UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

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

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SPRINT NEXTEL CORPORATION

(Name of Registrant as Specified In Its Charter)

 

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

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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

MAY 8, 2007

 

We will hold the annual meeting of shareholders of Sprint Nextel Corporation on Tuesday, May 8, 2007 at 10:00 a.m. local time at The Hyatt Regency Reston, 1800 Presidents Street, Reston, Virginia 20190 (703-709-1234).

 

The purpose of the annual meeting is to consider and take action on the following:

 

1. Election of 10 directors for a one-year term ending 2008;

 

 

3. Approval of the 2007 Omnibus Incentive Plan;

 

4. Vote on one shareholder proposal, if presented at the meeting; and

 

5. Any other business that properly comes before the meeting.

 

Shareholders of record as of March 20, 2007 can vote at the annual meeting. This proxy statement, the accompanying proxy card, and the annual report on Form 10-K for the year ended December 31, 2006 are being mailed or otherwise distributed to you on or about April 9, 2007. Please vote before the annual meeting in one of the following ways:

 

1. Use the toll-free number shown on your proxy card;

 

2. Visit the website shown on your proxy card to vote via the Internet; or

 

3. Complete, sign, date and return the enclosed proxy card in the enclosed postage-paid envelope.

 

Your vote is very important. Please vote before the meeting using one of the methods above to ensure that your vote will be counted. Your proxy may be revoked at any time before the vote at the annual meeting by following the procedures outlined in the accompanying proxy statement.

 

By order of the Board of Directors,

 

 

Gary D. Forsee

Chairman of the Board of Directors

 

Reston, Virginia

April 9, 2007

 

TABLE OF CONTENTS

 

 

These proxy materials are delivered in connection with the solicitation by our board of directors of proxies to be voted at our annual meeting, which will be held at The Hyatt Regency Reston, 1800 Presidents Street, Reston, Virginia 20190 at 10:00 a.m. local time on Tuesday, May 8, 2007. On or about April 9, 2007, we mailed this proxy statement and the enclosed form of proxy to our shareholders entitled to vote at the meeting.

 

At the annual meeting, shareholders will be asked to:

 

 

The close of business on March 20, 2007 has been fixed as the record date for the determination of shareholders entitled to notice of, and to vote at, the 2007 annual meeting or any adjournments or postponements of the 2007 annual meeting.

 

As of the record date, the following shares were outstanding and entitled to vote:

 

 

The relative voting power of our different series of voting stock is set forth in our articles of incorporation.

 

A complete list of shareholders entitled to vote at the 2007 annual meeting will be available for examination by any shareholder at our headquarters, 2001 Edmund Halley Drive, Reston, Virginia 20191, for purposes pertaining to the 2007 annual meeting, during normal business hours for a period of ten days before the annual meeting, and at the time and place of the annual meeting.

 

In order to carry on the business of the meeting, we must have a quorum. A quorum requires the presence, in person or by proxy, of the holders of a majority of the votes entitled to be cast at the meeting. We count abstentions and broker “non-votes” as present and entitled to vote for purposes of determining a quorum. A broker “non-vote” occurs when a shareholder fails to provide voting instructions to his or her broker for shares held in “street name.” Under those circumstances, a shareholder’s broker may be authorized to vote for the shareholder on some routine items, but is prohibited from voting on other items. Those items for which a shareholder’s broker cannot vote result in broker “non-votes.”

 

Required Vote to Elect the Directors (Proposal 1; Item 1 on the Proxy Card)

 

Each of the 10 nominees for director will be elected as a director if the votes cast for each such nominee exceed the number of votes against that nominee, assuming that there is a quorum represented at the annual meeting.

 

Required Vote to Ratify the Appointment of our Independent Registered Public Accounting Firm (Proposal 2; Item 2 on the Proxy Card)

 

The affirmative vote of a majority of votes cast in person or by proxy by holders of our common stock entitled to vote on the matter is required to ratify the appointment of KPMG LLP as our independent registered public accounting firm for 2007.

 

Required Vote to Approve the 2007 Omnibus Incentive Plan (Proposal 3; Item 3 on the Proxy Card)

 

The affirmative vote of a majority of votes cast in person or by proxy by holders of our common stock entitled to vote on the matter is required to approve the 2007 Omnibus Incentive Plan.

 

Required Vote to Approve the Shareholder Proposal (Proposal 4; Item 4 on the Proxy Card)

 

The affirmative vote of a majority of votes cast in person or by proxy by holders of our common stock entitled to vote on the matter is required to approve the shareholder proposal, if presented at the annual meeting.

 

Treatment of Abstentions, Not Voting and Incomplete Proxies

 

If a shareholder marks the “Abstain” box, it will have no effect on the vote for Proposal 1, but it will have the same effect as a vote against Proposals 2, 3 and 4. If a shareholder does not return a proxy, it will have no effect on the vote for the proposal. Broker non-votes for non-routine proposals will also have no effect on the vote for the proposal. Except for broker non-votes, if a proxy is returned without indication as to how to vote, the stock represented by that proxy will be considered to be voted in favor of Proposals 1, 2 and 3, and voted against Proposal 4.

 

Giving a proxy means that you authorize the persons named in the enclosed proxy card to vote your shares at the 2007 annual meeting in the manner directed. You may vote by proxy or in person at the meeting. To vote by proxy, you may use one of the following methods if you are a registered holder (that is, you hold our stock in your own name):

 

 

We request that shareholders vote as soon as possible. When the proxy is properly returned, the shares of stock represented by the proxy will be voted at the 2007 annual meeting in accordance with the instructions contained in the proxy.

 

Except for broker non-votes, if any proxy is returned without indication as to how to vote, the stock represented by the proxy will be considered to be voted in favor of Proposals 1, 2 and 3, and voted against Proposal 4. Unless a shareholder checks the box on the proxy card to withhold discretionary authority, the proxies may use their discretion to vote on other matters introduced at the 2007 annual meeting.

If a shareholder’s shares are held in “street name” by a broker or other nominee, the shareholder should check the voting form used by that firm to determine whether the shareholder may provide voting instructions to the broker or other nominee by telephone or the Internet.

 

Every shareholder’s vote is important. Accordingly, you should sign, date and return the enclosed proxy card, vote via the Internet or by telephone, or provide instructions to your broker or other nominee whether or not you plan to attend the annual meeting in person.

 

A shareholder has the power to revoke his or her proxy or change his or her vote at any time before the proxy is voted at the annual meeting. You can revoke your proxy or change your vote in one of four ways:

 

 

If you choose any of the first three methods, you must take the described action no later than the beginning of the 2007 annual meeting. Once voting on a particular matter is completed at the annual meeting, you will not be able to revoke your proxy or change your vote as to that matter. If your shares are held in street name by a broker, bank or other financial institution, you must contact that institution to change your vote.

 

This solicitation is made on behalf of our board of directors, and we will pay the cost and expenses of printing and mailing this proxy statement and soliciting and obtaining the proxies, including the cost of reimbursing brokers, banks and other financial institutions for forwarding proxy materials to their customers. Proxies may be solicited, without extra compensation, by our officers and employees by mail, telephone, fax, personal interviews or other methods of communication. We have engaged the firm of Georgeson Shareholder Communications, Inc. to assist us in the distribution and solicitation of proxies and will pay Georgeson a fee of $9,000 plus out-of-pocket expenses for its services.

 

If you are an employee of Sprint Nextel who has a right to vote shares acquired through your participation in our retirement savings plan, you are entitled to instruct the trustee, Fidelity Management Trust Company, how to vote the shares allocated to your account. Fidelity will vote those shares as you instruct on your proxy card. You will receive voting information that covers any shares held in your retirement savings plan account, as well as any other shares registered in your own name.

 

If you do not instruct Fidelity how to vote your shares, the retirement savings plan provides for Fidelity to vote those shares in the same proportion as the shares for which it receives instructions from all other participants. To allow sufficient time for Fidelity to vote, your voting instructions must be received by Fidelity by May 3, 2007.

 

Rules of the Securities and Exchange Commission, or SEC, allow us to deliver a single copy of an annual report and proxy statement to any household where two or more shareholders reside if we believe the shareholders are members of the same family. This rule benefits shareholders by reducing the volume of duplicate information they receive at their households. It also benefits us by reducing our printing and mailing costs.

 

We mailed a single set of proxy materials to each household this year unless the shareholders in these households provided instructions to the contrary in response to a notice previously mailed to them. However, we mailed each shareholder in a single household a separate proxy card or voting instruction form. If you prefer to receive your own copy of the proxy materials for this or future annual meetings and you are a registered holder, you may request a duplicate set by writing to Sprint Nextel Shareholder Relations, 6200 Sprint Parkway, Mailstop KSOPHF0302-3B424, Overland Park, Kansas 66251 or by email at shareholder.relations@sprint.com, or by calling 913-794-1091. If a broker or other nominee holds your shares, you may instruct your broker to send duplicate mailings by following the instructions on your voting instruction form or by contacting your broker.

 

If you share a household address with another shareholder, and you receive duplicate mailings of the proxy materials this year, you may request that your household receive a single set of proxy materials in the future. If you are a registered holder, please contact Sprint Nextel Shareholder Relations. If a broker or other nominee holds your shares, you should follow the instructions on your voting instruction form or contact your broker.

 

If you hold some shares as a registered holder or through our retirement savings plan, and other shares in the name of a broker or other nominee, we must send you proxy materials for each account. To avoid receiving duplicate sets of proxy materials, you may consolidate accounts or consent to electronic delivery as described in the following section.

 

 

We are able to distribute the annual report and proxy statement to shareholders in a fast and efficient manner via the Internet. This reduces the amount of paper delivered to a shareholder’s address and eliminates the cost of sending these documents by mail. You may elect to view all future annual reports and proxy statements on the Internet instead of receiving them by mail. To make this election, please follow the instructions after you vote via the Internet.

 

If you have enrolled for electronic delivery, you will receive an e-mail notice of shareholder meetings. The e-mail will provide links to our annual report and the proxy statement. These documents are in PDF format so you will need Adobe Acrobat^® Reader to view these documents on-line. The e-mail will also provide a link to a voting web site and a control number to use to vote via the Internet.

 

Your votes are kept confidential from our directors, officers and employees, except for certain specific and limited exceptions. One exception occurs if you write opinions or comments on your proxy card. In that case, a copy of the proxy card is sent to us.

 

Shareholders, their guests and persons holding proxies from shareholders may attend the annual meeting. Seating, however, is limited and will be available on a first-come, first-served basis. If you plan to attend the meeting, please bring proof of ownership to the meeting. A brokerage account statement showing that you owned our stock on March 20, 2007 is acceptable proof.

 

Shareholders may listen live by phone to our annual meeting. The dial-in numbers for the conference call will be posted at www.sprint.com/investors/shareholders/annualmeeting/ before the meeting. Lines are limited and will be available on a first-come, first-served basis.

 

The following table provides information about the only known beneficial owners of five percent or more of our voting common stock based on our stock outstanding at March 20, 2007.

 

 

 

 

 

The following table states the number of shares of our series 1 common stock beneficially owned, as of March 15, 2007, by each current director, current named executive officer and all current directors and executive officers as a group. No individual director or executive officer owned more than 1% of the outstanding shares of our series 1 common stock. As a group, the listed individuals owned less than 1% of our outstanding common stock. Except as otherwise indicated, each individual named has sole investment and voting power with respect to the shares owned.

 

 

 

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own more than 10% of a registered class of our equity securities, to file with the SEC and the New York Stock Exchange, or NYSE, initial reports of beneficial ownership and reports of changes in beneficial ownership of our common stock and other equity securities. These people are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file, and we make these reports available at www.sprint.com/investors/sec.

 

To our knowledge, based solely on a review of the copies of these reports furnished to us and written representations that no other reports were required, during 2006 all Section 16(a) filing requirements applicable to our directors, executive officers and beneficial owners of more than 10% of our equity securities were met.

 

(Item 1 on Proxy Card)

 

We have 10 seats on our board. Each of the 10 nominees, if elected, will serve one year until the 2008 annual meeting and until a successor has been elected and qualified. The persons named in the accompanying proxy will vote for the election of the nominees named below unless a shareholder directs otherwise. Each nominee has consented to be named and to continue to serve if elected. If any of the nominees becomes unavailable for election for any reason, the proxies will be voted for the other nominees and for any substitutes.

 

 

Our board of directors recommends that you vote for the election of the 10 nominees for director in this Proposal 1.

 

The following table provides compensation information for our current directors and former directors who served during 2006. Compensation information for Gary D. Forsee, our Chairman, President and Chief Executive Officer, and Timothy M. Donahue, former Chairman, can be found in the “Executive Compensation” section of this proxy statement.

 

 

 

 

 

 

 

 

 

 

 

The compensation of our outside directors is partially equity-based and is designed to comply with our Corporate Governance Guidelines, which provide that the guiding principles behind our outside director compensation practices are: (1) alignment with shareholder interests, (2) preservation of outside director independence, and (3) preservation of the fiduciary duties owed to all shareholders. Our outside directors are directors who are not employees of our company. Our board made no changes to our outside directors’ retainers and meeting fees in 2006. Our outside directors are also reimbursed for direct expenses relating to their activities as members of our board of directors.

 

Annual Retainers, Additional Retainers and Meeting Fees

 

Our outside directors are each paid $70,000 annually plus meeting fees and the following additional retainers:

 

 

For each meeting attended, we pay our outside directors the following fees:

 

 

As disclosed in the footnotes to the director compensation table, our directors are entitled to participate in our Deferred Compensation Plan, a nonqualified and unfunded plan under which our outside directors can defer receipt of all or part of their annual and additional retainer fees and meeting fees into various investment funds and stock indices, including a fund that tracks our common stock. In 2006, Mr. Kennard participated in our Deferred Compensation Plan. Also disclosed in the footnotes to the director compensation table is the Directors Shares Plan, under which our outside directors can elect to use all or part of their annual and additional retainer fees and meeting fees to purchase shares of our common stock in lieu of receiving cash payments. Our outside directors can also elect to defer receipt of these shares. In 2006, Messrs. Hockaday and Swanson participated in our Directors Shares Plan. On an annual basis, our outside directors are given the opportunity to either enroll in or discontinue their participation in one or both of these plans.

 

Restricted Stock Units

 

Each of our outside directors receives an annual grant of $100,000 in RSUs representing shares of our common stock. Generally, the RSUs are granted each year at the annual meeting and each grant vests in full upon the subsequent annual meeting.

 

Stock Ownership Guidelines

 

Our director stock ownership guidelines require our outside directors to hold equity or equity interests in our common stock with a value of at least $140,000, which is two times the annual retainer fee. Each outside director is expected to meet this ownership level by the later of August 12, 2007 or the second anniversary of the director’s initial election or appointment to the board. Our director stock ownership guidelines provide the board with flexibility to grant exceptions based on its consideration of individual circumstances. All of our

current outside directors are in compliance with our director stock ownership guidelines, and the same stock and stock equivalents that count towards the stock ownership guidelines for our executive officers (as described below under “Executive Compensation — Compensation Discussion and Analysis”) are used to determine our outside directors’ compliance with the director stock ownership guidelines. In addition, a minimum holding period of twelve months applies to equity and equity interests acquired by directors from us.

 

Other Benefits

 

We believe that it serves the interests of our company and our shareholders to enable our outside directors to utilize our communications services. Accordingly, each outside director may receive up to two wireless units and one connection card and the related wireless service, wireline long distance services and international calling cards. In addition to the value of the communications service, the value of any additional services and features (e.g., ringers, call tones, directory assistance), and the lease value of the wireless devices, replacements and associated accessories are included in the value of the communications benefit. The value of any communications benefits realized by a director is subject to federal, state or local income taxes that are paid by the director. There may be other circumstances in which units are provided to board members (such as demonstration, field testing and training units); these units must be returned or they will be converted to a consumer account and applied toward the wireless units under this communications benefit once the units reach production.

 

Under our charitable matching gifts program, the Sprint Foundation matches contributions made to qualifying organizations on a dollar-for-dollar basis, up to the annual donor maximum of $5,000. The annual maximum contribution per donor, per organization is $2,500. As described in the director compensation table, Messrs. Hockaday and Swanson were the only outside directors for whom the Sprint Foundation provided matching charitable contributions in 2006.

 

Except as described in this paragraph, we currently do not offer retirement benefits to outside directors. Ms. Lorimer is our only outside director who is eligible to receive benefits under a retirement plan originally adopted by our board of directors in 1982. The board amended the retirement plan in 1996 to eliminate the retirement benefit for any outside director who did not have five years of credited service as of the date of the amendment. Ms. Lorimer was deemed as having over five years of credited service at the time the retirement benefit was eliminated as a result of her years of service on the board of Centel Corporation, with which we merged in 1993. Ms. Lorimer will receive monthly benefit payments equal to the monthly fee (not including meeting fees or additional retainers) being paid to outside directors at the time of her retirement. The monthly retirement benefit would be $5,833 while the current $70,000 annual fee remains in effect, and the number of monthly benefit payments to Ms. Lorimer will be 120 payments.

 

Our board and senior management devote considerable time and attention to corporate governance matters. We maintain a comprehensive set of corporate governance initiatives that include the following:

 

 

 

We value the views of our shareholders and other interested parties. Consistent with this approach, our board has established a system to receive, track and respond to communications from shareholders and other interested parties addressed to our board or to our outside directors. A statement regarding our board communications policy is available at www.sprint.com/governance. Any shareholder or other interested party who wishes to communicate with our board or our outside directors may write to Board Communications Designee, Sprint Nextel Corporation, 2001 Edmund Halley Drive, Mailstop VARESPO513-503, Reston, VA 20191, or send an email to boardinquiries@sprint.com. Our board has instructed the Board Communications Designee to examine incoming communications to determine whether the communications are relevant to our board’s roles and responsibilities. The Board Communications Designee will review all appropriate communications and report on the communications to the chair of or the full Nominating and Corporate Governance Committee, the full board, or the outside directors, as appropriate. The Board Communications Designee will take additional action or respond to letters in accordance with instructions from the relevant board source. Communications relating to accounting, internal accounting controls, or auditing matters will be referred promptly to members of the Audit Committee in accordance with our policy on communications with the board of directors.

 

As detailed in our Corporate Governance Guidelines, a Lead Independent Director is elected annually by our independent directors. Irvine O. Hockaday, Jr. currently serves as our Lead Independent Director. The responsibilities and authority of our Lead Independent Director are designed to facilitate the board’s oversight of management and ensure the appropriate flow of information between the board and management, and include the following:

 

 

 

The Lead Independent Director and other directors may, from time to time, with the Chairman’s knowledge and in most instances with members of management present, meet with outside parties on issues of importance to all shareholders.

 

A current copy of our Corporate Governance Guidelines and the charters for all standing committees of the board are available at www.sprint.com/governance. They may also be obtained by writing to Sprint Nextel Shareholder Relations, 6200 Sprint Parkway, Mailstop KSOPHF0302-3B424, Overland Park, Kansas 66251 or by email at shareholder.relations@sprint.com.

 

Our board has adopted a definition of director independence that in several areas exceeds the listing standards of the NYSE. Our Corporate Governance Guidelines require that at least two-thirds of our board be independent. Under our Corporate Governance Guidelines, our board will determine affirmatively whether a director is “independent” on an annual basis and disclose these determinations in our annual proxy statement. That determination is set forth below. A director will not be independent unless the board, considering all relevant circumstances, determines that the director does not have a material relationship with us, including any of our consolidated subsidiaries. A director will not be independent if:

 

 

 

Our board may determine that a director who does not meet the standards in the fifth, sixth or eighth bullet points above nevertheless is independent. Following any such determination, our board will disclose a detailed explanation of its determination in our annual proxy statement. In no event will our board make such determination for a director for more than two consecutive years.

 

The board uses the following definitions to determine director independence:

 

 

In determining the independence of the outside directors, our board considered whether our outside directors, their immediate family members, and the companies with which they are employed as an executive officer (if applicable) have any relationships with our company that would prevent them from meeting the independence standards listed above, as well as the listing standards of the NYSE. In performing its review, our board considered the responses provided by the outside directors in their director questionnaires and determined that the following directors have no material relationship with our company and are independent using the definition described above: Mrs. Hill and Ms. Lorimer, and Messrs. Bane, Bennett, Bethune, Drendel, Hance, Hockaday, and Swanson. Based on these standards, nine of the ten current members of the board of directors are independent directors. The Audit Committee, the Finance Committee, the HC&CC, and the Nominating and Corporate Governance Committee are composed entirely of independent directors.

 

Board Meetings

 

During 2006, our board of directors held seven regular meetings and seven special meetings. Our board of directors has the following standing committees: an Audit Committee, a Finance Committee, a HC&CC, an Executive Committee, and a Nominating and Corporate Governance Committee. Directors are expected to devote sufficient time to properly prepare for and attend meetings of our board, its committees and executive sessions, and to attend our annual meeting of shareholders. All directors attended at least 75% of the meetings of the board and board committees on which they served during 2006, and all directors who served on our board at the time of our 2006 annual meeting attended that annual meeting.

 

Meetings of Outside Directors

 

In addition to board and committee meetings, our outside directors met six times in 2006 without management present. Our Lead Independent Director chairs the meetings of our outside directors.

 

The Audit Committee

 

The primary function of the Audit Committee is to advise and assist the board in fulfilling its oversight responsibilities to the investment community, including current and potential shareholders. The primary purpose of the Audit Committee is to assist our board in fulfilling its oversight responsibilities with respect to:

 

 

 

The Audit Committee also has sole authority for the appointment, retention, termination, compensation, evaluation and oversight of our independent registered public accounting firm. The committee’s principal responsibilities in serving these functions are described in the Audit Committee Charter that was adopted by our board of directors.

 

Current copies of the Audit Committee Charter and our code of ethics, The Sprint Nextel Code of Conduct, both of which comply with SEC rules and the NYSE corporate governance standards, are available at www.sprint.com/governance. Copies of the Audit Committee Charter and The Sprint Nextel Code of Conduct may also be obtained by writing to Sprint Nextel Shareholder Relations, 6200 Sprint Parkway, Mailstop KSOPHF0302-3B424, Overland Park, Kansas 66251, or by email at shareholder.relations@sprint.com.

 

The Sprint Nextel Code of Conduct describes the ethical and legal responsibilities of directors and employees of our company and our subsidiaries, including senior financial officers and executive officers. All of our directors and employees (including all senior financial officers and executive officers) are required to comply with The Sprint Nextel Code of Conduct. In support of the ethics code, we have provided employees with a number of avenues for the reporting of potential ethics violations or similar concerns or to seek guidance on ethics matters, including a 24/7 telephone helpline. The Audit Committee has established procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or auditing matters, including the confidential, anonymous submission by our employees of any concerns regarding questionable accounting or auditing matters to the Ethics Helpline at 1-800-788-7844, by mail to the Audit Committee, c/o Sprint Nextel Corporation, 2001 Edmund Halley Drive, Mailstop VARESPO513-503, Reston, VA 20191, or by email to boardinquiries@sprint.com. Our Chief Ethics Officer reports regularly to the Audit Committee and annually to the entire board on our Ethics and Compliance program.

 

The Chair of the Audit Committee is Mr. Hance. The other members are Ms. Lorimer and Messrs. Bennett and Bane. Each of the members is financially literate and able to devote sufficient time to serving on the Audit Committee. Our board has determined that each of the Audit Committee members is an independent director under the independence requirements established by our board and the NYSE corporate governance standards. Our board has also determined that Messrs. Bennett and Hance each possess the qualifications of an “audit committee financial expert” as defined in SEC rules. The Audit Committee met 17 times in 2006.

 

The Finance Committee

 

The primary functions of the Finance Committee include:

 

 

The committee’s principal responsibilities in serving these functions are described in the Finance Committee Charter that was adopted by our board of directors.

 

The Chair of the Finance Committee is Mr. Bennett. The other members are Messrs. Bane, Hance, Hockaday and Swanson. Each member of the Finance Committee satisfies the independence requirements

established by our board and the independence requirements of the NYSE corporate governance standards. The Finance Committee met eight times in 2006. A current copy of the charter for the Finance Committee is available at www.sprint.com/governance. It may also be obtained by writing to Sprint Nextel Shareholder Relations, 6200 Sprint Parkway, Mailstop KSOPHF0302-3B424, Overland Park, Kansas 66251, or by email at shareholder.relations@sprint.com.

 

The Human Capital and Compensation Committee

 

The primary functions of the HC&CC include:

 

 

Additional information regarding the HC&CC’s processes and procedures can be found below in “Executive Compensation — Compensation Discussion and Analysis.” Generally, the committee’s primary processes for establishing and overseeing outside director compensation and the role of company personnel and compensation consultants are similar to those regarding executive compensation. Any appropriate changes to outside director compensation are made following recommendation to the board by the HC&CC, with input from the Nominating and Corporate Governance Committee. In accordance with its charter, the HC&CC may delegate authority to subcommittees or any committee member when appropriate.

 

The Chair of the HC&CC is Mr. Swanson. The other members are Mrs. Hill and Mr. Bethune. Mr. Kennard served as a member of the HC&CC until his resignation from our board on March 1, 2007. Each member of the HC&CC satisfies the independence requirements established by our board and the independence requirements of the NYSE corporate governance standards. The HC&CC met seven times in 2006.

 

A current copy of the charter for the HC&CC is available at www.sprint.com/governance. It may also be obtained by writing to Sprint Nextel Shareholder Relations, 6200 Sprint Parkway, Mailstop KSOPHF0302-3B424, Overland Park, Kansas 66251, or by email at shareholder.relations@sprint.com.

 

Compensation Committee Interlocks and Insider Participation

 

Messrs. Bethune, Kennard and Swanson, and Mrs. Hill served on the HC&CC during 2006. There were no compensation committee interlocks or insider participation during 2006.

 

The Executive Committee

 

The primary function of the Executive Committee is to exercise powers of the board on matters of an urgent nature that arise between regularly scheduled board meetings.

 

Messrs. Forsee and Hockaday serve on the Executive Committee. Mr. Donahue served on the Executive Committee until his retirement from our board on December 29, 2006. The Executive Committee did not meet in 2006.

 

The Nominating and Corporate Governance Committee

 

The primary function of the Nominating and Corporate Governance Committee is to ensure that our company has effective corporate governance policies and procedures and an effective board and board review process. In fulfilling this function, the committee:

 

 

In evaluating prospective candidates or current board members for nomination, the Nominating and Corporate Governance Committee considers all factors it deems relevant, including, but not limited to, the candidate’s: (1) character, including reputation for personal integrity and adherence to high ethical standards, (2) judgment, (3) knowledge and experience in leading a successful company, business unit or other institution, (4) independence from our company, (5) ability to contribute diverse views and perspectives, (6) business acumen, and (7) ability and willingness to devote the time and attention necessary to be an effective director — all in the context of an assessment of the needs of the board at that point in time.

 

The Nominating and Corporate Governance Committee reviews with the board the appropriate characteristics and background needed for directors. This review is undertaken not only in considering new candidates for board membership, but also in determining whether to nominate existing directors for another term. The Nominating and Corporate Governance Committee determines the current director selection criteria and conducts searches for prospective directors whose skills and attributes reflect these criteria. To assist in the recruitment of new members to our board, the Nominating and Corporate Governance Committee employs one or more third party search firms. Final approvals of nominations are determined by the full board.

 

It is the policy of the Nominating and Corporate Governance Committee also to consider candidates recommended by shareholders. These recommendations should be sent to the Nominating and Corporate Governance Committee, c/o Corporate Secretary, Sprint Nextel Corporation, 2001 Edmund Halley Drive, Mailstop VARESPO513, Reston, VA 20191. To be timely, your recommendation must be received by our Corporate Secretary between December 10, 2007 and January 9, 2008. Your recommendation must include the following for each candidate you intend to recommend:

 

 

The notice must also include your name and address and the class and number of shares of our stock that you own.

 

On February 27, 2007, our board approved amendments to our bylaws to provide that each nominee for director in an uncontested election will be elected if the votes cast for that nominee exceed the votes cast against that nominee. Votes cast against a nominee include votes to withhold authority with respect to the nominee, but do not include abstentions and broker non-votes. The date for determining if an election is contested or uncontested has been set at 14 days before we file our definitive proxy statement. This requirement is intended to help us determine for our proxy statement whether director nominees will be elected under a majority or plurality standard prior to soliciting proxies.

 

In connection with the amendments to our bylaws establishing a majority vote standard for the election of directors in uncontested elections, our board also amended our Corporate Governance Guidelines to provide that an incumbent nominee who fails to receive a majority of votes cast in an uncontested election is expected to tender promptly his or her resignation. The Nominating and Corporate Governance Committee will recommend, and the board will determine, whether or not to accept the tendered resignation within 90 days of the certification of the stockholder vote with respect to the director election. Our board’s decision will be publicly disclosed.

 

In 1997, our board adopted a shareholder rights plan. The rights plan is reviewed every three years by the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee began its review of the plan in October 2005, and, in February 2006, the board accepted the Nominating and Corporate Governance Committee’s recommendation that the plan remain in place until the rights issuable under the plan expire in June 2007.

 

The Chair of the Nominating and Corporate Governance Committee is Mr. Hockaday. The other members are Mrs. Hill, Ms. Lorimer and Mr. Bethune. Mr. Kennard served as a member of the Nominating and Corporate Governance Committee until his resignation from our board on March 1, 2007. Each member of the Nominating and Corporate Governance Committee satisfies the independence requirements established by our board and the independence requirements of the NYSE corporate governance standards. The Nominating and Corporate Governance Committee met seven times in 2006.

 

A current copy of the charter for the Nominating and Corporate Governance Committee and our Corporate Governance Guidelines are available at www.sprint.com/governance. They may also be obtained by

writing to Sprint Nextel Shareholder Relations, 6200 Sprint Parkway, Mailstop KSOPHF0302-3B424, Overland Park, Kansas 66251 or by email at shareholder.relations@sprint.com.

 

The Audit Committee has reviewed and discussed our audited consolidated financial statements with management. The Audit Committee has also discussed with the independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61 (SAS 61 — Communication with Audit Committees), as amended, relating to the auditors’ judgment about the quality of our accounting principles, judgments and estimates, as applied in our financial reporting.

 

The Audit Committee has received the written disclosures and the letter from the independent registered public accounting firm required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) that relates to the firm’s independence from our company and our subsidiaries and has discussed with the independent registered public accounting firm its independence.

 

The Audit Committee met with senior management periodically during the 2006 fiscal year to consider the adequacy of our internal controls and discussed these matters with our independent registered public accounting firm and with appropriate financial personnel. The Audit Committee also discussed with senior management our disclosure controls and procedures and the certifications by our CEO and our Chief Financial Officer, which are required by the SEC for certain of our filings with the SEC. The Audit Committee met privately with the independent registered public accounting firm, our internal auditors and other members of management, each of whom has unrestricted access to the Audit Committee.

 

Based on the reviews and discussions referred to above, the Audit Committee recommended to the board that our audited consolidated financial statements be included in our annual report on Form 10-K for the year ended December 31, 2006 for filing with the SEC.

 

The Audit Committee

 

James H. Hance, Jr., Chair

Keith J. Bane

Robert R. Bennett

Linda Koch Lorimer

 

The HC&CC has reviewed and discussed our Compensation Discussion and Analysis with management. Based on these reviews and discussions, the HC&CC recommended to the board that our Compensation Discussion and Analysis be included in this proxy statement.

 

The Human Capital and Compensation Committee

 

William H. Swanson, Chair

Gordon M. Bethune

V. Janet Hill

 

Overview of Compensation Philosophy and Program

 

The compensation program for our named executive officers consists of a comprehensive package that includes a base salary and short- and long-term incentive opportunities, and employee benefits. This program is designed to:

 

 

We believe that this program will enable us to retain our executive officers and attract qualified and experienced executives, and to motivate executives to accomplish goals and objectives that serve our interests and those of our shareholders. Our incentive plans tie executive remuneration to our performance, striking a balance between our short- and long-term performance, and between remuneration for achieving operating and financial objectives and producing a return for our shareholders. Target opportunities under our short- and long-term incentive plans comprise the majority of the compensation packages of each of our executives, which we believe serves to properly motivate each of them to achieve these objectives. We also believe that the interests of each executive will be aligned with the interests of our shareholders if a significant portion of his or her compensation package is comprised of equity-based awards.

 

To determine the appropriate levels of compensation with respect to each element of our compensation program, we periodically review the compensation levels of our named executive officers and other key personnel against compensation analyses of telecommunications and high-technology companies conducted by third parties, and the compensation levels of the named executive officers of a peer group of companies that we believe represents the types of companies with which we compete for personnel. This peer group includes communications and high technology companies, as well as other companies with business models similar to ours. We periodically review and update the companies that we include in our peer group with input from the HC&CC’s compensation consultant.

 

For 2006, the companies that comprised our peer group consisted of Alltel Corporation, AT&T Inc., BellSouth Corporation, Comcast Corporation, Lucent Technologies Inc., Motorola, Inc., Nortel Networks Corporation, QUALCOMM Incorporated, Qwest Communications International Inc., Time Warner Inc. and Verizon Communications Inc. For 2007, we added The DIRECTV Group Inc., due to its similar business model, Dell Inc., due to its similar size, and Electronic Data Systems Corporation and Computer Sciences Corporation, based on their systems integration similarities. For 2007, we removed Nortel Networks based on a number of considerations related to its financial and operating characteristics.

 

The HC&CC annually reviews the compensation packages of our named executive officers and other key personnel, as presented in the form of “tally sheets,” which set forth all components of compensation, including base salary, incentive opportunities, deferred compensation, outstanding equity-based awards, non-recurring cash or equity-based retention awards, and the present value of retirement benefits and other benefit plans and programs and perquisites. The tally sheets also set forth the estimated value that each named executive officer would realize upon separation from our company under various scenarios including: normal retirement; voluntary termination of employment with and without good reason; involuntary termination of employment with and without cause; termination of employment in connection with a change in control of us; and death or disability. The HC&CC uses these tally sheets in connection with its consideration of adjustments

to base salaries and awards of equity-based or other remuneration, and in establishing incentive plan opportunity levels.

 

Our named executive officers are Gary D. Forsee, Chairman, President and Chief Executive Officer; Paul N. Saleh, Chief Financial Officer; Timothy E. Kelly, President — Customer Management; Barry J. West, Chief Technology Officer and President — 4G Mobile Broadband Operations; Richard T.C. LeFave, Chief Information Officer; Timothy M. Donahue, our former Executive Chairman; and Len J. Lauer, our former Chief Operating Officer.

 

Use of Compensation Consultants and Management Involvement

 

The HC&CC regularly engages the services of consulting firms to advise it on matters related to executive compensation. These consulting firms take direction from and report to the HC&CC. Prior to the May 2006 spin-off of our local communications business, the HC&CC engaged both Deloitte Consulting LLP and Frederic W. Cook & Co., Inc. Since the spin-off, the HC&CC has engaged Frederic W. Cook & Co., Inc. exclusively to advise it on matters related to executive compensation. At no time since the beginning of 2006 has Frederic W. Cook & Co., Inc. had any other business relationship with us. Frederic W. Cook & Co., Inc. works with our management only under the direction of the HC&CC. Personnel in our human resources department support the work of the HC&CC and its consultants. In addition, our CEO meets periodically with the HC&CC regarding the design of compensation programs and the compensation levels of our other named executive officers and certain key personnel.

 

Tax Deductibility of Pay

 

Section 162(m) of the Internal Revenue Code, or IRC, limits to $1 million the amount of non-performance-based remuneration that a company may deduct from its taxable income in any tax year with respect to its named executive officers who are employed at the end of the year. Base salary, certain equity-based awards and perquisites and other personal benefits are not considered performance-based remuneration. A company, however, may deduct from its taxable income without regard to the $1 million limit the full value of all performance-based compensation under section 162(m), such as annual cash incentive compensation and stock option awards, if certain requirements are met, including that the maximum number of stock options that may be awarded and the maximum amount of other performance-based remuneration that may be payable to any one executive officer have been disclosed to and approved by shareholders prior to the award or payment. Our shareholders have approved limits on the number of stock options awarded and the amount of other performance-based remuneration payable to any one executive officer during a calendar year.

 

The HC&CC considers section 162(m) deductibility in designing our compensation program and incentive-based compensation plans. In certain circumstances, the HC&CC has determined it necessary, to retain executives in and attract candidates for senior level positions, to offer compensation packages in which the non-performance-based elements exceed the $1 million section 162(m) limit.

 

Elements of Compensation

 

Base Salary

 

Because base salary is not performance-based remuneration, it serves as a minimum payment to executive officers.

 

The respective employment agreement of each of Messrs. Forsee and Donahue provided for a minimum base salary of $1.4 million, which was negotiated in connection with the Sprint-Nextel merger. The HC&CC considered it necessary and appropriate to set a base salary for Mr. Forsee, and, prior to his retirement, to have set a base salary for Mr. Donahue, above the $1 million section 162(m) limit.

 

We determined the base salary of each of the other named executive officers based on a number of factors, including the:

 

 

 

We periodically make adjustments to the base salaries of executive officers based on the factors listed above, as well as our performance and that of the executive officer. In 2006, we did not adjust the base salaries of any named executive officers, other than a $50,000 increase in Mr. Forsee’s base salary, to $1,450,000. We made this adjustment in connection with the elimination of certain perquisites and other personal benefits, including allowances for an automobile, country club dues and other miscellaneous services, that Mr. Forsee had received previously.

 

We completed our annual review of base salaries in February 2007 and, as of February 17, 2007, the base salary of each of our named executive officers is as follows:

 

 

Annual Short-term Incentive Compensation Plan

 

Our annual short-term incentive compensation, or STIC, plan sets forth the terms under which annual cash incentive compensation is paid to eligible employees, including our named executive officers. We have designed the STIC plan to motivate eligible employees to achieve critical operating and financial objectives by remunerating them based on our performance and their individual performance.

 

We established incentive target opportunities under the STIC plan for 2006 for each named executive officer as a multiple of his base salary. To hold those employees with the highest levels of responsibility accountable for our performance, we vary incentive target opportunities under the STIC plan in proportion with each named executive officer’s role and responsibilities.

 

The respective employment agreement of each of Messrs. Forsee and Donahue provided for a target opportunity under the 2006 STIC plan of 170% of base salary, which was negotiated in connection with the Sprint-Nextel merger. We determined the target opportunities under the STIC plan of each of the other named executive officers based on his job responsibilities and a number of other factors, including the short-term incentive compensation levels paid to employees with comparable responsibilities by the companies in our peer group. We also considered the target opportunities of each named executive officer as compared with the levels for other members of our senior management team. For 2006, our named executive officers had the following STIC target awards:

 

 

In early 2006, the HC&CC established financial and operational objectives against which our actual performance was to be compared as a basis for determining the amount of payments made under the STIC

plan, and provided for significant payouts if our performance met or exceeded these objectives. For 2006, the HC&CC established three financial and operational objectives, based on the outlook of our business for 2006, to focus executives’ attention on areas that we believed were important to achieving strategic results: growth of revenues and our customer base; cost efficient use of resources; and improved customer experience. These objectives were:

 

 

The STIC plan weighted these objectives 50% for adjusted OIBDA, 30% for net subscriber additions and 20% for post-paid churn. We weighted the adjusted OIBDA objective at 50% because it measures our financial and operating performance. We weighted the net subscriber additions objective at 30% and the post-paid wireless churn objective at 20% because, together, they are important indicators of our ability to grow our business and generate revenue in future periods.

 

The STIC plan provided that payouts to each named executive officer were determined using three variables:

 

 

The STIC plan provided for a range of payouts above and below each named executive officer’s targeted opportunity so long as our actual results exceeded minimum threshold levels. To further our goal of tying a significant portion of each named executive officer’s total annual compensation to our performance, the plan provided that we would make a STIC payment equal to the participant’s targeted opportunity only if our actual results met the targeted objectives. Similarly, the plan provided for a payment in excess of a participant’s targeted opportunity if our actual performance exceeded the targeted objectives. The plan also provided that, if our actual performance was below the target objectives but exceeded the minimum threshold levels, we would make a payment that was below the participant’s targeted opportunity. Plan participants were not eligible for payouts under the plan if our actual performance did not meet the minimum threshold level for any of the targeted objectives.

 

For 2006, the STIC plan capped the amount of payout at 200% of targeted opportunities with respect to the net subscriber additions and post-paid wireless churn objectives, but, for each named executive officer other than Messrs. Forsee and Donahue, the maximum amount of payout was unlimited with respect to the adjusted OIBDA objective. The terms of the respective employment agreements of Messrs. Forsee and Donahue provided that actual payouts under the STIC plan were limited to 200% of their respective targeted opportunity. The STIC plan also provided for an individual performance factor that could adjust the final payout between 0 and 120% of the calculated payout based on the individual’s performance.

 

The HC&CC designed the STIC plan to meet the IRC section 162(m) performance-based requirements. To enable payments under the STIC plan to be deemed performance-based for purposes of section 162(m), the HC&CC limited the maximum amount that any named executive officer may receive under the plan to a small fraction of a percentage of our adjusted operating income. As indicated below, the HC&CC exercised this discretion to make payments under the STIC plan at levels below this limit.

 

For 2006, each participant’s payout under the STIC plan was equal to 16.8% of his or her targeted opportunity, based on our adjusted OIBDA for 2006 exceeding the minimum threshold level for that objective under the plan, although it was less than the targeted objective. For 2006, however, our net subscriber additions and post-paid wireless churn did not meet the minimum threshold levels under the STIC plan.

Consequently, each named executive officer, other than Messrs. Forsee and Donahue, received a payout under the STIC plan equal to 16.8% of his targeted opportunity. Mr. Forsee elected not to receive a STIC plan payout for 2006. Upon Mr. Donahue’s retirement, he was entitled under his employment agreement to receive payment with respect to our short-term incentive plan equal to his target opportunity. Consequently, his payout under our 2006 STIC plan equaled his target opportunity for 2006. Each payout under the 2006 STIC plan was below the IRC section 162(m) maximum amount established by the HC&CC. Payouts under our 2006 STIC plan are reflected in the Non-Equity Incentive Plan Compensation column in the Summary Compensation Table.

 

For our 2007 short-term incentive plan, the HC&CC established three financial and operational objectives to focus executives’ attention on areas that we believe are important to achieving strategic results: growth of revenues and our customer base; cost efficient use of resources; and improved customer experience. The HC&CC also established a functional objective for each executive to focus attention on his or her respective function. The HC&CC weighted each objective in relation to the importance of each objective in light of our strategic goals. These objectives and their respective weightings are as follows:

 

 

We replaced the net subscriber addition metric with the net service revenue objective, which excludes equipment revenue and reflects our goal of not only attracting and retaining new subscribers, but also selling innovative services to new and existing customers.

 

For 2007, we did not adjust for any named executive officer the multiple of base salary that represents the target opportunity, although the 2007 target opportunity reflects the adjustment to base salary discussed above. Messrs. Donahue and Lauer are not participants in the 2007 short-term incentive plan because they are no longer employed by us. The target opportunity for each named executive based on annual base salary rates for 2007 are as follows:

 

 

Long-term Incentive Compensation Plan

 

Our long-term incentive compensation, or LTIC, plan sets forth the terms under which equity-based incentive compensation is awarded to eligible employees, including our named executive officers. We have designed the LTIC plan to promote our long-term objectives and motivate eligible employees to achieve critical operating and financial objectives and produce positive returns for our shareholders, as well as our retention objectives, by providing executive officers with equity-based incentive awards.

 

The respective employment agreement of each of Messrs. Forsee and Donahue provided for a target opportunity under the 2006 LTIC plan of $10 million, which was negotiated in connection with the Sprint-Nextel merger. We determined the target opportunities under the LTIC plan of each of the other named executive officers based on his job responsibilities and a number of other factors, including the long-term incentive compensation levels paid to employees with comparable responsibilities by the companies in our peer group, the individual’s performance, the importance of the individual’s function to our business, and the risk that we will not be able to retain the individual and the ability to replace him with an employee with

comparable skills and experience. We also considered the target opportunities of each named executive officer as compared with the levels of other members of our senior management team. For 2006, our named executive officers had the following LTIC targeted opportunities:

 

 

To create an appropriate balance between rewarding our named executive officers for achieving critical financial and operating results and creating value for the shareholders, and to ensure that the program supports our retention objectives, the LTIC plan provides that one-half of each participant’s targeted opportunity be made in the form of non-qualified options to purchase our common stock and the other half be made in performance-based RSUs. By subjecting both the stock options and RSU awards granted under the plan to time-based vesting schedules, we support our retention objectives. In addition, each named executive officer generally realizes remuneration from stock option awards only if he remains employed with us during the vesting period and the price of our common stock appreciates after the date of grant, which supports our goal of tying remuneration to shareholder return. The number of RSUs initially awarded under the 2006 LTIC plan was subject to a performance adjustment so that each named executive officer would retain a portion of the RSUs initially awarded to him only if our actual performance exceeded a minimum financial objective under the plan, which supports our goal of motivating our executives to achieve critical objectives.

 

We calculated the number of shares of common stock underlying the stock options that each LTIC plan participant was awarded in 2006 by dividing one-half of his targeted opportunity by the value of an option, as determined using the Black-Scholes option valuation model. The Black-Scholes model incorporates into the determination of the value of a stock option the term of the option, the risk-free rate of return and the fair market value, dividend yield, and assumed future price volatility of the stock that underlies the option. For determining the number of shares of common stock underlying the stock options that each LTIC plan participant was awarded, we used the same assumptions that we use to determine share-based compensation expense in our consolidated financial statements, except that, for the fair market value assumption, we used a 30-day average price of our common stock, which resulted in the compensation expense computed pursuant to FAS 123R varying slightly from the portion of the LTIC plan targeted opportunity related to stock option grants.

 

These options, which we granted on February 7, 2006, vest ratably in equal amounts on the first, second and third anniversaries of the grant date and have an exercise price equal to the fair market value of a share of our common stock on the date of the grant, which we determined using the average of the high and low of the trading price on the date of grant.

 

We determined the number of RSUs that each LTIC plan participant initially was awarded in 2006 by dividing one-half of his targeted opportunity by the average fair market value of our common stock over a consecutive 30-calendar day period, which we believe mitigated the volatility inherent in our stock if the price on any single day were used. We issued these RSUs on June 12, 2006, following the spin-off of our local communications company. Each RSU award vests on February 7, 2009, which is designed to coincide with the vesting of the final installment of the stock options granted under the 2006 LTIC plan. Each RSU award is eligible to receive dividend-equivalent payments as and to the extent that we declare dividends with respect to our common stock, although the plan provides that no such payments are made until after any performance adjustments have been made.

 

The LTIC plan provides that each initial award of RSUs is subject to adjustment based on our actual performance compared to established performance objectives. For the 2006 LTIC plan, the HC&CC established the same performance objectives as used in the 2006 STIC plan and weighted them in the same manner. The LTIC plan provides that these adjustments are determined using three variables:

 

 

These adjustments could result in forfeitures of or increases in the number of RSUs initially awarded, in amounts ranging from 0 to 200% of the initial award.

 

The HC&CC designed the LTIC plan to allow for the stock options granted under the plan to comply with the IRC section 162(m) performance-based requirements. To properly motivate our named executive officers to achieve and exceed the financial and operating performance objectives, the HC&CC determined that it was in our best interest to design the RSU award to not comply with the section 162(m) performance-based requirements. Consequently, the value of the RSU awards under the plan was not subject to the individual limit approved by our shareholders.

 

For 2006, as was the case with respect to the 2006 STIC plan, our net subscriber additions and post-paid wireless churn did not meet the minimum threshold levels, but our adjusted OIBDA for 2006 exceeded the minimum threshold level under the 2006 LTIC plan. Consequently, each named executive officer has retained 16.8% of the RSUs initially granted to him, and has forfeited the remaining RSUs.

 

In February 2006, as a result of the performance adjustment tied to RSU awards made in 2005 under our 2005 long-term incentive compensation plan, Messrs. Forsee, Kelly and Lauer received additional RSU awards in proportion to the number of RSUs initially awarded under that plan. Under that plan, for 2005, we established an objective based on our net operating profits after taxes less a charge for the carrying cost of all capital invested in the enterprise. Actual performance for the year up to the date of the Sprint-Nextel merger exceeded the objective resulting in awards of additional RSUs. These additional awards are subject to the terms and conditions of the RSUs initially awarded in 2005 under our 2005 long-term incentive compensation plan, and, like those initial awards, vest on February 8, 2008. Because Messrs. Saleh, West, LeFave and Donahue, who were employees of Nextel prior to the Sprint-Nextel merger, were not employed by us in the beginning of 2005 when we adopted the 2005 long-term incentive compensation plan, they were not eligible to receive any additional RSU awards.

 

Similar to our 2006 LTIC plan, under our 2007 long-term incentive plan, one-half of each plan participant’s targeted opportunity has been made in the form of non-qualified stock options and the other half has been made in performance-based RSU awards. The stock options vest ratably in equal amounts on the first, second and third anniversaries of the grant date and have an exercise price equal to the fair market value of a share of our common stock on the date of the grant. With respect to the performance-based RSU awards, the HC&CC established two financial objectives to focus executives’ attention on two areas that we believe are important to achieving long-term strategic results: improved profitability; and generation of cash from our operations. These objectives, each weighted as 50%, are as follows:

 

 

To emphasize the long-term nature of this incentive program, the HC&CC set the adjusted OIBDA margin objective for the third year of the vesting period of the RSU awards, and the free cash flow objective for the entire three-year performance period. These objectives are consistent with our 2007 revenue and OIBDA guidance and our plans for a return to growth thereafter.

 

Following the three-year performance period, the RSU awards initially granted will be subject to adjustment based on our actual performance compared to the financial objectives. All RSU awards under our

2007 long-term incentive plan will vest on the later of the third anniversary of the date of the award and the date that the financial results tied to the performance objectives are approved by the HC&CC. All RSU awards are eligible to receive dividend equivalent payments, as and to the extent declared with respect to our common stock, following any performance adjustment. For each employee eligible to participate in the 2007 long-term incentive plan who also participated in our 2006 LTIC plan, the HC&CC approved grants of additional performance-based RSU awards to recognize the efforts of the eligible plan participants and to promote our retention efforts. This grant was made to each of our named executive officers other than Messrs. Forsee, West, Donahue and Lauer. We granted these RSU awards in an amount equal to 35% of the RSU portion of each participant’s target opportunity. These RSU awards are subject to the same performance criteria and other terms of our 2007 long-term incentive plan. Similar to the 2006 LTIC plan, the RSU awards granted under the 2007 long-term incentive plan do not comply with the section 162(m) performance-based requirements.

 

For 2007, Mr. Forsee’s target opportunity remains at the level of his target opportunity under the 2006 LTIC plan, pursuant to the terms of his employment agreement, and he declined to receive the additional 35% in RSUs discussed above. For Messrs. Saleh and Kelly, the only adjustment to their respective 2006 target opportunity was the additional 35% in RSUs discussed above. Mr. West will not participate in the 2007 long-term incentive compensation plan due to consideration that he will receive under an amendment to his employment agreement entered into in February 2007. For additional information regarding this amendment, see “— Potential Payments Upon Termination of Employment or Change of Control.” For 2007, Mr. LeFave’s target opportunity was increased to $2 million, plus the additional 35% in RSUs discussed above, based on the factors used to determine target opportunities discussed above. Messrs. Donahue and Lauer are not participants in the 2007 long-term incentive compensation plan because they no longer are employed with us. Consequently, the target opportunity for each named executive officer participating in the 2007 long-term incentive compensation plan is as follows:

 

 

Other Incentive Programs

 

From time to time the HC&CC authorizes other incentive plans and retention programs as it deems appropriate.

 

Integration Overachievement Plan

 

The HC&CC adopted an Integration Overachievement Plan following the Sprint-Nextel merger to promote achievement of merger integration and results aimed at increasing shareholder value. The two-year plan provides an incentive payment to our named executive officers and other key personnel at specific target amounts based on the achievement of certain objectives.

 

The HC&CC determined the targeted opportunity for each named executive officer based on each officer’s base salary and his role and expected impact in achieving the synergies that we anticipate realizing from the integration of Sprint and Nextel and their respective operations. Our named executive officers have the following Integration Overachievement Plan target opportunities:

 

 

In general, a plan participant will forfeit his or her rights under the plan if he or she is not in active full-time employment with us on December 31, 2007. Because Messrs. Donahue and Lauer are no longer employed with us, they no longer are eligible to participate in the Integration Overachievement Plan and, therefore, are not entitled to any payments under the plan.

 

Actual payouts can range from 0 to 150% of the targeted opportunities based on our actual adjusted OIBDA margin for 2007 compared to the adjusted OIBDA margin objective that the HC&CC determined in February 2007, together with the following additional factors that the HC&CC may consider: our actual 2007 OIBDA; incremental free cash flow in 2006 and 2007 attributable to merger synergies; costs that we have incurred to achieve merger synergies; and the performance of our common stock relative to the Dow Jones U.S. Telecommunications Stock Index. We believe that our adjusted OIBDA margin and these additional factors are indicators of achievement of the expected benefits from merger integration and results aimed at increasing shareholder value.

 

The plan provides that any payouts will be made beginning in 2008 following completion of the 2006-2007 performance period. The plan provides that one-half of any payout will be made in cash and the other half will be in the form of RSU awards, unless the HC&CC decides to make all or a portion of this part of the payout in cash, in which case the second cash payment will be made in the first quarter 2009. Any RSUs awarded under the plan will be awarded in the first quarter 2008 and vest one year from the date of award, which supports our goal to motivate employees to produce positive returns for our shareholders and our retention objectives.

 

The Integration Overachievement Plan does not meet the section 162(m) performance-based requirements.

 

Retention Programs

 

Pre-Merger Sprint Retention Programs

 

In January 2005, the HC&CC adopted a retention program designed to retain our named executive officers and other key personnel through completion of the Sprint-Nextel merger and the spin-off of the local communications business and for the one year period following the merger. The HC&CC did not include Messrs. Forsee or Lauer as program participants because Mr. Forsee already had been designated to be our CEO and Mr. Lauer already had been designated to be our chief operating officer following the Sprint-Nextel merger. The program provided for a payment equal to the participant’s annual base salary plus short-term incentive opportunity target, with fifty percent of the base salary portion paid upon completion of the Sprint-Nextel merger and the balance paid following the one year anniversary of the merger. In August 2006, following the one-year anniversary of the Sprint-Nextel merger, Mr. Kelly received his second installment under the retention program. This payment is included under the “Bonus” column in the Summary Compensation Table.

 

In March 2005, in lieu of participation in the retention program, and to further motivate Messrs. Forsee and Lauer to achieve critical operating and financial objectives and align their interests with those of our shareholders, the HC&CC granted performance-adjusted RSUs and premium-priced stock options to Messrs. Forsee and Lauer. The RSUs were subject to adjustment based on the same performance objective under our 2005 long-term incentive compensation plan. Actual performance for the year up to the date of the Sprint-Nextel merger exceeded the performance objective resulting in awards of additional RSUs in proportion to the number of RSUs initially awarded. These additional awards are subject to the terms and conditions of the RSUs initially awarded in 2005, and, like those initial awards, vest on March 15, 2008. These RSU awards do not comply with the section 162(m) performance-based requirements.

 

Pre-Merger Nextel Retention Programs

 

In 1999, Nextel’s board of directors approved a change in control retention bonus and severance pay plan to retain its named executive officers and other key personnel following a transaction that resulted in a change in control of Nextel. The Sprint-Nextel merger was a change in control under the plan and triggered certain rights for plan participants. Under the plan, each named executive officer employed with Nextel prior to the

merger was entitled to receive 150% of his annual base salary and target incentive as a retention bonus, with one-half of the retention bonus paid at the time the Sprint-Nextel merger was completed and the remaining half paid following the first anniversary of the merger. In August 2006, following the one-year anniversary of the Sprint-Nextel merger, Messrs. Saleh, West, LeFave and Donahue each received their second installment under the retention program. These payments are included under the “Bonus” column in the Summary Compensation Table.

 

Equity-Based Retention Awards

 

The HC&CC periodically evaluates whether we are at risk of losing the services of any of our executive officers and other key personnel who we believe are critical to the success of our business. To ensure that we retain the employment of our executive officers and other key personnel who we believe may be at particular risk of voluntarily terminating employment with us, the HC&CC from time to time awards RSUs to further our retention objectives and promote a commonality of interests with shareholders. In determining to whom to make such an award, and the number of RSUs to be awarded, the HC&CC considers the current stock and equity-based award holdings of each executive officer under consideration. RSU awards made for retention purposes generally do not comply with the section 162(m) performance-based requirements.

 

During 2006, the HC&CC awarded Mr. LeFave 147,943 RSUs that vest on July 24, 2008, and awarded Mr. Kelly 134,409 RSUs that vest on December 11, 2009. The three-year vesting period for Mr. Kelly’s retention award, as compared to the two-year vesting period for Mr. LeFave’s retention award, reflects the HC&CC’s evolving practice for establishing an appropriate time period over which equity-based retention awards should vest. These awards are included in the Grants of Plan-Based Award table.

 

Employee Benefit Plans and Programs

 

Our compensation program includes a comprehensive array of health and welfare benefits. Our named executive officers participate in the same benefit programs, plans and arrangements that are provided to all of our eligible employees. We pay all of the costs for some of these benefit plans, and participants contribute a portion of the cost for other benefit plans.

 

Retirement Programs

 

Our retirement program includes a 401(k) plan and traditional and supplemental pension plans. Under the Sprint Nextel 401(k) Plan, we match 100% of each participant’s contributions up to 5% of his or her eligible compensation.

 

Those of our named executive officers who were employed with us prior to the Sprint-Nextel merger are entitled to receive retirement benefits under our traditional defined benefit pension plan and our supplemental executive retirement plan, or SERP. Following the Sprint-Nextel merger, we froze benefits under the pension plan and SERP. Plan participants who meet vesting requirements maintain their accrued benefit as of December 31, 2005 under the pension plan and SERP, but do not accrue additional benefits under either plan.

 

Under the terms of Mr. Forsee’s employment agreement, he is eligible to receive an annual retirement benefit equal to five percent of his covered compensation (generally, annual base salary plus actual annual incentive pay earned) for each calendar year of service beginning with 2003, up to a maximum of 65% of his covered compensation. This benefit will be offset by pension benefits payable to him by any former employer and by us under our traditional defined benefit pension plan and the SERP. Any retirement benefits earned pursuant to Mr. Forsee’s employment agreement will be payable, without reduction, on the later of January 1, 2008 or the date that his employment is terminated.

 

Personal Benefits and Perquisites

 

We provide certain of our named executive officers with personal benefits and perquisites, as described in the footnotes to the Summary Compensation Table. We believe that these personal benefits and perquisites are

a necessary component of a competitive compensation program, and appropriate relative to the benefits and perquisites provided to executives by our peer group of companies.

 

Deferred Compensation

 

Our named executive officers are entitled to participate in the Sprint Nextel Deferred Compensation Plan, a nonqualified and unfunded plan under which they may defer to future years the receipt of certain compensation that would otherwise be paid to them in the year in which it was earned. Under the plan, we match contributions made by participants in an amount up to 5% of eligible earnings above the applicable annual limit, which for 2006 was $220,000, to compensate highly-compensated employees for limitations placed on our 401(k) plan by federal tax law. Participants elect to allocate deferred and matching contributions among one or more hypothetical investment options, which include one option that tracks our common stock and other options that track broad bond and equity indices. Although Mr. Forsee is eligible to participate in the plan, he is not eligible to participate in the plan’s matching feature due to the retirement benefits that he is eligible to receive under his employment agreement. Messrs. Forsee, Saleh, LeFave, Kelly and Lauer participated in this plan during 2006. Prior to the Sprint-Nextel merger, Mr. Donahue participated in the Nextel Communications, Inc. Cash Compensation Deferral Plan.

 

Prior to the Sprint-Nextel merger, our executive officers were eligible to participate in our Executive Deferred Compensation Plan, or EDCP. Contributions no longer may be made to the EDCP, but it provides for two hypothetical investment options — one that is interest bearing and one that tracks the performance of our common stock — to which prior contributions credited to bookkeeping accounts may be allocated. The interest bearing account accrues interest at a per annum rate equal to the greater of Citibank’s prime rate in effect at the beginning of each month or 6%. Earnings on EDCP interest bearing accounts are considered above-market under applicable securities laws if they exceed a specified federal long-term rate.

 

The amount of matching contributions made by us to participating named executive officers and any above market earnings are included in the “All Other Compensation” column of the Summary Compensation Table.

 

Executive Severance Policy

 

In 2003, our board of directors adopted an executive severance policy. Under the policy, the board will seek shareholder approval for any future severance agreement or arrangement with a senior executive that provides (a) in excess of two times the senior executive’s base salary plus bonus and (b) the value of other benefits in excess of those that would be paid or afforded to the senior executive over a 24 month period following the executive’s termination. Other benefits include the continued and accelerated vesting of RSUs, stock options and any other equity-based awards, extension of the exercise period for stock options, accrual of retirement service, group health and life insurance benefits, and all other benefits offered to senior executives generally under our broad based severance program. The policy also requires that we seek shareholder approval of any future severance agreement or arrangement that provides for the reimbursement of excise taxes imposed under IRC section 4999 to a senior level executive. Under the terms of Mr. Forsee’s employment agreement, entered into prior to the adoption of this policy, he is entitled to reimbursement of excise taxes related to severance payments made in connection with a change in control of us.

 

For additional information regarding severance benefits to which our named executive officers are entitled, see “— Potential Payments Upon Termination of Employment or Change of Control.”

 

Change in Control

 

The Sprint Nextel Change in Control Severance Plan, which became effective January 1, 2007, provides severance benefits to a select group of senior management, including Messrs. Saleh, Kelly, West and LeFave, in the event of a qualified termination of employment in connection with a transaction that results in a change in control of us. The plan is designed to increase the willingness of participants to remain with us notwithstanding the employment uncertainties related to a possible change in control of us. Mr. Forsee was not named as a participant in the plan because the HC&CC believes that his employment agreement provides appropriate benefits in the event of a transaction that results in a change in control of us.

 

For additional information regarding benefits upon a change in control of us to which our named executive officers are entitled, see “— Potential Payments Upon Termination of Employment or Change of Control.”

 

Clawback Policy

 

In December 2006, our board adopted a “clawback” policy. The policy provides that, in addition to any other remedies available to us under applicable law, we may recover (in whole or in part) any bonus, incentive payment, commission, equity-based award or other compensation received by certain executives, including our named executive officers, if the board or any committee of the board determines that such bonus, incentive payment, commission, equity-based award or other compensation is or was based on any financial results or operating metrics that were impacted by the officer’s knowing or intentional fraudulent or illegal conduct, and our board or a committee of the board determines that recovery is appropriate. We intend to incorporate this policy into our short and long-term incentive plans, and awards granted under those plans, beginning in 2007.

 

Stock Ownership Guidelines

 

In August 2005, we adopted stock ownership guidelines for our executive officers, other members of our senior management team and our outside directors. The board believes ownership by executives of a meaningful financial stake in our company serves to align executives’ interests with those of our shareholders. Our guidelines require that Mr. Forsee hold shares of our common stock with a value equal to five times his base salary, and that the other named executive officers currently employed by us hold shares of our common stock with a value equal to three times their respective base salaries. Eligible shares and share equivalents counted toward ownership include:

 

 

Persons subject to the stock ownership guidelines have five years to achieve the ownership requirement beginning on the later of January 1, 2006 and the date on which the person becomes subject to the ownership guidelines. As of December 31, 2006, each of our named executive officers had attained his respective ownership goal.

 

The table below summarizes the compensation of our named executive officers that is attributable to 2006. The named executive officers are our chairman, chief executive officer and president; our chief financial officer; and three other most highly compensated executive officers ranked by their total compensation in the table below (reduced by the amount in the Change in Pension Value and Nonqualified Deferred Compensation Earnings column). In addition, two additional executive officers whose employment ended in 2006 are included because their compensation exceeds that of other named executive officers.

 

Each of our named executive officers has an employment agreement with us. With respect to Messrs. Saleh, West, LeFave and Donahue, who were employed by Nextel prior to the Sprint-Nextel merger, we assumed the obligations under their respective employment agreements in connection with the merger.

 

For more information regarding our compensation philosophy and a discussion of the elements of our compensation program, see “— Compensation Discussion and Analysis.”

 

 

 

 

 

 

 

The table below summarizes awards under our short and long-term incentive plans, and other stock and option awards, to our named executive officers in 2006. These awards consisted of the following: