UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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

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GRANITE CONSTRUCTION INCORPORATED

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GRANITE CONSTRUCTION INCORPORATED

585 West Beach Street

Watsonville, California 95076

 

Notice of Annual Meeting of Shareholders

 

March 26, 2010

 

 

Purposes of the Meeting:

 

 

Who May Attend the Meeting?

 

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

 

What to Bring:

 

If you received a Notice of Internet Availability of Proxy Materials, please bring that Notice with you. If your shares are held in the name of a broker, trust, bank, or other nominee, you will need to bring a proxy or letter from that broker, trust bank, or nominee that confirms you are the beneficial owner of those shares.

Record Date:

 

March 12, 2010 is the record date for the meeting. This means that if you own Granite stock at the close of business on that date, you are entitled to receive notice of the meeting and vote at the meeting and any adjournments or postponements of the meeting.

 

Annual Report:

 

We have included a copy of the Annual Report on Form 10-K for the fiscal year ended December 31, 2009 with the proxy solicitation materials on Granite’s website. The annual report is not part of the proxy solicitation materials.

 

Shareholder List:

 

For 10 days prior to the meeting, a complete list of shareholders entitled to vote at the meeting will be available for examination by any shareholder for any purpose relative to the meeting during regular business hours at Granite’s headquarters located at 585 West Beach Street, Watsonville, CA 95076. The shareholder list will also be available at the annual meeting.

 

Information about the Notice of Internet Availability of Proxy:

 

Instead of mailing a printed copy of our proxy materials, including our annual report, to each shareholder of record, we will provide access to these materials in a fast and efficient manner via the internet. This reduces the amount of paper necessary to produce these materials, as well as the costs associated with mailing these materials to all shareholders. Accordingly, on March 26, 2010, we will begin mailing a Notice of Internet Availability of Proxy Materials to all shareholders of record as of March 12, 2010, other than persons who hold shares in Granite’s Profit Sharing and 401(k) Plan (“401(k) Participants”), and we will post our proxy materials on the website referenced in the notice (https://www.proxyvote.com).

 

All shareholders may choose to access our proxy materials on the website or may request to receive a printed set of our proxy materials. In addition, the notices and website provide information regarding how you may request to receive proxy materials in printed form by mail on an ongoing basis.

 

Proxy Voting:

 

Your vote is important. Please vote your proxy promptly so your shares can be represented at the annual meeting even if you plan to attend the meeting. Shareholders, with the exception of 401(k) Participants, can vote by internet, telephone or mail. As in the past, 401(k) Participants will receive a package in the mail that includes all proxy materials and the proxy card. You may revoke your proxy without affecting your right to vote in person if you decide to attend the meeting. Your proxy card has specific instructions on how to vote.

 

To get directions to the 2010 Annual Meeting of Shareholders, call our Investor Relations Department at 831.761.4714.

 

By Order of the Board of Directors,

 

Michael Futch
Vice President, General Counsel and Secretary

 

Table of Contents

 

 

As more fully described in the notice, Granite Construction Incorporated, a Delaware corporation, on behalf of its Board of Directors, has made these materials available to you on the internet or has mailed you printed versions of these materials in connection with Granite’s 2010 Annual Meeting of Shareholders, which will take place on May 7, 2010. The notice was mailed to all Granite shareholders of record beginning March 26, 2010, and our proxy materials were posted on the website referenced in the notice on March 26, 2010. Granite, on behalf of its Board of Directors, is soliciting your proxy to vote your shares at the 2010 Annual Meeting of Shareholders or any subsequent adjournment or postponement. We solicit proxies to give all shareholders of record an opportunity to vote on matters listed in the accompanying notice and/or any other matters that may be presented at the annual meeting. In this proxy statement you will find information on these matters, which is provided to assist you in voting your shares.

 

Granite Construction Incorporated was incorporated in Delaware in January 1990 as the holding company for Granite Construction Company, which was incorporated in California in 1922. All dates in this proxy statement referring to service with Granite also include periods of service with Granite Construction Company.

 

Granite pays for the cost of this proxy solicitation. We will request banks and brokers, and other custodians, nominees and fiduciaries to solicit their customers who own our stock. We will reimburse their reasonable, out-of-pocket expenses for doing this. Our directors, officers and employees may also solicit proxies by mail, telephone, personal contact, or through online methods without additional compensation.

 

You will have received notice of the annual meeting and can vote if you were a shareholder of record of Granite’s common stock as of the close of business on March 12, 2010. You are entitled to one vote for each share of Granite stock you own. You may vote all shares owned by you as of the record date, including shares held directly in your name as the shareholder of record, and shares held for you as the beneficial owner through a broker, trustee or other nominee such as a bank. As of the close of business on March 12, 2010, there were 38,862,572 shares of common stock issued and outstanding.

 

Shareholders, with the exception of 401(k) Participants, have the option to vote by proxy three ways:

 

¨    By internet: You can vote by internet following the instructions in the Notice of Internet Availability or by accessing the internet at https://www.proxyvote.com and following the instructions at that website.

 

¨    By telephone: In the United States and Canada you can vote by telephone using a touch-tone phone by following the instructions in the Notice of Internet Availability or by calling 1.800.690.6903. (toll free) and following the instructions; or

¨    By mail: If you have received a paper copy of the proxy card by mail you may submit your proxy by completing, signing and dating your proxy card and mailing it in the accompanying pre-addressed envelope. Instructions are also on the card.

 

Granite’s 401(k) Participants can only vote by mail. If you are a 401(k) Participant, you will have received a full set of proxy materials in the mail (mailed on or about March 26, 2010) including the proxy statement, the annual report and a proxy card.

 

Please refer to the notice or the information your bank, broker or other holder of record provides you for more information on the above options. If you have the option to authorize a proxy to vote your shares over the internet or by telephone, you should not return a proxy card by mail (unless you are revoking your previous proxy).

 

Except shares held in either Granite’s 401(k) or ESOP plan (see below), your vote by proxy must be received before the polls close at the annual meeting.

 

If you hold shares in Granite’s 401(k) or ESOP plan, your voting instructions must be received by May 4, 2010 in order for the trustee to vote your shares.

 

If you own shares held through your broker, a trustee or other nominee, please follow the voting instructions provided by your broker, trustee or nominee.

 

In the election of directors and all proposals you may vote “For”, “Against” or “Abstain” with respect to each of the nominees and proposals. If you elect to abstain in either the election of directors or any proposal, the abstention will not impact the election of directors or the proposal. In tabulating the voting results, only “For” and “Against” votes are counted.

 

If you vote by proxy card, your shares will be voted at the annual meeting in the manner you indicate on your proxy card. If you sign your proxy card but do not specify how you want your shares to be voted, they will be voted as the Board of Directors recommends by the persons named on your proxy card. This proxy statement contains a description of each item that you are to vote on along with our Board’s recommendations. Below is a summary of our Board’s recommendations:

 

As to any other item that may be properly proposed at the annual meeting, including a motion to adjourn the annual meeting to another time or place, the shares will be voted in the discretion of the persons named on your proxy card.

 

If there is a quorum, nominees for election to the Board who receive a majority of the shares voted will be elected as members of our Board of Directors for the upcoming three-year term. This means that a majority of votes cast “for” the election of a director must exceed the number of votes cast “against” the director’s election, excluding abstentions. The other proposals included in this proxy statement require the affirmative vote of a majority of the votes cast for passage. Any other matters properly proposed at the meeting will also be determined by a majority of the votes cast except as otherwise required by law or by Granite’s Certificate of Incorporation or bylaws. This includes a motion to adjourn the annual meeting to another time or place (including for the purpose of soliciting additional proxies).

 

If you hold shares in a brokerage account (shares that are held in a fiduciary capacity – typically referred to as being held in “street name”), and you do not provide your broker with voting instructions, these shares may constitute “broker non-votes.” Generally, a broker non-vote occurs when a broker is not permitted to vote on a particular matter (i.e., a non-routine matter) without voting instructions from you. In tabulating the voting results for the election of directors or any particular proposal, shares that constitute broker non-votes will not be counted in determining the number of shares necessary for approval.

 

You can change vote or revoke your proxy at any time before the annual meeting. You may revoke your proxy by internet, by telephone or by filing with our Secretary a written revocation or a properly signed proxy card bearing a later date, or by attending the meeting and voting in person if you are a shareholder of record. Your proxy card gives specific instructions on how to vote.

 

You may attend the annual meeting and vote in person instead of voting by proxy; however, even if you intend to attend the meeting we strongly encourage you to vote by internet, telephone or mail prior to the meeting to ensure that your shares are voted.

 

Granite’s bylaws require a quorum to be present in order to transact business at the meeting. A quorum consists of a majority of the shares entitled to vote, either in person or represented by proxy. In determining a quorum we count votes for and against and abstentions as present.

 

Granite’s bylaws and policies also specify that prior to the annual meeting management will appoint an independent Inspector of Elections to supervise the voting at the meeting. The Inspector decides all questions as to the qualification of voters, the validity of proxy cards and the acceptance or rejection of votes. Before assuming his or her duties, the Inspector will take and sign an oath that he or she will faithfully perform his or her duties both impartially and to the best of his or her ability.

 

We will announce preliminary voting results at the annual meeting and final results will be published on a Form 8-K to be filed with the SEC within four business days following the annual meeting.

 

The Board of Directors is divided into three classes. We keep the classes as equal in number as possible; however, the number of directors in a class depends on the total number of directors at any given time. Each director serves for a term of three years. The classes are arranged so that the terms of the directors in each class expire at successive annual meetings. This means that shareholders annually elect approximately one-third of the members of the Board. The Board currently consists of nine directors.

 

The terms of William G. Dorey, Rebecca A. McDonald, William H. Powell and Claes G. Bjork will expire at the 2010 annual meeting. The Board has nominated these four individuals for new terms. If elected, each of the nominees will serve as a director until the 2013 annual meeting and until his or her successor is elected and qualified or he/she resigns or until his/her death, removal, or other cause identified in Granite’s bylaws.

 

Management knows of no reason why any of these nominees would be unable or unwilling to serve. All nominees have accepted the nomination and agreed to serve as a director if elected by the shareholders. However, if any nominee should for any reason become unable or unwilling to serve between the date of the proxy statement and the annual meeting, the Board may designate a new nominee and the persons named as proxies will vote for that substitute nominee. You cannot vote for more than four nominees.

 

The Board of Directors recommends a vote “FOR” each of the above-named nominees.

 

The following paragraphs provide information as of the date of this proxy statement about each director and director nominee. The information presented includes information each director has given us about his/her age, all positions he/she holds, his/her principal occupation and business experience for the past five years, and the names of other publicly-held companies of which he/she currently serves as a director or has served as a director during the past five years. In addition to the information presented below regarding each director’s and nominee’s specific experience, qualifications, attributes and skills that led our Board to the conclusion the he/she should serve as a director, we also believe that all of our directors and nominees have a reputation for integrity, honesty and adherence to high ethical standards. They each have demonstrated business acumen and an ability to exercise sound judgment, as well as a commitment of service to Granite and our Board.

 

 

 

 

The following chart shows the standing committees of the Board of Directors, membership and the number of meetings held by each committee in 2009.

 

 

* Independent directors
(1) Chairman of the Board

 

Audit/Compliance Committee

 

All members of the Committee are non-employee directors who are, and at all times during 2009 were, determined by the Board to be independent under the listing standards of the New York Stock Exchange. Each member also satisfies the Securities and Exchange Commission’s (the “SEC”) requirement of independence. The Board has determined that Mr. Kelsey meets the criteria as an audit committee financial expert as defined by SEC rules. The Board of Directors has also determined that all members of the Committee are financially literate as required by the listing standards of the New York Stock Exchange. The Committee has direct responsibility for risk oversight related to accounting matters, financial reporting, enterprise, legal and compliance risks. A more complete description of the risk responsibility, functions and activities of the Audit/Compliance Committee can be found under “Board Leadership Structure and its Role in Risk Oversight” on Page 11 and in “Report of the Audit/Compliance Committee” on Page 46 of this proxy statement and in the Audit/Compliance Committee charter. You can view and print the Audit/Compliance Committee charter on Granite’s website (see “Granite Website” on Page 14).

 

Compensation Committee

 

All members of the Compensation Committee are non-employee directors who are, and at all times during 2009 were, determined by the Board to be independent under the listing standards of the New York Stock Exchange. The Committee reviews and approves all aspects of compensation for our directors, our Chief Executive Officer and our other Executive Officers. In addition, the Committee is responsible for risks related to employment policies and our compensation and benefit systems. The Committee also reviews our overall compensation plans and strategies and makes recommendations to the Board for their consideration and approval. The Chief Executive Officer attends Committee meetings and recommends annual salary levels, incentive compensation and payouts for other Executive Officers for the Committee’s approval. The

Compensation Committee also administers the Amended and Restated 1999 Equity Incentive Plan (the “Plan”) with respect to persons subject to Section 16 of the Securities Exchange Act of 1934. In the case of awards intended to qualify for the performance-based compensation exemption under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), the Plan is administered only by the Compensation Committee, which includes at least two “non-employee directors” within the meaning of Section 162(m). If you desire additional information concerning the Compensation Committee, you can read the Compensation Committee charter on Granite’s website (see “Granite Website” on Page 14).

 

Nominating and Corporate Governance Committee

 

All members of the Nominating and Corporate Governance Committee are non-employee directors who are, and at all times during 2009 were, determined by the Board to be independent under the listing standards of the New York Stock Exchange. The Nominating and Corporate Governance Committee recommends and nominates persons to serve on the Board. The Committee also develops and recommends corporate governance principles and practices to the Board and annually reviews the Board’s performance. Additionally, the Committee oversees risks associated with our corporate governance guidelines and code of conduct. The Committee’s policy for considering director candidates, including shareholder recommendations, is discussed in more detail below under the heading “Board of Directors’ Nomination Policy.” This policy and the Nominating and Corporate Governance Committee charter are available on Granite’s website (see “Granite Website” on Page 14).

 

Strategic Planning Committee

 

The Strategic Planning Committee reviews and recommends for approval the Strategic Plan developed by management and provides overall strategic planning direction. The Committee also works with management independently on various strategic initiatives throughout the year.

 

Executive Committee

 

The Executive Committee’s responsibility is to carry out the powers and authority of the Board in the management of Granite’s business within limits set by the Board. The Committee also assesses and monitors ongoing risks and contingencies related to bidding decisions on large projects. The scope of the Committee’s authority is determined in accordance with the “Delegation of Authority and Policy” as adopted and revised from time to time by the Board.

 

 

Granite has retained Mercer (US) Inc., a wholly-owned subsidiary of Marsh & McLennan Companies, Inc. to provide advice and recommendations to the Compensation Committee on Executive Officer and Board of Director compensation programs.

 

Mercer provided the following services to the Compensation Committee related to Executive Officer compensation:

 

 

During the fiscal year, management approved the continued use of Mercer to provide recordkeeping and trustee services for its Profit Sharing and 401(k) Plan.

 

Because the Compensation Committee does not retain its own compensation consultant, the Committee and Mercer have implemented policies and procedures intended to ensure that the advice which the Compensation Committee receives from the individual executive compensation consultant is objective and not influenced by the relationship between Granite and Mercer and its affiliates. These policies and procedures include:

 

 

In advising the Compensation Committee, it is necessary for the consultant to interact with management to gather information, but the Compensation Committee has adopted protocols governing if and when the consultant’s advice and recommendations to the Compensation Committee can be shared with management. These protocols are included in the consultant’s engagement letter. The Compensation Committee also determines the appropriate forum for receiving consultant recommendations. Where appropriate, management invitees are present to provide context for the recommendations. This approach protects the Compensation Committee’s ability to receive objective advice from the consultant so that the Compensation Committee may make independent decisions about executive pay at Granite.

 

Our bylaws provide that in the event the Chairman of the Board does not meet the independence requirements of the rules and regulations of the Securities and Exchange Commission and the listing standards of the New York Stock Exchange, the directors shall elect a Lead Director who serves until the earlier of two years or an independent Chairman is elected. The Lead Director then presides over executive sessions of the independent members of the Board and over all meetings at which the Chairman of the Board is not present. In addition, he or she acts as a liaison between the Chairman and the Board, and assists in setting the Board’s meeting agenda.

 

We currently do not have a Lead Director. William H. Powell, an independent director, who was our Lead Director until the end of August 2009, was elected Chairman of the Board beginning September 1, 2009, and the Lead Director position was concurrently terminated. In the capacity of Chairman, Mr. Powell chairs all Board meetings and presides over all executive sessions of the independent members of the Board.

 

The Board of Directors has determined that having an independent director as Chairman of the Board is in the best interest of Granite and its shareholders at this time. In 2009 Granite engaged in a major reorganization in order to better capture the opportunities available to it in the current and future construction environment. The Board believes that having a strong independent director serve as Chairman promotes greater oversight of Granite by the independent directors and provides for greater management accountability going forward. The structure ensures more active participation by the independent directors in setting the Board’s agenda and establishing the Board’s priorities. The Board however, in accordance with its Corporate Governance Guidelines, retains the flexibility to decide, as new circumstances arise, whether or not to combine or separate the position of Chairman and Chief Executive Officer.

 

As with all companies, we face a variety of risks in our business. Our Board of Directors is responsible for oversight of our company’s risks. The Board believes that having a system in place for risk management and implementing strategies responsive to our risk profile and exposures will adequately identify in a timely manner our material risks. In order to more efficiently manage these risks, the Board has designated certain risk management responsibilities to relevant Board committees. The Audit/Compliance Committee has the direct responsibility for risk oversight relating to accounting matters, financial reporting, enterprise, legal and compliance risks. Our Chief Financial Officer – who is responsible for managing the risk management function and who serves as our Corporate Compliance Officer – our General Counsel, our Director of Internal Audit, management and our independent registered public accounting firm, PricewaterhouseCoopers, LLP, all report directly to and meet with the Audit/Compliance Committee on a regular basis. The Audit/Compliance Committee also meets periodically with management to review Granite’s major financial risk exposures and the steps that management has taken to monitor and control such exposures, which include Granite’s risk assessment and risk management policies. The Executive Committee is responsible for working with management to assess risks related to the decision to bid on large projects and monitor ongoing risks and contingencies related to those projects. The Compensation Committee is responsible for risks related to employment policies and our compensation and benefits systems, and the Nominating and Corporate Government Committee oversees risks associated with our Corporate Governance Guidelines and Code of Conduct, including compliance with listing standards for independent directors and committee assignments. The committee chairmen report any risk–related matters to the full Board at the next Board meeting and special meetings of the Board, if necessary.

 

Evaluation Criteria and Procedures

 

Members of the Board of Directors of Granite are divided into three classes and are nominated for election for staggered three-year terms. The Board, its members, its committee structure, and performance and its overall governance performance are continuously reviewed. Included in this review is a careful evaluation of the diversity of skills and experience of Board members weighed against Granite’s current and emerging operating and strategic challenges and opportunities. The Board of Directors makes every effort to nominate individuals who bring a variety of complementary skills which, as a group, possess the appropriate skills and experience to oversee our business. Accordingly, although diversity is a consideration in the nominating and evaluation process, the Nominating and Corporate Governance Committee and the Board of Directors do not have a formal policy with respect to the consideration of diversity. Evaluations are made on the basis of observations and interviews with management and with Board members conducted annually by the Nominating and Corporate Governance Committee, with the assistance of an independent executive search firm. The activities of the executive search firm are coordinated by the Vice President of Human Resources.

Current Board members whose performance, capabilities, and experience meet Granite’s expectations and needs are nominated for re-election in the year of their term’s completion. In accordance with Granite’s Corporate Governance Guidelines, Board members are not re-nominated after they reach their 72^nd birthday.

 

Each member of the Board of Directors must meet a set of core criteria, referred to as the “three C’s”: Character, Capability, and Commitment. Granite was founded by persons of outstanding character, and it is Granite’s intention to ensure that it continues to be governed by persons of high integrity and worthy of the trust of its shareholders. Further, Granite intends to recruit and select persons whose capabilities, including their educational background, their work and life experiences, and their demonstrated records of performance will ensure that Granite’s Board will have the balance of expertise and judgment required for its long-term performance and growth. Finally, Granite will recruit and select only those persons who demonstrate they have the commitment to devote the time, energy, and effort required to guarantee Granite will have the highest possible level of leadership and governance.

 

In addition to the three C’s, the Board recruitment and selection process assures that the Board composition meets all of the relevant standards for independence and specific expertise. For each new recruitment process, a set of specific criteria is determined by the Nominating and Corporate Governance Committee with the assistance of the executive search firm and the Chairman of the Board, utilizing the interview process noted above. These criteria may specify, for example, the type of industry or geographic experience that would be useful to maintain and improve the balance of skills and knowledge on the Board. After the search criteria are established, the executive search firm utilizes its professional skills and its data sources and contacts, including current Granite Board members and officers, to seek appropriate candidates. The credentials of a set of qualified candidates provided by the search process are submitted for review by the Nominating and Corporate Governance Committee, the Chairman of the Board and senior officers. Based on this review, the Nominating and Corporate Governance Committee invites the top candidates for personal interviews with the Committee and Granite’s executive management team.

 

Normally, the search, review, and interview process results in a single nominee to fill a specific vacancy. However, a given search may be aimed at producing more than one nominee and the search for a single nominee may result in two candidates of such capability and character that both might be nominated, with term classes restructured following additional vacancies.

 

It is Granite’s intention that this search and nomination process consider qualified candidates referred by a wide variety of sources, including all of Granite’s constituents – its customers, employees, shareholders, and members of the communities in which it operates. The search firm will include all referrals in its screening process and bring qualified candidates to the attention of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee is responsible for assuring that all relevant sources of potential candidates have been canvassed.

 

Shareholder Recommendation and Direct Nomination of Board Candidates

 

Consistent with our bylaws and the Nominating and Corporate Governance Committee Charter, Granite will review and consider for nomination any candidate for membership to the Board recommended by a shareholder, utilizing the same evaluation criteria and selection process described above. Shareholders wishing to recommend a candidate for consideration in connection with an election at a specific annual meeting should notify Granite well in advance of the meeting date to allow adequate time for the review process and preparation of the proxy statement, and in no event later than the date specified below with respect to direct nominations.

 

In addition, Granite’s bylaws provide that any shareholder entitled to vote in the election of directors may directly nominate a candidate or candidates for election at a meeting provided that timely notice of his or her intention to make such nomination is given. To be timely, a shareholder nomination for a director to be elected at an annual meeting must be received by Granite not less than 120 days prior to the first anniversary of the date the proxy statement for the preceding year’s annual meeting of shareholders was released to shareholders and must contain the information specified in our bylaws. The Committee will

consider nominees to the Board recommended by shareholders as long as the shareholder gives timely notice in writing of his or her intent to nominate a director. To be timely, a shareholder nomination for a director to be elected at the 2010 annual meeting must be received at Granite’s principal office, addressed to the Corporate Secretary, on or before November 26, 2010.

 

 

Under the listing standards of the New York Stock Exchange, a director is considered independent if the Board determines that the director has no material relationship with Granite. In determining independence, the Board considers pertinent facts and circumstances including commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships, among others. The Board follows these guidelines, established by the New York Stock Exchange, when assessing the independence of a director:

 

 

The Board reviews the independence of all non-employee directors every year. For the review, the Board relies on information from responses to questionnaires completed by directors and other sources. Directors are required to immediately inform the Nominating and Corporate Governance Committee of any material changes in their or their immediate family members’ relationships or circumstances that could impact or change their independence status.

During 2009, all non-employee directors who served on the Board for all or a part of the year were determined to be independent under the listing standards of the New York Stock Exchange; namely, Claes G. Bjork, James W. Bradford, Jr., Gary M. Cusumano, David H. Kelsey, Rebecca A. McDonald, J. Fernando Niebla and William H. Powell.

 

During 2009, the Board of Directors held four regular meetings. All directors as a group attended an average of 98% of the total number of meetings of the Board and any committee on which they served. Except for irreconcilable conflicts, directors are expected to attend the annual shareholder meeting. The Annual Meeting Attendance Policy is a part of Granite’s Board of Directors Corporate Governance Guidelines and Policies and is posted on Granite’s website (see “Granite Website” below). With the exception of James W. Bradford, Jr. who had a schedule conflict, all directors attended Granite’s 2009 annual shareholder meeting.

 

Any shareholder or other interested party wishing to communicate with the Board of Directors, or any particular director, including the Chairman of the Board or the Lead Director, if there is one, can do so by following the process described in the Communications with the Board of Directors Policy. The policy is posted on Granite’s website (see “Granite Website” below).

 

Granite’s Code of Conduct applies to all Granite employees, including the Chairman of the Board, the Chief Executive Officer, the Chief Financial Officer and all directors. The Code of Conduct is available on Granite’s website at www.graniteconstruction.com at the “About Us” site under “Core Values”. We will also post any amendments to the Code of Conduct at this location on our website. You can obtain a copy of the Code of Conduct, without charge, by contacting Granite’s Human Resources Department at 831.724.1011.

 

The following charters and policies are available on Granite’s website at the Corporate Governance site under Investor Relations at www.graniteconstruction.com: the Audit/Compliance Committee Charter, the Nominating and Corporate Governance Committee Charter, the Compensation Committee Charter, the Corporate Governance Guidelines and Policies, the Board of Directors’ Nomination Policy, the Shareholder Communication to the Board Policy and Granite’s Code of Conduct. You can also request copies of these charters and policies in print without charge by contacting Granite’s Investor Relations Department at 831.761.4714.

 

On August 31, 2009, Granite announced a new organization structure designed to improve operating efficiencies and position the company for long-term growth. Effective September 1, 2009, James H. Roberts succeeded Mark E. Boitano as Executive Vice President and Chief Operating Officer. To ensure a smooth transition of responsibilities, Mr. Boitano continued to serve as an Executive Officer on a full-time basis through December 31, 2009. As the organizational changes were implemented toward the end of the third quarter of the performance period, it was determined that no changes would be made to either Mr. Roberts’ or Mr. Boitano’s annual and long-term incentive plan participation or the related performance measures. Messrs. Boitano and Roberts’ incentive compensation payouts were each tied to the area for which they had primary responsibility for the majority of the performance period. Effective September 1, 2009, Mr. Donnino, Granite East Manager, assumed additional responsibility for the Arizona region. No changes were made to Mr. Donnino’s base salary, incentive compensation plans or performance measures.

 

Based on the new organizational structure, the titles of our Executive Officers as of December 31, 2009 were as follows:

 

 

Compensation paid to our Executive Officers is structured to align with Granite’s short and long-term performance objectives. The Compensation Committee believes that the most effective way to enhance Granite’s performance is to emphasize variable compensation. The market for executive talent is highly competitive and the objective of our compensation program is to attract and retain talented, creative, and experienced executives with the skills and leadership qualities necessary to compete in the marketplace, deliver consistent financial performance and grow shareholder value. Key elements of the program are as follows:

 

 

Our Executive Officers are eligible, along with other key management employees, to participate in our Non-qualified Deferred Compensation (“NQDC”) Program and a program offering periodic medical examinations.

 

The 2009 program for compensating our key Executive Officers is materially different from our 2008 plan and reflects Granite’s and the Compensation Committee’s effort and involvement to better align pay levels and program design with market best practices and long-term shareholder value creation.

 

The key components of the 2009 program for compensating our key Executive Officers are as follows:

 

 

The specific provisions of the compensation opportunity, plan design, and performance objectives are described in greater detail in the remainder of the Compensation Discussion and Analysis.

 

The Compensation Committee is actively engaged in the design and approval of all elements of the compensation program for our key Executive Officers. Mr. Dorey’s compensation and potential payouts are determined by the Compensation Committee. Mr. Dorey attends Compensation Committee meetings and recommends annual salary levels, incentive compensation targets and potential payouts for other Executive Officers to the Compensation Committee for approval.

 

Granite has retained Mercer (US) Inc. (“Mercer”) to provide information, analyses and advice to the Compensation Committee regarding Executive Officer compensation. Mercer also advises our management with respect to compensation of our other key executives and, in this capacity, reports to the Vice President of Human Resources and the Director of Compensation and Benefits. For a more complete discussion of this relationship, see “Role of the Compensation Consultant” on Page 9.

 

 

The Compensation Committee reviews available industry compensation data to establish competitive compensation levels which will reward our Executive Officers if performance targets are achieved. Data is reviewed from benchmark companies in the construction and engineering industries. Threshold, target, and maximum levels of compensation are tied to performance expectations and approved by the Compensation Committee. In 2009, the Compensation Committee reviewed market compensation data from the two sources described below. An equally weighted blend of public company data and private company data was used to develop market composites for base salary and target total cash compensation. However, as almost all private companies do not report long-term incentive data, only public peer group compensation data derived from proxy statements was used as a reference for long-term incentive and total direct compensation.

 

Peer Group of Seven Public Companies

 

These companies represent the construction, engineering and construction materials industries that compete for executive talent in the same market as Granite. The table below lists the names of the companies, their annual revenues and total assets for their most recent fiscal years.

 

 

Granite’s fiscal 2009 revenues and total assets were $1,963,479,438 and $1,709,575,309 respectively.

 

Private Company Market Data

 

Private company market data was provided by Analytical/FMI, a compensation consulting firm that gathers extensive compensation data for companies in the engineering and construction industries. The companies participating in the survey are companies that compete with Granite for key engineering and construction talent. The Compensation Committee selected private companies with employee headcount and revenue similar to ours. Specifically, the companies used in the benchmarking were Gilbane Building Company, Peter Kiewit Sons, Inc., TIC Holdings, Inc. and Zachry Holdings, Inc.

 

Base Salaries

 

With the exception of Mr. Roberts, no adjustments to the base salaries of our Executive Officers were made during 2009. Upon his appointment as Chief Operating Officer, effective September 1, 2009, Mr. Roberts’ salary was increased from $300,000 to $350,000. The increase in base salary was based on Mr. Roberts’ assumption of increased responsibility and accountability and was supported by benchmark data for comparable COO positions at the peer groups discussed above. In the supporting tables to the CD&A we have reflected Mr. Roberts’ salary as $300,000 since incentive opportunities are calculated as a percentage of the beginning of the year base salary.

 

Base Salary Positioning Chart

 

Annual Incentive Compensation

 

 

Mr. Dorey, Ms. Stewart and Mr. Boitano participated in the Corporate Annual Incentive Plan in 2009. Mr. Roberts and Mr. Donnino participated in both the Corporate and Division Incentive Plans. Each Executive Officer’s targeted annual incentive opportunity is expressed as a percentage of his or her base salary. Actual payouts can range between 0% and 200% of target opportunity based on performance as described in more detail below.

Target Annual Incentive Opportunity

 

 

The following table illustrates the 2009 annual incentive plans. During 2009, Mr. Dorey, Mr. Boitano and Ms. Stewart earned 100% of their annual incentives from the Corporate Annual Incentive Plan whereas Mr. Roberts and Mr. Donnino earned 75% of their annual incentive compensation from a program based on the performance of their respective divisions known as the Division Annual Incentive Plan and 25% based on the Corporate Annual Incentive Plan. This weighting was designed to ensure that a significant portion of their target incentive compensation is directly tied to performance at the division level for which they were responsible.

 

 

Return on Net Assets

 

RONA is calculated by dividing the adjusted net income Granite earned in the year ended December 31, 2009 by its weighted average net assets, adjusted for the purpose of calculating incentive compensation (total weighted average assets less current liabilities, long-term debt, estimated value of quarry property which will not be mined within the next five years, deferred income taxes, and restructuring expenses).

RONA performance objectives for a given plan year are based on Granite’s Weighted Average Cost of Capital (“WACC”) which is defined as Granite’s blended cost of debt and equity. The WACC, approved by the Compensation Committee for the purpose of calculating incentive compensation, was 9% for 2009. The Corporate Annual Incentive Plan incorporates RONA and WACC because of the significant capital needs of the business. Granite’s operations require sizable investment in capital equipment and aggregate reserves, which require periodic replacement. Both the Division Annual Incentive Plan and the Corporate Annual Incentive Plan are designed in part to reward high returns on the net assets employed.

 

In determining threshold, target and maximum RONA objectives, the Compensation Committee considers Granite’s RONA history, industry comparisons, growth rate, new investments in the business, cost of capital, and current market conditions. The RONA objectives are reviewed and approved annually by the Compensation Committee, as is the amount of incentive compensation that can be earned by each Executive Officer.

 

Operating Cash Flow Margin

 

The Operating Case Flow (“OCF”) Margin is calculated by dividing net cash flow from operating activities adjusted for restructuring expenses by annual revenue. The Corporate Annual Incentive Plan incorporates OCF Margin as one of the two financial metrics because it measures our ability to maintain the operating cash necessary to replace assets, purchase assets for growth, and generate fair dividend returns to the shareholders. This metric meets Accounting Standard Codification (ASC) Topic 230.

 

Like RONA, the threshold, target and maximum OCF Margin objectives are established at levels that the Compensation Committee considers appropriate given Granite’s historical performance, industry comparisons, and current market conditions. The OCF Margin objectives and associated payout levels for Executive Officers are reviewed and approved annually by the Compensation Committee.

 

Strategic Objectives

 

In addition to financial objectives, the Compensation Committee introduced a component to the Annual Incentive Plan that pays out based on achievement of strategic objectives. Strategic objectives are reviewed and approved by the Compensation Committee on an annual basis and may change from year to year. The strategic objectives identified for each Executive Officer included a mix of quantitative and qualitative factors. The objectives may have different weighted values as agreed upon by the Compensation Committee and the CEO.

 

In the case of the Executive Officers other than the CEO, the Committee’s establishment of these strategic metrics and its assessment of their achievement is based primarily on the CEO’s judgment and recommendations. The establishment of strategic objectives for the CEO and assessment of his individual performance is determined by the Compensation Committee in consultation with other members of the Board of Directors.

 

Safety

 

In keeping with our policy of honoring our employees by providing the safest work environment in the industry, Total Safety Incident Rate (“TSIR”) targets were established in 2006. Granite’s strategic plan was to reduce the TSIR to 6.0 by 2010. The safety measure objectives are determined based on management expectations and historical performance. To ensure progress toward the 2010 objective and focus executive efforts on minimizing accidents and fatalities, safety is a part of the executive and division incentive plans. The Corporate and Division Incentive Plans had the same performance criteria. No safety-related incentive is payable under either plan if we experience an employee work-related fatality during the plan year. The TSIR target and payout levels are reviewed and approved annually by the Compensation Committee.

 

The safety goal uses the TSIR to determine whether there has been an overall increase or decrease in safety incidents. Three separate injury rate measures are added to determine the overall TSIR:

 

A. Total Injury Incident Rate (“TIIR”) tracks all injuries requiring an employee to be treated by a health care professional, even if the treatment provided is minor.

 

B. OSHA Recordable Injury Rate (“ORIR”) tracks all injuries serious enough to require OSHA documentation (i.e., medical treatment, restricted duty, lost time).

 

C. Lost Time Injury Rate (“LTIR”) tracks all injuries serious enough to cause an injured employee to be away from work for any days beyond the day of the injury.

 

Incident rates, which represent the number of events per 100 full-time employees, are calculated by multiplying the number of events by category (total injuries, OSHA recordable injuries or lost time injuries) by 200,000 (2,000 hours per employee, per year x 100 employees) and dividing by the total number of hours of employee exposure.

 

For example, in 2009 there were 9,812,603 hours of employee exposure, and the injuries reported were as follows:

 

Total Injuries = 142
OSHA Recordable Injuries = 118
Lost Time Injuries = 34

 

The Total Safety Incident Rate for 2009 was calculated as follows:

 

Total Injury Incident Rate = 142 X 200,000/9,812,473 = 2.89
OSHA Recordable Injury Rate = 118 X 200,000/9,812,473 = 2.41
Lost Time Injury Rate = 34 x 200,000/9,812,473 = 0.69
Total Safety Incident Rate = (TIIR + ORIR + LTIR) = 5.99

 

Division Adjusted Operating Income (AOI)

 

AOI is defined as actual operating income adjusted for pre-defined profit or loss items such as interest earned or charged on operating cash flow and accounting eliminations for such items as equipment transfers and material sales between business units. Under the Division Annual Incentive Plan, executives begin to earn incentive compensation when Division AOI exceeds an initial threshold consisting of allocated corporate overhead and a charge for the cost of the assets employed by the applicable division. The maximum cash incentive for the Division Annual Incentive Plan is paid when a division’s AOI maximum is

achieved. Between the threshold, target and maximum performance, incentive is earned on a pro-rated basis. The Division AOI objectives, as well as the threshold, target and maximum incentive that can be earned by each Division Manager are set annually by the Chief Operating Officer, reviewed by the Chief Executive Officer and reviewed and approved by the Compensation Committee.

 

In determining Division AOI targets, consideration is given to the size of the division, the value of the net assets employed, recent division performance history and current market conditions. If the Division AOI target is not achieved, the actual cash incentive paid is based on a pro-ration of actual Division AOI compared to the Division AOI target.

 

In the past five years, including 2009, the Granite West Division has reached its Division AOI threshold each year and has achieved the maximum Division AOI in three years.

 

In the past five years, including 2009, the Granite East Division has achieved its Division AOI threshold in two years, and has achieved the maximum Division AOI in one year.

 

2009 Annual Incentive Plan Performance Objectives and Actual Performance

 

Executive Officers can earn between 50% and 200% of their annual target opportunity for threshold and maximum performance for financial and safety measures. Payout is zero for performance below threshold levels. For the strategic objectives they can earn 100% for achieving all strategic goals and above target payout is subject to Compensation Committee discretion. Performance objectives and actual performance for 2009 are presented below:

 

 

For the strategic goals, the Compensation Committee evaluated performance and determined a percentage payout relative to target.

Based on actual performance, individual incentives earned by the Executive Officers were as follows:

 

 

In the year ended December 31, 2000, Mr. Roberts’ participated in a bonus banking program. Commissions on the Branch Division operating results that were in excess of the maximum annual commission approved limit were banked for future distribution when the calculated incentive fell below the approved maximum annual incentive limit. This provision of the Incentive Compensation Plan was discontinued beginning with the 2003 plan year. Mr. Roberts’ had a remaining bank balance of $45,160 which was applied towards his 2009 annual incentive compensation and is included in the $330,563.

 

Long-Term Incentive Compensation

 

In order to emphasize sustained long-term performance in 2009, the Compensation Committee approved a new Corporate Long-Term Incentive Compensation Plan (“LTIP”). All Executive Officers are eligible to participate in the Plan. The Compensation Committee reviewed peer group compensation data for comparable positions and established incentive target opportunities which approximate peer group median compensation levels.

 

 

The new Corporate LTIP pays out based on EP and Granite’s relative TSR performance, in accordance with the funding mechanics explained below. Individual allocations are made based on a share of the total pool and are paid out in restricted stock units that vest ratably over three years unless an officer is retirement eligible. The number of shares is calculated based on the individual award value divided by the average of the daily closing stock price in the first 30 days of January of the plan year.

 

Long-Term Incentive Plan Funding Mechanism

 

Economic Performance Funding

 

 

X

 

 

TSR¹

 

 

¹ Linear interpolation is applied for TSR ranks between those specified in the table above.

 

Economic Profit

 

The LTIP incorporates Economic Profit (“EP”) because of the significant capital needs of the business and the Compensation Committee’s objective of creating long-term economic value for shareholders. Understanding how value is created is a key component to implementing an effective strategy and EP provides a framework for evaluating value creation across the portfolio, allocating capital across the portfolio, understanding and quantifying competitive advantage, understanding investor expectations, and developing value growth strategies. EP is based on the economic concept of earning a return on capital

invested which is greater than Granite’s cost of capital. The Compensation Committee approved the use of EP in the LTIP to focus our executives’ long-term efforts on generating returns that are higher than the capitalized cost of assets which are a key driver of Granite’s business. This is intended to ensure that executive efforts are aligned with the interests of shareholders.

 

In each year of the three-year performance period EP is calculated as follows:

 

EP = Net Operating Profit after Tax (NOPAT) – (Average Net Assets x WACC)

 

NOPAT is defined as reported net income plus interest expense net of income tax effect. For purposes of EP, Net Assets is defined as total assets less non-interest bearing liabilities. A simple two-point average of beginning and end of year Net Assets is used to determine Average Net Assets.

 

For Performance Year 2009, EP was limited to zero or greater. Payout calculation for any long-term incentive cycle excludes the impact of any extraordinary business activity during an active long-term incentive cycle (e.g., acquisition or restructuring). The EP performance target for the following long-term incentive cycle will be adjusted accordingly. Note that unlike the annual incentive calculation, Net Assets used for long-term incentive calculation purposes is not adjusted for the estimated value of quarry property which will not be mined within the next five years.

 

In determining threshold, target and maximum EP objectives, the Compensation Committee considers Granite’s historical EP performance, financial forecasts, industry comparisons, cost of capital, and current market conditions. The EP sharing ratios are reviewed and approved annually by the Compensation Committee.

 

Total Shareholder Return

 

In addition to EP, the Committee believes that it is important to explicitly align executive incentives with shareholder value creation. Potential payouts based on EP performance are adjusted by a TSR modifier based on Granite’s three-year TSR performance relative to companies in Standard & Poor’s Construction Materials and Construction and Equipment classification. When Granite’s TSR is at the high end of this group, executives’ payouts based on EP are adjusted upward and vice versa. This adjustment is intended to reward executives when the shareholders’ investment in Granite yields returns that are superior to comparable investments in one or more of the companies in the Standard & Poor’s Construction Materials and Construction and Equipment classification listed below.

 

TSR is calculated by dividing (i) the sum of the closing price on the last trading day of the three-year performance period and all dividends and per-share cash equivalents paid during the performance period, by (ii) the closing price on the day before the first day of the Performance Period. The list of companies used to calculate relative TSR performance consists of twelve companies from the Standard & Poor’s Construction Materials and Construction & Engineering classification over a three year period that began January 1, 2007, and ended December 31, 2009. At the end of 2009, TSR for each of the twelve companies and Granite were calculated and ranked. Based on Granite’s rank, funding based on EP performance is modified.

 

2009 Long-Term Incentive Plan Payouts

 

As of December 31, 2009, Granite’s actual three-year average EP was $25,528,000 which resulted in an interim funding of $4,876,394. Granite’s three-year TSR rank as of December 31, 2009, was 9 out of 13 resulting in a multiplier of .6667 and a final long-term incentive pool of $3,251,092 ($4,876,394 x .6667). Based on this performance actual individual long term incentive awards were as follows:

 

 

(1) The number of shares awarded is calculated by dividing the actual long term incentive value by $39.50 which was the average stock price in January 2009. Since these shares were awarded in fiscal year 2010, they are not reported in the Summary Compensation table of the Grants of Plan-Based Awards table. Instead, they will be reported in the proxy filing for fiscal year 2010.

 

Effective for 2009, the Compensation Committee determined that the Executive Officers would no longer participate in the Granite Profit Sharing Bonus Plan maintained for Granite’s salaried employees due to their participation in the redesigned incentive plans.

 

If the basis upon which a previous compensation award is made changes because of a restatement of a prior year’s financial results, and the previous award is determined to be an overpayment, it is Granite’s policy to either recover the amount overpaid or to hold the overpayment as an offset against future incentive compensation earned. There were no adjustments to calculations that affected incentive compensation calculated or paid in 2009.

 

Our Board of Directors adopted Stock Ownership Guidelines to align the interests of its Executive Officers with the interest of shareholders and to promote Granite’s commitment to sound corporate governance. Executive Officers are expected to own and hold a minimum number of shares of Granite

common stock based on relevant market competitiveness. Stock ownership guidelines are determined as a multiple of the Executive Officer’s base salary, and are as follows:

 

 

Minimum stock ownership levels are to be achieved within five years following the May 13, 2009 adoption of the Stock Ownership Guidelines, or from the date of an individual becoming an Executive Officer. Compliance with the guidelines is reviewed by the Compensation Committee on an annual basis. Shares that count toward the satisfaction of the guidelines include:

 

 

Until the applicable guideline is achieved, the Executive Officer is required to retain an amount equal to 25% of net shares received as a result of the vesting of restricted stock or restricted stock units through Granite’s stock incentive plans.

 

Granite offers its Executive Officers and other key executives participation in the Granite Construction Key Management Deferred Compensation Plan II (the “NQDC”) which:

 

 

Our Executive Officers are eligible to participate in the Granite Construction Profit Sharing and 401(k) Plan. We provide matching contributions on compensation deferred as 401(k) contributions not to exceed 6% of IRS qualified compensation up to $245,000. Executive Officers are provided insurance for personal and auto liability, as well as auto physical damage and umbrella liability.

 

Granite provides certain stock-based compensation under the Amended and Restated 1999 Equity Incentive Plan (the “Equity Plan”), which is accounted for under FASB Accounting Standard Codification Topic 718 (revised 2004), “Share-Based Payment”. Restricted stock compensation cost is measured as the stock’s fair value based on the market price at the date of grant. Restricted stock compensation cost is recognized on a pro-rated basis over the vesting period or the period from the grant date to the first maturity date after the holder reaches age 62 and has completed certain specified years of service, at which time all restricted shares become fully vested.

 

Salary and cash incentive payments and deferred compensation are taxable to the Executive Officer in the year they are paid. Restricted stock incentives are taxable income to the Executive Officer and provide an income tax deduction for Granite in the year the stock vests. Granite expenses salary and cash incentive payments in the year they are paid to the employee for tax purposes.

 

In connection with its determination of the various elements of compensation for our Executive Officer, the Compensation Committee takes into account the impact of Section 162(m) of the Internal Revenue Code on the deductibility of compensation for federal income tax purposes. Section 162(m) limits the deductibility of “non-performance-based” compensation paid to each of our Executive Officers to $1 million annually. Some of the elements of our executive compensation package, including payments under our Corporate Annual Incentive Plan, are intended to qualify as “performance-based” compensation, which is exempt from the limitation on deductibility under Section 162(m). Payments under our new Corporate Long-Term Incentive Compensation Plan do not qualify as “performance-based” compensation for the performance period 2009 and 2010. The Compensation Committee has the discretion to design and implement elements of executive compensation that may not qualify as “performance based” compensation, and to approve compensation packages for individual Executive Officers that may not be fully deductible.

 

LeAnne M. Stewart, our Senior Vice President and Chief Financial Officer, is eligible to receive severance benefits if her employment is terminated without cause. Termination with cause would be based, among other things, on: unauthorized disclosure of confidential information; conviction of a felony; misappropriation of Granite assets; and violation of Granite’s Code of Conduct. In the event of her termination without cause, Ms. Stewart would be entitled to receive the following:

 

 

These cash benefits will be paid within 30 days from the date of termination. Granite provided this benefit to incentivize Ms. Stewart to join Granite with the understanding that in the event she was terminated without cause she would not be adversely impacted financially. The Severance Agreement expires five years following the effective date of the Agreement. A similar benefit has not been provided to Granite’s other Executive Officers, each of whom has been employed with Granite for at least 28 years.

 

Currently, all of our Executive Officers, along with key employees approved by the Compensation Committee, are participants in the Executive Retention and Severance Plan. The purpose of the plan is to:

 

 

The Executive Retention and Severance Plan provides that if an Executive Officer’s employment with Granite is terminated within three years after a “change in control” of Granite other than for cause, or if the Executive Officer resigns voluntarily for “good reason”, the Executive Officer will be entitled to the following benefits:

 

The amount of payment made to the terminated Executive Officer will not exceed, and will be reduced, if required, in order not to exceed the Safe Harbor amount allowable under Section 4999 of the Code.

 

For purposes of the Executive Retention and Severance Plan:

 

 

A change-in-control will also affect restricted stock earned under the Amended and Restated 1999 Equity Incentive Plan. This plan provides that if the surviving successor or acquiring corporation does not either assume outstanding restricted stock awards or substitute new restricted stock awards having an equivalent value, the Board of Directors will provide that any restricted stock awards otherwise unvested will be immediately vested in full.

 

The Compensation Committee has reviewed and discussed with management the “Compensation Discussion and Analysis” contained in this proxy statement. Based on such review and discussions, the Committee recommended to the Board of Directors that the “Compensation Discussion and Analysis” be included in this proxy statement and in Granite’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

 

Members of the Compensation Committee:

 

Gary M. Cusumano, Chair		Claes G. Bjork
William H. Powell		Rebecca A. McDonald

 

The following table summarizes the compensation for our Chief Executive Officer, Chief Financial Officer and three other most highly compensated Executive Officers for the fiscal years ended December 31, 2007, December 31, 2008 and December 31, 2009.

 

 

(1) The awards in column (d) reflect the grant date fair value of stock awards granted in the current year based on performance in the prior year. Please refer to the CD&A for a detailed explanation of the current Long Term Incentive Plan. Stock awards granted to Mr. Dorey are fully vested under Granite’s vesting program whereby stock is vested at 100% when the Executive Officer reaches age 62 with 10 years of service. Mr. Dorey elected to defer all the stock component of his incentive plan compensation for performance year 2007 into the Key Management Deferred Compensation Plan II. Therefore, he did not take constructive receipt of the stock component of his incentive compensation in March 2008 for 2007 performance. We have reported the $1,300,000 earned in the Summary Compensation Table to be consistent with the value reported in Granite’s 2009 Summary Compensation Table where disclosures were based on Accounting Standard Codification Topic 718.

 

(2) The amounts in column (e) reflect the cash awards earned for performance in 2009, awarded and paid in March 2010; cash awards for performance in 2008, awarded and paid in March 2009; and, performance in 2007, awarded and paid in March 2008, respectively. Mr. Roberts’ 2009 Award includes a prior bonus bank balance of $45,160. Please refer to Page 22 of the CD&A for further details.

(3) The amounts in column (f) reflect the above-market earnings on deferred compensation. Above-market is any interest above the applicable federal long-term rate that corresponds most closely to the rate used by the plan at the time the interest rate or formula is set. The Key Management Deferred Compensation Plan II does not provide for above market interest rates. Executive Officers are not provided a pension plan.

 

(4) Please refer to the next table for a detailed break-down of all other compensation.

 

(5) Mr. Roberts’ salary in column (c) reflects the first eight months at $300,000 and the following four months at $350,000 based on the increase he received when he transitioned to Chief Operating Officer effective September 1, 2009.

 

 

(1) The amounts in column (b) reflect the company match, not to exceed 6%, on compensation deferred into the Profit Sharing and 401(k) Plans.

 

(2) The amounts in column (c) reflect ESOP dividends paid to Mr. Dorey, both Restricted Stock and ESOP Dividends paid to Messrs. Roberts and Donnino, and Restricted Stock Dividends paid to Ms. Stewart and Mr. Boitano.

 

(3) The amounts in column (d) reflect a company matching contribution, not to exceed 6%, on the first $100,000 contributed into the Key Management Deferred Compensation Plan II.

 

(4) The amounts in column (e) reflect the taxable portion of the vehicle allowances provided to the Executive Officers. Ms. Stewart is provided a cash allowance while Messrs. Dorey, Roberts, Donnino, and Boitano are provided Granite-owned vehicles.

 

(5) The amounts in column (f) reflect the company expense for medical, dental, vision, life, and long-term disability insurance.

 

(6) The amounts in column (g) reflect Ms. Stewart’s reimbursed relocation costs upon joining Granite and a special allowance for financial planning services for Mr. Donnino.

 

The following table provides additional information about stock and option awards and equity and non-equity incentive plan awards granted to our Executive Officers during the year ended December 31, 2009.

 

 

(1) In 2009 Granite moved to a new annual incentive program (refer to Page 18 of the CD&A for details). Under the program, Executive Officers can earn 0% - 200% of their target annual incentive compensation for below threshold and maximum stretch performance, respectively. Amounts in columns c through h reflect threshold target and maximum incentive opportunities as applicable. In prior years Granite had one incentive program with specified maximum cash limits. Refer to Granite’s proxy filing April 11, 2008 for an explanation of prior programs.

 

(2) In 2009 Granite moved to a new Long Term Incentive Plan (refer to Page 22 of the CD&A for details). Under the Long Term Incentive Plan Executive Officers earn 0% of their target compensation for EP performance below the threshold. The maximum payout opportunity is uncapped. In prior years Granite had one incentive program with specified maximum cash and total direct compensation limits. Incentives earned in excess of the cash limit and up to the total direct compensation limits were settled in stock. Refer to Granite’s proxy filing April 11, 2008 for an explanation of prior programs.

(3) This column reflects the grant date value of shares granted in a given fiscal year based on the prior year’s performance. In 2009 the number of shares granted were based on the value of long-term incentive earned divided by the average 30 day stock price in January 2008 of $34.87. The grant date fair value is determined by multiplying the number of shares granted by the stock price on the date of grant. In 2008 the number of shares granted were based on the value of long-term incentive earned divided by the average 30 day stock price in January 2007 of $51.75. As explained in footnote 1 to the Summary Compensation Table, Mr. Dorey elected to defer all his incentive compensation earned in 2007 and hence did not take receipt of any shares in 2008. In 2007 the number of shares granted were based on the value of long-term incentive earned divided by the stock price on December 29, 2006 of $50.32.

 

The following table summarizes equity awards made to the Executive Officers that were outstanding as of December 31, 2009.

 

		Stock Awards
		Equity Incentive Plan
		Awards: Number of		Market Value of
		Unearned Shares, Units		Shares or Units of
		or other Rights that Have		Stock that Have
		Not Vested(1)		Not Vested(2)
Name		(#)		($)
(a)		(b)		(c)
William G. Dorey President & Chief Executive Officer (CEO)		-		-
LeAnne M. Stewart Senior Vice President & Chief Financial Officer (CFO)		15,773		530,919
James H. Roberts Executive Vice President & Chief Operating Officer (COO)		40,284		1,355,959
Michael F. Donnino Senior Vice President & Group Manager		16,423		552,798
Mark E. Boitano Senior Vice President		43,406		1,461,046

 

(1) In 2006, Mr. Dorey became fully vested in all stock awards under Granite’s vesting program, whereby stock is 100% vested when the holder reaches age 62 with 10 years of service. Mr. Dorey’s amounts that vested in 2009 are reflected in the Stock Vested table in columns (b) and (c).

 

(2) The amounts shown in column (c) reflect the December 31, 2009 stock price of $33.66.

 

The following table reflects the number of shares our Executive Officers acquired upon the vesting of stock awards during 2009 and the value realized before payment of applicable withholding tax and broker commissions.

 

		Stock Awards
		Number of Shares
		Acquired on		Value Realized
		Vesting(1)		upon Vesting(2)
Name		(#)		($)
(a)		(b)		(c)
William G. Dorey President & Chief Executive Officer (CEO)		37,281		1,506,898
LeAnne M. Stewart Senior Vice President & Chief Financial Officer (CFO)		-		-
James H. Roberts Executive Vice President & Chief Operating Officer (COO)		16,833		583,100
Michael F. Donnino Senior Vice President & Group Manager		3,206		117,179
Mark E. Boitano Senior Vice President		9,538		335,829

 

(1) In 2006, Mr. Dorey turned age 62 with 10 years’ service. Under the Granite vesting program all of Mr. Dorey’s outstanding stock awards became 100% vested. The table above reflects 37,281 shares granted to Mr. Dorey, 16,833 shares granted to Mr. Roberts, 3,206 granted to Mr. Donnino and 9,538 shares granted to Mr. Boitano on March 13, 2009, for 2008 performance. The plan grant price was $34.87, which was the average daily closing stock price in the first 30 days of January of the 2008 performance year.

 

With respect to 2009 performance, Mr. Dorey earned 34,655 shares, Ms. Stewart earned 10,397 shares, Mr. Roberts earned 11,263 shares, Mr. Donnino earned 10,397 shares and Mr. Boitano earned 15,595 shares. The shares were granted on March 11, 2010, based on a plan grant price of $39.50. This is the average of the daily closing stock price in the first 30 days of January of the 2009 performance year. Mr. Dorey’s stock awards were 100% vested upon receipt of the award.

 

(2) The amounts in column (c) reflect the fair value on the day of vesting.

 

The following table summarizes our Executive Officers’ compensation under our nonqualified deferred compensation plans for the year ended December 31, 2009 which is also reflected in the Summary Compensation Table above:

 

 

(1)  The Granite Construction Key Management Deferred Compensation Plan II allows key executives to defer incentive compensation and employee stock ownership (ESOP) dividends. Granite provides a matching contribution of 6% on the first $100,000 of employee deferral. Participants are required to make an election each plan year with respect to the amount to be deferred, date, and form of distribution. A distribution election is irrevocable on the first day of each plan year. Amounts in column (b) in the above table are included in the Summary Compensation Table. Mr. Dorey and Ms. Stewart deferred 100% of their non-equity incentive compensation into The Key Management Deferred Compensation Plan II. Mr. Donnino deferred 25% of his non-equity incentive compensation into the Key Management Deferred Compensation Plan II. Mr. Roberts and Mr. Boitano made no deferrals of their non-equity incentive compensation into The Key Management Deferred Compensation Plan II. In addition, Mr. Donnino deferred ESOP dividends into the Key Management Deferred Compensation Plan II. Due to the timing difference of the matching contribution, amounts in column (c) may not equal 6% of the executive contribution in column (b).

 

(2)  The Key Management Deferred Compensation Plan II allows Executive Officers who are 62 years of age and have 10 years of service on the last day of the performance period, to defer receipt of 100% of the restricted stock payable under the Performance Unit Agreement. A quarterly dividend equivalent is credited to Executive Officers who defer performance units into the Key Management Deferred Compensation Plan II. For the performance period ended December 31, 2009, there was no deferral of restricted stock payable under the Performance Unit Agreement. Mr. Dorey’s aggregate balance of $5,986,787.01 reflects the cash value of $5,395,907.33 in incentive compensation and prior ESOP deferrals and 17,554.358 performance units valued at $590,879.68, based on a closing stock price of $33.66 on December 31, 2009. Ms. Stewart,

and Messrs. Roberts, Donnino, and Boitano have no performance unit deferrals into the Key Management Deferred Compensation Plan II.

 

Except in the case of a change in control, Granite is not obligated to pay severance or other enhanced benefits to any of the Executive Officers except Ms. Stewart. Severance benefits are payable to Ms. Stewart upon the termination of her employment other than for cause as described under “Severance Arrangement” above.

 

The following table describes an example of the potential payments and benefits under Granite’s compensation and benefit plans and arrangements to which the Executive Officers would be entitled upon termination of employment within three years following a change in control of Granite. This example assumes the event occurred on the last business day of fiscal year 2009.

 

 

(1) The amounts in column (b) reflect a lump sum payment equal to the average of the aggregate annual incentive bonuses earned for the three fiscal years preceding the fiscal year of the change in control and a lump sum payment equal to three times the annual base salary rate in effect immediately prior to the termination.

 

(2) The amounts in column (c) reflect the lump sum equal to the average cost to Granite of the Executive Officer’s group insurance benefits, such as life, health and long-term disability, for the three fiscal years ending before the date of termination.

 

(3) The amounts in column (d) reflect a lump sum payment equal to the average cash equivalent of contributions which would have been made on behalf of the officer for the three fiscal years ending before the date of termination to the ESOP, profit sharing plan, or other retirement plan provided by Granite and in

effect as of the date of termination. This amount does not include additional amounts that may be payable for reasonable professional outplacement services for the Executive Officer.

 

(4) In the event of a change in control, if the acquiring corporation elects not to assume or substitute outstanding equity awards, all non-exercisable, unvested or unpaid portions of these outstanding equity awards would become immediately exercisable and fully vested. If the Executive Officer’s service is terminated within 12 months following a change in control, the exercisability, vesting, and payment of the outstanding awards are accelerated effective immediately as of the date of termination. The amounts in column (e) reflect the outstanding equity awards valued at the December 31, 2009 stock value of $33.66. In 2006, Mr. Dorey’s outstanding stock awards were 100% vested under the Granite vesting program. He qualified for accelerated vesting having attained age 62 with 10 years of service.

 

David H. Watts served as Chairman of the Board through August 31, 2009 and retired as a Granite employee on October 31, 2009. William H. Powell was elected as a non-employee Chairman of the Board effective September 1, 2009.

 

Beginning November 5, 2009, all existing non-employee directors are required within five years to own and maintain two times (2x) their annual cash compensation in Granite common stock. All non-employee directors who join the Board will be required to own and maintain two times (2x) their annual cash compensation within five years after joining the Board.

 

Granite’s non-employee directors receive annual cash retainers and equity grants per the table below. Key highlights of the director compensation program are as follows:

 

 

 

The following table presents the compensation provided by Granite to our directors for the year ended December 31, 2009.