UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

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

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SYSCO CORPORATION

(Name of Registrant as Specified In Its Charter)

 

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

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SYSCO CORPORATION

1390 Enclave Parkway

Houston, Texas 77077-2099

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held November 19, 2008

 

To the Stockholders of Sysco Corporation:

 

The Annual Meeting of Stockholders of Sysco Corporation, a Delaware corporation, will be held on Wednesday, November 19, 2008 at 10:00 a.m. at The Houstonian Hotel located at 111 North Post Oak Lane, Houston, Texas 77024, for the following purposes:

 

 

Only stockholders of record at the close of business on September 22, 2008 will be entitled to receive notice of and to vote at the Annual Meeting. You may inspect a list of stockholders of record at the company’s offices during regular business hours during the 10-day period before the Annual Meeting. You may also inspect this list at the Annual Meeting.

 

We hope you will be able to attend the Annual Meeting in person. Whether or not you plan to attend in person, we urge you to promptly vote your shares by telephone, by the Internet or, if this proxy statement was mailed to you, by returning the enclosed proxy card in order that your vote may be cast at the Annual Meeting.

 

By Order of the Board of Directors

 

Richard J. Schnieders

Chairman of the Board and Chief

  Executive Officer

 

October 7, 2008

 

SYSCO CORPORATION
1390 Enclave Parkway
Houston, Texas 77077-2099

PROXY STATEMENT

2008 ANNUAL MEETING OF STOCKHOLDERS

 

 

October 7, 2008

 

Information About Attending the Annual Meeting

 

Our Annual Meeting will be held on Wednesday, November 19, 2008 at 10:00 a.m. at The Houstonian Hotel located at 111 North Post Oak Lane, Houston, Texas 77024.

 

Information About This Proxy Statement

 

We are providing you with a Notice of Internet Availability of Proxy Materials and access to these proxy materials because our Board of Directors is soliciting your proxy to vote your shares at the Annual Meeting. Unless the context otherwise requires, the terms “we,” “our,” “us,” the “company” or “SYSCO” as used in this proxy statement refer to Sysco Corporation.

 

Information About the Notice of Internet Availability of Proxy Materials

 

In accordance with rules and regulations adopted by the Securities and Exchange Commission, instead of mailing a printed copy of our proxy materials, including our annual report to stockholders, to each stockholder of record, we may now generally furnish proxy materials, including our annual report to stockholders, to our stockholders on the Internet.

 

 

Receiving Future Proxy Materials Electronically:  Stockholders may also sign up to receive future proxy materials, including E-Proxy Notices, and other stockholder communications electronically instead of by mail. This will reduce our printing and postage costs and eliminate bulky paper documents from your personal files. In order to receive the communications electronically, you must have an e-mail account, access to the Internet through an Internet service provider and a web browser that supports secure connections. Visit http://enroll.icsdelivery.com/syy for additional information regarding electronic delivery enrollment.

 

Who Can Vote

 

You can vote at the Annual Meeting if you owned shares at the close of business on September 22, 2008. You are entitled to one vote for each share you owned on that date on each matter presented at the Annual Meeting.

 

On September 22, 2008, there were 601,318,849 shares of SYSCO Corporation common stock outstanding. All of our current directors and executive officers (23 persons) owned an aggregate of 1,400,044 shares, which was less than 1% of our outstanding stock as of September 22, 2008. We expect that these individuals will vote their shares in favor of electing the three nominees named below, for approval of the material terms of, and the payment of compensation to certain executive officers pursuant to, the 2008 Cash Performance Unit Plan, for ratification of the appointment of the independent accountants and against the stockholder proposal.

How to Vote

 

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 and with respect to approval of the material terms of, and the payment of compensation to certain executive officers pursuant to, the 2008 Cash Performance Unit Plan, ratification of the appointment of the independent accountants, and the stockholder proposal.

 

If you sign and return your proxy card without indicating your voting instructions, your shares will be voted FOR the election of the three nominees for director, FOR approval of the material terms of, and the payment of compensation to certain executive officers pursuant to, the 2008 Cash Performance Unit Plan, FOR the ratification of the appointment of Ernst & Young as independent accountants for fiscal 2009, and AGAINST the stockholder proposal.

 

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.

 

How to Revoke or Change Your Vote

 

You may revoke or change your proxy at any time before it is exercised by:

 

 

The last vote that we receive from you will be the vote that is counted.

 

Broker Non-Votes

 

A broker non-vote occurs when a broker holding shares for a beneficial owner does not vote on a particular proposal because the broker does not have discretionary voting authority and has not received voting instructions from the beneficial owner.

 

Quorum Requirement

 

A quorum is necessary to hold a valid meeting. A quorum will exist if the holders of at least 35% of all the shares entitled to vote at the meeting are present in person or by proxy. All shares voted by proxy are counted as present for purposes of establishing a quorum, including those that abstain or as to which the proxies contain broker non-votes as to one or more items.

 

Votes Necessary for Action to be Taken

 

SYSCO’s Bylaws and Corporate Governance Guidelines include a majority vote standard for uncontested director elections. Since the number of nominees timely nominated for the Annual Meeting does not exceed the number of directors to be elected, each director to be elected shall be elected if the number of votes cast “for” election of the director exceeds those cast “against.” Any incumbent director who is not re-elected will be required to tender his or her resignation promptly following certification of the stockholders’ vote. The Corporate Governance and Nominating Committee will consider the tendered resignation and recommend to the Board whether to accept or reject the resignation offer, or whether other action should be taken. The Board will act on the recommendation within 120 days following certification of the stockholders’ vote and will promptly make a public disclosure of its decision regarding whether to accept the director’s resignation offer.

The affirmative vote of a majority of the votes cast is required to approve the:

 

 

Abstentions and broker non-votes will be disregarded for purposes of the election of directors and all of the other proposals.

 

Who Will Count Votes

 

We will appoint one or more Inspectors of Election who will determine the number of shares outstanding, the voting power of each, the number of shares represented at the Annual Meeting, the existence of a quorum and whether or not the proxies and ballots are valid and effective.

 

The Inspectors of Election will determine, and retain for a reasonable period a record of the disposition of, any challenges and questions arising in connection with the right to vote and will count all votes and ballots cast for and against and any abstentions with respect to all proposals and will determine the results of each vote.

 

Cost of Proxy Solicitation

 

We will pay the cost of solicitation of proxies including preparing, printing and mailing this proxy statement, should we choose to mail any written proxy materials, and the E-Proxy Notice. Solicitation may be made personally or by mail, telephone or electronic data transfer by officers, directors and regular employees of the company (who will not receive any additional compensation for any solicitation of proxies).

 

We will also authorize banks, brokerage houses and other custodians, nominees and fiduciaries to forward copies of proxy materials and will reimburse them for their costs in sending the materials. We have retained Georgeson Shareholder Communications to help us solicit proxies from these entities and certain other stockholders, in writing or by telephone, at an estimated fee of $20,000 plus reimbursement for their out-of-pocket expenses.

 

Other Matters

 

We do not know of any matter that will be presented at the Annual Meeting other than the election of directors and the proposals discussed in this proxy statement. However, if any other matter is properly presented at the Annual Meeting, your proxies will act on such matter in their best judgment.

 

Annual Report

 

We will furnish additional copies of our annual report to stockholders, including our Annual Report on Form 10-K, without charge upon your written request if you are a record or beneficial owner of SYSCO Corporation common stock whose proxy we are soliciting in connection with the Annual Meeting. Please address requests for a copy of the annual report to the Investor Relations Department, SYSCO Corporation, 1390 Enclave Parkway, Houston, Texas 77077-2099. The Annual Report on Form 10-K is also available on our website under “Investors — Financial Information” at www.sysco.com.

 

Householding

 

Stockholders who share the same last name and address may receive only one copy of the E-Proxy Notice and any other proxy materials we choose to mail unless we receive contrary instructions from any stockholder at that address. This is referred to as “householding.” If you prefer to receive multiple copies of the E-Proxy Notice, and any other proxy materials that we mail, at the same address, additional copies will be provided to you promptly upon written or oral request, and if you are receiving multiple copies of the E-Proxy Notice and other proxy materials, you may request that you receive only one copy. Please address requests for a copy of the E-Proxy Notice to the Investor Relations Department, SYSCO Corporation, 1390 Enclave Parkway, Houston, Texas 77077-2099. The Annual Report on Form 10-K is also available on our website under “Investors — Financial Information” at www.sysco.com.

 

If your shares are not registered in your own name, you can request additional copies of the E-Proxy Notice and any other proxy materials we mail or you can request householding by notifying your broker or agent in whose name your shares are registered.

 

ELECTION OF DIRECTORS
ITEM NO. 1 ON THE PROXY CARD

 

Three directors are to be elected at the meeting. The Board of Directors is currently divided into three classes of four, four and four directors each. The company’s governing documents provide that the Board of Directors shall be divided into three classes with no class of directors having more than one director more than any other class of directors. The directors in each class serve for a three-year term. A different class is elected each year to succeed the directors whose terms are expiring.

 

The Board of Directors has nominated the following three persons for election as directors in Class I to serve for three-year terms or until their successors are elected and qualified:

 

 

Each of Dr. Craven, Mrs. Sewell and Mr. Tilghman is currently serving as a director of SYSCO. Richard G. Merrill is also a Class I director and will serve out his remaining term, but has notified the Board that he will not be standing for re-election. Effective as of the date of the Annual Meeting, the size of the Board of Directors will be reduced from its current size of 12 members to 11 members.

 

All of the nominees are currently serving as directors of SYSCO and have consented to serve if elected. Although management does not contemplate the possibility, in the event any nominee is not a candidate or is unable to serve as a director at the time of the election, the proxies will vote for any nominee who is designated by the present Board of Directors to fill the vacancy.

 

Set forth below is biographical information for each nominee for election as a director at the 2008 Annual Meeting.

 

Nominees for election as Class I Directors for terms expiring at the 2011 Annual Meeting:

 

Judith B. Craven, M.D., 63, has served as a director of SYSCO since July 1996. Dr. Craven served as President of the United Way of the Texas Gulf Coast from 1992 until her retirement in September 1998. Dr. Craven is also a director of Belo Corporation, Luby’s, Inc., Sun America Funds and VALIC. Dr. Craven is Chairman of the Corporate Sustainability Committee and is also a member of the Corporate Governance and Nominating Committee, the Finance Committee and the Employee Benefits Committee.

 

Phyllis S. Sewell, 77, has served as a director of SYSCO since December 1991. Currently retired, she formerly served as Senior Vice President of Federated Department Stores, Inc. Mrs. Sewell is a member of the Compensation Committee and the Corporate Governance and Nominating Committee.

 

Richard G. Tilghman, 68, has served as a director of SYSCO since November 2002. Mr. Tilghman served as Vice Chairman and Director of SunTrust Banks from 1999 until his retirement in 2000. He served as Chairman and Chief Executive Officer of Crestar Financial Corporation, a bank holding company, from 1986 until 1999. Mr. Tilghman is Chairman of the Audit Committee and is also a member of the Compensation Committee and the Executive Committee.

 

The Board of Directors recommends a vote FOR the nominees listed above.

 

 

Class II directors whose terms expire at the 2009 Annual Meeting:

 

Jonathan Golden, 71, has served as a director of SYSCO since February 1984. Mr. Golden is a partner of Arnall Golden Gregory LLP, counsel to SYSCO. Mr. Golden is a member of the Finance Committee and the Corporate Sustainability Committee.

 

Joseph A. Hafner, Jr., 63, has served as a director of SYSCO since November 2003. In November 2006, Mr. Hafner retired as Chairman of Riviana Foods, Inc., a position he had held since March 2005. He served as President and Chief Executive Officer of Riviana from 1984 until March 2004. Mr. Hafner is Chairman of the Finance Committee and is also a member of the Audit Committee, the Executive Committee and the Corporate Sustainability Committee.

 

Nancy S. Newcomb, 63, has served as a director of SYSCO since February 2006. Ms. Newcomb served as Senior Corporate Officer, Risk Management, of Citigroup from May 1998 until her retirement in 2004. She served as a customer group executive of Citicorp (the predecessor corporation of Citigroup) from December 1995 to April 1998, and as a division executive,

Latin America from September 1993 to December 1995. From January 1988 to August 1993 she was the principal financial officer, responsible for liquidity, funding and capital management. Ms. Newcomb is also a director of Moody’s Corporation and The DIRECTV Group, Inc. Ms. Newcomb is a member of the Audit Committee and the Finance Committee.

 

Richard J. Schnieders, 60, has served as a director of SYSCO since July 1997. Mr. Schnieders has served as Chairman and Chief Executive Officer of SYSCO since January 2003. He assumed the additional role of President in July 2005, and served in that role until he stepped down on July 1, 2007, when Kenneth F. Spitler was promoted to President. Mr. Schnieders previously served as President from July 2000 through December 2002 and as Chief Operating Officer from January 2000 through December 2002. Mr. Schnieders served as Executive Vice President, Foodservice Operations from January 1999 to July 2000 and as Senior Vice President, Merchandising Services and Multi-Unit Sales from 1997 until January 1999. From 1992 until 1997, he served as Senior Vice President, Merchandising Services. From 1988 until 1992, Mr. Schnieders served as President and Chief Executive Officer of Hardin’s-Sysco Food Services, LLC. He has been employed by SYSCO since 1982. Mr. Schnieders is Chairman of the Executive Committee and the Employee Benefits Committee and is also a member of the Finance Committee and the Corporate Sustainability Committee.

 

Class III Directors whose terms expire at the 2010 Annual Meeting:

 

John M. Cassaday, 55, has served as a director of SYSCO since November 2004. He is President and Chief Executive Officer of Corus Entertainment Inc., a media and entertainment company based in Canada, a position he has held since September 1999. He also serves as a director of Manulife Financial Corporation. Mr. Cassaday is the current presiding director for fiscal 2009, is Chairman of the Compensation Committee and is also a member of the Corporate Governance and Nominating Committee and the Executive Committee.

 

Manuel A. Fernandez, 62, has served as a director of SYSCO since November 2006. He has been the Managing Director of SI Ventures, a venture capital firm, since 2000 and Chairman Emeritus of Gartner, Inc., a leading information technology research and consulting company, since 2000. Prior to his present positions, Mr. Fernandez was Chairman, President, and Chief Executive Officer of Gartner. Previously, he was President and Chief Executive Officer at Dataquest, Inc., Gavilan Computer Corporation, and Zilog Incorporated. Mr. Fernandez also serves on the board of directors of Brunswick Corporation, Flowers Foods, Inc., The Black & Decker Corporation and several private companies and foundations. Mr. Fernandez is a member of the Corporate Governance and Nominating Committee, the Finance Committee and the Corporate Sustainability Committee.

 

Hans-Joachim Koerber, 62, has served as a director of SYSCO since January 2008. Dr. Koerber served as the chairman and chief executive officer of METRO Group, Germany’s largest retailer, from 1999 until his retirement in October 2007. Dr. Koerber is a director of Air Berlin PLC, Bertelsmann AG and Skandinaviska Enskilda Benken AB. Dr. Koerber is a member of the Audit Committee and the Finance Committee.

 

Jackie M. Ward, 70, has served as a director of SYSCO since September 2001. Ms. Ward founded in 1968, and later served as Chairman, President and Chief Executive Officer of, Computer Generation Incorporated, which was acquired in December 2000 by Intec Telecom Systems PLC, a technology company based in the United Kingdom. Ms. Ward is a director of Bank of America, Flowers Foods, Inc., Sanmina-SCI Corporation and WellPoint, Inc. Ms. Ward is Chairman of the Corporate Governance and Nominating Committee and is also a member of the Compensation Committee and the Executive Committee.

 

Unless otherwise noted, the persons named above have been engaged in the principal occupations shown for the past five years or longer.

 

CORPORATE GOVERNANCE AND BOARD OF DIRECTORS MATTERS

 

Corporate Governance Guidelines

 

The Board of Directors has adopted the Sysco Corporation Corporate Governance Guidelines. These guidelines outline the functions of the Board, director responsibilities, and various processes and procedures designed to ensure effective and responsive governance. These guidelines also outline qualities and characteristics we consider when determining whether a member or candidate is qualified to serve on the Board, including diversity, skills, experience, time available and the number of other boards the member sits on, in the context of the needs of the Board and SYSCO. We review these guidelines from time to time in response to changing regulatory requirements and best practices and revise them accordingly. The guidelines were last revised in July 2008. We have published the Corporate Governance Guidelines on our website under “Investors — Corporate Governance” at www.sysco.com and you may obtain a copy in print by writing to the Investor Relations Department, SYSCO Corporation, 1390 Enclave Parkway, Houston, Texas 77077-2099.

 

Code of Business Conduct

 

We require all of our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer and controller to comply with our long-standing Code of Business Conduct to help ensure that we conduct our business in accordance with the highest standards of moral and ethical behavior. Our Code of Business Conduct addresses:

 

 

The Code requires strict adherence to all laws and regulations applicable to our business and requires employees to report any violations or suspected violations of the Code. We have published the Code of Business Conduct on our website under “Investors — Corporate Governance” at www.sysco.com. You may obtain the Code in print by writing to the Investor Relations Department, SYSCO Corporation, 1390 Enclave Parkway, Houston, Texas 77077-2099.

 

Director Independence

 

Our Corporate Governance Guidelines, which are published on our website under “Investors — Corporate Governance” at www.sysco.com, require that at least a majority of our directors meet the criteria for independence that the New York Stock Exchange has established for continued listing, as well as the additional criteria set forth in the Guidelines. Additionally, we require that all members of the Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee be independent and that all members of the Audit Committee satisfy the additional requirements of the New York Stock Exchange and applicable rules promulgated under the Securities Exchange Act of 1934.

 

Under New York Stock Exchange listing standards, to consider a director to be independent, we must determine that he or she has no material relationship with SYSCO other than as a director. The standards specify the criteria by which we must determine whether directors are independent, and contain guidelines for directors and their immediate family members with respect to employment or affiliation with SYSCO or its independent public accountants.

 

In addition to the NYSE’s standards for independence, our Corporate Governance Guidelines contain categorical standards that provide that the following relationships will not impair a director’s independence:

 

 

 

The Board of Directors has reviewed all relevant relationships of the directors with SYSCO. The relationships reviewed included those described under “Certain Relationships and Related Transactions,” and several relationships that did not automatically make the individual non-independent under the NYSE standards or our Corporate Governance Guidelines, either because of the type of affiliation between the director and the other entity or because the amounts involved did not meet the applicable thresholds. Such relationships include the following (for purposes of this section, “SYSCO”, “we,” “us” and “our” include our operating companies):

 

 

After reviewing such information, the Board of Directors has determined that each of Mr. Cassaday, Dr. Craven, Mr. Fernandez, Mr. Hafner, Dr. Koerber, Mr. Merrill, Ms. Newcomb, Mrs. Sewell, Mr. Tilghman and Ms. Ward has no material relationship with SYSCO and is independent under the NYSE standards and the categorical standards set forth in the Corporate Governance Guidelines and described above. Mr. Golden is not considered to be independent. The Board has also determined that each member of the Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee is independent. The independence decisions referenced above were based on the Board’s determinations that the relevant positions fell within the categorical standards of the Corporate Governance Guidelines, that status as a director or trustee of an entity with which SYSCO does business does not present a material relationship or that specific amounts involved in a transaction were not large enough to impact the director’s independence. Our Corporate Governance Guidelines also provide that no independent director who is a member of the Audit, Compensation or Corporate Governance and Nominating Committees may receive any compensation from SYSCO other than in his or her capacity as a non-employee director or committee member. The Board has determined that none of the above-named directors has received any compensation from SYSCO during fiscal 2008, and no member of the Audit Committee has received any compensation from SYSCO at any time while he or she has served as such, other than in his or her capacity as a non-employee director or committee member.

 

Director Compensation

 

See “Director Compensation” for a discussion of compensation received by our non-employee directors during fiscal 2008.

Presiding Director

 

The non-management directors meet in executive session without members of management present at every regular Board meeting. During fiscal 2008, the non-management directors held five executive sessions without the CEO or any other member of management present. Ms. Ward presided at these executive sessions during fiscal 2008. The independent members of the Board have adopted a rotation system by which, beginning on the first day of SYSCO’s 2008 fiscal year, the chairs of the Corporate Governance and Nominating, Compensation, Finance (but only if such chair has been determined to be independent) and Audit Committees began rotating for one-year terms as presiding director. Mr. Cassaday, chair of the Compensation Committee, is the current presiding director for fiscal 2009. The presiding director, among other things, establishes the agenda for, and presides at, meetings of the non-employee directors. In addition, the independent directors, exclusive of all directors who have not been determined to be independent, meet in executive session at least once a year, and the presiding director presides at such meetings.

 

The Presiding Director has the following additional duties and responsibilities:

 

 

Board Meetings and Attendance

 

The Board of Directors held twelve meetings, including five regular meetings and seven special meetings, during fiscal 2008, and all directors attended 75% or more of the aggregate of:

 

 

It is the Board’s policy that directors attend the Annual Meeting of Stockholders, to the extent practicable. In fiscal 2008, all directors who were in office at that time attended the Annual Meeting.

 

Committees of the Board

 

As of the date of this proxy statement, each of the individuals continues to serve on the committees listed in his or her biographical information under “Election of Directors.”

 

Audit Committee — The Audit Committee held thirteen meetings during fiscal 2008. During fiscal 2008, Messrs. Hafner, Merrill and Tilghman (Chair) and Ms. Newcomb served on the Audit Committee for the full year, and Mrs. Sewell served on the Committee until January 1, 2008. Dr. Koerber was added to the Audit Committee effective January 1, 2008. The Audit Committee oversees and reports to the Board with respect to various auditing and accounting matters, including:

 

 

The Audit Committee also reviews with the Finance Committee enterprise-wide risk assessment and risk management policies, and assists the Board in its oversight of legal and regulatory compliance. Each member of the Audit Committee is financially literate and has been determined by the Board to be independent, as defined in the New York Stock Exchange’s listing standards and Section 10A(m)(3) of the Securities Exchange Act of 1934. No Audit Committee member serves on the audit committees of more than two other companies. The Board has determined that Messrs. Hafner, Merrill and Tilghman and Ms. Newcomb each meet the definition of an audit committee financial expert as promulgated by the Securities and Exchange Commission.

Compensation Committee — The Compensation Committee held nine meetings during fiscal 2008. During fiscal 2008, Mr. Cassaday (Chair), Mr. Merrill, Mr. Tilghman and Ms. Ward served on the Compensation Committee. Mrs. Sewell was added to the Compensation Committee effective January 1, 2008. The function of the Compensation Committee is to determine and approve all compensation of the Chief Executive Officer and the other executive officers, including the named executive officers, and to oversee the administration of:

 

 

Except for decisions that impact the compensation of the Chief Executive Officer, the Compensation Committee is authorized to delegate any decisions it deems appropriate to a subcommittee. In such a case, the subcommittee must promptly make a report of any action that it takes to the full Compensation Committee. For a detailed description of the Compensation Committee’s processes and procedures for consideration and determination of executive compensation, including the role of executive officers and compensation consultants in recommending the amount and form of executive compensation, see “Compensation Discussion and Analysis”.

 

Corporate Governance and Nominating Committee — The Corporate Governance and Nominating Committee held six meetings during fiscal 2008. During fiscal 2008, Ms. Ward (Chair), Mr. Cassaday, Dr. Craven, Mr. Fernandez and Mrs. Sewell served on the Corporate Governance and Nominating Committee. The function of the Corporate Governance and Nominating Committee is to:

 

 

Finance Committee — The Finance Committee held five meetings during fiscal 2008. During fiscal 2008, Mr. Hafner (Chair), Dr. Craven, Mr. Fernandez, Mr. Golden, Ms. Newcomb and Mr. Schnieders served on the Finance Committee. Dr. Koerber was added to the Finance Committee effective January 1, 2008. The function of the Finance Committee is to assist the Board in satisfying its fiduciary responsibilities relating to SYSCO’s financial performance and financial planning. The Finance Committee:

 

 

The Finance Committee annually reviews with the Audit Committee SYSCO’s enterprise-wide risk assessment and risk management policies, policies regarding financial risk management and insurance risk management strategies. In addition, the Finance Committee assists the Audit Committee in reviewing and overseeing SYSCO’s environmental, health and safety matters and related regulatory compliance. The Finance Committee reports regularly, and makes recommendations to the Audit Committee, regarding specific actions to be taken in this area at least annually.

 

Executive Committee — The Executive Committee did not meet during fiscal 2008. During fiscal 2008, Mr. Schnieders (Chair), Mr. Cassaday, Mr. Hafner, Mr. Tilghman and Ms. Ward served on the Executive Committee. The Executive Committee is authorized to exercise all of the powers of the Board when necessary, to the extent permitted by applicable law.

Employee Benefits Committee — The Employee Benefits Committee met once during fiscal 2008. During fiscal 2008, Mr. Schnieders (Chair) and Dr. Craven served on the Employee Benefits Committee. The Employee Benefits Committee’s purpose is to oversee the maintenance and administration of the Corporation’s employee stock purchase, employee welfare benefit, and tax-qualified retirement plans, except that the Employee Benefits Committee does not have authority with respect to the compensation of executive officers.

 

Corporate Sustainability Committee — The Corporate Sustainability Committee was formed in November 2007 and met once during fiscal 2008. During fiscal 2008, Dr. Craven (Chair), and Messrs. Fernandez, Hafner and Schnieders, served on the Corporate Sustainability Committee. Mr. Golden was added to the Corporate Sustainability Committee in July 2008. The Corporate Sustainability Committee’s purpose is to provide review and act in an advisory capacity to the Board and management with respect to policies and strategies that affect SYSCO’s role as a socially responsible organization and with respect to SYSCO’s long-term sustainability.

 

Current copies of the charters for the Audit Committee, the Compensation Committee, the Corporate Governance and Nominating Committee, the Finance Committee and the Corporate Sustainability Committee are published on our website under “Investors — Corporate Governance — Committees” at www.sysco.com and are available in print by writing to the Investor Relations Department, SYSCO Corporation, 1390 Enclave Parkway, Houston, Texas 77077-2099.

 

Nominating Committee Policies and Procedures in Identifying and Evaluating Potential Director Nominees

 

In accordance with its Charter, the Corporate Governance and Nominating Committee will observe the procedures described below in identifying and evaluating candidates for election to SYSCO’s Board of Directors.

 

In considering candidates for election to the Board, the Committee will determine the incumbent directors whose terms expire at the upcoming Annual Meeting and who wish to continue their service on the Board. The Committee will also identify and evaluate new candidates for election to the Board for the purpose of filling vacancies. The Committee will solicit recommendations for nominees from persons that the Committee believes are likely to be familiar with qualified candidates. These persons may include members of the Board, SYSCO’s management and stockholders who beneficially own individually or as a group at least five percent of SYSCO’s outstanding shares for at least one year and who have expressed an interest in recommending director candidates. In evaluating candidates, the Committee will consider the absence or presence of material relationships with SYSCO that might impact independence, as well as the diversity, age, skills, experience, time available and the number of other boards the candidate sits on in the context of the needs of the Board and SYSCO, and such other criteria as the Committee shall determine to be relevant at the time. The Committee may also determine to engage a professional search firm to assist in identifying qualified candidates. Where such a search firm is engaged, the Committee shall set its fees and scope of engagement.

 

The Committee will also consider candidates recommended by stockholders. The Committee will evaluate such recommendations using the same criteria that it uses to evaluate other candidates. Stockholders can recommend candidates for consideration by the Committee by writing to the Corporate Secretary, 1390 Enclave Parkway, Houston, Texas 77077, and including the following information:

 

 

The Committee typically recommends director candidates to the Board in early July of each year. The Committee will consider in advance of SYSCO’s next Annual Meeting of stockholders those director candidate recommendations that the Committee receives by May 1st.

 

With respect to all incumbent and new candidates that the Committee believes merit consideration, the Committee will:

 

 

 

In its discretion, the Committee may designate one or more of its members, or the entire Committee, to interview any proposed candidate. Based on all available information and relevant considerations, the Committee will recommend to the full Board for nomination those candidates who, in the view of the Committee, are most suited for membership on the Board.

 

The Committee has not received any recommendations for director nominees for election at the 2008 annual stockholders meeting from any SYSCO security holder or group of security holders.

 

In the case of Dr. Koerber, the Committee received a recommendation from Mr. Schnieders. Before being appointed to the Board of Directors, Dr. Koerber participated in the process set up by the Corporate Governance and Nominating Committee to screen possible candidates, including interviews with the Corporate Governance Committee Chair, CEO and various Board members, as well as completion of a full reference and background check coordinated by a search firm selected to assist the Board in such matters.

 

If we receive by June 9, 2009 a recommendation of a director candidate from one or more stockholders who have beneficially owned at least five percent of our outstanding common stock for at least one year as of the date the stockholder makes the recommendation, then we will disclose in our next proxy materials relating to the election of directors the identity of the candidate, the identity of the nominating stockholder(s) and whether the Committee determined to nominate such candidate for election to the Board. However, we will not provide this disclosure without first obtaining written consent of such disclosure from both the nominating stockholder and the candidate it is planning to identify. The Committee will maintain appropriate records regarding its process of identifying and evaluating candidates for election to the Board.

 

Majority Voting in Director Elections

 

The Company’s Bylaws provide for majority voting in uncontested director elections. Majority voting means that directors are elected by a majority of the votes cast — that is, the number of shares voted “for” a director must exceed the number of shares voted “against” that director. Any incumbent director who is not re-elected in an election in which majority voting applies shall tender his or her resignation promptly following certification of the stockholders’ vote. The Corporate Governance and Nominating Committee shall consider the tendered resignation and recommend to the Board whether to accept or reject the resignation offer, or whether other action should be taken. The director who tenders his or her resignation shall not participate in the recommendation of the committee or the decision of the Board with respect to his or her resignation. The Board shall act on the recommendation within 120 days following certification of the stockholders’ vote and shall promptly disclose its decision regarding whether to accept the director’s resignation offer. In contested elections, where there are more nominees than seats on the Board as of the record date of the meeting at which the election will take place, directors are elected by a plurality vote. This means that the nominees who receive the most votes of all the votes cast for directors will be elected.

 

Communicating with the Board

 

Interested parties may communicate with the presiding director, the non-management directors as a group and the individual members of the Board by confidential email. All emails will be delivered to the parties to whom they are addressed. The Board requests that items unrelated to the duties and responsibilities of the Board not be submitted, such as product inquiries and complaints, job inquiries, business solicitations and junk mail. You may access the form to communicate by email in the corporate governance section of SYSCO’s website under “Investors — Corporate Governance — Contact the Board” at www.sysco.com.

 

EXECUTIVE OFFICERS

 

The following persons currently serve as executive officers of SYSCO. Each person listed below has served as an officer of SYSCO and/or its subsidiaries for at least the past five years.

 

 

 

 

Kenneth J. Carrig has served as Executive Vice President and Chief Administrative Officer of SYSCO since 2005. Prior to accepting his current position, Mr. Carrig served as Senior Vice President of Administration from 1999 to 2005. Mr. Carrig joined SYSCO in May 1998 as Vice President and Chief Administrative Officer.

 

Robert J. Davis has served as Senior Vice President, Market Development, since July 2007. During his career, Mr. Davis has served in a variety of positions for SYSCO and its subsidiaries. He was named President and Chief Executive Officer of SYSCO’s operation in Rome, Georgia in 1985, and then transferred to SYSCO’s Asheville, North Carolina operation in 1990, where he progressed to President and Chief Executive Officer in 1991. In 1997, he assumed the role of President and Chief Executive Officer of SYSCO’s operation in Charlotte, North Carolina. He then transferred to corporate headquarters and served as Senior Vice President, Contract Sales, from October 2004 until July 2007.

 

William J. DeLaney was promoted to the role of SYSCO’s Executive Vice President and Chief Financial Officer, effective July 1, 2007. Mr. DeLaney began his SYSCO career in 1987 as assistant treasurer at SYSCO’s corporate headquarters. He was promoted to Treasurer in 1991, and in 1993 he was named a Vice President, continuing in those responsibilities until 1994. Mr. DeLaney joined Sysco Food Services of Syracuse in 1996 as Chief Financial Officer, progressed to Senior Vice President in 1998 and Executive Vice President in 2002. In 2004, Mr. DeLaney was appointed President and Chief Executive Officer of Sysco Food Services of Charlotte. He held that position until December 2006, when he was named Senior Vice President of Financial Reporting, a position he held until his promotion to his current title.

 

Kirk G. Drummond has served as SYSCO’s Senior Vice President, Finance and Treasurer since December, 2005. Mr. Drummond joined SYSCO in 1986 as Controller of SYSCO’s Grand Rapids, Michigan subsidiary. In 1989 he transferred to SYSCO’s Atlanta operation as Chief Financial Officer and Controller, a position he held until 1992 when he assumed the added duties of Vice President of Finance. Mr. Drummond relocated to SYSCO’s corporate headquarters in Houston in 1997 when he was appointed Vice President and Controller. He was named Vice President and Chief Information Officer in 2000 and served in that position until January 2005, when he was appointed to the role of Senior Vice President and Chief Information Officer. In December 2005, Mr. Drummond was appointed to his current duties.

 

G. Mitchell Elmer has served as Vice President and Controller since 2000 and assumed the added responsibility of Chief Accounting Officer in July 2005. Mr. Elmer began his SYSCO career in 1989 as a staff auditor in operations review at SYSCO’s corporate office in Houston. In 1991 he transferred to SYSCO’s Virginia subsidiary as Director of Finance, and the following

year he was named Vice President of Finance and Administration. Mr. Elmer was appointed Vice President of Finance for SYSCO’s Louisville, Kentucky operation in 1995 and progressed to Senior Vice President of Marketing, Merchandising and Finance at that company in 1997. The following year he transferred to SYSCO’s Denver operation as Vice President of Finance. In 2000 he returned to SYSCO’s corporate office to serve as Vice President and Controller.

 

Michael W. Green has served as Executive Vice President of Northeast and North Central U.S. Foodservice Operations since January 2008. Mr. Green began his SYSCO career in 1991 as a member of the Management Development Program and was named Vice President of Marketing later that year. In 1992, he was promoted to Senior Vice President of Marketing and Merchandising, then Executive Vice President of SYSCO’s Chicago operating company. In 1994, Mr. Green became the President and Chief Executive Officer of SYSCO Food Services of Detroit. He was promoted in 2004 to Senior Vice President of Operations for SYSCO’s Midwest Region, a position he held until his promotion to his current title.

 

James D. Hope has served as Senior Vice President, Sales and Marketing, since July 2007. Mr. Hope started his career at SYSCO’s corporate headquarters as a financial analyst in 1987. He advanced through the Operations Review department, becoming Manager in 1992. He transferred to Sysco Food Services of Kansas City, Inc. in 1993 as Chief Financial Officer, where he was named President and Chief Executive Officer in 2000. Mr. Hope served as Group President, Demand, in the company’s Strategic Group from December 2005 until July 2007.

 

Michael C. Nichols has served as SYSCO’s General Counsel since 1998, assumed the added responsibility of Corporate Secretary in 2002, and was promoted to Senior Vice President in July 2006. Mr. Nichols began his SYSCO career in 1981 as General Counsel at SYSCO’s corporate office in Houston, a position he held through 1988. In 1991, he rejoined SYSCO Corporation as Vice President of Management Development and Human Resources, and in 1998 he advanced to the position of General Counsel.

 

Larry G. Pulliam has served as SYSCO’s Executive Vice President, Global Sourcing and Supply Chain since July 2007. Mr. Pulliam began his foodservice career in 1975 with a regional foodservice company in Fort Worth, Texas. He served in a variety of areas for that company, from warehouse operations to information services, before joining SYSCO’s corporate office in 1987. Mr. Pulliam was named Vice President of Operations for SYSCO’s Los Angeles operation in 1991, and in 1995 he transferred to the Baltimore subsidiary to serve as Executive Vice President and Chief Operating Officer. He returned to SYSCO’s corporate office in 1997 as Vice President and Chief Information Officer, a position he held until he was promoted to President and Chief Executive Officer of Sysco Food Services of Houston, LP in 2000. Mr. Pulliam then returned to SYSCO’s corporate office as Senior Vice President, Merchandising Services in 2002 and served in that role until 2005, when he was promoted to Executive Vice President, Merchandising Services.

 

Richard J. Schnieders is described under “Election of Directors”.

 

Stephen F. Smith has served as Executive Vice President of South and West U.S. Foodservice Operations since January 2008. Mr. Smith began his career at SYSCO in 1980, progressing through positions of increasing responsibility at several operating companies. Mr. Smith was appointed as President and Chief Executive Officer of SYSCO’s Atlanta, Georgia operations in 1983, of SYSCO’s Little Rock, Arkansas operations in 1987, and of SYSCO Food Services of Central Florida in 1995. In June 2002, Mr. Smith was promoted to Senior Vice President, Foodservice Operations for SYSCO’s Southeast Region, a position that he held until he was promoted to his current title.

 

Kenneth F. Spitler was promoted to the role of President and Chief Operating Officer, effective July 1, 2007. Since 1986, he has held a variety of executive positions with SYSCO, including serving as President and Chief Executive Officer of SYSCO’s Detroit and Houston broadline operating companies. In 2000, he was named Senior Vice President of Operations for the Northeast Region, with responsibility for 14 SYSCO operating companies in eight states. Mr. Spitler relocated to SYSCO’s corporate headquarters in 2002, when he was promoted to Executive Vice President of Redistribution and Foodservice Operations with responsibility for nationwide broadline operations and the development of redistribution facilities. He was promoted to the position of Executive Vice President and President of North American foodservice operations in January 2005, and served in that role until his promotion to his current position.

 

Succession Planning

 

The Board plans for succession to the position of CEO, and the Corporate Governance and Nominating Committee oversees this succession planning process. To assist the Board, the CEO periodically provides the Board with an assessment of senior executives and their potential to succeed to the position of CEO, as well as perspective on potential candidates from outside the company. The Board has available on a continuing basis the CEO’s recommendation should he be unexpectedly unable to serve. The CEO also provides the Board with an assessment of potential successors to key positions.

 

STOCK OWNERSHIP

 

The following table sets forth certain information with respect to the beneficial ownership of SYSCO’s common stock, as of September 22, 2008, by (i) each director and each director nominee, (ii) each named executive officer (as defined under “Compensation Discussion and Analysis”), (iii) all directors, director nominees and executive officers as a group, and (iv) each person or group who, to our knowledge, beneficially owned more than 5% of our common stock. Unless otherwise indicated, each stockholder identified in the table has sole voting and investment power with respect to his or her shares. Fractional shares have been rounded down to the nearest whole share.

 

 

 

 

 

Stock Ownership Guidelines

 

To align the interests of our executives with those of our stockholders, SYSCO’s Board of Directors concluded that our executive officers should have a significant financial stake in SYSCO stock. To further that goal, for several years we have maintained stock ownership guidelines for our executives. Our Corporate Governance Guidelines provide that the executives should own the number of shares, by position, as described in the following table:

 

 

The three- and five-year periods begin when the executive is elected to the listed position. If an individual is promoted from one listed position to another, he or she will be required to meet the new position ownership guideline by the third and fifth years following the promotion, while continuing to meet the guideline under his or her previous position.

 

For purposes of the guidelines, the shares counted towards ownership include shares owned directly or indirectly by the executive through the SYSCO Corporation Employee Stock Purchase Plan, as well as any other shares of vested, unvested or restricted stock held by the executive, but do not include shares held through any other form of indirect beneficial ownership or shares underlying unexercised options.

 

In the event that these ownership guidelines present an undue hardship for an executive, the Chairman of the Corporate Governance and Nominating Committee may make an exception or provide an alternative to address the intent of the guidelines, taking into consideration the executive’s personal circumstances.

 

We adopted guidelines with a specific number of shares rather than a multiple of salary to protect executives from unnecessary concern regarding fluctuations in the stock price, and the Corporate Governance and Nominating Committee will periodically review the guidelines to determine if they need to be updated due to, among other things, significant changes in the price of SYSCO stock. Based on average prices for SYSCO stock over the past year, the CEO ownership requirement of 175,000 shares equals a value of approximately five times Mr. Schnieders’ salary. The other officer ownership requirements are set at lower levels that SYSCO believes are reasonable given their salaries and responsibility levels. The graduated approach of a three-year and then five-year requirement also allows a reasonable amount of time for an executive to accumulate the shares

necessary to satisfy the ownership requirements imposed upon him following his appointment or promotion. Restricted stock incentives, coupled with shares obtained from the exercise of stock options, are anticipated to provide all executives with ample opportunity to satisfy these requirements within the specified time frames.

 

We provide the Board of Directors with the status of the executives’ stock ownership at its regularly-scheduled meetings to ensure compliance with these holding requirements. As of September 22, 2008, all named executive officers met the then-applicable stock ownership requirement.

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Pursuant to Section 16(a) of the Securities Exchange Act of 1934 and the rules issued thereunder, our executive officers and directors and any persons holding more than ten percent (10%) of our common stock are required to file with the Securities and Exchange Commission and the New York Stock Exchange reports of initial ownership of our common stock and changes in ownership of such common stock. To our knowledge, no person beneficially owns more than 10% of our common stock. Copies of the Section 16 reports filed by our directors and executive officers are required to be furnished to us. Based solely on our review of the copies of the reports furnished to us, or written representations that no reports were required, we believe that, during fiscal 2008, all of our executive officers and directors complied with the Section 16(a) requirements.

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Related Person Transactions Policies and Procedures

 

The Board has adopted written policies and procedures for review and approval or ratification of transactions with related persons. We subject the following related persons to these policies: directors, director nominees, executive officers, beneficial owners of more than 5% of our stock and any immediate family members of these persons.

 

We follow the policies and procedures below for any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships in which SYSCO was or is to be a participant, the amount involved exceeds $100,000, and in which any related person had or will have a direct or indirect material interest. These policies specifically apply without limitation to purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness, guarantees of indebtedness, and employment by SYSCO of a related person. The Board of Directors has determined that the following do not create a material direct or indirect interest on behalf of the related person, and are, therefore, not related person transactions to which these policies and procedures apply:

 

 

Any of our employees, officers or directors who have knowledge of a proposed related person transaction must report the transaction to our General Counsel. Whenever practicable, before the transaction goes effective or becomes consummated, the Corporate Governance and Nominating Committee of the Board of Directors will review and approve the proposed transaction in accordance with the terms of this policy. If the General Counsel determines that it is not practicable to obtain advance approval of the transaction under the circumstances, the Committee will review and, in its discretion may ratify, the transaction at its next meeting. In addition, the Board of Directors has delegated to the Chair of the Committee the authority to pre-approve

or ratify, as applicable, any related person transaction in which the aggregate amount involved is expected to be less than $500,000.

 

In addition, if a related person transaction is ongoing in nature and the Committee has previously approved it, or the transaction otherwise already exists, the Committee will review the transaction during its first meeting of each fiscal year to:

 

 

We will consider a related person transaction approved or ratified if the transaction is authorized by the Corporate Governance and Nominating Committee or the Chair, as applicable, in accordance with the standards described below, after full disclosure of the related person’s interests in the transaction. As appropriate for the circumstances, the Committee will review and consider such of the following as it deems necessary or appropriate:

 

 

The Committee will review such additional information about the transaction as it in its sole discretion shall deem relevant. The Committee may approve or ratify the transaction only if the Committee determines that, based on its review, the transaction is in, or is not inconsistent with, the best interests of SYSCO. The Committee may, in its sole discretion, impose such conditions as it deems appropriate on SYSCO or the related person when approving a transaction. If the Committee or the Chair, as applicable, does not ratify a related person transaction, we will either rescind or modify the transaction, as the Committee or the Chair, as applicable, directs, as soon as practicable following the failure to ratify the transaction. The Chair will report to the Committee at its next regularly scheduled meeting any action that he or she has taken under the authority delegated pursuant to this policy. If any director has an interest in a related person transaction, he or she is not allowed to participate in any discussion or approval of the transaction, except that the director is required to provide all material information concerning the transaction to the Committee.

 

Transactions with Related Persons

 

Mr. Golden is the sole stockholder of Jonathan Golden, P.C., a partner in the law firm of Arnall Golden Gregory LLP, Atlanta, Georgia, counsel to SYSCO. During fiscal year 2008, SYSCO paid this firm approximately $3.2 million in legal fees, which fees we believe were fair and reasonable in view of the level and extent of services rendered. Due to this relationship, Mr. Golden is not considered to be an independent director under the NYSE standards or the categorical standards set forth in SYSCO’s Corporate Governance Guidelines.

 

Mr. Smith’s daughter, Callie F. Smith Davis, serves as the Director of Business Review for Sysco Food Services-Gulf Coast, Inc., one of the Company’s subsidiaries. Ms. Davis’s total compensation in fiscal year 2008 included $123,709 in salary and bonus. Her current annual salary is $83,018. Mr. Green’s brother-in-law works for Red Gold, Inc., which supplies tomato products to SYSCO. SYSCO paid Red Gold approximately $69 million during fiscal 2008.

 

The Corporate Governance and Nominating Committee has approved all of the above transactions in accordance with the disclosed policies and procedures.

 

EQUITY COMPENSATION PLAN INFORMATION

 

The following table sets forth certain information regarding equity compensation plans as of June 28, 2008.

 

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

The following discussion and analysis contains references to target performance levels for our annual and longer-term incentive compensation. These targets and goals are disclosed in the limited context of SYSCO’s compensation programs and should not be interpreted as management’s expectations or estimates of results or other guidance. We specifically caution stockholders not to apply these statements to other contexts.

 

Introduction

 

SYSCO is the global leader in selling, marketing and distributing food products, equipment and supplies to the foodservice industry. As such, our long-term success depends on our ability to attract, retain and motivate highly talented individuals who are committed to SYSCO’s vision and strategy. One of the key objectives of our executive compensation program is to link executives’ pay to their performance and their advancement of SYSCO’s overall performance and business strategies. Other objectives include aligning the executives’ interests with those of stockholders and encouraging high-performing executives to remain with SYSCO over the course of their careers. The five SYSCO executives who are identified in the Summary Compensation Table are referred to as our “named executive officers.” These five executives have a combined total of almost 100 years of service with SYSCO and its affiliates, during which they have gained broad experience and earned promotions to increasing levels of responsibility. The amount of compensation for each named executive officer reflects extensive management experience, continued high performance and exceptional service to SYSCO and our stockholders over a long period of time.

 

Oversight of the Executive Compensation Program

 

Unless the context indicates otherwise, references to the “Committee” in this Compensation Discussion and Analysis and the executive compensation section following it refer to the Compensation Committee of the Board of Directors. The Committee determines and approves all compensation of the Chief Executive Officer, or CEO, and SYSCO’s other executive officers, including the named executive officers. Although the Compensation Committee meets jointly with the Corporate Governance and Nominating Committee to discuss both the CEO’s personal goals and his performance in achieving such goals in each fiscal year, the Compensation Committee solely approves all compensation awards and payout levels. The Committee develops and oversees programs designed to compensate our corporate officers, including the named executive officers, as well as the presidents and executive vice presidents of our operating companies. The Committee is also authorized to approve all grants of restricted stock, stock options and other awards under our equity-based incentive plans for SYSCO employees. Further information regarding the Committee’s responsibilities is found under “Committees of the Board” and in the Committee’s Charter, available on the SYSCO website at www.sysco.com under “Investors — Corporate Governance — Committees”.

 

For the past several years and through the first quarter of fiscal 2009, the Committee retained Mercer as its compensation consultant. Retained by and reporting directly to the Committee, Mercer provides assistance in evaluating SYSCO’s executive compensation programs and policies, and, where appropriate, assists with the redesign and enhancement of elements of the programs. Mercer also advises the Corporate Governance and Nominating Committee with respect to non-employee director compensation. In addition to providing background information and written materials, Mercer representatives attend meetings at which the Committee Chairman believes that Mercer’s expertise would be beneficial to the Committee’s discussions. The Committee reviews annually the overall fees incurred by the Committee and by management for consulting services provided by Mercer and its affiliates, and the Committee does not believe Mercer’s or its affiliates’ provision of services to management affects in any way the advice Mercer provides to the Committee on executive compensation matters. The Committee is satisfied that Mercer follows rigorous guidelines and practices to guard against any conflict and ensure the objectivity of their advice. There is no overlap between the members of the consulting team giving advice to the Committee and those involved with other work for SYSCO. During fiscal 2008, SYSCO’s Canadian subsidiary paid Mercer approximately $210,000 for non-executive benefit consulting services that Mercer was determined by the Canadian subsidiary as best suited to perform.

 

Executive Compensation Philosophy and Core Principles

 

Since the early 1970s, our executive compensation plans have directly linked a substantial portion of annual executive compensation to SYSCO’s performance. These plans are designed to deliver superior compensation for superior individual and company performance; likewise, when individual and/or company performance falls short of expectations, certain programs deliver lower levels of compensation. However, the Committee tries to balance pay-for-performance objectives with retention considerations, so that even during temporary downturns in company performance, the programs continue to ensure that successful, high-achieving employees remain at SYSCO. Furthermore, to attract and retain highly skilled management, our compensation program must remain competitive with that of comparable employers who compete with us for talent.

Beginning in the fall of 2007, the Committee undertook a comprehensive review of the overall compensation program. In connection with this review, Mercer analyzed the components of SYSCO’s executive compensation program and provided preliminary redesign recommendations for the Committee in November 2007. The Committee’s comprehensive review focused on the following key principles:

 

 

In addition, the goals of the review were to accomplish the following:

 

 

SYSCO has historically paid base salaries from below the 25^th percentile to the 50^th percentile of similar positions in SYSCO’s compensation peer group, while placing significant portions of executive pay at risk through short-term and long-term incentives. While certain elements of our compensation program changed as a result of this review, the design of the program will continue to place a significant portion of our corporate officers’ pay at risk in order to provide incentives for superior individual and company performance. As illustrated in the charts below, 89% of our CEO’s total fiscal 2008 compensation awards (excluding retirement incentives and perquisites) and 86% of our other named executive officers’ total fiscal 2008 compensation awards were annual and longer-term incentives (including MIP bonus, supplemental bonus, 28% restricted stock match, cash performance unit grants and stock option grants) that were at risk if certain performance criteria were not satisfied or subject to our future performance. The information presented in the charts values stock options using the Black Scholes value on the date of grant and values cash performance units assuming payout at target amounts. We believe that emphasizing incentive pay in this manner helps our executives to focus on the financial and strategic goals that create profitability and value for our stockholders.

 

Fiscal 2008 Salary Compared to Annual and Longer-Term Incentives

 

 

The Committee supports executive performance and retention by using continued service as a significant determinant of total pay opportunity. Key elements of compensation that are service-based include stock options that generally vest over a five-year period, cash plan incentives that pay out based on performance after three years, and the Supplemental Executive Retirement Plan. In order to receive full vesting under the most commonly used vesting provision of the SERP, an executive must be at least 55 years old, have at least 15 years of MIP service and have combined age and MIP service totaling 80 (such as a 60 year old with 20 years of MIP

service). We believe that SYSCO’s compensation strategies have been effective in promoting performance and retention and are aligned with our company culture, which places a significant value on the tenure of high-performing executives.

 

In developing our pay for performance policies, the Committee generally benchmarks elements of pay against a comparison peer group, discussed under “— Internal and External Analysis.” However, the Committee has not historically had an exact formula for allocating between fixed and variable, cash and non-cash, or short-term and longer-term compensation, allowing it to incorporate flexibility into our annual and longer-term compensation programs and adjust for the evolving business environment. The Committee has built the existing and revised executive compensation program upon a framework that includes the following components, each of which is described in greater detail later in this Compensation Discussion and Analysis:

 

 

Following the recent changes to our compensation plans, we will continue to monitor the overall competitiveness of our compensation package. Overall, we believe our current compensation programs contain the appropriate mix of fixed and retirement compensation versus pay for performance incentives, and recognize each executive’s scope of responsibilities, demonstrated leadership abilities, management experience and effectiveness. Our compensation structure also motivates key executives to achieve both superior short-term and long-term sustained results.

 

External and Internal Analysis

 

For the compensation package to be effective, the Committee must balance the components so that they are both externally competitive and internally equitable.

 

SYSCO is the largest food service distributor in North America, and other companies in the food service industry are significantly smaller. We believe that these smaller businesses would not create a satisfactory comparison group due to the greater skill levels and abilities required to manage a company of SYSCO’s size. Absent an industry peer group, the Committee concluded that the most comparable companies with respect to executive pay are companies whose business size and complexity are similar to ours and with which we compete for top executive positions. Therefore, the peer group developed for the executive compensation analysis is not the same peer group that is used in the stock performance graph in our annual report to stockholders.

 

In order to implement these conclusions regarding external comparison of executive pay, the Committee instructed Mercer to construct a peer group for SYSCO’s executive compensation analysis. First created in 2004 and then revised in May 2007, the peer group is composed of publicly-traded U.S. companies with a revenue range of approximately one-half to three times SYSCO’s revenues that share similar business characteristics with SYSCO. In particular, Mercer examined industry leaders and other high-performing companies in logistics and distribution businesses that involve a high volume of relatively low-margin products and employ a large sales force. The Committee annually reviews the peer group based on information provided by Mercer to ensure continued applicability, considering such factors as the size and performance of each possible peer company, including sales growth, return on capital, total stockholder return and growth in earnings per share. The peer group currently consists of the 14 companies identified below:

 

 

Peer group compensation data is limited to information that is publicly reported and, to the extent possible, the Committee uses it to benchmark the major components of compensation for our named executive officers. In May 2007, Mercer prepared a study that used the peer group information to benchmark the base salary, total cash compensation, total mid- and long-term incentives, total direct compensation and total direct compensation plus retirement benefits of each of the named executive officers. This report was prepared prior to a May 2007 change in the compensation peer group, so it included General Mills and

did not include AmerisourceBergen. With respect to Mr. Carrig, the peer group information was supplemented with survey data from the Mercer 2007 Fortune 500 Survey to provide a functional match for his position. Any reference to peer group data with respect to Mr. Carrig is a reference to a blend of this peer group and survey data.

 

For purposes of the May 2007 Mercer report, total cash compensation was defined as base salary plus the annual MIP bonus, including the stock match portion, but excluding the effect of any supplemental bonus or reduction. Total direct compensation was defined as total cash compensation plus the value of stock options and cash performance unit payouts. The supplemental bonus and/or any supplemental reduction was not taken into account in connection with Mercer’s May 2007 study. The Committee believes this was appropriate because, although the May 2007 study addressed target compensation as well as actual historical compensation, the supplemental bonus is only paid for performance that exceeds expectations and therefore is over and above the target level of performance. Furthermore, the historical compensation considered by Mercer in May 2007 was that paid in fiscal 2006, with respect to which no supplemental bonuses were awarded. To determine an annualized cost of providing retirement benefits, Mercer projected benefits to retirement age 60 for each named executive officer and each comparable peer group company executive, using each company’s specific pay mix, and then determined the amount of total cash compensation that, if deferred at 7% annual interest, for each year of executive service would equal the same lump sum value payable from all employer sponsored retirement plans.

 

With respect to annual salary and the various incentive awards available to the named executive officers, the Committee does not perform a formal internal equity analysis, but does consider the internal equity of the compensation awarded by utilizing comparisons within the SYSCO organization. On an annual basis, the Committee compares the CEO’s compensation with that of the President and the Executive Vice Presidents to ensure that the CEO compensation, as well as its relationship to the compensation of the CEO’s direct reports, is reasonable. The Committee makes similar evaluations among the President, Executive Vice Presidents and Senior Vice Presidents. These comparisons only provide a point of reference, as we do not use specific formulas to determine compensation levels, which reflect the responsibilities of a particular officer position. Although officers at different levels of the organization receive a different percentage of their base salary as payment of the MIP bonus, the financial performance criteria used for all corporate officers for payment of the bonus are identical.

 

Annual Compensation

 

Base Salary

 

The Committee typically reviews base salaries each November and sets them for the following calendar year. The Committee adjusted the base salaries of the named executive officers in November 2007, effective January 1, 2008, and May 2008, effective July 1, 2008, as set forth in the table below:

 

 

 

 

In February 2007, the Committee approved a 10% increase to Mr. Spitler’s base salary, raising it to $650,000 in conjunction with his promotion to his current position effective July 1, 2007. Similarly, in May 2007, the Committee approved a 6% increase to Mr. Delaney’s base salary, raising it to $530,000 in conjunction with his promotion effective July 1, 2007.

 

Analysis

 

Given the increased scope of their duties and responsibilities following their promotions, Mr. Schnieders recommended the amount of the fiscal 2007 salary increases for both Mr. Spitler and Mr. Delaney and the Committee accepted his recommendations. The Committee considered the increase in Mr. Spitler’s base salary to be appropriate in light of the increased scope of the responsibilities he would be assuming in connection with his new position, including responsibility for SYSCO’s

merchandising, specialty distribution companies and SYGMA. The Committee reached a similar conclusion regarding Mr. Delaney, as his promotion to Chief Financial Officer significantly increased the scope of his responsibilities.

 

In November 2007, the Committee began its annual review of executive base salaries by reviewing the range of base salaries between the 25^th and 50^th percentiles of the peer group information contained in the May 2007 Mercer report as updated by Mercer in November 2007. With respect to all named executive officers, the Committee also subjectively considered each executive’s performance in the prior year and recent company performance, as well as each executive’s job responsibilities, management experience, individual contributions, number of years in his or her position and current salary. SYSCO’s culture has been built around the belief that establishing a relatively modest base salary and placing more of the executives’ annual pay at risk will drive both individual and company performance in order to achieve our business targets, and the Committee’s base salary increases reflected this policy. Although the Committee’s determination of base salary was made independent of decisions regarding other elements of compensation, the Committee did consider how each executive’s salary affects the other elements of his total cash compensation and total compensation, such as the impact on the annual target bonus, which is based on a multiple of salary, and the impact on future benefits under the SERP.

 

With respect to Mr. Schnieders, the Committee also:

 

 

The Committee subjectively determined Mr. Schnieders’ base salary increase in light of the foregoing factors, based on competitive data contained in the Mercer report, as updated in November 2007. The increase placed Mr. Schnieders’ base salary slightly above the 50th percentile of the peer group.

 

Mr. Schnieders provided the Committee with recommendations for each of the other named executive officers regarding the level of salary increases necessary to properly incentivize them. Based on the factors discussed above, and the Committee’s review of the updated Mercer report, the Committee accepted Mr. Schnieders’ recommendations. Each of these base salaries placed the other named executive officers at a level between the 25 th and 50^th percentiles, or slightly above the 50^th percentile, of the peer group.

 

In May 2008, given the difficult market environment in which SYSCO was operating and the corresponding need to maintain strict discipline on expense control, Messrs. Schnieders and Spitler, with the support of the executive officers, proposed to the Compensation Committee that their salaries be reduced by 5% beginning July 1, 2008. The Committee agreed with the executives’ analysis and accepted their recommendation. These reduced base salaries place each of the named executive officers between the 25^th and 50^th percentiles, or slightly below the 25^th percentile, of the peer group.

 

Management Incentive Plan

 

The MIP is designed to offer opportunities for compensation tied directly to annual and/or multi-year company performance. Under the terms of the plan, we pay the annual bonus in cash with payments made in the first quarter of the fiscal year for bonuses earned with respect to performance in the prior fiscal year. For the fiscal 2008 bonus, which was paid in August 2008, the plan also required that we issue to the participants restricted shares of SYSCO common stock with a market value equal to 28% of their cash bonus. In connection with its comprehensive review of the compensation program, in May 2008, the Committee removed this 28% stock match from the plan (beginning with the fiscal 2009 bonus to be paid in fiscal 2010). This change was made in order to shift the compensation mix emphasis from short-term to longer-term incentives, with the expectation that this portion of the bonus will be replaced with restricted stock grants vesting over at least a three-year period beginning in fiscal 2010. We currently pay the bonus pursuant to the 2005 Management Incentive Plan, which is described in further detail under “Executive Compensation — 2005 Management Incentive Plan.”

 

Each year the Committee approves MIP agreements that are entered into between SYSCO and each of the named executive officers, as well as certain other executive officers. In May 2007 and 2008, the Committee approved respective fiscal 2008 and 2009 bonus agreements with each of the named executive officers pursuant to the 2005 Management Incentive Plan. In approving the agreements, the Committee generally targeted the cash portion of each named executive officer’s fiscal 2008 bonus at approximately 200% of his base salary.

For fiscal 2008, the MIP bonus was based upon our overall corporate performance and, to a lesser extent, the performance of individual operating companies. For fiscal 2009, the bonus is based solely upon SYSCO’s overall corporate performance.

 

Fiscal 2008

 

We determined the portion of executives’ fiscal 2008 MIP bonus related to our overall corporate performance based on two financial objectives:

 

 

The portion of the executives’ 2008 bonus that was related to operating company performance was based on the number of our operating companies, or subsidiaries, that attained at least a 20% or greater return on capital during fiscal 2008. However, we would have paid no bonuses to our corporate officers under either portion of the fiscal 2008 MIP bonus agreements if SYSCO had not achieved both a 6% increase in basic earnings per share and a 14% return on stockholders’ equity.

 

Payouts for the fiscal 2008 bonus were approved by the Committee and paid in August 2008, as shown in the tables below. The payouts were based on our outstanding fiscal 2008 results in a challenging environment, including an increase in basic earnings per share of 13%, a return on stockholder’s equity of 33% and on 80 of SYSCO’s 97 operating companies or subsidiaries achieving a 20% or greater return on capital.

 

Fiscal 2008 MIP Payouts

 

 

 

 

Fiscal 2009

 

Following the Committee’s comprehensive review of our compensation structure, the MIP bonus was revised, such that we will determine the executives’ fiscal 2009 bonus based solely on these corporate financial objectives:

 

 

 

We will pay no bonuses to our corporate officers under the fiscal 2009 MIP agreements if SYSCO does not achieve both a 4% increase in fully diluted earnings per share and a 10% three-year average return on capital. Return on capital for fiscal 2007 and 2008 was 19.9% and 20.9%, respectively. As discussed above, the fiscal 2009 bonus will not have a stock match portion.

Varying levels of performance will earn varying levels of bonus between 20% and 330% of base salary. The target bonus level is 200% of base salary. The various levels of performance and the percentage of base salary they would yield as a bonus are set forth in the table under “Executive Compensation — 2005 Management Incentive Plan” based on the degree to which actual results meet, exceed or fall short to pre-established performance goals. While fiscal 2008 bonuses were uncapped, fiscal 2009 bonuses will be capped at 330% of base salary.

 

Analysis

 

The Committee develops the annual bonus program with respect to the executive officers as a group and does not customize it for individuals. With respect to both the fiscal 2008 and fiscal 2009 MIP grants, SYSCO’s executive management team prepared the grids used for calculating the earnings per share and return on equity/average three-year return on capital components of the bonus. The fiscal 2008 grids were based largely on prior years’ incentive plans, while the fiscal 2009 grids were based on new performance measures and management’s expectations for future results. Management submitted the fiscal 2008 grid to the Committee and the Committee asked Mercer to review it. Mercer confirmed to the Committee that, based on payment of the cash target bonuses exclusive of the stock match portion, payment of SYSCO’s target for total cash compensation in fiscal 2008 would generally place the named executive officers near the peer group’s 75^th percentile (except for Mr. Schnieders’ target total cash compensation, which would be near the 50^th percentile) according to the May 2007 Mercer survey results. Similarly, Mercer reviewed the fiscal 2009 grid and confirmed to the Committee that, based on payment of the cash target bonuses exclusive of the stock match portion, payment of SYSCO’s target for total cash compensation in fiscal 2009, would generally place the named executive officers near the peer group’s 75^th percentile (except for Mr. Schnieders’ target total cash compensation, which would be near the 50^th percentile) according to the November 2007 adjusted Mercer survey results. The Committee approved the fiscal 2008 and fiscal 2009 grids on this basis.

 

The target total cash compensation of each named executive officers, excluding the stock match and the supplemental bonus, was near or somewhat above the 75^th percentile, except for Mr. Schnieders’, which was near the 50^th percentile. Although the May 2007 Mercer report indicated that SYSCO’s overall financial performance relative to the peer group companies approximated the median, the Committee determined that the 75^th percentile was the appropriate target for total cash compensation, while acknowledging that Mr. Schnieders’ target total cash compensation is still closer to the 50^th percentile. With base salaries set near or significantly below the median for each named executive officer, a significant part of the executives’ total cash compensation is at risk and is only paid based upon performance, thus justifying compensation significantly in excess of the median when that performance is attained. In performing its analysis of the bonus, the Committee determined to exclude the stock match portion of the MIP bonus, which is by definition not paid in cash, and considered it instead in connection with the Committee’s evaluation of longer-term incentives. The Committee’s consideration of the potential impact of the supplemental bonus on total cash compensation relative to the peer group is discussed under “—  Supplemental Performance Bonus — Analysis.” Following this analysis and further consultation with Mercer, the Committee approved the final grids.

 

With respect to the fiscal 2008 MIP bonus, the Committee chose the return on stockholders equity measure because it focused the executives on taking responsibility for effective utilization of our cash and other assets and for protecting our capital. In addition, as SYSCO acquired and created more operating companies through acquisitions and fold-out programs, the executives’ jobs became more difficult and required more intensive efforts to supervise operations and administer programs to an increased number of employees. As a result, the Committee approved the operating company measure to provide a reward when a large number of operating companies performed well during the fiscal year. The return on equity measure was changed and this operating company bonus component was discontinued with the fiscal 2009 MIP grants in May 2008 for the reasons discussed below.

 

The changes in the MIP program design that occurred in May 2008 were driven by the Committee’s comprehensive overall compensation review. Ongoing suggestions by, and discussions among the Committee members, various members of the executive management team and Mercer led to the Committee approving the changes in the 2009 program from return on equity to three-year return on capital and from basic to fully diluted earnings per share, as well as the elimination of both the operating company performance component of the bonus and the stock match. The move to the use of the return on capital measure reflected an acknowledgement by SYSCO that, while it was previously believed that return on stockholder’s equity was an important metric to shareholders and the investment community, return on capital has now become a more significant part of such investors’ focus. These changes were also made in order to bring SYSCO more in line with the compensation programs of its peers, focus on company sales and earnings growth, focus on improved asset management, more closely link compensation to SYSCO’s growth expectations and shareholder value creation, and improve the alignment between SYSCO’s business strategy and performance. The fiscal 2008 and fiscal 2009 grids are not easily comparable because of the change in the performance metrics used for both axis. To the extent that minimum performance levels in the fiscal 2009 MIP agreements were lowered,

though, such reduction in threshold amounts reflects the fact that SYSCO’s capitalization has grown significantly since the prior grid was developed, and the company had the desire to bring the executive’s earnings per share growth requirements in line with that of its operating company officers. The elimination of the stock match portion of the MIP was approved by the Committee, based in part on competitive compensation information provided by Mercer, in order to shift the compensation mix emphasis from short-term to longer-term incentives. The Committee expects that this portion of the bonus will be replaced with restricted stock grants vesting over at least a three-year period, with such grants beginning in fiscal 2010.

 

Supplemental Performance Bonus

 

In August 2008, we paid bonuses to each named executive officer pursuant to bonus agreements we had previously entered into with them pursuant to our 2006 Supplemental Performance Based Bonus Plan. The Committee terminated this plan in May 2008 and approved stand-alone supplemental bonus agreements with Messrs. Schnieders and Spitler for fiscal 2009. The other named executive officers are not eligible for supplemental bonuses for fiscal 2009. The Committee and Board approved changes to the SERP so that, effective September 19, 2007, payments made under the Supplemental Plan and other supplemental bonuses would not be considered in the calculation of any non-protected SERP benefits for fiscal 2008. See “Executive Compensation — Retirement/Career Incentives — Supplemental Executive Retirement Plan.”

 

Fiscal 2008 Supplemental Bonuses

 

Under the fiscal 2008 Supplemental Plan agreements that were approved in May 2007, the Committee, in its sole discretion, could increase or decrease by up to 25% the cash portion of the executives’ 2008 MIP bonuses, depending upon whether the Committee concluded that the executives’ performance “exceeded expectations” or was “below expectations,” based on the criteria described under “Executive Compensation — 2006 Supplemental Performance Based Bonus Plan.” If the executives’ performance had simply “met expectations,” the executives would neither have received an additional bonus nor have had their 2008 bonus reduced. In August 2008, the Committee completed its reviews of Mr. Schnieders, individually, and of the other named executive officers, as well as other members of management, as a group, and concluded that all officers who were parties to the fiscal 2008 Supplemental Plan agreements had exceeded expectations. These reviews were based on the factors described under “Executive Compensation — 2006 Supplemental Performance Based Bonus Plan.” Based on this evaluation, the Committee increased the cash portion of each named executive officer’s MIP bonus as follows:

 

 

May 2008 Agreements for Fiscal 2009

 

The May 2008 stand-alone agreements with each of Messrs. Schnieders and Spitler are similar to the prior agreements. The May 2008 agreements provide that the amount of any supplemental bonus increase or reduction will be determined based on the Committee’s separate review of each individual, including but not limited to a review of these performance areas:

 

 

Analysis

 

Prior to its termination, the Supplemental Plan and related agreements were used to align a portion of the executives’ bonus compensation with non-financial performance goals not taken into account under the MIP bonus formula, such as strategy development, organizational development and alignment, the development of talent and succession planning. They also allowed the Committee to use some discretion in determining the total amount of the executives’ bonus payments. When Mercer benchmarked target cash compensation for fiscal 2008, the supplemental bonus and/or any supplemental reduction was not taken into account because the supplemental bonus is only paid for performance that exceeds expectations regarding the target level of performance. However, the Committee determined that the importance of emphasizing these non-financial performance goals outweighed any negative peer group comparisons if supplemental bonus amounts were paid.

 

In May 2007, the Committee, together with the Corporate Governance and Nominating Committee, met to review and approve Mr. Schnieders’ personal fiscal year goals, including the goals under his fiscal 2008 supplemental bonus agreement. The individual performance measures in the supplemental bonus agreements with Mr. Schnieders and each of the other named

executive officers included key aspects of SYSCO’s enterprise-wide goals for the fiscal year, which were both more strategic and more operational in nature than the financial criteria required for payment of the MIP bonus, as well as some of the team’s personal goals. For fiscal 2008, the goals were submitted by Mr. Schnieders and approved by the Committee. The Committee intended that the goals and targets in the supplemental bonus agreements be different from the threshold performance levels contained in the MIP agreements, including intangible goals that might not all be achieved in a single year, but that would provide long-term benefits to our operations.

 

The Committee’s review of Mr. Schnieders’ fiscal 2008 performance and satisfaction of the supplemental goals, which are described in further detail under “Executive Compensation — 2006 Supplemental Performance Based Bonus Plan — Fiscal Year 2008 Supplemental Bonus Agreement with CEO,” took place in July and August 2008 and included the following:

 

 

Also in August 2008, after consulting with the CEO, the Committee judged the executive management team’s alignment with SYSCO’s enterprise-wide goals for purposes of determining the supplemental bonus payout for the other named executive officers. Pursuant to the fiscal 2008 agreements, the Committee evaluated the executive management team’s collective performance.

 

 

In connection with the Committee’s comprehensive compensation review, based upon discussions with and recommendations of management and Mercer, the Committee terminated the Supplemental Plan and discontinued the supplemental bonuses in May 2008 for all named executive officers except Messrs. Schnieders and Spitler. This change was based on the

executive management team’s recommendations and the Committee’s belief that, given the improved alignment of the MIP bonus with SYSCO’s strategic goals, the supplemental bonuses provided little additional incentive for executive officers other than the Chief Executive Officer and President. Retention of the supplemental bonus for Messrs. Schnieders and Spitler also allowed the Committee to retain some discretion in determining the total amount of the top executives’ bonus payments. The fiscal 2009 agreements were simplified, including general performance areas to be identified by the Committee, but did not include specific goals so that the Committee could consider unexpected developments and changes in strategy or goals each year in determining whether or not Mr. Schnieders and Mr. Spitler have met expectations.

 

Longer-Term Incentives

 

Fiscal 2008 longer-term incentives consisted of three-year cash performance units granted in September 2007 and stock options granted in November 2007. In addition, the cash performance units that we issued in 2005 were paid out in August 2008. For details regarding these grants see “Executive Compensation — 2004 Cash Performance Unit Plan.” We granted fiscal 2008 and fiscal 2009 cash performance units under our 2004 Cash Performance Unit Plan, previously known as the 2004 Mid-Term Incentive Plan. We have adopted a new 2008 Cash Performance Plan and are asking our stockholders at the annual meeting to approve the payment of compensation to certain executive officers pursuant to the 2008 Cash Performance Unit Plan. The new plan does not differ materially from the 2004 plan, and if stockholder approval is obtained, beginning in fiscal 2010, we will grant all cash performance units under the 2008 plan. See “Proposal to Approve Material Terms of, and Compensation to be Paid to Certain Executive Officers Pursuant to, the 2008 Cash Performance Unit Plan.” We made all fiscal 2008 option grants under our 2007 Stock Incentive Plan, which was approved by stockholders in November 2007. Following the elimination of the stock match portion of the MIP bonus, as discussed above, it is the current intent of the Committee to add restricted stock, with vesting over a period of at least three years, to the mix of longer-term incentives, beginning with the fiscal 2010 grants.

 

The Committee’s comprehensive compensation review in May 2008 provided an opportunity for the Committee to reconsider the break-down of its long-term incentive mix. The changes in the SERP were intended to provide a long-term reduction in retirement/career incentives, while placing more emphasis on the long-term incentive component of the executive compensation program. The Committee particularly intends to place more of the executives’ compensation in options, which more closely ties their compensation to the value shareholders receive from increases in the value of SYSCO’s common stock. The fiscal 2008 MIP award included a 28% stock match, so restricted stock awards under the 2007 Stock Incentive Plan are not anticipated to occur until November 2009. Therefore, fiscal 2009 will serve as a transition year between the prior program and full implementation of the new compensation structure. While the Committee always retains discretion regarding future grants of equity-based awards and long-term incentives, it is currently anticipated that beginning in fiscal 2010, SYSCO’s CEO, President and all corporate Executive Vice Presidents will receive approximately 50% of their long-term incentives through stock options, approximately 25% through cash performance units and approximately 25% through restricted stock grants.

 

Cash Performance Units

 

Under the SYSCO Corporation 2004 Cash Performance Unit Plan, and the proposed successor 2008 plan, participants in the MIP have the opportunity to receive cash incentive payments based on SYSCO’s performance over a three-year period. We pay any awards earned under this plan in cash rather than in SYSCO stock or stock units. CPU grants are forward-looking and the grant of CPUs typically does not take into account prior SYSCO or individual performance; however, the payout on CPUs is based on the company’s actual performance in future years.

 

The Committee established performance criteria for grants to the named executive officers in September 2005 covering the three-year performance period ended June 28, 2008. For each of the corporate officers, one-half of the payout was based on the average growth in basic net earnings per share and one-half of the payout was based on average increase in sales, adjusted for product inflation and deflation. At the time of grant, Mr. DeLaney was serving as President of SYSCO’s Charlotte subsidiary, so one-half of his payout was based on such subsidiary’s increase in operating pre-tax earnings and one-half was based on the percentage increase in the subsidiary’s sales, adjusted for product inflation and deflation. Achievement of the target would have yielded a 100% payout, while the minimum satisfaction of only one criterion would have yielded a 25% payout and maximum performance above target on both criteria would have provided a 150% payout. The Committee took the total value that was targeted at 100% payout for CPUs for a given level of participant and divided by the $35.00 value assigned to each unit to determine the number of units to be granted to each participant.

 

Our average growth in basic net earnings per share over the three-year performance period ended on June 28, 2008 was 11.13%, and our adjusted sales growth was 4.42%, which yielded a payout of 81.25% of the value of the units to each corporate participant previously granted units, including Messrs. Schnieders, Spitler, Pulliam and Carrig. In order for generally accepted accounting principles to be applied consistently year-over-year, the performance measures for the CPUs may be calculated

slightly differently from those in our financial statements. We believe that the minimum and target amounts under the CPUs are achievable, although the maximum payout would generally be difficult to obtain at the corporate level and for most of our subsidiaries. However, our Charlotte subsidiary has a strong senior management team overseeing operations that are located in a region with a relatively favorable business climate. Therefore, the exceptional performance of SYSCO’s Charlotte subsidiary yielded a payout of 150% for the units previously granted to Mr. DeLaney. Actual payout amounts are listed in footnote (3) to the Summary Compensation Table.

 

The grants related to the three-year performance periods ending in fiscal 2009, 2010, and 2011 each have a value of $35 per unit and have the same payout possibilities, ranging from 25% to 150% of the total value of the units granted in each year. Mr. DeLaney has one remaining CPU grant with a payout tied to our Charlotte subsidiary’s performance for the three year performance period ending in fiscal 2009, similar to his grant described above. For each of the remaining corporate grants, the Committee used the same performance criteria described above, except that:

 

 

The specific performance measures and related payouts for each year’s corporate grant are shown under “Executive Compensation — 2004 Cash Performance Unit Plan.” The cash performance unit targets and payouts were recommended by the CEO and executive management team after discussions with the Committee and Mercer. The grants the Committee made to the named executive officers in September 2007 and 2008, which are payable in fiscal 2010 and fiscal 2011, respectively, are set forth under “Executive Compensation — 2004 Cash Performance Unit Plan”.

 

Analysis

 

Prior to approving cash performance unit grants in September 2007 and stock option grants in November 2007, the Committee reviewed a September 2007 Mercer update of its May 2007 report that provided peer group benchmarking information relative to total mid-term and long-term compensation. However, the Committee did not use peer group benchmarking data to determine the amount and relative proportions of cash performance unit and option grants. Rather, the Committee confirmed that the total value of the prior year’s long-term incentive grants, valuing options using the Black Scholes model and cash performance units at their target values, were at or below the peer group 25^th percentile for all named executive officers, other than Mr. Schnieders, whose grants were between the 25^th and 50^th percentiles.

 

Subject to the exceptions discussed below, the Committee then determined to maintain fiscal 2008 grant levels at approximately the same levels as in fiscal 2007 for several reasons, including:

 

 

Notwithstanding this determination, based on recommendations by Mr. Schnieders, the Committee significantly increased the size of fiscal 2008 cash performance unit and option grants for Mr. Spitler based on his promotion and increased responsibilities. Mr. Schnieders also recommended, and the Committee approved, increases in the size of the cash performance unit grants for the Company’s Executive Vice Presidents, including Messrs. Pulliam and Carrig, based on the company’s fiscal 2007 financial results and a desire to bring these officers closer to typical levels of long-term incentives granted to officers in similar positions in SYSCO’s compensation peer group. The Committee made its fiscal 2008 decisions regarding the size of the grants of cash performance units and stock options based on the position held by the grantee and the factors discussed above rather than based on any specific personal or group performance reviews. Mr. DeLaney had not previously served as an

Executive Vice President during fiscal 2007 and, therefore, his grant at the Executive Vice President level reflected a significant increase due to his promotion and increased responsibilities.

 

As discussed above, the comprehensive compensation review provided an opportunity for the Committee to reconsider the break-down of its long-term incentive mix, and it is currently anticipated that beginning in fiscal 2010, SYSCO’s CEO, President and all corporate Executive Vice Presidents will receive approximately 50% of the value of their long-term incentives through stock options, approximately 25% through CPUs and approximately 25% through restricted stock grants, with the options valued using the Black Scholes model, each share of restricted stock valued at the closing price of SYSCO common stock on the business day prior to the grant and CPUs valued at $35 per unit at the target level. In July and September of 2008, in order to begin moving towards the anticipated 50-25-25 split, the Committee calculated the approximate target aggregate annual long-term incentive values for each of the named executive officers. The Committee’s analysis began by adding the target value of the CPUs and the Black-Scholes value of options granted to each of the named executive officers during fiscal 2008, plus the value of the 28% stock match on the targeted 200% fiscal 2008 MIP bonus, to set a baseline for its fiscal 2009 long-term incentive value determination. The Committee also recognized that there needed to be an increase for Mr. DeLaney to provide long-term incentives that more closely matched the amounts granted to the Chief Financial Officer at peer group companies.

 

In September 2008, the Committee examined a September 2008 Mercer report that used updated peer group and market data similar to that used in its May 2007 report. Mercer’s recommendations included suggested targets for annual long-term incentive amounts that were near the 50^th percentiles, except for Mr. Spitler, with respect to whom Mercer’s recommendation was above the 50^th percentile. Mercer explained to the Committee that it believed that the higher peer group percentile comparison for Mr. Spitler was appropriate because his peer group comparative data had changed significantly since the May 2007 report and November 2007 update. Mercer explained that several new presidents or COOs had been recently appointed at peer group companies, with such individuals receiving compensation amounts significantly lower than their more experienced predecessors, thereby artificially lowering the comparative data for Mr. Spitler. Mercer also recommended a long-term incentive breakdown for fiscal 2009 of 50% stock options and 50% cash performance units, since no restricted stock would be awarded during fiscal 2009. After considering the market data provided by Mercer and Mercer’s recommendations, as well as the fact that fiscal 2009 is a transition year for SYSCO’s long-term incentive compensation, with the stock match portion of the MIP having been paid for the last time in August 2008 but no restricted stock scheduled for issuance until fiscal 2010, the Committee chose target long-term incentive amounts that were greater than the baseline values calculated using the fiscal 2008 awards, but less than Mercer’s recommended amounts. The Committee made this decision based on its subjective determination that the increases necessary to bring the long-term incentives up to Mercer’s recommended levels were too great to be made in one year and should be phased in over two or more years. The targets for fiscal 2009 long-term incentive amounts chosen by the Committee would place each of the executive officers’ total long-term incentive compensation between the 25^th and 50^th percentiles for total long-term incentives granted to similar positions within the peer group companies, except for Mr. Spitler, whose total long-term incentive compensation would be somewhat above the 50^th percentile for the reasons discussed above.

 

The Committee followed Mercer’s recommendation in granting approximately half of each Executive Vice President’s anticipated fiscal 2009 long-term incentive compensation in the form of cash performance units, valued at their target levels. However, the total long-term incentives received by Messrs. Schnieders and Spitler for fiscal 2008 were significantly below the peer group 50^th percentile, and the Committee determined that, if the number of options to be granted to them were increased sufficiently for the fiscal 2009 option grant value to equal half of the total long-term incentive value originally targeted, the increase in the size of the option grant would be larger than the Committee subjectively determined was appropriate in one year. As a result, in making the decisions discussed in the previous paragraph, the Committee reduced the overall value of the anticipated fiscal 2009 long-term incentive grant for Messrs. Schnieders and Spitler, with the majority of the reduction to be taken from the option piece, resulting in the target value of their fiscal 2009 CPU grants significantly exceeding the expected value of their fiscal 2009 option grants, which are currently anticipated to be made in November 2008. The Committee currently expects to further increase the value of Messrs. Schnieders’ and Spitler’s longer-term incentives in fiscal 2010, gradually increasing the number of options and decreasing the number of CPUs over a two- to three-year transition period. Therefore, in September 2008, the Committee granted each of the named executive officers cash performance units with target payouts as shown under “Executive Compensation — 2004 Cash Performance Unit Plan.”

 

The minimum, target and maximum performance criteria levels and the payouts for the awards made during fiscal 2008 were recommended by the executive management team and were similar to those recommended by Mercer in fiscal 2007. For the grants made in fiscal 2007 for the three-year performance period ending in fiscal 2009, the Committee provided that basic earnings per share should be calculated prior to the accrual for the MIP and supplemental bonuses due to the uncertainty of calculating basic earnings per share using these accruals and in order to avoid inconsistent results in years when we do not pay an MIP and/or supplemental bonus. In fiscal 2008, however, the Committee reevaluated its position, and determined to return to the previous method of calculation, which includes these accruals, in order to tie payment of the bonus to increases in GAAP basic

earnings per share. The increases in the threshold, target, maximum and other sales performance levels of the grants made in fiscal 2008 were made to reflect the changes in the calculation of the sales measure, which is no longer adjusted for inflation or deflation. The Committee made this calculation change in order to tie the performance goals more closely to the Company’s internal business goals. Grants made in fiscal 2009 continue to reflect these changes, as well as an increase in the threshold, target and maximum earnings performance levels, in order to more closely align the performance measures with the company’s long-term goal of maintaining low- to mid- double digit annualized earnings growth.

 

The approval of the 2008 plan, and the submission to the stockholders of a request for approval of the payment of certain awards under it, was driven by the Committee’s desire that the deductibility of such compensation not be limited by Section 162(m) of the Internal Revenue Code. See “— Income Deduction Limitations”.

 

Stock Options

 

The Committee approved the fiscal 2008 stock option grants to the named executive officers in November 2007. The specific grants are shown under “Executive Compensation — Grants of Plan-Based Awards.” The 2007 Stock Incentive Plan calls for options to be priced at the closing price of our common stock on the business day prior to the grant date, and the fiscal 2008 option grant agreement provides for ratable vesting over a five-year period.

 

Our stock option grant administrative guidelines were adopted in February 2007, as described under “Executive Compensation — Outstanding Equity Awards at Fiscal Year-End.” Under the guidelines, the Committee will generally not make grants during a period preceding an anticipated event which is likely to cause a substantial increase or a substantial decrease in the trading price of SYSCO’s common stock, such as an earnings release. The Committee will generally authorize and grant options during normal trading windows. If we have grants scheduled to occur outside of a normal trading window or when SYSCO is in possession of material non-public information, then:

 

 

The Committee has not yet determined to what extent this policy will apply to grants of restricted stock, which the Committee currently anticipates will begin in fiscal 2010.

 

Analysis

 

See the first paragraph under “Cash Performance Units — Analysis” for an analysis of the Committee’s fiscal 2008 option grant decisions.

 

The Committee believes that option grants benefit employee performance and retention, particularly in years in which SYSCO’s performance does not create high cash compensation. They will also help to ensure that longer term strategic initiatives are not compromised by having executives focus solely on short-term profitability for payment of the annual bonus. SYSCO’s long-term performance ultimately determines the value of stock options, because gains from stock option exercises are entirely dependent on the long-term appreciation of our stock price. The Committee expects that this longer-term focus will benefit SYSCO and its stockholders, as it more closely aligns the executives’ interests with those of stockholders and focuses executives on strategies that increase long-term stockholder value. Existing ownership levels are not a factor in the Committee’s granting of options because it does not want to discourage executives from holding significant amounts of SYSCO stock.

 

The Committee approved the 2007 Stock Incentive Plan in order to provide it with the flexibility to issue not only stock options, but also restricted stock, stock appreciation rights and other stock-based awards. As part of the Committee’s comprehensive compensation review, based upon discussions with and recommendations of management and Mercer, the Committee removed the automatic stock match feature from the MIP and added restricted stock to SYSCO’s mix of longer-term incentives. Based on information provided by Mercer, the Committee believes that the addition of restricted stock grants to the named executive officers beginning in fiscal 2010 will bring SYSCO more in line with its peer group and provide a more desirable weighting of longer-term compensation when comparing the total mix of short- and longer-term compensation.

Retirement/Career Incentives

 

Supplemental Executive Retirement Plan

 

We provide annual retirement benefits to all corporate employees and most of our non-union operating company employees under the broad-based tax-qualified SYSCO Corporation Retirement Plan, which we simply refer to as the “pension plan.” In addition, SYSCO offers a Supplemental Executive Retirement Plan, or SERP, to approximately 175 corporate and operating company officers, including the named executive officers. The Committee utilizes the SERP to increase the retirement benefits available to officers whose benefits under the pension plan are limited by law. The earliest an executive can retire and receive any benefits under the SERP is age 55 with a minimum of 15 years of MIP service. The SERP was designed to provide fully vested participants with post-retirement monthly payments, with the annual benefits equaling to up to 50% of a qualified participant’s final average annual compensation, as discussed below, in combination with other retirement benefits, including other pension benefits, the company match under the 401(k) plan and social security payments. Annual retirement benefits from the SERP for a participant who is 100% vested in his accrued benefit are generally limited to $2,200,000, as adjusted for cost-of-living increases. However, each of Messrs. Schnieders and Spitler qualify for a protected benefit under the SERP. This limit does not apply to the protected benefit, which we will pay if it is greater than the benefit under the current provisions. The amounts accrued by each named executive officer under the pension plan and the SERP as of July 1, 2008 are set forth under “Executive Compensation — Pension Benefits.”

 

Review and analysis of the SERP was one of the primary tasks involved in the Committee’s comprehensive compensation review. As a result of this in-depth review, based on information provided by Mercer regarding competitive practices and the recommendations of the executive management team, the Committee approved the following modifications that apply to all current SERP participants, including the named executive officers:

 

 

Following these amendments, we calculated accrued benefits under the SERP for each named executive officer based on the higher of accrued benefits as of June 28, 2008 and benefits under the new formula and guidelines described above. These calculations, including those for protected participants, are discussed in more detail under “Executive Compensation — Pension Benefits — Supplemental Executive Retirement Plan.”

 

Analysis

 

SYSCO’s retirement plans are an important performance and retention tool, the effectiveness of which the Committee tries to balance with the cost of providing them. Our history supports that this approach works, as our named executive officers had an average tenure of almost 20 years with SYSCO at the end of fiscal 2008. Based on the May 2007 Mercer report, compensation to the named executive officers under the SERP places SYSCO above the 75th percentile for retirement benefits relative to the peer group, but total compensation plus retirement benefits, excluding the MIP match shares and the supplemental bonus, places SYSCO between the 25^th and 50^th percentiles for all named executive officers. As a result, the Committee believes that these benefits, as modified during fiscal 2008, are appropriate in light of SYSCO’s overall compensation structure.

Among the key goals of the Committee’s fiscal 2008 comprehensive compensation review were the following:

 

 

The majority of the modifications to the SERP approved by the Committee during fiscal 2008 further these goals. The decision to include base salary in the definition of eligible earnings at the monthly rate in effect at the end of the fiscal year rather than based on the actual amount paid was made to improve the ease of administration of the SERP and give SERP participants the benefits of any promotion during the year, regardless of when it might occur. Given the nature of the benefits provided to the named executive officers under the SERP, the Committee also determined that the more extensive forfeiture and non-compete provisions were appropriate.

 

Nonqualified Executive Deferred Compensation Plan

 

SYSCO offers an Executive Deferred Compensation Plan, or EDCP, to provide MIP participants, including the named executive officers, the opportunity to save for retirement and accumulate wealth in a tax-efficient manner beyond what is available under SYSCO’s 401(k) retirement savings plan. Participants may defer up to 100% of their base salary and up to 40% of their cash MIP payment to the EDCP. SYSCO does not match any salary deferrals into the EDCP. For participants who defer a portion of their MIP bonus, SYSCO matches 15% on the first 20% deferred, making the maximum possible match to the EDCP 3% of the cash bonus. This match generally vests at the tenth anniversary of the crediting date, subject to earlier vesting in the event of death, disability, a change in control or the executive’s attaining age sixty. Participants who defer under the EDCP may choose from a variety of investment options, including Moody’s Average Corporate Bond Yield, with respect to amounts deferred. Company-matching contributions are credited with the Moody’s Average Corporate Bond Yield. The EDCP is described in further detail under “Executive Compensation — Nonqualified Deferred Compensation.”

 

As part of the Committee’s fiscal 2008 comprehensive compensation review, based on the competitive information provided by Mercer and the recommendations of the executive management team, the Committee approved the following EDCP modifications that impact the compensation of all EDCP participants, including the named executive officers:

 

 

Analysis

 

Currently, the 401(k) plan is limited by law to $15,500 in individual contributions per year. The Committee believes that the EDCP motivates and assists in the retention of key employees by providing them with greater flexibility in structuring the timing of their compensation payments. The EDCP is an important recruitment and retention tool for SYSCO, as the companies with which we compete for executive talent typically provide a similar plan to their senior employees.

 

The Committee also conducted a detailed examination of the provisions of the EDCP in connection with its comprehensive compensation review, and the considerations and goals discussed under “Supplemental Executive Retirement Plan — Analysis,” apply equally to the EDCP. The changes in the Moody’s investment option and default rate and the elimination

of deferrals of the supplemental bonus were designed to further these goals. The more extensive forfeiture and non-compete provisions were also deemed appropriate in light of the benefits to the executives provided by the EDCP. The decision to expand the ability of executives to designate whether they receive a lump sum or installment distribution was driven by the desire to take advantage of the transitional relief provided under Section 409A of the Internal Revenue Code and was based on management’s and the Committee’s desire to provide additional flexibility to executives who retire earlier than was originally anticipated.

 

Severance Agreements

 

In prior years, the Committee approved, and the Board of Directors ratified, severance agreements for certain executive officers, including Messrs. Schnieders and Spitler. The other named executive officers do not currently have severance agreements, although the Committee is currently considering providing them with agreements that would provide benefits upon a change in control. It is currently anticipated that these agreements will be put in place in late calendar 2008, but their terms have not yet been determined. The severance agreements for Messrs. Schnieders and Spitler do not contain any classic “single trigger” provisions that would cause an immediate payment obligation solely as a result of a change in control of SYSCO; however the agreements do provide for certain tax gross up payments in the event of a change of control. Under the terms of these agreements, if we terminate the executive without cause or the executive terminates his employment for good reason, as these terms are defined in the agreement, the executive is entitled to two years’ base salary plus two years’ MIP bonus, based on his average bonus over the prior five years, in 24 equal monthly installments. In addition, if the termination occurs before the end of a year in which a bonus would have been earned but for the termination, the executive will receive a pro rated share of the cash bonus payable. We will also pay the executive a lump sum payment equal to 100% of his vested and unvested benefits under the EDCP, including deferrals and company matches thereon, if applicable. These amounts will be paid in the form elected by the executive under the EDCP. With respect to Mr. Spitler, who is age 59, if termination occurs before age 60, we will treat him as if he retired at age 60 for vesting purposes, so that he will receive a benefit in accordance with the provisions of the SERP; however, if Mr. Spitler voluntarily leaves SYSCO’s employ prior to reaching age 60, other than for specified good reason, he will forfeit all payments under the SERP.

 

The agreements also provide for waivers of the provisions of the SERP and the EDCP that reduce payments thereunder to the extent that they are not deductible by SYSCO pursuant to Section 280G of the Internal Revenue Code. In addition, if we make payments to Messrs. Schnieders or Spitler that are contingent on a change in control as provided for under Section 280G, the IRS may impose an excise tax on the executives pursuant to Section 4999 of the Internal Revenue Code with respect to such payments and certain other payments conditioned on a change of control. In that event, the severance agreements provide that the executives will be entitled to receive an indemnity payment of any such tax and a “gross up” of that payment so that the executives have no out of pocket costs as a result of the tax and tax reimbursement payments. Each of the severance agreements also requires a general release from separated executives, as well as non-compete and non-disparagement provisions. The severance agreements are described under “Executive Compensation — Executive Severance Agreements.”

 

Analysis

 

The Committee and the Board believe that the severance agreements with Messrs. Schnieders and Spitler are necessary in order to retain them and to ease their transition in the event of their involuntary termination of employment with SYSCO without “cause” or for a voluntary termination for “good reason.” Based on a January 2008 Mercer review of severance provisions among our peer group companies, the Committee believes that a majority of the peer group companies offer such protections. It is the Committee’s intent that provisions in the severance agreements regarding an executive’s termination following a change of control preserve executive morale and productivity and encourage retention in the face of the disruptive impact of an actual or rumored change in control of SYSCO. In addition, these provisions align executive and stockholder interests by enabling executives to consider corporate transactions that are in the best interests of SYSCO’s stockholders and other constituents without undue concern over whether the transactions may jeopardize the executives’ own employment and compensation. The Committee does not believe that the severance agreements provide undue incentive for the executive officers to encourage a change in control. Finally, the provisions protect stockholder interests in the event of a change in control by helping assure management continuity, which could improve company performance and maintain stockholder stock value.

 

The Committee has reviewed the potential costs associated with the gross-up payments called for by the severance agreements and has determined that they are fair and appropriate for several reasons. The excise tax tends to penalize employees who defer compensation, as well as penalizing those employees who do not exercise options in favor of those who do. In addition, the lapse of restrictions and acceleration of vesting on equity awards can cause an executive to incur excise tax liability before actually receiving any cash severance payments. Therefore, the Committee believes that the gross-up payments are necessary to ensure proper consideration of a change in control by the executives.

As part of the Committee’s comprehensive review of compensation, the Committee has been reviewing the provisions of the severance agreements and is considering whether or not they should be modified and whether or not agreements with change of control provisions similar to those in the severance agreements should be extended to the other named executive officers, but the Committee has not yet made any decisions in this regard.

 

Benefits, Perks and Other Compensation

 

We provide benefits for executives that we believe are reasonable, particularly since the cost of these benefits constitutes a very small percentage of each named executive officer’s total compensation.

 

SYSCO’s named executive officers are eligible to participate in SYSCO’s regular employee benefit programs, which include the defined benefit pension plan, a 401(k) plan, our employee stock purchase plan, group life insurance and other group benefit plans. We also provide MIP participants, including the named executive officers, with additional life insurance benefits, long-term disability coverage (including disability income coverage) and long-term care insurance, as well as reimbursement for an annual comprehensive wellness examination by a physician of their choice. We believe these benefits are required to remain competitive with our compensation peer group. Although the executive officers are eligible to participate in SYSCO’s group medical and dental coverage, we adjust employees’ contributions towards the monthly cost of the medical plan according to salary level; therefore, executives pay a higher percentage of the cost of these benefits than do non-executives.

 

MIP participants, including the named executive officers, are encouraged to have their spouses accompany them at business dinners and other business functions in connection with meetings of the Board of Directors, certain business meetings and other corporate-sponsored events, and SYSCO pays, either directly or by reimbursement, all expenses associated with their spouses’ travel to and attendance at these business-related functions. This payment or reimbursement is described in further detail in footnote (5) to the Summary Compensation Table. Furthermore, SYSCO owns fractional interests in private aircraft which are made available to members of the Board of Directors, executives and other members of management for business use, but are not allowed to be used for personal matters. Spouses may from time to time accompany executive officers on such flights in connection with travel to and from business-related functions if there is space available on the aircraft.

 

Officers, as well as many other associates, are provided with cell phones and PDA devices which are paid for by SYSCO, are intended primarily for business use and which we consider to be necessary and integral to their performance of their duties. All employees, including our named executive officers, and members of our Board of Directors are also entitled to receive discounts on all products carried by SYSCO and its subsidiaries. Consistent with SYSCO’s policies on relocation of officers, Mr. DeLaney received reimbursement for certain relocation expenses following his promotion from the President of our Charlotte, North Carolina operating company to an executive position at our headquarters in Houston, Texas.

 

SYSCO does not provide the named executive officers with automobiles, security monitoring or split-dollar life insurance.

 

Benefits Following a Change in Control

 

As discussed above, we have no “single trigger” provisions in the Severance Agreements that would cause an immediate payment obligation solely as a result of a change in control of SYSCO; however, the agreements do provide for certain tax gross up payments in the event of a change of control. We have included provisions regarding a change in control in several of SYSCO’s benefit plans and agreements, including 100% vesting of the SERP, unvested EDCP amounts, options, restricted stock and CPUs upon a change in control. See “Executive Compensation — Quantification of Termination/Change in Control Payments” for a detailed explanation of potential benefits under the various provisions.

 

Analysis

 

As with the Severance Agreements, the Committee believes that these provisions will preserve executive morale and productivity and encourage retention in the face of the disruptive impact of an actual or rumored change in control of SYSCO.

 

Potential Impact on Compensation from Executive Misconduct

 

If the Board determines that an executive has engaged in fraudulent or intentional misconduct, the Board will take appropriate action to remedy the misconduct, prevent its recurrence and impose discipline on the wrongdoer. Discipline would vary depending on the facts and circumstances, and could include, without limit, termination of employment, initiating an action for breach of fiduciary duty and, if the misconduct resulted in a significant restatement of SYSCO’s financial results, seeking reimbursement of any portion of performance-based incentive compensation paid or awarded to the executive that is greater than would have been paid or awarded if calculated based on the restated financial results. In addition, the executives are subject

to forfeiture of benefits under the SERP and EDCP in certain circumstances. These remedies would be in addition to, and not in lieu of, any actions imposed by law enforcement agencies, regulators or other authorities.

 

Income Deduction Limitations

 

Section 162(m) of the Internal Revenue Code generally sets a limit of $1 million on the amount of non-performance-based compensation that SYSCO may deduct for federal income tax purposes in any given year with respect to the compensation of each of the named executive officers other than the chief financial officer. The Committee has adopted a general policy of structuring the performance-based compensation arrangements, including the MIP bonus and CPUs but not the supplemental bonuses, in order to preserve deductibility to the extent feasible after taking into account all relevant considerations. However, the Committee also believes that SYSCO needs flexibility to meet its incentive and retention objectives, even if SYSCO may not deduct all of the compensation paid to the named executive officers.

 

Based on the factors discussed under “Annual Compensation — Base Salary,” the Committee has determined to pay Mr. Schnieders a base salary of in excess of $1 million in order to remain competitive. The Committee determined that the additional base salary is appropriate even though the excess over $1 million is not deductible. Furthermore, amounts paid pursuant to the supplemental bonus agreements do not qualify as “performance-based compensation” under Section 162(m). In approving these agreements, the Committee concluded that the importance of aligning a portion of the executives’ compensation with additional performance goals not taken into account under the MIP, combined with the desirability of preserving a certain level of Committee discretion over the total amount of the executives’ bonus payments, outweighs the potential cost to SYSCO that could result from the non-deductibility of any compensation paid under the plan. The removal of the automatic stock match from the MIP, potentially to be replaced by restricted stock grants with longer vesting periods beginning in fiscal 2010, will also result in these new grants of restricted stock being included in the compensation that must be aggregated to determine if the $1 million threshold has been reached. The MIP automatic share match was considered performance-based compensation and was not required to be aggregated with other compensation for this purpose. The Committee was aware of this result when it approved the removal of the stock match from the MIP but determined that this change was nonetheless desirable in order to give the Committee more flexibility over the size of the restricted share grant and to more closely align SYSCO’s longer-term incentive compensation program with those of its peer group.

 

Section 409A of the Internal Revenue Code

 

Section 409A of the Internal Revenue Code deals specifically with non-qualified deferred compensation plans. We have made amendments to the SERP, EDCP and CPU Plan in order to comply with Section 409A and have administered the SERP and EDCP in compliance with it. We intend to make amendments to the severance agreements in order to assure their compliance with Section 409A. As such, the descriptions herein of the timing of benefit payments to the executives pursuant to their severance agreements may change in order to comply with Section 409A.

 

Stock Ownership Guidelines

 

See “Stock Ownership — Stock Ownership Guidelines” for a description of our executive stock ownership guidelines.

 

Total Compensation

 

After reviewing the information discussed above and the reports prepared by Mercer regarding compensation among the peer group, in August 2008, the Committee asked Mercer to summarize the fiscal 2008 compensation and target fiscal 2009 compensation of each of the named executive officers in comparison to the most current information available for SYSCO’s compensation peer group. Mercer’s September 2008 report indicated that each named executive officer’s total compensation with respect to fiscal 2008 (including MIP bonus, supplemental bonus, 28% restricted stock match, cash performance unit grants and stock option grants, but not including retirement benefits) fell between the 50^th and 75^th percentiles, or slightly above the 75^th percentile, for similar positions at companies within SYSCO’s compensation peer group. After reviewing the Mercer report, as well as tally sheets detailing total compensation and wealth accumulation and internal equity analyses, the Committee determined that each named executive officer’s total fiscal 2008 compensation provided the executive with adequate and reasonable compensation. The Committee also determined that each named executive officer’s total fiscal 2008 compensation was appropriate given SYSCO’s improved performance in fiscal 2008 and the executive’s performance.

 

COMPENSATION COMMITTEE REPORT

 

The Compensation Committee of the Board of Directors of SYSCO Corporation has reviewed and discussed the foregoing Compensation Discussion and Analysis as required by Item 402(b) of Regulation S-K with management and, based on such review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Annual Report on Form 10-K and this Proxy Statement.

 

COMPENSATION COMMITTEE

 

  John M. Cassaday, Chairman

  Richard G. Merrill

  Phyllis S. Sewell

  Richard G. Tilghman

  Jackie M. Ward

 

EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The following table sets forth information with respect to each of the named executive officers — the Chief Executive Officer, the Chief Financial Officer and the three most highly compensated of the other executive officers of SYSCO and its subsidiaries employed at the end of fiscal 2008. In determining the three other most highly compensated executive officers, we excluded the amounts shown under “Change in Pension Value and Nonqualified Deferred Compensation Earnings.”

 

 

 

 

 

 

 

Included in the amounts shown above for the cash portion of the MIP bonus (as adjusted by the supplemental bonus) are amounts deferred by each of the named executive officers under the EDCP as follows:

 

 

 

 

 

The following table shows the amounts attributable to each of these plans:

 

 

 

 

a. the amount paid for accidental death and dismemberment insurance coverage,

b. the amount paid for long-term care insurance,

c. the amount reimbursed to the individual for an annual medical exam,

d. the amounts paid for long-term disability coverage under the company’s disability income plan,

f.  the estimated amount paid for spousal meals in connection with business events, and

g. with respect to Mr. DeLaney, $138,406 for reimbursement of relocation expenses.

 

Except for reimbursement of relocation expenses to Mr. DeLaney as discussed above, no executive received any single perquisite or benefit with a value greater than $25,000.

 

 

 

Grants of Plan-Based Awards

 

The following table provides information on CPU grants, stock options and MIP and Supplemental Plan awards we granted in fiscal 2008 to each of the named executive officers.

 

 

 

 

 

 

2004 Cash Performance Unit Plan

 

The SYSCO Corporation 2004 Cash Performance Unit Plan was formerly known as the SYSCO Corporation 2004 Mid-Term Incentive Plan and the SYSCO Corporation 2004 Long-Term Incentive Cash Plan, and is referred to herein as the “Cash Performance Unit Plan”. The Cash Performance Unit Plan provides for certain key employees, including the named executive officers, the opportunity to earn cash incentive payments based on pre-established performance criteria over performance periods of at least three years. We refer to these units as “CPUs”. The Committee currently makes grants annually for performance periods ending at the end of the third fiscal year, including the year of grant. The Committee may make grants under the Cash Performance Unit Plan until September 4, 2009 unless the Board terminates it earlier. However, if the 2009 Cash

Performance Unit Plan is approved by the stockholders at the annual meeting, all future CPU grants to the named executive officers will be made pursuant to the 2009 Plan (see “Proposal To Approve Material Terms Of, And Compensation To Be Paid To Certain Executive Officers Pursuant To, The 2009 Cash Performance Unit Plan”).

 

Under the 2004 plan, the Committee may select performance goals from those specified in the plan, based on the performance of SYSCO generally or on the performance of subsidiaries or divisions. With respect to all currently outstanding corporate grants, the Committee set performance criteria based on the average increases in SYSCO’s net earnings per share and sales over the performance periods (see below regarding certain adjustments in such measures). In addition to the awards that the named executives received in September 2005 and that we paid to them in August 2008, as discussed in footnote (3) to the Summary Compensation Table, the named executives currently hold cash performance unit grants in the amounts and for the performance periods set forth below: