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

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1390 Enclave Parkway

Houston, Texas 77077-2099

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held November 12, 2010

 

To the Stockholders of Sysco Corporation:

 

The Annual Meeting of Stockholders of Sysco Corporation, a Delaware corporation, will be held on Friday, November 12, 2010 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 14, 2010 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 offices 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

 

September 29, 2010

 

SYSCO CORPORATION
1390 Enclave Parkway
Houston, Texas 77077-2099

 

PROXY STATEMENT

 

2010 ANNUAL MEETING OF STOCKHOLDERS

 

September 29, 2010

 

Information About Attending the Annual Meeting

 

Our Annual Meeting will be held on Friday, November 12, 2010 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 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, 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 at the close of business on September 14, 2010. You are entitled to one vote for each share you owned on that date on each matter presented at the Annual Meeting. On September 14, 2010, there were 587,708,541 shares of Sysco Corporation common stock outstanding. All of our current directors and executive officers (20 persons) owned, directly or indirectly, an aggregate of 770,005 shares, which was less than 1% of our outstanding stock as of September 14, 2010.

 

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 approval of the Amended and Restated Sysco Corporation 1974 Employees’ Stock Purchase Plan and ratification of the appointment of the independent accountants.

 

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. Under applicable NYSE rules, we may only receive broker non-votes with respect to the election of the four nominees for directors and the proposal to amend the Sysco Corporation 1974 Employees’ Stock Purchase Plan.

 

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 whether to accept or reject the resignation offer, or whether other action should be taken. The Board 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 approval of the amendment to the Sysco Corporation 1974 Employees’ Stock Purchase Plan to reserve 5,000,000 additional shares of Sysco Corporation common stock for issuance under the plan and ratification of the appointment of the independent accountants.

 

Broker non-votes will be disregarded with respect to the election of directors and all other proposals. Abstentions 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, 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 shareholder, you and the other shareholders 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 2010 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 III to serve for three-year terms or until their successors are elected and qualified:

 

 

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, including the nominees for election as a director at the 2010 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 III Directors for terms expiring at the 2013 Annual Meeting:

 

John M. Cassaday, 57, 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, 64, has served as a director of Sysco since November 2006 and as the non-executive Chairman of the Board since June 28, 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.

 

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 counties. 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:

 

 

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.

 

He also previously served on Sysco’s Finance 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, 64, 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 a director of Air Berlin PLC and Esprit Holdings Limited, as well as several private European companies, including Klüh Service Management GmbH and WEPA Industrieholding SE. 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 Benken 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, 72, 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 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 and had over 30 years of experience with CGI, a provider of software solutions to the telecommunications industry with offices in the U.S., England and Australia. 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 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 United States. 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.

 

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

 

 

Class I directors whose terms expire at the 2011 Annual Meeting:

 

William J. DeLaney, 54, 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 when Mr. Spitler announced his pending retirement 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 the appointment of Mr. Kreidler as Sysco’s Chief Financial Officer became effective on October 5, 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.

 

Judith B. Craven, M.D., 64, 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.

 

Phyllis S. Sewell, 79, has served as a director of Sysco since December 1991. Currently retired, she formerly served as Senior Vice President of Federated Department Stores, Inc. Mrs. Sewell is a member of Sysco’s Compensation Committee and our Corporate Governance and Nominating Committee.

 

Key Director Qualifications:  Mrs. Sewell earned a Bachelor of Arts degree in Economics with honors from Wellesley College. She gained experience in leadership, corporate strategy and development and marketing through her 36-year career with Federated Department Stores. She ultimately served as Federated’s Senior Vice President of Research and Planning with responsibility for corporate and divisional strategic plans, studies of retail merchandising and marketing opportunities and techniques. Mrs. Sewell gained further marketing experience by serving on the Board of Directors of three companies marketing consumer goods and/or services: Huffy Corporation (bicycles and sporting goods), U.S. Shoe (shoes, apparel and eyeglasses) and Lee Enterprises (newspapers and television stations). She also served on the Board of Pitney Bowes, Inc. Mrs. Sewell became regarded as a pioneer for women’s rights in the workplace, including becoming one of the first women corporate vice presidents in the country in 1975, serving as one of the first women members of the Board of Directors of a stock-exchange listed company beginning in 1976 and becoming the first female Senior Vice President of Federated in 1979. Honors bestowed upon Mrs. Sewell include being named the Cincinnati Enquirer Woman of the Year in 2003, a Great Living Cincinnatian by the Cincinnati USA regional Chamber in 2003, one of the top 85 Women Business Executives by Industry Week Magazine in 1985 and one of Business Week Magazine’s Top 100 Corporate Women in 1976. She received the Alumnae Achievement Award from Wellesley College in 1979 and was inducted in the Ohio Women’s Hall of Fame in 1982.

 

Richard G. Tilghman, 70, 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. 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.

 

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

 

Larry C. Glasscock, 62, was appointed as a director of Sysco on September 17, 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 is one of our CEO’s key non-financial goals for fiscal 2011. 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.

 

Jonathan Golden, 73, 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 eight 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 ten 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., 65, 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 1971, 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, 65, 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 Moody’s Corporation and The DIRECTV Group, Inc. Ms. Newcomb is a member of Sysco’s Audit Committee and our 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 completed Harvard Business School’s Management Development Program. Ms. Newcomb’s 30-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 areas of Finance and International Operations, Ms. Newcomb served as Customer Group Executive, Division Executive for Latin America and Principal Financial Officer responsible for worldwide treasury operations, including liquidity, funding and capital management.

 

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

 

Kenneth F. Spitler retired as an officer and director of the company on February 5, 2010. He formerly served as a Class II director. Following Mr. Spitler’s resignation, the Board reduced its size from 12 to 11 members. The Board subsequently increased its size to 12 members when Mr. Glasscock was appointed in September 2010.

 

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 May 2010. 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, Mrs. Sewell, Mr. Tilghman and Ms. Ward 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 2010, 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 2010.

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 shareholders.

 

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 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 2010, the non-management directors held five 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 ten meetings, including five regular meetings and five special meetings, during fiscal 2010, 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 2010, all directors who were in office at that time attended the Annual Meeting held in November 2009.

 

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 eleven meetings during fiscal 2010. During fiscal 2010, 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 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 nine meetings during fiscal 2010. During fiscal 2010, Mr. Cassaday (Chair), Dr. Craven, Mr. Fernandez, Mrs. Sewell, and Ms. Ward served on the Compensation Committee. All committee members served for the full year. 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 nine meetings during fiscal 2010. During fiscal 2010, Ms. Ward (Chair), Mr. Cassaday, Dr. Craven, Mr. Fernandez and Mrs. Sewell served on the Corporate Governance and Nominating Committee. All committee members served for the full year. The function of the Corporate Governance and Nominating Committee is to:

 

 

Corporate Sustainability Committee — The Corporate Sustainability Committee met two times during fiscal 2010. During fiscal 2010, Dr. Craven (Chair), and Messrs. Golden, Hafner and Spitler served on the Corporate Sustainability Committee. Mr. Spitler served on the Committee until his retirement from the Board on February 5, 2010. All other committee members served for the full year. 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 2010. During all of fiscal 2010, Mr. Cassaday, Mr. DeLaney, Mr. Fernandez (Chair), Mr. Hafner, Mr. Tilghman and Ms. Ward served on the Executive Committee. Mr. Spitler served on the Committee until his retirement from the Board on February 5, 2010. 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 five meetings during fiscal 2010. During fiscal 2010, Mr. Hafner (Chair), Mr. DeLaney, Mr. Golden, Dr. Koerber, Ms. Newcomb, Mr. Spitler and Mr. Tilghman served on the Finance Committee. Mr. Spitler served on the Committee until his retirement from the company on February 5, 2010. All other 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

 

For the past several years and through September 2010, the Compensation Committee retained Mercer as its executive compensation consultant. In September 2010, several former Mercer employees, including those who managed Mercer’s relationship with Committee, formed a new compensation advisory firm named Committee Compensation Advisory Partners. At that time, the Compensation Committee retained Compensation Advisory Partners as its compensation consultant to replace Mercer. Retained by and reporting directly to the Compensation Committee, these compensation consultants have provided the Committee with assistance in evaluating Sysco’s executive compensation programs and policies, and, where appropriate, have assisted with the redesign and enhancement of elements of the programs. The scope of the executive compensation consultants’ assignments in fiscal 2010 included:

 

 

 

Mercer also advised, and Compensation Advisory Partners now advises, the Corporate Governance and Nominating Committee with respect to non-employee director compensation. At the Corporate Governance and Nominating Committee’s request, Mercer 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, compensation consultant representatives attend meetings at which the Committee Chairmen believe that their expertise would be beneficial to the Committees’ discussions.

 

During fiscal 2010, management engaged Mercer to provide certain non-executive benefit consulting services. Although these consulting services were not also formally approved by the Board or a Board committee, the Compensation and Corporate Governance and Nominating Committees reviewed the overall fees incurred during fiscal 2010 by the Compensation and Corporate Governance and Nominating Committees and by management for consulting services provided by Mercer and its affiliates, and the Committees concluded that Mercer’s or its affiliates’ provision of services to management did not affect the advice Mercer provided to the Committees on executive and non-employee director compensation matters. The Committees satisfied themselves that Mercer followed rigorous guidelines and practices to guard against any conflict and ensure the objectivity of their advice. There was no overlap between the members of the consulting team giving advice to the Committees and those involved with other work for Sysco. During fiscal 2010, Sysco paid Mercer approximately $205,500 for executive and non-employee director consulting services provided to the Compensation and Corporate Governance and Nominating Committees. Sysco and its Canadian subsidiary paid Mercer an aggregate of approximately $113,000 for non-executive benefit consulting services that Mercer was determined by Sysco and its Canadian subsidiary as best suited to perform. These services primarily consisted of investment consulting services and advisory services regarding Canadian multi-employer pension plans. Sysco also paid an aggregate of approximately $855,000 to Marsh Insurance Brokerage, Kroll Associates and certain other affiliates of Mercer for insurance brokerage services, investigative searches on potential executive and director candidates, crisis management consulting services and certain non-executive software compensation data and tools. These amounts do not include insurance premiums paid to Marsh Insurance Brokerage, an affiliate of Mercer, that are passed on to Sysco’s insurers. Compensation Advisory Partners and its affiliates did not provide any additional services to Sysco and its affiliates during fiscal 2010 other than those provided to the Compensation and Corporate Governance and Nominating Committees.

 

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 2010 annual stockholders meeting from any Sysco security holder or group of security holders.

 

If we receive by June 1, 2011 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.

 

Declassification of the Board

 

The Board recognizes that most Fortune 100 companies have now moved towards declassification and the annual election of all directors. For the reasons described below, the Board does not believe that the movement to a declassified Board is appropriate for Sysco at this time. However, it is the Board’s current intention to submit to Sysco’s stockholders, with its support, a declassification proposal in connection with Sysco’s 2011 Annual Meeting of Stockholders. The Board’s expectation is that the proposal, if approved by stockholders, would implement a staggered declassification of the Board of Directors over a three-year period beginning with the election of the Class III directors for a one-year term at Sysco’s 2012 Annual Meeting of Stockholders.

 

The rationale for the timing of the declassification proposal discussion above is as follows: Sysco has undergone a significant number of changes in senior management since January 2009 when the pending retirement of Richard J. Schnieders, then Chairman and CEO, was announced. These changes continued with the appointment of William J. DeLaney (who was then serving as Sysco’s CFO) as CEO in early 2009, the appointment of Robert C. Kreidler as Executive Vice President and Chief Financial Officer in late 2009, and the retirements of Kenneth F. Spitler and Stephen F. Smith in 2010. With the retirement of Mr. Schnieders, Sysco’s Board appointed Manuel A. Fernandez as Sysco’s first independent Chairman of the Board. In 2010, Sysco also began realigning its U.S. broadline business into three geographic regions and 11 geographic markets in order to more cohesively approach how Sysco develops key customer relationships, identifies attractive acquisition opportunities and adapts to changes in regional competitive environments. Several management positions changed and several operating company officers were promoted as a result of these changes.

 

In November 2009, Sysco’s Board made the decision to proceed with the development and implementation of Sysco’s Business Transformation Project. This multi-year strategic initiative is the largest project Sysco has undertaken in its 40-year history. Expected to include total cash outlays of approximately $900 million, this project is designed to extend Sysco’s performance advantage by reducing complexity, redundancy, inefficiency and ineffectiveness across the enterprise. While the project is based on the adoption of an enterprise-wide platform to implement an integrated software system, it is much more than a technology initiative and is expected to fundamentally change the way Sysco operates in many parts of the business. The Business Transformation Project will require a new culture at Sysco that is the culmination of changes in our information technology systems, structure, processes and people with the ultimate goal of creating a culture of consistent business improvement through operational excellence.

 

The implementation and realization of Sysco’s Business Transformation Project is complex and time-consuming. Sysco’s Board of Directors has been actively involved with the project since the initial feasibility studies. Mr. Fernandez, as Sysco’s independent Chairman of the Board, has provided valuable advice and guidance to the executive management team with respect to the project based on his technology background. Sysco’s Board believes that the changes in the executive management team, the undertaking of the Business Transformation Project and the related changes in Sysco’s culture require a cohesive Board that has historical knowledge of the project and is focused on its implementation to remain in place for the next several years. The Board believes that this cohesiveness will ultimately benefit both Sysco and its stockholders. Therefore, the Board feels that the adoption of a declassified Board structure should not occur until Sysco has substantially implemented the project.

 

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, 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.”

 

Kirk G. Drummond has served as Sysco’s Senior Vice President of Sysco Business Services and Treasurer since July 2010. Mr. Drummond joined Sysco in 1986 as Controller of Sysco’s Grand Rapids, Michigan subsidiary. In 1989 he transferred to Sysco’s Atlanta operation as Chief Financial Officer and Controller, a position he held until 1992 when he assumed the added duties of Vice President of Finance. Mr. Drummond relocated to Sysco’s corporate headquarters in Houston in 1997 when he was appointed Vice President and Controller. He was named Vice President and Chief Information Officer in 2000 and served in that position until January 2005, when he was appointed to the role of Senior Vice President and Chief Information Officer. In December 2005, Mr. Drummond moved to the role of Sysco’s Senior Vice President, Finance and Treasurer, which he continued to serve in until he was appointed to his current position in July 2010.

 

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. 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.

 

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.

 

Michael C. Nichols has served as Sysco’s General Counsel since 1998 and was promoted to Senior Vice President in July 2006. In 2009, Mr. Nichols assumed additional responsibilities for the oversight of Sysco’s Human Resources and Administrative functions. Mr. Nichols began his Sysco career in 1981 as General Counsel at Sysco’s corporate office in Houston, a position he held through 1988. In 1991, he rejoined Sysco Corporation as Vice President of Management Development and Human Resources, and in 1998 he advanced to the position of General Counsel. He has also served as Sysco’s Corporate Secretary since 2002.

 

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 Canadian and other 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. In addition, the CEO periodically provides the Board with an assessment of potential successors to other key positions.

 

During fiscal 2008, as part of the Board’s ongoing succession planning, the executive management team engaged an independent advisor to evaluate and analyze the strengths and weaknesses of Sysco’s top executives. In addition, in fiscal 2009, the Board and its Corporate Sustainability Committee engaged in discussions with management regarding increasing the diversity of Sysco’s executive management team. In addition, the Chief Executive Officer and Chief Operating Officer included Sysco’s effectiveness in management development and succession planning as part of their fiscal 2010 non-financial performance goals, which are reviewed at the end of the fiscal year by the Compensation and Corporate Governance and Nominating Committees. Management development and succession planning remain top priorities of executive management and the Board during fiscal 2011, 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 September 14, 2010, by (i) each director and each director nominee, (ii) each named executive officer (as defined under “Compensation Discussion and Analysis”), and (iii) all directors, director nominees and executive officers as a group. To our knowledge, no person or group beneficially owned more than 5% of our common stock as of September 14, 2010. 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. Our Corporate Governance Guidelines provide that the executives should own the number of shares, by position, as described in the following table:

 

 

The four- and eight-year periods begin when the executive is elected to the listed position. If an individual is promoted from one listed position to another, he or she will be required to meet the new position ownership guideline by the fourth and eighth years following the promotion, while continuing to meet the guideline under his or her previous position.

 

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, shares underlying unexercised options or shares underlying unvested restricted stock units.

 

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 $30 Sysco stock price, the CEO ownership requirement of 175,000 shares equals a value of approximately five and one-quarter 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. The graduated approach of a four-year and then eight-year requirement also allows a reasonable amount of time for an executive to accumulate the shares necessary to satisfy the ownership requirements imposed upon him following his appointment or promotion. 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 September 14, 2010, 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 2010, all of our executive officers and directors complied with the Section 16(a) requirements, except as follows: On July 31, 2009, Mr. Nichols exercised options to purchase 7,788 shares of common stock and tendered 5,386 shares for the payment of the exercise price and any related taxes. The transaction was not reported on a Form 4 until August 11, 2009. One-third of Mr. Hafner’s initial retainer stock grant was forfeited on November 7, 2009 because the performance criteria required for vesting was not satisfied; the Form 4 reporting the forfeiture of those 1,334 shares was not filed until April 13, 2010.

 

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 5% 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 2010 and continues to do so in fiscal 2011. During fiscal 2010, Sysco incurred approximately $2.6 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 $67.2 million during fiscal 2010.

 

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 18 years of experience in Sysco’s information technology department and has been a corporate officer since 2000. With respect to fiscal 2010, we paid Ms. Day a base salary of $282,500, and she received a MIP bonus of $598,500, which we paid in August 2010. In August 2009, Ms. Day received a $22,969 payment with respect to the September 2006 CPU grant and in August 2010, Ms. Day received a $14,779 payment with respect to the September 2007 CPU grant. Ms. Day received a new CPU grant in November 2009 of 1,737 units with a target value of $35 each, which will be payable following conclusion of fiscal 2012 if all specified criteria are met. See “Executive Compensation — Cash Performance Unit Plans.” In November 2009, Ms. Day received a grant of stock options to purchase 12,000 shares of common stock and 3,000 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 $55,080 and the restricted stock units were valued at $82,320, based on the closing price of Sysco common stock on the last business day prior to grant of $27.44 per share. Ms. Day is included with other MIP participants under the fiscal 2011 MIP program, with target and maximum bonus percentages equal to those of the named executive officers. See “Executive Compensation — 2005 Management Incentive Plan.” 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 3, 2010.

 

 

 

 

The following discussion and analysis contains references to target performance levels for our annual and 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.

 

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 six 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.

 

Fiscal 2010 was a year of change for Sysco. It was the first full year in which Mr. DeLaney served as the Company’s Chief Executive Officer. During October 2009, Mr. Kreidler joined Sysco to fill the office formerly held by Mr. DeLaney as Executive Vice President and Chief Financial Officer. In the spring of 2010, we announced two pending retirements: Mr. Spitler, as Sysco’s Vice Chairman, President and Chief Operating Officer, and Mr. Smith, as Executive Vice President of Sysco’s South and West Foodservice Operations. Sysco’s management team also spent a great amount of time on our multi-year business transformation initiative; we currently have more than 300 people dedicated full time to the project, have completed much of the design and technology development work, and are currently testing systems and processes. Although these changes occurred during a challenging economic environment and increasing competitive market, Sysco’s management team kept their full attention on servicing our customers and effectively managing expenses, resulting in solid financial performance for fiscal 2010. Sysco’s executive compensation programs have continued to change, as well. For example:

 

 

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 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 the past several years and through September 2009, the Committee retained Mercer as its executive compensation consultant. In September 2009, the Committee retained Compensation Advisory Partners as its compensation consultant to replace Mercer. Compensation Advisory Partners is a compensation advisory firm formed by former Mercer employees, including those who managed Mercer’s relationship with the Committee. See “Corporate Governance and Board of Directors Matters — Compensation Consultants” for a discussion of the role of these consultants and certain other relationships with Mercer and its affiliates.

 

Executive Compensation Philosophy and Core Principles

 

Since the early 1970s, 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 food service 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 has historically paid base salaries from below the 25th percentile to the 50th percentile of similar positions in Sysco’s compensation peer group, while placing significant portions of executive pay at risk through short-term and long-term incentives. This emphasis on performance-based variable compensation has sometimes resulted in the loss of one or more significant components of the named executive officers’ target annual compensation. For example, in fiscal 2009, the named executive officers did not earn a MIP bonus because the company’s fully diluted earnings per share decreased 2.2% compared to the prior year, which did not satisfy the minimum criteria of a 4% increase. Similarly, in fiscal 2006, the five highest paid executive officers did not earn a MIP bonus because the company did not satisfy the necessary performance criteria. The percentage break-down of the target total compensation for fiscal 2010, exclusive of retirement and special retirement or transition payments, for the named executive officers other than Mr. Kreidler is shown below, with the information for Messrs. DeLaney and Spitler combined as an average. Mr. Kreidler joined Sysco after the start of the 2010 fiscal year and, therefore, is not included in the graphs below. Messrs. DeLaney’s and Spitler’s information has been averaged because the respective percentages of their corresponding compensation components are not materially different. For purposes of these graphs, annual incentives include the MIP bonus at the fiscal 2010 target payout of 200% of salary, while longer-term incentives include the following fiscal 2010 grants: stock options valued using a Black Scholes calculation, restricted stock units valued at the fair market value of Sysco stock on the date of grant and cash performance units valued at $35 per unit with assumed payout at the 100% target amount.

 

Target Total Compensation for Fiscal 2010

 

Furthermore, 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. Whether or not the annual MIP bonus is paid, and the amount of any such payment, is also wholly dependent on Sysco’s performance. Using the same valuation method utilized for the calculations in the charts above for the annual and longer-term incentives, these three performance-based components constituted approximately 70% of the total target compensation for fiscal 2010 for each of Messrs. DeLaney, Spitler, Pulliam, Green and Smith.

 

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 long-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 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 2010 Compensation Focus

 

Based on Mercer’s 2009 benchmarking of Sysco’s pay and performance against the peer group discussed below, Mercer informed the Committee that total cash compensation (base salary only because no MIP bonus was paid for fiscal 2009) and total direct compensation (total cash compensation plus the value of stock options, restricted stock, RSUs and CPUs grants with respect to fiscal 2009) paid by Sysco for fiscal 2009 were generally positioned at the bottom 25th percentile of the peer group. In

comparison, Sysco’s performance relative to the peer group, based on an assessment of revenue, earnings per share, return on capital and total shareholder return over the four quarters corresponding to Sysco’s fiscal 2009, was positioned at the median of the peer group. This disconnect was primarily related to Sysco’s failure to satisfy the year-over-year earnings criteria for payment of the MIP bonus for fiscal 2009. As a result, the Committee focused in fiscal 2010 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, it is the Committee’s goal to continue to adjust the total pay package in order to continue to move total direct compensation and total direct compensation plus retirement benefits closer to the peer group median.

 

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 instructed Sysco’s management to work with Mercer to construct a peer group for Sysco’s executive compensation analysis. The peer group utilized by the Committee for fiscal 2010 MIP grant decisions made in May 2009 was composed of publicly-traded U.S. companies with a revenue range of approximately one-half to three times Sysco’s revenues that shared similar business characteristics with Sysco. In particular, Mercer helped the Committee examine industry leaders and other high-performing companies in logistics and distribution businesses that involved a high volume of relatively low-margin products and employed large sales forces. For fiscal 2010 MIP decisions made during May 2009 for all named executive officers except Messrs. Smith and Green, the peer group, referred to herein as the fiscal 2009 peer group, consisted of the 14 companies identified below:

 

 

With respect to Messrs. Smith and Green, with respect to whom comparable peer group information was not readily available, the Committee made the fiscal 2010 MIP grant decisions using information from the 2008 Mercer Benchmark Database broad-based industry survey of companies with annual revenues in excess of $10 billion. Subsequent compensation decisions with respect to Messrs. Smith and Green were made using the peer group data described below.

 

During fiscal 2009, the Committee requested that Mercer begin a reevaluation of Sysco’s executive compensation peer group. In this process, Mercer continued to focus on companies with a revenue range of approximately one-half to three times Sysco’s revenues that shared similar business characteristics with Sysco, but also focused on companies that could be considered comparable to Sysco for purposes of attracting investor dollars and executive talent. As a result, Mercer recommended to, and discussed with, the Committee a new peer group of 12 companies. During the review, the Committee and Mercer agreed to retain one additional company that was previously included in the fiscal 2009 peer group. Following these discussions, the Committee approved selection of a new peer group of 13 companies as set forth below, which the Committee has utilized for all executive compensation decisions made from July 2009 to the present. The new peer group added four more comparable companies and removed five companies with larger revenue size and somewhat different business models from

Sysco. These changes resulted in a new peer group with a $45 billion median revenue level that is much closer to Sysco’s than that of the fiscal 2009 peer group’s $57 billion. The companies included in the new peer group are as follows:

 

 

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 made during, and with respect to, fiscal 2010:

 

 

For purposes of each 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. 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 and the beginning of fiscal 2011 and the percentage changes over that period:

 

 

 

 

Base Salary Analysis

 

The Committee has typically reviewed base salaries each November and set them for the following calendar year; however, beginning in May 2010, the Committee has determined that it will generally review salaries in May of each year and set them for the following fiscal year. As stated above, Sysco’s culture has been built around the belief that establishing a relatively modest base salary and placing more of the executives’ annual pay at risk will drive both individual and company performance in order to achieve our business targets. Although base salary and MIP grant decisions have not always been made at the same time, the Committee does consider how each executive’s salary affects the other elements of his total cash compensation and total compensation, including the impact on the annual MIP bonus, which is based on a multiple of salary, and the impact on future benefits under the SERP.

 

In September 2009, the Board of Directors appointed Robert C. Kreidler to serve as Sysco’s Executive Vice President and Chief Financial Officer effective October 5, 2009. Based on the information provided by Mercer regarding the compensation of chief financial officers in Sysco’s compensation peer group, the Compensation Committee set Mr. Kreidler’s base salary at $500,000. This placed him below the 25^th percentile of the peer group with respect to base salary and above the 75^th percentile with respect to target total cash compensation, which was consistent with the Committee’s stated goals, as discussed above.

 

During the fall of 2009, the Committee reviewed the Mercer report, which showed that although the fiscal 2010 base salaries of Messrs. DeLaney, Pulliam, Green and Smith approximated or were below the 25^th percentile relative to the peer group (with Mr. Spitler being between the 25^th and 50^th percentiles), their target total cash compensation for fiscal 2010 was at or above the 75^th percentile for all except Mr. DeLaney, who was below the 25^th percentile. Due to his recent hire, Mr. Kreidler’s base salary was not reevaluated at that time. Mr. DeLaney had received a salary increase in connection with his promotion to the CEO position in March 2009. At that time, the Committee provided Mr. DeLaney with a sufficient salary increase to constitute a material step towards peers group competitiveness, but determined that his pay package should be made competitive at the CEO level with Sysco’s peer group only as his tenure and experience in the CEO role increased; therefore, the Committee determined not to change Mr. DeLaney’s salary at that time. With respect to the other executives, because their base salary and target total compensation numbers were consistent with the Committee’s stated goal of providing conservative base salaries and premium total cash compensation opportunities, and given the challenging economic conditions facing Sysco and the foodservice industry, and the continued need for expense control, the Committee did not make any base salary modifications at that time.

 

As of May 2010 the named executive officers had not received regular salary increases since January 2008, except for Messrs. DeLaney and Spitler, who had received salary increases in connection with recent promotions. Given the improvement in economic conditions during fiscal 2010, and after subjectively 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 Compensation Committee determined that it was appropriate

to grant the salary increases described in the chart above. With respect to Mr. DeLaney, the Committee provided a substantial 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 Mr. Green, the Committee determined that a more substantial salary increase was appropriate given his increased responsibilities for all U.S. broadline foodservice operations following the retirements of Messrs. Spitler and Smith. These increases placed the fiscal 2011 base salaries of Messrs. DeLaney and Kreidler slightly below the 25^th percentile relative to the peer group and those of Messrs. Green and Pulliam slightly above the 25^th percentile relative to the peer group.

 

As noted above, Mr. Spitler ceased to be an executive officer in February 2010. The Committee made its decisions regarding the continuation of Mr. Spitler’s full base salary level during his term as a non-executive Sysco employee in connection with its negotiation of Mr. Spitler’s transition and retirement agreement, discussed under “— Severance Agreements” below.

 

Management Incentive Plan

 

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. For fiscal 2010, we paid the bonus pursuant to the 2005 Management Incentive Plan, which is described in further detail under “Executive Compensation — 2005 Management Incentive Plan.” In September 2009, the Committee and the Board approved a 2009 Management Incentive Plan to replace the 2005 plan, and recommended it to the stockholders for approval. The stockholders approved the 2009 plan in November 2009, and the Committee made the fiscal 2011 MIP grants in May 2010 pursuant to the 2009 plan. For further detail regarding the 2009 plan and differences between the 2005 and 2009 plans, see “Executive Compensation — Management Incentive Plan.”

 

Each year the Committee approves MIP agreements that are entered into between Sysco and each of the named executive officers. In May 2009 and 2010, the Committee approved bonus agreements with each of the executive officers for fiscal 2010 and 2011, respectively, except that agreements were not approved for Messrs. Spitler and Smith in May 2010 because their pending retirements made them ineligible for fiscal 2011 grants. 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, this resulted in an average annual payout for the top corporate officers during the last five fiscal years of approximately 153% of their salary under the MIP agreements.

 

 

Fiscal 2010

 

The named executive officers’ fiscal 2010 bonus was based solely on the following corporate financial objectives:

 

 

 

In approving the agreements for fiscal 2010, the Committee generally targeted each named executive officer’s MIP bonus at approximately 200% of his base salary. Varying levels of performance would have earned varying levels of bonus between 20%, based on a minimum 4% increase in fully diluted earnings per share and the minimum 10% three-year average return on capital, and a maximum 330% of base salary. 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 — 2005 Management Incentive

Plan.” Fiscal year 2010 included 53 weeks of operations, compared to the prior year, which included 52 weeks. Pursuant to the plan documents, MIP and CPU metrics for fiscal 2010 removed the estimated impact of the extra week for a comparable comparison of the fiscal years on a 52-week basis. Because Sysco achieved a 10% increase in fully diluted earnings per share for fiscal 2010 and a 19% average annual return on capital for the three-fiscal year period ending with fiscal 2010 (in each case, with fiscal 2010 earnings adjusted to a 52 week basis, as required by the MIP), we paid a MIP bonus of 190% of base salary to the named executive officers for fiscal 2010, other than Mr. Kreidler, who received a prorated bonus of 152%. Unlike prior MIP awards, the fiscal 2010 awards are subject to clawback provisions that provide that, subject to applicable governing law, all or a portion of the bonus paid pursuant to the 2010 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.”

 

Fiscal 2011

 

The fiscal 2011 bonus program is based on the same criteria as the 2010 program, although the performance and payout levels have been adjusted. Among other things, the fiscal 2011 bonus agreements provide for a minimum bonus payout upon an increase in fully diluted earnings per share of at least 2% and a three-year average return on capital of at least 11%. Varying levels of increased performance will earn varying levels of bonus between 20% and a maximum 250% of base salary. With respect to the fiscal 2011 bonus agreements, the Committee has targeted each named executive officer’s bonus at approximately 150% of his base salary. The various levels of performance and the percentage of base salary they would yield as a bonus are set forth in the table under “Executive Compensation — Management Incentive Plan,” based on the degree to which actual results meet, exceed or fall short of pre-established performance goals. 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 will also be subject to his having achieved specified non-financial goals. See “Executive Compensation — Management Incentive Plan.”

 

Annual Bonus Analysis

 

The Committee’s primary goal in recommending that the 2009 plan be adopted to replace the 2005 plan was to ensure the full deductibility of the MIP bonus pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended. See “— Income Deduction Limitations.” Additional changes from the 2005 plan were designed to provide the Committee with maximum flexibility to set appropriate performance standards and to adjust the bonus formula to take into account unforeseen occurrences, while nonetheless ensuring full deductibility. The Committee also approved incorporating its clawback policy into the 2009 plan in order to ensure its applicability and enforcement.

 

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 2010 and fiscal 2011 MIP bonuses. Management submitted the fiscal 2009 grid to the Committee in May 2008, and the Committee asked Mercer to review it. Mercer confirmed to the Committee that, based on the peer group information available at that time, and assuming payment of Sysco’s target bonuses of 200% of base salary, Sysco’s target for total cash compensation in fiscal 2009 would, in general, place the CEO and the mostly highly compensated executive officers at that time near the peer group’s 75^th percentile. The Committee approved the same grid for fiscal 2010 based on the prior year’s analysis.

 

With respect to the grants made in May 2009 for fiscal 2010, although the peer group information utilized at that time indicated that Sysco’s overall annual financial performance relative to the peer group companies approximated or somewhat exceeded the median, the Committee determined that the 75^th percentile was generally the appropriate target for total cash compensation, based on the Committee’s stated goal of maintaining conservative base salaries with premium positioned annual bonus opportunities. With base salaries generally set near or below the median for each named executive officer, a significant part of the executives’ total cash compensation was at risk and would only be paid based upon performance, thus justifying compensation in excess of the median when that performance was attained. Therefore, target total cash compensation of each of the named executive officers for fiscal 2009, which was the most current information available in May 2009, was generally above the 75^th percentile, other than with respect to Mr. DeLaney, whose target total cash compensation following his promotion to CEO was below the 25^th percentile for the reasons discussed above, and with respect to Mr. Kreidler, who was not employed by Sysco at that time. Mr. Kreidler’s fiscal 2010 MIP grant was made in October 2009 at the time of his hire, on the same basis as the May 2009 grants, but pro-rated based on the portion of the year he was employed by Sysco. The Committee reviewed the CFO peer group information prepared by Mercer and concluded that Mr. Kreidler’s target total cash compensation for fiscal

2010, on annualized basis, was above the 75^th percentile and was therefore in line with that of the other non-CEO named executive officers.

 

With respect to the fiscal 2011 grants, following consultation with Compensation Advisory Partners, 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. 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 maintain target total cash compensation near the median for all named executive officers receiving May 2010 MIP grants, 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 the compensation consultants 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 Compensation Advisory Partners May 2010 report, target total cash compensation for fiscal 2011 for Messrs. Pulliam and Green was between the median and 75^th 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 will only be earned in the case of superior performance. Mr. DeLaney’s target total cash compensation for fiscal 2011 remained near the 25^th percentile, as the Committee continues to believe that it is 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 slightly below the median, which the Committee believes is appropriate since his tenure with Sysco has 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 Committee approved this amendment, however, subject to the requirement that 100% of Mr. DeLaney’s fiscal 2011 bonus will continue to require achievement of the performance grid minimum levels, and if they are not met, he will receive no fiscal 2011 bonus, regardless of whether he has achieved the non-financial goals. Also crucial to the Committee’s decision in this regard was its conclusion that 100% of any fiscal 2011 MIP bonus to Mr. DeLaney should continue to be deductible for federal income tax purposes in accordance with Section 162(m) of the Internal Revenue Code of 1986, as amended.

 

Longer-Term Incentives

 

The Committee granted fiscal 2010 longer-term incentives in November 2009. 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.” Fiscal 2010 marked the first year in which the Committee added restricted stock units to the mix of longer-term incentives.

 

During fiscal 2010, exclusive of the special grants to Mr. Kreidler made in September 2009 in connection with his hiring effective October 2009, the named executive officers received approximately 50% of the value of their long-term incentives in stock options, approximately 25% in cash performance units, and approximately 25% in grants of restricted stock units, with the options valued using the Black-Scholes model, CPUs valued at the target level of $35 per unit and each restricted stock unit valued at the closing price of Sysco common stock on the business day prior to the grant.

 

In addition to the annual longer-term incentive grants he received in November 2009, as part of Mr. Kreidler’s employment package and to more quickly align his interests with those of Sysco’s stockholders, the Committee made a special sign-on grant to Mr. Kreidler of 5,000 restricted stock units and options to purchase 75,000 shares of common stock in late September 2009 effective as of October 5, 2009.

 

Cash Performance Units

 

In September 2008, the Committee and the Board approved a 2008 Cash Performance Unit Plan to replace the 2004 Cash Performance Unit Plan, and recommended it to the stockholders for approval. The stockholders approved the 2008 plan in November 2008, and the Committee and the Board amended and restated the plan in September 2009. For further detail regarding the 2009 amendments to the 2008 plan and differences between the 2004 and 2008 plans, see “Executive

Compensation — Cash Performance Unit Plans.” Under the Sysco Corporation 2008 Cash Performance Unit Plan, 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 the company’s actual performance over the three-year performance cycle beginning with the fiscal year in which the CPU is granted. In November 2009, the Committee granted three-year cash performance units under the 2008 plan. In addition, the cash performance units that we issued in 2006 under the 2004 plan were paid out in August 2009, and the cash performance units that we issued in 2007 were paid out in August 2010.

 

The Committee established performance criteria for grants to the named executive officers in September 2007 covering the three-year performance period ended July 3, 2010. For each of the corporate officers, one-half of the payout was based on the average growth in basic net earnings per share and one-half of the payout was based on 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 $35.00 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.

 

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 those grants, the Committee used the same performance criteria described above with respect to the grants made in 2007, except that:

 

 

Our adjusted sales growth over the three-year performance period ended on July 3, 2010 was 1.45%, which did not satisfy the minimum criteria necessary for a payout on this performance measure. However, our average growth in basic net earnings per share over the performance period was 6.78%, which yielded a total payout of 28.15% of the value of the units to each corporate participant previously granted units, including Messrs. DeLaney, Pulliam, Green, Spitler and Smith.

 

Actual payout amounts to the named executive officers for the 2008 CPU grants that we paid in August 2010 are set forth in footnote (3) to the Summary Compensation Table. The specific performance measures and related potential payouts for the September 2007, September 2008 and November 2009 corporate grants are shown under “Executive Compensation — Cash Performance Unit Plans.”

 

Stock Options and Restricted Stock Units

 

The Committee approved the fiscal 2010 stock option and restricted stock unit grants to the named executive officers in November 2009 under our 2007 Stock Incentive Plan, as amended, which was approved by stockholders in November 2009. The material amendments to the 2007 plan increased the total number of shares available, provided that all shares under the plan may be issued as options, increased the number of shares that may be issued as restricted stock or restricted stock units and simplified the share counting formula with respect to restricted stock and restricted stock units. The specific grants made in November 2009 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 2010 option grant agreement provides for ratable vesting over a five-year period. The fiscal 2010 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, which the Committee originally adopted as stock option grant administrative guidelines in February 2007. These guidelines were amended

to include other equity grants in February 2010 and are more fully described under “Executive Compensation — Outstanding Equity Awards at Fiscal Year-End.”

 

As discussed above, the Committee made an additional grant of stock options and restricted stock units to Mr. Kreidler in October 2009 in connection with his engagement as Sysco’s Chief Financial Officer.

 

In connection with the negotiation of his transition and retirement agreement, the Committee authorized 12,637 shares subject to Mr. Spitler’s 2009 restricted stock grant to continue to vest as scheduled in January 2011. The remaining unvested shares under Mr. Spitler’s restricted stock grant were forfeited on the date of his retirement. Mr. Spitler’s transition and retirement agreement is discussed further at “Executive Compensation — Executive Severance Agreements.”

 

Longer-Term Incentive Analysis

 

The Committee determined the fiscal 2010 mix of CPUs, stock options and restricted stock units upon the recommendations of Mercer and Compensation Advisory Partners, 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. The value of the longer-term incentives granted to each named executive officer was approved by the Committee upon the recommendation of management and following consultation with Compensation Advisory Partners. These values placed each named executive officer other than Mr. DeLaney and Mr. Kreidler near the 25^th percentile of the peer group with respect to longer-term incentives, near the median with respect to total direct compensation and at or somewhat above the median with respect to total direct compensation plus retirement. This was 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. Mr. DeLaney’s longer-term incentive compensation remained below the 25^th percentile, as the Committee had determined that his pay package should be made competitive at the Chief Executive Officer level with Sysco’s peer group only as his tenure and experience in the CEO role increased. With respect to Mr. Kreidler, his November 2009 longer-term incentive grants placed him above the 25^th percentile of the peer group with respect to longer-term incentives and between the 25^th percentile and the median with respect to target total direct compensation, which was consistent with the grants to the other named executive officers, exclusive of Mr. DeLaney.

 

The minimum, target and maximum performance criteria levels and the payouts for the CPU awards made in September 2008 for the three-year performance period ending in fiscal 2011 were recommended by the executive management team and were similar to those of the awards made in September 2007 for the three-year performance period ending in fiscal 2010, provided that the Committee increased the threshold, target and maximum earnings performance levels, in order to more closely align the performance measures with the company’s historical long-term goal of maintaining low- to mid- double digit annualized earnings growth. Due to the recent economic downturn and the increased difficulty faced by Sysco in growing sales and earnings per share, management recommended lowering the minimum, target, maximum and other payout levels for the grants made in November 2009 for the three-year period ending in fiscal 2012. The Committee, following consultation with Mercer, approved the new performance levels based on management’s recommendations and the Committee’s acknowledgment of the current challenges facing Sysco.

 

The Committee approved the 2009 amendments to the 2008 Cash Performance Unit Plan based on the recommendations of management, following consultation with Mercer. These amendments were primarily designed to equalize the treatment of plan participants in the event of death and disability and to bring payments following a change of control more in line with the policies of the peer group by providing for payment of target performance values rather than maximum values.

 

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 entirely dependent on 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.

Mr. Kreidler’s sign-on incentive stock option and restricted stock unit grants were subjectively determined by the Committee in consultation with management and Mercer, after review of the Mercer CFO compensation pay data, and were approved in light of Mercer’s advice that competitive practices with respect to grants to new hires varied. As a result, the Committee approved these grants after subjectively considering the CFO pay data, Mr. Kreidler’s compensation in his prior position, Sysco’s past practices, the implications for future precedents, internal equity and retention.

 

The Committee approved the amendments to the 2007 Stock Incentive Plan primarily in order to ensure continued availability of shares under the plan for the next several years, as well as to simplify the share counting provisions of the plan that apply to full value awards, such as restricted stock and restricted stock units.

 

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 165 corporate and operating company officers. Each of the named executive officers participates in the Supplemental Executive Retirement Plan, or SERP. 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 the annual benefits equaling to up 50% of a qualified participant’s final average annual compensation, as discussed 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 benefit determined 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 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 $2.25 million in fiscal 2010 and will generally be limited to approximately $2.27 million in fiscal 2011, 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 3, 2010 are set forth under “Executive Compensation — Pension Benefits.” Mr. Spitler retired on June 28, 2010 and Mr. Smith retired on July 3, 2010. Messrs. Spitler’s and Smith’s annual SERP benefits following retirement are approximately $1.05 million and $756,000, respectively. In September 2009, the Committee recommended and the Board approved additional amendments to the SERP. The impact of these amendments on participants, including the named executive officers, was to provide that any additional or special bonus paid in lieu of or as a substitute for the MIP bonus in the future will be included in compensation for purposes of calculating the SERP benefit.

 

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 Mercer’s July 2009 report, compensation to the named executive officers under the SERP placed Sysco above the 75^th percentile for retirement benefits relative to the peer group, but total target fiscal 2010 direct compensation plus retirement benefits placed Sysco near the median for all named executive officers employed by Sysco at the time except for Mr. DeLaney, who was below the 25th percentile. As a result, the Committee believes that these benefits are appropriate in light of Sysco’s overall compensation structure; however, the Committee continues to monitor and review the SERP regularly in order to achieve the following goals:

 

 

The Committee approved the modifications to the SERP discussed above based upon the recommendations of management in order to provide the Committee with additional flexibility to alter, replace or supplement the MIP bonus without negatively impacting the participants’ SERP benefits.

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 cash 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 cash 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 — Nonqualified Deferred Compensation.”

 

In September 2009, the Committee recommended and the Board approved additional amendments to the EDCP. The impact of these amendments on participants, including the named executive officers, was to provide that any additional or special bonus paid in lieu of or as a substitute for the MIP bonus in the future will be eligible for deferral under the EDCP.

 

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.

 

As with the SERP, the Committee approved the modifications to the EDCP discussed above based upon the recommendations of management in order to provide the Committee with additional flexibility to alter, replace or supplement the MIP bonus without negatively impacting the participants’ EDCP deferral opportunities. In addition, these changes were required in order to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.

 

Severance Agreements

 

In prior years, the Committee approved, and the Board of Directors ratified, severance agreements for certain executive officers, including Mr. Spitler. Mr. Spitler’s severance agreement terminated in February 2010 pursuant to the terms of his transition and retirement agreement, discussed below. The other named executive officers have not had, and do not currently have, severance agreements.

 

In connection with their retirements, Sysco entered into transition and retirement agreements with Messrs. Spitler and Smith in February 2010 and March 2010, respectively. The material terms of the transition and retirement agreements are described under “Executive Compensation — Executive Severance Agreements.”

 

Severance Analysis

 

The Committee approved the terms of Messrs. Spitler’s and Smith’s transition and retirement agreements upon the recommendation of management and pursuant to arms’ length negotiations with each of them. With respect to both individuals, the Committee’s decision to authorize severance payments was based on a recognition of their significant contributions to Sysco, including Mr. Spitler’s service as President while the Company transitioned to a new CEO in fiscal 2009 and 2010, the desire to motivate them to provide important assistance and to continue in the employ of Sysco for a reasonable transition period, and in exchange for Sysco obtaining certain release, non-compete and non-solicitation agreements. These considerations also motivated the Committee to approve the vesting of an additional 12,637 shares of restricted stock held by Mr. Spitler. The Committee discussed the terms of both transition and retirement agreements with Compensation Advisory Partners, who advised the Committee that the payments to be made under the agreements were appropriate and comparable to similar retirement payments made to executive officers of companies in Sysco’s peer group.

 

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.

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.

 

Consistent with Sysco’s 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.

 

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.

 

Benefits Following a Change in Control

 

We have no “single trigger” provisions in any severance or similar agreement that would cause an immediate cash payment obligation solely as a result of a change in control of Sysco. We have included provisions regarding a change in control in several of Sysco’s benefit plans and agreements, including an immediate payout of CPUs at the maximum payout for grants under the 2004 Cash Incentive Plan and at the target payout level for grants under the 2008 Cash Incentive Plan, and 100% vesting of SERP balances, EDCP amounts, 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 within the 36 months 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 2010 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 are subject to forfeiture of benefits under the SERP and EDCP in certain circumstances. 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 and Mr. Spitler, who retired as an executive officer prior to the end of the fiscal year. 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.

 

Based on the factors discussed under “Annual Compensation — Base Salary” and “Longer Term Incentives,” in fiscal 2011, the Committee expects 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 the excess of anticipated salary plus the value of the restricted stock units vesting in fiscal 2011 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 made amendments to the SERP and the EDCP, and have designed the 2008 Cash Performance Unit Plan, in order to ensure that they comply with Section 409A.

 

Stock Ownership Guidelines

 

See “Stock Ownership — Stock Ownership Guidelines” for a description of our executive stock ownership guidelines and stock retention policies. In 2010, the Committee lengthened the amount of time given to executives to achieve the required ownership levels, with the first tier ownership level to be obtained in four years (rather than three years in the prior guidelines) and the second tier ownership level to be obtained in eight years (rather than five years in the prior guidelines). The Committee’s decision to effect this change was primarily driven by its recent amendments to the MIP removing the stock match portion of the bonus, and its subsequent decision to add restricted stock units, rather than restricted stock, to its mix of longer-term incentive grants. Since shares underlying restricted stock units are not counted toward stock ownership requirements, the Committee concluded that additional time was required in order to allow current and prospective restricted stock units to vest and settle so that the shares currently underlying them may be counted toward the stock ownership requirements.

 

Total Compensation

 

In September 2010, after reviewing the Mercer and Compensation Advisory Partners reports and the Company’s fiscal 2010 performance, the Committee determined that each named executive officer’s total fiscal 2010 compensation provided the executive with adequate and reasonable compensation. The Committee also determined that each named executive officer’s total fiscal 2010 compensation was appropriate given Sysco’s performance in fiscal 2010 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

  Phyllis S. Sewell

  Jackie M. Ward

 

Summary Compensation Table

 

The following table sets forth information with respect to each of the named executive officers — our Chief Executive Officer as of the end of fiscal 2010, our Chief Financial Officer as of the end of fiscal 2010, the four most highly compensated of the other executive officers of Sysco and its subsidiaries employed at the end of fiscal 2010, as well as one former executive officer who retired during fiscal 2010 but would have been one of the four most highly compensated other executive officers had he remained an executive officer at the end of the year. In determining the most highly compensated executive officers, we excluded the amounts shown under “Change in Pension Value and Nonqualified Deferred Compensation Earnings.” The “Bonus” column was intentionally omitted because no cash bonuses have been paid outside of incentive plans during the fiscal years shown below.

 

 

 

 

 

 

 

 

 

 

 

Grants of Plan-Based Awards

 

The following table provides information on CPU grants, stock options, restricted stock units and MIP awards granted during fiscal 2010 to each of the named executive officers.

 

 

 

 

 

 

 

 

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 provides 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 the 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 benefits following certain termination events or a change in control, as discussed below. The Committee made CPU grants in November 2009 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 2008 that we paid in August 2010 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 2008 and that we paid to them in August 2010, as discussed in footnote (3) to the Summary Compensation Table, as of September 14, 2010, the named executives held cash performance unit grants in the amounts and for the performance periods set forth below: