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The following is an excerpt from a DEF 14A SEC Filing, filed by SYSCO CORP on 10/4/2011.
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SYSCO CORP - DEF 14A - 20111004 - EXECUTIVE_COMPENSATION
  •  Modifying the form of MIP award agreement for the CEO to allow the Committee to adjust his MIP bonus, depending upon his performance with respect to specified non-financial performance criteria.
  •  Changing the CPU performance criteria to a three fiscal year total shareholder return measure as compared to the total shareholder return of the S&P 500 over the same period.
  •  Working with the Corporate Governance and Nominating Committee to increase stock ownership requirements for top executives other than the CEO, with all requirements to be phased in over a shorter, five year period.
 
Oversight of the Executive Compensation Program
 
Unless the context indicates otherwise, references to the “Committee” in this Compensation Discussion and Analysis and the executive compensation section following it refer to the Compensation Committee of Sysco’s Board of Directors. The Committee determines and approves all compensation of the Chief Executive Officer, or CEO, and Sysco’s other senior officers, including the named executive officers. Although the Compensation Committee meets jointly with the Corporate Governance and Nominating Committee to discuss both the CEO’s personal goals and his performance in achieving such goals in each fiscal year, the Compensation Committee solely approves all compensation awards and payout levels. The Committee develops and oversees programs designed to compensate our corporate officers, including the named executive officers, as well as the presidents and executive vice presidents of our operating companies. The Committee is also authorized to approve all grants of restricted stock, restricted stock units, stock options and other awards to executive officers under our equity-based incentive plans for Sysco employees. Further information regarding the Committee’s responsibilities is found under “Committees of the Board” and in the Committee’s Charter, available on the Sysco website at www.sysco.com under “Investors — Corporate Governance — Committees.”
 
For fiscal 2011, the Committee retained CAP as its compensation consultant. See “Corporate Governance and Board of Directors Matters — Compensation Consultant” for a discussion of the role of CAP. Except as otherwise described below, all of the Committee’s executive compensation decisions discussed in this Compensation Discussion and Analysis were made by the Committee, following consultation with CAP, and upon the recommendation of management, without modification.
 
Executive Compensation Philosophy and Core Principles
 
Historically, our executive compensation plans have directly linked a substantial portion of annual executive compensation to Sysco’s performance. These plans are designed to deliver superior compensation for superior company performance; likewise, when company performance falls short of expectations, certain programs deliver lower levels of compensation. However, the Committee tries to balance pay-for-performance objectives with retention considerations, so that even during temporary downturns in the economy and the foodservice industry, the programs continue to ensure that successful, high-achieving employees remain at Sysco. Furthermore, to attract and retain highly skilled management, our compensation program must remain competitive with that of comparable employers who compete with us for talent.
 
The following key principles are the cornerstone of Sysco’s executive compensation philosophy:
 
  •  pay for performance;
  •  enhance stockholder value;
  •  strike appropriate balance between short-term and longer-term compensation and short- and longer-term interests of the business; and
  •  align Sysco’s executive compensation strategy with its targeted market pay position.
 
Sysco’s compensation structure has historically included conservative salaries, while placing a significant portion of the premium annual incentives at risk.
 
The value of two of the three components of Sysco’s longer-term incentives, stock options and cash performance units, depend entirely upon Sysco’s performance and Sysco’s stock price over a period of multiple years. In addition, whether or not the annual MIP bonus is paid, and the amount of any such payment, is also wholly dependent on Sysco’s performance. These three performance-based components constituted approximately 62.7% of the actual total direct compensation for fiscal 2011 for each of the named executive officers. For this purpose, longer-term incentives include the following fiscal 2011 grants: stock options valued using an approximation of a Black-Scholes value, restricted stock units valued at the fair market value of Sysco stock on the date of grant and cash performance units valued at $1.00 per unit with assumed payout at the 100% target amount.
 
The Committee supports executive performance and retention by using continued service as a significant determinant of total pay opportunity. For example, in order to receive full vesting under the most commonly applicable vesting provision of the Supplemental Executive Retirement Plan, or SERP, an executive must be at least 55 years old, have at least 15 years of MIP service and have combined age and MIP service totaling 80, such as a 60 year old with 20 years of MIP service. Sysco also


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includes time-based factors in its longer-term incentives, with outstanding option grants generally vesting over a period of five years, outstanding restricted stock unit awards vesting over three years, and cash performance unit payouts based on a three-year performance period. We believe that Sysco’s compensation strategies have been effective in promoting performance and retention and are aligned with our company culture, which places a significant value on the tenure of high-performing executives.
 
In developing our pay for performance policies, the Committee generally benchmarks elements of pay against a comparison peer group, discussed under “— External and Internal Analysis” below. However, the Committee has not historically had an exact formula for allocating between fixed and variable, cash and non-cash, or short-term and longer-term compensation, allowing it to incorporate flexibility into our annual and longer-term compensation programs and adjust for the evolving business environment. The Committee has identified, and continues to focus on, the following long-term goals:
 
  •  maintain a conservative position for base salaries;
  •  maintain a premium position for annual incentives;
  •  maintain longer-term incentive opportunities somewhat above our peer group median; and
  •  target total pay and retirement opportunities for senior executives between the market median and the 75 th percentile of our peer group.


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The Committee intends to achieve these goals through, and has built the executive compensation program upon a framework that includes, the following components, each of which is described in greater detail later in this Compensation Discussion and Analysis:
 
     
 
ANNUAL COMPENSATION
 
Base Salary
 
Because Sysco weights executive compensation toward performance, the Committee begins its analysis of executives’ base salaries by looking between the 25 th percentile and the median of the salary ranges for similar executive positions among companies in our peer group, which is described under ‘‘— External and Internal Analysis” below. The Committee then may adjust the base salaries based on a number of factors, which may include the executive’s job responsibilities, management experience, individual contributions, number of years in his or her position and current salary.
     
Annual Bonus
 
Our bonus plan is designed to pay for performance with potentially significant annual cash incentive bonuses based on Sysco performance under our Management Incentive Plan, or MIP. Payment of the MIP bonus is based on satisfaction of predetermined performance criteria that the Committee believes benefit stockholders. The threshold requirements for payment of a bonus under the MIP in fiscal 2011 were Sysco’s achieving at least a 2% increase in diluted earnings per share and at least an 11% three-year average return on capital. Sysco did not pay a MIP bonus to the named executive officers for fiscal 2011 because the performance criteria were not met. The Committee did, however, award discretionary performance-based bonuses to the named executive officers for fiscal 2011 that were well below the target based on both financial and non-financial performance criteria. Beginning with the fiscal 2012 MIP bonus program, the Committee began a transition to a bonus program that will be more closely tied to Sysco’s annual budget. The fiscal 2012 bonus is tied to achievement of goals related to earnings growth, sales growth and capital efficiency. In addition, for fiscal 2012, a portion of the CEO’s MIP bonus will be based on his performance with respect to specified non-financial performance goals. See “— Management Incentive Plan — Fiscal 2012.”
     
LONGER-TERM INCENTIVES
     
Cash Performance Units (CPUs)
 
In 2004, the Committee implemented a cash incentive plan under which we issue cash performance units, or CPUs. Our CPUs granted to corporate officers did not satisfy the minimum criteria for a payout in August 2011. These grants used average growth in diluted earnings per share and average sales growth over a three-year period as the performance criteria. The currently outstanding grants we made in November 2009 and 2010 that may be paid in August 2012 and 2013, respectively, also use average growth in diluted earnings per share and average sales growth over a three-year period as the performance criteria.
     
Stock Options and Restricted Stock Units (RSUs)
 
Stock options and restricted stock units, or RSUs, reward long-term Sysco performance, more closely align the executives’ interests with those of our stockholders and focus executives on activities that increase stockholder value. Options granted to named executive officers generally vest one-fifth per year beginning one year from the date of grant and RSUs granted to named executive officers generally vest one-third per year beginning one year from the date of grant. The Committee also has the ability under the 2007 Stock Incentive Plan to grant restricted stock and other stock-based awards, which similarly reward long-term performance.
     
RETIREMENT/CAREER INCENTIVES
     
Retirement Benefits and Deferred Compensation Plan
 
The Supplemental Executive Retirement Plan, or SERP, and Executive Deferred Compensation Plan, or EDCP, also play a major role in our total compensation program for the named executive officers. Following retirement and other specified termination events, the SERP provides annuity payments based on prior years’ compensation. The EDCP allows participants to defer a portion of current cash compensation and employer contributions, plus applicable earnings, for payment upon certain specified termination events. The SERP and EDCP encourage executives to perform at a competitive level and stay with Sysco for long and productive careers. During fiscal 2011, the SERP was closed to new participants.
     


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Fiscal 2011 Compensation Focus
 
Based on CAP’s May 2010 benchmarking of Sysco’s pay and performance against the peer group discussed below, fiscal 2010 total cash compensation (2010 base salary plus actual 2010 MIP bonus) was positioned near the 25 th percentile for Messrs. DeLaney and Kreidler and near the 75 th percentile for the other named executive officers, while total direct compensation (total cash compensation plus the value of stock options, RSUs and CPU grants with respect to fiscal 2010) paid by Sysco for fiscal 2010 was positioned below the bottom 25 th percentile of the peer group for Mr. DeLaney and between the 25 th percentile and the median for the other named executive officers. In comparison, Sysco’s performance relative to the peer group, based on an assessment of revenue, earnings per share, and return on invested capital, as well as total stockholder return over the four quarters ending March 31, 2010, was positioned near the median of the peer group. As a result, the Committee focused in fiscal 2011 on adjusting the MIP bonus criteria to provide for the payment of a bonus upon obtaining performance that more closely correlates with the peer group median. In addition, beginning in fiscal 2011, at the recommendation of CAP, the Committee began to focus on increasing base salaries, decreasing annual incentive opportunities, maintaining competitive long-term incentives, and targeting total direct compensation between the median and the 75 th percentile, subject to ensuring alignment between financial results and total pay delivered.
 
In preparation for fiscal year 2012, the Committee undertook a redesign of the MIP in order to improve the extent to which plan targets reflect solely its assessment of market conditions, operating expectations, and other relevant factors. In addition the Committee modified pay mix in order to strike a more appropriate balance between participants’ long- and short- term orientation to the business. This has been accomplished through selective base salary increases, reduced annual incentive opportunities, and maintenance of competitive long term incentives with total direct compensation targeted between the median and 75 th percentile when expected financial results are met.
 
External and Internal Analysis
 
For the compensation package to be effective, the Committee must balance the components so that they are both externally competitive and internally equitable.
 
External Analysis
 
Sysco is the largest foodservice distributor in North America, and other companies in the foodservice industry are significantly smaller, with many of such companies also being privately-held. We believe that these smaller businesses would not create a satisfactory comparison group due to the greater skill levels and abilities required to manage a public company of Sysco’s size. Absent an industry peer group, the Committee concluded that the most comparable companies with respect to executive pay are companies whose business size and complexity are similar to ours and with which we compete for top executive positions. Therefore, the peer group developed for the executive compensation analysis is not the same peer group that is used in the stock performance graph in our annual report to stockholders.
 
In order to implement these conclusions regarding external comparison of executive pay, the Committee recommended that Sysco’s management work with CAP to construct a peer group for Sysco’s executive compensation analysis. The peer group utilized by the Committee for fiscal 2011 and fiscal 2012 (through August 2011) executive compensation decisions was the same peer group used for all decisions made during fiscal 2010. The companies included in the peer group are as follows:
 
         


•   AmerisourceBergen Corporation
  •   FedEx Corp.   •   Staples, Inc.
•   Best Buy Company, Inc. 
  •   McDonald’s Corp   •   Target Corp.
•   Cardinal Health Inc. 
  •   McKesson Corp.   •   United Parcel Service Inc.
•   Emerson Electric Company
  •   Pepsico Inc.   •   Walgreen Company
•   Express Scripts Inc.
       
 
Based on the most recent fiscal year data available, this group had the median market capitalization and revenue levels shown below:
 
     
Median Market Capitalization
 
Median Revenue Level
 
• $29.2 billion as of March 31, 2010
  • $45 billion as of May 2010
• $29.5 billion as of March 31, 2011
  • $50 billion as of May 2011
 
Sysco’s market capitalization was $18.6 billion as of July 2, 2011 and its revenues were $39.3 billion for fiscal 2011.
 
Peer group compensation data is limited to information that is publicly reported and, to the extent it deems appropriate, the Committee uses it to benchmark the major components of compensation for our named executive officers. The Committee


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consulted the following compensation studies in connection with its compensation decisions discussed in this Compensation Discussion and Analysis:
 
  •  For decisions made from May 2010 through April 2011, the Committee consulted a CAP study prepared in May 2010 that used the most current available peer group information and benchmarked, among other things, 2010 base salary, estimated 2010 total cash compensation and total direct compensation, and target 2011 base salary, total cash compensation, long-term incentives, total direct compensation, and total direct compensation plus retirement of each of the named executive officers.
  •  For all executive compensation decisions made from May 2011 through the date of this proxy statement, including base salary adjustments for fiscal 2012 and fiscal 2012 MIP grants, the Committee consulted a CAP study dated May 2011 that used updated peer group information and benchmarked 2011 base salary, estimated 2011 total cash compensation and total direct compensation, and target 2012 base salary, total cash compensation, long-term incentives, and total direct compensation of each of the named executive officers.
 
For purposes of the reports listed above:
 
  •  2011 target total cash compensation was defined as proposed base salary plus target MIP bonus of 150%;
  •  2012 target total cash compensation was defined as proposed base salary plus target MIP bonus of 150% for Mr. DeLaney, 100% for Messrs. Kreidler and Hope, and 125% for Messrs. Green and Pulliam;
  •  target total direct compensation was defined as target total cash compensation plus the value of stock options, restricted stock units and cash performance units expected to be granted with respect to the year in question; stock options are valued using a Black-Scholes calculation, restricted stock units are valued at the fair market value of Sysco stock on the date of grant and cash performance units valued at $1.00 per unit, with respect to the November 2010 grants, and $35.00 per unit, with respect to all prior cash performance unit grants, with assumed payout at the 100% target amount;
  •  actual amounts are calculated similarly to the target amounts but use the actual amounts paid; and
  •  for the 2011 study, executive retirement was calculated as an annualized value.
 
Internal Analysis
 
With respect to annual salary and the various incentive awards available to the named executive officers, the Committee does not perform a formal internal equity analysis, but does consider the internal equity of the compensation awarded by utilizing comparisons within the Sysco organization.
 
Internal Pay Equity
 
On an annual basis, the Committee compares the CEO’s compensation with that of the Executive Vice Presidents to ensure that the CEO compensation, as well as its relationship to the compensation of the CEO’s direct reports, is reasonable. The Committee makes similar evaluations among the Executive Vice Presidents and Senior Vice Presidents. These comparisons only provide a point of reference, as the Committee has not typically used specific formulas to determine compensation levels, which reflect the responsibilities of a particular officer position. Although officers at different levels of the organization receive a different percentage of their base salary as payment of the MIP bonus, the financial performance criteria used for most corporate officers, including the named executive officers, for payment of the bonus are identical.


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Annual Compensation
 
Base Salary
 
The table below shows the salaries of each named executive officer at the beginning of fiscal 2010, 2011 and 2012 and the percentage change from period to period:
 
                                         
                % Change
   
                From Fiscal
  % Change
    June 27, 2009
  July 4, 2010
  July 3, 2011
  2010 to Fiscal
  From Fiscal
Named Executive Officer
  Base Salary   Base Salary   Base Salary(1)   2011   2011 to 2012
 
William J. DeLaney
  $ 800,000     $ 1,000,000     $ 1,150,000       25 %     15 %
Robert C. Kreidler
    500,000 (2)     525,000       600,000       5 %     14 %
Michael W. Green
    494,000       550,000       650,000       11 %     18 %
Larry G. Pulliam
    532,000       550,000       600,000       3 %     9 %
James D. Hope
    356,250       500,000       525,000       31 %     5 %
 
 
(1) The Committee approved these base salaries on July 19, 2011, effective as of July 3, 2011.
 
(2) Mr. Kreidler joined Sysco as Executive Vice President and Chief Financial Officer in October 2009 at a base salary of $500,000.
 
Base Salary Analysis
 
Fiscal 2011 Base Salary
 
Beginning in May 2010, the Committee determined that it will generally review salaries in May of each year and set them for the following fiscal year. Since May 2011, the Committee has been making base salary and annual MIP bonus decisions at the same meeting, and has considered how each executive’s salary affects the other elements of his total cash compensation and total compensation, as well as the impact on future benefits under the SERP.
 
As of May 2010, the current named executive officers had not received regular salary increases since January 2008 except for Mr. DeLaney, who had received salary increases in connection with his promotion to the CEO position, and Mr. Hope, who received an increase in January 2010 in connection with his promotion to Executive Vice President. Given the improvement in economic conditions during fiscal 2010, and after considering each executive’s performance during the year and recent company performance, as well as each executive’s job responsibilities, management experience, individual contributions, number of years in his or her position and current salary, the Committee determined that it was appropriate to grant the salaries shown in the Summary Compensation Table. This action placed the fiscal 2011 base salaries of Messrs. DeLaney, Green and Kreidler below the 25 th percentile relative to the peer group and those of Messrs. Pulliam and Hope between the 25 th percentile and the median of the peer group.
 
Fiscal 2012 Base Salary
 
Given the continuing improvement in economic conditions during fiscal 2011, each executive’s performance during the year and recent company performance, as well as each executive’s job responsibilities, management experience, individual contributions, number of years in his or her position and current salary, the Committee determined that it was appropriate to grant the salary increases described in the chart above. With respect to Mr. DeLaney, the Committee provided an increase as part of its plan to make his pay package more competitive at the Chief Executive Officer level with Sysco’s peer group as his tenure and experience in the CEO role increased. With respect to the other named executive officers, these increases were recommended by CAP and were driven by the Committee’s intent to modify pay mix in order to strike a more appropriate balance between fixed and variable and short- and long-term pay components and to more closely align them with the philosophy and principles outlined above at “— Executive Compensation Philosophy and Core Principles.” These increases placed the fiscal 2012 base salary of Mr. Green at the median, those of Messrs. Pulliam and Hope between the 25 th percentile and median and those of Messrs. DeLaney and Kreidler near the 25 th percentile of the peer group.
 
Annual Bonus
 
The MIP is designed to offer opportunities for compensation tied directly to annual and/or multi-year company performance. Under the terms of the MIP, we pay the annual bonus in cash with payments made in the first quarter of the fiscal year for bonuses earned with respect to performance in the prior fiscal year. The Committee made the fiscal 2011 MIP grants in May 2010 pursuant to the 2009 plan and the fiscal 2012 grants in August 2011 pursuant to the 2009 plan. For further detail regarding the 2009 plan, see “Executive Compensation — Management Incentive Plan and Fiscal 2011 Discretionary Bonuses.”


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Each year the Committee approves MIP agreements that are entered into between Sysco and each of the named executive officers. In May 2010 and August 2011, the Committee approved bonus agreements with each of the named executive officers for fiscal 2011 and 2012, respectively. Payouts for Sysco’s CEO and Executive Vice Presidents under the MIP agreements for each of the last five fiscal years are shown below. Excluding Mr. Kreidler’s prorated payout for fiscal 2010, but including the fiscal 2011 discretionary performance-based bonus discussed below. This resulted in an average annual payout for the top corporate officers during the last five fiscal years of approximately 167% of their salary with respect to annual bonuses.
 
     
Fiscal 2007
  Approximately 300% of salary
Fiscal 2008
  Approximately 275% of salary
Fiscal 2009
  0% of salary
Fiscal 2010
  190% of salary in fiscal 2010 (except for Mr. Kreidler, who received a prorated payout for fiscal 2010)
Fiscal 2011
  0% of salary under MIP; 68.6-70% of salary with respect to discretionary performance-based bonus
 
Fiscal 2011
 
MIP
 
The named executive officers’ fiscal 2011 MIP bonus calculation was based solely on the following corporate financial objectives, adjusted as described below:
 
  •  the percentage increase in diluted earnings per share for fiscal 2011 as compared to fiscal 2010;
  •  the average annual return on capital over the three-fiscal year period ending with fiscal 2011. Return on capital for each fiscal year is computed by dividing the company’s net after-tax earnings for the year by the company’s total capital for that year. Total capital for any given fiscal year is computed as the sum of:
  ◦  stockholders’ equity, computed as the average of stockholder’s equity at the beginning of the year and at the end of each quarter during the year; and
  ◦  long-term debt, computed as the average of the long-term debt at the beginning of the year and at the end of each quarter during the year.
 
In approving the agreements for fiscal 2011, the Committee generally targeted each named executive officer’s MIP bonus at approximately 150% of his base salary, as compared to 200% for fiscal 2010. The fiscal 2011 bonus agreements provided for a minimum bonus payout upon an increase in diluted earnings per share of at least 2% and a three-year average return on capital of at least 11%. This was a change from the fiscal 2010 agreements, which provided for a minimum bonus upon an increase in diluted earnings per share of at least 4% and three-year average return on capital of at least 10%. Varying levels of performance would have earned varying levels of bonus between 20% and a maximum of 250% of base salary, as opposed to a maximum of 330% of base salary in fiscal 2010. The various levels of performance and the percentage of base salary they would have yielded as a bonus are set forth in the table described under “Executive Compensation — Management Incentive Plan and Fiscal 2011 Discretionary Bonuses.”
 
In the first and third quarters of fiscal 2011, management approved an aggregate $41.5 million expense for Sysco’s partial withdrawal from an underfunded multi-employer pension plan, or MEPP, in which Sysco employees participated. The withdrawal was determined by management, in consultation with the Board, to be in the best interests of Sysco by significantly reducing stockholder exposure to an uncertain and underfunded potential obligation. The result of the withdrawal was an aggregate of $41.5 million charged to earnings during fiscal 2011, with a corresponding $.04 per share reduction in Sysco’s diluted earnings per share in fiscal 2011. Primarily as a result of these charges, GAAP diluted earnings per share for fiscal 2011 did not meet the minimum increase threshold established by the MIP, and the named executive officers did not earn a MIP bonus in fiscal 2011. If not for these charges, the named executive officers would have earned a non-discretionary MIP bonus at the 70% level.
 
The Committee amended Mr. DeLaney’s fiscal 2011 bonus agreement in August 2010 to provide that, in addition to satisfying the objective performance goals, 20% of his total fiscal 2011 MIP bonus was also subject to his having achieved specified non-financial goals. See “Executive Compensation — Management Incentive Plan and Fiscal 2011 Discretionary Bonuses.”
 
Discretionary Performance-Based Bonuses
 
For the reasons discussed at “— Annual Bonus Analysis-Fiscal 2011-Discretionary Performance-Based Bonuses,” below, the Compensation Committee awarded the named executive officers the following discretionary performance-based bonuses for


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fiscal 2011 based on Sysco’s achievement of certain financial performance criteria and the named executive officers’ achievement of certain non-financial performance goals:
 
         
    Fiscal 2011
Named Executive Officer
  Discretionary Bonus
 
William J. DeLaney
  $ 686,000  
Robert C. Kreidler
    367,500  
Michael W. Green
    385,000  
Larry G. Pulliam
    385,000  
James D. Hope
    350,000  
 
The discretionary performance-based bonuses are subject to Sysco’s incentive clawback policy. In the event the Committee determines within thirty-six (36) months of the payment of the discretionary performance-based bonuses that the factors upon which they were paid have materially changed, including but not limited to a restatement of financial results other than as the result of a change in accounting policy, then the Committee has the right to recoup from each of the named executive officers the amount determined by the Committee, in its sole and absolute discretion, provided that such amount shall not exceed the amount of the discretionary bonuses paid to the named executive officers.
 
Fiscal 2012
 
With the exception of Mr. DeLaney, the named executive officers will earn a fiscal 2012 bonus equal to the sum of the following:
 
  •  between 25% and 75% of target (50% of the total MIP bonus) will be paid based on the percentage increase in adjusted diluted earnings per share for fiscal 2012 as compared to fiscal 2011;
  •  between 15% and 45% of target (30% of the total MIP bonus) will be paid based on the percentage increase in adjusted sales for fiscal 2012 as compared to fiscal 2011; and
  •  between 10% and 30% of target (20% of the total MIP bonus) will be based on the return on invested capital for fiscal 2012. Return on invested capital is computed by dividing the company’s adjusted net after-tax earnings for fiscal 2012 by the company’s adjusted total invested capital for that year. Adjusted total invested capital is computed as the sum of:
  ◦  Adjusted stockholder’s equity, computed as the average of adjusted stockholders’ equity at the beginning of the year and at the end of each fiscal quarter during the year; and
  ◦  Adjusted long-term debt, computed as the average of the adjusted long-term debt at the beginning of the year and at the end of each fiscal quarter during the year.
 
We refer to this calculation as the Objective Performance Bonus Calculation. Mr. DeLaney’s fiscal 2012 bonus is subject to a maximum amount that is equal to 110% of the Objective Performance Bonus Calculation.
 
The calculation of the adjusted results with respect to each of the performance measures will exclude from each of these measures the following items, the returns from which are generally expected to be outside fiscal 2012: expenditures relating to Sysco’s Business Transformation Project, the impact of major acquisitions and divestitures and any withdrawals by Sysco operating companies from multi-employer pension plans. The Compensation Committee has the discretion to include certain of these excluded items, but only if such inclusion would not cause a named executive officer’s MIP bonus to become non-deductible for federal income tax purposes pursuant to Section 162(m) of the Internal Revenue Code.
 
These three bonus measures are independent of each other, and one portion of the bonus may be earned even if the threshold level of one or both of the other measures is not achieved. If the threshold requirements for one or more of the bonus measures are not met, those portions of the bonus will not be paid.
 
Mr. DeLaney’s fiscal 2012 MIP bonus is initially calculated as equal to the maximum bonus of 110% of the unadjusted Objective Performance Bonus Calculation. The Committee then has the discretion to adjust Mr. DeLaney’s bonus, using as a base the unadjusted Objective Performance Bonus Calculation, as described below. The Committee may adjust the Objective Performance Bonus Calculation to achieve the adjusted bonus based on Mr. DeLaney’s performance with respect to the following non-financial performance goals:
 
  •  Continue to Effectively Carry Out Implementation of Business Transformation Initiative;
  •  Further Improve Customer Retention;
  •  Successfully Execute Board Approved Strategic Acquisitions;
  •  Communicate Broadly the Strategic Direction of the Corporation to All Key Stakeholders; and
  •  Make Continued Strides Toward Implementing an Effective Human Capital Plan.


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If Mr. DeLaney’s performance with respect to the above non-financial performance goals meets the target levels established by the Committee, Mr. DeLaney’s fiscal year 2012 adjusted bonus will equal 100% of the Objective Performance Bonus Calculation. If Mr. DeLaney’s performance with respect to the above goals exceeds the target levels established by the Committee, Mr. DeLaney’s fiscal year 2012 adjusted bonus will equal between 100% of the Objective Performance Bonus Calculation and the maximum bonus amount, as determined in the Compensation Committee’s discretion. If Mr. DeLaney’s performance is below the target levels of performance established by the Committee, Mr. DeLaney’s fiscal 2012 adjusted bonus will equal between 80% — 100% of the Objective Performance Bonus Calculation, as determined in the Compensation Committee’s discretion. In no event will Mr. DeLaney’s fiscal 2012 Management Incentive Plan bonus exceed the maximum bonus amount. The Committee believes that any bonus paid to Mr. DeLaney pursuant to the fiscal 2012 award will satisfy the requirements for deductibility for federal income tax purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder.
 
In approving the agreements for fiscal 2012, the Committee targeted each named executive officer’s MIP bonus at the following percentages of base salary: 150% for Mr. DeLaney, 125% for Messrs. Green and Pulliam and 100% for Messrs. Kreidler and Hope. The fiscal 2012 awards are also subject to clawback provisions that provide that, subject to applicable governing law, all or a portion of the bonus paid pursuant to the 2012 awards may be recovered by Sysco if there is a restatement of our financial results, other than a restatement due to a change in accounting policy, within 36 months of the payment of the bonus and the restatement would result in the payment of a reduced bonus if the bonus was recalculated using the restated financial results. The Committee has the sole discretion to determine the form and timing of the repayment. See “— Potential Impact on Compensation of Financial Restatements.”
 
Annual Bonus Analysis
 
Fiscal 2011
 
MIP
 
Sysco’s executive management team prepared the grids used for calculating the earnings per share and average three-year return on capital components of the fiscal 2011 MIP bonuses. With respect to the fiscal 2011 grants, the Committee asked management to modify the performance/payout grid in order to provide a closer correlation between Sysco financial performance and MIP plan payouts than had been the case in prior years. For example, it was the Committee’s intent to avoid a repeat of fiscal 2009, when Sysco performed at the median level relative to its peers but did not pay any bonus because minimum thresholds were not met. This resulted in the performance and payout changes discussed above. The change in the target bonus level from 200% to 150% of base salary, when taken into consideration with the May 2010 base salary increases, was intended to move target total cash compensation nearer to the median for all of the current named executive officers, other than Mr. DeLaney, whose target total cash compensation remained near the 25th percentile. The Committee lowered the maximum payout to 250% of base salary because it felt this was a more reasonable maximum in the event of superior company performance. The Committee also asked CAP to validate minimum, average and superior performance expectations under the revised fiscal 2011 grid to ensure that bonus payout levels would be commensurate with performance.
 
The Committee continues to believe that target bonus levels should only be earned based upon superior performance, and target bonus levels were not set to coincide with expected or average performance. Based upon the CAP May 2010 report, target total cash compensation for fiscal 2011 for Messrs. Green, Pulliam and Hope was between the median and 75th percentile of the peer group. The Committee determined that these target payouts were appropriate in light of the expanded performance payout grid that now provides for bonus payouts at lower performance levels so that payouts will more closely correspond to performance, while median and above-median payouts would only be earned in the case of superior performance. Even after factoring in his base salary increase, Mr. DeLaney’s target total cash compensation for fiscal 2011 remained near the 25th percentile, as the Committee continued to believe that it was appropriate to gradually increase Mr. DeLaney’s compensation as his tenure in the CEO position increases. Mr. Kreidler’s target total cash compensation for fiscal 2011 was only somewhat above the 25 th percentile, which the Committee believed was appropriate since his tenure with Sysco had been relatively short.
 
The Committee amended Mr. DeLaney’s fiscal 2011 bonus agreement as described above following the Board’s annual strategy session because the Committee believes that non-financial goals are extremely important in evaluating the CEO’s performance and that they should therefore also have an impact on his MIP bonus. The performance goals were chosen by the Committee based on the critical components of Sysco’s overall strategy as set out by management and the Board.


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Discretionary Performance-Based Bonuses
 
The Committee approved the discretionary bonuses after careful consideration, based on the multiple factors discussed below. During fiscal 2011, Sysco was presented with two unique opportunities to partially withdraw from an underfunded multi-employer pension plan, or MEPP, for an aggregate amount of approximately $41.5 million. The Board supported management’s decision to partially withdraw from the MEPP, as this action significantly reduced stockholder exposure to this uncertain and underfunded potential obligation. When the fiscal 2011 bonus program was established, these opportunities had not been anticipated or considered, and thus the impact of the approximately $41.5 million expenditure resulted in the named executive officers not earning MIP bonuses for fiscal 2011 in accordance with their respective bonus agreements. After taking these actions into consideration, in addition to the management team’s collective responsibility in leading Sysco to achieve the following fiscal 2011 financial performance:
 
  •  an increase in sales as compared to fiscal 2010;
  •  market share growth while the foodservice industry growth remained flat;
  •  increased earnings per share, after adjustment for the extra week in fiscal 2010, despite margin pressures; and
  •  significant improvement in customer retention,
 
the Committee made the determination to award discretionary bonuses to the named executive officers in the same amounts that they would have received under the fiscal 2011 MIP bonus agreements but for the impact of the MEPP buyouts, subject to adjustment with respect to Mr. DeLaney. This resulted in Messrs. Kreidler, Green, Pulliam and Hope receiving discretionary bonuses equal to 70% of their base salary, or 46.7% of their target bonuses. The Compensation Committee reviewed Mr. DeLaney’s fiscal 2011 performance, including his satisfaction of his pre-established non-financial goals, and determined that Mr. DeLaney had performed well with respect to each of these goals, although the Committee did note that the expected costs of and time to complete the Business Transformation Project had increased. Although Mr. DeLaney did not earn an MIP bonus, the Committee nonetheless applied the non-financial criteria of the MIP bonus in determining the amount of his discretionary bonus and awarded him a bonus equal to 68.6% of his base salary, or 45.7% of his target bonus.
 
The Committee approved these discretionary bonuses after taking into consideration the anticipated value of the compensation to the named executive officers that will not be deductible for federal income tax purposes for fiscal 2011 as a result of payment of the discretionary bonuses, in accordance with Section 162(m) of the Internal Revenue Code. The Committee considers this loss of the deduction to be warranted in light of the benefits to Sysco and its shareholders of appropriately compensating and incentivizing the named executive officers. CAP confirmed to the Committee that the size of the discretionary performance-based bonuses was reasonable based on Sysco’s underlying fiscal 2011 performance.
 
Fiscal 2012
 
The Committee determined in August 2011 that it would begin to move toward an annual incentive program with performance benchmarks derived from an assessment of market conditions, operating expectations, and other relevant factors. This contrasts with the prior practice of linking targets to the prior year’s results. CAP has informed the Committee that this approach is more in line with the majority of Sysco’s peer group. The fiscal 2012 program is meant to be transitional, in that it still requires an increase in the performance criteria relative to fiscal 2011 for earnings growth and sales growth , but significant changes were made from fiscal 2011, as discussed above. The Committee added the sales component in order to bring the bonus program more in line with Sysco’s peer group, and the change from three year average return on invested capital to an annual calculation was recommended by management and was driven by the inclusion in the fiscal 2012 program of the ability to adjust for major acquisitions and other unusual events, minimizing the need to normalize results over a three-year period. The decision to pay the bonus for each performance component separately, regardless of whether the threshold for the others is achieved, was driven by market practice. The changes in the threshold and maximum bonus levels were based on benchmarking of the peer group. The Committee determined to exclude the extraordinary items described above because they represent items that generally involve current period costs that do not result in benefits until later periods, or vice versa. In light of the foregoing, Sysco’s executive management team prepared the earnings per share, sales and return on capital components of the fiscal 2012 MIP bonuses. It was both management’s and the Committee’s intent to create a bonus formula that will be more likely to pay an annual bonus in the event Sysco performs at the median level relative to its peers than may have been the case with respect to prior year bonus formulas; however, as discussed above, fiscal 2012 is a transitional year, so in addition to basing performance levels on Sysco’s internal projections, increases from the prior year were also imposed at the threshold level. The Committee believes that the threshold and target levels of performance represent challenging but reasonably obtainable Sysco performance while levels in excess of the target level represent exemplary and extremely challenging performance. The reductions in the target bonus levels for each of the named executive officers other than Mr. DeLaney were driven by the Committee’s express goal of increasing base salaries to move them closer to the median and decreasing annual incentives in order to bring the pay mix


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closer to the norm of the peer group, in accordance with the philosophy and principles outlined above at “— Executive Compensation Philosophy and Core Principles” and ensure that total cash compensation does not significantly exceed the median unless outstanding performance levels are reached. The Committee did not reduce Mr. DeLaney’s target bonus level because, after taking into account his salary increase, the 150% target bonus provides a target total cash compensation amount at approximately the median of the peer group. The Committee also asked CAP to validate threshold, target and maximum performance expectations under the revised fiscal 2012 program to ensure that bonus payout levels would be commensurate with performance.
 
Based upon the CAP May 2011 report, target total cash compensation for fiscal 2012 for each of the named executive officers compared as follows with respect to the comparable peer group position: Mr. DeLaney and Mr. Hope — near the median, Mr. Kreidler — near the 25 th percentile, and Messrs. Green and Pulliam — between the median and 75 th percentile. The Committee determined that these target payouts were appropriate in light of the Committee’s goal of ensuring that Sysco performance and MIP bonus payouts are properly correlated.
 
For the reasons discussed above with respect to fiscal 2011, the Committee continues to believe that non-financial goals are extremely important in evaluating the CEO’s performance and that they should therefore also have an impact on his MIP bonus. The performance goals for fiscal 2012 were chosen by the Committee based on the critical components of Sysco’s overall strategy as set out by management and the Board. The Committee determined that Mr. DeLaney’s fiscal 2012 bonus should be subject to adjustment based on the non-financial criteria discussed above as a result of the desire to link his pay to his performance and advancement of Sysco’s overall performance and business strategies.
 
Longer-Term Incentives
 
The Committee granted fiscal 2011 longer-term incentives in November 2010. These incentives consisted of three-year cash performance units, stock options and restricted stock units. For details regarding these grants see “Executive Compensation — Cash Performance Unit Plan,” “Executive Compensation — Outstanding Equity Awards at Fiscal Year-End,” and “Executive Compensation — Grants of Plan-Based Awards.”
 
During fiscal 2011, the named executive officers received approximately 50% of the value of their longer-term incentives in stock options, approximately 25% in cash performance units (“CPUs”), and approximately 25% in grants of restricted stock units (“RSUs”), with the options valued using an approximation of the Black-Scholes value, CPUs valued at the target level of $1.00 per unit and each RSU valued at the closing price of Sysco common stock on the business day prior to the grant.
 
Cash Performance Units
 
Under the Sysco Corporation 2008 Cash Performance Unit Plan, as amended, participants in the MIP have the opportunity to receive cash incentive payments based on Sysco’s performance over a three-year period. We pay any awards earned under these plans in cash rather than in Sysco stock or stock units. CPU grants are forward-looking and the grant of CPUs typically does not take into account prior Sysco or individual performance. The payout on CPUs is based on Sysco’s actual performance over the three-year performance cycle beginning with the fiscal year in which the CPU is granted. In November 2010, the Committee granted three-year cash performance units under the 2008 plan. In addition, the cash performance units that we issued in September 2007 under the 2004 Cash Performance Unit plan were paid out in August 2010. The cash performance units that we issued in September 2008 under the 2004 plan to corporate participants did not satisfy the minimum criteria necessary to receive a payment in August 2011.
 
The CPU grants that the Committee made in September of 2008 and November of 2009 related to the respective three-year performance periods ending in fiscal 2011 and 2012, and each has a value of $35 per unit with the same payout possibilities, ranging from 25% to 150% of the total value of the units granted in each year. For each of the named executive officers, one-half of the payout was based on the average growth in diluted earnings per share and one-half of the payout was based on the average increase in sales. Achievement of the target would have yielded a 100% payout, while the minimum satisfaction of only one criterion would have yielded a 25% payout and maximum performance above target on both criteria would have provided a 150% payout. The Committee took the total value that was targeted at 100% payout for CPUs for a given level of participant and divided by the $35 value assigned to each unit to determine the number of units to be granted to each participant. We believe that the minimum and target amounts under the CPUs have historically been achievable, although the maximum payout would generally be difficult to obtain at the corporate level and for most of our subsidiaries. In order for generally accepted accounting principles to be applied consistently year-over-year, the performance measures for the CPUs may be calculated slightly differently from those in our financial statements. For each of the September 2008 and November 2009 grants, the Committee used the same performance criteria, except that the CPU grants made in November 2009 decreased the threshold, target and


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maximum sales performance measures, and the threshold, target and maximum diluted earnings per share performance measures relative to the September 2008 grants.
 
The terms of the CPU grants that the Committee made in November 2010 are identical to those of the November 2009 grants, except that each unit was assigned a value of $1.00.
 
Our adjusted sales growth over the three-year performance period ended on July 2, 2011 was 1.6% and our average growth in diluted earnings per share over the performance period was 2.8%, neither of which satisfied the minimum criteria necessary for a payout.
 
The specific performance measures and related potential payouts for the September 2008, November 2009 and November 2010 corporate grants are shown under “Executive Compensation — Cash Performance Unit Plans.”
 
With respect to the CPUs to be granted in November 2011, the Committee currently intends to replace the previous performance criteria with a measure based on Sysco’s total shareholder return over the three fiscal year performance period including fiscal 2012, 2013 and 2014 relative to that of the S&P 500. Based upon where Sysco’s total shareholder return for that period falls relative to the other S&P 500 companies, CPUs are expected to pay at a rate of from 50% to 150% of the aggregate value of the CPUs, which are valued at $1 per unit. The threshold payment level is expected to require Sysco’s total shareholder return for the three fiscal year performance period to equal or exceed that of the 30th percentile of the S&P 500, and the maximum payment level is expected to be reached at the 75th percentile, with graduated bonus levels in between. These grants are expected to be subject to Sysco’s clawback policies. See “Executive Compensation — Cash Performance Unit Plans” for an explanation of the calculation of total shareholder return.
 
Stock Options and Restricted Stock Units
 
The Committee approved the fiscal 2011 stock option and restricted stock unit grants to the named executive officers in November 2010 under our 2007 Stock Incentive Plan, as amended. The specific grants made in November 2010 are shown under “Executive Compensation — Grants of Plan-Based Awards.” The 2007 Stock Incentive Plan calls for options to be priced at the closing price of our common stock on the business day prior to the grant date, and the fiscal 2011 option grant agreement provides for ratable vesting over a five-year period. The fiscal 2011 restricted stock unit grant agreement provides for ratable vesting over a three-year period.
 
The Committee grants all of our stock options and restricted stock units pursuant to our equity grant guidelines. These guidelines are more fully described under “Executive Compensation — Outstanding Equity Awards at Fiscal Year-End.”
 
Longer-Term Incentive Analysis
 
The Committee determined the fiscal 2011 mix of CPUs, stock options and restricted stock units, in order to bring the longer-term incentives more in line with those disclosed by the peer group companies and to provide further alignment of the executives’ interests with those of the stockholders. For purposes of estimating the aggregate value of the longer-term incentives granted to the named executive officers in fiscal 2011, the Committee used the closing price of the common stock on the last business day before the date of grant for RSUs, the target payout for the CPUs and an estimated Black-Scholes value for stock options. However, after consideration of Sysco’s overall stock incentive usage, the Committee attributed a higher value to options, resulting in a decrease in the number of options actually granted. These values placed each named executive officer other than Mr. DeLaney between the 25th percentile and the median of the peer group with respect to longer-term incentives and target total direct compensation, and placed all of the named executives except Messrs. DeLaney and Pulliam between the 25th percentile and the median of the peer group with respect to target total direct compensation plus retirement. Mr. Pulliam’s total direct compensation plus retirement was between the 25 th percentile and the median. These results were consistent with the Committee’s focus of providing competitive longer-term incentives while also moving total direct compensation and total direct compensation plus retirement closer to the median. Despite significant increases in the size and value of Mr. DeLaney’s longer-term incentive grants, his longer-term incentive compensation, target total direct compensation and target total direct compensation plus retirement remained below the 25th percentile of the peer group, as the Committee had determined that his pay package should be made competitive at the Chief Executive Officer level with Sysco’s peer group as his tenure and experience in the CEO role increased.
 
The minimum, target and maximum performance criteria levels and the potential payouts for the CPU awards made in November 2010 for the three-year performance period ending in fiscal 2013 were identical to those of the awards made in November 2009 for the three-year performance period ending in fiscal 2012. The Committee continued these performance levels based on the Committee’s acknowledgment of the continuing challenges facing Sysco. In the prior year, the Committee had approved lowering the minimum, target, maximum and other payout levels for the grants made in November 2009 as


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compared to the fiscal 2009 grants, due to the impact of the economic downturn and the increased difficulty faced by Sysco in growing sales and earnings per share. The Committee changed the nominal value of each CPU from $35 to $1.00 for administrative purposes, and this change did not impact the aggregate dollar value of each named executive officer’s CPU grants. With respect to the currently proposed November 2011 CPU grants, the Committee determined to switch to the total shareholder return measure due to the desire to continue to link the interests of management with the interests of the stockholders. The Committee chose the various performance levels, including the threshold and maximum, based on an analysis of our peer group market practices.
 
The Committee believes that option and restricted stock unit grants benefit employee performance and retention, particularly in years in which Sysco’s performance does not create high cash compensation. They also help to ensure that longer-term strategic initiatives are not compromised by having executives focus solely on short-term profitability for payment of the annual bonus. Sysco’s long-term performance ultimately determines the value of stock options and restricted stock units, because their value is directly correlated with the long-term appreciation of our stock price. The Committee believes that this longer-term focus benefits Sysco and its stockholders, as it more closely aligns the executives’ interests with those of stockholders and focuses executives on strategies that increase long-term stockholder value. Existing ownership levels are not generally a factor in the Committee’s granting of options and restricted stock units, because it does not want to discourage executives from holding significant amounts of Sysco stock; however, the Committee does consider stock ownership requirements when determining the size of equity grants. The Committee chose to include restricted stock units, rather than shares of restricted stock, as a portion of the annual longer-term incentive grant primarily after considering the potentially negative tax withholding impact of restricted stock grants to retirement eligible executives.
 
Pursuant to our equity grant guidelines in effect prior to August 2011, the Committee would generally make option and restricted stock unit grants on the second Tuesday in November each year. This is a date when we are typically in a trading “window” under our Policy on Trading in Company Securities. For fiscal 2011, this would have meant a grant date of November 9, 2010; however, after careful consideration, the Committee determined that it was appropriate and in the best interests of Sysco and its stockholders to issue the fiscal 2011 equity awards on Thursday, November 11, 2010, when the Committee and Board of Directors held their regular meetings. The Committee made this modification in light of the fact that the revised date was during a normal trading window and would not conflict with a scheduled trading blackout period, and that, as of such date, the Committee anticipated that Sysco would have publicly disseminated all material information likely to affect the trading price of Sysco’s common stock. In August 2011, the Committee revised our equity grant guidelines to provide that grants may generally be made during any open trading window pursuant to our Policy on Trading in Company Securities, subject to certain conditions and qualifications. The Committee believes that this change provides additional flexibility while continuing to ensure that options and other equity awards are fairly priced and valued. See “Executive Compensation — Outstanding Equity Awards at Fiscal Year-End” for a more detailed discussion of our equity grant guidelines.
 
Retirement/Career Incentives
 
Supplemental Executive Retirement Plan
 
We provide annual retirement benefits to all corporate employees and most of our non-union operating company employees under the broad-based tax-qualified Sysco Corporation Retirement Plan, which we simply refer to as the “pension plan.” In addition, Sysco offers supplemental retirement plans to approximately 171 corporate and operating company officers. Each of the named executive officers participates in the Supplemental Executive Retirement Plan, or SERP; however, in May 2011, the SERP was amended in order to close the SERP to future participants. The Committee utilizes the SERP to increase the retirement benefits available to officers whose benefits under the pension plan are limited by law. The earliest an executive can retire and receive any benefits under the SERP is age 55 with a minimum of 15 years of MIP service. The SERP was designed to provide fully vested participants with post-retirement monthly payments, with annual benefits equaling up to 50% of a qualifying participant’s final average annual compensation, as discussed under “Executive Compensation — Pension Benefits — Supplemental Executive Retirement Plan” below, in combination with other retirement benefits, including other pension benefits, the company match under the 401(k) plan and social security payments. The named executive officers will receive a SERP benefit based on the greater of the accrued benefit determined as of the relevant separation date under the current provisions of the SERP or the accrued benefit determined as of June 28, 2008 under the prior provisions of the SERP, but with vesting, benefit limits and eligibility for immediate benefit payments determined as of the relevant separation date. Annual retirement benefits from the SERP for a participant who is 100% vested in his accrued benefit were generally limited to approximately $2.27 million in fiscal 2011 and will generally be limited to approximately $2.35 million in fiscal 2012, with such maximum limit adjusted for cost-of-living increases in future years. The terms of the SERP are more specifically described under “Executive Compensation — Pension Benefits — Supplemental Executive Retirement Plan.” The amounts accrued by each named executive officer under the pension plan and the SERP as of July 2, 2011 are set forth under “Executive Compensation — Pension Benefits.”


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SERP Analysis
 
Sysco’s retirement plans are an important performance and retention tool, the effectiveness of which the Committee tries to balance with the cost of providing them. Based on CAP’s May 2010 report, compensation to the named executive officers under the SERP placed Sysco above the 75th percentile for retirement benefits relative to the peer group, but total direct compensation plus retirement for 2011 placed Sysco between the 25th percentile and the median for all named executive officers except for Mr. DeLaney, who was below the 25th percentile, and Mr. Pulliam, who was above the median. As a result, the Committee believes that these benefits are appropriate in light of Sysco’s overall compensation structure; however, in May 2011, the SERP was amended in order to close the SERP to future participants and the Committee continues to monitor and review the SERP in order to achieve the following goals:
 
  •  maintain the SERP as a retention tool;
  •  reduce the cost of the SERP;
  •  bring the value of retirement benefits more in line with the median of the peer group; and
  •  increase the proportion of long-term and performance-based compensation in the compensation mix, relative to fixed and retirement compensation such as the SERP.
 
Nonqualified Executive Deferred Compensation Plan
 
Sysco offers an Executive Deferred Compensation Plan, or EDCP, to provide MIP participants, including the named executive officers, the opportunity to save for retirement and accumulate wealth in a tax-efficient manner beyond savings opportunities under Sysco’s 401(k) retirement savings plan. Participants may defer up to 100% of their base salary and up to 40% of their MIP bonus, or any bonus paid in lieu of or as a replacement for the MIP bonus, to the EDCP. Sysco does not match any salary deferrals into the EDCP. For participants who defer a portion of their qualifying bonus, Sysco matches 15% of the first 20% deferred, making the maximum possible match to the EDCP 3% of the MIP bonus. This match generally vests on the tenth anniversary of the crediting date, subject to earlier vesting in the event of death, disability, a change in control or the executive’s attaining age sixty. Participants who defer compensation under the EDCP may choose from a variety of investment options, including Moody’s Average Corporate Bond Yield, with respect to amounts deferred. Company matching contributions are credited with the Moody’s Average Corporate Bond Yield. The EDCP is described in further detail under “Executive Compensation — Executive Deferred Compensation Plan.”
 
EDCP Analysis
 
Currently, individual contributions to the 401(k) plan are limited by law to $16,500 per year. The Committee believes that the EDCP motivates and assists in the retention of key employees by providing them with greater flexibility in structuring the timing of their compensation payments. The EDCP is an important recruitment and retention tool for Sysco, as the companies with which we compete for executive talent typically provide a similar plan to their senior employees.
 
Severance and Employment Agreements
 
None of Sysco’s executive officers are currently parties to any severance or employment agreements.
 
Benefits, Perks and Other Compensation
 
We provide benefits for executives that we believe are reasonable, particularly since the cost of these benefits constitutes a very small percentage of each named executive officer’s total compensation. Certain of these benefits are described below.
 
Sysco’s named executive officers are generally eligible to participate in Sysco’s regular employee benefit programs, which include the defined benefit pension plan, a 401(k) plan, our employee stock purchase plan, group life insurance and other group benefit plans. We also provide MIP participants, including the named executive officers, with additional life insurance benefits, long-term disability coverage, including disability income coverage, and long-term care insurance, as well as reimbursement for an annual comprehensive wellness examination by a physician of their choice. We believe many of these benefits are required to remain competitive with our competitors for executive talent. Although the executive officers are eligible to participate in Sysco’s group medical and dental coverage, we adjust employees’ contributions towards the monthly cost of the medical plan according to salary level; therefore, executives’ pay a higher percentage of the cost of these benefits than do non-executives.
 
MIP participants, including the named executive officers, are encouraged to occasionally have their spouses accompany them at business dinners and other business functions in connection with some meetings of the Board of Directors, certain business meetings and other corporate-sponsored events, and Sysco pays, either directly or by reimbursement, all expenses associated with their spouses’ travel to and attendance at these business-related functions. Furthermore, Sysco owns fractional


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interests in private aircraft that are made available to members of the Board of Directors, executives and other members of management for business use, but these aircraft are not allowed to be used for personal matters. Spouses may occasionally accompany executive officers on such flights in connection with travel to and from business-related functions if there is space available on the aircraft.
 
All employees, including our named executive officers, as well as members of our Board of Directors, are also entitled to receive discounts on all products carried by Sysco and its subsidiaries. Although Sysco does provide the named executive officers with certain additional perquisites, we do not provide the named executive officers with automobiles, security monitoring or split-dollar life insurance.
 
Relocation Expenses
 
Consistent with Sysco’s past practices on relocation of officers, we provided Mr. Kreidler reimbursement for certain relocation and housing expenses following his hiring and appointment to serve as Executive Vice President and Chief Financial Officer at our headquarters in Houston, Texas. This amount originally included reimbursement for up to $250,000 of the first $500,000 of any loss to him on the sale of his former residence, plus an additional 35% with respect to any portion of that amount that was subject to federal income tax. Mr. Kreidler was unable to sell his former home until August 2010, at a loss of over $600,000. As a result, upon the recommendation of management and in order to mitigate this loss to Mr. Kreidler, which was much larger than originally anticipated due to the ongoing financial crisis and its impact on the housing market, the Committee approved an increase to his reimbursement amount. The Committee increased the total reimbursement amount to a maximum of $500,000, plus an additional 35% with respect to any portion of the reimbursement that is taxable for federal income tax purposes. As a result, the total reimbursement amount Sysco paid to Mr. Kreidler for the loss on the sale of his home was $380,000, plus the applicable tax-related payment.
 
To address the Committee’s desire for Sysco to comply with best corporate governance and compensation practices, in October 2010, the Committee adopted an executive relocation expense reimbursement policy that applies to all of the named executive officers. The reimbursement policy provides that Sysco will not reimburse any of such executives for any loss on the sale of the executive’s house sold in connection with the executive’s relocation. The reimbursement policy also provides that only certain pre-approved relocation expenses will be eligible for increased payments to cover all applicable taxes on the reimbursed amounts, such as state and federal income taxes, FICA, and Medicare taxes. The relocation expenses subject to such increased payments to cover applicable taxes will be limited to the cost of moving the executive’s household goods and vehicles; real estate fees incurred in selling the executive’s residence; closing costs associated with the purchase of a new residence, including cost of credit reports, mortgage and deed taxes, recording fees and title search, title insurance, surveys, if required, and reasonable attorney’s fees; and up to six months’ rental expense for a temporary residence in the area to which the executive has been asked to relocate. No other relocation expenses will be eligible for increased payments to cover applicable taxes. In addition, the reimbursement policy provides that all future relocation agreements with any named executive officer will include a clawback provision that requires the executive to reimburse Sysco for all or a part of the reimbursement if his employment is terminated for any reason other than death, disability or change of control of Sysco, or termination without cause or for good reason, within a specified amount of time after receiving the reimbursement.
 
The Committee approved a relocation package for Mr. Green in fiscal 2011 to be paid in fiscal 2012, in connection with his relocation to the Sysco corporate office in Houston, which is consistent with the executive relocation expense reimbursement policy discussed immediately above.
 
Benefits Following a Change in Control
 
We currently have no severance or similar agreements that would cause an immediate or “single trigger” cash payment obligation solely as a result of a change in control of Sysco. We have included change of control provisions in several of Sysco’s benefit plans and agreements, including an immediate payout of CPUs at the target payout level for grants under the 2008 Cash Performance Unit Plan, and 100% vesting of SERP benefits, EDCP benefits, options, restricted stock and restricted stock units upon a change in control. See “Executive Compensation — Quantification of Termination/Change in Control Payments” for a detailed explanation of potential benefits under the various provisions.
 
Change of Control Benefits Analysis
 
The Committee continues to believe that these provisions preserve executive morale and productivity and encourage retention in the face of the disruptive impact of an actual or rumored change in control of Sysco. The Committee has balanced the impact of these acceleration provisions with corresponding provisions in the SERP and the EDCP that provide for a reduction in benefits to the extent they are not deductible under Section 280G of the Internal Revenue Code.


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Potential Impact on Compensation of Financial Restatements
 
In the event of a restatement of our financial results, other than a restatement due to a change in accounting policy, it is the Committee’s policy that it will review all incentive payments made to MIP participants, including the named executive officers, within the 36 month period prior to the restatement on the basis of having met or exceeded specific performance targets in grants or awards made on or after May 14, 2009. If such incentive payments would have been lower had they been calculated based on the restated results, the Committee will, to the extent permitted by applicable law, seek to recoup any such excess payments for the benefit of Sysco. The MIP and CPU grants made by the Committee for fiscal 2011 contain a contractual provision binding the grantee to this recovery right, and the Committee anticipates that future grants will contain similar provisions. The Committee has the sole discretion to determine the form and timing of the recoupment, which may include repayment from the MIP participant or an adjustment to the payout of a future incentive. In addition, the executives’ benefits under the SERP and EDCP may be subject to forfeiture or adjustment as a result of any such restatement of financial results. These remedies would be in addition to, and not in lieu of, any actions imposed by law enforcement agencies, regulators or other authorities.
 
Income Deduction Limitations
 
Section 162(m) of the Internal Revenue Code generally sets a limit of $1 million on the amount of non-performance-based compensation that Sysco may deduct for federal income tax purposes in any given year with respect to the compensation of each of the named executive officers other than the chief financial officer. The Committee has adopted a general policy of structuring the performance-based compensation arrangements, including the MIP bonus and CPUs, in order to preserve deductibility to the extent feasible after taking into account all relevant considerations. However, the Committee also believes that Sysco needs flexibility to meet its incentive and retention objectives, even if Sysco may not deduct all of the compensation paid to the named executive officers. The Committee used this flexibility to award discretionary performance-based bonuses for fiscal 2011 based on Sysco’s satisfying certain financial criteria and the CEO’s achievement of non-financial goals. See “— Management Incentive Plan” above.
 
Based on the factors discussed under “Annual Compensation — Base Salary” and “Longer – Term Incentives,” in fiscal 2011 Sysco paid, and in fiscal 2012 the Committee expects Sysco to pay, Mr. DeLaney a base salary that, when aggregated with anticipated vesting of restricted stock units, will exceed $1 million in value. The Committee believes that this compensation to Mr. DeLaney is necessary in order to maintain the competiveness of his total compensation package in light of peer compensation practices, and as a result, has determined that it is appropriate even though approximately $308,053 of Mr. DeLaney’s fiscal 2011 compensation, in addition to his discretionary performance-based bonus, will not be deductible, and the excess of Mr. DeLaney’s anticipated salary plus the value of his restricted stock units vesting in fiscal 2012 over $1 million, will not be deductible for federal income tax purposes.
 
Section 409A of the Internal Revenue Code
 
Section 409A of the Internal Revenue Code deals specifically with non-qualified deferred compensation plans. We have designed all of our executive benefit plans, including the SERP, EDCP, 2008 Cash Performance Unit Plan, and the 2007 Stock Incentive Plan, such that they are exempt from, or otherwise comply with, the requirements of Section 409A of the Internal Revenue Code.
 
Stock Ownership Guidelines
 
In 2011, the Compensation Committee, together with the Corporate Governance and Nominating Committee, upon the recommendation of management and following consultation with CAP, modified our stock ownership guidelines for executive officers. The Compensation Committee and the Corporate Governance and Nominating Committee are comprised of the same individual directors. The modifications included a decrease in the amount of time required to meet the full ownership requirements from eight to five years — to be phased in over five years, an increase in each of the named executive officers’ other than Mr. DeLaney’s ownership requirement to 60,000 shares, and changes in rules regarding the counting of RSUs. These changes were recommended by the Corporate Governance and Nominating Committee and approved by the Board of Directors primarily in order to bring Sysco’s policies more in line with its peer group. See “Stock Ownership — Stock Ownership Guidelines” for a description of our executive stock ownership guidelines and stock retention policies and these recent changes.


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Total Compensation
 
In September 2011, after reviewing the CAP reports and the Company’s fiscal 2011 performance, the Committee determined that each named executive officer’s total fiscal 2011 compensation provided the executive with adequate and reasonable compensation. The Committee also determined that each named executive officer’s total fiscal 2011 compensation was appropriate given Sysco’s performance in fiscal 2011 and the executive’s personal performance.
 
COMPENSATION COMMITTEE REPORT
 
The Compensation Committee of the Board of Directors of Sysco Corporation has reviewed and discussed the foregoing Compensation Discussion and Analysis as required by Item 402(b) of Regulation S-K with management and, based on such review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Annual Report on Form 10-K and this Proxy Statement.
 
COMPENSATION COMMITTEE
 
  John M. Cassaday, Chairman
  Judith B. Craven
  Manuel A. Fernandez
  Larry C. Glasscock
  Phyllis S. Sewell
  Jackie M. Ward


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