UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A INFORMATION

 

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934 (Amendment No.     )

 

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o  Preliminary Proxy Statement

o  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

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o  Soliciting Material Pursuant to §240.14a-12

 

Sonoco Products Company

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

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SONOCO PRODUCTS COMPANY

 

1 NORTH SECOND STREET

HARTSVILLE, SOUTH CAROLINA 29550 USA

 

March 11, 2011

 

To Our Shareholders:

 

You are cordially invited to attend our Annual Shareholders’ Meeting to be held at the Center Theater, 212 North Fifth Street, Hartsville, South Carolina, on Wednesday, April 20, 2011, at 11:00 a.m. (Eastern time).

 

We have enclosed a Notice of 2011 Annual Meeting of Shareholders and Proxy Statement that cover the details of matters to be presented at the meeting.

 

In addition to acting on the matters listed in the Notice of Annual Meeting of Shareholders, we will discuss the Company’s progress, and you will be given an opportunity to ask questions of general interest to all shareholders.

 

We have also enclosed a copy of our 2010 Annual Report, which reviews the Company’s events of the past year, and discusses strategy and the outlook for the future (or we delivered one copy of the Annual Report for all shareholders at your address).

 

We hope that you will come to the 2011 Annual Meeting of Shareholders in person; however, even if you plan to attend, we strongly encourage you to complete the enclosed proxy card or brokers’ voting instruction form and return it in the enclosed business reply envelope. If you are a shareholder of record, you can also vote by telephone (if you live in the United States or Canada) or via the Internet. Instructions are shown on your proxy card. If you are a shareholder of record and for any reason you desire to revoke your proxy, you can do so at any time before the voting. Your vote is important and will be greatly appreciated.

 

 

Harris E. DeLoach, Jr.

Chairman & Chief Executive Officer

 

TABLE OF CONTENTS

 

SONOCO PRODUCTS COMPANY

 

1 NORTH SECOND STREET

HARTSVILLE, SOUTH CAROLINA 29550 USA

 

 

 

By order of the Board of Directors,

 

Ritchie L. Bond

Secretary

March 11, 2011

 

SONOCO PRODUCTS COMPANY

 

1 NORTH SECOND STREET

HARTSVILLE, SOUTH CAROLINA 29550 USA

 

We are sending you these proxy materials in connection with the solicitation by the Board of Directors of Sonoco Products Company of proxies to be used at the Annual Meeting of Shareholders (“Annual Meeting”) to be held on Wednesday, April 20, 2011, at 11:00 a.m. (Eastern time) at The Center Theater, 212 North Fifth Street, Hartsville, S.C., and at any adjournment or postponement of the meeting. The terms “we,” “our,” “us,” “Sonoco” and “the Company” all refer to Sonoco Products Company. The proxy materials are first being mailed on or about March 18, 2011.

 

Who May Vote

 

You will only be entitled to vote at the Annual Meeting if our records show that you were a record shareholder on February 18, 2011. At the close of business on February 18, 2011, a total of 100,267,925 shares of our common stock were outstanding and entitled to vote. Each share of common stock has one vote.

 

How to Vote Shares Held Directly

 

If you hold your shares in your own name as a record shareholder, you may vote by proxy or in person at the meeting. To vote by proxy you may select one of the following options: telephone, Internet, or mail.

 

Vote by Telephone:

 

You may vote by telephone (if you live in the United States or Canada) using the toll-free number shown on your proxy card. You must have a touch-tone telephone to use this option. Telephone voting is available 24 hours a day, seven days a week. Clear and simple voice prompts allow you to vote your shares and confirm that your instructions have been properly recorded. If you vote by telephone, please DO NOT return your proxy card.

 

Vote through the Internet:

 

You may vote through the Internet. The Web site for Internet voting is shown on your proxy card. Internet voting is available 24 hours a day, seven days a week. When you vote through the Internet, you will be given the opportunity to confirm that your instructions have been properly recorded. If you vote through the Internet, please DO NOT return your proxy card.

 

Vote by Mail:

 

If you choose to vote by mail, please mark the enclosed proxy card, date and sign it, and return it in the enclosed postage-paid envelope.

 

Actions of the Proxy Agents

 

If you are a record shareholder and you indicate your voting choices, your shares will be voted according to your instructions. If you fail to give voting instructions, the proxy agents will vote your shares FOR each person named in this Proxy Statement as a nominee for election to the Board of Directors, FOR ratification of the selection of PricewaterhouseCoopers LLP (“PwC”) as our independent registered public accounting firm for the fiscal year ending

December 31, 2011, FOR the advisory (non-binding) resolution to approve executive compensation, and FOR the advisory (non-binding) resolution to vote on approval of executive compensation every year. The proxy agents will vote according to their best judgment on any other matter that properly comes before the Annual Meeting. At present, the Board of Directors does not know of any other such matters.

 

How to Vote Shares Held in Street Name by a Broker, Bank or Other Nominee

 

If your shares are held in street name by a broker, bank, or other nominee, you may direct your vote by submitting your voting instructions to your broker, bank, or other nominee. Please refer to the voting instructions provided by your account manager. Your broker or other nominee is not permitted to vote your shares on election of directors unless you provide voting instructions. Brokers also do not have discretionary authority to vote on the advisory (non-binding) resolution to approve executive compensation or on the advisory (non-binding) resolution on the frequency of the vote to approve executive compensation unless you provide voting instructions. Therefore, to be sure your shares are voted, please instruct your broker or other nominee as to how you wish it to vote.

 

Voting at the Annual Meeting

 

The method by which you vote will not limit your right to vote at the Annual Meeting if you decide to attend in person. However, if you wish to vote at the meeting and your shares are held in street name by a bank, broker, or other nominee, you must obtain a proxy executed in your favor from the holder of record prior to the meeting.

 

If you wish to attend the meeting in person, you may obtain directions to our office at our Web site: www.sonoco.com. The site of the Annual Meeting is only a short distance from the Sonoco office, and directions from the office to the annual meeting site may be obtained at the reception desk.

 

How to Revoke Your Proxy

 

You may revoke your proxy at any time before it is voted. If you hold your shares in your own name as a record shareholder, you may revoke your proxy in any of the following ways:

 

 

Subsequent voting by telephone or via the Internet cancels your previous vote. If you are a shareholder of record, you may also attend the meeting and vote in person, in which case your proxy vote will not be used.

 

If your shares are held in street name by a broker, bank, or other nominee, you may revoke your voting instructions by submitting new voting instructions to the broker or other nominee who holds your shares.

 

How Votes Will Be Counted

 

The Annual Meeting will be held if a majority of the outstanding shares of common stock entitled to vote (a “quorum”) is represented at the meeting. If you have submitted valid proxy instructions or are a record shareholder and attend the meeting in person, your shares will be counted for the purpose of determining whether there is a quorum, even if you wish to abstain from voting on some or all matters introduced. “Broker non-votes” also count in determining whether a quorum is present. A “broker non-vote” occurs when a broker, bank or nominee who holds shares in street name for a beneficial owner attends the meeting in person or by proxy but chooses not to vote on a particular proposal, or does not have discretionary voting power for that proposal and has not received voting instructions from the beneficial owner.

 

Brokers do not have discretionary authority to vote on director elections. Therefore, if you return a broker voting instruction form but do not indicate how you want your broker to vote on election of directors, a broker non-vote will occur with respect to the election. Brokers also do not have discretionary authority to vote on the advisory (non-binding) resolution to approve executive compensation or on the advisory (non-binding) resolution on the frequency of

the vote to approve executive compensation. Therefore, if you return a broker voting instruction form but do not indicate how you want your broker to vote on these advisory resolutions, a broker non-vote will occur with respect to them. Brokers do, however, continue to have discretionary authority to vote on ratification of independent auditors, and may do so when you have not provided instructions on that matter.

 

If a quorum is present at the Annual Meeting, directors will be elected by a plurality of the votes cast by shares present and entitled to vote at the Annual Meeting. “Plurality” means that, if there were more nominees than positions to be filled, the persons who received the largest number of votes would be elected. Because there are the same number of nominees as positions to be filled, we expect all nominees to be elected. Votes that are withheld or that are not voted in the election of directors (including broker non-votes) will have no effect on the outcome of the election. Cumulative voting is not permitted.

 

The vote on the advisory resolution to approve executive compensation is non-binding on us and our Board of Directors. Marking the proxy card or your broker voting instructions “FOR” indicates support for the resolution; marking the proxy card or your broker voting instructions “AGAINST” indicates lack of support for the resolution. You may abstain by marking the “ABSTAIN” box on the proxy card or your broker voting instructions. The vote on the advisory resolution on the frequency of the vote to approve executive compensation is also non-binding on us and our Board of Directors. You have four choices with respect to indicating your preference for such frequency: ONE YEAR; TWO YEARS; THREE YEARS; or ABSTAIN.

 

Any other matter, including ratification of the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm, that may be brought before the meeting will be approved if the votes cast in favor of the matter exceed the votes cast against the matter. Votes that are withheld or shares that are not voted will have no effect on the outcome of such matters.

 

Cost of this Proxy Solicitation

 

We will pay the cost of this proxy solicitation. In addition to soliciting proxies by mail, we expect that some of our officers and regular employees will solicit proxies by telephone, fax, email, or personal contact. None of these officers or employees will receive any additional or special compensation for doing this.

 

The Board of Directors has fixed the number of directors of the Company at 12. At our Annual Meeting, four directors will be elected. Messrs. J.L. Coker, J.M. Micali, L.W. Newton and M.D. Oken have been nominated to hold office for the next three years, their terms expiring at the Annual Shareholders’ Meeting in 2014, or when their successors are duly elected and qualify to serve. The proxy agents intend to vote FOR the election of the four persons named above unless you withhold authority to vote for any or all of the nominees. The Board of Directors recommends that you vote FOR each nominee.

 

 

Members of the Board of Directors whose terms of office will continue until our Annual Shareholders’ Meeting in 2012 are:

 

Members of the Board of Directors whose terms of office will continue until our Annual Shareholders’ Meeting in 2013 are:

 

 

Our current directors have a wide range of specific employment and other leadership experiences, knowledge and skills that qualify them for service on our Board and its Committees. Many of our directors also serve on the boards of other public companies, which provides them experience with governance, legal, and regulatory issues facing public companies in general, and with alternative approaches to those issues. Most of our directors are also active on the boards of non-profit organizations.

In addition to the background information described in their biographies, their individual qualifications are highlighted below:

 

Mr. James L. Coker, a former Company executive who held the positions of President of Sonoco Canada and Corporate Secretary and with over forty years’ service on our Board, brings knowledge of our international operations, and understanding of the packaging business, our products and our operations, as well as financial expertise.

 

Dr. Pamela L. Davies, as President of Queens University of Charlotte and the former Dean of the McColl School of Business, brings financial and strategic planning expertise, broad leadership ability, a global perspective, and a strong business academic viewpoint, as well as relevant experience on other public boards.

 

Mr. Harris E. DeLoach, Jr., as our Chairman and Chief Executive Officer, has 25 years of significant leadership experience with our Company and has extensive knowledge and understanding of our business, our people, our customers and our shareholders. As a former practicing attorney and a board member of two other public companies, he also brings in-depth legal and board governance experience.

 

Mr. Caleb C. Fort, as Co-Chairman of The Merit Group, Inc., has a strong operational background as well as a breadth of general management experience as a successful business owner. He brings financial and banking skills to our Board and is helpful to us in terms of his relationships and knowledge of relevant local and statewide stakeholders.

 

Mr. Edgar H. Lawton, III, as President of Hartsville Oil Mill, brings knowledge of global commodity markets and customers, as well as financial acumen. His operations knowledge includes expertise in managing environmental issues. He is very helpful to us as a local business owner in the same geographic area as our global headquarters.

 

Mr. John E. Linville is an attorney and has been a partner in two New York City law firms. He has also served as General Counsel and Acting President of the New York City Health & Hospitals Corporation, the organization that operates New York City’s public hospitals. This experience provided him with legal and financial expertise as well as leadership skills from the perspective of a large organization. As Chair of the Employee and Public Responsibility Committee, his background provides our Board with useful insights on a range of policy issues.

 

Mr. James M. Micali, currently “Of Counsel” to Ogletree Deakins LLC law firm and formerly Chairman and President of Michelin North America, Inc., has highly relevant leadership and operating experience in a large manufacturing company with global reach. His international perspective, corporate governance experience as a director of three other public companies, and legal expertise are also very valuable to us as a Board member.

 

Mr. John H. Mullin, III, currently Chairman of Ridgeway Farm LLC (Brookneal, V.A.), and former managing director for Dillon, Read & Co., is also the lead director for Progress Energy, Inc. and a board member for Hess Corporation. He brings in-depth knowledge of finance and financial markets, merger and acquisition expertise, and broad leadership experience. He also has relevant experience with board governance.

 

General Lloyd W. Newton, formerly an Executive Vice President with Pratt & Whitney Military Engines (a business unit of United Technologies Corporation) and a retired four-star general in the U.S. Air Force, brings a wealth of leadership and management experience, human resource skills, and knowledge of technology, as well as a global perspective. He also serves on the boards of two other public companies.

 

Mr. Marc D. Oken, currently Managing Partner of Falfurrias Capital Partners and retired Chief Financial Officer of Bank of America Corporation, and a former partner with Price Waterhouse LLP, has in-depth financial experience, banking perspective, and mergers and acquisition background, as well as senior leadership experience. Because of his accounting and banking background, Mr. Oken has been named Chair of the Audit Committee, as well as Audit Committee Financial Expert. Mr. Oken also serves as Chair of the Audit Committee for the Marsh & McLennan Companies, Inc.

 

Mr. Philippe R. Rollier, as retired President and Chief Executive Officer of Lafarge North America, a global building products company, brings knowledge of global markets, experience as a public company chief executive officer, broad leadership capability, and strong operational background and expertise. His perceptions on international business issues are particularly valuable to our Board. Mr. Rollier also serves on the boards of two other public companies with involvement on both audit and strategic committees.

Mr. Thomas E. Whiddon, as Advisory Director of Berkshire Partners, LLC, and as retired Executive Vice President — Logistics and Technology and Chief Financial Officer with Lowe’s Companies, brings general management, information technology and logistics expertise, and strong financial acumen, as well as experience with retail end markets. Mr. Whiddon also serves on two additional public boards that provide him with corporate governance expertise and background.

 

Our listing agreement with the New York Stock Exchange requires that at least a majority of the members of our Board of Directors be independent. Under the Exchange’s standards, “independent” means that a director has been determined by the Board to have no material relationship with us (either directly, or indirectly through an immediate family member or as a partner, shareholder or officer of an organization that has a relationship with us). To assist us in making these determinations we have adopted the following guidelines, which are also the guidelines set forth in the New York Stock Exchange Listing Standards. These guidelines are set forth in our Corporate Governance Guidelines, which are available on our Web site at www.sonoco.com.

 

A director will not be considered independent if:

 

 

The following relationships will not be considered to be material relationships that would impair a director’s independence:

 

 

Based on these criteria, our Board of Directors has determined that the following directors, who constitute a majority of the Board, are independent:

 

J.L. Coker, P.L. Davies, C.C. Fort, E.H. Lawton, III, J.E. Linville, J.M. Micali, J.H. Mullin, III, L.W. Newton, M.D. Oken, P.R. Rollier, and T.E. Whiddon.

 

We have adopted Corporate Governance Guidelines and a Code of Business Conduct and Ethics for our directors, officers, and employees. Copies of these Governance Guidelines and the Code of Business Conduct are available through our Web site at www.sonoco.com. Printed versions are available to our shareholders on request to the Corporate Secretary, Sonoco Products Company, 1 North Second Street, Hartsville, SC 29550 USA, or through email to CorporateSecretary@sonoco.com.

 

The Board has a case-by-case philosophy on the separation of the offices of Chairman and Chief Executive Officer. The Board believes that this issue is part of the succession planning process and recognizes that there are various circumstances that weigh in favor of or against both combination and separation of these offices. In fact, within the last decade we have employed both structures — combined offices and separate offices. The Board believes it is in the best interests of Sonoco for the Board to make such a determination in light of current circumstances when it considers the selection of a new Chief Executive Officer or at such other time as is appropriate.

 

Harris E. DeLoach, Jr., who has nearly twenty-six years of operations, management, administrative, and legal experience with our company, has served as our Chief Executive Officer since 2000 and Chairman of the Board since 2005. Upon retirement of the former Chairman of the Board in 2005, the Board determined that, in light of his extensive knowledge of, and experience with, all aspects of our Company’s business, people, customers and shareholders, it made sense to combine the Chairman and Chief Executive Officer roles under Mr. DeLoach. His successful five-year experience as Chief Executive Officer, coupled with his extensive experience in the Company and on our Board, made combining the roles the best leadership structure for us.

 

During 2010, the Board consisted of eleven independent directors (as defined by New York Stock Exchange standards) in addition to Mr. DeLoach. Although we do not have a lead independent director, to promote open discussion among our independent/non-management directors, those directors meet at regularly scheduled executive sessions without management present. Either the Chair of the Corporate Governance and Nominating Committee or of the Executive Compensation Committee serves as presiding director at the meetings; there is no formal procedure to determine which of the two shall preside at a given meeting. Seven such meetings were held during 2010.

 

Shareholders and other interested parties may communicate with the non-management (or independent) directors by writing to Non-Management (or Independent) Directors, c/o Corporate Secretary, Sonoco Products Company, 1 North Second Street, Hartsville, SC 29550 USA, or by email to CorporateSecretary@sonoco.com.

 

Our Corporate Governance and Nominating Committee recommends to our Board of Directors nominees to fill vacancies on the Board of Directors as they occur, and recommends candidates for election as directors at Annual Meetings of Shareholders. Such candidates are routinely identified through personal and business relationships and contacts of the directors and executive officers.

 

In recommending candidates, the Corporate Governance and Nominating Committee evaluates such factors as leadership experience, experience with business and with other organizations of comparable size and scope, knowledge or skills that would be valuable to us such as financial acumen, understanding of relevant technologies, knowledge of our markets or our customers, interpersonal skills, decision-making skills, and the ability to devote the necessary time to board service. In addition, candidates for director should possess the highest personal and professional ethics, and they should be committed to the long-term interests of the shareholders.

 

The Committee strives to have a diverse board in terms of types of experience, background, age, skills, gender, race and nationality, although it does not have a specific policy or guideline related to board diversity. Candidates are considered for nomination based on their individual qualifications as well as in consideration of how their capabilities complement other current Board members’ experience and business background. The Board believes a diverse board has greater depth and capability than the sum of its individual directors’ qualifications.

The Corporate Governance and Nominating Committee will consider director candidates recommended by shareholders, if the shareholders comply with the following requirements. If you wish to recommend a director candidate to the Corporate Governance and Nominating Committee for consideration as a Board of Directors’ nominee, you must submit in writing to the Corporate Governance and Nominating Committee your recommended candidate’s name, a brief resume setting forth the recommended candidate’s business and educational background and qualifications for service, and a notarized consent signed by the recommended candidate stating the recommended candidate’s willingness to be nominated and to serve. This information must be delivered to the Chair of the Corporate Governance and Nominating Committee at the Company’s address and must be received no later than January 5 in any year to be considered by the Committee as a potential Board of Directors’ nominee. The Corporate Governance and Nominating Committee may request further information if it determines a potential candidate may be an appropriate nominee. Director candidates recommended by shareholders that comply with these requirements will receive the same consideration that the Committee’s other candidates receive.

 

Director candidates recommended by shareholders will not be considered by the Corporate Governance and Nominating Committee for election at an annual meeting unless the shareholder recommendations are received no later than January 5 of the year of the meeting. In addition to making such recommendations, shareholders have the right to nominate candidates for election as directors at an annual meeting if they make a written nomination at least 60 days prior to the meeting. Any such nomination should be submitted to our Corporate Secretary at 1 North Second Street, Hartsville, SC 29550 USA. No such nominations have been made for this Annual Meeting.

 

Any shareholder or other interested party who wishes to send communications to any member of the Board of Directors should mail such communications addressed to the intended recipient by name or position in care of: Corporate Secretary, Sonoco Products Company, 1 North Second Street, Hartsville, SC 29550 USA or by email to CorporateSecretary@sonoco.com. Upon receipt of any such communications, the Corporate Secretary will determine the identity of the intended recipient and whether the communication is an appropriate shareholder communication. The Corporate Secretary will send all appropriate shareholder communications to the intended recipient. An “appropriate shareholder communication” is a communication from a person claiming to be a shareholder in the communication the subject of which relates solely to the sender’s interest as a shareholder and not to any other personal or business interest.

 

In the case of communications addressed to the Board of Directors, the Corporate Secretary will send appropriate shareholder communications to the Chair of the Corporate Governance and Nominating Committee. In the case of communications addressed to the independent or non-management directors, the Corporate Secretary will send appropriate shareholder communications to the Chair of the Corporate Governance and Nominating Committee. In the case of communications addressed to committees of the Board, the Corporate Secretary will send appropriate shareholder communications to the Chair of such committee.

 

The Corporate Secretary is required to maintain a record of all communications received that were addressed to one or more directors, including those determined not to be appropriate shareholder communications. Such record will include the name of the addressee, the disposition by the Corporate Secretary and, in the case of communications determined not to be appropriate, a brief description of the nature of the communication. The Corporate Secretary is required to provide a copy of any additions to the record to the Chair of the Corporate Governance and Nominating Committee quarterly.

 

During 2010, our Board of Directors held four regularly scheduled meetings and three special meetings to review significant developments affecting the Company and to act on matters requiring the Board of Directors’ approval. During 2010, all directors attended 75% or more of the aggregate number of meetings of the Board of Directors and committees of which they were members.

 

We encourage, but do not require, our directors to attend the Annual Meeting of Shareholders. In 2010, eleven of our directors attended the Annual Meeting.

To assist it in performing its duties, our Board of Directors has established an Audit Committee, an Executive Compensation Committee, a Corporate Governance and Nominating Committee, an Employee and Public Responsibility Committee, a Financial Policy Committee, and an Executive Committee. The table below outlines the current membership and the number of meetings held by each committee in 2010. A brief description of the primary duties of each committee follows the table. Complete charters for all committees are available through the Investor Relations section of our website at www.sonoco.com. These charters are also available in print to any shareholder upon request to the Corporate Secretary, Sonoco Products Company, 1 North Second Street, Hartsville, SC 29550 USA or through email to CorporateSecretary@sonoco.com. The Board of Directors has determined that each member of the Audit, Executive Compensation, and Corporate Governance and Nominating committees is independent as defined in the New York Stock Exchange’s Listing Standards.

 

 

The Audit Committee, which was established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, assists the Board of Directors with oversight of the integrity of the Company’s financial statements, the adequacy of the Company’s internal controls and its means of assessing and managing exposure to risk, the Company’s compliance with legal and regulatory requirements, the independent auditor’s qualifications and independence, and the performance of the Company’s internal audit function. The committee is directly responsible for the appointment, compensation, and retention of the independent auditor, and for overseeing the performance of attest services provided to the Company.

 

The Executive Compensation Committee establishes the Company’s general compensation philosophy and oversees the development and implementation of compensation programs. The committee directly oversees the administration of the Company’s executive officer compensation programs, reviews and approves corporate goals and objectives, evaluates actual performance against those goals and objectives, and sets compensation for the Chief Executive Officer, Chief Financial Officer, and other executive officers. Further information about the committee’s processes and procedures for the consideration of executive compensation is set forth under the captions “Role of Executive Officers in Determining Executive Compensation” on page 35, and “Role of Independent Compensation Consultant” on page 34.

 

The Corporate Governance and Nominating Committee is responsible for developing and implementing corporate governance guidelines addressing the structure, mission, practices, and policies of the Board of Directors. The committee identifies, evaluates, and recommends individuals to the Board for nomination as members of the Board. The committee annually reviews the skills and characteristics of current Board members, and ensures that processes are in place for an annual appraisal of Chief Executive Officer performance, succession planning, and management development.

The Employee and Public Responsibility Committee provides oversight and guidance on social and public policy issues, including compliance with governmental or other regulatory requirements, which may affect business performance and public perception of the Company. The committee oversees the Company’s obligations to its employees and major public constituencies, including shareholders, customers, and the communities in which it operates.

 

The Financial Policy Committee provides oversight and monitoring of the Company’s financial planning and financial structure so as to provide congruence with the Company’s objectives of growth and sound operation. The committee reviews and evaluates the Company’s capital structure, significant financing transactions, financial risk management policies and practices, and investment funding and management of the Company’s defined benefit and postretirement benefit plans.

 

The Executive Committee is empowered to exercise all of the authority of the Board of Directors between regularly scheduled meetings, except as limited by South Carolina law.

 

The Company oversees management of enterprise risk through its Risk Management Committee (RMC). The RMC is administrated by the Company’s Treasurer and its membership includes, among others, the most senior members of operating management and the Chief Financial Officer. The RMC holds three regularly scheduled meetings each year and may hold additional special meetings as needed. No such special meetings were held during 2010.

 

During 2006 the RMC developed a risk management framework to guide its activities and responsibilities. As part of that process, it identified the most significant risks faced by the Company, as well as where in the operating organization those risks are routinely monitored and managed. The RMC further identified certain specific risk areas that are sufficiently material or broad in nature to merit its direct ongoing oversight. Those risk areas are reviewed by the RMC on a rotational basis at its regularly scheduled meetings. Additionally, the RMC reviews other risk areas as needed, and to ensure that organizational risk management is functioning as identified in the framework.

 

While management, through the RMC, is responsible for managing enterprise risk, the Board provides oversight through its committees. Specifically, the Financial Policy Committee oversees financial risk management, and the Audit Committee oversees general risk management. Both committees receive regular updates regarding the RMC’s activities and findings. Although it does not have direct oversight of the RMC, the Board’s Employee and Public Responsibility Committee provides an additional resource to identify emerging risks through its work in the areas of safety, business conduct, litigation, and environmental stewardship.

 

Members of the Executive Compensation Committee during the year ended December 31, 2010 were P.L. Davies, C.C. Fort, J.M. Micali, J.H. Mullin, III, and M.D. Oken.

 

The brother of our director, P.R. Rollier, is the Managing General Partner of Michelin Group. Sonoco sold $1,187,000 in products and services to Michelin North America during 2010. All transactions were handled on a competitive basis. Our management believes the prices and terms of the transactions reported above were comparable to those we could have obtained from other sources. We anticipate engaging in similar business transactions in 2011. The Board of Directors considered these relationships when making its determinations of independence.

 

Related Party Transaction Approval Policy

 

The Board has adopted a written policy that any transaction or series of transactions in which Sonoco is a participant, for which the amount involved exceeds $120,000, and in which any related person will have a direct or indirect material interest must be approved by the Corporate Governance and Nominating Committee. The Board recognizes that such transactions may or may not be in the best interest of Sonoco and, as a result, empowers the

Corporate Governance and Nominating Committee to evaluate all such related party transactions or series of transactions. The Committee is to approve only those transactions that it determines provide net economic value to us or where it is demonstrated to the satisfaction of the Committee that price, quality, service and other terms have been negotiated on an arms-length basis and are comparable to those available from unrelated third parties.

 

Our officers are required to notify the Committee of the proposed and ongoing related party transactions prior to each meeting of the Committee and provide the Committee with all relevant information necessary for the Committee’s consideration, including any information requested by the Committee.

 

For purposes of this policy, a “related party” is (1) any executive officer or director, (2) any nominee for director, (3) a beneficial owner of more than 5% of our voting securities, or (4) any immediate family member of an officer, director, nominee for director or greater than 5% beneficial owner. An “immediate family member” means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law, or any person (other than a tenant or employee) sharing the household of an executive officer, director, nominee, or greater than 5% beneficial owner.

 

We also require that each executive officer, director, and director nominee complete an annual questionnaire and report all transactions with us in which such persons (or their immediate family members) had or will have a direct or indirect material interest (except for salaries, directors’ fees and dividends on our stock). Management reviews responses to the questionnaires and, if any such transactions are disclosed, they are reviewed by the Corporate Governance and Nominating Committee as to directors and director nominees, or by the Audit Committee as to executive officers. Directors’ responses to the questionnaires are also reviewed annually by the Corporate Governance and Nominating Committee for the purpose of assessing independence under our Corporate Governance Guidelines and the New York Stock Exchange Listing Standards.

 

The types of transactions that have been reviewed in the past include the purchase and sale of goods and services from companies for which our directors serve as executive officers or directors, the purchase of financial services and access to lines of credit from banks for which our directors serve as executive officers or directors, and the employment of family members of executive officers or directors.

 

The following tables show information as of December 31, 2010, about persons known to us to be the beneficial owners of more than 5% of our common shares. This information was obtained from Schedules 13G filed with the Securities and Exchange Commission by the entities named below, and we have not independently verified it.

 

 

 

 

The following table shows the number of shares of our common stock beneficially owned as of February 9, 2011, directly or indirectly, by each director and by each executive officer named in the Summary Compensation Table.

 

 

 

 

 

On April 15, 2003, the Board of Directors adopted a resolution establishing stock ownership guidelines for outside directors. The guidelines establish a target level of ownership of our common stock based on years of service as a director from the date the guidelines were established. The guidelines are as follows: 3,000 shares, 5,000 shares and 8,000 shares after two, four, and six years of service, respectively. Compensation deferred into Sonoco stock equivalent units are included in determining whether these guidelines have been met. All of our directors have met these guidelines.

 

Our directors and executive officers are required to file reports with the Securities and Exchange Commission and the New York Stock Exchange showing the number of shares of any class of our equity securities they owned when they became a director or executive officer, and, after that, any changes in their ownership of our securities. These reports are required by Section 16(a) of the Securities Exchange Act of 1934.

 

As is the practice with many companies, we file the required reports for our directors and executive officers based on the records we have and information furnished to us by our directors and executive officers. Based on such information, in 2010 we made all of the required filings on a timely basis.

 

Our compensation decisions for 2010 were influenced by a variety of factors with the overarching goal of linking pay with performance. Our decisions around goal setting and other actions influencing executive compensation were based on the expectation that the global economy would gradually improve during the year. We anticipated that our businesses which primarily serve industrial markets would improve during the year and that our consumer-related businesses would benefit from a return to more normal consumer shopping patterns. Our goal setting process in this turbulent and uncertain environment was robust and based on historical operating trends.

 

Despite the muted economic recovery during 2010, the Company performed extremely well both on an absolute and relative basis as evidenced by the following:

 

 

In addition to these strong financial results, the management team took actions to position the Company strategically for the future. Such efforts included the following:

 

 

The Executive Compensation Committee of our Board of Directors (the “Committee”) is responsible for the oversight of all executive compensation. Based on these results, the Committee determined that the Company performed at a superior level when measured against both its packaging peers and its internal benchmark of achieving average annual double-digit total return to shareholders and return on capital and equity in the top quartile of the S&P 500. Highlighted below is the rationale for the key actions and decisions made with respect to our executive compensation programs for 2010, which cover our executive officers, including the Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and the three other most highly compensated executive officers, who are our Named Executive Officers (“NEOs”).

 

 

In summary, the Committee concluded that the 2010 performance-based compensation together with 2010 base salary levels are well aligned with the Company’s performance for the year and that the linkage between pay and performance is strong.

Other Compensation Elements

 

In addition to the compensation elements described above, the Committee has established other compensation elements consisting of executive benefits and perquisites. The objectives and 2010 highlights of these elements are described below.

 

 

Compensation Policies

 

During the year, we made several changes to the Company’s compensation practices or policies to align them with what is considered best practice. The actions taken include the following:

 

 

 

COMPENSATION OBJECTIVES

 

The Committee is comprised of all independent directors. The Committee establishes the Company’s overall compensation philosophy, oversees the development and implementation of various compensation programs and determines the executive compensation provided to all our executive officers, including our NEOs. Information about the purposes of the Committee and its processes and procedures for consideration and determination of executive officer compensation is outlined under the caption “Board Meetings and Committees of the Board — Executive Compensation Committee” on page 13 of this Proxy Statement and also through the Investor Relations section of our website at www.sonoco.com. The Executive Compensation Committee does not delegate its decision-making authority relating to executive compensation.

 

Our compensation program is designed to meet three principal objectives:

 

 

Each aspect of our overall compensation program is designed to support these objectives to various degrees with the overarching goal of maximizing long-term shareholder value.

 

PAY MIX AND PAY PHILOSOPHY

 

The executive compensation program consists of several components:

 

Direct compensation elements, consisting of

 

• Base salary

 

• Performance-based annual cash incentive

 

• Long-term equity incentive

 

Executive benefit elements, consisting of

 

• Supplemental executive retirement benefits

 

• Executive life insurance

 

Limited perquisites

 

Direct Compensation Elements

 

Base salary, performance-based annual cash incentive and long-term equity incentives comprise total direct compensation for each executive. With the exception of base salary, all elements of direct compensation are variable and intended to fluctuate based on performance as measured by both operating results and changes in shareholder value. This pay mix supports our pay-for-performance compensation objective and places a significant amount of compensation at risk.

 

All the NEOs including the CEO have more weight on long-term incentives than short-term to reflect the importance of making strategic decisions that focus on long-term results. For the weighting between annual and long-term incentives, the CEO has the greatest weighting on the long-term to provide the strongest alignment with shareholder interests.

The following charts illustrate these principles and are based on 2010 direct compensation components at target. For annual performance-based cash incentives, “target” incentive is used. For long-term equity incentives, “target” is equal to the grant date value of the shares and is described in the “Long-Term Equity Incentives” section on page 28. The method to value shares is consistent with the information presented in the “Summary Compensation Table” on page 36.

 

 

USE OF PEER COMPANY DATA AND MARKET SURVEYS

 

The Committee relies on three national compensation surveys conducted by independent consulting firms, including the Hay Group (over 600 participants), Hewitt Associates (over 350 participants), and Towers Watson (over 800 participants). We match our corporate officer positions to survey data from companies with sales in the $1 billion to $5 billion range to help ensure that the data reflects the market for talent among companies comparable in size to Sonoco. Likewise, we match division officer positions to similar positions in the survey data for comparable division revenue ranges. In addition to these broad surveys, at least annually the Committee’s consultant prepares customized compensation studies with respect to our NEOs in comparison to the NEOs of a 13-company group of packaging companies that have revenues, assets and market capitalization similar to those of Sonoco.

 

The 13 peer packaging companies, each of which has revenues that generally range between 50% and 200% of Sonoco’s revenue are:

 

 

The Committee uses information from the broader survey data to set specific compensation levels, but cross checks these levels against the more specific peer company data. In most cases the data from both sources are comparable.

DESCRIPTION OF COMPENSATION ELEMENTS AND 2010 COMMITTEE ACTIONS

 

Base Salary

 

The Committee establishes a market rate for each executive officer position based on a structured job evaluation system used for broad based compensation in the Company as well as a comparison to market salary surveys at median as outlined above. Each year, the Committee reviews the base salary of all executives including the CEO, the CFO and the other NEOs. The decision on whether to award merit increases for the executive officer group as a whole takes into consideration the salary and wage increases being awarded to other levels of employees in the Company, the current economic environment and the operating results of the Company. The decisions relative to the amount of individual merit increase awards are based primarily on each executive’s performance in the past year, as well as the relationship of his or her current salary to his or her position’s base salary market rate. Generally, executives who are newly promoted are positioned below the 50th percentile, whereas those who are highly experienced and performing at superior levels are placed above.

 

Base salary increases are also considered and awarded upon promotions or appointment to positions of greater responsibility.

 

2010 Committee Actions — Base Salary

 

At its April 2010 meeting, the Committee approved merit increases for the executive officer group. In making the increases the Committee considered the fact that other employees in the Company had been awarded increases earlier in the year, that the external operating environment had improved and Company results had also improved. Furthermore, officers had not received an increase in base salary since June 1, 2007. The CEO received an increase of 5% based on the Committee’s assessment of his performance which resulted in his salary being 107.3% of his market rate (the median of market salary surveys). Other NEOs’ salary increases ranged from 3% to 5% with an average increase of 4.5%, which resulted in an average percent to market of 102%. Two NEOs who had salaries that were particularly low compared to their market rates in light of their performance and experience level received a special adjustment to bring their salaries more in line with the market rates. Mr. Hupfer received a 5% increase to bring him to 93.1% of his market rate and Mr. Fuller received a 7.5% increase to bring him to 95.8% of his market rate.

 

The Committee also awarded a 15% promotional increase to Mr. Sanders upon his promotion to President and Chief Operating Officer on December 1, 2010 and a 5% promotional increase to Mr. Fuller effective January 1, 2011 upon expansion of his role to Vice President, Global Rigid Paper and Plastics.

 

Performance-Based Annual Cash Incentive

 

In 2000, the Board of Directors adopted, and the shareholders approved, the Performance-Based Annual Incentive Plan for Executive Officers (“PBAI Plan”). Under the terms of this plan, an annual maximum of 2.75% of income from operations, as defined in the plan, was established as an incentive pool for the NEOs other than the CFO. The total amount of annual incentive awards paid to these individuals cannot exceed this maximum and any individual participant award cannot exceed 30% of the pool. The amounts of actual incentive awards made by the Committee to the NEOs have historically been substantially lower than the maximum plan award levels allocated by the PBAI Plan. The Committee uses negative discretion under the PBAI Plan to reduce the maximum awards using such factors as it deems appropriate with the primary factor being the performance against the goals in the Officers’ Incentive Plan (“OIP”) as described in the paragraphs below.

 

To determine the actual awards each year, the Committee establishes under the OIP a “threshold”, a “target” and a “maximum” incentive amount for each NEO, including the CFO who is not covered under the PBAI Plan. These represent a percentage of base salary. “Target” is established at a level considered to be competitive as compared to the previously described market surveys. “Threshold” is equal to 40% of “target”. “Maximum” is equal to two times “target.”

 

The Committee also determines each year the types of financial measures that will be used under the OIP. Normally, performance at budget will earn a “target” award since budget is set to reflect what the Board believes will

represent above average performance for the year versus peers. However, the Committee may choose to set “target” incentive for performance above or below budget depending on the degree of difficulty in achieving budget in any one year. Similarly, the Committee establishes financial objectives for maximum incentive that are well above budget, which is believed to be superior performance for the year.

 

For the last several years the Committee has selected the following financial measures and weightings for the OIP.

 

 

The Committee selected these elements because they represented the most critical business success factors in 2010 and are considered to be the key performance variables essential to maximizing shareholder value.

 

Base earnings per share is defined as earnings per share excluding the impact of restructuring charges and certain non-recurring, infrequent or unusual items, and is used to place primary focus on year-over-year operating results. Revenue growth excludes revenue from acquisitions completed during the year. Working capital improvement is based on a year-over-year 12-month comparison, and is stated in terms of working capital or cash gap days (days of accounts receivable and inventory less days of accounts payable).

 

Base earnings per share is considered to be the most critical element for determining share price and, in turn, shareholder value and consequently, the Committee believes that a 60% weighting of this element for executive officers was appropriate. Revenue growth was weighted at 20%, but profitable revenue growth was more important and therefore base earnings per share was weighted more than revenue growth. Working capital improvement was included as an element for NEOs to encourage efforts to increase cash flow through the reduction in our working capital requirements. This element was also weighted 20%.

 

The Committee has limited discretion to adjust payouts under the OIP up to an amount equal to 20% of the maximum incentive of all executive officers, but not an amount that would exceed the maximum permitted award level for each NEO under the PBAI Plan. These adjustments, if any, would be based upon consideration of individual performance or other factors that the Committee determines warrant an adjustment, such as external market challenges or global economic events. The Committee did not use any discretion in adjusting payouts under the OIP in 2010.

 

2010 Committee Actions — Performance-Based Annual Cash Incentive

 

Under the PBAI Plan for 2010, the maximum incentive pool for all NEOs except the CFO was $10,012,228 of which no more than 30% ($3,003,668) could be allocated to any one participant. The actual awards paid were determined by the Committee in its exercise of negative discretion, primarily on the basis of performance under the OIP as described below.

 

The Committee established an annual incentive compensation threshold, target and maximum payout under the OIP expressed as a percentage of base salary for each NEO, as follows:

 

 

 

 

Financial goals established under the OIP at the beginning of the plan year and the actual 2010 performance were as follows:

 

 

Our base earnings per share increased by 31.5% over 2009 to $2.34 and exceeded the maximum performance level. Therefore, all of the NEOs earned the maximum incentive compensation on this component of the overall incentive opportunity as defined by the Committee at the beginning of the performance period.

 

Revenue for the year was $4,052,051, a 12.6% increase over 2009. Therefore, all of the NEOs earned the maximum incentive compensation on this component of the overall incentive opportunity.

 

Cash gap days were 39.5 days, which exceeded the maximum performance level and, as a result, all of the NEOs earned the maximum incentive compensation on this component of the overall incentive opportunity.

 

The following table shows the dollar amount of annual incentive compensation awarded to each of the NEOs for 2010 based on our 2010 performance discussed above and under the caption “Executive Summary” on page 19, the percentage of target, and the actual percentage of each NEOs base salary.

 

 

Long-Term Equity Incentives

 

Long-term equity incentives are awarded under our Long-Term Incentive Plan which was approved by our Shareholders in 2008 (the “Plan”). The Plan provides for various types of equity awards, including restricted stock, restricted stock units, stock appreciation rights, options, performance shares, and performance units. Each year, we determine the types of awards that will be granted, and establish performance measures and performance periods for performance-based awards, and vesting schedules. The awards we have granted under the Plan have been comprised of stock-settled stock appreciation rights (“SSARs”) and performance contingent restricted stock units (“PCSUs”). The Committee determines these awards first by establishing the target amount for each element of total direct compensation targets (base salary, performance-based annual cash incentives and long-term equity incentives) for each executive officer position based on what is considered competitive as compared to the previously described market surveys. Once the total direct compensation target is determined, the amount of long-term equity award is established for each position by subtracting the sum of the market rate or actual base salary (whichever is higher) and the annual cash incentive compensation target from this amount.

 

The amount of long-term equity awards is then converted to SSARs and PCSUs and each officer receives a target mix of 75% PCSUs and 25% SSARs. The percent of PCSUs that vests depends on whether key financial goals are met over a three-year period. In the event that threshold performance goals are not attained and vesting at the end of the three-year performance period is less than 50% of the target award opportunity, the difference between 50% and what actually vests is deferred and payable in equal share installments at the end of years four and five assuming continued employment. The value of SSARs is based on stock price appreciation after the grant date. Both elements are key components of our well-balanced compensation system, but the Committee believes that the NEOs have the most direct influence on achieving Company financial goals and therefore the PCSUs are weighted more than the SSARs.

The actual target number of PCSUs or SSARs for each officer position may be adjusted up or down from the competitive benchmark based on the assessment of individual performance in the past year. The Committee believes that varying the initial target shares under the plan provides a strong motivator to achieve personal performance objectives. However, actual PCSU shares earned are still subject to the degree to which three-year company financial goals are met and can vary between 50% and 150% of the target shares.

 

It is our practice to grant SSARs, PCSUs, or other equity awards on the date of the first regular Board of Directors meeting in the calendar year. The SSAR exercise price is based on the closing price of our stock on that date. The recipients and the corresponding number of shares of equity awards, including stock options or SSARs and PCSUs, are approved by the Committee at its regular meeting on the day prior to the Board of Directors meeting. We occasionally make special stock option or SSAR awards to new employees. In such case, the exercise price is based on the closing price of our stock on the recipient’s first day of regular employment. We also occasionally make stock option, SSAR awards or grants of restricted stock units to a corporate officer in recognition of a promotion or a change in position status. The effective date of these awards is the day following approval by the Committee or the date of approval by the Board in the case of a new officer election.

 

Three-Year Long-term Incentive Plan (PCSUs)

 

To establish the three-year performance targets for PCSUs, the Committee takes into consideration the year’s budget for earnings per share, the longer term business outlook, and the Board’s expectations regarding what would represent acceptable, superior and outstanding business results over the three-year time horizon. The Committee established vesting requirements for meeting threshold, target and maximum goals which in the judgment of the Committee represent achievement of acceptable, superior and outstanding performance in the context of the Company’s stated objectives for total return to shareholders and returns on capital and equity. To encourage continued employment and to recognize the inherent difficulty in setting three-year goals, the award grants provide that if less than 50% of target shares are earned at the end of the three-year performance period, the difference between the shares earned and 50% will time-vest in equal-share amounts at the end of the fourth and fifth years, subject to the participant’s continued employment for that period. Discretion is not permitted if performance targets are not met. Performance goals will not be adjusted for sales, divestitures or acquisitions of businesses.

 

We do not pay any current dividends or credit any dividend equivalents on unvested PCSUs. For any PCSUs that vest, but are deferred until 6 months after separation from service by an individual executive officer, dividend equivalents are accumulated and converted into additional PCSUs from the time of vesting until the issuance of actual shares.

 

2010 Committee Actions — Three-year Long-term Incentive Plan (PCSUs)

 

On February 9, 2010, the Committee approved PCSU grants to 182 key employees, including the NEOs. The FASB ASC Topic 718 grant date fair values of PCSUs granted to the NEOs and the number of shares available at threshold, target, and maximum are shown in the “Grants of Plan-based Awards” table on page 38. The Committee granted Mr. DeLoach 80,400 shares which represents the target number of shares as described under “Long-term Equity Incentives” on page 28. The awards for the other NEOs ranged from target to 18,000 shares above target. These variations from target were determined based on performance in the past year as well as the executive’s potential for future contributions to our success which, in turn, supports our succession planning process.

 

The Committee also established goals for vesting of the shares based on two key financial measures: cumulative increases in base earnings per share (“BEPS”) and average return on net assets employed (“RONAE”) over the three-year performance period. The goals established are as follows:

 

 

 

 

The Committee believes that both elements are critical factors in determining long-term shareholder returns and has weighted them equally in the three-year long-term plan.

 

Earned PCSU Awards in 2010

 

On February 5, 2008, the Committee granted PCSUs to thirteen executives, including the NEOs, as well as 211 key managers. The vesting of these shares was dependent on achieving pre-determined levels of cumulative BEPS and average RONAE for the three-year performance period from January 1, 2008 through December 31, 2010.

 

Threshold performance over the three-year period was set at $7.47 cumulative BEPS, which equated to an annual growth rate of 4% for 2008, 2009 and 2010, and at 11.25% average three-year RONAE. Actual performance was $6.75 cumulative BEPS which was less than threshold performance under the plan. Average RONAE was 11.27% and exceeded threshold performance under the plan. As a result, 52% of threshold shares vested at the end of 2010. Since less than 100% of threshold shares (50% of the target shares) vested, the remaining 48% of the threshold shares will time-vest and be settled in equal amounts at the end of 2011 and 2012, if the executive remains employed during that time period. The PCSUs for the 2008-2010 performance period that have been earned but have not yet vested are shown in the “Outstanding Equity Awards at 2010 Fiscal Year End” table on page 39. The PCSUs that have been earned and have vested are shown in the “2010 Option Exercises and Stock Vested” table on page 42.

 

2010 Committee Actions — Stock-Settled Stock Appreciation Rights

 

On February 9, 2010 the Committee also approved SSAR grants to 512 key employees, including the NEOs. The SSARs have a one-year vesting period and the grant price was set at $28.48 per share, the closing market price of our common stock on the date of grant of February 10, 2010. These SSARs will be valuable to the recipients only if the market price of our stock exceeds $28.48 during the term of the award. The grant date fair values and the number of SSARs granted to each of the NEOs are included in the “Grants of Plan-Based Awards” table on page 38. Target grants were calculated as described under “Long-term Equity Incentives” on page 28.

 

The Committee awarded Mr. DeLoach a grant of 116,400 SSARs, which is the target number as described above under “Long-Term Equity Incentives.” The awards to the other NEOs ranged from target to 22,900 above target based on the assessment of each officer’s performance in the past year as well as the officer’s potential for future contribution which supports our succession planning process.

 

Restricted Stock Units

 

We have a practice of making a special grant of time vesting restricted stock units (“RSUs”) to individuals when they are first elected an executive officer in recognition of this event and the individual’s increased responsibility. The number of shares granted is based on position. The shares are credited with dividend equivalents, which are not paid out until receipt of the shares. The shares vest in three equal increments on the third, fourth and fifth anniversary of the grant if RSUs are granted all in one year, or at the third anniversary of each grant if granted over three years. Receipt of shares occurs six months following separation of service. If the executive officer leaves the Company for any reason before the shares vest, the unvested shares are forfeited. Individual grant agreements may provide for vesting on a prorata basis in the event of termination of employment as a result of death or disability. The restricted stock units do not have voting rights.

 

Upon consummation of a change in control that meets the criteria of Internal Revenue Code (“IRC”) Section 409A and the related regulations, all unvested RSUs will vest on a prorata basis. A lump sum payment equal to the aggregate fair market value of the vested RSUs will be issued to the participant within 30 days following the change in control unless the RSUs were subject to a deferral election or mandatory deferral under IRC Section 162(m).

 

2010 Committee Actions — Restricted Stock Units

 

During 2010, three new officers (none of the NEOs) were elected and awarded the special grant of restricted stock units referenced above.

Other Executive Compensation and Benefit Elements

 

Employment Contracts and Potential Payments Upon Termination or Change in Control

 

The Company has not historically provided employment contracts, severance agreements, change in control agreements, or other such financial security arrangements to our executive officers.

 

We have no formal severance policy for officers. We may, however, from time to time, negotiate individual severance compensation arrangements in exchange for a non-compete agreement at the time of separation as circumstances warrant.

 

Our long-term equity incentive plans also contain provisions for prorated or accelerated vesting of equity awards in the event of retirement, death, or disability, and in certain cases, change in control. SSAR grants provide that if termination occurs within two years of a change in control that meets the criteria of IRC Section 409A and the regulations thereunder, unvested SSARs will immediately vest upon the date of termination. The Committee believes this provision is necessary so the executive officers can focus on long-term Company growth and improving stock value without risk of forfeiture. PCSU and RSU grants provide that unvested stock units will vest on a prorata basis upon a change in control. The Committee believes performance metrics can be disrupted and possibly become obsolete in determining the appropriate number of shares to vest during a change in control. See “Potential Benefits Payable Immediately Upon Certain Separation Events” on page 49. These provisions apply similarly to all plan participants, including those below the executive officer level.

 

Review of Overall Compensation Components and Aggregate Awards

 

To evaluate the overall competitiveness of the executive compensation program, each year at its April meeting the Committee reviews the total compensation package for each executive officer. This includes review of a tally sheet showing a history of base salary adjustments, annual incentive awards and total cash compensation for the last ten years (or term as an executive officer, if less), stock options or SSARs outstanding and the option price, unvested PCSUs (projected at threshold, target and maximum), unvested restricted stock units, the value of accrued retirement benefits and the amount of executive life insurance coverage. The Committee also reviews each element of the total amount of compensation awarded and realized during the prior year.

 

The Committee uses tally sheets to assess total executive compensation, to determine where total executive compensation falls in relation to peer companies, and to assess how the Company’s overall compensation programs operate. From this assessment, the Committee makes changes in overall plans or individual elements if it determines they are appropriate to meet overall compensation objectives. As a result of this review in 2009, the committee approved freezing benefit accruals under the DB SERP as of December 31, 2018, in line with recent amendments to the Company’s defined benefit retirement plan and its related restoration benefit under the Omnibus Benefit Restoration Plan.

 

The Committee does not have a practice of adjusting the size of current and future compensation awards or compensation program components to reflect amounts realized or unrealized by an individual from prior equity grants. In other words, awards are not increased to compensate for prior performance below target, nor are they decreased because of performance above target. Likewise, since earnings on equity compensation are not included in any pension calculation formula, any gains, or lack thereof, from prior awards are not considered in setting or earning retirement benefits.

 

Executive Perquisites

 

In support of our pay-for-performance philosophy, executive perquisites are limited to the occasional use of the company aircraft for personal travel or family emergencies. The CEO’s usage of the corporate aircraft helps minimize time involved in commercial travel that could otherwise be directed to our business and enhances his security. For other officers, personal use of the aircraft is reviewed on a case by case basis, and is permitted only under circumstances where there is direct benefit to us to minimize time spent on personal travel or in the case of family emergencies.

With the exception of gross-ups that might be paid pursuant to our broad-based employee relocation assistance plan, which covers all eligible salaried employees, and gross-ups on premiums paid pursuant to the frozen executive permanent life insurance program (described below), we do not provide income tax gross-ups to our executive officers, and our Compensation Committee has adopted a resolution that prohibits such payments. The limited exception for the frozen group of seven officers (including Messrs DeLoach, Hupfer and Sanders) who receive gross-ups on the premiums paid for permanent life insurance coverage was made because of pre-2004 contractual commitments to these officers. Following the retirement or other termination of these officers, the Company will no longer provide tax gross-ups on any perquisites to any officers.

 

Nonqualified Deferred Compensation Plans

 

We provide a Nonqualified Deferred Compensation Plan (“NQDC”) for our executive officers, including our NEOs, which is in line with general market practice and the Committee believes it is an important part of an attractive rewards program necessary to recruit and retain. Under the NQDC, our NEOs may voluntarily defer the receipt of a portion of base salary, annual incentive awards and/or performance contingent restricted stock units. The NQDC is an unfunded and unsecured obligation of the Company, meaning that payments of participant balances in the plan are not guaranteed if the Company becomes insolvent or bankrupt. Details about the plans and accumulated balances are described in more detail under the “Nonqualified Deferred Compensation” table on page 46 and the “Description of Nonqualified Deferred Compensation Plans” on page 47.

 

Executive Benefit Elements

 

We have two benefit programs that apply only to executive officers: an Executive Life Insurance Program and a Supplemental Executive Retirement Plan benefit (“SERP”). The Committee has designed the overall compensation program to include these two elements to be competitive with general market practices and to serve as retention vehicles. Attracting and retaining high caliber talent to our small town headquarters can be challenging and these two programs are designed to help ensure long-term retention of key senior talent.

 

Executive Life Insurance

 

We provide most of our active employees with company-paid life insurance that is currently limited to $100,000. We supplement this coverage with an executive life insurance program. Executive officers elected on or after April 1, 2004 receive company-paid term life insurance coverage that is approximately equal to three times base salary until the later of retirement or age 65. Mr. Fuller and Mr. Tiede are the only NEOs covered under this plan. The Committee believes that this amount of coverage is in line with industry practice and provides life insurance coverage in line with the earnings level of an executive officer.

 

Executive officers elected prior to April 1, 2004 receive a benefit approximately equal to three times salary plus target incentive, using a combination of term insurance and permanent (cash value) insurance. Messrs DeLoach, Hupfer and Sanders are included in this group; however, the CEO’s coverage is five times base salary plus target incentive. The CEO’s coverage level was implemented several years ago when competitive practices supported this level. We also have permanent life insurance contracts in place that provide coverage beyond age 65 to some of this frozen group of executive officers. This extended coverage uses the same multiple of pay, but that portion of the coverage is frozen based on salary and target incentive levels in effect at April 1, 2004. Only seven officers remain in this frozen executive life insurance plan.

 

We changed the level, duration and type of coverage (i.e., from permanent coverage to term coverage) in 2004 in response to regulatory and tax law changes that made executive permanent life insurance arrangements less cost effective (and less common at the levels we maintained at the time). Due to the long-term nature of the pre-2004 contract commitments we made to the executive officers and consistent with prevalent practice in unwinding these programs, we have continued to maintain the existing permanent life insurance coverage for the frozen group of seven executive officers. No new permanent life insurance coverage has been issued to any executive officers since 2004.

Supplemental Executive Retirement Plan Benefit

 

Persons elected to an executive officer position after January 1, 2008, will continue to receive the basic Company retirement benefit provided to all employees (including the “restoration” benefit under the Omnibus Benefit Restoration Plan that is provided to employees whose wages or benefit accruals exceed the annual qualified retirement plan limits). In addition officers receive an annual nonqualified plan contribution (equal to 10% of the prior year’s salary and earned incentive). Seventy-five percent of the annual contribution is invested in a fixed interest account based on 120% of the IRS applicable long-term rate. Twenty-five percent is issued in Sonoco deferred restricted stock units. The benefit vests at age 55 for participants with at least five years of service as an executive officer.

 

After retirement, an officer’s defined contribution SERP (“DC SERP”) “account” is paid in three installments, with the first installment payable six months after an officer’s retirement date, the second installment payable in January of the next year following the first installment, and the third installment payable in January of the year following the second installment. A more detailed description of the DC SERP benefit, the tax qualified Sonoco Investment and Retirement Plan (SIRP) and its related nonqualified SIRP Restoration Benefit is set forth under “Description of Nonqualified Deferred Compensation Plans” on page 47 of this Proxy Statement. Mr. Tiede is the only NEO who currently participates in these plans.

 

For executive officers elected before January 1, 2008, which is a frozen group of ten executive officers and includes the NEOs other than Mr. Tiede, the retirement benefit includes the Company’s basic defined benefit retirement plan benefit and the “restoration” benefit under the Omnibus Benefit Restoration Plan, which is provided to those employees whose wages or benefit accruals exceed the annual qualified retirement plan limits. In addition, a separate defined benefit SERP (“DB SERP”) benefit is provided, which, when combined with the basic retirement benefit, the restoration benefit and full Social Security benefits, equals 60% of the executive officer’s final average cash earnings, assuming age 65 retirement with at least fifteen years of Company service. The calculation excludes long-term compensation in any form. In line with recent amendments to the Company’s basic defined benefit retirement plan and the “restoration” benefit under the Omnibus Benefit Restoration Plan, no additional benefits will accrue under the DB SERP after December 31, 2018. Officers whose DB SERP benefit accruals are frozen effective December 31, 2018 will begin participating in the DC SERP effective January 1, 2019.

 

The DB SERP benefit will be paid in three equal installments after retirement, with the first installment payable six months after an officer’s retirement date, the second installment payable six months after payment of the first installment, and the third installment payable 12 months after the payment of the second installment. The payment of the installments may be extended if needed to eliminate adverse accounting treatment to the Company.

 

A more detailed description of the DB SERP benefit, restoration benefit and the qualified pension plan benefit is set forth under the “Pension Restoration Benefit and DB SERP Benefit in the Restoration Plan” on page 44 of this Proxy Statement.

 

Executive Compensation Policies

 

Tax Deductibility of Compensation

 

IRC Section 162(m) limits the tax deductibility of compensation paid to our CEO and the three other most highly compensated named executive officers employed at the end of the year (other than our CFO) to $1 million per year unless such amounts are determined to be performance-based compensation. The Committee has taken, and it intends to continue to take, reasonable steps necessary to assure our ability to deduct for federal tax purposes compensation provided to senior executives while maintaining compensation programs that support attraction and retention of key executives. However, such steps may not always be practical or consistent with the Committee’s compensation objectives. Given that the earnings limit for deductibility has remained fixed since 1993, and the value of some compensation elements cannot be determined until year-end, there are circumstances in which some executive compensation may not meet tax deductibility requirements. We can deduct all but $317,722 of the compensation shown in the Summary Compensation Table for 2010, excluding the value of equity-based awards which are subject to taxation in a later period.

Stock Ownership Guidelines and Anti-Hedging Policy

 

To emphasize the importance of linking executive and shareholder interests, the Board of Directors adopted new stock ownership guidelines in 2010 for executive officers. The new guidelines are effective as of January 1, 2011. The target level of ownership of common stock (or Common Stock Equivalents) is established as a multiple of each executive officer’s annual base salary as outlined below:

 

 

Beginning on July 1, 2011, and until the executive attains the target ownership level and complies with the guidelines, the executive is required to retain 50% of net profit shares from the vesting of any full-value equity award or the exercise of a stock option or its equivalent.

 

Common stock held in the Sonoco Savings Plan, stock equivalents earned through nonqualified deferred compensation programs, vested restricted stock units, and any other beneficially owned shares of common stock are included in determining compliance with the guidelines. Unvested restricted stock units and shares that may be acquired through the exercise of stock options or stock-settled stock appreciation rights are not included in the calculation of stock ownership for guideline purposes.

 

In 2010, the Board of Directors adopted an anti-hedging policy for Company stock. Sonoco considers it inappropriate for any director, officer (including all NEOs), or other employee to enter into speculative transactions in Sonoco stock. Such activities may put personal interests and objectives in conflict with the best interests of the Company and its stockholders. Therefore, our policy prohibits the purchase or sale of puts, calls, options, warrants, or other derivative securities based on the Company’s stock by any director, officer or employee. This prohibition also includes hedging or monetization transactions, such as forward sale contracts, in which the stockholder continues to own the underlying security without all the risks or rewards of ownership. These prohibitions do not apply to the exercise of stock options granted as part of a Company incentive plan.

 

Clawback Provision

 

The Committee is committed to adopting a formal clawback provision for adjustment or recovery of incentive awards or payments in the event that the performance measures upon which they are based are restated or otherwise adjusted in a manner that would reduce the size of an award or payment. The Committee intends to comply with the requirements of the New York Stock Exchange expected to be adopted in accordance with regulations expected from the Securities and Exchange Commission (“SEC”) in 2011. Until a formal clawback policy is adopted, the Committee will address any situation that may arise and determine the proper and appropriate course of action in fairness to shareholders and award recipients.

 

ROLE OF INDEPENDENT COMPENSATION CONSULTANT

 

The Committee seeks input from Frederic W. Cook & Co., Inc., its independent compensation consultant, in its decision making process. The independent consultant reports directly to the Committee, and the Committee has the sole authority to retain or dismiss the consultant. The independent consultant does not provide services to the Company in any area other than executive and director compensation on behalf of the Committee.

 

The independent consultant is expected to assist the Committee and work on its behalf on matters related to the Committee’s purposes and responsibilities as set forth in the Committee charter, which is summarized under the “Corporate Governance — Board Meetings and Committees of the Board — Executive Compensation Committee” on page 13 and is also available through the Investor Relations section of our website at www.sonoco.com. The independent consultant periodically advises the Committee as to trends in executive compensation and also provides specialized studies or expert advice as requested with respect to executive compensation issues. In 2010, the independent consultant conducted a competitive compensation review of our NEOs compared to our peer group’s

NEOs, conducted a risk assessment of our overall compensation programs, analyzed the Company’s use of share-based compensation compared to our peer group, and assisted in the preparation of the Company’s public filings with regard to executive compensation. The independent consultant meets in private session with the Committee at least once a year and attends regular Committee meetings in person or by telephone as requested. The independent consultant also provides advice and performs competitive analysis with respect to director compensation, as requested, for the Corporate Governance and Nominating Committee.

 

ROLE OF EXECUTIVE OFFICERS IN DETERMINING EXECUTIVE COMPENSATION

 

In order to evaluate performance and use it as a basis for making compensation decisions, the full Board of Directors participates in a formal performance review process that is used for determining the CEO’s compensation. The CEO provides a written evaluation of performance against objectives at year-end to each director. Each individual director completes a written evaluation of the CEO’s performance. Results are compiled by the Chair of the Corporate Governance and Nominating Committee, who then provides a copy to each director prior to the first Board of Directors meeting for the year. The Committee uses this summary from the Board of Directors to make decisions relative to the CEO’s compensation. The Committee also uses input from its independent compensation consultant in making decisions regarding the CEO’s compensation. The CEO does not participate in decisions regarding the determination of his own compensation, other than to prepare the summary of his results versus objectives for the year as described above.

 

For the other NEOs and executives, the Committee receives input and recommendations from our CEO as well as its independent compensation consultant. The NEOs or other officers do not have a role in the determination of their own compensation except to provide and discuss their performance against objectives during their annual performance reviews.

 

The Executive Compensation Committee has reviewed and discussed the “Compensation Discussion and Analysis” included in this Proxy Statement with management. Based on that review and discussion, the Executive Compensation Committee recommended to our Board of Directors that the “Compensation Discussion and Analysis” be included in our Annual Report on Form 10-K for the year ended December 31, 2010, and in this Proxy Statement.

 

J.H. Mullin, III (Chair)  P.L. Davies
C.C. Fort  J.M. Micali  M.D. Oken

 

 

With the assistance of the Committee’s independent compensation consultant, we reviewed our compensation policies and practices applicable to our employees and concluded that they do not create risks that are reasonably likely to have a material adverse effect on our company. The key features of the executive compensation program that support this conclusion are the following: