SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

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ARBITRON 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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Dear Stockholder:

 

On behalf of the Board of Directors of Arbitron Inc. (“Arbitron”), I am pleased to invite you to attend the annual meeting of stockholders. The meeting will be held at the Mandarin Oriental Hotel, 80 Columbus Circle at 60th Street, Time Warner Center, New York, New York 10023, on Tuesday, May 13, 2008, at 9:00 AM local time.

 

The Notice of Annual Meeting of Stockholders and the proxy statement that follow include information about the proposals recommended by Arbitron’s Board of Directors to elect eight (8) individuals to serve as directors of Arbitron, approve an equity compensation plan, and approve an amendment to our employee stock purchase plan.

 

Our Board of Directors believes that a favorable vote for each of these proposals at the annual meeting is in the best interests of Arbitron and its stockholders, and unanimously recommends a vote FOR the proposals. Accordingly, we urge you to review the accompanying materials carefully and to promptly vote your shares.

 

It is important that your shares be represented at the meeting. I encourage you to promptly vote your shares using Internet or telephone voting, or by following the instructions on the accompanying proxy card to ensure that your vote is counted at the meeting.

 

We look forward to seeing you at the meeting.

 

Sincerely,

 

Stephen B. Morris

Chairman, President, and Chief Executive Officer

 

 

 

The matters listed above are fully discussed in the proxy statement accompanying this notice. A copy of our 2007 Annual Report also accompanies this notice.

 

Stockholders are entitled to one vote for each share of common stock held of record on the record date listed above. A Notice of Internet Availability of Proxy Materials or the proxy statement and the accompanying proxy card will be first mailed to stockholders on or about April 3, 2008.

 

It is important that your shares be represented and voted at the meeting. You can vote your shares by completing and returning the accompanying proxy card. Most stockholders can also vote their shares over the Internet or by telephone. If Internet or telephone voting is available to you, voting instructions are printed on the accompanying proxy card. You can revoke a proxy at any time prior to its exercise at the meeting by following the instructions in the accompanying proxy statement. We appreciate your cooperation.

 

By Order of the Board of Directors

 

Timothy T. Smith

Executive Vice President and Chief Legal Officer,
  Legal and Business Affairs, and Secretary

 

April 3, 2008

TABLE OF CONTENTS

 

 

ARBITRON INC.
142 West 57th Street
New York, New York 10019
April 3, 2008

 

 

PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 13, 2008

 

 

We will begin mailing our Notice of Internet Availability of Proxy Materials to our stockholders on or about April 3, 2008.

 

We are furnishing this proxy statement to our stockholders in connection with a solicitation of proxies by our Board of Directors for use at our 2008 annual meeting of stockholders to be held on Tuesday, May 13, 2008, at 9:00 AM local time at the Mandarin Oriental Hotel, 80 Columbus Circle at 60th Street, Time Warner Center, New York, New York 10023.

 

The Notice of Annual Meeting and proxy statement are available at http://www.arbitron.com/downloads/
proxy –2008.pdf, and our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and our
2007 Shareholder letter are available at http://www.arbitron.com/downloads/annual –2007.pdf.

 

In accordance with rules and regulations recently adopted by the Securities and Exchange Commission (the “SEC”), instead of mailing a printed copy of our proxy materials, including our annual report to stockholders, to each stockholder of record, we may now furnish proxy materials, including our annual report to stockholders, to our stockholders on the Internet. On or about April 3, 2008 we will send electronically a Notice of Internet Availability of Proxy Materials (the “E-Proxy Notice”) to those stockholders that have previously signed up to receive their proxy materials on the Internet. Also on or about April 3, 2008, we will begin mailing the E-Proxy Notice to all other stockholders. If you received the E-Proxy Notice by mail, you will not automatically receive a printed copy of the proxy materials or the annual report to stockholders. Instead, the E-Proxy Notice instructs you as to how you may access and review all of the important information contained in the proxy materials, including our annual report to stockholders. If you have previously signed up on the Internet to receive proxy materials and other stockholder communications on the Internet instead of by mail, you will be receiving the E-Proxy Notice electronically as well. The E-Proxy Notice also instructs you as to how you may submit your proxy on the Internet. If you received the E-Proxy Notice by mail and would like to receive a printed copy of our proxy materials, including our annual report to stockholders, you should follow the instructions for requesting such materials included in the E-Proxy Notice. We may choose to mail written proxy materials, including our annual report to stockholders, to one or more stockholders.

 

If you held any of our common stock at the close of business on March 21, 2008, the record date for the annual meeting, you are entitled to receive notice of and to vote at our 2008 annual meeting. On that date, there were 27,685,654 shares of common stock outstanding. Our common stock constitutes the only class of securities entitled to vote at the meeting. Stockholders who have not exchanged their Ceridian Corporation common stock certificates for Arbitron Inc. common stock certificates in connection with the spin-off of Ceridian Corporation by Arbitron Inc. on March 30, 2001, will not be eligible to vote at the meeting.

 

All holders of our common stock at the close of business on March 21, 2008, the record date for the annual meeting, or their duly appointed proxies, are authorized to attend the 2008 annual meeting. If you

attend the meeting, you may be asked to present valid picture identification, such as a driver’s license or passport, before being admitted. Cameras, recording devices and other electronic devices will not be permitted at the meeting.

 

Please also note that if you hold your shares in “street name” (that is, through a bank, broker or other nominee), you will need to bring a copy of the brokerage statement reflecting your stock ownership as of March 21, 2008, the record date for the annual meeting.

 

The presence of a majority of the outstanding shares of our common stock entitled to vote, in person or by proxy, is necessary to constitute a quorum and conduct business at the 2008 annual meeting. Abstentions and “broker nonvotes” will be considered present at the meeting for purposes of determining a quorum. A broker nonvote occurs when a bank or broker holding common stock for a beneficial owner does not vote on a particular matter because the bank or broker does not have discretionary voting power with respect to that item and has not received voting instructions from the beneficial owner.

 

Each share of our common stock that you hold entitles you to one vote on all matters that come before the annual meeting. Inspectors of election will count votes cast at the annual meeting.

 

The affirmative vote of a plurality of all the votes cast at the annual meeting, assuming a quorum is present, is necessary for the election of a director. Therefore, the eight individuals with the highest number of affirmative votes will be elected to the eight directorships. Stockholders who do not wish their shares to be voted for a particular nominee may indicate that in the space provided on the proxy card or by following the telephone or Internet instructions. For purposes of the election of directors, abstentions and other shares not voted (whether by broker nonvote or otherwise) will not be counted as votes cast and will have no effect on the result of the vote.

 

The affirmative vote of a majority of the shares of common stock present in person or by proxy and entitled to vote on the proposals is necessary to approve the 2008 Equity Compensation Plan and the amendment to the Employee Stock Purchase Plan. In addition, for the 2008 Equity Compensation Plan and the amendment to the Employee Stock Purchase Plan to be approved, the New York Stock Exchange listing standards require that (i) the total votes cast must represent over 50% of all of the outstanding shares of common stock entitled to vote and (ii) votes in favor must constitute at least a majority of the votes cast. For purposes of these proposals to approve the 2008 Equity Compensation Plan and the amendment to the Employee Stock Purchase Plan, abstentions will count as votes cast, but broker nonvotes will not count as votes cast. Therefore, abstentions have the effect of a vote against the proposals, and broker nonvotes could, depending on the number of votes cast, have the effect of a vote against the proposals.

 

If you own Arbitron common stock as a participant in one or more of our employee benefit plans, you will receive a single proxy card that covers both the shares credited to your name in your plan account(s) and shares you own that are registered in your name. If any of your plan accounts are not in the same name as your shares of record, you will receive separate proxy cards for your record and plan holdings. Proxies submitted by plan participants in our 401(k) plan will serve as voting instructions to the trustees for the plan whether provided by mail, telephone or the Internet. In the absence of voting instructions from participants in the 401(k) plan, the trustees of the plan will vote the undirected shares in the same proportion as the directed shares.

 

You may vote your shares as follows:

 

 

 

If you vote by proxy, the individuals named on the proxy card (your proxies) will vote your shares in the manner you indicate. You may specify whether your shares should be voted for, against or abstain with respect to all, some or none of the nominees for director. You may also abstain or specify whether your shares should be voted for or against approval of the 2008 Equity Compensation Plan, and approval of the amendment to the Employee Stock Purchase Plan.

 

If you sign and return your proxy card without indicating your voting instructions, your shares will be voted FOR the election of the eight nominees for director, FOR approval of the 2008 Equity Compensation Plan, and FOR approval of the amendment to the Employee Stock Purchase Plan.

 

If your shares are not registered in your own name and you plan to attend the annual meeting and vote your shares in person, you should contact your broker or agent in whose name your shares are registered to obtain a proxy executed in your favor and bring it to the annual meeting in order to vote.

 

No other matters are to be presented for action at the annual meeting other than the items described in this proxy statement. The enclosed proxy will, however, confer discretionary authority with respect to any other matter that may properly come before the meeting. The persons named in the enclosed proxy intend to vote as recommended by the Board of Directors or, if no recommendation is given, in accordance with their judgment on any matters that may properly come before the meeting.

 

It is our policy that the individual stockholder votes are kept confidential prior to the final tabulation of the vote at our stockholders meeting if the stockholder requests confidential treatment. The only exceptions to this policy involve applicable legal requirements and proxy solicitations in opposition to the Board. Access to proxies and individual stockholder voting records is limited to the independent election inspectors (The Bank of New York), who may inform us at any time whether or not a particular stockholder has voted.

 

If you submit a proxy, you can revoke it at any time before it is exercised by giving written notice to our Corporate Secretary prior to the annual meeting or by timely delivery of a properly exercised, later-dated proxy (including an Internet or telephone vote). You may also attend the annual meeting in person and vote by ballot, which would cancel any proxy that you previously submitted.

 

You should rely only on the information provided in this proxy statement. We have not authorized anyone to provide you with different or additional information. You should not assume that the information in this proxy statement is accurate as of any date other than the date of this proxy statement or, where information relates to another date set forth in this proxy statement, then as of that date. Unless the context requires otherwise, in this proxy statement, references to “the Company,” “we,” “us,” “our,” “its” or similar terms are to Arbitron Inc. and its subsidiaries.

ELECTION OF DIRECTORS
(Proposal 1)

 

Our business is managed under the direction of the Board of Directors, which is currently composed of eight directors. Our bylaws provide for the annual election of directors. The current terms of office of all of our directors expire at the 2008 annual meeting. Our Board of Directors has renominated each of the eight directors currently serving on the Board to serve as directors for a one-year term until the 2009 annual meeting of stockholders. Each of the nominees has consented to serve if elected.

 

The Board of Directors recommends a vote FOR and solicits proxies in favor of each of the nominees named below. Proxies cannot be voted for more than eight people. Our Board has no reason to believe that any of the nominees for director will be unable or unavailable to serve. However, if any nominee should for any reason become unable or unavailable to serve, proxies will be voted for another nominee selected by the Board. Alternatively, proxies, at our Board’s discretion, may be voted for a fewer number of nominees as a result of a director’s inability or unavailability to serve. Each person elected will hold office until the 2009 annual meeting of stockholders and until his or her successor is duly elected and qualified, or until earlier resignation or removal.

 

The following is biographical information concerning the eight nominees for election as directors of Arbitron:

 

Shellye L. Archambeau, age 45

 

 

David W. Devonshire, age 62

 

 

Philip Guarascio, age 66

 

 

William T. Kerr, age 67

 

 

Larry E. Kittelberger, age 59

 

 

 

Stephen B. Morris, age 64

 

 

Luis G. Nogales, age 64

 

 

Richard A. Post, age 49

 

 

OUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES SET FORTH ABOVE.

 

Under the listing standards of the New York Stock Exchange, and pursuant to our corporate governance policies and guidelines, we are required to have a majority of “independent” directors and a nominating/corporate governance committee, compensation committee and audit committee, each composed solely of independent directors. In determining director independence, the Board broadly considers all relevant facts and circumstances, including the rules of the New York Stock Exchange. The Board considers the issue not merely from the standpoint of a director, but also from that of persons or organizations with which the director has an affiliation. An independent director is free of any relationship with Arbitron or its management that may impair the director’s ability to make independent judgments.

 

The Board of Directors has evaluated the status of each director and affirmatively determined that Ms. Archambeau and Messrs. Guarascio, Devonshire, Kerr, Kittelberger, Nogales, and Post are independent. Mr. Morris is not independent because he is an employee of the Company. Each current member of our Compensation and Human Resources Committee, our Nominating and Corporate Governance Committee, and our Audit Committee is independent.

 

In evaluating the independence of Mr. Nogales, the Board of Directors considered the fact that Mr. Nogales is the managing partner of a general partnership that has a 2% ownership interest in an investment fund that has a 96% ownership interest in two radio stations that have entered into five-year radio ratings contracts with the Company substantially in the form and upon substantially the terms and conditions of the Company’s standard radio ratings contract with third parties. The average annual fees payable to the Company under this agreement are equal to approximately $156,000. The Board of Directors, with Mr. Nogales and Mr. Morris not participating, has previously reviewed and approved the terms of this transaction. Following its review of this relationship, the Board of Directors affirmatively determined that Mr. Nogales is independent.

 

Corporate Governance Policies and Guidelines.  We have adopted corporate governance policies and guidelines, which serve as principles for the conduct of the Board of Directors. Our corporate governance policies and guidelines, which meet the requirements of the New York Stock Exchange listing standards, address a number of topics, including, among other things, director qualification standards, director responsibilities, the responsibilities and composition of the Board committees, director access to management and independent advisers, director compensation, management succession and evaluations of the performance of the Board.

 

Codes of Ethics.  We have adopted a Code of Ethics and Conduct, which applies to all of our employees, officers and directors, and meets the requirements for such code as set forth in the New York Stock Exchange listing standards. We have also adopted a Code of Ethics for the Chief Executive Officer and Financial Managers, which applies to our Chief Executive Officer, Chief Financial Officer and all managers in our financial organization, and meets the requirements of a “code of ethics” as defined by the rules and regulations of the Securities and Exchange Commission (the “SEC”).

 

Where You Can Find These Documents.  Our corporate governance policies and guidelines, Code of Ethics and Conduct and Code of Ethics for the Chief Executive Officer and Financial Managers are available on our Web site at www.arbitron.com, and are also available in print to any stockholder who sends a written request to the Treasury Manager at Arbitron Inc., 9705 Patuxent Woods Drive, Columbia, Maryland 21046.

 

Consistent with the New York Stock Exchange listing standards, our corporate governance policies and guidelines provide that, in order to promote open discussion among nonmanagement directors, the Board of

Directors will devote a portion of each regularly scheduled Board meeting to executive sessions without management participation. Lawrence Perlman, chairman of our Board of Directors until May 2007, presided at such executive sessions through May 2007. Following the 2007 annual meeting, the Board of Directors elected Stephen B. Morris as its new chair. Because Mr. Morris is not independent as defined in the New York Stock Exchange listing standards, the Board of Directors also elected Luis G. Nogales as the Lead Independent Director to preside at executive sessions of nonmanagement directors. Mr. Nogales has presided at executive sessions of our nonmanagement directors at each regularly scheduled meeting of the Board since May 2007. Our corporate governance policies and guidelines provide that if the group of nonmanagement directors includes directors who are not independent, as defined in the New York Stock Exchange listing standards, it is the Company’s policy that at least one such executive session convened per year shall include only independent directors.

 

Interested third parties may communicate with the Board of Directors by e-mailing correspondence directly to our Lead Independent Director at nonmanagementdirectors@arbitron.com. Our Lead Independent Director will decide what action should be taken with respect to any such communication, including whether such communication will be reported to the Board of Directors.

 

The Board of Directors held ten meetings in 2007, including meetings by telephone conference, and acted by unanimous written consent five times in 2007. Each director attended at least 75% of the meetings of the Board of Directors and applicable committees on which they served during the period that they served on the Board of Directors or such committees, except that Mr. Aldworth attended 66% of the meetings of the Board of Directors and 100% of the meetings of the committees on which he served during the period that he served on the Board of Directors or such committees during 2007. In addition, pursuant to our corporate governance policies and guidelines, directors are expected to attend the annual meetings of stockholders. Last year, all of our then current directors attended the annual meeting of stockholders, except for Mr. Aldworth who did not stand for reelection at the annual meeting.

 

The Board of Directors maintains the following five standing committees:

 

Executive

Audit

Compensation and Human Resources

Nominating and Corporate Governance

Technology Strategy

 

In December 2007 the Board of Directors created a special PPM Strategy Committee. Membership on the Audit Committee, the Compensation and Human Resources Committee, and the Nominating and Corporate Governance Committee is limited to directors who are “independent” of Arbitron, as that term is defined in the New York Stock Exchange listing standards and as affirmatively determined by our Board of Directors.

 

The following directors currently serve on the Executive Committee:

 

Stephen B. Morris, Chair

Luis G. Nogales

Richard A. Post

 

Mr. Perlman and Mr. Aldworth served on the Executive Committee until May 2007. Mr. Post and Mr. Nogales joined the Executive Committee in May 2007. The Executive Committee acts on matters that

arise between Board meetings and require immediate action. All actions taken by this committee are reported to, and ratified by, the Board of Directors at its next regularly scheduled meeting. The Executive Committee met three times, and acted by unanimous written consent one time during 2007.

 

The following directors currently serve on the Audit Committee:

 

Richard A. Post, Chair

Shellye L. Archambeau

David W. Devonshire

 

Mr. Aldworth served on the Audit Committee until February 2007. Mr. Devonshire joined the Audit Committee in August 2007. Mr. Kittelberger served on the Audit Committee until November 2007. As required by the charter of the Audit Committee, our corporate governance guidelines, and the New York Stock Exchange listing standards, all members of the Audit Committee qualify as “independent” directors within the meaning of the New York Stock Exchange listing standards and Rule 10A-3 under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), are financially literate within the meaning of the New York Stock Exchange listing standards and meet the experience and financial expertise requirements of the New York Stock Exchange listing standards. The Board of Directors has determined that Mr. Post is an “audit committee financial expert” as defined by the rules and regulations of the Securities and Exchange Commission. The principal purposes of the Audit Committee are to:

 

 

 

 

The Board of Directors has adopted an amended and restated written charter for the Audit Committee, a copy of which is available on our Web site at www.arbitron.com and is available in print, free of charge, to any stockholder who requests it. You can obtain such a print copy by contacting the Treasury Manager at Arbitron Inc., 9705 Patuxent Woods Drive, Columbia, Maryland 21046. The Audit Committee held 12 meetings in 2007, including meetings by telephone conference, and acted by unanimous written consent one time in 2007.

 

The following directors currently serve on the Compensation and Human Resources Committee:

 

William T. Kerr, Chair

Philip Guarascio

Larry E. Kittelberger

Luis G. Nogales

 

Mr. Perlman served on the Compensation and Human Resources Committee until May 2007. Mr. Kerr joined the Compensation and Human Resources Committee in May 2007, and became chair of the committee in November 2007. Mr. Kittelberger joined the Compensation and Human Resources Committee in November

2007. Mr. Guarascio served as the chair of the Compensation and Human Resources Committee until November 2007. Each member of the Compensation and Human Resources Committee qualifies as an “independent” director under the New York Stock Exchange listing standards. The principal responsibilities of the Compensation and Human Resources Committee are to:

 

 

The committee has retained the firm of Frederic W. Cook & Co., Inc. as its compensation consultant to assist in the continual development and evaluation of compensation policies and the Compensation and Human Resources Committee’s determinations of compensation awards. The role of Frederic W. Cook & Co., Inc. is to provide independent, third-party advice and expertise on executive and non-employee director compensation issues, as described in the “Compensation Discussion and Analysis” section below.

 

The committee has delegated authority to the CEO under the Company’s 1999 Stock Incentive Plan and the 2001 Broad Based Incentive Plan to make incentive awards to non-executive employees of the Company representing not more than 4,000 shares of the Company’s common stock to any individual.

 

The Board of Directors has adopted an amended and restated written charter for the Compensation and Human Resources Committee, a copy of which is available on our Web site at www.arbitron.com and is available in print, free of charge, to any stockholder who requests it. You can obtain such a print copy by contacting the Treasury Manager at Arbitron Inc., 9705 Patuxent Woods Drive, Columbia, Maryland 21046. The Compensation and Human Resources Committee held six meetings in 2007.

 

The following directors currently serve on the Nominating and Corporate Governance Committee:

 

Philip Guarascio, Chair

William T. Kerr

Luis G. Nogales

Richard A. Post

 

Prior to August 2007, the Nominating Committee and the Corporate Governance Committee were separate committees of the Board of Directors. In August 2007, the Board of Directors combined the Nominating Committee and the Corporate Governance Committee into a single committee composed entirely of independent directors. Prior to August 2007, Mr. Guarascio served as the chair of the Nominating Committee and Messrs. Kittelberger and Post each served on the Nominating Committee. Prior to May 2007, Mr. Perlman served as the chairman of the Corporate Governance Committee, and from May 2007 until August 2007 Mr. Nogales served as chairman of the Corporate Governance Committee. Until August 2007,

each independent director then serving as a member of the Board of Directors also served as a member of the Corporate Governance Committee, and Corporate Governance Committee meetings were combined with the meetings of the nonmanagement directors at each regularly scheduled Board meeting.

 

Each member of the Nominating and Corporate Governance Committee qualifies as an “independent” director under the New York Stock Exchange listing standards. The principal purposes of the Nominating and Corporate Governance Committee are to:

 

 

The Nominating and Corporate Governance Committee has approved, and the Board of Directors has adopted, policies and procedures to be used for considering potential director candidates to continue to ensure that our Board of Directors consists of a diversified group of qualified individuals who function effectively as a group. These policies and procedures provide that qualifications and credentials for consideration as a director nominee may vary according to the particular areas of expertise being sought as a complement to the existing composition of the Board of Directors. However, at a minimum, candidates for director must possess: (1) strength of character; (2) an ability to exercise independent thought, practical wisdom and mature judgment; (3) an ability to make independent analytical inquiries; (4) a willingness and ability to devote adequate time and resources to diligently perform Board of Director duties; and (5) a reputation, both personal and professional, consistent with the image and reputation of Arbitron. In addition to the aforementioned minimum qualifications, the Nominating and Corporate Governance Committee also believes that there are other factors that, while not prerequisites for nomination, should be taken into account when considering whether to recommend a particular person. These factors include: (1) whether the person possesses specific media and marketing expertise and familiarity with general issues affecting Arbitron’s business; (2) whether the person’s nomination and election would enable the Board of Directors to have a member that qualifies as an “audit committee financial expert” as such term is defined by the Securities and Exchange Commission; (3) whether the person would qualify as an “independent” director under the New York Stock Exchange listing standards and the Company’s corporate governance policies and guidelines; (4) the importance of continuity of the existing composition of the Board of Directors; and (5) the importance of a diversified Board membership, in terms of both the individuals involved and their various experiences and areas of expertise. The Nominating and Corporate Governance Committee retains a third-party executive search firm to identify and review candidates upon request of the Nominating and Corporate Governance Committee from time to time.

 

The Nominating and Corporate Governance Committee seeks to identify director candidates based on input provided by a number of sources, including (i) Nominating and Corporate Governance Committee members, (ii) other directors of the Company, and (iii) stockholders of the Company. The Nominating and Corporate Governance Committee also has the authority to consult with or retain advisers or search firms to assist in the identification of qualified director candidates.

 

As part of the identification process, the Nominating and Corporate Governance Committee takes into account the number of expected director vacancies and whether existing directors have indicated a willingness to continue to serve as directors if renominated. Once a director candidate has been identified, the Nominating and Corporate Governance Committee then evaluates this candidate in light of his or her qualifications and credentials, and any additional factors that it deems necessary or appropriate. Existing directors who are being

considered for renomination will be reevaluated as part of the Nominating and Corporate Governance Committee’s process of recommending director candidates.

 

The Nominating and Corporate Governance Committee considers candidates recommended by stockholders in the same manner as all other director candidates. Stockholders who wish to suggest qualified candidates must comply with the advance notice provisions and other requirements of Article II, Section 13 of our bylaws. These notice provisions require that recommendations for directors must be received not less than 90 days nor more than 120 days prior to the date of the annual meeting of stockholders for the preceding year. The notice must follow the guidelines set forth in this proxy statement under the heading, “— Other Matters — Director Nominations.”

 

Mr. Devonshire, who was appointed director by the Board in August 2007 and is nominated for election at the 2008 annual meeting of stockholders, was identified by the Nominating Committee in consultation with a third party search firm engaged by the Nominating Committee to assist in a director search.

 

After completing the identification and evaluation process described above, the Nominating and Corporate Governance Committee recommends to the Board of Directors the nomination of a number of candidates equal to the number of director vacancies that will exist at the annual meeting of stockholders. The Board of Directors then selects director nominees for stockholders to consider and vote upon at the stockholders’ meeting.

 

The Board of Directors has adopted an amended and restated written charter for the Nominating and Corporate Governance Committee, a copy of which is available on our Web site at www.arbitron.com and is available in print, free of charge, to any stockholder who requests it. You can obtain a copy in print by contacting the Treasury Manager at Arbitron Inc., 9705 Patuxent Woods Drive, Columbia, Maryland 21046. The combined Nominating and Corporate Governance Committee two times in 2007. The Nominating Committee met three times in 2007 and the Corporate Governance Committee met three times in 2007 before the Board combined the committees.

 

The following directors serve on the Technology Strategy Committee:

 

Larry E. Kittelberger, Chair

Shellye L. Archambeau

David W. Devonshire

William T. Kerr

 

Mr. Kerr joined the Technology Strategy Committee in May 2007 and Mr. Devonshire joined the Technology Strategy Committee in August 2007. Mr. Nogales served on the Technology Strategy Committee until May 2007, and Mr. Post served on the Technology Strategy Committee until November 2007.

 

The principal purposes of the Technology Strategy Committee are to:

 

 

The Technology Strategy Committee held four meetings in 2007.

 

Effective as of December 17, 2007, the Board of Directors created a special PPM Strategy Committee. The following directors currently serve on the PPM Strategy Committee:

 

Philip Guarascio, Chair

Stephen B. Morris

Richard A. Post

 

The primary purpose of the PPM Strategy Committee is to review the Company’s PPM implementation plans and to report promptly all conclusions and recommendations to the full Board of Directors for its information and consideration of any binding action. The PPM Strategy Committee will continue in existence until the February 2009 meeting of the Board of Directors, unless otherwise directed by the Board of Directors. The Board of Directors has determined that a majority of the members of the PPM Strategy Committee must qualify as “independent” directors under the New York Stock Exchange listing standards. The PPM Strategy Committee met one time in 2007.

 

The table below provides information concerning the compensation of the directors for our most recently completed fiscal year. Except as noted below, all of our directors are paid at the same rate. The differences among directors in the table below are a function of additional compensation for chairing a committee, varying numbers of meetings attended and corresponding payments of meeting fees, and the form in which each director elects to receive retainer fees. In accordance with SEC regulations, share-based compensation is valued at the grant date fair value computed in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised), Share-Based Payment (“SFAS No. 123R”). We record such expense ratably over the vesting period. We include in the table below the dollar amount recognized for financial statement reporting purposes for compensation expense incurred by the Company in 2007 with respect to share-based compensation awarded to directors.

 

Each director who is not also an employee of Arbitron or its subsidiaries is entitled to receive an annual board retainer fee of $30,000, which is paid in quarterly installments. Our Lead Independent Director receives a supplemental annual cash payment of $15,000. The non-employee chair of the Audit Committee is entitled to receive a supplemental annual cash payment of $10,000; non-employee chairs of the Compensation and Human Resources Committee, the Nominating and Corporate Governance Committee, and the Technology Strategy Committee are entitled to receive a supplemental annual cash payment of $7,500. For each Board meeting attended, in person or by telephone, participating non-employee directors are entitled to receive $1,500. For each committee meeting attended in person or by telephone, participating non-employee directors are entitled to receive $1,500, except that non-employee directors attending meetings of the PPM Strategy Committee by telephone are entitled to receive $750.

 

Each newly elected non-employee director receives a one-time grant of options to purchase 15,000 shares of Arbitron common stock. These options vest and become exercisable in three equal installments of 5,000 shares over a three-year period and expire 10 years from the date of grant. Through 2007, beginning the year after initial election to the Board of Directors, each non-employee director also received an annual grant of options to purchase 7,000 shares of Arbitron common stock on the date of the annual meeting of stockholders. Beginning with the 2008 annual meeting of stockholders, each continuing non-employee director will receive $100,000 worth of options based on a Black-Scholes valuation calculated using the closing price of the Company’s common stock on the grant date. The exercise price per share of each option granted is equal to 100% of the fair market value of the underlying Arbitron common stock on the date the option is granted, which is equal to the closing price of the Company’s common stock on such date. These ongoing annual options are fully vested on the date of grant, become exercisable six months after their date of grant and expire 10 years from the date of grant.

 

The Company previously adopted a Non-employee Director Incentive Program which permits non-employee directors to receive, at their discretion, either options or deferred stock units (“DSUs”) in lieu of

their annual cash retainers and meeting fees. A director who elects to receive options receives a number of options based on a calculation approved by the Compensation and Human Resources Committee. The formula for determining the number of option shares is to divide the cash fees earned in the quarter by the closing price of Arbitron common stock on the date of the grant, which is the last trading day of the quarter. This amount is then multiplied by four to arrive at the number of option shares granted.

 

A director who elects to receive DSUs receives a number of units based on a calculation approved by the Compensation and Human Resources Committee. The formula for determining the number of DSUs is to multiply the cash fees earned in the quarter by 120% and divide the result by the closing price of Arbitron common stock on the date of the grant, which is the last trading day of the quarter. DSUs granted to our directors convert to shares of our common stock after termination from the Board of Directors, based upon a schedule elected by the director in advance. In the event that a director elects to receive DSUs, the director will receive dividend equivalent rights on such DSUs to the extent dividends are issued on our common stock. Dividend equivalents are deemed reinvested in additional DSUs (or fractions thereof). The amounts set forth in the table below for each director in the column “Fees Earned or Paid in Cash” represent the cash payment of annual retainers and fees or, if the director elected to receive equity-based compensation in lieu of all or a portion of such retainers and fees, the amount of cash the director would have received if the director had not elected to receive such equity-based compensation. If the director elected to receive equity-based compensation in lieu of annual cash retainers and fees, we report in the columns “Stock Awards” and “Option Awards,” as applicable, the dollar amount recognized for financial statement reporting purposes with respect to 2007 in accordance with SFAS No. 123R of the aggregate incremental value of equity-based compensation received in lieu of annual cash retainers and fees in excess of the cash such director would have received if the director had not elected to receive equity-based compensation.

 

It is also the philosophy of the Company that directors should have meaningful equity ownership in the Company. In 2004, the Board established ownership guidelines covering directors. The guidelines are for each director to own shares with a value of four times the annual board retainer. These guidelines are expected to be achieved over five years and include all owned shares, as well as DSUs credited to the directors, but outstanding and unexercised stock options are not counted. All directors who have served on the Board for more than five years have satisfied or exceeded the stock ownership guideline.

 

Mr. Morris is an employee of Arbitron and is not separately compensated for his service as a director.

 

2007 Director Compensation

 

 

 

 

Information concerning the persons who currently serve as our executive officers is provided below. Each of the named persons has been elected to the office indicated opposite the person’s name. The executive officers serve at the discretion of the Board of Directors. Officers generally are elected at the annual meeting of directors held immediately following the annual meeting of stockholders. The Board of Directors may elect additional executive officers from time to time.

 

Stephen B. Morris, age 64, Chairman, President and Chief Executive Officer since May 2007

 

 

Pierre C. Bouvard, age 46, President of Sales and Marketing since December 2005

 

 

Owen Charlebois, age 55, President of Technology, Research & Development since October 2007

 

 

Sean R. Creamer, age 43, Executive Vice President of Finance and Planning and Chief Financial Officer since November 2005

 

 

Linda Dupree, age 49, Executive Vice President, Portable People Meter New Product Development since February 2007

 

 

 

Vaughan Scott Henry, age 46, Executive Vice President and Chief Information Officer since February 2005

 

 

Claire L. Kummer, age 61, Executive Vice President of Operations, Integration and Manufacturing since December 2005

 

 

Kathleen T. Ross, age 55, Executive Vice President and Chief Administrative Officer since September 2005

 

 

Timothy T. Smith, 44, Executive Vice President and Chief Legal Officer, Legal and Business Affairs since August 2006

 

 

In this section, we discuss certain aspects of our compensation program as it pertains to our principal executive officer (“CEO”), our principal financial officer (“CFO”) and our three other most highly compensated executive officers in 2007. We refer to these five persons throughout this proxy statement as the named executive officers or “NEOs.” Our discussion focuses on compensation and practices relating to our most recently completed fiscal year.

 

We believe that the performance of the NEOs and other executive officers has the potential to impact both our short and long-term profitability. Therefore, the Compensation and Human Resources Committee (referred to as the “Committee” in the remainder of this section) and management place considerable importance on the design and administration of the executive compensation program.

 

Our executive compensation program is designed to attract, motivate and retain high-quality executives by providing total compensation that is performance-based and competitive in the various labor markets and industries where we compete for talent. We provide incentives to advance the interests of stockholders and deliver levels of compensation that are commensurate with performance. Overall, we design our executive compensation program to:

 

 

We are in the process of executing a multi-year strategic plan that management and the Board believe will transform the Company from diary-based audience measurement to electronic and multi-media measurement.

 

We seek to achieve the objectives of our compensation program through the following three key compensation elements:

 

 

In making decisions with respect to any component of a NEOs compensation, we consider the total compensation that may be awarded to the NEO, including the foregoing as well as post-termination compensation. Our goal is to award compensation that is reasonable when all elements of potential compensation are considered.

 

When making compensation decisions with respect to each component of compensation, the Committee considers the competitive market for executives and also looks at the compensation of our CEO and the other NEOs relative to the compensation paid to similarly-situated executives at companies that we consider to be our peers — this is often referred to as “benchmarking.” We believe, however, that a benchmark should be just that — a point of reference for measurement — but not the determinative factor for our executives’ compensation. The purpose of the comparison is to augment and not to supplant the analyses of internal pay equity and individual performance that we consider when making compensation decisions.

 

We refer to the current peer group of companies considered by the Committee, collectively, as the “Compensation Peer Group.” With the assistance of its compensation consultant, the Committee reviews the composition of the Compensation Peer Group annually to ensure that comparison companies are relevant and appropriate. The Committee replaced five of the companies comprising the Compensation Peer Group in 2006 with eight new companies in 2007. We believe that the group of companies is representative of the sector in which we operate, and the group was chosen because of each company’s relative leadership position in our sector, relative size as measured by revenues and market capitalization and the relative complexity of its business. Our peer group currently consists of the following companies:

 

 

Because the comparative compensation information is just one of the several analytic tools that are used in setting executive compensation, the Committee has discretion in determining the nature and extent of its use. Further, given the limitations associated with comparative pay information for setting individual executive compensation, the Committee may elect to not use the comparative compensation information at all in the course of making compensation decisions. Other factors considered when making individual executive compensation decisions are individual contribution and performance, reporting structure, internal pay relationship, complexity, impact on financial results, importance of role and responsibilities, leadership, and

professional growth potential. All executive compensation decisions are made by the Committee after input from the CEO (except for his own compensation) and review with the Committee’s independent consultant.

 

The purpose of base salary is to reflect job responsibility, experience, value to the Company and individual performance with respect to market competitiveness. Minimum salary for Mr. Morris is specified in his employment agreement. The Committee determines the amount of any increase over this minimum salary for Mr. Morris, and the salaries for our other NEOs based on the following:

 

 

We compete with many larger companies for top executive talent. As such, the base salary component is generally targeted to be between the 50th and 60th percentile of the Compensation Peer Group. However, recruiting, retaining and recognizing performance of specific executives may result in some variation from this target. Salaries are generally reviewed annually. These targets recognize the Committee’s expectation that, over the long term, Arbitron will generate stockholder returns in excess of the average of the Compensation Peer Group.

 

Base salary is the foundation of our executive compensation program and is designed to compensate executives for services rendered during the year. In setting base salaries, the Committee considers the importance of linking a high proportion of executive officers’ compensation to performance in the form of the annual non-equity incentive plan payment, which is tied to both Company performance measures and individual performance as well as long-term stock-based compensation, which is tied to Company stock price performance and performance compared to the Compensation Peer Group.

 

Our compensation program provides for annual cash incentive awards that are based on individual contribution. The objective is to compensate executives based on the achievement of specific goals that are expected to correlate closely with growth of long-term stockholder value.

 

We design the annual non-equity incentive plan to reward executives for achieving corporate goals and provide significant upside for exceeding such goals. Early in the fiscal year, the Committee, working with the CEO, CFO and the Committee’s independent consultant, sets performance goals for the Company and for individual executives. The annual non-equity incentive plan compensation for which executives other than the CEO are eligible is equal to between 40% and 55% of salary at the “target” performance level for full achievement of the performance goals, and up to two times “target” for superior performance. The Committee also has discretion to grant non-equity incentive payments in excess of the “superior” level of performance in order to reward actual performance that exceeds the “superior” level. Pursuant to the terms of his employment agreement, the target annual non-equity incentive plan payment for Mr. Morris is equal to 75% of his base salary at the “target” performance level and 150% of his base salary at the “superior” performance level during the term of the agreement.

 

The CEO’s and the CFO’s annual non-equity incentive payments are based entirely on the achievement of corporate goals. The other NEOs’ annual non-equity incentive payments are based 50% on the achievement of corporate goals and 50% on the achievement of individual goals, based on the evaluation and recommendation of the CEO. We equally weight the annual non-equity incentive determinations for NEOs other than the CEO and CFO between corporate goals and individual goals in order to focus those executives on the areas for which they are responsible, while also recognizing them as leaders of the Company as a whole.

At the beginning of 2007, the Committee established performance goals for 2007 annual non-equity incentive payments based on the following four key corporate financial and performance measures: earnings per share, revenue, Portable People Meter (“PPM”), which is our portable electronic media measurement service, and Project Apollo, which was our pilot single-source, national market research service with The Nielsen Company. The Committee selected the two financial targets, earnings per share and revenue, in order to motivate executives to achieve the Company’s overall financial performance objectives. We weighted the two financial targets, in the aggregate, at 50% of the total corporate goals to reflect the importance the Committee places on the Company’s financial performance. Between the two financial targets, earnings per share is emphasized in order to focus executives’ attention on a financial measure that the Committee believes aligns the interests of management with those of long-term stockholders and rewards management for creating value for such long-term stockholders. In determining the extent to which the financial performance goals are met or exceeded, the Committee exercises its judgment whether to reflect or exclude the impact of changes in accounting principles and extraordinary, unusual, or infrequently occurring events.

 

 

The Board and management have identified the shift away from diary-based radio audience measurement and toward electronic and multi media measurement as a crucial component of the Company’s future success. The two non-financial performance targets, Portable People Meter and Project Apollo, are two key areas the Committee believes require significant Company-wide effort in order to achieve the Company’s strategic goals. Accordingly, the Committee selected the two non-financial targets in order to reward executives for significant progress toward achieving long-term strategic goals that the Board believes are necessary to position the Company for future growth.

 

Portable People Meter (40% of total non-equity incentive plan payment)

 

 

Project Apollo (10% of total non-equity incentive plan payment)

 

 

As part of our annual financial and strategic planning process, the Committee (typically in January) reviews and assesses the Company’s performance against each of the performance goals established at the outset of the prior year. The Committee also considers the recommendation of the CEO (for executive officers other than himself) in exercising its judgment. Following consideration of a variety of data regarding 2007 results, the Committee approved the following assessment of 2007 performance:

 

 

Accordingly, the Committee determined that the corporate performance component of each NEO’s non-equity incentive plan payment was equal to approximately 39% of the target corporate performance non-equity incentive plan payment for which such executive was eligible, as compared to 144.5% in 2006. The Committee also determines whether, and the extent to which, personal goals have been met based in substantial part upon the recommendation of the CEO. In particular, the Committee considered substantial successes involving PPM sales when evaluating Mr. Bouvard’s 2007 performance. As a result of these determinations, the Committee awarded in 2007 non-equity incentive plan payments in the amounts set forth in the Summary Compensation Table.

 

The long-term incentive program provides a periodic award (typically annual) that is based on competitive grant guidelines and adjusted for individual contributions. The objective of the program is to align compensation for NEOs over a multiyear period with the interests of stockholders by motivating and rewarding creation and preservation of long-term stockholder value. The level of long-term incentive compensation is determined based on an evaluation of competitive factors in conjunction with total compensation provided to NEOs and the other goals of the compensation program described above. Committee meetings, at which grants are determined, are normally scheduled well in advance and are not scheduled with an eye to announcements of material information regarding the Company.

 

On February 20, 2007, the Committee approved grants of restricted stock units to executive officers, including the NEOs other than Ms. Dupree, as set forth in “— 2007 Grants of Plan-Based Awards” below. The Committee approved the grant of restricted stock units to Ms. Dupree at its meeting on May 15, 2007. During 2007, the Committee granted exclusively restricted stock units, and no options, as was the mix in prior years. The shift to all restricted stock units in 2007 was to emphasize employment retention during the Company’s critical transition period, while continuing to recognize stockholder returns in the underlying value of the shares.

 

Restricted stock units granted to NEOs, except for Mr. Morris’s 2007 grant, vest in equal annual installments over the first four anniversaries of the grant date, based on continued employment. All unvested restricted stock units are forfeitable upon termination of employment, unless otherwise indicated in individual employment agreements. The restricted stock units granted in 2007 do not provide voting or dividend rights until the units are vested and converted into common stock.

 

Mr. Morris’s 2007 grant of restricted stock units vests, subject to continued employment, in three equal installments beginning on December 31, 2007 and ending on December 31, 2009, coinciding with the expiration of his employment agreement. On the vesting date of each annual installment, Mr. Morris will receive a number of shares of common stock representing 50% of that annual installment, rounded down to the next whole share, of the restricted stock units vesting on that date, with the number of remaining restricted stock units vesting on such date credited to Mr. Morris’s account as an equivalent number of deferred stock units. This is to provide a balance between annual pay delivery and future ownership.

 

In addition to the long-term incentive equity awards paid to NEOs in 2007 and/or set forth in the tables below, in March 2008, the Committee granted long-term incentives for 2008. The grants to NEOs, other than to Mr. Morris, were approximately equally weighted in value between restricted stock units and stock options. This mix of grant types was determined by the Committee to most effectively balance risk and reward for the future stockholder value creation with ownership and retention objectives of the executive compensation program. Grants to NEOs were in the following amounts: Mr. Morris: 43,333 restricted stock units, Mr. Creamer: 10,486 restricted stock units and 39,146 stock options, Mr. Bouvard: 9,009 restricted stock units and 33,630 stock options, Mr. Charlebois: 9,009 restricted stock units and 33,630 stock options, and Ms. Dupree: 6,292 restricted stock units and 23,488 stock options.

 

Mr. Morris’s 2008 grant of restricted stock units vests in two equal annual installments beginning on December 31, 2008, subject to continued employment to coincide with the expiration of his employment agreement. On the vesting date of each annual installment, Mr. Morris will receive a number of shares of common stock representing 50% of that annual installment, rounded down to the next whole share, of the restricted stock units vesting on that date, with the number of remaining restricted stock units vesting on such date credited to Mr. Morris’s account as an equivalent number of deferred stock units. The design and rationale is the same as described earlier for his restricted stock unit grants in 2007. Each of the other NEOs’ 2008 grant of restricted stock units vests in equal annual installments over the first four anniversaries of the grant date, based on continued employment. All unvested restricted stock units are forfeitable upon termination of employment, unless otherwise indicated in individual employment contracts. The restricted stock units granted in 2008 do not provide voting or dividend rights until the units are vested and converted into common stock.

 

Each of the stock options granted to NEOs in 2008 have exercise prices equal to $41.96, the closing price of the Company’s common stock on March 1, 2008, the date the Committee approved the grant. The options vest in three equal annual installments beginning on the first anniversary of the date of grant, and have a term of 10 years during Company employment.

 

In determining long-term incentive grant, the Committee considers other components of compensation paid by the Company, any contractual requirements, individual performance, market data on total compensation packages, the value of long-term incentive grants at targeted companies within the Compensation Peer Group, total stockholder return, share usage and stockholder dilution and, except in the case of the award to the CEO, the recommendations of the CEO.

 

With limited exceptions, our NEOs are provided with benefits and perquisites that are substantially the same as those offered to other employees of the Company.

 

Mr. Morris and Ms. Dupree participate in a defined benefit pension plan and a supplemental retirement plan, the Arbitron Benefit Equalization Plan (“BEP”), and Mr. Morris is the sole participant in the Supplemental Executive Retirement Plan (“SERP”). The amounts payable under such retirement plans to Mr. Morris and Ms. Dupree are determined by the plans’ benefit formulas, which we describe in the section “Pension Benefits Table” below. The amount of benefits varies based upon the plan, the executive’s years of service with us and the executive’s compensation.

 

We offer a qualified 401(k) Plan to provide our employees tax-advantaged savings vehicles. We make matching contributions to the 401(k) Plan to encourage employees to save money for their retirement. This plan and our contributions to it enhance the range of benefits we offer to executives, encourage retirement savings in a cost and tax-efficient way, and further our ability to attract and retain employees.

 

Under the terms of the 401(k) Plan, employees may defer from 1% to 17% of their eligible earnings, and we make a matching contribution of 50% of before tax employee contributions up to a maximum of 3% to 6% of eligible employee earnings. We may also make an additional discretionary matching contribution of 0% to 30% of before tax employee contributions up to a maximum of 3% to 6% of eligible employee earnings

(depending on the Company’s profitability). The 3% maximums referred to in the previous sentences relate to employees who are pension participants and the 6% maximums relate to employees who are not pension participants.

 

Our matching contributions to the 401(k) Plan for each NEO are set forth in the Summary Compensation Table below. See also “— 2007 Nonqualified Deferred Compensation — 401(k) Plan.”

 

Mr. Morris is party to an employment agreement with the Company that provides for continued employment until December 31, 2009. The agreement also provides for the Company to retain Mr. Morris to provide consulting services to the Company for three years commencing January 1, 2010. During the consulting term, the Company will pay Mr. Morris a quarterly consulting fee of $83,333, as well as reasonable costs and expenses incurred in providing the consulting services. Pursuant to the agreement, Mr. Morris waived any rights to accelerate the vesting of restricted stock awards or stock options upon his retirement.

 

The agreement also provides for the payment of a lump sum to Mr. Morris or his estate upon his death or disability or a change of control of the Company during the term of the agreement. The terms of the change of control provision during the term of the agreement are described in the section “— Potential Payments Upon Termination or Change in Control” below.

 

We have entered into Retention Agreements with members of senior management, including each of our NEOs other than Mr. Morris that provide for severance payments under some circumstances, and for payments with respect to stock options and restricted stock grants upon a change in control. Except for these Retention Agreements, we do not have agreements with any of our NEOs other than Mr. Morris that require us to pay their salary for any period of time. We entered into the Retention Agreements because we do not want our executives distracted by a rumored or actual change in control of the Company. Further, if a change in control should occur, we want our executives to be focused on the business of the organization and the interests of stockholders. In addition, we think it is important that our executives can react neutrally to a potential change in control and not be influenced by personal financial concerns. We believe our Retention Agreements assist us in retaining our executive talent. The material terms of the retention agreements are described in the section “— Potential Payments Upon Termination or Change in Control” below.

 

During 2004, the Committee recommended and the Board established stock ownership requirements for our executive officers. These officers are expected, over time, to acquire and hold Company stock (including restricted stock units) equal in value to at least the following:

 

 

These guidelines are expected to be achieved within three years of becoming an executive officer, and include owned shares of common stock, restricted shares, and restricted stock units or DSUs that only can be settled in common stock. However, no outstanding unexercised stock options are taken into account for purposes of satisfying these guidelines. The purpose of stock ownership requirements is to more closely align our key executives’ interests with our stockholders. All NEOs who have been in their positions for more than three years have either satisfied or exceeded the applicable stock ownership guideline.

 

The role of Arbitron management is to provide reviews and recommendations for the Committee’s consideration, and to manage the Company’s executive compensation programs, policies, and governance. Direct responsibilities are the following:

 

 

Section 162(m) of the Internal Revenue Code of 1986, as amended (“Section 162(m)”), disallows any tax deductions for compensation exceeding $1 million and paid in a taxable year to any NEO other than the CFO, all of whom are “covered employees” under Section 162(m). However, certain performance-based compensation, determined under pre-established objective performance goals, can be deducted even in excess of the $1 million limit. The Committee considers the potential impact of Section 162(m) as one factor to be taken into account in setting total compensation and its component elements. However, the Committee believes that it must retain flexibility, in observing its overall compensation philosophy and objectives, to structure total compensation to include components, such as service-vesting restricted stock units, that would not be treated as performance-based compensation under the Section, both in order to attract and retain top talent and to appropriately gauge the performance of executives. Achieving the desired flexibility in the design and delivery of total compensation, therefore, may result in some compensation not being deductible for federal income tax purposes.

 

The Compensation and Human Resources Committee reviewed and discussed the Compensation Discussion and Analysis included in this Proxy Statement with management. Based on such review and discussion, the Compensation and Human Resources Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement for filing with the Securities and Exchange Commission.

 

Submitted by the Compensation and
Human Resources Committee of the
Board of Directors

 

William T. Kerr, Chair
Philip Guarascio
Larry E. Kittelberger
Luis G. Nogales

 

The following sections provide a summary of cash and certain other amounts we paid for the years ended December 31, 2006 and December 31, 2007 to the NEOs. The compensation we disclose below is presented in accordance with SEC regulations. According to those regulations we are required in some cases to include:

 

 

 

Therefore, we encourage you to read the following tables closely. The narratives preceding the tables and the footnotes accompanying each table are important parts of each table. Also, we encourage you to read this section in conjunction with our Compensation Discussion and Analysis above.

 

The following table provides information concerning the compensation of our NEOs for our most recently completed fiscal year.

 

In the column “salary,” we disclose the amount of base salary paid to the NEO during the fiscal year.

 

In the columns “Stock Awards” and “Option Awards,” SEC regulations require us to disclose the award of stock or options measured in dollars and calculated in accordance with SFAS No. 123R. For restricted stock, the SFAS No. 123R fair value per share is equal to the closing price of our stock on the date of grant. Except with respect to Mr. Morris, restricted stock awards typically vest in four equal annual installments beginning on the first anniversary of the date of grant. Awards are conditioned on the participant’s continued employment with Arbitron, but may have additional restrictions. We recognize such expense ratably over the vesting period. For stock options, the SFAS No. 123R fair value per share is based on certain assumptions, which we explain in note 16 to the consolidated financial statements contained in our Annual Report on Form 10-K. We recognize such expense ratably over the vesting period. The amounts shown in the 2007 Summary Compensation Table also include a ratable portion of each grant we made in prior years to the extent a portion of the vesting period occurred in 2007. Please also refer to the second table in this Proxy Statement, “— Summary of Cash and Certain Other Compensation and Other Payments to the NEOs — Grants of Plan-Based Awards.”

 

In the column “Non-equity Incentive Plan Compensation,” we disclose the dollar value of all earnings for services performed during the fiscal year pursuant to awards under non-equity incentive plans.

 

In the column “Change in Pension Value and Nonqualified Deferred Compensation Earnings,” we disclose the sum of the dollar value of (1) the aggregate change in the actuarial present value of the NEO’s accumulated benefit under all defined benefit and actuarial pension plans (including supplemental plans) in 2007; and (2) any above-market or preferential earnings on nonqualified deferred compensation, including on nonqualified defined contribution plans.

 

Retirement benefits for two of our NEOs, Mr. Morris and Ms. Dupree, constitute a significant percentage of their total compensation.

 

In the column “All other compensation,” we disclose the sum of the dollar value of:

 

 

2007 Summary Compensation Table

 

 

 

 

 

 

In this table, we provide information concerning each grant of an award made to a NEO in the most recently completed fiscal year under any plan. For 2007, this includes only restricted stock unit awards under the Arbitron Inc. 1999 Stock Incentive Plan, which we discuss in greater detail in this proxy statement under the caption, “Compensation Discussion and Analysis.” In the fourth column, we report the number of restricted stock units granted in the fiscal year. In the fifth column, we report the aggregate SFAS No. 123R value of all awards made in 2007; in contrast to how we present amounts in the Summary Compensation Table, we report such figures here without apportioning such amount over the service or vesting period. In all cases, the grant date fair value was equal to the closing market price of our common stock on the grant date, which was the date on which the Compensation and Human Resources Committee approved the grant, which price we report in the sixth column.

 

2007 Grants of Plan-Based Awards

 

 

 

 

The following table provides information concerning unexercised options and stock that has not vested outstanding as of the end of our most recently completed fiscal year for each NEO. Each outstanding award is represented by a separate row, which indicates the number of securities underlying the award, including awards that have been transferred other than for value (if any).

 

For option awards, the table discloses the number of shares underlying both exercisable and unexercisable options, as well as the exercise price and the expiration date. For stock awards, the table provides the total number of shares of stock that have not vested and the aggregate market value of shares of stock that have not vested.

 

We computed the market value of stock awards by multiplying the closing market price of our stock at the end of the most recently completed fiscal year by the number of shares or units of stock.

 

Outstanding Equity Awards at Fiscal Year-End 2007

 

 

 

 

The following table provides information concerning exercises of stock options and similar instruments, and vesting of restricted stock and similar instruments, during the most recently completed fiscal year for each of the NEOs on an aggregated basis. The table reports the number of securities for which the options were exercised; the aggregate dollar value realized upon exercise of options; the number of shares of restricted stock that have vested; and the aggregate dollar value realized upon vesting of stock.

 

2007 Option Exercises and Stock Vested

 

 

Arbitron has established a voluntary, tax-qualified, defined benefit pension plan funded by employee and employer contributions. The plan covers Arbitron employees who, as of December 31, 2000, were eligible to participate in the Ceridian Corporation (“Ceridian”) pension plan. The Ceridian plan was closed to new participants effective January 2, 1995. Benefits earned under the Ceridian plan prior to December 31, 2000, are payable from the Arbitron plan for participants employed by Arbitron on December 31, 2000. The amount of the annual benefit under Arbitron’s plan is based upon an employee’s average annual compensation during the employee’s highest consecutive five-year earnings period while participating in the Ceridian plan or the Arbitron plan. Because the Internal Revenue Code of 1986, as amended, limits the annual benefit that may be paid from tax-qualified plans such as Arbitron’s retirement plan, Arbitron also established a benefit equalization plan (“BEP”) to provide retirees with supplemental benefits so that they will receive, in the aggregate, the benefits they would have been entitled to receive under the retirement plan had these limits not been in effect. Benefits earned under the Ceridian BEP prior to December 31, 2000, are payable from the Arbitron plan for participants employed by Arbitron on December 31, 2000. Arbitron also established and funded a benefit protection trust to pay BEP benefits. Normal retirement age under the pension plan and the BEP is 65.

 

Annual compensation for purposes of the pension plan and the Arbitron BEP consists of salary and any annual non-equity incentive plan payments paid during the year, less the amount contributed by the employee to the pension plan that year on a pretax basis. Mr. Morris and Ms. Dupree are the only NEOs eligible to participate in these plans. Compensation of both Mr. Morris and Ms. Dupree for 2007 for the pension plan

was $225,000. Eligible compensation for purposes of the Arbitron BEP was $1,239,480 for Mr. Morris and $403,186 for Ms. Dupree during 2007. For purposes of the pension plan and the Arbitron BEP, an annual non-equity incentive plan payment is considered part of annual compensation in the year in which it is paid, rather than the year in which it was earned (the latter formulation being the basis on which such amounts are reported in our Summary Compensation Table).

 

The Arbitron Supplemental Executive Retirement Plan (“SERP”) is designed to provide a targeted level of postretirement income to Mr. Morris in consideration of his significant impact on the long-term growth and profitability of the Company. Ms. Dupree is not eligible to participate in the SERP. The SERP benefit supplements the retirement benefits provided to Mr. Morris under the pension plan and the Arbitron BEP. Covered compensation for Mr. Morris during 2007 for the SERP was $1,239,480. Normal retirement age under the SERP is 63.

 

Benefit amounts in the Pension Benefits Table below are computed assuming payments are made on the normal life annuity basis and not under any of the various survivor options. Benefits listed in the table are not subject to deduction for Social Security or other offset amounts.

 

2007 Pension Benefits Table

 

 

 

 

No NEO participated in any nonqualified deferred compensation plan during 2007.

 

Arbitron maintains a 401(k) plan that permits participating employees to contribute a portion of their compensation to the plan on a pretax basis. Arbitron makes matching contributions in amounts determined by Arbitron.

 

The 401(k) plan accounts are invested among a number of available investment options, including shares of Arbitron common stock, according to the directions of the participating employees. Voting and tender rights with respect to shares of Arbitron common stock credited to participants’ accounts will be passed through to the participants.

 

While employed, participating employees may access their accounts through loans and, in some cases, in-service withdrawals. Following termination of employment, benefits are either distributed in a lump-sum payment or, if minimum requirements are met, can be kept in the plan. To the extent a participant’s account is invested in full shares of Arbitron’s common stock, the shares may be distributed to the participant when the account is distributable.

 

Arbitron retains the right to amend or terminate the 401(k) plan at any time.

 

The following table summarizes the estimated payments to be made under each contract, agreement, plan or arrangement that provides for payments to a NEO at, following, or in connection with any termination of employment including by resignation, retirement, disability or a constructive termination of a NEO, or our change in control or a change in the NEO’s responsibilities. However, in accordance with SEC regulations, we do not report any amount to be provided to a NEO under any arrangement that does not discriminate in scope, terms, or operation in favor of our executive officers and which is available generally to all salaried employees. Also, the following table does not repeat information disclosed above under the pension benefits table, the deferred compensation table, or the outstanding equity awards at fiscal year-end table, except to the extent that the amount payable to the NEO would be enhanced by the termination event.

 

For the purpose of the quantitative disclosure in the following table, and in accordance with SEC regulations, we have assumed that the termination took place on the last business day of our most recently completed fiscal year, and that the price per share of our common stock is the closing market price as of that date — $41.57.

 

Mr. Morris currently has an employment agreement with the Company, the terms of which are described below. Mr. Morris’s employment agreement contains provisions regarding protection of confidential information, rights in any intellectual property created by him, restrictions on competition and change of control compensation. None of our other NEOs has an employment agreement with the Company, but each of the other NEOs has retention agreements as described below.

 

The agreement with Mr. Morris incents him to remain with the Company until December 31, 2009, as well as to manage a strategic business/succession plan, including assisting the Board with the selection of his successor. Components of this agreement are as follows:

 

 

 

 

The agreement also provides for the Company to retain Mr. Morris as a consultant for three years beginning on January 1, 2010. Mr. Morris has also agreed to serve as a member of the Board of Directors during the consulting term if he is nominated and elected. During the consulting term, the Company will pay Mr. Morris a quarterly consulting fee of $83,333, as well as reasonable costs and expenses incurred by Mr. Morris in providing the consulting services.

 

Mr. Morris has waived any right to accelerate the vesting of restricted stock awards or stock options upon his retirement. Additionally, Mr. Morris has agreed not to dispose of shares of common stock during any 12-month period that exceeds an amount equal to 25% of the aggregate number of shares of common stock he is entitled to receive under the agreement, provided that this restriction will terminate upon Mr. Morris’s death, or a change in control of the Company. In the event that the agreement is terminated as a result of the death

or disability of Mr. Morris or a change in control of the Company, all restricted stock awards granted under the agreement prior to termination will vest in full, but no further grants will be made.

 

The current agreement also provides certain separation payments. If Arbitron terminates the agreement with Mr. Morris without cause and the termination is not a change of control termination, Mr. Morris will be entitled to receive payment equal to two years’ base salary and two times the non-equity incentive plan payment, if any, that Mr. Morris would have received for the year in which the termination occurs, at the higher of the target award applicable to the year in which the termination occurs or the average of the actual non-equity incentive plan payments paid for the last three fiscal years. In addition, in the event of the death or disability of Mr. Morris prior to January 1, 2010, or a change in control of the Company after December 31, 2008, but prior to January 1, 2010, the Company will pay Mr. Morris or his estate $1,000,000. In the event of the death or disability of Mr. Morris or a change in control of the Company during the consulting term, the consulting term will terminate and the Company will pay Mr. Morris or his estate a lump sum equal to the remaining quarterly consulting payments scheduled to be paid to Mr. Morris for the balance of the consulting term as if the consulting term had not ended.

 

If Mr. Morris experiences a change of control termination, he will be entitled to receive a lump-sum payment that is equal to the sum of three times each of the following:

 

 

Beginning February 1, 2007, the multiplier above began to decline ratably on a monthly basis over the years 2007 — 2009 (for example, on July 1, 2007, the multiplier became 2.5 and on January 1, 2008, the multiplier became 2.0). As of January 1, 2010, the change of control provisions of the agreement will terminate.

 

For two years following a termination without cause, or for three years or until reemployment with benefits following a change of control termination, Mr. Morris shall be provided with the same or equivalent health, dental, accidental death and dismemberment, short-term and long-term disability, life insurance coverages, and all other insurance policies and other health and welfare benefits programs he was entitled to immediately prior to his termination. For purposes of the table below, we have assumed that Arbitron will provide equivalent benefits at Arbitron’s current average cost per participant for each of the benefit plans in which Mr. Morris currently participates.

 

The agreement with Mr. Morris provides him with the opportunity to receive additional supplemental retirement benefits as described under “— Summary of Cash and Certain Other Compensation and Other Payments to the NEOs — Pension Benefits Table” above. If Mr. Morris experiences a change of control termination, Mr. Morris will receive credit adding three years to age and service for purposes of determining the supplemental pension payable under the SERP.

 

The term “change of control termination” means the termination of Mr. Morris’s employment with Arbitron, by Arbitron or the executive, within two years after a change of control, for any reason other than conduct that constitutes fraud, misrepresentation, theft or embezzlement of Arbitron assets, an intentional violation of law involving moral turpitude or failure to follow Arbitron’s conduct and ethics policies. A change of control termination includes termination of employment by reason of death or disability within two years after a change of control.

 

For the purposes described above, a “change of control” is generally defined as any of the following:

 

 

 

If payments to Mr. Morris under the employment agreement would result in imposition of an excise tax under section 4999 of the Internal Revenue Code of 1986, as amended, Mr. Morris would receive an additional payment to compensate for the imposition of the tax. The payment shall be in an amount such that after the payment of all taxes, income and excise, Mr. Morris will be in the same after-tax position as if no excise taxes under the Internal Revenue Code had been imposed.

 

Messrs. Creamer, Bouvard, and Charlebois and Ms. Dupree have entered into retention agreements with us that provide for severance payments under some circumstances and for payments with respect to stock options and restricted stock grants upon a change of control.

 

The agreements provide that if the NEO is terminated other than for cause, and the termination is not a change of control termination, the executive will receive a lump-sum cash payment in the amount of 12 months of base salary and non-equity incentive, if the executive has fewer than 15 years of service, or 15 months of base salary and non-equity incentive if the executive has 15 or more years of service. The agreements provide that following a change of control termination, the executive will be entitled to receive a lump-sum payment that is equal to 18 months of base salary and non-equity incentive if the executive has fewer than 15 years of service, or 21 months of base salary and non-equity incentive if the executive has 15 or more years of service. For purposes of the retention agreements, payouts for non-equity incentive plan payments are based on the higher of the target non-equity incentive award applicable to the executive for the year in which termination occurs or the average of the actual non-equity incentive plan payments paid to the executive for the last three fiscal years. For purposes of the retention agreements, change of control termination excludes the executive’s failure to perform the duties reasonably assigned by the Chief Executive Officer. Receipt of any severance payments under the retention agreements is subject to the executive’s executing a waiver and release agreement releasing any claims against the Company.

 

In addition, the executive shall be provided, for a period of between 12 and 21 months following termination without cause or a change of control termination or, if sooner, until reemployment with equivalent benefit, with the same or equivalent health, dental, accidental death and dismemberment, short-term and long-term disability, life insurance coverage, and all other insurance and other health and welfare benefits programs he or she was entitled to on the day before the termination. For purposes of the table below, we have assumed that Arbitron will provide equivalent benefits at Arbitron’s current average cost per participant for each of the benefit plans in which the executive currently participates.

 

Upon a change of control, the vesting and exercisability of stock options and the vesting of other awards under Arbitron’s stock-based compensation plans will accelerate, and any unvested awards would become fully and immediately vested.

 

For purposes of these retention agreements, a “change of control” is generally defined as any of the following:

 

 

 

If payments to an executive under such a retention agreement would result in imposition of an excise tax under section 4999 of the Internal Revenue Code of 1986, as amended, the executive will also be entitled to be paid an amount to compensate for the imposition of the tax. The payment shall be in an amount such that after payment of all taxes, income and excise, the executive will be in the same after-tax position as if no excise tax under the Internal Revenue Code of 1986, as amended, had been imposed.

 

2007 Potential Payments Upon Termination or Change in Control

 

 

 

 

William T. Kerr, Philip Guarascio, Larry E. Kittelberger and Luis G. Nogales served on the Compensation and Human Resources Committee of the Board of Directors during 2007. No member of the Compensation and Human Resources Committee was at any time during 2007, or formerly, an officer or employee of Arbitron or any of its subsidiaries, and no member of the Compensation and Human Resources Committee had any relationship with Arbitron during 2007 requiring disclosure under Item 404 of Regulation S-K under the Exchange Act. None of Arbitron’s executive officers serves as a member of the board of directors or executive compensation committee of any entity that has one or more executive officers serving as a member of the Arbitron’s Board.

 

The role of the Audit Committee is to assist the Board of Directors in its oversight of the Company’s financial reporting process. Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal controls. The Company’s independent registered public accounting firm is responsible for auditing the Company’s financial statements and expressing an opinion as to their conformity to U.S. generally accepted accounting principles.

 

The Audit Committee has reviewed and discussed the Company’s audited consolidated financial statements for fiscal year 2007 with Company’s management and has discussed these financial statements with KPMG LLP, the Company’s registered independent public accounting firm. The Audit Committee has also discussed with KPMG LLP the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees). KPMG LLP also provided the Audit Committee with both the written disclosures and the letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and has discussed with KPMG LLP the independence of KPMG LLP from the Company. In addition, the Audit Committee has considered whether the provision of nonaudit services, and the fees charged for such nonaudit services, by KPMG LLP are compatible with maintaining the independence of KPMG LLP from the Company, and determined that they are compatible with independence.

 

The Audit Committee discussed with the Company’s internal and independent accountants the overall scope and plans for their respective audits. The Audit Committee meets with the internal auditors and independent accountants, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal controls and the overall quality of the Company’s financial reporting. In addition, the Audit Committee met with the Chief Executive Officer, Chief Financial Officer and Vice President, Accounting Services and Treasury of the Company to discuss the processes they have undertaken to evaluate the accuracy and fair presentation of the Company’s financial statements and the effectiveness of the Company’s system of disclosure controls and procedures.

 

In reliance on the reviews and discussions referred to above and based on the foregoing, the Audit Committee recommended to the Company’s Board of Directors that the audited consolidated financial statements for fiscal year 2007 be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

 

Submitted by the Audit Committee of the
Board of Directors

 

Richard A. Post, Chair
Shellye L. Archambeau
David W. Devonshire

 

The following table sets forth the number of shares of Arbitron common stock beneficially owned, directly or indirectly, as of March 21, 2008, by (i) each nominee for election as a director, (ii) each person who served as a director during 2007, (iii) the NEOs, and (iv) our directors, nominees, and executive officers as a group. Each person has sole voting and investment power with respect to the shares beneficially owned by that person, except as otherwise indicated. The percentages below are based on the number of shares of Arbitron common stock issued and outstanding as of March 21, 2008.

 

 

 

 

The following table sets forth the number of shares of Arbitron common stock beneficially owned, directly or indirectly, by each person known to Arbitron to beneficially own more than 5% of Arbitron’s outstanding common stock. This information is based solely upon the beneficial ownership of these persons as reported to Arbitron as of the date of the most recent Schedule 13D or 13G filed with the Securities and Exchange Commission on behalf of such persons. Each person or entity has sole voting and investment power with respect to the shares beneficially owned by that person or entity, except as otherwise indicated. The percentages below are based on the number of shares of Arbitron common stock issued and outstanding as of March 21, 2008.

 

 

 

 

Review and Approval of Related Person Transactions.  The Board of Directors has adopted a written Policy and Procedures with Respect to Related Person Transactions (the “Policy”), which is administered by the Corporate Governance Committee. The Corporate Governance Committee reviews all relationships and transactions in which the Company and our directors and executive officers or their immediate family members are participants to determine whether such persons have a direct or indirect material interest. The Company’s legal staff is primarily responsible for the implementation of processes and controls to obtain information from the directors and executive officers with respect to related person transactions and for then determining, based on the facts and circumstances, whether the Company or a related person has a direct or indirect material interest in the transaction. As required under SEC rules, transactions that are determined to be directly or indirectly material to the Company or a related person are disclosed in the Company’s proxy statement. In addition, the Corporate Governance Committee reviews and approves or ratifies any related person transaction that is required to be disclosed. It is the Company’s policy to enter into or ratify disclosable related person transactions only when the Corporate Governance Committee determines that the related person transaction in question is in, or is not inconsistent with, the best interests of the Company and its stockholders. In the course of its review and approval or ratification of a disclosable related party transaction, the Corporate Governance Committee considers: