group. The Committee determined to exclude the extraordinary items described above because they represent items that generally involve current period costs that do not result in benefits until later periods, or vice versa. In light of the foregoing, Sysco’s executive management team prepared the earnings per share, sales and return on capital components of the fiscal 2012 MIP bonuses. It was both management’s and the Committee’s intent to create a bonus formula that will be more likely to pay an annual bonus in the event Sysco performs at the median level relative to its peers than may have been the case with respect to prior year bonus formulas; however, as discussed above, fiscal 2012 is a transitional year, so in addition to basing performance levels on Sysco’s internal projections, increases from the prior year were also imposed at the threshold level. The Committee believes that the threshold and target levels of performance represent challenging but reasonably obtainable Sysco performance while levels in excess of the target level represent exemplary and extremely challenging performance. The reductions in the target bonus levels for each of the named executive officers other than Mr. DeLaney were driven by the Committee’s express goal of increasing base salaries to move them closer to the median and decreasing annual incentives in order to bring the pay mix

closer to the norm of the peer group, in accordance with the philosophy and principles outlined above at “— Executive Compensation Philosophy and Core Principles” and ensure that total cash compensation does not significantly exceed the median unless outstanding performance levels are reached. The Committee did not reduce Mr. DeLaney’s target bonus level because, after taking into account his salary increase, the 150% target bonus provides a target total cash compensation amount at approximately the median of the peer group. The Committee also asked CAP to validate threshold, target and maximum performance expectations under the revised fiscal 2012 program to ensure that bonus payout levels would be commensurate with performance.

 

Based upon the CAP May 2011 report, target total cash compensation for fiscal 2012 for each of the named executive officers compared as follows with respect to the comparable peer group position: Mr. DeLaney and Mr. Hope — near the median, Mr. Kreidler — near the 25^th percentile, and Messrs. Green and Pulliam — between the median and 75^th percentile. The Committee determined that these target payouts were appropriate in light of the Committee’s goal of ensuring that Sysco performance and MIP bonus payouts are properly correlated.

 

For the reasons discussed above with respect to fiscal 2011, the Committee continues to believe that non-financial goals are extremely important in evaluating the CEO’s performance and that they should therefore also have an impact on his MIP bonus. The performance goals for fiscal 2012 were chosen by the Committee based on the critical components of Sysco’s overall strategy as set out by management and the Board. The Committee determined that Mr. DeLaney’s fiscal 2012 bonus should be subject to adjustment based on the non-financial criteria discussed above as a result of the desire to link his pay to his performance and advancement of Sysco’s overall performance and business strategies.

 

Longer-Term Incentives

 

The Committee granted fiscal 2011 longer-term incentives in November 2010. These incentives consisted of three-year cash performance units, stock options and restricted stock units. For details regarding these grants see “Executive Compensation — Cash Performance Unit Plan,” “Executive Compensation — Outstanding Equity Awards at Fiscal Year-End,” and “Executive Compensation — Grants of Plan-Based Awards.”

 

During fiscal 2011, the named executive officers received approximately 50% of the value of their longer-term incentives in stock options, approximately 25% in cash performance units (“CPUs”), and approximately 25% in grants of restricted stock units (“RSUs”), with the options valued using an approximation of the Black-Scholes value, CPUs valued at the target level of $1.00 per unit and each RSU valued at the closing price of Sysco common stock on the business day prior to the grant.

 

Cash Performance Units

 

Under the Sysco Corporation 2008 Cash Performance Unit Plan, as amended, participants in the MIP have the opportunity to receive cash incentive payments based on Sysco’s performance over a three-year period. We pay any awards earned under these plans in cash rather than in Sysco stock or stock units. CPU grants are forward-looking and the grant of CPUs typically does not take into account prior Sysco or individual performance. The payout on CPUs is based on Sysco’s actual performance over the three-year performance cycle beginning with the fiscal year in which the CPU is granted. In November 2010, the Committee granted three-year cash performance units under the 2008 plan. In addition, the cash performance units that we issued in September 2007 under the 2004 Cash Performance Unit plan were paid out in August 2010. The cash performance units that we issued in September 2008 under the 2004 plan to corporate participants did not satisfy the minimum criteria necessary to receive a payment in August 2011.

 

The CPU grants that the Committee made in September of 2008 and November of 2009 related to the respective three-year performance periods ending in fiscal 2011 and 2012, and each has a value of $35 per unit with the same payout possibilities, ranging from 25% to 150% of the total value of the units granted in each year. For each of the named executive officers, one-half of the payout was based on the average growth in diluted earnings per share and one-half of the payout was based on the average increase in sales. Achievement of the target would have yielded a 100% payout, while the minimum satisfaction of only one criterion would have yielded a 25% payout and maximum performance above target on both criteria would have provided a 150% payout. The Committee took the total value that was targeted at 100% payout for CPUs for a given level of participant and divided by the $35 value assigned to each unit to determine the number of units to be granted to each participant. We believe that the minimum and target amounts under the CPUs have historically been achievable, although the maximum payout would generally be difficult to obtain at the corporate level and for most of our subsidiaries. In order for generally accepted accounting principles to be applied consistently year-over-year, the performance measures for the CPUs may be calculated slightly differently from those in our financial statements. For each of the September 2008 and November 2009 grants, the Committee used the same performance criteria, except that the CPU grants made in November 2009 decreased the threshold, target and

maximum sales performance measures, and the threshold, target and maximum diluted earnings per share performance measures relative to the September 2008 grants.

 

The terms of the CPU grants that the Committee made in November 2010 are identical to those of the November 2009 grants, except that each unit was assigned a value of $1.00.

 

Our adjusted sales growth over the three-year performance period ended on July 2, 2011 was 1.6% and our average growth in diluted earnings per share over the performance period was 2.8%, neither of which satisfied the minimum criteria necessary for a payout.

 

The specific performance measures and related potential payouts for the September 2008, November 2009 and November 2010 corporate grants are shown under “Executive Compensation — Cash Performance Unit Plans.”

 

With respect to the CPUs to be granted in November 2011, the Committee currently intends to replace the previous performance criteria with a measure based on Sysco’s total shareholder return over the three fiscal year performance period including fiscal 2012, 2013 and 2014 relative to that of the S&P 500. Based upon where Sysco’s total shareholder return for that period falls relative to the other S&P 500 companies, CPUs are expected to pay at a rate of from 50% to 150% of the aggregate value of the CPUs, which are valued at $1 per unit. The threshold payment level is expected to require Sysco’s total shareholder return for the three fiscal year performance period to equal or exceed that of the 30th percentile of the S&P 500, and the maximum payment level is expected to be reached at the 75th percentile, with graduated bonus levels in between. These grants are expected to be subject to Sysco’s clawback policies. See “Executive Compensation — Cash Performance Unit Plans” for an explanation of the calculation of total shareholder return.

 

Stock Options and Restricted Stock Units

 

The Committee approved the fiscal 2011 stock option and restricted stock unit grants to the named executive officers in November 2010 under our 2007 Stock Incentive Plan, as amended. The specific grants made in November 2010 are shown under “Executive Compensation — Grants of Plan-Based Awards.” The 2007 Stock Incentive Plan calls for options to be priced at the closing price of our common stock on the business day prior to the grant date, and the fiscal 2011 option grant agreement provides for ratable vesting over a five-year period. The fiscal 2011 restricted stock unit grant agreement provides for ratable vesting over a three-year period.

 

The Committee grants all of our stock options and restricted stock units pursuant to our equity grant guidelines. These guidelines are more fully described under “Executive Compensation — Outstanding Equity Awards at Fiscal Year-End.”

 

Longer-Term Incentive Analysis

 

The Committee determined the fiscal 2011 mix of CPUs, stock options and restricted stock units, in order to bring the longer-term incentives more in line with those disclosed by the peer group companies and to provide further alignment of the executives’ interests with those of the stockholders. For purposes of estimating the aggregate value of the longer-term incentives granted to the named executive officers in fiscal 2011, the Committee used the closing price of the common stock on the last business day before the date of grant for RSUs, the target payout for the CPUs and an estimated Black-Scholes value for stock options. However, after consideration of Sysco’s overall stock incentive usage, the Committee attributed a higher value to options, resulting in a decrease in the number of options actually granted. These values placed each named executive officer other than Mr. DeLaney between the 25th percentile and the median of the peer group with respect to longer-term incentives and target total direct compensation, and placed all of the named executives except Messrs. DeLaney and Pulliam between the 25th percentile and the median of the peer group with respect to target total direct compensation plus retirement. Mr. Pulliam’s total direct compensation plus retirement was between the 25^th percentile and the median. These results were consistent with the Committee’s focus of providing competitive longer-term incentives while also moving total direct compensation and total direct compensation plus retirement closer to the median. Despite significant increases in the size and value of Mr. DeLaney’s longer-term incentive grants, his longer-term incentive compensation, target total direct compensation and target total direct compensation plus retirement remained below the 25th percentile of the peer group, as the Committee had determined that his pay package should be made competitive at the Chief Executive Officer level with Sysco’s peer group as his tenure and experience in the CEO role increased.

 

The minimum, target and maximum performance criteria levels and the potential payouts for the CPU awards made in November 2010 for the three-year performance period ending in fiscal 2013 were identical to those of the awards made in November 2009 for the three-year performance period ending in fiscal 2012. The Committee continued these performance levels based on the Committee’s acknowledgment of the continuing challenges facing Sysco. In the prior year, the Committee had approved lowering the minimum, target, maximum and other payout levels for the grants made in November 2009 as

compared to the fiscal 2009 grants, due to the impact of the economic downturn and the increased difficulty faced by Sysco in growing sales and earnings per share. The Committee changed the nominal value of each CPU from $35 to $1.00 for administrative purposes, and this change did not impact the aggregate dollar value of each named executive officer’s CPU grants. With respect to the currently proposed November 2011 CPU grants, the Committee determined to switch to the total shareholder return measure due to the desire to continue to link the interests of management with the interests of the stockholders. The Committee chose the various performance levels, including the threshold and maximum, based on an analysis of our peer group market practices.

 

The Committee believes that option and restricted stock unit grants benefit employee performance and retention, particularly in years in which Sysco’s performance does not create high cash compensation. They also help to ensure that longer-term strategic initiatives are not compromised by having executives focus solely on short-term profitability for payment of the annual bonus. Sysco’s long-term performance ultimately determines the value of stock options and restricted stock units, because their value is directly correlated with the long-term appreciation of our stock price. The Committee believes that this longer-term focus benefits Sysco and its stockholders, as it more closely aligns the executives’ interests with those of stockholders and focuses executives on strategies that increase long-term stockholder value. Existing ownership levels are not generally a factor in the Committee’s granting of options and restricted stock units, because it does not want to discourage executives from holding significant amounts of Sysco stock; however, the Committee does consider stock ownership requirements when determining the size of equity grants. The Committee chose to include restricted stock units, rather than shares of restricted stock, as a portion of the annual longer-term incentive grant primarily after considering the potentially negative tax withholding impact of restricted stock grants to retirement eligible executives.

 

Pursuant to our equity grant guidelines in effect prior to August 2011, the Committee would generally make option and restricted stock unit grants on the second Tuesday in November each year. This is a date when we are typically in a trading “window” under our Policy on Trading in Company Securities. For fiscal 2011, this would have meant a grant date of November 9, 2010; however, after careful consideration, the Committee determined that it was appropriate and in the best interests of Sysco and its stockholders to issue the fiscal 2011 equity awards on Thursday, November 11, 2010, when the Committee and Board of Directors held their regular meetings. The Committee made this modification in light of the fact that the revised date was during a normal trading window and would not conflict with a scheduled trading blackout period, and that, as of such date, the Committee anticipated that Sysco would have publicly disseminated all material information likely to affect the trading price of Sysco’s common stock. In August 2011, the Committee revised our equity grant guidelines to provide that grants may generally be made during any open trading window pursuant to our Policy on Trading in Company Securities, subject to certain conditions and qualifications. The Committee believes that this change provides additional flexibility while continuing to ensure that options and other equity awards are fairly priced and valued. See “Executive Compensation — Outstanding Equity Awards at Fiscal Year-End” for a more detailed discussion of our equity grant guidelines.

 

Retirement/Career Incentives

 

Supplemental Executive Retirement Plan

 

We provide annual retirement benefits to all corporate employees and most of our non-union operating company employees under the broad-based tax-qualified Sysco Corporation Retirement Plan, which we simply refer to as the “pension plan.” In addition, Sysco offers supplemental retirement plans to approximately 171 corporate and operating company officers. Each of the named executive officers participates in the Supplemental Executive Retirement Plan, or SERP; however, in May 2011, the SERP was amended in order to close the SERP to future participants. The Committee utilizes the SERP to increase the retirement benefits available to officers whose benefits under the pension plan are limited by law. The earliest an executive can retire and receive any benefits under the SERP is age 55 with a minimum of 15 years of MIP service. The SERP was designed to provide fully vested participants with post-retirement monthly payments, with annual benefits equaling up to 50% of a qualifying participant’s final average annual compensation, as discussed under “Executive Compensation — Pension Benefits — Supplemental Executive Retirement Plan” below, in combination with other retirement benefits, including other pension benefits, the company match under the 401(k) plan and social security payments. The named executive officers will receive a SERP benefit based on the greater of the accrued benefit determined as of the relevant separation date under the current provisions of the SERP or the accrued benefit determined as of June 28, 2008 under the prior provisions of the SERP, but with vesting, benefit limits and eligibility for immediate benefit payments determined as of the relevant separation date. Annual retirement benefits from the SERP for a participant who is 100% vested in his accrued benefit were generally limited to approximately $2.27 million in fiscal 2011 and will generally be limited to approximately $2.35 million in fiscal 2012, with such maximum limit adjusted for cost-of-living increases in future years. The terms of the SERP are more specifically described under “Executive Compensation — Pension Benefits — Supplemental Executive Retirement Plan.” The amounts accrued by each named executive officer under the pension plan and the SERP as of July 2, 2011 are set forth under “Executive Compensation — Pension Benefits.”

SERP Analysis

 

Sysco’s retirement plans are an important performance and retention tool, the effectiveness of which the Committee tries to balance with the cost of providing them. Based on CAP’s May 2010 report, compensation to the named executive officers under the SERP placed Sysco above the 75th percentile for retirement benefits relative to the peer group, but total direct compensation plus retirement for 2011 placed Sysco between the 25th percentile and the median for all named executive officers except for Mr. DeLaney, who was below the 25th percentile, and Mr. Pulliam, who was above the median. As a result, the Committee believes that these benefits are appropriate in light of Sysco’s overall compensation structure; however, in May 2011, the SERP was amended in order to close the SERP to future participants and the Committee continues to monitor and review the SERP in order to achieve the following goals:

 

 

Nonqualified Executive Deferred Compensation Plan

 

Sysco offers an Executive Deferred Compensation Plan, or EDCP, to provide MIP participants, including the named executive officers, the opportunity to save for retirement and accumulate wealth in a tax-efficient manner beyond savings opportunities under Sysco’s 401(k) retirement savings plan. Participants may defer up to 100% of their base salary and up to 40% of their MIP bonus, or any bonus paid in lieu of or as a replacement for the MIP bonus, to the EDCP. Sysco does not match any salary deferrals into the EDCP. For participants who defer a portion of their qualifying bonus, Sysco matches 15% of the first 20% deferred, making the maximum possible match to the EDCP 3% of the MIP bonus. This match generally vests on the tenth anniversary of the crediting date, subject to earlier vesting in the event of death, disability, a change in control or the executive’s attaining age sixty. Participants who defer compensation under the EDCP may choose from a variety of investment options, including Moody’s Average Corporate Bond Yield, with respect to amounts deferred. Company matching contributions are credited with the Moody’s Average Corporate Bond Yield. The EDCP is described in further detail under “Executive Compensation — Executive Deferred Compensation Plan.”

 

EDCP Analysis

 

Currently, individual contributions to the 401(k) plan are limited by law to $16,500 per year. The Committee believes that the EDCP motivates and assists in the retention of key employees by providing them with greater flexibility in structuring the timing of their compensation payments. The EDCP is an important recruitment and retention tool for Sysco, as the companies with which we compete for executive talent typically provide a similar plan to their senior employees.

 

Severance and Employment Agreements

 

None of Sysco’s executive officers are currently parties to any severance or employment agreements.

 

Benefits, Perks and Other Compensation

 

We provide benefits for executives that we believe are reasonable, particularly since the cost of these benefits constitutes a very small percentage of each named executive officer’s total compensation. Certain of these benefits are described below.

 

Sysco’s named executive officers are generally eligible to participate in Sysco’s regular employee benefit programs, which include the defined benefit pension plan, a 401(k) plan, our employee stock purchase plan, group life insurance and other group benefit plans. We also provide MIP participants, including the named executive officers, with additional life insurance benefits, long-term disability coverage, including disability income coverage, and long-term care insurance, as well as reimbursement for an annual comprehensive wellness examination by a physician of their choice. We believe many of these benefits are required to remain competitive with our competitors for executive talent. Although the executive officers are eligible to participate in Sysco’s group medical and dental coverage, we adjust employees’ contributions towards the monthly cost of the medical plan according to salary level; therefore, executives’ pay a higher percentage of the cost of these benefits than do non-executives.

 

MIP participants, including the named executive officers, are encouraged to occasionally have their spouses accompany them at business dinners and other business functions in connection with some meetings of the Board of Directors, certain business meetings and other corporate-sponsored events, and Sysco pays, either directly or by reimbursement, all expenses associated with their spouses’ travel to and attendance at these business-related functions. Furthermore, Sysco owns fractional

interests in private aircraft that are made available to members of the Board of Directors, executives and other members of management for business use, but these aircraft are not allowed to be used for personal matters. Spouses may occasionally accompany executive officers on such flights in connection with travel to and from business-related functions if there is space available on the aircraft.

 

All employees, including our named executive officers, as well as members of our Board of Directors, are also entitled to receive discounts on all products carried by Sysco and its subsidiaries. Although Sysco does provide the named executive officers with certain additional perquisites, we do not provide the named executive officers with automobiles, security monitoring or split-dollar life insurance.

 

Relocation Expenses

 

Consistent with Sysco’s past practices on relocation of officers, we provided Mr. Kreidler reimbursement for certain relocation and housing expenses following his hiring and appointment to serve as Executive Vice President and Chief Financial Officer at our headquarters in Houston, Texas. This amount originally included reimbursement for up to $250,000 of the first $500,000 of any loss to him on the sale of his former residence, plus an additional 35% with respect to any portion of that amount that was subject to federal income tax. Mr. Kreidler was unable to sell his former home until August 2010, at a loss of over $600,000. As a result, upon the recommendation of management and in order to mitigate this loss to Mr. Kreidler, which was much larger than originally anticipated due to the ongoing financial crisis and its impact on the housing market, the Committee approved an increase to his reimbursement amount. The Committee increased the total reimbursement amount to a maximum of $500,000, plus an additional 35% with respect to any portion of the reimbursement that is taxable for federal income tax purposes. As a result, the total reimbursement amount Sysco paid to Mr. Kreidler for the loss on the sale of his home was $380,000, plus the applicable tax-related payment.

 

To address the Committee’s desire for Sysco to comply with best corporate governance and compensation practices, in October 2010, the Committee adopted an executive relocation expense reimbursement policy that applies to all of the named executive officers. The reimbursement policy provides that Sysco will not reimburse any of such executives for any loss on the sale of the executive’s house sold in connection with the executive’s relocation. The reimbursement policy also provides that only certain pre-approved relocation expenses will be eligible for increased payments to cover all applicable taxes on the reimbursed amounts, such as state and federal income taxes, FICA, and Medicare taxes. The relocation expenses subject to such increased payments to cover applicable taxes will be limited to the cost of moving the executive’s household goods and vehicles; real estate fees incurred in selling the executive’s residence; closing costs associated with the purchase of a new residence, including cost of credit reports, mortgage and deed taxes, recording fees and title search, title insurance, surveys, if required, and reasonable attorney’s fees; and up to six months’ rental expense for a temporary residence in the area to which the executive has been asked to relocate. No other relocation expenses will be eligible for increased payments to cover applicable taxes. In addition, the reimbursement policy provides that all future relocation agreements with any named executive officer will include a clawback provision that requires the executive to reimburse Sysco for all or a part of the reimbursement if his employment is terminated for any reason other than death, disability or change of control of Sysco, or termination without cause or for good reason, within a specified amount of time after receiving the reimbursement.

 

The Committee approved a relocation package for Mr. Green in fiscal 2011 to be paid in fiscal 2012, in connection with his relocation to the Sysco corporate office in Houston, which is consistent with the executive relocation expense reimbursement policy discussed immediately above.

 

Benefits Following a Change in Control

 

We currently have no severance or similar agreements that would cause an immediate or “single trigger” cash payment obligation solely as a result of a change in control of Sysco. We have included change of control provisions in several of Sysco’s benefit plans and agreements, including an immediate payout of CPUs at the target payout level for grants under the 2008 Cash Performance Unit Plan, and 100% vesting of SERP benefits, EDCP benefits, options, restricted stock and restricted stock units upon a change in control. See “Executive Compensation — Quantification of Termination/Change in Control Payments” for a detailed explanation of potential benefits under the various provisions.

 

Change of Control Benefits Analysis

 

The Committee continues to believe that these provisions preserve executive morale and productivity and encourage retention in the face of the disruptive impact of an actual or rumored change in control of Sysco. The Committee has balanced the impact of these acceleration provisions with corresponding provisions in the SERP and the EDCP that provide for a reduction in benefits to the extent they are not deductible under Section 280G of the Internal Revenue Code.

Potential Impact on Compensation of Financial Restatements

 

In the event of a restatement of our financial results, other than a restatement due to a change in accounting policy, it is the Committee’s policy that it will review all incentive payments made to MIP participants, including the named executive officers, within the 36 month period prior to the restatement on the basis of having met or exceeded specific performance targets in grants or awards made on or after May 14, 2009. If such incentive payments would have been lower had they been calculated based on the restated results, the Committee will, to the extent permitted by applicable law, seek to recoup any such excess payments for the benefit of Sysco. The MIP and CPU grants made by the Committee for fiscal 2011 contain a contractual provision binding the grantee to this recovery right, and the Committee anticipates that future grants will contain similar provisions. The Committee has the sole discretion to determine the form and timing of the recoupment, which may include repayment from the MIP participant or an adjustment to the payout of a future incentive. In addition, the executives’ benefits under the SERP and EDCP may be subject to forfeiture or adjustment as a result of any such restatement of financial results. These remedies would be in addition to, and not in lieu of, any actions imposed by law enforcement agencies, regulators or other authorities.

 

Income Deduction Limitations

 

Section 162(m) of the Internal Revenue Code generally sets a limit of $1 million on the amount of non-performance-based compensation that Sysco may deduct for federal income tax purposes in any given year with respect to the compensation of each of the named executive officers other than the chief financial officer. The Committee has adopted a general policy of structuring the performance-based compensation arrangements, including the MIP bonus and CPUs, in order to preserve deductibility to the extent feasible after taking into account all relevant considerations. However, the Committee also believes that Sysco needs flexibility to meet its incentive and retention objectives, even if Sysco may not deduct all of the compensation paid to the named executive officers. The Committee used this flexibility to award discretionary performance-based bonuses for fiscal 2011 based on Sysco’s satisfying certain financial criteria and the CEO’s achievement of non-financial goals. See “— Management Incentive Plan” above.

 

Based on the factors discussed under “Annual Compensation — Base Salary” and “Longer – Term Incentives,” in fiscal 2011 Sysco paid, and in fiscal 2012 the Committee expects Sysco to pay, Mr. DeLaney a base salary that, when aggregated with anticipated vesting of restricted stock units, will exceed $1 million in value. The Committee believes that this compensation to Mr. DeLaney is necessary in order to maintain the competiveness of his total compensation package in light of peer compensation practices, and as a result, has determined that it is appropriate even though approximately $308,053 of Mr. DeLaney’s fiscal 2011 compensation, in addition to his discretionary performance-based bonus, will not be deductible, and the excess of Mr. DeLaney’s anticipated salary plus the value of his restricted stock units vesting in fiscal 2012 over $1 million, will not be deductible for federal income tax purposes.

 

Section 409A of the Internal Revenue Code

 

Section 409A of the Internal Revenue Code deals specifically with non-qualified deferred compensation plans. We have designed all of our executive benefit plans, including the SERP, EDCP, 2008 Cash Performance Unit Plan, and the 2007 Stock Incentive Plan, such that they are exempt from, or otherwise comply with, the requirements of Section 409A of the Internal Revenue Code.

 

Stock Ownership Guidelines

 

In 2011, the Compensation Committee, together with the Corporate Governance and Nominating Committee, upon the recommendation of management and following consultation with CAP, modified our stock ownership guidelines for executive officers. The Compensation Committee and the Corporate Governance and Nominating Committee are comprised of the same individual directors. The modifications included a decrease in the amount of time required to meet the full ownership requirements from eight to five years — to be phased in over five years, an increase in each of the named executive officers’ other than Mr. DeLaney’s ownership requirement to 60,000 shares, and changes in rules regarding the counting of RSUs. These changes were recommended by the Corporate Governance and Nominating Committee and approved by the Board of Directors primarily in order to bring Sysco’s policies more in line with its peer group. See “Stock Ownership — Stock Ownership Guidelines” for a description of our executive stock ownership guidelines and stock retention policies and these recent changes.

Total Compensation

 

In September 2011, after reviewing the CAP reports and the Company’s fiscal 2011 performance, the Committee determined that each named executive officer’s total fiscal 2011 compensation provided the executive with adequate and reasonable compensation. The Committee also determined that each named executive officer’s total fiscal 2011 compensation was appropriate given Sysco’s performance in fiscal 2011 and the executive’s personal performance.

 

The Compensation Committee of the Board of Directors of Sysco Corporation has reviewed and discussed the foregoing Compensation Discussion and Analysis as required by Item 402(b) of Regulation S-K with management and, based on such review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Annual Report on Form 10-K and this Proxy Statement.

 

COMPENSATION COMMITTEE

 

  John M. Cassaday, Chairman
  Judith B. Craven
  Manuel A. Fernandez
  Larry C. Glasscock
  Phyllis S. Sewell
  Jackie M. Ward

 

The following discussion contains references to target performance levels for our longer-term incentive compensation. These targets and goals are disclosed in the limited context of Sysco’s compensation programs and should not be interpreted as management’s expectations or estimates of results or other guidance. We specifically caution stockholders not to apply these statements to other contexts.

 

Summary Compensation Table

 

The following table sets forth information with respect to each of the named executive officers — our Chief Executive Officer, our Chief Financial Officer, and the three most highly compensated of the other executive officers of Sysco and its subsidiaries employed at the end of fiscal 2011. In determining the most highly compensated executive officers, we excluded the amounts shown under “Change in Pension Value and Nonqualified Deferred Compensation Earnings.”

 

 

 

 

 

 

 

Grants of Plan-Based Awards

 

The following table provides information on CPU grants, stock options and restricted stock units granted during fiscal 2011 to each of the named executive officers. Grants related to annual bonuses under the MIP are now awarded at the beginning of each fiscal year, as opposed to our former practice of making these grants in the fourth quarter of the prior fiscal year. As such, MIP grants for fiscal 2012 are not included in the table below.

 

 

 

 

Cash Performance Unit Plans

 

The Sysco Corporation 2004 Cash Performance Unit Plan was formerly known as the Sysco Corporation 2004 Mid-Term Incentive Plan and the Sysco Corporation 2004 Long-Term Incentive Cash Plan, and is referred to herein as the “2004 Cash Performance Unit Plan.” The 2004 Cash Performance Unit Plan provided certain key employees, including the named executive officers, the opportunity to earn cash incentive payments based on pre-established performance criteria over performance periods of at least three years. We refer to these units as “CPUs.” The Committee currently makes grants annually for performance periods ending at the end of the third fiscal year, including the year of grant. We made the last grants under the 2004 plan on September 11, 2008 and these grants expired unpaid in August 2011 because the performance criteria were not met. The 2004 plan was replaced with the 2008 Cash Performance Unit Plan in November 2008. In September 2009, the 2008 plan was amended so that, in the event of the death of a participant, payments would be determined using Sysco’s performance for the entire three-year performance period, instead of being generally determined using the number of completed fiscal years the participant was actively employed during the three-year performance period, and to provide that payments following a change of control are based on target performance values rather than maximum values. Also, the amendment provided that participants whose employment terminates due to retirement or death will receive a pro-rata payment based upon the number of years during which the participant was actively employed during the relevant performance period. With respect to the compensation of the named executive officers, the 2008 plan is identical in all material respects to the 2004 plan, except with respect to certain benefits following certain termination events or a change in control. The Committee made CPU grants in November 2009 and November 2010 under the 2008 plan and future CPU grants to the named executive officers will be made pursuant to the 2008 plan. Beginning with the grants made in fiscal 2010, the Committee began the practice of setting the performance goals for the awards during the first ninety days of the fiscal year and granting individual awards at its meeting the following November. The 2008 plan will expire on November 30, 2014, unless sooner terminated by the Board.

 

Under the plans, the Committee may select performance goals from those specified in the plan, based on the performance of Sysco generally or on the performance of subsidiaries or divisions. With respect to the grants in fiscal 2009 that we paid in August 2011 and all currently outstanding corporate grants, the Committee set performance criteria based on the average increases in Sysco’s earnings per share and sales over the performance periods. See below regarding certain adjustments to these measures. In addition to the awards that the named executives received in fiscal 2009 and that we paid to them in August 2011,

as discussed in footnote (4) to the Summary Compensation Table, as of August 30, 2011, the named executives held cash performance unit grants in the amounts and for the performance periods set forth below:

 

 

Following the conclusion of each three-year performance period, if we meet the relevant performance criteria, we will pay each named executive an amount obtained by multiplying the number of performance units that the executive received by the value assigned to each unit and then multiplying the resulting product by a specified percentage. Prior to the fiscal 2011 grants, each CPU was assigned a value of $35 per unit. With respect to the fiscal 2011 grants that were made in November 2010, each CPU was assigned a value of $1.00 per unit. Each of the outstanding CPU grants, as well as those paid in August 2011, contains a sliding scale for each component for each of the performance periods as follows:

 

 

All of these performance measures relate to performance for completed fiscal years. For period to period comparisons, we compare results in accordance with generally accepted accounting principles applied on a consistent basis, and we adjust them for any fiscal year containing 53 weeks. Samples of the payment criteria and payout percentages, including the threshold, target and maximum payment criteria and payout percentages, for each component of the outstanding corporate grants are set forth below. The amounts shown reflect a simplified grid of payment criteria and payout amounts; they do not include incremental criteria and payouts between the amounts shown. Between the levels shown in the table, the payout percentage increase incrementally, approximately in proportion to increases in the criteria. The minimum percentage payout would be 25% if only one of the performance criteria is satisfied at the minimum level and the maximum percentage payout would be 150% if the maximum levels for both criteria are satisfied. As an example, achievement of 12% earnings per share growth and 6% sales growth for the corporate CPUs covering the fiscal years 2009-2011 would have resulted in a 75% payout, determined by adding 50% and 25%, or $26.25 per unit, determined by multiplying 75% by $35 per unit. The same results for the corporate CPUs covering the fiscal years 2011-2012 would have resulted in a payout of $0.75 per unit, since such units are valued at $1 each.

 

 

PLUS

 

 

We will make all payments due with respect to the cash performance units in cash. No payments made under the Cash Performance Unit Plans to any named executive in any fiscal year may be higher than 1% of Sysco’s earnings before income

taxes, as publicly disclosed in the “Consolidated Results of Operations” section of Sysco’s Annual Report on Form 10-K for the fiscal year ended immediately before the applicable payment date.

 

With respect to the CPUs to be granted in November 2011, the Committee currently intends to replace the previous performance criteria with a measure based on Sysco’s total shareholder return over the three fiscal year performance period including fiscal 2012, 2013 and 2014 relative to that of the S&P 500. Based upon where Sysco’s total shareholder return for that period falls relative to the other S&P 500 companies, CPUs are expected to pay at a rate of from 50% to 150% of the aggregate value of the CPUs, which are valued at $1 per unit. In order to compute total shareholder return, the following sum is first calculated:

 

 

Total shareholder return is then computed as that sum divided by the closing price of a share of Sysco’s common stock, as reported on the New York Stock Exchange, on the day immediately preceding the first day of the three fiscal year performance period. The threshold payment level is expected to require Sysco’s total shareholder return for the three fiscal year performance period to equal or exceed that of the 30th percentile of the S&P 500, and the maximum payment level is expected to be reached at the 75th percentile, with graduated bonus levels in between. These grants are expected to be subject to Sysco’s clawback policies.

 

Benefits upon Termination or Change in Control under the 2008 Plan

 

If the executive’s employment terminates during a performance period because the executive leaves our employment due to disability, the executive will nonetheless receive the specified payment on the applicable payment date, as if he remained employed on that date. If the executive’s employment terminates during a performance period because the executive retires in good standing or due to the executive’s death, the executive will receive the specified payment on the applicable payment date, as if he remained employed on that date, reduced on a pro-rata basis based on the number of years during which the executive was actively employed during the applicable three-year performance period. The executive will get credit for a fiscal year if the executive was actively employed by Sysco at any time during a relevant fiscal year. If the executive’s employment terminates before the end of the performance period for any reason other than retirement in good standing, death or disability, we will cancel the executive’s performance units, and the executive will not receive any payments under the plan with respect to the cancelled performance units. The plan provides that if a change in control occurs during a performance period we will pay the executive the target amount payable under the plan for the executive’s performance units for that performance period, as if the target performance levels had been achieved. In such instances, the performance units awarded with respect to the performance period will be considered vested and payment will be made to the executive within 90 days after the date of the change in control.

 

Management Incentive Plan and Fiscal 2011 Discretionary Bonuses

 

Our 2009 Management Incentive Plan provides key executives, including the named executive officers, with the opportunity to earn bonuses through the grant of annual performance-based bonus awards, payable in cash. Until the fiscal 2012 grants, the Committee generally made bonus awards under the plan in May or June prior to the beginning of the fiscal year to which they relate. Beginning with the fiscal 2012 grants, the Committee began granting bonus awards in the first quarter of the fiscal year to which the awards relate. We pay amounts owed under such awards in August following the conclusion of such fiscal year. Bonus opportunities awarded to corporate participants, including the named executive officers, under the MIP may be based on any one or more of the following:

 

 

All of these performance measures relate to performance for completed fiscal years or multiple completed fiscal year periods. For period to period comparisons, we compare results in accordance with generally accepted accounting principles applied on a consistent basis, and we adjust them for any fiscal year containing 53 weeks. The Committee has the discretion to determine which performance factors will be used for a particular award and the relative weights of the factors. No named executive officer may receive an aggregate bonus for any given fiscal year under the MIP in excess of $10,000,000. The Committee will determine and pay all bonuses within 90 days following the end of the fiscal year for which the bonus was earned.

 

The MIP allows for the Compensation Committee to make certain permissible deviations from a GAAP standard and permissible methods for modifying bonus formulas after the first 90 days of the applicable fiscal year in order to give the Compensation Committee additional flexibility in structuring performance metrics. Application of any permissible deviations from a GAAP standard or changes to any performance metrics with respect to “covered employees” under Section 162(m) of the Internal Revenue Code, which includes each of the named executive officers except the CFO, is limited to circumstances where any deviations from GAAP are objectively determinable and the modification of performance metrics complies with the “performance-based compensation” exception under Section 162(m) of the Internal Revenue Code. The MIP also includes a provision implementing Sysco’s clawback policies.

 

Fiscal 2011 MIP Awards

 

For the fiscal 2011 awards, the bonus formula utilized a matrix based upon Sysco’s annual percentage increase in fully diluted earnings per share and its three-year average return on capital. The scale on the X-axis for the percentage increase in earnings per share began at 2% and continued indefinitely, while the corresponding scale on the Y-axis for three-year average return on capital began at 11% and also continued indefinitely; however, the maximum bonus that we could pay pursuant to this award was 250% of base salary. Where the two scales intersected determined the payout percentage of base salary. Pursuant to the award agreements, MIP bonuses under the fiscal 2011 awards would not be paid unless Sysco achieved at least a 2% increase in earnings per share and an 11% three-year average return on capital. For the fiscal 2011 awards, the three-year average return on capital was calculated using fiscal 2009, 2010 and 2011. The average return on capital for fiscal 2009 and 2010 (adjusted to reflect a comparable 52-week basis) was 18.9% and 18.8%, respectively. For fiscal 2011, Sysco had an increase in diluted earnings per share of 0.5% and a three-year average return on capital for fiscal 2009, 2010 and 2011 (adjusted to reflect a comparable 52-week basis) of 18.4%. As such, bonuses were not paid with respect to the fiscal 2011 MIP awards.

 

The performance targets for the fiscal 2011 MIP awards were not met primarily because management approved an aggregate $41.5 million expense for Sysco’s partial withdrawal from an underfunded multi-employer pension plan, or MEPP, during fiscal 2011 in which Sysco employees participated. This partial withdrawal was discretionary on the part of Sysco but was determined by management, in consultation with the Board, to be in the best interests of Sysco by significantly reducing stockholder exposure to an uncertain and underfunded potential obligation. The result of the partial withdrawal was an aggregate of $41.5 million charged to earnings during fiscal 2011, with a corresponding $.04 per share reduction in Sysco’s diluted earnings per share in fiscal 2011. If not for these charges, the named executive officers would have earned a non-discretionary MIP bonus at the 70% level.

 

A simplified version of the matrices for determining fiscal 2011 payment amounts is set forth below. The criteria and payout percentage increase incrementally between the levels shown in the matrices below. Numbers shown in the bodies of the matrices are percentages applied to base salary in effect at the end of fiscal year.