UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

 

SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No.      )

 

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þ  Definitive Proxy Statement

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o  Soliciting Material under Rule 14a-12

 

International Flavors & Fragrances Inc.

(Name of Registrant as Specified In Its Charter)

 

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

 

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International Flavors & Fragrances Inc.

 

521 West 57^th Street
New York, NY 10019

 

Dear Shareholder:

 

I am pleased to invite you to attend the 2011 Annual Meeting of Shareholders of International Flavors & Fragrances Inc. to be held on Tuesday, May 3, 2011 at 10:00 A.M. Eastern Time at our offices at 521 West 57^th Street, New York, New York 10019. (Attendees are requested to enter at 533 West 57^th Street.) Details regarding the business to be conducted are described in the accompanying Notice of Annual Meeting and Proxy Statement.

 

We take advantage of the Securities and Exchange Commission’s rule that allows us to furnish our proxy materials to our shareholders over the Internet. We believe electronic delivery helps expedite the receipt of materials and, by printing and mailing a smaller volume, helps lower our costs and reduce the environmental impact of our annual meeting materials. Beginning on March 16, 2011, a Notice of Internet Availability of Proxy Materials (which we refer to as the “Notice of Internet Availability”) or a full set of proxy materials will be mailed to our shareholders. The Notice of Internet Availability contains instructions on how to access the Notice of Annual Meeting, Proxy Statement and Annual Report to Shareholders online. If you receive a Notice of Internet Availability, you will not receive a printed copy of these materials, unless you specifically request one. The Notice of Internet Availability contains instructions on how to receive a paper copy of the proxy materials.

 

Your vote is very important to us. Whether or not you plan to attend the meeting, I hope that you will vote as soon as possible. You may vote over the Internet, by telephone or, if you request or receive a printed copy of the proxy materials, by completing, signing and mailing a proxy card.

 

Sincerely,

 

Douglas D. Tough
Chairman and Chief Executive Officer

 

March 11, 2011

 

 

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting To Be
Held on May 3, 2011.

 

 

The proxy statement and annual report to security holders are available at www.proxyvote.com.

 

2011 ANNUAL MEETING OF SHAREHOLDERS
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT

TABLE OF CONTENTS

 

INTERNATIONAL FLAVORS & FRAGRANCES INC.
521 West 57^th Street
New York, NY 10019

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

 

By Order of the Board of Directors,

 

Jodie Simon Friedman

Vice President (U.S.), Deputy General Counsel
and Assistant Secretary

 

Why am I receiving these proxy materials?

 

We are providing you with proxy materials, or access thereto, in connection with the solicitation by the Board of Directors of International Flavors & Fragrances Inc., a New York corporation (“IFF,” the “Company,” “we,” “us” or “our”), of proxies to be used at our 2011 Annual Meeting of Shareholders and at any adjournment or postponement. Shareholders are invited to attend the 2011 Annual Meeting, which will take place at 10:00 a.m. on Tuesday, May 3, 2011, and are requested to vote on the proposals described in this Proxy Statement.

 

A full set of printed proxy materials or a Notice of Internet Availability of Proxy Materials (“Notice of Internet Availability”) will be sent to record and beneficial shareholders starting on or around March 16, 2011, and the proxy materials, including the Notice of Annual Meeting, Proxy Statement and 2010 Annual Report, will be made available to shareholders on the Internet on March 11, 2011.

 

Why did I receive a Notice of Internet Availability of Proxy Materials instead of a full set of proxy materials? Alternatively, why did I receive a full set of printed proxy materials this year instead of a Notice of Internet Availability?

 

Pursuant to rules adopted by the Securities and Exchange Commission (“SEC”), we are providing access to the Company’s proxy materials over the Internet rather than printing and mailing the proxy materials to all shareholders. We believe electronic delivery will expedite the receipt of materials and will help lower our costs and reduce the environmental impact of our annual meeting materials. Therefore, a Notice of Internet Availability will be mailed to shareholders (or e-mailed, in the case of shareholders that have previously requested to receive proxy materials electronically) starting on or around March 16, 2011. The Notice of Internet Availability will provide instructions as to how shareholders may access and review the proxy materials on the website referred to in the Notice of Internet Availability or, alternatively, how to request that a copy of the proxy materials, including a proxy card, be sent to them by mail. The Notice of Internet Availability will also provide voting instructions. In addition, shareholders may request to receive the proxy materials in printed form by mail or electronically by e-mail on an ongoing basis for future shareholder meetings. Please note that, while our proxy materials are available at the IFF website referenced in the Notice of Internet Availability, no other information contained on the website is incorporated by reference in or considered to be a part of this document.

 

Certain of our record and beneficial shareholders may receive a full set of printed proxy materials this year instead of a Notice of Internet Availability either because that shareholder previously requested to receive materials in printed form or because the Company has the option to stratify its mailing by sending a Notice of Internet Availability to certain shareholders and a full printed set of proxy materials to others. The following questions and answers about the proxy materials and the Annual Meeting, while generally referring to the Notice of Internet Availability, apply equally to those shareholders receiving a full set of printed proxy materials.

 

What information is contained in these materials?

 

The information included in this Proxy Statement relates to proposals you will vote on at the 2011 Annual Meeting, the voting process, the compensation of directors and our most highly paid executive officers in 2010 and certain other information.

 

How may I obtain directions to attend the 2011 Annual Meeting of Shareholders and vote in person?

 

You may obtain directions to attend the meeting and vote in person by contacting the IFF operator at (212) 765-5500.

Why did I receive more than one Notice of Internet Availability?

 

You may receive multiple Notices of Internet Availability if you hold your shares of IFF’s common stock in multiple accounts (such as through a brokerage account and an employee benefit plan). If you are a participant in the Company’s Retirement Investment Fund Plan (401(k)) and have common stock in a plan account, you may receive a separate Notice of Internet Availability, and your proxy, when executed in accordance with the instructions in that Notice of Internet Availability, will serve as voting instructions for the plan trustee. If you hold your shares of IFF’s common stock in multiple accounts, you should vote your shares as described in each separate Notice of Internet Availability you receive.

 

If you are a shareholder of record, are currently receiving multiple Notices of Internet Availability and would like to request delivery of a single Notice of Internet Availability in the future, you may contact the Office of the Secretary, International Flavors & Fragrances Inc., 521 West 57 Street, New York, New York 10019 (telephone: (212) 765-5500). If your shares are held in “street name” and you would like to increase or decrease the number of Notices of Internet Availability delivered to your household in the future, you should contact your broker, bank or other custodian who holds the shares on your behalf.

 

What is the difference between a “shareholder of record” and a “street name” holder?

 

If your shares are registered directly in your name with IFF’s transfer agent, American Stock Transfer & Trust Company (“AST”), you are considered a “shareholder of record” or a “registered shareholder” of those shares. In this case, your Notice of Internet Availability has been sent to you directly by IFF.

 

If your shares are held in a stock brokerage account or by a bank, trust or other nominee or custodian, including shares you may own as a participant in the Company’s Retirement Investment Fund Plan (401(k)), you are considered the “beneficial owner” of those shares, which are held in “street name.” A Notice of Internet Availability has been forwarded to you by or on behalf of your broker, bank, trustee or other holder, who is considered the shareholder of record of those shares. As the beneficial owner, you have the right to direct your broker, bank, trustee or other holder of record as to how to vote your shares by following its instructions for voting.

 

Who is entitled to vote at the 2011 Annual Meeting?

 

IFF’s Board of Directors has established March 7, 2011 as the record date for the 2011 Annual Meeting of Shareholders. Only shareholders of record at the close of business on the record date are entitled to receive notice of the annual meeting and to vote at the 2011 Annual Meeting. At the close of business on March 7, 2011, there were 80,277,871 outstanding shares of IFF’s common stock. Each share of common stock is entitled to one vote on each matter properly brought before the 2011 Annual Meeting.

 

What will I vote on?

 

There are four proposals scheduled to be voted on at the 2011 Annual Meeting:

 

 

How many votes must be present to hold the 2011 Annual Meeting?

 

A “quorum” is necessary to hold the 2011 Annual Meeting. A quorum is established if the holders of a majority of the votes entitled to be cast by shareholders are present at the meeting, either in person or by

proxy. Abstentions and broker non-votes are counted as present for purposes of determining a quorum. Shares of common stock represented by executed proxies received by the Company will be counted for purposes of establishing a quorum at the meeting, regardless of how or whether such shares are voted on any specific proposal.

 

What are the voting recommendations of IFF’s Board of Directors?

 

IFF’s Board of Directors recommends that you vote your shares as follows:

 

 

How do I vote?

 

You may vote in several different ways:

 

In person at the 2011 Annual Meeting

 

You may vote in person at the 2011 Annual Meeting. You may also be represented by another person at the meeting by executing a proxy properly designating that person. If you are the beneficial owner of shares held in “street name,” you must obtain a legal proxy from your broker, bank or other holder of record and present it to the inspectors of election with your ballot to be able to vote at the meeting.

 

By telephone

 

You may vote by calling the telephone number specified on the website provided in the Notice of Internet Availability. Please have your Notice of Internet Availability handy when you call, and use any touch-tone phone to transmit your voting instructions.

 

By Internet

 

You may vote by using the Internet, www.proxyvote.com, to submit your voting instructions. Please have your Notice of Internet Availability handy when you go online. If you vote on the Internet, you may also request electronic delivery of future proxy materials.

 

By mail

 

You may vote by completing, signing, dating and returning a proxy card which will be mailed to you if you request delivery of a full set of proxy materials. A proxy card may also be mailed to you, at the Company’s option, beginning on or after the tenth day following the mailing of the Notice of Internet Availability. In either case, a postage-paid envelope will be provided along with the proxy card.

 

Telephone and Internet voting for shareholders of record will be available until 11:59 PM Eastern Time on May 2, 2011. A mailed proxy card must be received by May 2, 2011 in order to be voted at the Annual Meeting. If you are a 401(k) plan participant, telephone and Internet voting will be available until, or your mailed proxy card must be received by, 11:59 P.M. Eastern Time on April 28, 2011. The availability of telephone and Internet voting for beneficial owners of other shares held in “street name” will depend on your broker, bank or other holder of record and we recommend that you follow the voting instructions on the Notice of Internet Availability that you receive from them.

 

If you are mailed a set of proxy materials and a proxy card or voting instruction card and you choose to vote by telephone or by Internet, you do not have to return your proxy card or voting instruction card.

However, even if you plan to attend the 2011 Annual Meeting, we recommend that you vote your shares in advance so that your vote will be counted if you later decide not to attend the meeting.

 

How can I change my vote?

 

If you are a shareholder of record, you may revoke your proxy before it is exercised by:

 

 

If you are a beneficial owner of shares held in “street name”, you may submit new proxy voting instructions by contacting your bank, broker or other holder of record.

 

How are votes counted?

 

In the election of the directors (Item 1 of the Proxy Statement), your vote may be cast “FOR” or “AGAINST” a nominee, or you may “ABSTAIN”. Likewise, for the other proposals (Items 2 and 3 in this Proxy Statement), other than the “frequency” advisory vote (Item 4 in this Proxy Statement), your vote may be cast “FOR”, “AGAINST” or you may “ABSTAIN”. For the “frequency” advisory vote (Item 4 in this Proxy Statement), you may vote for future advisory votes on executive compensation to be held every “ONE”, “TWO”, or THREE” years or you may “ABSTAIN”.

 

Additional information concerning the required vote for each proposal, including the treatment of abstentions and broker non-votes, is included below under the heading “How many votes are needed to approve the proposals?”.

 

All executed proxies will be voted in accordance with the voting instructions contained in those proxies. If you are a shareholder of record and you furnish your proxy using the Internet, by phone or by returning a proxy card but do not indicate your voting preferences, the persons named in the proxy will vote your shares represented by that proxy in accordance with the recommendation of our Board of Directors as described under the heading “What are the voting recommendations of IFF’s Board of Directors?”.

 

Who will count the votes?

 

A representative from Broadridge Financial Solutions, Inc. will tabulate the votes and serve as the Company’s inspector of election at the 2011 Annual Meeting.

 

What is an abstention?

 

An “abstention” occurs when a shareholder executes a proxy using the Internet, by phone or by returning a proxy card, but he or she refrains from voting as to a particular matter by indicating that he or she “abstains” as to that matter.

 

What is a broker non-vote?

 

A “broker non-vote” occurs when a brokerage firm or other nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have authority to vote on a “non-routine” proposal without receiving voting instructions from the beneficial owner. To the extent that they

have not received voting instructions on a “non-routine” proposal, brokers report such number of shares as “non-votes”.

 

Under New York Stock Exchange (“NYSE”) rules, the election of directors (Item 1 in this Proxy Statement) will be treated as a “non-routine” proposal. In addition, the advisory vote on our executive compensation (Item 3 in this Proxy Statement) and the advisory “frequency” vote (Item 4 in this Proxy Statement) are both “non-routine” proposals. This means that if a brokerage firm holds your shares on your behalf, those shares will not be voted on the election of directors or the two advisory votes unless you provide instructions to that firm by voting your proxy.

 

The ratification of the selection of an independent registered public accounting firm (Item 2 in this Proxy Statement) is considered a “routine” proposal, and brokers generally may vote on behalf of beneficial owners who have not furnished voting instructions, subject to the rules of the NYSE concerning transmission of proxy materials to beneficial owners, and subject to any proxy voting policies and procedures of those brokerage firms.

 

In order to ensure that any shares held on your behalf by a brokerage firm or other organization are voted in accordance with your wishes, we encourage you to provide instructions to that firm or organization by voting your proxy.

 

How many votes are needed to approve the proposals?

 

The affirmative vote of a majority of the votes cast is required for the election of directors, which means that a nominee must receive a greater number of votes “FOR” his or her election than votes “AGAINST” in order to be elected. Votes cast do not include any abstentions or broker non-votes with respect to a nominee’s election and, therefore abstentions and broker non-votes will have no effect on the outcome of the elections. The Company’s By-laws include this majority voting standard for uncontested elections and provide that any director nominee in an uncontested election who does not receive an affirmative majority of votes cast must promptly offer his or her resignation. A description of the process which, under our By-laws and Corporate Governance Guidelines, will be followed if such an event occurs, is included in this Proxy Statement under the heading “Proposals Requiring Your Vote-Item 1-Election of Directors.”

 

The affirmative vote of a majority of the votes cast is required to ratify the selection of PricewaterhouseCoopers LLP (“PwC”) as the Company’s independent registered public accounting firm for 2011. Votes cast do not include any abstentions or broker non-votes with respect to this proposal and, therefore abstentions and broker non-votes will have no effect on the outcome of this proposal.

 

Since the vote regarding out executive compensation and the vote regarding the frequency of future votes on executive compensation are advisory in nature and non-binding on the Company, there is no set “approval” requirement; however, the votes cast in connection with the vote on our executive compensation and the vote regarding the frequency of future votes on executive compensation will be considered in the manner described in each of the proposals.

 

Where can I find the voting results of the 2011 Annual Meeting?

 

IFF will announce preliminary voting results at the 2011 Annual Meeting and will publish final results in a Current Report on Form 8-K to be filed with the SEC within 4 business days of the 2011 Annual Meeting.

 

Do I need an admission ticket to attend the 2011 Annual Meeting?

 

You will need either an admission ticket or proof that you own IFF shares to enter the 2011 Annual Meeting. If you plan to attend the meeting and have received a proxy card, please bring the admission ticket accompanying the proxy card and check the box on that proxy card indicating that you will be attending. If you are a shareholder of record and you vote by Internet or telephone, you may also indicate if you plan to attend the meeting. If you do not have an admission ticket, you must bring evidence of your ownership of

IFF stock (which, if you are a beneficial holder, can be obtained from your bank, broker or other record holder of your shares), in order to be admitted. You may also request a ticket by writing to the Office of the Secretary, International Flavors & Fragrances Inc., at the address noted above. Evidence of your ownership must accompany your letter. You must also present a form of personal photo identification in order to be admitted to the meeting.

 

How do I obtain a separate Notice of Internet Availability if I share an address with other shareholders?

 

When more than one shareholder of record of IFF’s common stock shares the same address, we may deliver only one Notice of Internet Availability to that address unless we have received contrary instructions from one or more of those shareholders. Similarly, brokers and other nominees holding shares of IFF’s common stock in “street name” for more than one beneficial owner with the same address may deliver only one Notice of Internet Availability to that address if they have received consent from those beneficial owners. We will deliver promptly upon written or oral request a separate Notice of Internet Availability to any shareholder, including a beneficial owner of shares held in “street name,” at a shared address to which a single Notice of Internet Availability was delivered. To receive additional Notices of Internet Availability, or if you are a shareholder of record and would like to receive separate Notices of Internet Availability for future annual meetings, you may call or write the Office of the Secretary, International Flavors & Fragrances Inc., 521 West 57 Street, New York, New York 10019 (telephone: 212-765-5500). If you are a beneficial owner of shares held in “street name” and would like to receive separate Notices of Internet Availability, you may contact your bank, broker or other holder of record. In addition, if you are a shareholder of record who shares the same address with another shareholder of record and you currently receive separate copies of the Notice of Internet Availability, you may write or call the Office of the Secretary as indicated above to request that a single Notice of Internet Availability be delivered to that address.

 

Who pays for the cost of this proxy solicitation?

 

IFF will pay the entire cost of soliciting proxies. In addition to solicitation by mail, proxies may be solicited on the Company’s behalf by directors, officers or employees in person, by telephone, by facsimile or by electronic mail. The Company has retained Georgeson Inc. to assist in proxy solicitation for a fee of $7,500 plus expenses. The Company will reimburse banks, brokers and other custodians, nominees and fiduciaries for their costs in sending proxy materials to the beneficial owners of the Company’s common stock.

 

How can I obtain a copy of IFF’s Annual Report on Form 10-K for the year ended December 31, 2010?

 

IFF will on a request in writing provide without charge to each person from whom proxies are being solicited for the 2011 Annual Meeting a copy of our Annual Report on Form 10-K for the year ended December 31, 2010, including the financial statements and any schedules, required to be filed with the Securities and Exchange Commission, excluding exhibits. We may impose a reasonable fee for providing the exhibits to the Annual Report on Form 10-K. Requests should be made to the Office of the Secretary, International Flavors & Fragrances Inc., 521 West 57 Street, New York, N.Y. 10019. IFF’s Annual Report on Form 10-K is also available free of charge through the Investor Relations — SEC Filings link on our website, www.iff.com.

 

Our Board of Directors has responsibility for overseeing the management of the Company. The Board has adopted Corporate Governance Guidelines which summarize the practices the Board will follow with respect to Board membership and selection, responsibilities of directors, Board meetings, evaluation of the Chief Executive Officer (“CEO”), succession planning, Board committees and director compensation. In December 2010, and subsequently in February 2011, the Nominating and Governance Committee and the Board reviewed and revised the Corporate Governance Guidelines. A copy of the Company’s Corporate Governance Guidelines is available through the Investor Relations — Corporate Governance link on the Company’s website, www.iff.com.

 

To ensure independence and breadth of needed expertise and diversity of our Board of Directors, our Corporate Governance Guidelines require our Board to be comprised of between seven and thirteen members, a majority of whom are required to be independent in accordance with NYSE standards. Our Board is currently comprised of 13 members, 12 of whom are independent, and all Board committees are composed solely of independent directors. Pursuant to the Corporate Governance Guidelines, our Board is free to choose its Chairman of the Board in any way that seems best for the Company at any time and we believe that this flexibility allows our Board to re-evaluate the particular leadership needs of the Company at any point in time based on the particular facts and circumstances then affecting our business. As a result, the Board does not have a policy that requires the roles of Chairman of the Board and CEO to be separate or, if the Board determines at any time that these roles should be separate, a policy that dictates whether the Chairman of the Board should be selected from the non-employee directors or an employee of the Company. Because our Corporate Governance Guidelines do not require separation of the Chairman and CEO positions, the Board has also established the role of independent Lead Director as an integral part of our Board leadership structure to serve as the liaison between the independent directors and the Chairman and CEO. The role and responsibilities of our Lead Director are described below under the heading “Lead Director.”

 

On October 1, 2009, Douglas D. Tough, who was a Board member at the time, assumed the role of non-executive Chairman, with the plan that he would assume the additional role of CEO when his contract with his then employer expired, no later than the first quarter of 2010. On March 1, 2010, Mr. Tough assumed the additional role of CEO. As our prior Chairman and Chief Executive Officer resigned from these positions effective September 30, 2009, in the interim, beginning on October 1, 2009, our Board established a temporary Office of the CEO, which was comprised of three executive officers: our Executive Vice President and Chief Financial Officer (“CFO”), our Group President, Fragrances, and our Group President, Flavors. Knowing that this arrangement would be in place only on a temporary basis, the Board chose to establish the temporary Office of the CEO comprised of these three executive officers because the Board believed that this structure best suited the needs of the Company in terms of filling the CEO position with persons most familiar with the Company until Mr. Tough was able to assume the role and responsibilities of the CEO, while also allowing these executives to maintain and fulfill the responsibilities associated with their current positions. The temporary Office of the CEO was disbanded when Mr. Tough assumed the role as our CEO on March 1, 2010.

 

With regard to the currently combined positions of Chairman and CEO, we believe that this leadership structure has been effective for the Company, and this Board leadership structure is commonly utilized by other public companies in the United States. We believe that combining the roles of Chairman and CEO provides us with a distinct leader and allows us to present a single, uniform voice to our customers, business partners, shareholders and employees. We also believe that designating an independent Lead Director provides the opportunity for many of the benefits similar to having an independent Chairman and provides an appropriately balanced form of leadership for our Company. In addition, our Board is otherwise comprised solely of independent directors who together oversee the Company’s business. Our independent

directors evaluate the performance of our CEO on an annual basis through an objective procedure developed by our wholly independent Nominating and Governance Committee. If at any point in time the Board feels that its current leadership structure may be better served by separating the roles of Chairman and CEO, it may then determine to separate these positions. However, at this point in time, we believe that the current board leadership structure is the best structure for our Company and our shareholders.

 

Our Lead Director is elected by and from our independent Board members and has clearly delineated and comprehensive duties. The role of our Lead Director includes (i) presiding over meetings of non-employee directors and providing prompt feedback regarding those meetings to the Chairman and CEO, (ii) providing suggestions for Board meeting agendas, with the involvement of our Chairman and CEO and input from other directors, (iii) assuring that the Board and the Chairman and CEO understand each other’s views on all critical matters, (iv) monitoring significant issues occurring between Board meetings and assuring Board involvement when appropriate, (v) serving as a sounding board for our Chairman and CEO and (vi) ensuring, in consultation with our Chairman and CEO, the adequate and timely exchange of information and supporting data between the Company’s management and the Board.

 

Our Board has an Audit Committee, a Compensation Committee and a Nominating and Governance Committee, each of which operates under a written charter adopted by the Board. Each committee reviews its charter at least annually and recommends charter changes to the Board as appropriate. In December 2010, each of the Audit Committee, the Compensation Committee and the Nominating and Governance Committee reviewed and revised its charter. The revised charter of each committee was subsequently approved by the Board. Under the charter of each committee, the committee annually reviews the committee’s own performance. A current copy of each of the Audit Committee, Compensation Committee and Nominating and Governance Committee charters is available through the Investor Relations — Corporate Governance link on the Company’s website, www.iff.com.

 

The table below provides the current membership for each of our Board committees and identifies our current Lead Director.

 

 

 

 

Our Board of Directors oversees the Company’s risk management processes and, pursuant to the charter of the Audit Committee, the Audit Committee assists the Board in reviewing and assessing with management this process, the Company’s risk profile, and the policies and procedures put in place to manage such risks, in particular as they relate to financial risk assessment and financial risk management. The Audit Committee reports to the full Board, which considers the Company’s risk profile and its general risk management strategy. The Board and the Audit Committee focus on the most significant risks facing the Company, including operational risk, financial risk, credit risk and liquidity risk, as well as the Company’s general risk management strategy, and also seek to ensure that risks undertaken by the Company are consistent with the Board’s approach to risk. While the Board oversees the Company’s risk management, Company management is primarily responsible for day-to-day risk management processes, and reports to either the full Board or the Audit Committee, as requested by the Board, regarding these processes. We believe this division of responsibility is the most effective approach for addressing the Company’s risk management.

 

For a discussion of our Compensation Committee’s role in risk management oversight in connection with our compensation structure for our executive and non-executive employees, see below under the heading “Assessment of Incentive Risk”.

 

Our Audit Committee oversees and reviews the Company’s financial reporting process and the integrity of the Company’s financial statements and related financial information, the Company’s internal control environment, systems and performance, the audit process of the Company’s independent accountant and the qualifications, independence, appointment and performance of the independent accountant, the process and performance of the Company’s internal audit function, the Company’s financial risk management processes, and the procedures for monitoring compliance with laws and regulations and with the Company’s Code of Business Conduct and Ethics.

 

Our Board has determined that each of Mr. Howell, Ms. Hudson, Mr. Martinez and Mr. Morrison is an “audit committee financial expert” under applicable rules of the SEC and has accounting or related financial management expertise as required by applicable NYSE rules. The Board has also determined that all members of the Audit Committee meet the financial literacy standards of the NYSE. None of our Audit Committee members currently serves on the audit committee of more than three public companies. The Audit Committee has established, together with members of the Company’s management, a hiring policy for employees or former employees of the Company’s independent accountant, consistent with the requirements of the NYSE. Under procedures adopted by the Audit Committee, the Audit Committee also reviews and pre-approves all audit and non-audit services performed by the Company’s independent accountant. The Audit Committee may, when it deems appropriate, delegate authority to one or more Audit Committee members or subcommittees.

 

Our Compensation Committee is responsible for establishing executive officer compensation, for making recommendations to the full Board concerning chief executive officer and director compensation and for overseeing the compensation and benefit programs for other employees.

 

Role of the Compensation Committee

 

Under our Compensation Committee’s charter, the Compensation Committee is responsible for assisting the Board in ensuring that long term and short term compensation provide performance incentives to management, and that compensation plans are appropriate and competitive and reflect the goals and performance of management and the Company. As discussed in more detail under the heading

“Compensation Discussion and Analysis”, the Compensation Committee considers, as appropriate and as contemplated by Company policies, plans and programs, Company-wide performance against applicable annual and long term performance goals pre-established by the Compensation Committee. If the Compensation Committee deems it appropriate, it may delegate any of its responsibilities to one or more Compensation Committee members or subcommittees.

 

The Compensation Committee works with the Board, other Board committees and the Company’s senior management, and meets regularly in executive session, without Company management present. The Compensation Committee establishes an annual schedule for matters to be considered by it, including approving our senior executives’ performance objectives and taking compensation actions. The Compensation Committee makes recommendations to the Board concerning the compensation and benefits of non-employee directors, after reviewing and considering recommendations from its independent compensation consultant, and makes recommendations to the independent directors of the Board regarding the chief executive officer’s compensation. The Compensation Committee also reviews and adopts, and where necessary or appropriate, recommends for Board and/or shareholder approval, our compensation and benefits policies, plans and programs and amendments thereto, taking into account economic and business conditions, and comparative/competitive compensation and benefit performance levels. Eligible employees and the type, amount and timing of compensation and benefits under our compensation and benefits policies, plans and programs are also determined by the Compensation Committee. In fulfilling its responsibilities, the Compensation Committee conducts or authorizes studies and surveys on compensation practices in relevant industries to maintain the Company’s competitiveness and ability to recruit and to retain highly qualified personnel. At least every two years, with the assistance of an experienced independent compensation consultant, the Compensation Committee conducts a survey of comparative/competitive executive officer compensation. The Compensation Committee is authorized to retain compensation consultants or advisors to assist it in evaluating CEO, senior executive and outside director compensation. The Compensation Committee has the sole authority to retain and to terminate any such consultants or advisors, including the sole authority to approve their fees and other retention terms. The Compensation Committee’s independent compensation consultant for 2010 was W.T. Haigh & Company.

 

Assessment of Incentive Risk

 

In the fourth quarter of 2010, the Compensation Committee, working with its independent compensation consultant, conducted a risk assessment of the Company’s executive compensation programs. The goal of this assessment was to determine whether the general structure of the Company’s executive compensation policies and programs, annual and long term performance goals and/or the administration of the programs posed any material risks to the Company. In addition, with the input of the Company’s Senior Vice President, Human Resources, the Committee reviewed compensation programs and policies below the executive level in a Company-wide risk assessment. The Committee shared the results of this review with our full Board of Directors as part of the Committee’s report to the Board. For 2011 compensation policies, programs and annual and long term performance goals, the Committee intends to follow this same approach.

 

The Committee determined that the performance goals and incentive plan structures established in 2010 would not result in excessive risk that inappropriate business decisions or strategies would be made or implemented by our senior executives and/or employees generally. The approved goals under our Annual Incentive Plan (“AIP”) and Long Term Incentive Plan (“LTIP”) (and similar programs established for non-executive employees) are entirely consistent with our financial plans and strategies and operating model reviewed with our Board, which monitors operational and financial performance and material business decisions and initiatives throughout the year. In addition, incentive awards have generally been made based on a review of achievement against certain financial metrics, which lessens the risk associated with relying on any single financial metric. We believe these factors encourage our executive officers to manage the Company in a prudent manner.

Role of Compensation Consultants

 

As discussed in more detail in this Proxy Statement under the heading “Compensation Discussion and Analysis — Role of Outside Advisors and Management”, the Compensation Committee directly engaged W.T. Haigh & Company as its independent compensation consultant to conduct a “benchmarking” survey in 2010. The Compensation Committee also directly engaged W.T. Haigh & Company for recommendations on executive and non-employee director compensation in 2010 and continues to do so in 2011. Our CEO and our Senior Vice President, Human Resources work with the Compensation Committee and the Committee’s independent compensation consultant. W.T. Haigh & Company does not provide any non-executive compensation related services to the Company. Management also retains its own outside compensation consultants. In 2010, management retained Steven Hall & Partners for advisory services in connection with executive compensation plans, including the Company’s post-employment benefits, and Buck Consultants for actuarial work, plan structure and similar services for the Company’s retirement plans.

 

Role of Management

 

Our Compensation Committee relies on management for legal, tax, compliance, finance and human resource recommendations, data and analysis for the design and administration of the Company’s compensation, benefits and perquisite programs for our senior executives. The Compensation Committee combines this information with the recommendations and information from its independent compensation consultant.

 

Our CEO and Senior Vice President, Human Resources, generally attend Compensation Committee meetings. Neither of them participates in any decisions relating to his or her own compensation. CEO performance and compensation are discussed by the Compensation Committee in executive session, with advice and participation from the Company’s independent compensation consultant where and as requested by the Committee. Our CEO and Senior Vice President, Human Resources, without the presence of any other members of senior management, actively participate in the performance and compensation discussions for our senior executives, including making recommendations to the Compensation Committee as to the amount and form of compensation.

 

Our Nominating and Governance Committee monitors Board composition and director qualification requirements, identifies qualified individuals to serve on the Board, recommends to the Board a slate of nominees for election by the shareholders at the annual meeting of shareholders, reviews potential Board candidates (as further described below under the heading “Director Candidates”), reviews management succession plans and monitors corporate governance issues. In addition, this Committee has developed a process for conducting an annual evaluation of the effectiveness of the Board as a whole, as well as for reviewing the contributions of individual directors.

 

The Board has affirmatively determined that each current director and nominee for director, other than Mr. Tough, has no material relationship with the Company affecting his or her independence as a director, and that each is “independent” within the meaning of the Board’s independence standards, which are the same categorical independence standards as established by the New York Stock Exchange in Section 303A.02 of the NYSE Listed Company Manual. In making each of these independence determinations, the Board considered and broadly assessed, from the standpoint of materiality and independence, all of the information provided by each director or nominee in response to detailed inquiries concerning his or her independence and any direct or indirect business, family, employment, transactional or other relationship or affiliation of such director with the Company. Our review of the information provided in response to these inquiries indicated that none of our independent directors engaged in any transactions, relationships or arrangements that might affect the determination of their independence or which would require Board review. The Board has also determined that each member of the Audit Committee, Compensation Committee and Nominating and Governance Committee is independent under these

independence standards and, with respect to each member of the Audit Committee, is also independent under the independence criteria required by the SEC for audit committee members and, with respect to each member of the Compensation Committee, is an “outside director” pursuant to the criteria established by the Internal Revenue Service and is a “non-employee director” pursuant to criteria established by the SEC.

 

Our Board of Directors has adopted a written policy for the review and the approval or ratification of any related person transaction. This policy is available through the Investor Relations — Corporate Governance link on the Company’s website, www.iff.com. The policy defines “related person” and “related person transaction” in a detailed manner. Under the policy, a related person transaction requires the approval or ratification of the Nominating and Governance Committee. The Audit Committee will be consulted if accounting issues are involved in the transaction. Under the policy, a related person transaction will be approved or ratified only if the Nominating and Governance Committee determines that it is being entered into in good faith and on fair and reasonable terms which are in the interest of the Company and its shareholders. No related person may participate in the review of a transaction in which he or she may have an interest. In addition, except for non-discretionary contributions made pursuant to the Company’s matching contributions program, a charitable contribution by the Company to an organization in which a related person is known to be an officer, director or trustee will be subject to approval or ratification under the policy by the Nominating and Governance Committee.

 

There were no “related person transactions” since the beginning of 2010 involving any director, director nominee or executive officer of the Company, any known 5% shareholder of the Company or any immediate family member of any of the foregoing persons (together “related persons”). A “related person transaction” generally means a transaction involving more than $120,000 in which the Company is a participant and in which a related person has a direct or indirect material interest under SEC rules.

 

Our Board of Directors held six meetings during 2010. The Audit Committee held six meetings, the Compensation Committee held six meetings and the Nominating and Governance Committee held six meetings during 2010. Each of our directors attended at least 75% of the total meetings of the Board and Committees on which he or she served during 2010. All of our directors who were serving on the day of last year’s Annual Meeting attended that meeting, other than a director who retired that day. Under our Corporate Governance Guidelines, unless there are mitigating circumstances, such as medical, family or business emergencies, Board members should endeavor to participate in person in all Board meetings and all Committee meetings of which the director is a member and to attend the Company’s annual meeting of shareholders. The non-management directors of the Company, all of whom are currently independent, meet in executive session, without the presence of any corporate officer or member of management, in conjunction with regular meetings of the Board. During 2010, the non-management directors met in executive session as part of every Board meeting.

 

Shareholders and other parties interested in communicating directly with the Lead Director, the non-management directors as a group or all directors as a group, may do so by writing to the Lead Director or the Non-Management Directors or the Board of Directors, in each case, c/o Secretary, International Flavors & Fragrances Inc., 521 West 57th Street, New York, New York 10019. The Nominating and Governance Committee has approved a process for handling letters received by the Company and addressed to the Lead Director, the non-management members of the Board or the entire Board. Under that process, the Secretary of the Company forwards to the Lead Director all correspondence received, without opening or screening.

 

Our Nominating and Governance Committee has established a policy regarding the consideration of director candidates, including candidates recommended by shareholders. The Nominating and Governance Committee, together with other Board members, will from time to time, as appropriate, identify the need for new Board members. Proposed director candidates who would satisfy the criteria described below and who otherwise qualify for membership on the Board are identified by the Nominating and Governance Committee. In identifying candidates, the Nominating and Governance Committee seeks input and participation from other Board members and other appropriate sources so that all points of view can be considered and so that the best possible candidates can be identified. The Nominating and Governance Committee may also engage a search firm to assist it in identifying potential candidates. Members of the Nominating and Governance Committee and other Board members, as appropriate, will interview selected director candidates, evaluate the director candidates and determine which candidates are to be recommended by the Nominating and Governance Committee to the Board.

 

Under the Company’s policy regarding director candidates, if a shareholder wishes to submit a director candidate for consideration by the Nominating and Governance Committee, the shareholder must submit that recommendation to the Nominating and Governance Committee, c/o the Secretary of the Company, in writing, not less than 120 days nor more than 150 days prior to the anniversary date of the prior year’s annual meeting. The request must be accompanied by the same information concerning the director candidate and nominating shareholder as described in Article I, Section 3(a) of the Company’s By-laws for shareholder nominations for director to be presented at an annual shareholders meeting. The Nominating and Governance Committee may also request any additional background or other information from any director candidate or recommending shareholder as it may deem appropriate.

 

Board candidates are considered based on various criteria which may change over time and as the composition of the Board changes. At a minimum, our Nominating and Governance Committee considers the following factors as part of its review of all director candidates and in recommending potential director candidates to the Board:

 

 

To ensure independence and to provide the breadth of needed expertise and diversity of our Board, our Corporate Governance Guidelines require our Board to be comprised of between seven and thirteen members. The Board periodically reviews its size and makes appropriate adjustments. While the Nominating and Governance Committee has not adopted a formal diversity policy with regard to the selection of director nominees, diversity is one of the factors that the Committee considers in identifying director nominees. As part of this process, the Committee evaluates how a particular candidate would strengthen and increase the diversity of the Board in terms of how that candidate may contribute to the Board’s overall balance of perspectives, backgrounds, knowledge, experience, skill sets and expertise in substantive matters pertaining to the Company’s business. The Committee also annually reviews each current board member’s suitability for continued service as a director of the Company. In addition, in the event that a current director has a significant change in status, including changes that may impact the diversity of the Board, such as changes in employment or skill set, the director is required to report that change to the Board so that the Nominating and Governance Committee can review the change and make a recommendation to the full Board regarding the continued appropriateness of that director’s Board membership.

 

We have adopted a Code of Business Conduct and Ethics (the “Code”) that applies to our chief executive officer, principal financial officer, principal accounting officer and to all other Company directors, officers and employees. A copy of the Code is available through the Investor Relations — Corporate Governance link on our website, www.iff.com. Only the Board of Directors or the Audit Committee of the Board may grant a waiver from any provision of the Code in favor of a director or executive officer, and any such waiver will be publicly disclosed. The Company will disclose substantive amendments to and any waivers from the Code granted to the Company’s chief executive officer, principal financial officer or principal accounting officer, as well as any other executive officer or director, on the Company’s website, www.iff.com.

 

Annual Director Cash and Equity Compensation

 

Each non-employee director who served during 2010 received an annual retainer of $175,000 relating to the service year from the 2010 Annual Meeting of Shareholders to the 2011 Annual Meeting. Of this amount, we paid $75,000 in cash in November, and we paid $100,000 in Restricted Stock Units (“RSUs”) issued under our shareholder-approved stock award and incentive plan on the date of the 2010 Annual Meeting of Shareholders. The RSUs vest on the third anniversary of the grant date and are subject to accelerated vesting upon a change in control. The number of RSUs granted, 1,987, was based on the closing market price of the Company’s common stock on the grant date. Once the RSUs vest, each non-employee director is required to defer all of the vested RSUs under our Deferred Compensation Plan until he or she separates from service on our Board of Directors. Given that RSUs will be deferred until each director’s separation from service and each director’s stock ownership will increase during his or her term of service, there are no minimum share ownership requirements applicable to our directors. Any director who is an employee of the Company does not receive any additional compensation for his or her service as a director. The $75,000 cash portion of Mr. Tough’s annual retainer for service as a non-employee director from the date of the 2009 Annual Meeting of Shareholders until he became our CEO on March 1, 2010 was prorated based on the number of days he served as a non-employee director. In 2010, the Company paid $12,123 in cash to Mr. Tough for his service as a non-employee director (with the remainder of $50,959 having been paid to him in 2009).

 

Annual Committee Chair and Lead Director Compensation

 

During 2010, the Chairperson of the Audit Committee received an annual cash retainer of $15,000. The Chairperson of each of the Compensation Committee and Nominating and Governance Committee each received an annual cash retainer of $10,000. The Lead Director received an annual cash fee of $15,000.

 

Participation in the Company’s Deferred Compensation Plan

 

Non-employee directors are eligible to participate in our Deferred Compensation Plan (“DCP”). In addition to mandatory deferral of vested RSUs granted in or after 2008, a non-employee director may defer all or a portion of his or her cash compensation, as well as any RSUs granted to him or her prior to 2008, subject to tax law requirements. Additional details regarding our DCP may be found in this Proxy Statement under the heading “Non-Qualified Deferred Compensation”. Non-employee directors are not entitled to matching contributions or the 25% premium on deferrals into our common stock fund described in that section. Earnings on any deferrals into the interest bearing account of the DCP were not above market and thus are not included in the Director Compensation Table below.

 

Other

 

We reimburse our non-employee directors for travel and lodging expenses incurred in connection with their attendance at Board and Committee meetings, our shareholder meetings and other Company-related activities.

 

In addition, each current and former director, including any former employee directors, who began service as a director before May 14, 2003 is eligible to participate in our Director Charitable Contribution Program (“DCCP”). Under the DCCP, directors are paired together and the Company purchased joint life insurance policies on the lives of each paired set of participating directors. The Company is the owner and sole beneficiary of the policies and is responsible for payment of any premiums. In 2009, the insurance policies were restructured so that no further premiums are required. Assuming no changes to the current Federal tax laws relating to charitable contributions, and if certain other assumptions are met, the Company expects to recover all of the premium costs that have been paid by the Company and the after-tax cost of the Company’s anticipated charitable contributions pursuant to this program. After a covered director dies, the Company will donate $500,000 to one or more qualifying charitable organizations previously designated by the deceased director.

Directors first elected on or after May 14, 2003 do not participate in the DCCP. However, all current directors, including those who participate in our DCCP, are eligible to participate in our Matching Gift Program. Under this Program, it is The IFF Foundation’s intent to match, on a dollar for dollar basis, contributions to qualifying charitable organizations up to a maximum of $10,000 per person per year.

 

Changes to Directors’ Compensation for 2011

 

In December 2010, our Board of Directors, based on the recommendation of the Compensation Committee’s independent compensation consultant and the Compensation Committee, approved an increase in the cash portion of the annual retainer for non-employee directors from $75,000 to $100,000, effective with the service term commencing as of the date of the 2011 Annual Meeting. The increase in cash retainer was made based on the fact that (i) the director’s retainer has not been increased since 2007 and (ii) the total retainer was positioned below the median versus the Consumer Peer Group based on a November 2010 review conducted by the independent consultant. The Board also approved an increase in the annual retainer of the Chairman of the Compensation Committee, from $10,000 to $15,000, effective as of the date of the 2011 Annual Meeting. This change was made to reflect the increasing service requirements of our Compensation Committee Chairman and to reflect peer company practices for Compensation Committee Chairperson compensation.

 

The following table details the compensation paid to or earned by our non-employee directors for the year ended December 31, 2010.

 

 

 

 

 

Directors and Executive Officers

 

The following table sets forth certain information regarding the beneficial ownership of the Company’s Common Stock as of March 3, 2011, by each director and nominee for director, the persons named in the Summary Compensation Table in this Proxy Statement and all directors and executive officers as a group.

 

 

See footnotes on the following page.

Certain Other Owners

 

The following table sets forth information regarding each person known by us to be the beneficial owner of more than 5% of the Company’s outstanding Common Stock as of March 3, 2011 based on a review of filings with the SEC. Unless otherwise indicated, beneficial ownership is direct.

 

 

 

 

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers to file reports of their initial holdings of IFF common stock and any subsequent transactions in Company shares with the SEC and to provide the Company with copies of all such filings. The Company must report any failures to file by the required dates. Based on a review of our 2010 records we believe that our directors and officers who were subject to Section 16 met all applicable filing requirements.

 

Our By-laws provide for the indemnification of our officers and directors against certain liabilities that could potentially be incurred by them in connection with the performance of their duties to the Company and its subsidiaries. Our By-laws authorize the Company to provide indemnification and advancement rights by separate agreement to certain persons, including our officers and directors, and our Board has approved a form of indemnification agreement to be entered into with each of our directors and officers. The Company also maintains directors and officers liability indemnification insurance coverage. This insurance covers director and officers individually where exposures exist, other than those for which the Company is able to provide direct or indirect indemnification. The current policies run from March 18, 2010 through March 18, 2011 and are in the process of being renewed. The primary carrier under the current policy is ACE American Insurance Company. The current annual premium for this program is $936,150. No sums have been paid under this coverage to the Company or any director or officer, nor have any claims for reimbursement been made under this policy.

 

In order for a shareholder proposal to be considered for inclusion in IFF’s proxy materials for next year’s annual meeting of shareholders, the Secretary of the Company must receive the written proposal no later than November 11, 2011. Under Article I, Section 3 of the Company’s By-laws, in order for a shareholder to submit a proposal or to nominate any director at an annual meeting of shareholders, the shareholder must give written notice to the Secretary of the Company not less than 60 days nor more than 90 days prior to the anniversary date of this year’s annual meeting of shareholders. The notice must also meet all other requirements contained in the Company’s By-laws, including the requirement to contain specified information about the proposed business of the candidate and the shareholder making the proposal. If the next annual meeting is scheduled on a date that is not within 30 days before or after the anniversary date of this year’s annual meeting, the Secretary of the Company must receive the notice given by the shareholder not later than the close of business on the tenth day following the day on which the notice of the date of next year’s annual meeting is mailed or public disclosure of the date of next year’s annual meeting is made, whichever occurs first.

 

Our Board of Directors currently has thirteen members. Each of these Board members, other than Peter A. Georgescu, is standing for election to hold office until the next annual meeting of shareholders.

 

On February 1, 2011, our Board amended the provisions of the Company’s By-laws setting out eligibility requirements for our directors in order to transition to a system whereby the maximum time period for which a director may serve as a director is based on the director’s years of service instead of an age-based standard. The By-laws were amended to provide that no director of the Company, other than a director who is a Grandfathered Person (defined below) or a director who is also an officer of the Company, will be eligible to continue to serve as a director of the Company after the date of, or to stand for the re-election at, an annual meeting of shareholders, if as of the date of that annual meeting the person shall have served as a director of the Company for twelve consecutive full annual terms. Additionally, the amendment provides that no director who is a Grandfathered Person will be eligible to continue to serve as a director of the Company after the date of, or stand for the re-election at, the annual meeting of shareholders following the date of his or her 72nd birthday. A “Grandfathered Person” is defined as any person serving as a director of the Company as of February 1, 2011 whose age as of that date plus the number of full annual terms that such person served as a director of the Company as of that date is equal to or exceeds 75. The following directors of the Company are Grandfathered Persons who are standing for election: Margaret Hayes Adame, J. Michael Cook and Arthur C. Martinez. Mr. Georgescu, who is also a Grandfathered Person under the amended By-laws, is 72 as of the date of this Proxy Statement; therefore, he will retire as a director as of the 2011 Annual Meeting. Prior to this amendment to our By-laws, none of the directors of the Company was eligible to continue to serve as a director of the Company after the date of, or stand for the re-election at, the annual meeting of stockholders following the date of his or her 72nd birthday.

 

The affirmative vote of a majority of the votes cast is required for the election of directors, which means that a nominee must receive a greater number of votes “FOR” his or her election than votes “AGAINST” in order to be elected. Votes cast do not include any abstentions or broker non-votes with respect to a nominee’s election.

 

Our By-laws include this majority voting standard for uncontested elections and provide that any director nominee in an uncontested election who does not receive an affirmative majority of votes cast must promptly offer his or her resignation. If this situation were to occur, the process outlined in our By-laws and Corporate Governance Guidelines would be followed and generally the Nominating and Governance Committee of our Board of Directors would consider the resignation offer and make a recommendation to the Board. The independent directors on the Board would then evaluate and determine whether to accept or reject the resignation based on the relevant facts and circumstances. Any director who so tenders a resignation will not participate in the deliberations of either the Nominating and Governance Committee or the independent directors. The Board of Directors will promptly disclose its decision and the basis for that decision in a filing with the SEC. Under our By-laws, a plurality voting standard would apply in a contested director election, which would occur if, as of the record date for the meeting where directors are to be elected, the number of director nominees exceeds the number of directors to be elected at such meeting.

 

Each nominee elected as a director will continue in office until his or her successor has been elected and qualified, or until his or her earlier death, resignation or retirement. Each nominee has indicated that he or she will serve if elected. We expect each nominee for election as a director to be able to stand for election and to serve if elected. If any nominee is not able to serve (which is not anticipated), proxies will be voted in favor of the remainder of those nominated and may be voted for substitute nominees, unless the Board chooses to reduce the number of directors serving on the Board.

 

The principal occupation and certain other information regarding the background and qualifications of the nominees, including the experience and skills that led to the selection of that nominee for membership on our Board, are set forth on the following pages. All of the nominees are presently directors of the Company and all of the nominees, except for Andreas Fibig and Dale F. Morrison, were elected by our shareholders at the Company’s 2010 Annual Meeting of Shareholders. In March 2011, Mr. Fibig and Mr. Morrison were appointed by the Board to fill newly-created Board positions. Both new directors were

recommended to the Nominating and Governance Committee following a requested search by an independent global search firm and interviews by the Lead Director (who is a member of that Committee) and the Chairman of the Board. They were both recommended for a number of valuable characteristics they would bring to the Board, including, in the case of Mr. Fibig, broad business experience, including extensive product and strategic development experience and numerous international roles, and, in the case of Mr. Morrison, extensive marketing experience and financial expertise, including his current position as a chief executive officer of a global multinational company.

 

IFF’s Board of Directors recommends a vote FOR the election of the nominees as Directors.

 

The following table sets forth the names, ages, principal occupations and other information about the director nominees:

 

 

 

The Audit Committee has selected PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2011, and the Board of Directors has directed that our management submit that selection for ratification by our shareholders at the 2011 Annual Meeting. Although ratification is not required by our By-laws or otherwise, we are submitting the selection of PricewaterhouseCoopers LLP to our shareholders for ratification as a matter of good corporate governance. The Audit Committee will consider the outcome of our shareholders’ vote in connection with the Audit Committee’s selection of the Company’s independent registered public accounting firm in the next fiscal year, but is not bound by the shareholders vote. Even if the selection is ratified, the Audit Committee may, in its discretion, direct the appointment of a different independent auditor at any time if it determines that a change would be in the best interests of the Company and our shareholders.

 

Representatives of PricewaterhouseCoopers LLP are expected to attend the 2011 Annual Meeting, where they will be available to respond to questions and, if they desire, to make a statement.

 

IFF’s Board of Directors recommends a vote FOR the ratification of the Audit Committee’s selection of PricewaterhouseCoopers LLP as the Company’s Independent Registered Public Accounting Firm for 2011.

 

 

The following table provides detail about fees for professional services rendered by PricewaterhouseCoopers LLP for the years ended December 31, 2010 and December 31, 2009.

 

 

 

 

The Audit Committee’s policy is to pre-approve all audit and non-audit services by category, including audit-related services, tax services and other permitted non-audit services, to be provided by the independent registered public accounting firm to the Company. In accordance with the policy, the Audit Committee regularly reviews and receives updates on specific services provided by the independent registered public accounting firm, and the Company’s management may submit additional services for approval.

 

To facilitate the approval process, the Audit Committee may delegate pre-approval authority to the Committee chairperson, or to the Company’s Chief Financial Officer (for services, other than audit or attest services) to the extent permitted under the SEC’s pre-approval requirements. The Committee member or CFO to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting.

 

All services rendered by PricewaterhouseCoopers LLP to the Company are permissible under applicable laws and regulations. During 2010, all services performed by PricewaterhouseCoopers LLP which were subject to the SEC’s pre-approval requirements were approved by the Audit Committee in accordance with the Committee’s pre-approval policy.

 

The Audit Committee (“we”, “us” or the “Committee”) oversees the Company’s financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal control over financial reporting and disclosure controls designed to ensure compliance with accounting standards and applicable laws and regulations.

 

The Company’s independent auditors, PricewaterhouseCoopers LLP (“PwC”), report directly to us. We have sole authority to appoint, oversee, evaluate and discharge the independent auditors and to approve the fees paid by the Company for their services. PwC annually performs an independent audit of the consolidated financial statements and expresses an opinion on the conformity of those financial statements with U.S. generally accepted accounting principles and the effectiveness of the Company’s internal control over financial reporting. PwC also conducts quarterly reviews of the Company’s financial statements.

 

We review with PwC the scope of its services, the results of its audits and reviews, its evaluation of the Company’s internal control over financial reporting, and the overall quality of the Company’s financial reporting. We meet regularly with PwC, and separately with the Company’s internal auditors, without management present. We also meet regularly with management without PwC present, and we discuss management’s evaluation of PwC’s performance.

 

For 2010, we have reviewed and discussed the Company’s audited financial statements with management and PwC. We have reviewed and discussed with management its process for preparing its report on its assessment of the Company’s internal control over financial reporting, and at regular intervals we received updates on the status of this process and actions taken by management to respond to issues and deficiencies identified. We discussed with PwC its audit of the effectiveness of the Company’s internal control over financial reporting. We discussed with PwC and the Company’s internal auditors the overall scope and plans for their respective audits.

 

We have reviewed with PwC its judgments about the quality of the Company’s accounting principles as applied in the Company’s financial reporting and other matters as are required to be discussed by the Statement on Auditing Standards (SAS) No. 61 (Communication with Audit Committees), as amended (AICPA Professional Standards Vol. 1, AU Section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T, as may be modified or supplemented. We also received from PwC and discussed with PwC its written disclosures and the letter regarding its independence from management and the Company as required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the audit committee concerning independence. We concluded that PwC’s independence was not compromised by the non-audit services provided by PwC, the majority of which consisted of tax services.

 

In reliance on the reviews and discussions referred to above, we recommended to the Board (and the Board subsequently approved our recommendation) that the audited financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 2010 for filing with the SEC. We also evaluated and selected PwC as the Company’s independent auditors for 2011, which the shareholders will be asked to ratify at the 2011 Annual Meeting of Shareholders.

 

Audit Committee

 

Katherine M. Hudson
(Chairperson)

 

Margaret Hayes Adame
Henry W. Howell, Jr.
Arthur C. Martinez

 

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (known as the Dodd-Frank Act), provides that a public company’s proxy statement in connection with the company’s annual meeting of shareholders must, at least once every three years, allow shareholders to cast an advisory, nonbinding vote regarding the compensation of the company’s named executive officers as disclosed in accordance with the SEC’s rules.

 

As discussed in the Compensation Discussion and Analysis and the tables and narratives that follow, the compensation packages for our named executive officers are designed to attract, retain and motivate our executives who are critical to our success, to reward achievement of both annual and long term performance goals, as well as to align the interests of our executives with those of our shareholders. Pursuant to our programs, an average of 73% of each named executive officer’s 2010 target total direct compensation is considered “variable” and, therefore, tied to our company’s performance based on a number of financial goals and/or company stock price performance.

 

For example, the Company’s 2010 Annual Incentive Plan (“AIP”) provides for awards to be earned based on the Company’s performance against sales growth, operating profit, gross margin and working capital objectives. Our 2010-2012, 2009-2011 and 2008-2010 Long-Term Incentive Plan (“LTIP”) performance cycles provide for awards to be earned based on our annual earnings per share (EPS) performance and our annual and cumulative total shareholder return (TSR) performance relative to the S&P 500. In addition, a supplemental performance metric was added for the 2008-2010 LTIP performance cyle. This supplemental metric was based on improvement in operating profit margin (Earnings before interest and taxes) for 2010 as compared to 2009. In the case of our AIP and LTIP programs, actual awards can vary from 0% to 200% of the target amount and are dependent upon our performance versus each program’s predefined performance objectives. In addition, under our Equity Choice Program (ECP), the ultimate value realized by the executive is dependent upon our stock price performance over the vesting period.

 

For additional information on the compensation program for our named executive officers, including specific information about compensation in 2010, please read the Compensation Discussion and Analysis, along with the subsequent tables and narrative descriptions.

 

At the 2011 Annual Meeting, we will ask our shareholders to approve our named executive officer compensation as described in this proxy statement. This proposal, referred to as a “Say-on-Pay Proposal,” provides our shareholders with the opportunity to express their views on our named executive officers’ compensation. In accordance with the Dodd-Frank Act, the vote will be an advisory vote regarding our Company’s named executive officer compensation program generally and does not examine any particular compensation element individually. Accordingly, the Company will present the following advisory Say-on-Pay Proposal at the 2011 Annual Meeting for shareholder approval:

 

“RESOLVED, that, the compensation paid to the Company’s named executive officers, as disclosed in this proxy statement for the Company’s 2011 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the compensation tables and related narrative disclosure, is hereby approved.”

 

This say-on-pay vote is advisory, and therefore not binding on the Company, the Compensation Committee or our Board. However, the Compensation Committee intends to review the results of the advisory vote and will be cognizant of the feedback received from the voting results as it completes its annual review and engages in the compensation planning process.

 

The Board of Directors believes the compensation of our named executive officers is appropriate and promotes the best interests of our shareholders and therefore recommends that shareholders vote FOR approval of this resolution.

 

In accordance with the Dodd-Frank Act, we are seeking an advisory, non-binding, vote on the frequency of future shareholder advisory votes on our executive compensation programs as disclosed pursuant to the SEC’s disclosure rules. A shareholder advisory vote on executive compensation (such as Item 3 in this Proxy Statement) is referred to as a “Say on Pay Proposal”. In this Item 4, we are asking for shareholder input as to whether, after this year, a Say on Pay Proposal should occur every year, every two years or every three years. Future votes on the frequency of future Say on Pay Proposals will occur at an interval decided by the Board of Directors, but not with less frequency than at least once every six years.

 

We are recommending that a Say on Pay Proposal be submitted to shareholders every year. Our Board of Directors believes that an advisory vote every year is the best approach for our Company and our shareholders. An annual advisory vote provides more frequent shareholder feedback to our Board of Directors, the Compensation Committee and management regarding our executive compensation programs and policies. Our Board of Directors, Compensation Committee and management intend to consider this advisory vote as part of the design of our executive compensation programs and communication of such programs to our shareholders.

 

You may cast your vote for your preferred frequency for future Say on Pay Proposals by indicating your choice that future Say on Pay Proposals should be submitted to shareholders every year, every two years or every three years, or you may choose to abstain from voting on this issue, in response to the resolution set forth below.

 

“RESOLVED, that whichever of the three frequency choices of: every year, every two years or every three years receives the most shareholder votes will be considered the shareholders’ preferred frequency in regard to how often a “Say on Pay Proposal” should be submitted to the Company’s shareholders in future Company proxy statements relating to our Annual Meetings of Shareholders.”

 

If none of the three choices receives a majority of the votes cast, the choice that receives the most number of votes will be considered to be the result of this advisory, non-binding shareholder vote. Uninstructed proxy cards will be voted in accordance with the Board of Directors’ recommendation that a Say on Pay Proposal be submitted to shareholders every year. Although this vote regarding the frequency of future Say on Pay Proposals is advisory only, our Board of Directors, Compensation Committee and management will review the results and give appropriate consideration to the outcome of the voting on this proposal.

 

IFF’s Board of Directors believes that it is in the best interest of the Company to have Say on Pay Proposals considered by shareholders every year, and therefore recommends that shareholders vote for a frequency of “ONE YEAR” for future Say on Pay Proposals in response to this resolution.

 

 

Introduction

 

This Compensation Discussion & Analysis (“CD&A”) describes IFF’s executive compensation program for 2010 and certain elements of the 2011 program. It explains how the Compensation Committee of our Board of Directors (the “Committee”) determined 2010 compensation for our executives, including the persons identified as Named Executive Officers (“NEOs”) in this Proxy Statement.

 

As reflected in the Corporate Governance — Board Leadership Structure section of this Proxy Statement and in the tables and narratives following this CD&A, on October 1, 2009 Douglas D. Tough, who was then a member of our Board of Directors, assumed the role of non-executive Chairman, with the plan that he would assume the additional role of Chief Executive Officer (“CEO”) when his contract with his then employer expired. In conjunction with this change in management which was approved by our Board of Directors, upon the recommendation of the Committee with the assistance of its independent compensation consultant, the Board (with Mr. Tough recusing himself) approved Mr. Tough’s compensation package. The Company entered into a letter agreement with him on September 8, 2009 reflecting the approved compensation. On March 1, 2010, Mr. Tough assumed the role of Chairman and CEO.

 

In the interim, beginning on October 1, 2009 until March 1, 2010, our Board established a temporary Office of the CEO, which was comprised of Kevin C. Berryman, our Executive Vice President and Chief Financial Officer (“CFO”), Nicolas Mirzayantz, our Group President, Fragrances and Hernan Vaisman, our Group President, Flavors. As a result, we have seven NEOs being reported in this Proxy Statement, including the three individuals who served together in the temporary Office of the CEO, as well as Beth E. Ford, our Executive Vice President, Head of Supply Chain, Dennis M. Meany, our former Senior Vice President, General Counsel and Secretary, and Angelica Cantlon, our Senior Vice President, Human Resources (“SVP HR”). Mr. Meany, age 63, retired from the Company on December 31, 2010.

 

Although he was not yet serving as CEO, Mr. Tough, together with Ms. Cantlon, our SVP HR, assisted the Committee in its determinations regarding the compensation of our NEOs (other than the CEO) for 2010. Their roles in assisting the Committee remained generally consistent with the roles the CEO and the SVP HR have played in prior years. The members of the temporary Office of the CEO did not participate in decisions regarding executive compensation during their tenure in this office.

 

Executive Summary

 

The following summarizes the Company’s executive compensation program for 2010 including:

 

 

Executive Compensation Program Objectives

 

The Company’s executive compensation program is intended to meet the following objectives:

 

 

 

In furtherance of the above objectives, we believe that executive compensation should (i) be tied to overall Company performance; (ii) reflect each executive’s level of responsibility; (iii) vary based on individual performance and contribution; and (iv) include a significant equity component. Our performance goals for compensation purposes are based on the challenging financial and strategic expectations set by our Board of Directors for our entire organization.

 

Components of Total Direct Compensation (see pages 43-52)

 

 

Illustrative Mix of Compensation

 

The average of each NEO’s percentage of compensation that is considered variable (based on target performance) versus fixed, short-term versus long-term and cash versus equity, in each case as a portion of total target compensation is illustrated below:

 

Market Benchmarking (see page 38)

 

The Committee’s “philosophical” goal is to position target total compensation at generally the 60th to 65th percentile of relevant market benchmarks. To help the Committee determine appropriate target compensation levels of our executives, the Committee’s independent compensation consultant used publicly available compensation data from 17 Consumer Product Peer Companies, 15 Specialty Chemical and Flavoring Peer Companies and, in addition, third party general industry survey data. Based on an analysis of this data by the consultant, a “market reference” range is set for each executive, generally between the 50^th and 75^th percentile of the most appropriate market data for that executive’s position, which is considered in setting each executive’s compensation. In 2010, our NEOs’ average target total compensation was positioned at the 61st percentile.

 

2010 Compensation Actions and Performance Highlights (see pages 43-52)

 

 

Pay for Performance and Incentive Compensation Variability 2006 — 2010

 

The following chart illustrates the variability of actual awards earned as a percent of target relative to AIP and LTIP performance versus goals over the five-year period covering 2006 to 2010:

 

 

Other Key Program Features

 

 

 

 

Consideration of Shareholder Advisory Vote

 

The Committee believes that the non-binding shareholder advisory vote on the Company’s executive compensation, as set forth in Item 3 — Advisory Vote on Executive Compensation, will provide useful feedback to the Committee regarding whether it is achieving its goal of designing an executive compensation program that promotes the best interests of the Company by providing its executives with the appropriate compensation and meaningful incentives. The Committee intends to review the results of the advisory vote, being completed for the first time this year, and will be cognizant of this feedback as it completes its annual review of each pay element and the total compensation packages for our NEOs with respect to the next fiscal year.

 

Role of Compensation Committee, Outside Advisors and Management

 

Compensation Committee

 

Pursuant to its Charter, the Committee assists the Board in ensuring that a proper system of long term and short term compensation is in place to provide performance-oriented incentives to management, and that compensation plans are appropriate and competitive and properly reflect the objectives and performance of management and the Company. The Committee has responsibility for overseeing the determination, implementation and administration of remuneration, including compensation, benefits and perquisites, of all executive officers and other members of senior management. The Committee recommends CEO compensation to the full Board for its approval.

 

Outside Advisors

 

To assist it in fulfilling its responsibilities, the Committee engaged W.T. Haigh & Company (“W.T. Haigh”) as its independent compensation consultant throughout 2010. W.T. Haigh regularly participates in Committee meetings and meets privately with the Committee at its request. To date, W.T. Haigh has worked exclusively on executive and director compensation initiatives and plans on behalf of the Committee and does not have other consulting arrangements with the Company.

 

In 2010, W.T. Haigh reviewed and made recommendations to the Committee concerning our executive compensation philosophy and programs including:

 

 

The Company also retains Steven Hall & Partners for advisory services concerning compensation plan documents, including the Company’s equity award and incentive, executive separation and deferred compensation plans, and Buck Consultants for actuarial work and other services relating to the Company’s retirement plans and other post-employment benefits. These services are administrative or technical in

nature and neither of these consultants played a role in determining or recommending the amount or form of executive or director compensation during 2010.

 

Management

 

With the input of W.T. Haigh, our CEO and Senior Vice President, Human Resources, evaluated the performance and competitive pay position for each NEO, other than themselves, and made recommendations to the Committee concerning each such officer’s target 2010 compensation. Our CEO followed the same process with regard to the target 2010 compensation for our SVP HR, without her input. The members of the temporary office of the CEO did not participate in this process. Both our CEO and Senior Vice President, Human Resources, generally attend Committee meetings but do not attend the portion(s) of meetings where their own compensation is discussed or determined. They periodically provide the Committee with updates of progress against our performance goals, and provide management’s views and recommendations concerning compensation elements including:

 

 

Our management also provides similar input to W.T. Haigh but does not oversee its activities.

 

Principles for Setting Compensation Levels

 

On an annual basis, the Committee reviews and approves the compensation for our executive officers and other members of senior management, including our NEOs. As in prior years, the Committee’s decisions for 2010 compensation took into account the compensation range for each executive’s grade, as well as “market benchmarking” and individual performance. We use a global grading structure for our employees, including our executives, with compensation ranges for each grade. Executives are placed in a particular grade based on internal factors (including scope of responsibilities and job complexity) and an external market evaluation. The external market evaluation is based on published third party general survey information and a review of like positions within our selected peer groups described below. This process is often referred to as “market benchmarking.” Benchmarking also provides information that we use in internal pay review for various positions and grade levels. We update the external market benchmarking and peer group data annually.

 

Benchmarking

 

Peer Groups

 

We use compensation data from other companies to benchmark our compensation levels. However, it is difficult to define a single peer group for our market benchmarking that appropriately reflects the particular diversity of responsibilities within our business. The Company has few publicly traded competitors and our industry is highly fragmented, both geographically and across product lines. Therefore, with assistance from its independent compensation consultant, the Committee identified two separate and distinct peer groups — a consumer product companies peer group and a specialty chemical and flavoring companies peer group. The Committee, based on the input of its independent compensation consultant, decided to use the following criteria in reviewing and selecting the peer group companies:

 

 

 

Based on the foregoing criteria, in July 2009, the Committee approved the peer groups consisting of the following companies, and these peer groups were used for 2010 compensation benchmarking:

 

 

Based on the recommendation of its independent compensation consultant, the Committee approved certain changes from the peer groups used for 2009 compensation decisions, which are reflected in the peer groups above. Certain companies were eliminated from the previous peer groups due to changes in their business scope, their type of ownership or their being acquired, and those companies were replaced by companies considered more in line with the criteria described above. At the time of the Committee’s review and selection of the above peer groups, IFF was positioned at approximately the 40^th percentile of both peer groups in terms of revenue, the primary scope comparison measure. IFF’s current relative revenue remains positioned as approximately the 40^th percentile.

 

Our peer groups for compensation benchmarking (as listed above) are different from the peer group used in our financial performance graph included in our Annual Report on Form 10-K. Both the compensation and financial peer groups include companies that are international in scope and/or sell

their products to the types of customers that also buy our products. However, the financial performance peer group includes companies that exceed the size criteria identified for our compensation peer groups. The Committee believes that, for the compensation peer groups, comparably sized companies better reflect the competition we face for executive talent.

 

General Survey Data

 

To support the Committee’s analysis of our 2010 executive compensation levels and to enable the Committee to obtain a more general understanding of current compensation practices, the Committee’s independent compensation consultant also provided general industry data from Towers Perrin’s 2009 Executive Compensation Database, a broad-based survey. In addition, the consultant provided data relating to a segment of this database consisting of companies having $1 billion to $3 billion in reported revenues, as well as a larger sample of companies with median revenues of $5.5 billion, in each case excluding energy and financial companies. These two industry segments were excluded from the data because we believe these industry business models and their pay practices are less comparable to ours, particularly in a volatile economic climate.

 

Market Reference and Setting Target Total Direct Compensation

 

Based on the compensation peer group and other data, the Committee’s independent compensation consultant develops median and 75^th percentile “market reference” values for each executive position. In doing so, and to reflect the most relevant source for competitive executive talent for that position, the peer groups and general industry data may be assigned a different weight depending upon the position. The “market weighting” for each position is reviewed and agreed to in principle by the Committee at the same time the Committee approves the peer groups, and for 2010 compensation decisions did not change from the prior year. As noted above, the Committee’s “philosophical” goal is to position target total compensation at approximately the 60th to 65th percentile of relevant benchmarks.

 

The Committee’s independent compensation consultant analyzes each executive’s actual and target total direct pay (as described below under “Compensation Elements and Targeted Mix”) against the median to 75^th percentile range of each executive’s market reference, and reviews this analysis with the Committee and, in the case of the compensation of NEOs other than the CEO, with the CEO. Individual components of total direct pay (meaning salary, annual incentive compensation, long term incentive compensation and equity awards) are benchmarked versus market on an individual basis for our CEO, on an average basis for our EVP’s and Group Presidents, collectively, and on an average basis for our SVP’s, collectively. In determining total target direct pay for each executive in 2010, the Committee considered the consultant’s market reference analysis. In addition, the Committee considered a number of other important factors, including each executive’s:

 

 

The Committee uses the market reference range in order to establish a starting point for the compensation levels that the Committee believes would provide our executive team with competitive compensation in order to incentivize and retain our top executives. However, the actual total target direct pay approved by the Committee may be above or below the market reference range based on the Committee’s review of market compensation levels and taking all of the above factors into account.

 

The following chart illustrates for each of our NEO’s, the NEO’s relative position of the executive’s target total direct pay as compared to the median and 75th percentile market reference range for that particular executive:

 

 

Driven by our desire to create internal pay equity among our senior executives, all of our Group Presidents and Executive Vice Presidents have a comparable level of target total direct compensation (based on the salaries for Messrs. Mirzayantz and Vaisman approved in March 2010). This equalization process has created some variance below the market reference range for Messrs. Mirzayantz and Vaisman and above the market reference range for Ms. Ford. Ms. Ford’s target total direct compensation also reflects a compensation level negotiated at the time of her hire in 2008.

 

Actual compensation paid for the year, as compared to target compensation approved at the beginning of the year, may differ depending on Company and individual performance. Actual compensation paid is discussed below under Program Components and Policies and in the tables and narratives following this CD&A.

 

Tally Sheets

 

In 2010, the Committee reviewed “tally sheets” for certain NEOs, but, in part, because of the significant management changes in 2010, did not consider these “tally sheets” in making 2010 compensation decisions. These “tally sheets”, which were prepared by the Committee’s independent compensation consultant, were designed to give the Committee a full view of compensation paid to these NEOs, including an “income statement” (showing all annual company costs for compensation paid to these NEOs), a “balance sheet” (showing the compensation that has been accrued under various plans for each individual) and a “liability sheet” (showing the liability to the Company if the individual were to separate from employment). The Committee believes these “tally sheets” may be useful in the future, when year over year and multi-year comparisons can be made. The Committee did not otherwise refer to any type of wealth accumulation analysis.

Compensation Elements and Targeted Mix

 

Our executive compensation program includes direct pay and indirect pay elements as follows.

 

Direct Pay

 

Direct pay consists of:

 

 

AIP, LTIP and ECP awards are variable compensation components. Their value is based on the Company’s performance and, in the case of the LTIP and ECP awards, the Company’s share price. The payouts under these annual and long term awards may vary from year to year and thus reflect the impact our executives have on our Company’s success.

 

For 2010, at target AIP and LTIP achievement levels and actual ECP award, the components of total direct pay for our CEO and the average of our other NEOs, as a group, were as follows:

 

 

 

The 80% weighting, in the case of our CEO, and the 72% average weighting, in the case of our other NEOs, of direct pay towards performance-based variable compensation closely aligns our executives’ compensation opportunity with Company performance by enabling our senior executives to earn more if the Company achieves superior performance or will cause them to earn less if we do not meet our performance goals or if the value of our common stock does not increase over time. The proportionately greater “variable” portion of direct compensation targeted for our CEO reflects his role and responsibility as our senior executive most accountable to our Board of Directors and shareholders for entity-wide performance.

 

Long term compensation to our senior executives includes LTIP awards and equity awards under our ECP. LTIP awards, if earned, are paid out 50% in stock and 50% in cash. Equity makes up a larger portion
of total long term compensation than non-equity. This approach is intended to promote significant long term stock ownership by each of our executives and to align their interests, and their at-risk longer term compensation, with those of our shareholders. The ECP, combined with our Share Retention Policy discussed below, encourages stock ownership and real investment in our Company.

 

For 2010, the proportion of long term incentive compensation opportunity provided in the form of equity versus cash for the CEO and the average of our other NEOs, as a group, were as follows:

 

 

The Committee periodically reviews and adjusts the mix between short term and long term incentive compensation opportunities and between cash and non-cash opportunities based on (1) benchmarking and other external data, (2) recommendations from its independent compensation consultant and (3) recommendations from our CEO and Senior Vice President, Human Resources. It should also be noted that Mr. Berryman, Mr. Mirzayantz and Mr. Vaisman did not receive any additional compensation for their temporary additional responsibilities as part of the temporary office of the CEO.

 

Indirect Pay

 

Indirect pay includes:

 

 

Our executives participate in Company-sponsored benefit programs, many of which are broadly available to our employees. We also maintain other benefit and perquisite programs for our senior management. In 2010, the Committee’s independent compensation consultant reviewed the perquisites program for its senior executives and advised the Committee that these programs are in line with market practice. Accordingly, the Committee did not make any changes to the perquisites program.

 

Program Components and Policies

 

Salaries

 

The Committee reviews the salaries of our CEO and other senior executives, including our other NEOs, annually. Effective April 1, 2010, the Committee approved increases in the base salaries for Messrs. Mirzayantz and Vaisman in the amount of $25,000 and $50,000, respectively. Effective October 1, 2010, the Committee approved an increase in the base salary for Ms. Cantlon, who commenced employment with the Company in August 2009, in the amount of $15,000. The Committee approved these increases to reflect current market conditions and, in the case of Messrs. Mirzayantz and Vaisman, our two Business Unit Presidents, to align their base salaries with each other and with our Executive Vice Presidents. Based on the Committee’s determination that the salaries of our senior executives were in line with market reference, the Committee did not approve increases in 2010 base salaries for any of our other NEOs.

Annual Incentive Plan

 

General:  The Company maintains the AIP for our NEOs and certain other employees. Payouts, which were approved in early 2011 and awarded under our shareholder-approved 2010 Stock Award and Incentive Plan, depend on the achievement of specific quantitative and strategic enterprise (i.e., Company-wide) performance goals, along with individual contribution toward the enterprise results based on business unit or functional goals. Each executive has the opportunity to earn up to 200% of his or her target AIP award for significantly above target or superior performance or lower than target (or no) annual incentive compensation for below target performance. At the beginning of 2010, the Committee approved the AIP targets (stated as a percentage of base salary) as follows:

 

 

The above AIP target percentages of the executives’ base salaries did not change from the prior year.

 

Minimum Funding:  Failure to meet the threshold level of performance overall in the aggregate will generally result in no AIP award for that year. However, the Committee may, under certain circumstances, exercise discretion and pay out an award.

 

Goal Setting Process:  Each year, our CEO proposes and reviews with our Board the Company’s annual and long term financial goals, operational plans and strategic initiatives. Based on these Board-approved strategic goals, the CEO, the CFO and the SVP HR recommend to the Committee AIP performance metrics that they deem to be appropriate. The Committee considers these recommendations and consults with its independent compensation consultant before approving the AIP performance metrics. For 2010 AIP, the Committee, based upon the recommendations from management and with the input of its independent compensation consultant, decided to simplify the AIP goals from those used for 2009 AIP and to make them more consistent throughout the organization. Namely, the Committee decided to eliminate the non-financial strategic goals and the “Balanced Scorecard” approach that were used in the past and instead to establish only financial goals for AIP. This change to the AIP program helps align the corporate and business unit components of our performance goals and provides consistent definitions and metrics with which to measure performance. The Committee decided to take this approach as it felt that by providing greater focus and fewer metrics, company annual operating performance and shareholder value could be enhanced.

 

2010 Financial Goals and Objectives:  For 2010 AIP awards, the Committee approved four financial performance metrics: local currency sales growth, an increase in operating profit, gross margin improvements and improvements in working capital. These financial goals were selected for the following reasons:

 

 

Each of the above financial goals was assigned a different weighting as follows:

 

 

 

 

The local currency sales and operating profit goals were assigned a greater weight than the gross margin and working capital goals because the Committee believes that the first two goals are the most relevant measures of overall annual Company performance and are key to driving sustained long-term growth. The gross margin and operating profit goals were new for 2010, and replaced two goals that were used for 2009 AIP awards — earnings before interest and taxes (represented as profit margin as a percentage of sales) and return on invested capital.

 

The Committee believes that the above financial performance criteria, which are derived from the Board-approved goals for our Company, are critical measures of our operating success and are strongly aligned with shareholder interests. For 2010, the specific target levels for each financial objective were based on improvement versus actual 2009 results. Achievement of the targets would represent a significant step towards achieving the Company’s previously announced long term strategic financial goals of growing local currency sales by 4% per year, improving operating margins to 18% of sales and growing earnings per share on average by 10+% per year, which goals were in place at the time the AIP goals were set.

 

Overall Company and Business Unit AIP Performance

 

Our actual performance against our 2010 AIP corporate financial objectives is set forth in the tables below. In establishing AIP financial objectives and in determining actual achievement against financial goals, the Committee eliminates the impact of certain discrete non-core revenues and expenses (net of related benefits realized during the period). This is done by the Committee in order to focus performance goals and achievement against goals on our core operating results. For 2010, the AIP financial goals and actual achievement against these financial goals therefore have excluded approximately $10 million of pre-tax costs associated with the European manufacturing rationalization program. For comparability purposes, the Committee also excluded (from both the AIP goals and actual achievement against those goals) the benefits associated with the 2009 implementation of a revised reporting methodology for non-U.S. research and development credits. Similarly, the Committee excluded the effects of incentive compensation provisions in calculating gross margin performance in order to better focus on the underlying operating performance of the Company’s product portfolio. The Committee believes that the necessary self-funding of incentive compensation payments is covered in the operating profit component of the AIP

program. Based on the adjustments described above, our actual performance results against our 2010 AIP financial targets are set forth in the tables below for overall corporate and Business Unit performance:

 

Corporate Performance

 

Flavors President Business Unit Performance

 

 

Fragrances President Business Unit Performance

 

 

Individual AIP Award and Discretionary Bonus Determination

 

The AIP payout for 2010 for the NEOs, based on the actual achievement of financial objectives, is discussed in greater detail under the heading Grants of Plan-Based Awards. Based on the Company and Business Unit performance outlined in the tables above, 2010 AIP awards were as follow:

 

 

 

 

In determining actual bonus amounts, while Company and Business Unit performance would have allowed for higher bonus payments based on the application of the AIP formula, the Committee exercised its discretion to reduce the level of bonus awards and lowered the bonus payments that would have otherwise been payable to the NEOs by approximately $105,000 in the aggregate in order to fund a one-time performance award for non-AIP participants. In addition to the AIP payouts described above, the Committee approved a discretionary one-time cash bonus of $500,000 to Mr. Tough as a sign-on bonus payable July 1, 2010 to compensate him for certain forfeited bonus opportunities at his former employer. The Committee considered this cash payment to be a reasonable inducement to retain Mr. Tough’s services as our Chairman and Chief Executive Officer.

 

For the five AIP plan years from 2006 to and including 2010 the actual corporate percentage payout under the AIP against the annual performance goals ranged from 40% to 171.3%, with an average payout of 101.4% of target over the five year period. During this period, our local currency sales grew at a compound annual growth rate of approximately 5%. Following a very challenging 2009 that was impacted by the global financial crisis, the Company’s performance in 2010 rebounded strongly. Local currency sales growth in 2010 was at an all-time high of 13%, above several of our key competitors. The positive impact of the higher sales volume plus margin improvement associated with lower input costs and internal improvement initiatives enabled us to improve operating profit (excluding extraordinary or special items such as restructuring charges and employee separation costs) by more than 200 basis points versus 2009. Over the 2005-2010 period, operating profit (excluding extraordinary or special items such as restructuring charges and employee separation costs) increased by nearly 150% from $290 million in 2005 to $426 million in 2010. Our operating profit margin improved by 170 basis points from 14.6% of sales to 16.3% in 2010. Our core working capital improved over the same period, declining from 32.7% of yearly sales to 30.1% by the end of 2010.

 

Long Term Incentive Plan

 

In early 2010, the Committee approved grants of LTIP awards to our senior executives, including our NEOs, under the Company’s shareholder-approved 2010 Stock Award and Incentive Plan. These grants cover the 2010-2012 performance cycle. The Committee believes that commencing a new 3-year LTIP cycle each year helps (i) to provide a regular opportunity to re-evaluate long term measures, (ii) to align goals with the ongoing strategic planning process; and (iii) to reflect changes in our business priorities and market factors. In early 2010, the Committee also approved a supplemental metric for the 2010 segment of the 2008-2010 LTIP performance cycle. In early 2011, the Committee approved payouts under the completed 2008-2010 LTIP performance cycle, as well as credits (or “bankings”) for the 2010 segment of the ongoing 2009-2011 LTIP and 2010-2012 LTIP performance cycles.

 

2010-2012 LTIP

 

For the 2010-2012 LTIP performance cycle, the Committee approved LTIP target award grants to our NEOs as follows:

 

 

 

 

Based on the recommendation of its independent compensation consultant, in 2010 the Committee approved increases in the LTIP target for Mr. Berryman, Mr. Mirzayantz, Mr. Vaisman and Ms. Ford over the prior year LTIP performance cycle by $50,000, $70,000, $90,000 and $50,000, respectively. These increases were part of our internal pay equity analysis and were intended to align the LTIP target amounts for all our Business Unit Presidents and Executive Vice Presidents.

 

For the 2010-2012 performance cycle, the LTIP performance categories and their respective weightings are:

 

 

 

 

In setting the 2010-2012 LTIP performance goals, the Committee believed that growth in earnings per share is a key indicator for measuring improvement in our long term shareholder value. For 2010, the EPS growth target was established in light of the difficult economic environment and its expected impact on our operating results. The Committee also believes that TSR as compared to other public companies in which shareholders may choose to invest is a good indicator of our overall long term performance, and directly ties our executives’ compensation opportunity to our share price appreciation and dividend payments relative to a major large-cap index.

 

Given the difficulty in setting long term goals in the current economic environment, the Committee continues to believe that the segmentation of each three year LTIP performance cycle provides the Committee the opportunity to review LTIP goals year-to-year in order to align more closely with the Company’s updated strategic planning processes. Accordingly, the 2010-2012 LTIP performance cycle is administered in four performance segments: Year 1, Year 2, Year 3 and Cumulative, as indicated in the table above. For each of the first three annual performance segments, the EPS goal and the TSR goal carry an equal weighting. For the Cumulative segment, the TSR goal is weighted at 100%. Due to the continued unsettled economic environment when the 2010-2012 LTIP objectives were established and the continued difficulty of setting a 3-year EPS goal in that environment, as it did with the prior LTIP performance cycle, the Committee decided not to include the Cumulative 3-year segment measurement with respect to the EPS goal. The EPS goal for each annual segment is established by the Committee during the first quarter of the applicable year.

 

For the 2010 segment of the 2010-2012 LTIP cycle, the relative minimum and maximum achievement levels required for various payout levels were set as follows:

 

 

Performance results below the minimum achievement threshold for a specific year or cumulatively, in the case of TSR, result in no amounts being earned for that performance component.

 

For the 2010-2012 performance cycle, the minimum and maximum performance levels for TSR remained at the 35^th and 75th percentiles, respectively as they had for the previous cycle. The Committee believed at the time that due to the volatility in the equity markets, providing this broader performance range might help mitigate the effects of volatility of the Company’s stock.

 

For the 2010-2012 performance cycle, the Committee determined that 50% of the value of any payouts would be paid in cash and 50% would be paid in full value shares. This is consistent with payout ratios for the 2008-2010 and 2009-2011 LTIP performance cycles. The Committee believes that paying 50% of the LTIP value in full value shares creates a stronger alignment between executives and shareholders, and provides additional incentive for executives to achieve superior Company performance and to produce share price appreciation over the three-year performance cycle. The number of shares of Company stock for the 50% portion that would be paid in stock is determined at the beginning of the cycle, based on $42.01 per share, the closing market price on January 4, 2010, the first stock trading day of the cycle. At the conclusion of each performance segment, the dollar value and number of shares is “banked” based on the performance of that segment. When the three-year cycle is concluded and the LTIP payouts are approved by the Committee, the cumulative dollar value and cumulative number of full value shares are paid to the executive.

 

For the 2010 segment of the 2010-2012 LTIP performance cycle, the EPS of $3.37 was achieved, which is 192% of the target of $3.14 for the 2010 segment and our TSR was positioned at approximately the 77^th percentile versus the S&P 500 which represents 200% of the target of the 55th percentile for the 2010 segment. As a result, the LTIP award earned and “banked” for the 2010 segment of the 2010-2012 LTIP cycle was equal to 196% of target.

 

2009-2011 LTIP

 

For the 2010 segment of the 2009-2011 LTIP performance cycle, the achievement described above with respect to the 2010 segment of the 2010 performance cycle was applied to this performance cycle as well. As a result, the LTIP award earned and “banked” for the 2010 segment of the 2009-2011 LTIP performance cycle was equal to 196% of target.

 

2008-2010 LTIP

 

In early 2010, the Committee approved a one-year supplemental performance metric for the Company’s 2008-2010 LTIP performance cycle. The supplemental metric relates to improvement in operating profit (EBIT) margin measured over the fiscal 2010 period as compared to 2009. The Committee established this supplemental metric to provide increased focus on the significance of driving improvement in operating profit margin, which continues to be an important factor in increasing long term shareholder value. The Committee decided to add this one-year supplemental financial target as a means of providing further targeted incentive for our senior management team to continue to deliver improved financial results under this metric, particularly in light of the global economic uncertainty which began in late 2008 and has continued through the current period.

 

Performance and related payout of awards relative to target, including the supplemental metric, under the 2008-2010 LTIP cycle were determined based on the following minimum and maximum achievement levels for the cycle, which levels, other than the supplemental metric, were established at the beginning of the cycle, and were calculated on a straight-line basis:

 

 

The overall payout for the 2008-2010 LTIP performance cycle of 121.7% was based on the following EPS and TSR results against objectives, as determined by the Committee in February 2011. For each segment in the LTIP cycle, EPS and TSR are weighted equally.

 

 

The LTIP payout for the 2008-2010 performance cycle for the NEO group, based on the actual achievement of quantitative objectives, is discussed in greater detail following the Grants of Plan-Based Awards Table. The payout for the 2008-2010 LTIP performance cycle was 121.7% as described above. In establishing the LTIP EPS growth objective for each LTIP segment and in determining actual achievement against that objective, the Committee eliminates the impact of certain discrete non-core costs (net of related benefits realized during the period), on a consistent basis and for the same reason as discussed above under “Overall Company AIP Performance.” During the 2008-2010 LTIP performance cycle, adjusted EPS (excluding extraordinary or special items such as restructuring charges, pension curtailment loss, employee separation costs, costs associated with the change in CEO, material gains on disposition of assets and certain one-time tax benefits) grew approximately 27%. As is the case for the AIP calculation, both the LTIP goal and the calculation of actual performance against that goal exclude the impact associated with a revised reporting methodology for non-U.S. research and development credits.

 

For the LTIP performance cycles that concluded in 2006 through and including 2010, the actual overall corporate percentage payout under the LTIP against those long term cycle performance goals ranged from 90.6% to 121.7%, with an average payout of 107.7% over the five LTIP performance cycles.

 

Equity Choice Program and Other Equity Awards

 

In 2010, we continued the ECP for our senior executives under our 2010 Stock Award and Incentive Plan. ECP participants, including all of our NEOs, may choose from three types of equity award grants — purchased restricted stock (“PRS”), stock settled appreciation rights (“SSARs”), and restricted stock units (“RSUs”) — defined as follows:

 

 

The Committee believes that by offering executives a choice as to the form of their equity awards, the ECP will better address their individual needs regarding financial planning, stage of career and risk profile. In addition, the Committee believes that a vesting period of approximately three-years for the various

forms of equity is consistent with a goal of executive retention, is an attractive tool for recruiting, motivating and retaining executive talent and encourages alignment with shareholders by reinforcing real investment and ownership by our executives. From time to time, the Committee may award ECP grants that have a shorter vesting period.

 

Under the ECP, each participant may choose among the three types of equity up to the participant’s total award value. The specific award value granted is determined by the Committee considering factors such as individual performance and overall contribution to the enterprise, future potential of the executive, need for retention and relevant market long term and total compensation levels.

 

An ECP participant may elect to receive his or her total dollar award in increments of 10% across the three forms of equity with a maximum allocation to RSUs of 50% of such total award value. A participant’s dollar award value is converted into PRS, SSARs and/or RSUs on the grant date based on the participant’s election, with the three forms of awards being “risk-adjusted” upwards or downwards to reflect the varying degree of risk to the participant with each form, as described above. PRS shares, which are considered the most risky, carry a 120% weight, SSARs, which are considered medium risk, carry a 100% weight and RSUs, which are considered the least risky, carry a 60% weight. The Committee approved these risk adjustments at the program’s inception with input from its independent compensation consultant and did not change them in 2010. As an example of how the risk adjustment works, if an ECP participant’s total dollar-denominated award value is $100,000 and he or she elects 100% of the award in PRS, then the total award value used to determine the number of PRS shares to be granted on the grant date is $120,000 ($100,000 x 120% PRS adjustment factor). ECP participants must make their elections prior to the grant date, and once an election is made it may not be changed.

 

The following table shows the ECP dollar award value allocated to each NEO during 2010 as well as the percentage and risk-adjusted dollar value of each type of equity elected by each NEO: