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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AMERICAN GREETINGS CORPORATION

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Dear Shareholder:

 

You are cordially invited to attend the Annual Meeting of Shareholders of American Greetings Corporation. The meeting will be held at 2:30 p.m., Cleveland, Ohio time on Friday, June 11, 2010, at our World Headquarters, One American Road, Cleveland, Ohio 44144.

 

The accompanying Notice of Annual Meeting of Shareholders and Proxy Statement describe the items to be considered and acted upon by the shareholders.

 

If you own shares of record, you will find enclosed a proxy and voting instruction card or cards and an envelope in which to return the card(s). Whether or not you plan to attend this meeting, please sign, date and return your enclosed proxy and voting instruction card(s), or vote over the phone or Internet, as soon as possible so that your shares can be voted at the meeting in accordance with your instructions. You can revoke your proxy before the Annual Meeting and issue a new proxy as you deem appropriate. You will find the procedures to follow if you wish to revoke your proxy on page 2 of the Proxy Statement. Your vote is very important. I look forward to seeing you at the meeting.

 

Sincerely,

Zev Weiss
Chief Executive Officer

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

 

 

 

 

By order of the Board of Directors,

 

CATHERINE M. KILBANE
Secretary

 

Dated May 6, 2010

 

 

 

 

 

PROXY STATEMENT

 

GENERAL INFORMATION

 

Proxy Solicitation

 

The Board of Directors of American Greetings Corporation (which is referred to in this Proxy Statement as “American Greetings,” the “company,” “we,” “us” or “our”) has ordered solicitation of the accompanying proxy and voting instructions in connection with the Annual Meeting of Shareholders (the “Annual Meeting”) to be held on Friday, June 11, 2010, at 2:30 p.m., Cleveland time, at our World Headquarters, One American Road, Cleveland, Ohio 44144, to consider and act upon the matters specified in the accompanying Notice of Annual Meeting of Shareholders. Copies of this Proxy Statement and the accompanying Notice and proxy and voting instruction card, along with our Annual Report to Shareholders, are first being sent or given to shareholders on or about May 6, 2010.

 

The expense of soliciting proxies, including the costs of preparing, assembling and mailing the Notice, Proxy Statement and proxy and voting instruction card, will be borne by us. Besides solicitation by mail, our officers and other regular employees may solicit proxies by personal interview, telephone, electronic mail and facsimile. We have asked brokerage houses, banks and other persons holding shares in nominee names to forward solicitation materials to the beneficial owners of shares held by such nominees, and we will reimburse such persons for their reasonable expenses.

 

How to Vote

 

Registered Holders.  If your shares are registered in your name, then you are a “registered holder” and you may vote in person or by proxy. If, after reading the proxy materials, you decide to vote by proxy, you may do so in any ONE of the following three ways:

 

1. By telephone.  With your proxy and voting instruction card in front of you, you may call the toll-free number 1-800-560-1965 and follow the simple instructions.

 

2. Over the Internet.  With your proxy and voting instruction card in front of you, you may use a computer to access the Web site www.eproxy.com/am, where you can follow the simple instructions that will be given to you to record your vote.

 

3. By mail.  You may mark, sign and date your proxy and voting instruction card and return it in the enclosed prepaid and addressed envelope. You do not need to mail the proxy and voting instruction card if you have voted by telephone or over the Internet.

 

The Internet and telephone voting procedures are designed to authenticate votes cast and allow shareholders to appoint a proxy and to confirm that their actions have been properly recorded. Specific voting instructions are set forth on the accompanying proxy and voting instruction card.

 

Participants in the Retirement Profit Sharing and Savings Plan.  One of the investment alternatives in the American Greetings Retirement Profit Sharing and Savings Plan is a fund consisting of our Class A common shares. Participants investing in the American Greetings stock fund are allocated units that represent an interest in such shares. If you invest in the American Greetings stock fund of the Retirement Profit Sharing and Savings Plan, the plan’s independent trustee, Vanguard Fiduciary Trust Company, will vote the Class A common shares allocated to your account according to your directions. Participants may give voting directions

to the plan trustee in any ONE of the three ways set forth above under “Registered Holders.” The trustee will vote shares for which it has not received instructions in accordance with instructions that it receives from us. We will direct the trustee based on the direction of the plan’s administrative committee, a committee consisting of our employees.

 

Nominee Shares.  If you are a beneficial owner of shares held in “street name” through a broker, bank or other nominee that holds the shares on your behalf, you may vote in person at the Annual Meeting by obtaining a legal proxy from the nominee that holds your shares. In addition to voting in person, you may vote by proxy by completing and signing the voting instruction card provided to you by the nominee that holds your shares, or by voting via the Internet or by telephone as permitted by the nominee that holds your shares. As a beneficial owner, in order to ensure your shares are voted, you must provide voting instructions to the broker, bank or other nominee by the deadline provided in the materials you receive from them. Because the election of directors is considered a non-routine matter under the rules of the New York Stock Exchange, it may not be voted on by brokers, banks or other nominees unless they have received specific voting instructions from beneficial owners. Such shares that brokers do not have the authority to vote in the absence of timely instructions from the beneficial owners result in what is commonly referred to as “broker non-votes.”

 

Changing or Revoking Your Proxy

 

You have the right to change or revoke your proxy prior to the closing of the polls as indicated on your proxy and voting instruction card and may do so in any one of the following four ways:

 

1. send a written notice to the American Greetings’ Secretary stating that you want to change your proxy vote;

 

2. submit a properly signed proxy and voting instruction card with a later date;

 

3. enter later-dated telephone or Internet voting instructions; or

 

4. vote in person at the Annual Meeting. NOTE: Because your Retirement Profit Sharing and Savings Plan shares are held in a qualified plan, you are not able to vote the shares allocated to your account in the plan in person at the Annual Meeting.

 

Your presence at the Annual Meeting, without more, will not revoke your proxy. However, you may revoke your proxy in the manner described above at any time before it has been exercised.

 

If you plan to attend the Annual Meeting, please check the attendance box on the enclosed proxy and voting instruction card or indicate so when prompted if you are voting by telephone or over the Internet.

 

If you are a beneficial shareholder only, that is if your shares are not registered in your name but are held by a broker, bank or other nominee, you will have to check with your broker, bank or other nominee to determine how to change your vote. Also note that if you plan to attend the Annual Meeting, you will not be able to vote in person at the meeting any of your shares held by a nominee unless you have a valid proxy from the nominee.

 

Cumulative Voting

 

If cumulative voting is invoked as described below, a shareholder may cumulate votes for the election of a director nominee by casting a number of votes equal to the number of directors to be elected multiplied by the number of votes to which the shareholder is entitled. The shareholder also may distribute his or her votes between or among two or more nominees on the same basis.

 

Shareholders have cumulative voting rights in the election of directors if:

 

(i) any shareholder gives notice in writing to the President, a Vice President or the Secretary of American Greetings, not less than 48 hours before the time fixed for the holding of the Annual Meeting, that he or she desires that the voting at such Annual Meeting be cumulative, and

(ii) an announcement that a shareholder has given American Greetings notice of cumulative voting is made upon the convening of the Annual Meeting by the Chairman of the Board of Directors or the Secretary or by or on behalf of the shareholder giving such notice.

 

Unless otherwise indicated by the shareholder, where cumulative voting is invoked, the persons named in the accompanying proxy and voting instruction card will vote, in their discretion, for one or more of the nominees for whom authority to so vote was not withheld and will cumulate votes so as to elect the maximum number of nominees proposed by the Board.

 

If cumulative voting is not invoked at the Annual Meeting with respect to the election of directors, the proxies will vote the number of shares on the proxy and voting instruction card for only those Board nominees for whom authority has not been withheld.

 

How Shares Will Be Voted

 

The shares represented by your proxy will be voted in accordance with your instructions indicated on the proxy and voting instruction card or with the instructions you provided by telephone or over the Internet. If you return an executed proxy and voting instruction card without any such instructions, the shares represented by your proxy will be voted in accordance with the Board of Directors’ recommendations.

 

Required Vote

 

The presence at the Annual Meeting, either in person or by proxy, of the holders of not less than 25% of the total voting power of American Greetings on the record date will represent a quorum, permitting the conduct of business at the meeting. If a quorum is present at the meeting, the nominees for election as directors who receive the greatest number of votes cast for the election of directors at the meeting by the shares present in person or by proxy and entitled to vote will be elected directors. If you withhold your vote from one or more of the nominees the vote will be treated as present at the meeting for purposes of determining a quorum; however, broker non-votes with respect to one or more nominees will not be treated as present for purposes of determining a quorum. Neither withhold from voting votes nor broker non-votes will be counted as votes cast with respect to the election of one or more directors and, accordingly, will have no effect on the outcome of the vote.

 

Voting Securities and Record Date

 

As of April 26, 2010, there were outstanding, excluding treasury shares which cannot be voted, 36,264,705 Class A common shares entitled to one vote per share and 3,256,893 Class B common shares entitled to ten votes per share upon all matters presented to the shareholders.

 

Holders of record of such shares at the close of business on April 26, 2010 are the only shareholders entitled to notice of and to vote at the Annual Meeting and any adjournments thereof.

 

Shares Included on the Proxy and Voting Instruction Card

 

If you are both a registered shareholder of American Greetings and hold shares through the Retirement Profit Sharing and Savings Plan, you may have received one proxy and voting instruction card that shows all American Greetings common shares registered in your name, including all shares you have (based on the units credited to your account) under the Retirement Profit Sharing and Savings Plan. Accordingly, your proxy and voting instruction card also serves as your voting directions to the independent trustee of the Retirement Profit Sharing and Savings Plan.

 

Please note, however, that unless the identical name or names appeared on all your accounts, we were not able to consolidate your share information. If that was the case, you received more than one proxy and voting instruction card and must vote each separately.

 

If your shares are held through a broker, bank or other nominee, you will receive either a voting form or a proxy card from the nominee with specific instructions about the voting methods available to you. As a

beneficial owner, in order to ensure your shares are voted, you must provide voting instructions to the broker, bank or other nominee by the deadline provided in the materials you receive from them. Under the rules of the New York Stock Exchange, your broker cannot vote your shares on the election of directors if you do not timely provide instructions for voting your shares.

 

CORPORATE GOVERNANCE

 

Shareholders elect the Board of Directors to oversee their interests in the long-term health, the overall success and the financial strength of our business. The Board serves as our ultimate decision-making body, except for those matters reserved to or shared with the shareholders. The Board selects and oversees the members of senior management who are charged by the Board with conducting our business.

 

The Board follows, both formally and informally, corporate governance principles designed to assure that, through its membership, composition, and committee structure, the Board is able to provide us informed, competent and independent oversight. The Board has reviewed our corporate governance policies and committee charters to assure that the Board continues to meet fully its responsibilities to our shareholders. Below is a description of the measures in place to assure that objective is achieved.

 

Corporate Governance Guidelines

 

The Board has adopted corporate governance guidelines, which may be found in the investors section of our Web site at www.corporate.americangreetings.com. These corporate governance guidelines are intended to assure that director qualifications, committee structure and overall Board processes provide good corporate governance and independent oversight of management.

 

Code of Business Conduct and Ethics

 

The Board has adopted a code of business conduct and ethics to govern our directors, executive officers and employees, including the principal executive officer, the principal financial officer and the principal accounting officer. A current copy of the code is available on our Web site at www.corporate.americangreetings.com. We will disclose any future amendments to, or waivers from, certain provisions of the code of business conduct and ethics for executive officers and directors on our Web site.

 

Independent Directors

 

The New York Stock Exchange rules require listed companies to have a Board of Directors with at least a majority of independent directors. Under the New York Stock Exchange rules, a director qualifies as “independent” upon the Board’s affirmative determination that the director has no material relationship with American Greetings (either directly or as a partner, shareholder or officer of an organization that has a relationship with American Greetings). In assessing the materiality of a relationship, the Board has not adopted categorical standards beyond the New York Stock Exchange criteria, but rather broadly considers all relevant facts and circumstances. The Board of Directors has determined that Drs. Cowen and Thornton and Messrs. Dunn, MacDonald, Merriman and Ratner are independent under the New York Stock Exchange rules. Mr. Joseph Hardin, whose term as director expired on June 26, 2009, was also considered by the Board of Directors to be independent under the New York Stock Exchange standards.

 

In the course of the Board’s determination regarding the independence of each non-management director, the Board considered the following transactions, relationships and arrangements in determining that the director is independent:

 

1. Dr. Cowen is a director of, and Mr. Ratner is a director, a greater than 10% shareholder and the President and Chief Executive Officer of, Forest City Enterprises. A subsidiary of Forest City Enterprises rents retail store space in various shopping malls to us pursuant to lease agreements in the ordinary course of business. We sold our retail store operations to Schurman Fine Papers in April 2009 and since the time of the sale we have subleased the retail store locations to Schurman Fine Papers. In addition, Mr. Ratner has a 10% indirect ownership interest, through a trust, in a Cleveland, Ohio shopping mall that leased

space to us for one retail store that is now under sublease to Schurman Fine Papers. That shopping mall is managed by RMS Investment Corporation (“RMS”). Each of Mr. Ratner’s four children has a 4.28% ownership interest in RMS.

 

2. Dr. Cowen is a member of the board of directors of Jo-Ann Stores, Inc., a company that in the ordinary course of business purchases our products. Dr. Thornton is a member of the board of directors of Applied Industrial Technologies, Inc., a company from which we purchase products and services from time to time in the ordinary course of business. Mr. Dunn is the Chief Executive Officer and owner of 5% of the common equity of HIT Entertainment Limited, a company from which we license certain character properties in the ordinary course of business.

 

3. During his tenure as a director of the company, Mr. Hardin had a consulting agreement with us under which in fiscal 2007 he provided us consulting services, primarily relating to general management and strategy consulting, including without limitation, supply chain, retailer relationships, product design and production. Mr. Hardin provided no services in his capacity as a consultant to the company in fiscal 2008, fiscal 2009 or through the balance of his term as director, which ended June 26, 2009.

 

4. We made discretionary charitable contributions to charitable and other non-profit organizations where each of Messrs. Hardin, MacDonald, Merriman and Ratner, and Drs. Cowen and Thornton serves or has served as an executive officer, director or trustee.

 

All of the transactions, relationships or arrangements listed above were entered into, and payments were made or received by us, in the ordinary course of business and on competitive terms. Aggregate payments that were made to, or that we received from, each of the relevant organizations, including charitable organizations, did not exceed the greater of $1 million or 2% of that organization’s consolidated gross revenues for each of the most recent three completed fiscal years. The Board has determined that these transactions, relationships and arrangements are not material, do not create a material relationship between American Greetings and any of Messrs. Dunn, Hardin, MacDonald, Merriman and Ratner, or Drs. Cowen or Thornton and that the independent judgment of these directors has not been and will not be compromised by such transactions, relationships and arrangements.

 

In addition, based on the New York Stock Exchange independence standards, the Board determined that Messrs. Zev, Jeffrey and Morry Weiss are not independent because they are executive officers of American Greetings.

 

Board Leadership Structure

 

We separate the roles of Chief Executive Officer and Chairman of the Board in recognition of the differences between the two roles. As Chief Executive Officer, Zev Weiss is responsible for setting the strategic direction for the company and the day-to-day leadership and performance of the company. As the Chairman of the Board, Morry Weiss provides guidance in such critical functions as mergers and acquisitions and other strategic initiatives, works with the Chief Executive Officer in developing the company’s long-range strategic plans, provides guidance to the Chief Executive Officer and other members of senior management, sets the agenda for the Board meetings and presides over meetings of the full Board. Because Mr. Morry Weiss, our Chairman, is not “independent,” our Board has appointed Mr. Ratner to be the “presiding director” at the executive sessions of the “non-management” directors, as defined under the rules of the New York Stock Exchange. The Board believes that this provides an effective leadership model for the company.

 

Board Oversight of Risk

 

The Board, as a whole and also at the committee level, is responsible for oversight of risks that could affect the company. The Board, committees or both receive regular reports from members of senior management on areas of material risk to the company, including sales, operational, financial, legal and regulatory, and strategic risks. The Audit Committee oversees the company’s enterprise risk assessment and risk management policies. In addition, the Compensation and Management Development Committee evaluates risks associated with the company’s compensation policies and practices, and discusses these risks with the

Audit Committee. The Board focuses on the most significant risks facing the company and the company’s processes to enable the organization to identify, manage and mitigate risks. Although the Board oversees the company’s risk management, company management is responsible for day-to-day risk management processes.

 

Board of Directors and Committees

 

The Board met five times during fiscal 2010. The Board has a standing Executive Committee, Audit Committee, Nominating and Governance Committee, and Compensation and Management Development Committee (which we also refer to herein as the “Compensation Committee”). Each member of the Audit, Nominating and Governance, and Compensation and Management Development Committees is independent as defined under the current listing standards of the New York Stock Exchange.

 

Executive Committee

 

Morry Weiss (Chair)
William E. MacDonald, III		Jerry Sue Thornton
Michael J. Merriman, Jr.		Jeffrey Weiss
Charles A. Ratner		Zev Weiss

 

The Executive Committee has the same power and authority as the Board between meetings of the Board except that it may not fill vacancies on the Board or on committees of the Board. The Executive Committee held no meetings during fiscal 2010.

 

Audit Committee

 

William E. MacDonald, III (Chair)		Jeffrey D. Dunn
Scott S. Cowen		Michael J. Merriman, Jr.

 

The Board of Directors has determined that each Audit Committee member is financially literate under the current listing standards of the New York Stock Exchange. The Board also determined that both Mr. MacDonald and Mr. Merriman qualify as an “audit committee financial expert” as defined by the Securities and Exchange Commission rules. Shareholders should understand that the designation of Messrs. MacDonald and Merriman as an “audit committee financial expert” is a Securities and Exchange Commission disclosure requirement and that it does not impose upon them any duties, obligations or liabilities that are greater than those generally imposed on them as members of the Audit Committee and the Board. In addition, under the Sarbanes-Oxley Act of 2002 and the New York Stock Exchange rules mandated by the Securities and Exchange Commission, members of the Audit Committee must have no affiliation with the issuer, other than their board seats, and receive no compensation in any capacity other than as a director or committee member. Each member of the Audit Committee meets this additional independence standard applicable to Audit Committee members of New York Stock Exchange listed companies.

 

The Audit Committee is responsible for assisting the Board in fulfilling its oversight responsibilities by: (1) monitoring the integrity of our financial statements; (2) monitoring the integrity of our auditing, accounting and financial reporting processes generally; (3) monitoring the independence and performance of our independent registered public accounting firm and our internal audit department; (4) monitoring our compliance with legal and regulatory requirements; (5) reviewing the adequacy of and compliance with our financial policies and procedures and systems of internal control; (6) preparing the Audit Committee Report to be included in this Proxy Statement; and (7) making regular reports to the Board and keeping written minutes of its meetings. The Audit Committee is also responsible for reviewing and approving or ratifying transactions with related persons, as described below in the “Certain Relationships and Related Transactions” section of this Proxy Statement. The Audit Committee has the sole authority to engage and replace the independent registered public accounting firm. The Audit Committee met eight times during fiscal 2010. A current copy of the Audit Committee charter is available on the investors section of our Web site at www.corporate.americangreetings.com.

Nominating and Governance Committee

 

Charles A. Ratner (Chair)		Michael J. Merriman, Jr.
William E. MacDonald, III		Jerry Sue Thornton

 

The purposes of the Nominating and Governance Committee are to (1) assist the Board by identifying individuals qualified to become Board members, and to recommend to the Board the director nominees for each annual meeting of shareholders; (2) review and recommend to the Board qualifications for committee membership and committee structure and operations; (3) recommend to the Board directors to serve on each committee and a chair for such committee; (4) develop and recommend to the Board a set of corporate governance policies and procedures; and (5) lead the Board in its annual review of the Board’s performance. The Nominating and Governance Committee met one time during fiscal 2010. A current copy of the Nominating and Governance Committee charter is available on the investors section of our Web site at www.corporate.americangreetings.com.

 

It is the policy of the Nominating and Governance Committee to consider individuals recommended by shareholders for membership on the Board. If a shareholder desires to recommend an individual for membership on the Board, then that shareholder must provide a written notice on or before January 6, 2011 to our Chairman, Chief Executive Officer or Secretary at American Greetings Corporation, One American Road, Cleveland, Ohio 44144, for consideration by the Committee for that year’s election of directors at the Annual Meeting. It is the policy of the Committee not to evaluate candidates recommended by shareholders any differently from candidates recommended from other sources.

 

The Nominating and Governance Committee determines, and reviews with the Board on an annual basis, the desired skills and characteristics for directors as well as the composition of the Board as a whole. This assessment considers the nominee’s qualification as independent under the listing standards of the New York Stock Exchange, as well as diversity, age, skill and experience in the context of the needs of the Board of Directors. When the Nominating and Governance Committee considers diversity, the Committee views diversity in the broadest sense, including a person’s age, gender, race, national origin, education, professional experience and differences in viewpoints and skills. The Nominating and Governance Committee has not adopted a formal policy with respect to diversity; however, the Board and the Nominating and Governance Committee believe that it is essential that the Board members represent diverse viewpoints and skills, which contribute to a more effective decision-making process. In considering candidates for the Board, the Nominating Committee considers the entirety of each candidate’s credentials in the context of these standards. The Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all prospective director nominees. American Greetings believes that the backgrounds and qualifications of the directors, considered as a group, should provide a significant composite mix of experience, knowledge and abilities that will enhance the quality of the Board’s deliberations and decisions.

 

The biography of each current and nominated director set forth below in Proposal One contains information regarding the person’s service as a director of our company, director positions at publicly-held companies held currently or at any time during the last five years, and the experiences, qualifications, attributes or skills that caused the Nominating and Governance Committee and the Board to determine that the person should serve as a director for American Greetings.

 

The Nominating and Governance Committee will recommend prospective Board members who have the highest personal and professional integrity, who have demonstrated exceptional ability and judgment and who the Committee believes will be effective, in conjunction with the other members of the Board, in collectively serving the long-term interests of the shareholders. When seeking candidates for the Board, the Committee may consider candidates proposed by our Chairman, Chief Executive Officer or shareholders and may also solicit suggestions from incumbent directors, management and third-party search firms, although the Board has not engaged a third-party search firm at this time.

Compensation and Management Development Committee

 

Scott S. Cowen (Chair)		Charles A. Ratner
Jeffrey D. Dunn		Jerry Sue Thornton

 

The Compensation and Management Development Committee of the Board reviews and approves the compensation for our executive officers generally and reviews and approves our executive and employee compensation plans (including the plans for our named executive officers identified in the Summary Compensation Table in the “Information Concerning Executive Officers” section below and our other executive officers); reviews and approves grants and awards to executive officers and other participants under our equity-based compensation plans; and oversees the annual evaluation of management. The Compensation Committee is also responsible for producing the Report of the Compensation and Management Development Committee included in this Proxy Statement. The Compensation Committee met five times during fiscal 2010. A current copy of the Compensation Committee’s charter is available on the investors section of our Web site at www.corporate.americangreetings.com.

 

Use of Consultants

 

From time to time, the Compensation Committee uses outside compensation consultants to work with the Compensation Committee and management. The Compensation Committee has engaged Mercer (US) Inc. (“Mercer”), a wholly owned subsidiary of Marsh & McLennan Companies, Inc. (“MMC”), to assist it in setting executive and non-employee director compensation levels, designing and implementing incentive plans for executives and non-employee directors, and providing industry data and peer group pay practices to assist management in making recommendations regarding the compensation of our executive officers and non-employee directors. The industry data and recommendations provided by Mercer were used as one of the resources in making compensation decisions during fiscal 2010. Mercer’s fees for executive compensation consulting to the Compensation Committee in fiscal 2010 were $185,795. The use of an independent consultant provides additional assurance that our executive compensation programs are reasonable and consistent with company objectives. Although management, particularly the Senior Vice President of Human Resources, works closely with Mercer, the consultant is ultimately accountable to the Compensation Committee on engagements relating to the compensation of our executive officers and our outside directors. During fiscal 2010, Mercer periodically participated in Compensation Committee meetings and advised the Compensation Committee with respect to compensation trends and best practices, plan design, and the reasonableness of individual compensation awards. Additional information on the Compensation Committee’s processes and procedures for consideration of executive compensation is included in the “Compensation Discussion and Analysis” section below, and for consideration of non-employee director compensation is included in the “Director Compensation” section below.

 

American Greetings and its subsidiaries also separately retain Mercer and other affiliates of MMC to provide services and products that are unrelated to the services provided to the Compensation Committee on matters relating to the compensation of our executive officers and non-employee directors (the “Unrelated Company Services”). In fiscal 2010, the Unrelated Company Services included such products and services as: insurance coverage, including officer and director insurance, workers compensation insurance and salary continuance insurance; general liability insurance; motor vehicle, marine transit, and corporate travel insurance; brokerage and advisory services with respect to health and life insurance products; advisory and administrative services with respect to employee pension plans; and general purpose compensation surveys. During fiscal 2010, we paid Mercer or other affiliates of MMC an aggregate of $310,586 for these Unrelated Company Services, which amount does not include fees passed on by the affiliates of MMC to unrelated third parties for payment of insurance premiums on policies for which the MMC affiliate only provided brokerage or other advisory services. The decisions to engage Mercer or other affiliates of MMC for Unrelated Company Services in fiscal 2010 were made by employees of the company or its subsidiaries. The Compensation Committee did not review or approve the Unrelated Company Services provided to the company by Mercer or other affiliates of MMC, as those services were approved by management in the normal course of business.

 

Mercer has advised us that none of its principals or employees who provided advice to the Compensation Committee had any direct or indirect involvement in providing the Unrelated Company Services, or in the company’s selection of, or negotiation of arrangements with, Mercer or other affiliates of MMC to provide such services. In addition, none of Mercer’s principals or employees who provided advice to the Compensation

Committee received any direct or indirect compensation as a result of Unrelated Company Services, other than to the extent that employees of Mercer benefit from the overall success of MMC and its affiliates generally. The Compensation Committee does not believe that Mercer’s ability to provide it with objective advice was impaired by the Unrelated Company Services provided to the company and its affiliates.

 

In addition, American Greetings has practices and procedures for ensuring the Compensation Committee’s compensation consultant is independent and for minimizing potential conflicts of interest including the following:

 

 

Attendance

 

During fiscal 2010, each incumbent director attended 75% or more of the aggregate number of meetings of the Board and the respective committees on which he or she serves. We have established a formal policy requiring director attendance at all Board meetings (and committee meetings of which the director is a member), absent unusual circumstances. We expect our directors to attend the annual meetings of shareholders (which are usually held the same day as a meeting of the Board). Each director attended the 2009 Annual Meeting of Shareholders except for Mr. Ratner who was unable to attend.

 

Communications to the Board of Directors

 

The Board of Directors believes that it is important for shareholders and other interested parties to have a process to send communications to the Board. Accordingly, shareholders and interested parties who wish to communicate with the Board of Directors, an individual director, the presiding director of non-management director executive sessions, or the non-management or independent directors as a group can mail a letter to the Board of Directors, individual director, presiding director, or group of non-management directors (as applicable) c/o Secretary, American Greetings Corporation, One American Road, Cleveland, Ohio 44144. The mailing envelope must contain a clear notation indicating that the enclosed letter is a “Board Communication” or “Director Communication.” All such letters must identify the author and clearly state the intended recipients. The Secretary will make copies of all such letters and circulate them to the appropriate director or directors; however, the Secretary will not forward the communication if it is primarily commercial in nature or if it relates to an improper or irrelevant topic. The individual directors are not spokespeople for American Greetings and people should not expect a response or reply to any communication.

 

Executive Sessions

 

In accordance with New York Stock Exchange rules, non-management directors meet in regularly scheduled executive sessions without management. Mr. Ratner has been appointed as the presiding director by the non-management directors to preside at these sessions.

 

PROPOSAL ONE

 

ELECTION OF DIRECTORS

 

Pursuant to our Amended and Restated Code of Regulations, the Board of Directors comprises three classes of directors, each class consisting of not less than three directors and having a three-year term. In accordance with our Amended and Restated Code of Regulations, the Board of Directors has fixed the board size at nine (9) members, with each Class having three (3) directors. Class III members are to be elected at the June 11, 2010 Annual Meeting.

 

It is proposed that the shareholders re-elect the following nominees for Class III directors: Scott S. Cowen, William E. MacDonald, III and Zev Weiss. The term of office to be served by each nominee in Class III, if elected, will be three years, until the 2013 Annual Meeting of Shareholders, or until his successor is duly elected and qualified. Each of these nominees for Class III director has agreed to stand for election.

 

If for any reason any of the nominees is not a candidate when the election occurs (which is not expected), the Board of Directors expects that proxies will be voted for the election of a substitute nominee designated by the Nominating and Governance Committee; provided, however, proxies cannot be voted for a greater number of persons than the number of nominees named.

 

Vote Required

 

The nominees who receive the greatest number of votes cast for the election of directors at the Annual Meeting by the shares present in person or by proxy and entitled to vote will be elected directors.

 

The Board recommends that you vote “FOR” all of the following nominees.

 

The biography of each of the nominees and continuing directors below contains information regarding the individual’s service as a director for American Greetings, business experience, and director positions at other publicly traded companies that the individual holds currently or has held at any time during the last five years. In addition, the experiences, qualifications and attributes or skills that caused the Board of Directors to determine that the person should serve as a director for the company are also included.

 

Nomination for Election to Term Expiring in 2013

 

(Class III)

 

 

 

Continuing Directors with Term Expiring in 2011

 

(Class I)

 

 

 

Continuing Directors with Term Expiring in 2012

 

(Class II)

 

 

The Board selected Dr. Thornton as a director because of her extensive management experience and her experience serving on boards of directors of public companies. In addition, as the president of Cuyahoga Community College (the largest community college in northeast Ohio), Dr. Thornton has demonstrated management expertise and is a recognized leader in the local community, which, among other things, provides the board a valuable perspective on engagement with the public sector and the communities in which we operate. Dr. Thornton also provides the Board a valuable perspective as a member of the boards of several local non-profit organizations.

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Background Context

 

During fiscal 2010, we performed significantly better than was anticipated despite a very difficult economic environment. Notwithstanding a recessionary economy in fiscal 2010, we achieved significantly improved operating income in 2010 compared to the prior year. This improvement was partially driven by the following major actions taken during the past thirteen months as we capitalized on market opportunities to leverage ourselves for future success:

 

 

In addition to the operating income improvements from the above strategic actions, also contributing to our improved operating income were the benefits we realized during the year from our continued focus on the efficiency of our operations, including tightened control of overhead costs and reductions in supply chain, scrap and distribution costs due to an improved balance of card unit shipments with card unit net sales. During fiscal 2010, we also realized the benefits associated with the elimination of approximately 275 positions during the prior year fourth quarter.

 

In addition, our shareholders were rewarded with stock performance that substantially exceeded most market averages, rising from a closing price of $3.24 as of March 2, 2009 to $20.11 as of March 1, 2010.

 

Executive Summary

 

In fiscal 2010, we continued with the same executive compensation philosophy that we have had in place for several years. We use this philosophy to determine the compensation programs and practices for all our executive officers, including our named executive officers who are listed in the Summary Compensation Table. The fundamental principle of this philosophy is performance – performance of the organization and its business units, and performance of the individual – compared to financial goals, strategic initiatives and individual goals. The compensation decisions we made in fiscal 2010 were based on this principle.

 

In fiscal 2010, in addition to our financial goals, we measured our executive officers’ performance based, in part, on their contributions to achieving our major corporate initiatives, which were to:

 

 

In fiscal 2010 we made few material changes to the principal compensation programs that we had in place during fiscal 2009. However, to encourage the long-term growth of the business, and to bring our total compensation programs closer to the median level paid to executives at comparable companies, we

implemented a performance share program under which officers, including our named executive officers, are eligible to earn shares in American Greetings based on our financial results. In addition, beginning with grants made in fiscal 2011, we revised our equity compensation program to include both stock options and restricted stock units. As described below, our fiscal 2010 financial performance exceeded the performance share program’s maximum EBIT target of $150 million (or $182 million, as adjusted by the factors described below under “Key Management Annual Incentive Plan – General”). Consequently, each of the named executive officers was credited performance shares at 100% of the fiscal 2010 maximum number of shares for their specific positions, although these shares remain subject to time-based vesting requirements. The actual number of stock options granted to each of our named executive officers during fiscal 2010 was at the target level or higher, which was determined by the individual’s performance rating for fiscal 2009 and the target grant size for their position. The number of stock options and restricted stock units granted in fiscal 2011 to our named executive officers was also at the target level or higher, which was determined by the individual’s performance rating for fiscal 2010 and the target grant size for their position.

 

Although we did not change the named executive officers’ target cash incentive levels in fiscal 2010 from the prior year, because the actual cash incentive payments are based on financial performance compared to the goals for the respective fiscal year, the actual payments we make to our named executive officers under the Key Management Annual Incentive Plan vary from year to year. As described below, the fiscal 2010 payments to our named executive officers were based on our fiscal 2010 financial performance, which exceeded the Key Management Annual Incentive Plan’s EPS target of $1.32 per share, Total Revenue target of $1.589 billion and Corporate EBIT target of $114 million (or EPS target of $1.52 per share, Total Revenue target of $1.584 billion, and Corporate EBIT target of $146 million, in each case as adjusted by the factors described below under “Key Management Annual Incentive Plan – General”), resulting in payouts to the named executive officers under the corporate and business unit components of the Key Management Annual Incentive Plan at 200% of the target incentive percentages for their specific positions, respectively. In an effort to control costs, we suspended our salary increase program for all North American salaried associates for fiscal 2010, including for the named executive officers. However, based on our performance in fiscal 2010, for fiscal 2011 we reinstated our salary increase program for North American salaried associates under which each of the named executive officers received a base salary increase, effective May 1, 2010, ranging from 0% to 12%.

 

General Philosophy

 

We believe that our executive compensation program should enable us to attract, reward and retain those talented executives we need in our organization to achieve our objectives. We also believe that our compensation program should reward our executives for achieving their goals. We believe that these goals should include components from corporate-wide, business unit and individual performance initiatives and that these goals should align the efforts and interests of the executives with the interests of American Greetings, and most importantly, the interests of our shareholders. Under our programs, executives who achieve their individual performance goals and who play a role in achieving the corporate and appropriate business unit goals may be awarded both cash and equity-based incentives.

 

We believe that our compensation program, in total, should be competitive with compensation programs offered by other employers of similar size and in similar industries. We also believe that the compensation granted to any one individual executive should be differentiated from that granted to our other executives, based on the executive’s skills and experience, overall performance contributions, and performance compared to specific goals and objectives.

 

Board Processes

 

Although many compensation decisions are made in the first quarter of the fiscal year, our compensation planning process neither begins nor ends with any particular Compensation Committee meeting. Compensation decisions are designed to encourage and reward for accomplishing our fundamental business objectives and strategic goals, within the principles of our compensation philosophy. Business planning, succession planning, evaluation of management performance and consideration of the business environment are year-round processes. Consequently, our compensation process is also a year-round process.

In establishing the compensation for fiscal 2010, the Compensation Committee conducted a review of the compensation and performance of the Chief Executive Officer, and reviewed market data on similar positions in the marketplace, to establish the Chief Executive Officer’s compensation level. The Chief Executive Officer and/or the President and Chief Operating Officer reviewed the performance of the remaining executive officers (other than the Chairman). They make initial determinations of each executive officer’s individual performance and changes to base salary, subject to the review and approval of the Compensation Committee (which from time to time consults with the Senior Vice President of Human Resources). The Compensation Committee generally approves all management incentive and equity programs; all equity grants; all cash payments made to any executive officer or director made under any of these programs; and all retirement benefit programs in which executive officers or directors participate; and any modification to a benefit or compensation program that has a material economic impact on American Greetings, an executive officer or a director. Management recommends for approval of the Compensation Committee business performance targets upon which payments to executive officers are based. The Chief Executive Officer, Senior Vice President and General Counsel, and the Senior Vice President of Human Resources work with the Compensation Committee chair in establishing the agenda for Compensation Committee meetings. Management also prepares meeting information for each Compensation Committee meeting. From time to time, executive officers, including the Chief Executive Officer, the President and Chief Operating Officer and the Chairman, participate in Compensation Committee meetings to provide:

 

 

Setting Compensation

 

To set the actual compensation levels for each of our executive officers, from time to time we collect information from the marketplace on how other employers compensate people in similar positions, using industry data, consumer products industry data and, depending on the position, data from industry segments or specific companies. We usually rely more heavily on data from consumer products companies because: (1) our core business is consumer products focused – we create, manufacture, market and distribute social expression products sold to consumers; and (2) we often recruit employees from consumer product companies, or from companies that support or otherwise service the consumer products industry. Generally, for both the overall industry and consumer products market data, we look at companies with revenue that approximates our revenue. We typically obtain this data from compensation surveys that are published by nationally recognized consulting firms. Alternatively, as described below, we may commission a custom study by one of these consulting firms, using data held in their databases or information included in the proxy statements and other public filings of companies similar to us. While information developed solely from public filings covers only those individuals for whom compensation information is disclosed publicly, generally these positions correlate to our Chief Executive Officer, President and Chief Operating Officer and certain of our Senior Vice Presidents.

 

To determine the compensation to be paid to new executive officers, we take into account the market data for their specific position (to the degree it is available), their relevant experience and expected contribution to our business, and the compensation we believe will be required to attract and retain that individual. In general, compensation realized by executives from prior awards or grants made by us, such as gains from previously awarded stock options or equity awards, are not taken into account in setting current compensation levels. We believe that our executive officers should be fairly compensated each year compared to market pay levels, internal equity among other executive officers, and their own individual performance contributions.

 

During fiscal 2009 we engaged Mercer to conduct a study of our executive compensation programs, which we used in setting executive compensation in fiscal 2010. The goal of the study was to compare our executive compensation programs with those of other, similarly situated employers to ensure that our programs, considered collectively, are market and cost competitive, while creating the appropriate incentives to

achieve our business objectives. In this study, Mercer compared our executive compensation programs with those of the following twenty peer group companies:

 

 

Because there are few comparable greeting card companies with publicly available information, we selected these companies in consultation with Mercer because the nature of their businesses is similar to ours, in this case primarily in the housewares and specialties categories or otherwise with similar product lines, and they are considered representative of the companies with which we compete for executive talent. These peer group companies also had median revenues that are similar to American Greetings’ revenues, and are among companies with which we compare ourselves for other compensation purposes. The Compensation Committee may make changes in the peer group from time to time based on the criteria described above or other relevant factors.

 

Elements of Executive Compensation

 

The compensation program for our executive officers generally consists of the following elements:

 

 

We have selected these compensation elements to create a flexible package that bases much of its payout on the performance of the individual executive, the business unit to which that executive is assigned, and the total corporation.

 

Allocation Among Elements

 

Under our compensation structure, the mix of base salary, annual cash incentive and equity compensation as a percentage of total direct compensation varies depending upon the position’s level in management. However, we generally target the market median for each component, and we target the market median for the total compensation paid to our executive officers. There is no pre-established policy or target for the allocation between either cash and non-cash or short-term and long-term incentive compensation. In allocating compensation among these elements, we believe that the compensation of our senior most levels of management – the levels of management having the greatest ability to influence American Greetings’ performance – should have a significant portion of their compensation at risk, and should be paid only on the accomplishment of pre-established goals and objectives. We believe that lower levels of management should receive a greater portion of their compensation in base salary – with less variability – because they have less of an ability to significantly affect the financial performance of the business. In comparing our compensation programs to the target market medians, we looked at the study conducted by Mercer in fiscal 2009 and described above under “Setting Compensation.” At that time, we determined that the target total cash compensation (generally base salary plus the target cash bonus under our Key Management Annual Incentive Plan) paid to our named executive officers was above the market median, while long-term equity compensation was well below the market median, resulting in total direct compensation to our executive officers being, on average, below the market median. As a result, with the goal of achieving the market median for the total direct compensation

paid to our executive officers, the Compensation Committee determined to increase the value of our long-term equity incentive awards in an effort to bring our current target total cash compensation plus our long-term equity incentive awards closer to the market median for the total direct compensation we pay to our executive officers.

 

Base Salaries

 

General.  Base salaries are provided to compensate the executive for performing the essential responsibilities of their job. To determine individual base salaries, we consider:

 

 

The market data on comparable positions is based on overall industry data, consumer products industry data and, depending on the executive officer, data from industry segments or specific companies. We do not perform comprehensive studies of total direct compensation programs in the market every year, although in evaluating the base salaries of the named executive officers paid in fiscal 2010 as well as the base salaries to be paid in fiscal 2011, we considered data from the peer group of companies described above under “Setting Compensation.” In addition, we gather data on incremental changes occurring in the industry segments described above annually, primarily changes to base salaries. We evaluate each executive officer’s base salary annually, and when making changes we consider:

 

 

Salary adjustments, if any, normally take effect on May 1st of each year, based on performance in the immediately preceding fiscal year.

 

Named Executive Officers.  In April 2009, the Compensation Committee determined that due to American Greetings’ failure to meet its financial goals for fiscal 2009, coupled with the impact of, and future uncertainty resulting from, the global recession, and the decision to suspend its salary increase program for North American salaried associations for fiscal 2010, none of our executive officers would receive an increase in their base salary for fiscal 2010. However, as described below, due to the company’s improved operating results in fiscal 2010 and ability to exceed its financial goals despite the challenges in the worldwide economy, the Compensation Committee determined to resume the company’s salary increase program for fiscal 2011.

 

To determine the base salary to be paid to the Chief Executive Officer in fiscal 2011, as well as to determine his compensation under the individual performance component of the Key Management Annual Incentive Plan, and his equity grant level, the Compensation Committee assessed the Chief Executive Officer’s performance during, and his contribution to our results in, fiscal 2010. The Compensation Committee primarily considered our financial performance, including our revenue, earnings per share, cash flow, and earnings before interest and taxes performance. The Compensation Committee also considered the Chief Executive Officer’s other individual performance goals, which were based on his contributions to the achievement of our major corporate initiatives as described above, including:

 

 

 

Each of these goals is primarily assessed qualitatively and there are no specific weightings given to any criteria. The Compensation Committee determined that for fiscal 2010, Mr. Zev Weiss significantly exceeded these objectives. Also, in assessing the base salary to be paid to the Chief Executive Officer in fiscal 2011, the Compensation Committee considered the study conducted by Mercer in fiscal 2009, as described above under “Setting Compensation,” and as updated with incremental changes occurring among these peer group companies, where it found that in each case, the target total cash compensation, including base salaries, that we pay to our executive officers is above market median, but that the total direct compensation that we pay to our executive officers is below the market median. Based on Mr. Zev Weiss’s performance, and in consideration for the competitiveness of his current total cash compensation, effective May 1, 2010, the Compensation Committee increased Mr. Zev Weiss’s salary by 3%, from $921,459 to $949,103.

 

In assessing the base salaries to be paid to each named executive officer other than the Chief Executive Officer and the Chairman, the Compensation Committee considered the study conducted by Mercer in fiscal 2009 and described above under “Setting Compensation,” as updated with incremental changes occurring among these peer group companies, where it found that the target total cash compensation, including base salaries, that we pay to our other executive officers in general is above the market median, but that the total direct compensation that we pay to our executive officers is below the market median. Also in assessing the base salaries to be paid in fiscal 2011 to each named executive officer other than the Chief Executive Officer and the Chairman, as well as in determining such officer’s compensation under the individual performance component of the Key Management Annual Incentive Plan and their equity grant level, the Compensation Committee considered the Chief Executive Officer’s proposed change to each named executive’s base salary, together with his assessment of each other named executive officer’s performance during fiscal 2010 relative to the officer’s performance objectives established at the beginning of the year. Our named executive officers’ individual performance goals are developed to ensure that the officers and the business units for which they are responsible are driving those results that will ensure that the business units and the company achieve their short-term financial objectives and their long-term strategic goals. These goals are designed to be internally consistent across business units, and to collectively drive the achievement of our short- and long-term goals and strategies. These goals are generally assessed qualitatively, with no specific weightings given to any criteria.

 

The fiscal 2010 goals for Mr. Jeffrey Weiss included objectives based on achieving the Total Revenue, Corporate EPS and the Corporate EBIT goals described below under the heading “Key Management Annual Incentive Plan,” as well as aligning American Greetings’ business activities with the realities of a recessionary economy, achieving supply chain savings and other cost reduction goals through business process reengineering and operational efficiency improvements. Mr. Jeffrey Weiss’s goals also included the integration of Recycled Paper Greetings and the Papyrus wholesale business, as well as the development of human capital and the improvement of workforce diversity. Based on his significantly exceeding most of his individual performance goals, and considering compensation paid for comparable positions at the companies in the peer group used in the fiscal 2009 study conducted by Mercer, effective May 1, 2010 the Compensation Committee determined to increase Mr. Jeffrey Weiss’s base salary by 3%, from $721,268 to $742,906.

 

The fiscal 2010 goals for Mr. Smith included integrating Recycled Paper Greetings’ finance and shared services functions; improving audit governance practices, procedures and control mechanisms; strengthening financial planning and performance tracking processes; executing capital structure changes; amending debt agreements; overseeing significant tax benefits related to strategic changes; and developing our human capital and improving workforce diversity. The fiscal 2010 goals for Mr. Beeder included achieving revenue growth in core accounts and business segments; improving product yield and profitability; strengthening business

development, customer planning and management activities; improving sales and marketing analytics; and developing our human capital and improving workforce diversity. Based on Mr. Smith meeting or exceeding most of his individual performance goals, and to bring his base salary closer to the market median based on information on base salaries at the companies in the peer group used in the fiscal 2009 study conducted by Mercer and described above under “Setting Compensation,” effective May 1, 2010 the Compensation Committee determined to increase Mr. Smith’s salary by approximately 10%, from $386,101 to $424,711. Based on Mr. Beeder significantly exceeding most of his individual performance goals, effective May 1, 2010 the Compensation Committee determined to increase Mr. Beeder’s salary by approximately 12% from $440,000 to $492,000.

 

Mr. Morry Weiss’s base salary has been fixed at $400,000 since fiscal 2004 when his role as Chief Executive Officer was transitioned to Mr. Zev Weiss. In fiscal 2007 the Compensation Committee evaluated whether his compensation, including his base salary should remain fixed at $400,000. In this regard, the Compensation Committee considered general market pay information provided by Towers Watson & Co., its compensation consultant at that time, for compensation paid by other companies to the positions of executive chairman, non-executive chairman and lead director. The Compensation Committee also considered Mr. Morry Weiss’s responsibilities as a member of the board of directors. Due to the executive duties that Mr. Morry Weiss performs in addition to his responsibilities as a director, including his significant role in such critical functions as mergers and acquisitions and other strategic initiatives, as well as his significant involvement in developing the company’s long-range strategic plans and counseling senior management, the Compensation Committee determined that Mr. Morry Weiss should be classified as an executive chairman for purposes of compensation. Accordingly, the Committee determined at that time that his base salary should remain at $400,000, his target stock option grant level should remain fixed at 18,000 Class B common shares, and his target incentive award under the Key Management Annual Incentive Plan should remain fixed at 50% of his annual base salary.

 

Key Management Annual Incentive Plan

 

General.  Consistent with our emphasis on pay for performance, we have established the American Greetings Corporation Key Management Annual Incentive Plan, under which our executive officers, including our named executive officers, are eligible to receive awards based on performance against annually established performance goals. These goals include company-wide and individual business unit financial measures as well as individual performance objectives. This plan is an important component of our compensation package because it is designed to focus our executive officers’ efforts on, and reward executive officers for, annual operating results that help create value for our shareholders. At its target level, in fiscal 2010 the Key Management Annual Incentive Plan award represents between 31% and 44% of a named executive officer’s total cash compensation, and between 18% and 29% of a named executive officer’s total direct compensation, depending on the executive’s position.

 

The corporate performance goals for the Key Management Annual Incentive Plan are determined through our annual planning process, which generally begins in the December that precedes the beginning of the fiscal year. During this process, management develops an annual operating plan that is consistent with our strategic plan, and that contains specific, quantifiable annual financial goals. These goals are established for each business unit and for the corporation as a whole. Around the beginning of each fiscal year, the full Board of Directors meets with senior management and discusses and approves the operating plan for the subsequent fiscal year. The operating plan goals form the basis for the annual incentive performance measures and goals. In this manner, the Board of Directors approved the annual operating plan, and its financial goals and objectives, for fiscal 2010. Similarly, for fiscal 2010, the Compensation Committee approved these operating plan goals, as adjusted by the factors described below, as the incentive plan’s financial objectives for both the corporate and business unit components for executive officers.

 

Any awards granted under the Key Management Annual Incentive Plan are determined at year-end based on actual performance against the pre-established specific corporate, business unit, and individual goals. The Chief Executive Officer reviews each executive officer’s individual performance (other than the Chairman’s) and recommends to the Compensation Committee for its approval the level of compensation the officer should receive based on his individual performance. The Committee itself evaluates the performance of the Chief

Executive Officer. The Chairman does not have individual performance goals. Rather, the performance of the Chairman is evaluated based on our achievement of the corporate and business unit goals, and, for purposes of determining his award under the individual component of the Key Management Annual Incentive Plan, is set at “Meets Expectations,” although the Committee retains the discretion to lower the amount of compensation that the Chairman may receive under this component. The incentive plan award payments to any named executive officer must be reviewed and approved by the Compensation Committee prior to payment. The Compensation Committee may modify the recommendation provided by the Chief Executive Officer with respect to any named executive officer, which in turn affects payment under the Key Management Annual Incentive Plan. The Compensation Committee must approve any adjustments to the financial goals applicable to executive officers for purposes of determining if a business unit or the company has achieved its goals. Except as otherwise determined by the Compensation Committee, permitted adjustments are determined at the same time that the financial goals are initially established at the beginning of each year. These adjustments are described in a manner that can be objectively determined and are intended to account for items, events or changes in the business or its plans that, if included, would not be a meaningful measure of performance without taking into account these items, events or other changes. When made, these adjustments apply to all managers, including the named executive officers, who are assigned to the business unit for which the adjustment is being granted or, in the case of an adjustment to a corporate goal, these adjustments apply to all managers, including the named executive officers. With respect to the corporate and business unit goals established under the Key Management Incentive Plan for fiscal 2010, these goals are calculated in accordance with U.S. generally accepted accounting principles. However, at the beginning of fiscal 2010 when the goals were established, the Committee determined that the following items or events, if they occur, should be excluded, and the goals and results against such goals should be adjusted accordingly, if they were not otherwise previously factored into the financial goals:

 

 

Performance Measures.  Under the fiscal 2010 Key Management Annual Incentive Plan, incentives are awarded to our named executive officers based on three components: (1) corporate performance (weighted at 30%), (2) business unit performance (weighted at 50%), and (3) individual performance (weighted at 20%).

 

For the named executive officers:

 

 

 

The primary measure for performance under the corporate component of our Key Management Annual Incentive Plan is earnings per share, or Corporate EPS, weighted at 90% of the 30% target award for the corporate component. Because of its direct correlation to the interests of our shareholders, we believe an EPS goal is a good measure of overall management performance. To provide an incentive for the profitable growth of corporate revenue, the Corporate EPS performance measure is complemented by a total revenue performance measure, weighted at 10% of the 30% target award for the corporate component. We measure Corporate EPS and Total Revenue at the end of the fiscal year. Corporate EPS is calculated as the annual consolidated net income divided by the planned total number of shares outstanding as calculated on a fully diluted basis, adjusted for any shares repurchased during the fiscal year. Total Revenue is calculated as consolidated net sales and other revenues, including but not limited to royalties, advertising, subscriptions and other revenue streams directly related to the conduct of our principal business. For fiscal 2010, the Corporate EPS goal was $1.32 per share (or $1.52 per share, as adjusted by the factors described above in this section under “– General”) and the Total Revenue goal was $1.589 billion (or $1.584 billion, as adjusted by the factors described above in this section under “– General”).

 

The performance measure under the business unit component of the Key Management Annual Incentive Plan for our named executive officers is consolidated earnings before interest and taxes, or Corporate EBIT. We believe Corporate EBIT is a good way to measure the operating performance of our business as a whole, and is a measure that also is in the direct interest of our shareholders. In determining performance against the Corporate EBIT goal, we adjust the performance to reflect any variance from the planned net capital employed. We believe it is important to include such an adjustment for net capital employed because it ensures an appropriate emphasis on balance sheet management. In addition, the Corporate EBIT goal is measured on a pre-tax basis because (1) we believe a pre-tax measure more accurately reflects actual operating performance; (2) despite planning efforts, tax payments and refunds can be somewhat unpredictable; as a result, including tax as an operating metric can lead to wide swings in performance relative to goal; and (3) not all of our executives are in a position to control variables that impact operating profit on an after-tax basis. The Corporate EBIT goal for fiscal 2010 was $114 million (or $146 million, as adjusted by the factors described above in this section under ‘‘– General”).

 

The Compensation Committee set the Corporate EPS and Corporate EBIT goals at a time when the world economy was facing an historic downturn, with expectations that the economy would be facing an extended recessionary period. In addition, when the financial goals were established, there was significant uncertainty as to the results of many of our retail customers, with retail sales expected to continue to fall. As a result, the Compensation Committee established the financial goals under the Key Management Annual Incentive Plan in a manner that it believed reflected a significant stretch for the company given the business environment at that time, while representing goals that still provided an attainable incentive.

 

For our named executive officers, other than the Chief Executive Officer, the President and Chief Operating Officer and the Chairman, the individual performance component is based on both the executive’s accomplishment of specific goals and objectives, and a comparison of the executive’s performance with that of other executive officers. The performance of the Chief Executive Officer and President and Chief Operating Officer is evaluated based on the achievement of our corporate and business unit goals, and their achievement of their individual goals and objectives. There are no specific individual performance goals for the Chairman, whose performance is evaluated based on our achievement of the corporate and business unit goals and, for purposes of determining his award under the individual component of the Key Management Annual Incentive Plan, is set at “Meets Expectations,” although the Committee retains the discretion to decrease the amount of compensation that the Chairman may receive under this component. The fiscal 2010 goals for the named executive officers are described above under the heading “Base Salaries.”

Target Incentive and Calculation of Awards.  The Key Management Annual Incentive Plan target award levels, as a percentage of base salary, for the named executive officers of American Greetings are listed below. We target these incentives at the median of the market data.

 

 

 

 

Under the Key Management Annual Incentive Plan, an incentive equal to a multiple of the executive officer’s target incentive percentage will be paid depending on the level of performance achieved compared to the performance measures described above. The maximum bonus opportunity is 200% of the target incentive award. To earn this maximum, both the entire corporation and the business unit must achieve at least 125% of their financial goals, and the executive officer must significantly exceed his individual goals. If any of these thresholds is not met, the incentive payable will vary depending on the performance under each performance component. Under the Corporate EPS and Corporate EBIT component, for every 1% increase or decrease in the percentage of the goal achieved, the Corporate EPS target award will be adjusted up or down by 4% to determine the actual award. Under the Total Revenue component, if revenue performance exceeds 103%, or is less than 97% of, the targeted amount, the target award for the revenue performance measure will be increased or decreased, as applicable, by 5% for each percentage by which we exceed 103%, or fall below 97%, as applicable, of the total revenue goal. While both the EPS and revenue performance measures are evaluated, and incentive awards determined, independently of one another, in no event may the combined award exceed the maximum permitted for the corporate component of 200% of target. In the event at least 90% of the Corporate EPS or Corporate EBIT goal is not achieved, there will be no payout under that particular component. Similarly, if at least 95% of the Total Revenue goal is not achieved, there will be no payout for the revenue performance measure. In addition, if at least 90% of the Corporate EPS goal is not achieved, no incentive is earned for the individual performance component unless the executive officer is determined to have exceeded his individual performance goals. To retain and reward top performers, the plan provides that if the executive officer exceeds his individual performance goals, then notwithstanding the failure to meet the Corporate EPS performance goal, one-half of the individual performance component of the incentive will be earned. If an executive officer does not meet his individual performance goals and receives the lowest individual performance rating, he will not receive any portion of the individual performance component of the incentive and will only receive 50% of the incentive otherwise earned.

 

Except for incentive compensation earned by the Chief Executive Officer and the President and Chief Operating Officer, incentive compensation earned by executive officers under the Key Management Annual Incentive Plan is paid entirely in cash. To align a portion of the performance-based incentive compensation for Messrs. Zev and Jeffrey Weiss more closely with the long-term interests of our shareholders, at the beginning of fiscal 2004, the Compensation Committee established a multi-year program under which in each of the five fiscal years ending in fiscal 2008, one-half of any incentive compensation earned by the Chief Executive Officer and President and Chief Operating Officer under the Key Management Annual Incentive Plan will be paid in our Class B common shares. As a result, for up to the target incentive award levels that may be earned under the Key Management Annual Incentive Plan, Messrs. Zev and Jeffrey Weiss are each eligible to receive the following amounts: (1) cash in an amount equal to one-half of the incentive compensation earned under the Key Management Annual Incentive Plan and (2) up to 34,208 Class B common shares in the case of Mr. Zev Weiss and up to 25,656 Class B common shares in the case of Mr. Jeffrey Weiss. The number of shares actually earned is equal to the percentage of his target incentive award, if any, that he achieves under the Key Management Annual Incentive Plan for fiscal 2010, not to exceed 100%. If they earn a portion but

less than 100% of the shares, they will forfeit the remaining portion of the shares not earned in that year. Under the program, if an incentive is not earned under the Key Management Annual Incentive Plan in up to two of the five fiscal years ending in fiscal 2008, the officers have the ability to earn these shares in fiscal 2009 or fiscal 2010. As a result, because Messrs. Zev and Jeffrey Weiss did not earn an incentive under the Key Management Annual Incentive Plan in fiscal 2004, as part of and to implement the final year of this program, on April 22, 2008, we granted 34,208 performance shares to Mr. Zev Weiss and 25,656 performance shares to Mr. Jeffrey Weiss that could be earned based on fiscal 2009 performance; provided, however, in accordance with the program, if Messrs. Zev and Jeffrey Weiss do not earn any performance shares in fiscal 2009 (which, as described in our proxy statement last year, they did not), they can earn these shares in fiscal 2010 based on the percentage of the target incentive award they achieve under the Key Management Annual Incentive Plan for fiscal 2010, not to exceed 100%.

 

The maximum number of Class B common shares that can be earned in a fiscal year was determined by dividing the dollar value of one-half of the incentive compensation earned, at their base salaries in effect on March 3, 2003, (not to exceed 100% of the target incentive) by the closing price of our Class A common shares as of March 3, 2003, discounted by one-third, which equates to $8.77 per share. The Compensation Committee determined that it was appropriate to base the number of shares received on a discount to the then actual trading price because (a) Messrs. Zev and Jeffrey Weiss are not eligible to receive more than the target number of shares even if performance exceeds 100% of the target incentive (thus forfeiting potential compensation upside if performance exceeds 100% of the target incentive) and (b) if the stock price declined further than the price on March 3, 2003, the value of any shares received would be less than the dollar value of one-half of the incentive compensation earned. Under this formula, if we exceed our Corporate EPS and Corporate EBIT performance goals, Messrs. Zev and Jeffrey Weiss are entitled to receive cash in an amount equal to more than one-half of the incentive compensation earned, with the level of earning based on the actual payout levels, based on performance compared to financial goals; however, they only receive the number of performance shares calculated as described above (which is based on achieving 100% of the target incentive).

 

Awards to Named Officers.  In April 2010, the Compensation Committee reviewed actual results for fiscal 2010 with respect to achievement of the Corporate EPS and Corporate EBIT performance goals. As to the Corporate EPS goal, target EPS was $1.32 per share (or $1.52 per share, as adjusted by the factors described above in this section under “– General”), with a target Total Revenue of $1.589 billion (or $1.584 billion, as adjusted by the factors described above in this section under “– General”), and actual EPS and actual revenue results, in each case as adjusted by the factors described above in this section under “– General,” were $2.87 per share, and $1.578 billion, respectively, or approximately, 188% and 99% of adjusted target, respectively, resulting in a payout as a percentage of the target incentive of 200% for the Corporate target incentive. As to the Corporate EBIT goal, target EBIT was $114 million (or $146 million, as adjusted by the factors described above in this section under “– General”) and actual EBIT results, as adjusted by the factors described above in this section under “– General,” was $220 million, or approximately 150% of adjusted target, resulting in a payout as a percentage of the target incentive of 200% for the Corporate EBIT target incentive.

 

The Compensation Committee then reviewed the Chief Executive Officer’s assessment of each of Jeffrey Weiss, Stephen Smith and John Beeder and his contributions to our results in fiscal 2010. With respect to the Chief Executive Officer, Zev Weiss, the Compensation Committee also considered its own assessment of his performance during fiscal 2010 based on his individual goals described above as well as his contribution to our results in fiscal 2010. As described above under the heading “Base Salaries” and in this section under “– General,” each of Zev Weiss, Jeffrey Weiss and John Beeder, were determined to have significantly exceeded his individual performance objectives, and Stephen Smith, was determined to have met or exceeded most of his individual performance goals, and were therefore each given “Exceeds Expectations” performance ratings. There are no specific individual performance goals for the Chairman, whose performance was evaluated based on our achievement of the corporate and business unit goals and, for purposes of determining his award under the individual component of the Key Management Annual Incentive Plan, is set at a “Meets Expectations.” Due to the company’s performance in 2010, the Compensation Committee did not exercise its

discretion to decrease the amount of compensation that the Chairman may receive under the Key Management Annual Incentive Plan. As a result of these considerations, the Compensation Committee approved the following payout amounts for the named executive officers under the Key Management Annual Incentive Plan.

 

 

 

 

Awards made to named executive officers under the Key Management Annual Incentive Plan for performance in fiscal 2010 are reflected in the Summary Compensation Table below.

 

Long-Term Incentive Compensation

 

Our long-term incentive compensation program has historically consisted primarily of stock options. However, as a result of the study described above under “Setting Compensation” conducted by Mercer, it was determined that our total direct compensation program for executive officers was below the market median primarily because our long-term equity compensation program, which consisted entirely of stock options, was well below the market median. Accordingly, the Compensation Committee determined that it was appropriate to increase the value of our long-term equity incentive awards to a level where our current target total cash compensation, together with our long-term equity incentive awards, results in the total direct compensation we pay to our executive officers being closer to the market median. The study found that companies in our peer group use several long-term incentive vehicles, including restricted stock and or long-term performance based programs, resulting in option values accounting for less than half of the total long-term incentive package for senior executives at the typical peer company. As a result, in April of 2009 the Compensation Committee adopted a performance share program under which certain management level employees of the Company, including the named executive officers, were granted performance shares targeting key corporate performance objectives over the next two to three years. In addition, beginning in April 2010, the Compensation Committee determined to reduce the annual option grant size for its eligible participants, including the named executive officers, and, in lieu thereof, to grant participants restricted stock units, or RSUs. The value to the participants, and the expense to the company, of the new RSUs were approximately equal to the value and the expense of the stock options by which the annual stock option grant was reduced. The number of performance shares and restricted stock units granted is based on the participant’s position in the company and, with respect to RSUs, their individual performance in the prior fiscal year.

 

Stock options, performance shares and RSU awards are consistent with our pay for performance principles because they: align the interests of executives with those of the shareholders; foster employee stock ownership; reflect the market’s assessment of our level of goal achievement; and focus the management team on increasing value for the shareholders. In addition, stock options are inherently performance based in that all the value received by the recipient from a stock option is based on the growth of the stock price above the option price. We also use stock options and performance shares, and beginning in fiscal 2011, RSUs, as our long-term incentive vehicle because we believe that the use of multiple forms of compensation help to provide a balance between long-term and short-term awards in our total compensation package. The Key Management Annual Incentive Plan focuses on the achievement of annual performance targets, while the multi-year vesting for our equity awards creates incentives to increase shareholder value over a longer term and encourages ongoing executive retention.

Stock Options

 

Grant Terms.  Stock option awards provide our executive officers with the right to purchase our common shares at a fixed exercise price for a period of up to ten years. Stock options are earned on the basis of continued service to us and generally vest in equal increments over two years following the date of grant. To further align their interests with those of our shareholders, options granted to our Chief Executive Officer and President and Chief Operating Officer vest in approximately equal increments over three years following the date of grant.

 

Grant Timing.  Our named executive officers and other executive officers receive an initial grant of stock options when joining the company or when being promoted into a position eligible for such grants. Thereafter, our executive officers and other employees are eligible to receive annual awards of stock options as well as awards in connection with promotions to higher level positions. During fiscal 2010, the exercise price of each stock option granted was based on the fair market value of our common shares on the grant date. The Compensation Committee has a stock option grant policy designed to ensure that stock options are granted at such times after we have publicly released our quarterly or annual financial information. Under the policy, the date of grant for annual stock option awards is the second trading day (a day that the New York Stock Exchange is open for trading) following the filing of our Annual Report on Form 10-K. The date of grant for an individual newly hired or promoted into an eligible position is based on the month of hire or promotion, and is either granted with the annual stock option grant or on the second trading day following a quarterly earnings release.

 

Generally, we do not consider an executive officer’s stock holdings or previous stock option grants in determining the number of stock options to grant. We believe that our executive officers should be fairly compensated each year relative to market pay levels of our peer group and relative to our other executive officers. Moreover, we believe that our long-term incentive compensation program furthers our significant emphasis on pay for performance compensation. We do not have any requirement that executive officers hold a specific amount of our common shares or stock options.

 

While the majority of stock option awards to our executive officers have been made pursuant to our annual grant program or in connection with their hiring or promotion, the Compensation Committee retains discretion to make stock option awards to executive officers at other times, including to reward executive officers for exceptional performance, for retention purposes or for other circumstances recommended by management to the Compensation Committee. The exercise price of any such grant is the closing price of our common shares on the grant date.

 

Grants to the Named Executive Officers.  Like our other pay components, long-term equity incentive award grants are determined based on an analysis of competitive market levels. The number of options granted depends upon the level of the position and level of individual performance achieved by the executive, based on the executive’s achievement of individual goals and objectives in the prior fiscal year. During fiscal 2010, Senior Vice Presidents, including the named executive officers who are Senior Vice Presidents, annually received a target amount of options to purchase an aggregate of 22,000 Class A common shares or 35,000 Class A common shares, depending on their level of responsibility. Effective with the fiscal 2011 grant, Senior Vice Presidents, including the named executive officers who are Senior Vice Presidents, annually receive a target amount of options to purchase an aggregate of 11,000 Class A common shares or 17,500 Class A common shares, depending on their level of responsibility. These actual grant sizes may be increased or decreased based on individual performance in the prior fiscal year. An executive, including a named executive officer, who has not achieved his or her individual performance goals is eligible for a grant of stock options ranging from 0% to 100% of the target grant size for his or her position for that fiscal year. With respect to options granted during fiscal 2010, an executive, other than the Chairman, Chief Executive Officer and President and Chief Operating Officer, who is determined to have exceeded his or her individual performance goals is eligible for a grant of stock options of either 115% or 125% of the target grant size for his or her position. With respect to options granted during fiscal 2010, the Chairman, Chief Executive Officer and President and Chief Operating Officer are not eligible to receive a stock option grant at more than 100% of the target grant size for their respective positions, regardless of their exceeding any individual performance

goals. To align their compensation program with those of the other executive officers, and because they no longer will be eligible to receive a portion of their incentive compensation under the Key Management Annual Incentive Plan in the form of shares as described above, beginning with grants made in fiscal 2011, the Chief Executive Officer and the President and Chief Operating Officer are eligible for a grant of either 115% or 125% of the target grant size for his position if he is determined to have exceeded his individual performance goals.

 

The fiscal 2010 target option grant level for Messrs. Beeder and Smith was 35,000 and 22,000 Class A common shares, respectively. The fiscal 2010 annual target option grant amount for the Chief Executive Officer, President and Chief Operating Officer and Chairman was set at options to purchase an aggregate of 100,000, 75,000, and 18,000 Class B common shares, respectively. In connection with its decision to increase the value of our long-term equity incentive awards as described above, beginning in fiscal 2011, the Compensation Committee determined to decrease the target stock option award level to 50,000; 37,500; 9,000; 11,000 and 17,500 for each of Zev Weiss, Jeffrey Weiss, Morry Weiss, Stephen Smith and John Beeder, respectively, and grant restricted stock units to such officers as described below.

 

The options granted to the named executive officers in fiscal 2010 were granted in May 2009 and are reflected in the Summary Compensation and the Grants of Plan-Based Awards Tables in the “Information Concerning Executive Officers” section below. The size of the award was based on the officer’s target grant size and his individual performance during fiscal 2009. As described in our proxy statement for 2009, the May 2009 grant size to Mr. Smith was based on Mr. Smith exceeding his individual performance goals for fiscal 2009. The grant size for Mr. Beeder was set at the target grant level due to the fact that he had joined American Greetings part way into fiscal 2009 and, as such, did not have specific individual performance goals for fiscal 2009. Each of Messrs. Morry, Zev, and Jeffrey Weiss’s grant was at the target grant level described above.

 

The annual option grants to our named executive officers based on fiscal 2010 performance were made on May 3, 2010. Messrs. Morry, Zev and Jeffrey Weiss were granted options to purchase 9,000, 62,500, and 46,875 Class B common shares, respectively, and Messrs. Smith and Beeder were granted options to purchase 12,650 and 21,875 Class A common shares, respectively. The size of the grants was based on each individual’s target annual stock option grant size and his individual performance rating, based on the officer’s individual performance assessment described above under the heading “Base Salaries.” Because the options granted to each of the named executive officers were granted in fiscal 2011, they are not reflected in the Summary Compensation or the Grants of Plan-Based Awards Tables in the “Information Concerning Executive Officers” section below.

 

Restricted Stock Units

 

In addition to stock options, as described above, the Compensation Committee determined to change the annual equity long-term incentive program to include RSUs as well. Beginning in fiscal 2011, the target grant size for restricted stock unit grants to each of Zev Weiss, Jeffrey Weiss, Morry Weiss, Stephen Smith and John Beeder, was set at of 12,500, 9,400, 2,300, 2,800 and 4,400, respectively. These actual grant sizes may be increased or decreased based on individual performance. An executive, including a named executive officer, who has not achieved his or her individual performance goals is eligible for an RSU grant ranging from 0% to 100% of the target grant size for his or her position for that fiscal year. An executive, other than the Chairman, who is determined to have exceeded his or her individual performance goals is eligible for an RSU grant of either 115% or 125% of the target grant size for his or her position. The Chairman is not eligible to receive an RSU grant at more than 100% of the target grant size for his position. Based on fiscal 2010 performance, on May 3, 2010, Messrs. Morry, Zev and Jeffrey Weiss were granted 2,300, 15,625, and 11,750 Class B restricted stock units, respectively, and Messrs. Smith and Beeder were granted 3,220 and 5,500 Class A restricted stock units, respectively, as described above. The shares vest in equal increments over two years other than shares granted to our Chief Executive Officer and President and Chief Operating Officer, which vest in approximately equal increments over three years following the date of grant. Because the RSUs granted to each of the named executive officers were granted in fiscal 2011, they are not reflected in the Summary Compensation or the Grants of Plan-Based Awards Tables below.

Performance Shares

 

On April 17, 2009, the Compensation Committee approved a performance share award program. The program is designed to reward participants for successful execution of key strategic, operational and business objectives that will produce exceptional long-term performance and create significant value for our shareholders. The performance share program, like the Key Management Annual Incentive Plan, is intended to drive operational performance while also driving shareholder value creation, thereby better aligning the interests of our executives with those of our shareholders.

 

Under the terms of the performance share program, in April 2009 each of the named executive officers was granted the number of performance shares set forth below under the column “Total Performance Share Grant.” A portion of the total grant can be earned with respect to performance in each of fiscal 2010 and 2011 and, under certain circumstances, with respect to performance in fiscal 2012, in each case based on American Greetings achieving at or between a threshold Corporate EBIT goal of $130 million and a maximum Corporate EBIT goal of $150 million (or $162 million and $182 million, respectively, as adjusted for fiscal 2010 by the factors described above under “Key Management Annual Incentive Plan – General”). Corporate EBIT goals and results are calculated in the same manner as it is calculated under the Key Management Annual Incentive Plan, however, the target, unadjusted goals of between $130 million and $150 million are fixed for the duration of the program whereas, under the Key Management Annual Incentive Plan, the goals, including the Corporate EBIT goal, are evaluated and set annually. The Compensation Committee set the Corporate EBIT goal in April 2009 at the same time it established the financial goals under the Key Management Annual Incentive Plan, intending the goals to be significant stretch goals designed to be earned only upon superior performance, performance well above the Corporate EBIT goal under the Key Management Annual Incentive Plan.

 

Under the program, in each of fiscal 2010 and 2011, the named executive officers may be credited with the number of shares set forth below based on whether we achieve the Corporate EBIT goal. If we do not achieve the threshold goal, no shares are credited; if we achieve the maximum goal, the number of shares set forth below may be credited; and for performance between the threshold and maximum goal, the number of shares that may be credited to an officer will be interpolated. If the actual Corporate EBIT results are below the maximum in either fiscal 2010 or 2011, to promote the continued long-term achievement of the Corporate EBIT goal, the named executive officers will have an opportunity to be credited with up to his maximum amount based on fiscal 2012 Corporate EBIT performance. In this event, the actual number of shares that may be credited to the named executive officers will be equal to the full award to which he is entitled based on performance in fiscal 2012, minus the lesser of the two awards credited in the previous two years.

 

In an effort to further align the long-term interests of our officers with those of our shareholders, as well as to encourage executive retention, shares credited to a named executive officer upon achievement of performance goals must vest before the officer is entitled to ownership of the shares. Under the terms of grants, shares credited to an officer vest in equal increments over the two years, beginning with the fiscal year in which the shares are credited.

 

In April 2010, the Compensation Committee reviewed actual results for fiscal 2010 with respect to achievement of the Corporate EBIT performance goal, where it determined that actual Corporate EBIT, as adjusted by the factors described above under “Key Management Annual Incentive Plan – General,” was

$220 million, or approximately 120% of the maximum adjusted Corporate EBIT target, resulting in the number of shares being credited to the named executive officers as set forth below.

 

 

As described above under “Key Management Annual Incentive Plan,” we have also granted performance shares to our Chief Executive Officer and President and Chief Operating Officer, which generally provide that they will receive a portion of their incentive under the Key Management Annual Incentive Plan in shares rather than cash.

 

Benefits

 

To offer competitive compensation packages, we provide our executive officers a Supplemental Executive Retirement Plan, a Retirement Profit Sharing and Savings Plan, and an Executive Deferred Compensation Plan. The Supplemental Executive Retirement Plan is designed to provide benefits that are competitive with those offered by other comparable companies, while requiring a meaningful tenure as an officer before becoming eligible to receive benefits. Although all of our employees meeting the requisite service requirements are entitled to participate in the Retirement Profit Sharing and Savings Plan, for officers at the Vice President level and above, which includes all of the named executive officers, we offer a benefit that permits those officers to contribute more than the statutory maximum ($16,500 for 2009) under the 401(k) savings component of the plan, and receive a corresponding match on the additional contributions (40% of the first 6% of compensation deferred). Similarly, for our executives at the Vice President level and above, which includes our named executive officers, we offer a benefit under which participants in the profit sharing component of the plan will receive an additional profit sharing contribution based on a portion of the executive’s base salary that exceeds the statutory compensation limit. Both of these benefits are intended to enable officers to take full advantage of the ability to earn profit sharing contributions toward the executive’s retirement, and to save on a tax deferred basis and receive matching contributions, notwithstanding the limits imposed by the Internal Revenue Code on compensation that can be taken into account for purposes of determining contributions to a qualified retirement plan, such as our Retirement Profit Sharing and Savings Plan. Due to the company’s financial performance in fiscal 2009, during fiscal 2010, we did not make a profit sharing or a matching contribution for employees, including the named executive officers, under the Retirement Profit Sharing and Savings Plan. In light of the company’s financial performance in fiscal 2010, during fiscal 2011, we made profit sharing and matching contributions to our employees, together with the associated maximizer and restoration benefit, to the named executive officers.

 

Officers at the Vice President level and above are also eligible to participate in our Executive Deferred Compensation Plan, where officers are entitled to defer compensation on a tax deferred basis. The cost of the benefit provided under the deferred compensation program is de minimis. Consequently, we generally do not consider the value of the deferred compensation program in calculating the total compensation provided to our named executive officers. These plans are described in more detail in the narrative accompanying the disclosure tables in the “Information Concerning Executive Officers” section below.

Our executive officers also participate in other benefit plans provided by American Greetings including medical, dental and life insurance. Except as described below under “Perquisites and Other Benefits,” their participation is generally on the same terms as other employees.

 

Perquisites and Other Benefits

 

We provide our executive officers with certain personal benefits and perquisites. The value of personal benefits and perquisites, and the related incremental cost to American Greetings, has historically been de minimis. The primary personal benefits and perquisites for our executive officers are:

 

 

In addition to the personal benefits and perquisites described above, we also pay the membership dues for our Chairman’s membership in a local business dining club. In connection with hiring new executive officers who must be relocated, we provide financial assistance associated with such relocation, including paying for moving expenses as well as for the executive officer’s temporary housing. As part of his employment agreement and in connection with his transition to Cleveland, Ohio, during fiscal 2010, we reimbursed Mr. Beeder for the cost of him and his wife commuting between his home and Cleveland, Ohio, as well as temporary housing (including rent and utilities). We also reimbursed Mr. Beeder for the payment of taxes on income attributed to him for this benefit.

 

As part of Mr. Morry Weiss’s overall compensation package, American Greetings and the Morry Weiss and Judith S. Weiss 2001 Irrevocable Insurance Trust (the “Trust”) entered into a split dollar life insurance agreement the subject of which was an insurance policy that provided total death benefits of $30 million upon the death of Mr. Morry Weiss, the Chairman of the Board of Directors of American Greetings, and his wife (whichever occurred later), the indirect beneficiaries of which were their children. Under the split dollar life insurance agreement, American Greetings paid a portion of the premium costs of the policy and had a collateral interest in the policy as security for reimbursement of an amount equal to the premiums paid by American Greetings. However, the enactment of the Sarbanes-Oxley Act of 2002 (the “Act”) brought into question whether American Greetings could continue to pay premiums and increase the reimbursement amount with respect to the insurance policy. The Act prohibits new loans between American Greetings and certain individuals, and certain features of the continuing split dollar life insurance arrangement could be characterized as a loan prohibited by the Act. American Greetings did not make premium payments since the enactment of the Act and any additional amount paid with respect to the policy since enactment of the Act were not subject to reimbursement by American Greetings. As a result of the potential limitations imposed by the Act on the continuation of the split dollar life insurance agreement, the split dollar life insurance agreement was terminated on February 16, 2009. In connection with its termination, the Trust paid American Greetings $1,190,913, representing the cash surrender value of the policy.

 

After receiving legal advice from independent counsel that Mr. Weiss could have contractual claims against the company for early termination of the split dollar life insurance agreement, the Compensation

Committee determined it was in the best interests of the company to resolve such claims promptly. When calculating the economic loss Mr. Weiss would suffer as a result of the early termination of the split dollar life insurance agreement, the Compensation Committee took into account a number of factors, including the cost of Mr. Weiss obtaining a comparable life insurance policy, the tax consequences of receiving additional compensation from the company, and the impact of the termination of the split dollar life insurance program on Mr. Weiss’s overall compensation package. After reviewing the entire matter, to compensate Mr. Weiss for relinquishing his rights to the split dollar insurance benefits and to otherwise release the obligations owed by American Greetings to Mr. Morry Weiss under the split dollar life insurance agreement, the Compensation Committee approved paying Mr. Weiss installments of $2,324,155, $1,178,166, and $1,178,080 which were paid on February 16, 2009, April 15, 2009 and March 6, 2010, respectively. The April 15 and the March 6 payments were contingent upon American Greetings’ leverage ratio and interest coverage ratio being within the levels permitted under its Credit Agreement, dated as of April 4, 2006, as amended. If American Greetings was not within the levels as of the last day of the fiscal quarter immediately prior to the April payment date, the amount to be paid on that date would have been payable on the March 6, 2010 payment date. If American Greetings was not within these levels as of February 28, 2010, that payment would have been forfeited. Because American Greetings was within its leverage and interest coverage ratios, these amounts were paid on their scheduled payment dates.

 

Severance and Change in Control Agreements

 

We do not offer separate change in control agreements for our officers. However, Mr. Beeder has provisions in his employment agreement that provide for certain compensation and other benefits if he separates employment upon or following a change in control. In addition, when we retained Mr. Smith as our Vice President and Treasurer in April 2003, we agreed to provide him certain severance benefits if terminated by us without cause. We also have a general severance policy under which executive officers are entitled to severance benefits if they are terminated involuntarily. To encourage their retention until completion of, and to reduce distractions associated with, a change in control, and because of the increased risk that they will have to rely on the decisions and management of the acquiring company to earn the benefit to which they were granted following a change in control, any unvested performance shares granted to each of our Chief Executive Officer and our President and Chief Operating Officer in lieu of a portion of the cash incentive that they were entitled to under the Key Management Annual Incentive Plan vest and are deemed fully earned upon a change in control. These arrangements for our named executive officers are described in more detail in the section below entitled “Potential Payments Upon Termination or Change in Control.”

 

To attract the highest caliber of officers, from time to time we have found it necessary to offer severance arrangements that compensate our officers upon a change in control or their termination by us for reasons other than cause. Additionally, when offering arrangements entitling our officers to compensation upon separation following a change in control, we have considered the nature of the position, the need to fill the position and the ability to attract the senior executive officer. These severance arrangements following a change in control have been structured with a “double trigger,” meaning the severance is only paid if (1) we undergo a transaction that is deemed a change in control and (2) the officer is terminated or constructively terminated. We believe this double trigger requirement maximizes shareholder value because it ensures the officer does not receive an unintended windfall by receiving a severance payment while maintaining his salaried position. We believe these arrangements are reasonable means to protect them in the event of a change in control and align their interests with our shareholders in that providing change in control benefits should eliminate, or at least reduce, the reluctance of senior management to pursue potential change in control transactions that may be in the best interests of shareholders. Relative to the overall value of American Greetings, we believe that these potential change in control and severance benefits are minor.

 

Tax Deductibility of Executive Compensation

 

Limitations on deductibility of compensation may occur under Section 162(m) of the Internal Revenue Code, which generally limits the tax deductibility of compensation paid by a public company to its Chief Executive Officer and certain other highly compensated executive officers to $1 million in the year the

compensation becomes taxable to the executive officer. There is an exception to the limit on deductibility for performance-based compensation that meets certain requirements.

 

Although tax deductibility of compensation is preferred, it is not a primary objective of our compensation programs. We believe that achieving our compensation objectives set forth above is more important than the benefit of tax deductibility, and we reserve the right to maintain flexibility in how we compensate our executive officers that may result in limiting the deductibility of amounts of compensation from time to time.

 

COMPENSATION COMMITTEE REPORT

 

The Compensation and Management Development Committee has reviewed and discussed the Compensation Discussion and Analysis with management and, based on such review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference in American Greetings’ Annual Report on Form 10-K for the year ended February 28, 2010.

 

The Compensation and Management Development Committee

 

 

Except for the American Greetings’ Annual Report on Form 10-K for the year ended February 28, 2010 or as expressly set forth by specific reference in any future filing, the foregoing Report of the Compensation and Management Development Committee shall not be incorporated by reference into any previous or future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

 

RISKS RELATED TO COMPENSATION POLICIES AND PRACTICES

 

We conducted a risk assessment of our compensation policies and practices for our employees, including those relating to our executive compensation programs. Mercer, the Compensation Committee’s outside consultant, assisted us in conducting the assessment. Our risk assessment included a detailed qualitative and quantitative analysis of our compensation and benefit programs to which employees at all levels of the organization may participate, including our executive officers. We also considered how our compensation programs compare, from a design perspective, to compensation programs maintained by other companies. Based on our assessment, we believe that our compensation and benefit programs have been appropriately designed to attract and retain talent and properly incent employees. Although our programs are generally designed to pay-for-performance and provide incentive-based compensation, the programs contain various mitigating factors to ensure our employees, including our named executive officers, are not encouraged to take unnecessary risks in managing our business. These factors include:

 

 

We discussed the findings of our risk assessment with the Compensation Committee and the Audit Committee. Based upon the assessment, we believe that our compensation policies and practices do not encourage excessive or unnecessary risk taking and are not reasonably likely to have a material adverse effect on American Greetings.

 

INFORMATION CONCERNING EXECUTIVE OFFICERS

 

Summary Compensation

 

The table below summarizes the total compensation paid to or earned by each of the named executive officers for the fiscal year ended February 28, 2010. Amounts listed under the “Non-Equity Incentive Plan Compensation” column below were determined by the Compensation Committee at its April 2010 meeting and, to the extent not deferred by the executive, were paid out shortly thereafter.

 

Summary Compensation Table

 

 

 

 

 

 

 

 

 

 

Grants of Plan-Based Awards in Fiscal 2010

 

The table below provides the following information about equity and non-equity awards granted to the named executive officers in fiscal 2010: (1) the grant date; (2) the date the grant was approved by our Compensation Committee; (3) the estimated future payouts under non-equity incentive plan awards, which consist of potential payouts under our Key Management Annual Incentive Plan for the fiscal 2010 performance period; (4) the estimated future payouts under equity incentive plan awards, which consist of potential payouts under performance share awards; (5) all other option awards, which consist of the number of shares underlying stock options awarded to the named executive officers; (6) the exercise price of the stock option awards, which reflects the closing price of American Greetings’ stock on the date of grant; and (7) the grant date fair value of each equity award computed under Topic 718.

 

Grants of Plan-Based Awards Table

 

 

 

 

Employment Agreements

 

We have entered into agreements with each of our named executive officers, except Mr. Morry Weiss. In addition to the matters described below, each of these agreements provide for certain compensation to be paid to the named executive officer following the termination of his employment under certain circumstances. A description of these provisions is contained in the “Potential Payments Upon Termination or Change in Control” section below.

 

Mr. Zev Weiss’s employment agreement, dated May 1, 1997, provides for an annual base salary of not less than $70,716 plus additional compensation as the Board of Directors, Executive Committee or the Chair of the Executive Committee may determine. Mr. Zev Weiss’s base salary as of February 28, 2010 was $921,459. Mr. Stephen Smith’s employment agreement, dated August 14, 2003, provides for an annual base salary of not less than $175,000 plus additional compensation as the Board of Directors, Executive Committee or the Chair of the Executive Committee may determine. Mr. Smith’s base salary as of February 28, 2010 was $386,100. Mr. Jeffrey Weiss’s employment agreement, dated June 1, 1991, provides for an annual base salary of not less than $70,000 plus additional compensation as the Board of Directors, Executive Committee or the Chair of the Executive Committee may determine. Mr. Jeffrey Weiss’s base salary as of February 28, 2010 was $721,268.

 

Mr. John Beeder’s employment agreement, dated June 12, 2008, provides for an annual base salary of at least $440,000, which salary may be increased based on Mr. Beeder’s performance. Mr. Beeder’s base salary as of February 28, 2010 was $440,000. During his employment, he is entitled to participate in our Key Management Annual Incentive Plan at the Senior Vice President level; our stock option plan at the Senior Vice President level; our flexible benefits program; and the Retirement Profit Sharing and Savings Plan. Mr. Beeder is eligible to receive certain benefits under the company’s relocation policy for a period of 24 months following the date of his agreement. Mr. Beeder is also entitled to receive certain other benefits normally provided to other Senior Vice Presidents including use of a company car.

 

Under the terms of their agreements, each of Messrs. Zev Weiss, Jeffrey Weiss, Beeder and Smith agreed, after leaving American Greetings for any reason, that he will not work, directly or indirectly, for any of our competitors in the United States or Canada for a period of twelve months. The agreements also contain customary confidentiality provisions.

 

The benefits that the named executive officers will receive upon a termination of their employment or a change in control are discussed below under “Potential Payments Upon Termination or Change in Control.” A description of the terms of stock options and performance shares awarded to our named executive officers is included in the “Compensation Discussion and Analysis” section.

Outstanding Equity Awards at Fiscal 2010 Year-End

 

The following table provides information on the holdings of stock options and stock awards by the named executive officers as of February 28, 2010. This table includes unexercised and unvested stock option awards and performance shares with performance conditions that have not yet been satisfied or that have not otherwise vested. Each equity grant is shown separately for each named executive officer. The vesting schedule for each unvested grant is shown in the footnotes to this table, based on the option or stock award grant date. Except as otherwise noted, the equity awards relate to our Class A common shares. The market value of the stock awards is based on the closing market price of American Greetings’ Class A common shares as of February 26, 2010, the last trading day of our fiscal year, which was $19.07. The performance shares are subject to specified performance objectives over the performance period. The market value as of February 26, 2010, shown below, assumes the satisfaction of these objectives.

 

            Outstanding Equity Awards Table

 

 

 

Option Exercises and Stock Vested in Fiscal 2010

 

The following table provides information for the named executive officers regarding option exercises and vesting of stock during fiscal 2010, together with the associated value realized, each before payment of any applicable withholding tax.

 

Option Exercises and Stock Vested Table