UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A INFORMATION

 

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

EXCHANGE ACT OF 1934 (Amendment No.     )

 

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Sonoco Products Company

(Name of Registrant as Specified In Its Charter)

 

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

 

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SONOCO PRODUCTS COMPANY

 

1 NORTH SECOND STREET
HARTSVILLE, SOUTH CAROLINA 29550 USA

 

March 9, 2010

 

To Our Shareholders:

 

You are cordially invited to attend our Annual Shareholders’ Meeting to be held at the Center Theater, 212 North Fifth Street, Hartsville, South Carolina, on Wednesday, April 21, 2010, at 11:00 a.m. (Eastern time).

 

We have enclosed a Notice of 2010 Annual Meeting of Shareholders and Proxy Statement that cover the details of matters to be presented at the meeting.

 

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

 

We have also enclosed a copy of our 2009 Annual Report, which reviews the Company’s events of the past year, and discusses strategy and the outlook for the future (or we delivered one copy of the Annual Report for all shareholders at your address).

 

We hope that you will come to the 2010 Annual Meeting of Shareholders in person; however, even if you plan to attend, we strongly encourage you to complete the enclosed proxy card or brokers’ voting instruction form and return it in the enclosed business reply envelope. If you are a shareholder of record, you can also vote by telephone (if you live in the United States or Canada) or via the Internet. Instructions are shown on your proxy card. If you are a shareholder of record and for any reason you desire to revoke your proxy, you can do so at any time before the voting. Your vote is important and will be greatly appreciated.

 

 

Harris E. DeLoach, Jr.
Chairman, President &

Chief Executive Officer

 

TABLE OF CONTENTS

 

SONOCO PRODUCTS COMPANY

 

1 NORTH SECOND STREET

HARTSVILLE, SOUTH CAROLINA 29550 USA

 

 

 

By order of the Board of Directors,

 

Ritchie L. Bond

Secretary

March 9, 2010

 

SONOCO PRODUCTS COMPANY

 

1 NORTH SECOND STREET
HARTSVILLE, SOUTH CAROLINA 29550 USA

 

 

 

We are sending you these proxy materials in connection with the solicitation by the Board of Directors of Sonoco Products Company of proxies to be used at the Annual Meeting of Shareholders (“Annual Meeting”) to be held on Wednesday, April 21, 2010, at 11:00 a.m. (Eastern time) at The Center Theater, 212 North Fifth Street, Hartsville, S.C., and at any adjournment or postponement of the meeting. The terms “we,” “our,” “us,” “Sonoco” and “the Company” all refer to Sonoco Products Company. The proxy materials are first being mailed on or about March 15, 2010.

 

Who May Vote

 

You will only be entitled to vote at the Annual Meeting if our records show that you were a record shareholder on February 19, 2010. At the close of business on February 19, 2010, a total of 100,257,296 shares of our common stock were outstanding and entitled to vote. Each share of common stock has one vote.

 

How to Vote Shares Held Directly

 

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

 

Vote by Telephone:

 

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

 

Vote through the Internet:

 

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

Vote by Mail:

 

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

 

Actions of the Proxy Agents

 

If you are a record shareholder and you indicate your voting choices, your shares will be voted according to your instructions. If you fail to give voting instructions, the proxy agents will vote your shares FOR each person named in this Proxy Statement as a nominee for election to the Board of Directors and FOR ratification of the selection of PricewaterhouseCoopers LLP (“PwC”) as our independent registered public accounting firm for the fiscal year ending December 31, 2010. The proxy agents will vote according to their best judgment on any other matter that properly comes before the Annual Meeting. At present, the Board of Directors does not know of any other such matters.

 

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

 

If your shares are held in street name by a broker, bank or other nominee, you may direct your vote by submitting your voting instructions to your broker, bank or other nominee. Please refer to the voting instructions provided by your account manager. Because of recent changes in rules that relate to broker voting, your broker or other nominee is no longer permitted to vote your shares on election of directors unless you provide voting instructions. Therefore, to be sure your shares are voted, please instruct your broker or other nominee as to how you wish it to vote.

 

Voting at the Annual Meeting

 

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

 

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

 

How to Revoke Your Proxy

 

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

 

 

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

 

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

 

How Votes Will Be Counted

 

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

 

Brokers no longer have discretionary authority to vote on director elections. Therefore, if you return a broker voting instruction form but do not indicate how you want your broker to vote on election of directors, a broker non-vote will occur with respect to the election. Brokers do, however, continue to have discretionary authority to vote on ratification of independent auditors, and may do so when you have not provided instructions on that matter.

 

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

 

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

 

Cost of this Proxy Solicitation

 

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

 

The Board of Directors has fixed the number of directors of the Company at 12. At our Annual Meeting, four directors will be elected. Messrs. C.C. Fort, J.H. Mullin, III, P.R. Rollier and T.E. Whiddon have been nominated to hold office for the next three years, their terms expiring at the Annual Shareholders’ Meeting in 2013, or when their successors are duly elected and qualify to serve. The proxy agents intend to vote FOR the election of the four persons named above unless you withhold authority to vote for any or all of the nominees. The Board of Directors recommends that you vote FOR each nominee.

 

 

Members of the Board of Directors whose terms of office will continue until our Annual Shareholders’ Meeting in 2011 are:

 

 

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

 

 

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

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

 

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

 

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

 

Mr. Harris E. DeLoach, Jr., as Chairman, President and Chief Executive Officer, has 24 years of significant leadership experience with our Company and has extensive knowledge and understanding of our business, our people, our customers and our shareholders. As a former practicing attorney and a board member of two other public companies, he also brings in-depth legal and board governance experience.

 

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

 

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

 

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

 

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

 

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

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

 

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

 

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

 

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

 

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

 

A director will not be considered independent if:

 

 

 

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

 

 

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

 

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

 

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

 

The Board has a case-by-case philosophy on the separation of the offices of Chairman and Chief Executive Officer. The Board believes that this issue is part of the succession planning process and recognizes

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

 

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

 

During 2009, the Board consisted of eleven independent directors (as defined by New York Stock Exchange standards) in addition to Mr. DeLoach. Although we do not have a lead independent director, to promote open discussion among our independent/non-management directors, those directors meet at regularly scheduled executive sessions without management present. Either the Chair of the Corporate Governance and Nominating Committee or of the Executive Compensation Committee serves as presiding director at the meetings; there is no formal procedure to determine which of the two shall preside at a given meeting. Four such meetings were held during 2009.

 

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

 

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

 

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

 

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

Board believes a diverse board has greater depth and capability than the sum of its individual directors’ qualifications.

 

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

 

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

 

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

 

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

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

 

During 2009, our Board of Directors held four regularly scheduled meetings to review significant developments affecting us and to act on matters requiring the Board of Directors’ approval. During 2009, all directors attended 75% or more of the aggregate number of meetings of the Board of Directors and committees of which they were members.

 

We encourage, but do not require, our directors to attend the Annual Meeting of Shareholders. In 2009, all twelve directors attended the Annual Meeting.

 

To assist it in performing its duties, the Board of Directors has established the six committees discussed below. All committees operate pursuant to written charters. The charters are available to shareholders through the Investor Relations page of our Web site at www.sonoco.com. These charters are also available in print to any shareholder upon request to the Corporate Secretary, Sonoco Products Company, 1 North Second Street, Hartsville, SC 29550 USA or through email to CorporateSecretary@sonoco.com. The Board of Directors has determined that each member of the Audit, Corporate Governance and Nominating, and Executive Compensation committees is independent, as defined in the New York Stock Exchange’s listing standards.

 

 

 

The Executive Compensation Committee oversees administration of our executive officer compensation programs and sets compensation for the CEO, CFO and other executive officers. Its specific functions are described above.

 

Executive Compensation Committee Processes and Procedures

 

The Executive Compensation Committee does not delegate its decision-making authority relating to executive compensation. Except for the CEO, the role of executive officers in determining executive compensation is primarily advisory in nature, especially with regard to the structure and composition of the compensation program. Each executive officer may make recommendations with regard to the size of awards for persons who report directly to him or her, but the CEO makes the final decision as to recommendations submitted to the Committee for their consideration. The CEO attends Committee meetings, but is not present when his own compensation is discussed. The Committee has sole responsibility for determining the compensation for the CEO and for approving all other executive compensation.

 

The Committee has sole authority to hire and dismiss a compensation consultant to act as its advisor. Information about the Committee’s compensation consultant, its role in advising the Committee, and its relationship with management and executive officers is set forth under the captions “Management Compensation — Compensation Discussion and Analysis — Relationship with Executive Compensation Consultant” and — “Role of Executive Officers in Determining Executive Compensation” on Page 39.

 

 

The Company oversees management of enterprise risk through its Risk Management Committee (RMC). The RMC is administrated by the Company’s Treasurer and its membership includes, among others, the most senior members of operating management and the Chief Financial Officer. The RMC holds three regularly scheduled meetings each year and may hold additional special meetings as needed. No such special meetings were held during 2009.

 

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

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

 

Members of the Executive Compensation Committee during the year ended December 31, 2009 were P.L. Davies, C.C. Fort, J.M. Micali, J.H. Mullin, III and M.D. Oken.

 

The brother of our director, P.R. Rollier, is the Managing General Partner of Michelin Group. Sonoco sold $542,000 in products and services to Michelin North America during 2009. All transactions were handled on a competitive basis. Our management believes the prices and terms of the transactions reported above were comparable to those we could have obtained from other sources. We anticipate engaging in similar business transactions in 2010. The Board of Directors considered these relationships when making its determinations of independence.

 

George S. Hartley, our Assistant Treasurer, is married to Cynthia A. Hartley who is a Senior Vice President. Mr. Hartley had 2009 earnings of $143,000, and he received the usual employee benefits available to all employees at his level.

 

Related Party Transaction Approval Policy

 

The Board has adopted a written policy that any transaction or series of transactions in which Sonoco is a participant, for which the amount involved exceeds $120,000, and in which any related person will have a direct or indirect material interest must be approved by the Corporate Governance and Nominating Committee. The Board recognizes that such transactions may or may not be in the best interest of Sonoco and, as a result, empowers the Corporate Governance and Nominating Committee to evaluate all such related party transactions or series of transactions. The Committee is to approve only those transactions that it determines provide net economic value to us or where it is demonstrated to the satisfaction of the Committee that price, quality, service and other terms have been negotiated on an arms-length basis and are comparable to those available from unrelated third parties.

 

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

 

For purposes of this policy, a “related party” is (1) any executive officer or director, (2) any nominee for director, (3) a beneficial owner of more than 5% of our voting securities, or (4) any immediate family member

of an officer, director, nominee for director or greater than 5% beneficial owner. An “immediate family member” means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law, or any person (other than a tenant or employee) sharing the household of an executive officer, director, nominee or greater than 5% beneficial owner.

 

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

 

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

 

The following tables show information as of December 31, 2009, about persons known to us to be the beneficial owners of more than 5% of our common shares. This information was obtained from Schedule 13G’s filed with the Securities and Exchange Commission by the entities named below, and we have not independently verified it.

 

 

 

 

The following table shows the number of shares of our common stock beneficially owned as of February 15, 2010, directly or indirectly, by each director and by each executive officer named in the Summary Compensation Table.

 

 

 

 

 

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

 

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

 

As is the practice with many companies, we file the required reports for our directors and executive officers based on the records we have and information furnished to us by our directors and executive officers. Based on such information, in 2009 we made all of the required filings on a timely basis except as follows: Mrs. Arthur (2 reports and 2 transactions); Mr. Colyer (1 report and 1 transaction); Mr. Fuller (1 report and 1 transaction); Mr. Lawton (1 report and 1 transaction); Mr. Saunders (1 report and 1 transaction); and Mr. Smith (1 report and 1 transaction). Of the delayed filings, three related to a single grant of restricted stock units, one to vesting of restricted stock units, one to a phantom stock transaction, one to receipt of common stock from a trust distribution, and one to the sale of a small quantity of common stock. The filing delays were all corrected as soon as discovered.

 

The first part of this discussion provides an overview of the compensation program for our executive officers, the material principles underlying our compensation policies and decisions and a description of each compensation element, how these elements fit together and how they further our goals.

 

The second part of the discussion describes and explains the specific actions taken with regard to compensation for executive officers in 2009. This discussion and analysis and the tables that follow focus on all aspects of compensation for our Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and the three other most highly compensated executive officers. These five individuals are referred to as the Named Executive Officers (“NEOs”).

 

OVERVIEW, PRINCIPLES AND COMPENSATION ELEMENTS

 

The Role of the Executive Compensation Committee

 

The Executive Compensation Committee oversees administration of our executive officer compensation programs and sets compensation for the CEO, CFO and other executive officers. Information about the purposes of the Committee and its processes and procedures for consideration and determination of executive officer compensation is outlined under the caption “Board Meetings and Committees of the Board — Executive Compensation Committee” on page 20 of this Proxy Statement. The Executive Compensation Committee does not delegate its decision-making authority relating to executive compensation.

 

Overall Compensation Objectives

 

The primary objectives of our executive compensation program are as follows:

 

 

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

 

As discussed below, the executive compensation program has three components:

 

 

• Base salary

 

• Annual cash incentive awards

 

• Long-term incentive awards

 

 

• Executive life insurance

 

• Supplemental executive retirement benefit; and

 

 

In constructing the direct compensation package for the NEOs and the other executive officers, the Committee has utilized multiple Company performance measures and balanced the short and long-term perspective in terms of the amount of compensation that can be earned under the variable pay programs. In addition, it has sought to establish plan goals that have sufficient stretch, but are capped relative to the amount of compensation that can be earned, and it has kept the amount of compensation allocated to each plan reasonable and not disproportionately large in comparison with other components of compensation. Business unit plans are aligned and adhere to the same principles as plans based on overall company performance measures. The Company does not provide executive officers with personal employment contracts, guaranteed severance packages or guaranteed incentives.

 

Direct Compensation Elements

 

The direct compensation elements of the executive compensation program consist of base salary, annual cash incentive compensation, and long-term incentive compensation comprised of stock-settled stock appreciation rights (“SSARs”) and performance contingent restricted stock units (“PCSUs”). With the exception of base salary, all elements of direct compensation are variable and are contingent on achieving performance targets based on one or more of the following key Company performance indicators: base earnings per share, revenue, return on net assets employed, and working capital management.

 

The weighting of each element of direct compensation is based on the following principles:

 

The charts below show the use of these three principles in the weightings the Committee has assigned to the direct compensation components at target, based on an average for years 2007, 2008 and 2009. For annual cash incentives, “target” is equal to budget performance. For long-term incentives, “target” is equal to the grant date value of the shares. Stock-settled stock appreciation rights vest in one year. Performance contingent restricted stock units will vest over five years, with accelerated vesting over three years if stipulated performance results are achieved as explained in more detail on pages 33 and 34.

 

Determining Competitive Benchmarks — Total Direct Compensation

 

Our salary ranges and incentive compensation for all salaried positions, including the CEO, CFO and other executive officers, are based on the combination of (1) a structured job evaluation system to provide for internal pay equity, and (2) a market pricing system that matches individual jobs to independent salary surveys to provide for external competitiveness.

 

In order to determine competitive compensation levels, we annually participate in three national surveys conducted by the independent consulting firms of the Hay Group (over 600 participants), Hewitt Associates (over 380 participants) and Towers Perrin (over 780 participants). Collectively these surveys have over 1,000 participating companies, although, like us, some companies participate in more than one survey. These surveys cover a large number of similar corporate officer positions across United States industry. In most cases, we match our corporate officer positions to survey data from companies with sales in the $1 billion to $5 billion range. Likewise, we match division officer positions to similar positions in the survey data for comparable division revenue ranges. From these surveys, we develop executive compensation levels for base salaries, total cash compensation (base salary plus annual target incentive compensation), and total direct compensation (total cash compensation plus long-term incentives). In addition to these broad surveys, periodically the Committee’s consultant prepares customized compensation studies with respect to our NEOs in comparison to the NEOs of the fourteen peer packaging companies which have median sales, assets and market capitalization similar to those of Sonoco.

 

The fourteen peer packaging companies, with revenues between 50% and 200% of Sonoco’s revenue are:

 

 

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

 

The Committee sets the market rate or competitive benchmark for base salary for each position at the median (50th percentile) of the survey data. This means that on average half of the surveyed companies are likely to pay a higher base salary than we pay for a similar executive position and half will pay less. The Committee believes that targeting base pay at the median of the market is appropriate because base pay is fixed and does not vary each year based on company performance.

 

The Committee then sets and maintains individual base salaries at no less than 80% or more than 120% of the market median based on the overall level of each officer’s management expertise, experience, time in position and performance.

For annual cash incentives and total direct compensation (total cash compensation plus long-term incentives), the Committee sets competitive benchmarks between the median and the 75th percentile of the survey data. The Committee believes that if the executives meet challenging goals, they should have the opportunity to earn compensation above the market median. Likewise, if the executives do not fully meet goals, they should ordinarily earn compensation below the market median. For both annual incentives and the PCSU portion of long-term equity incentives, the Committee also sets minimum levels of performance for each plan element. If these minimums are not achieved with respect to annual incentives, then no compensation is earned for that element for the performance period. Similarly, the actual value of SSARs varies depending on the increase or decrease in the price of Sonoco stock. If the stock price does not increase above the grant price during the term of the award, the executive realizes no value.

 

The Committee believes that having the majority of each executive’s total compensation be based on variable levels of payout provides an appropriate incentive to achieve both short-term and long-term financial goals.

 

For annual cash incentives, we have established maximum annual incentive compensation levels as a percent of base salary for each executive officer position. Normally, officers will earn 50% of this maximum (which 50% approximates the competitive benchmark described above) at budget for each element in the plan, though the Committee can make adjustments to pay 50% of maximum above or below budget depending on the expected degree of difficulty in achieving budget in any one year. The Committee has limited discretion to adjust payouts up to an amount equal to 20% of the maximum incentive of all executive officers. In most years no discretionary payments to any officer have been awarded.

 

Our 2009 long-term incentive awards consisted of SSARs and PCSUs, which were awarded pursuant to our 2008 Long-term Incentive Plan. To determine the target number of award shares in either case for each officer, the Committee uses the total direct compensation competitive benchmark (comprised of base salary, annual cash incentives and long-term equity incentives) for each officer position. The base salary competitive benchmark midpoint or actual base salary (whichever is greater) and the target (50% of the maximum incentive) for annual incentive compensation are subtracted from the total direct compensation competitive benchmark to arrive at the competitive benchmark dollars available for the long-term component of the compensation plan. These dollars are then converted to SSARs and PCSUs and each officer receives a mix of 75% PCSUs and 25% SSARs.

 

Providing this mix of 75% PCSUs and 25% SSARs is in line with the Committee’s philosophy of strongly encouraging long-term stock ownership among the officer group, while still providing some opportunity for the greater leverage inherent in SSARs which are similar to stock options.

 

The Committee may further adjust the size of the award of PCSUs or SSARs above or below target based on its assessment of individual officer performance at the time of grant. The actual value of the award for any individual officer is ultimately based on the Company’s achieving long-term financial targets or increase in stock price. By adjusting actual award size based on individual performance, the Committee can also reward personal achievements and contributions or address other variations in individual performance.

 

Each year, the Committee establishes the three-year performance targets for each element in the PCSU portion of the long-term incentive plan. These are based on an analysis of our prior performance, the economic

environment and business outlook, and our forecasted growth potential. Incentive scales for vesting PCSUs are established for meeting threshold, target and maximum goals, which in the judgment of the Committee represent achievement of acceptable, superior and outstanding performance levels, respectively. If we do not achieve at least the “acceptable” performance level during the three-year cycle, the award is earned at threshold level (subject to forfeiture), but vesting is deferred.

 

To encourage continued employment, the plan provides that if less than the number of threshold shares vest at the end of the three-year performance period, the remainder of the threshold shares will time vest in equal amounts in the fourth and fifth years of the plan, subject to the participant’s continued employment for that period. Except in the event of termination of employment as a result of death, disability, or retirement, termination of a participant’s employment prior to vesting will result in forfeiture of any unvested award.

 

We do not pay any current dividends or credit any dividend equivalents on unvested PCSUs in our long-term incentive plans. Dividend equivalents are accumulated from the time of vesting until the issuance of actual shares for any PCSUs that vest but are deferred until after separation from service by an individual executive officer. Upon consummation of a change in control that meets the criteria specified under Internal Revenue Code (“IRC”) Section 409A and the related regulations, all unvested PCSUs will vest at target on a prorata basis if the change in control occurs during the three-year performance period or at threshold on a prorata basis if the change in control occurs during the time-vesting period in year four or five. A lump sum payment equal to the aggregate fair market value of the PCSUs will be issued to the participant within 30 days following the change in control unless the PCSUs were subject to a deferral election or mandatory deferral under IRC Section 162(m).

 

Executive Benefit Elements

 

We have two benefit programs that apply only to executive officers: an Executive Life Insurance Program and a Supplemental Executive Retirement Plan benefit (“SERP”). As stated earlier, the Committee has designed the overall compensation program to balance the attraction/retention objective against the performance oriented objectives. The annual incentive and long-term incentive programs are weighted more toward performance objectives, while the Executive Life Insurance Plan and the SERP are weighted more toward the attraction/retention objective.

 

Executive Life Insurance

 

We provide most of our active employees with company-paid life insurance that is currently limited to $100,000. In order to provide executive officers with a benefit in line with the industry median, we supplement this coverage with an executive life insurance program. Executive officers elected on or after April 1, 2004, receive company-paid term life insurance coverage that is approximately equal to three times base salary until the later of retirement or age 65. Mr. Tiede, an NEO, is covered under this plan.

 

Executive officers elected prior to April 1, 2004, receive a benefit approximately equal to three times salary plus target incentive, using a combination of term insurance and permanent (cash value) insurance. The four NEOs, other than Mr. Tiede, are included in this group; however, the CEO’s coverage is five times base salary plus target incentive. We also provide permanent life insurance coverage beyond age 65 to some of this

frozen group of executive officers. This extended coverage uses the same multiple of pay, but that portion of the coverage is frozen based on salary and target incentive levels in effect at April 1, 2004. Only eight officers remain in this frozen executive life insurance plan.

 

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

 

Supplemental Executive Retirement Plan Benefit

 

Historically, we have had two reasons for providing a Supplemental Executive Retirement Benefit to our executive officers:

 

 

Our corporate offices are located in a small town setting which provides challenges in attracting and retaining the type of executives we need to operate a global enterprise of our size and complexity. The SERP benefit is a critical component in meeting these challenges. In short, the SERP is designed to meet our unique attraction and retention needs and is an effective complement to the short-term and long-term incentive plans that are designed to motivate our executives to perform at the highest level.

 

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

 

After retirement, an officer’s defined contribution SERP (“DC SERP”) “account” will be paid in three installments, with the first installment payable six months after an officer’s retirement date, the second installment payable in January of the next year following the first installment, and the third installment payable in January of the year following the second installment. A more detailed description of the DC SERP benefit, the tax qualified Sonoco Investment and Retirement Plan (SIRP) and its related nonqualified SIRP

Restoration Benefit is set forth under the caption “Description of Nonqualified Deferred Compensation Plans” on page 62 of this Proxy Statement. Mr. Tiede is the only NEO who currently participates in these plans.

 

For executive officers elected before January 1, 2008, which is a frozen group of 11 executive officers and includes the four NEOs other than Mr. Tiede, the retirement benefit includes the Company’s basic defined benefit retirement plan benefit and the “restoration” benefit under the Omnibus Benefit Restoration Plan, which is provided to those employees whose wages or benefit accruals exceed the annual qualified retirement plan limits. In addition, a separate defined benefit SERP (“DB SERP”) benefit is provided, which, when combined with the basic retirement benefit, the restoration benefit and full Social Security benefits, equals 60% of the executive officer’s final average cash earnings, assuming age 65 retirement with at least fifteen years of Company service. The calculation excludes long-term compensation in any form. In line with recent amendments to the Company’s basic defined benefit retirement plan and the “restoration” benefit under the Omnibus Benefit Restoration Plan, no additional benefits will accrue under the DB SERP after December 31, 2018. Officers whose DB SERP benefit accruals are frozen effective December 31, 2018, will begin participating in the DC SERP effective January 1, 2019.

 

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

 

A more detailed description of the DB SERP benefit, restoration benefit and the qualified pension plan benefit is set forth under the caption “Pension Restoration Benefit and DB SERP Benefit in the Restoration Plan” on page 59 of this Proxy Statement.

 

Executive Perquisites

 

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

 

With the exception of gross-ups that might be paid pursuant to our employee relocation assistance plan, which covers all eligible salaried employees, and gross-ups on premiums paid pursuant to the frozen executive permanent life insurance program (described on page 34), we do not provide income tax gross-ups to our executive officers, and our Compensation Committee has adopted a resolution that prohibits such payments. The limited exception for the frozen group of eight officers who receive gross-ups on the premiums paid for permanent life insurance coverage was made because of pre-2004 contractual commitments to these officers.

 

Some of the more common perquisites that we do not provide to our executive officers include country club memberships, company cars or drivers, metropolitan city apartments, vacation retreats, executive dining services or reserved parking. We believe most of these benefits are not closely linked to our overall

compensation objectives and would have only marginal impact on either the performance or the attraction/retention objectives of our compensation program.

 

Other Considerations

 

Employment Contracts and Potential Payments Upon Termination or Change in Control

 

We have a long standing practice of not providing employment contracts, severance agreements, change in control agreements, or other such financial security arrangements for our executive officers. Executive officers are covered by the normal severance compensation policy applicable to our salaried U.S. employees.

 

With some exceptions that do not apply to the NEOs, employees who are involuntarily terminated from the Company are eligible for severance payments in the amount of two weeks’ compensation. Qualifying employees with at least three complete years of service who agree to sign and be bound by an agreement releasing us from all liabilities arising from the employment relationship may receive up to 11 additional weeks’ severance. Compensation for years three through 13 may be paid on the basis of one week’s compensation for each complete year of service. Accordingly, the maximum standard severance payment to which a qualifying employee, including an NEO, could be entitled is 13 weeks’ compensation.

 

We may, however, from time to time negotiate individual severance compensation arrangements linked to non-compete agreements at the time of separation of an executive as circumstances warrant.

 

Our long-term equity incentive plans also contain provisions for prorated or accelerated vesting of equity awards in the event of retirement, death, or disability, and in certain cases, change in control. See “Potential Benefits Payable Immediately Upon Certain Separation Events.” These provisions apply similarly to all plan participants, including those below the executive officer level.

 

Review of Overall Compensation Components and Aggregate Awards

 

To evaluate the overall competitiveness of the executive compensation program, each year at its April meeting the Committee reviews the total compensation package for each executive officer. This includes review of a summary sheet showing a history of base salary adjustments, annual incentive awards and total cash compensation for the last ten years (or term as an executive officer, if less), stock options or SSARs outstanding and the option price, unvested PCSUs (projected at threshold, target and maximum), unvested restricted stock units, projected annual pension at age 65 and the amount of executive life insurance coverage.

 

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

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

 

Tax and Accounting Treatment of Compensation

 

Deductibility of Compensation

 

The Committee has taken, and it intends to continue to take, reasonable steps necessary to assure our ability to deduct for federal tax purposes compensation provided to senior executives. However, such steps may not always be practical or consistent with the Committee’s compensation objectives. Given that the earnings limit for deductibility has remained fixed since 1993, and the value of some compensation elements cannot be determined until year-end, there are circumstances in which some executive compensation may not meet tax deductibility requirements. We can deduct all but $306,877 of the compensation shown in the Summary Compensation Table for 2009, excluding the value of equity-based awards which are subject to taxation in a later period.

 

Nonqualified Deferred Compensation

 

Certain of our nonqualified compensation and benefits arrangements, incentive programs and corporate practices (such as severance, relocation and expense reimbursements) are considered nonqualified deferred compensation and subject to IRC Section 409A and the related regulations. In general, Code Section 409A, restricts the timing and manner of payment (as well as the timing of participant elections) under these types of taxable compensation programs. We have amended these arrangements, programs and practices to cause them to be in compliance with the statutory and regulatory provisions. The changes have no financial impact on the Company nor any material impact on the way in which we compensate our NEOs.

 

Accounting for Stock-Based Compensation

 

We account for stock-based compensation in accordance with the requirements of FASB ASC Topic 718, which requires us to expense the estimated value of certain stock-based compensation.

 

Stock Ownership Guidelines

 

To emphasize the importance of linking executive and shareholder interests, the Board of Directors has adopted stock ownership guidelines for executive officers. The target level of ownership of common stock (or Common Stock Equivalents) is established as a fixed number of shares. The target level for the CEO is 140,000 shares. The targets for Executive and Senior Vice Presidents are 33,000 and 24,000 shares respectively, and the target for other officers is 7,000 shares. Each executive subject to the guidelines is expected to achieve the ownership target within five years from the date on which he or she became subject to the guidelines. Common stock held in the Sonoco Savings Plan, stock equivalents earned through nonqualified

deferred compensation programs, vested restricted stock units, and any other beneficially owned shares of common stock are included in determining compliance with the guidelines. Shares that executives have the right to acquire through the exercise of stock options or stock-settled stock appreciation rights are not included in the calculation of stock ownership for guideline purposes. As of February 15, 2010, the CEO, CFO and all other officers with more than three years in their current position met the above ownership guidelines.

 

We currently do not have a policy with respect to hedging the economic risks of stock ownership.

 

Relationship with Executive Compensation Consultant

 

Mr. Daniel J. Ryterband, of Frederic W. Cook and Company, has been hired by the Committee to serve as the Committee’s executive compensation consultant. Neither he nor other members of his firm provide services to us in any area other than executive compensation. Mr. Ryterband reports directly to the Committee and they have the sole authority to retain and dismiss him.

 

Mr. Ryterband is expected to assist the Committee and work on its behalf on matters related to the Committee’s purposes and responsibilities as set forth in the Committee charter summarized under the caption “Corporate Governance — Board Meetings and Committees of the Board — Executive Compensation Committee” on page 20. He advises the Committee as to trends in executive compensation and provides specialized studies or expert advice as requested with respect to executive compensation issues. Mr. Ryterband meets in private session with the Committee at least once per year and attends regular Committee meetings in person or by phone as requested. He also provides advice with respect to director compensation.

 

Management contacts with the consultant are limited primarily to the Senior Vice President of Human Resources and the Corporate Director of Compensation, who utilize the firm’s advice in the areas of compensation plan design and corporate governance issues relating to executive compensation. The CEO, CFO and other executive officers may have incidental contact with the consultant.

 

The Committee believes this arrangement is appropriate and cost effective in meeting its responsibilities to shareholders and the needs of management for expert guidance and advice.

 

On a routine basis, members of management use consultants from other firms in areas where it is felt their expertise in specific executive compensation matters would be beneficial in developing proposals for the Committee to consider.

 

Role of Executive Officers in Determining Executive Compensation

 

Except for the CEO, the role of executive officers in determining executive compensation is primarily advisory in nature, especially with regard to the structure and composition of the compensation program. Each executive officer may make recommendations with regard to the size of awards for persons who report directly to him or her, but the CEO makes the final decision as to recommendations submitted to the Committee for its consideration.

 

The CEO attends Committee meetings, but is not present when his own compensation is discussed. He may have incidental contact with the Committee’s compensation consultant. In practice, this means that the CEO may from time to time attend meetings at which the Committee’s consultant is present or at which the

consultant makes a presentation, and he may from time to time participate in group conference calls with the Committee’s consultant. He does not, however, engage in one-on-one communications with the consultant and does not attempt to exercise any influence over the consultant’s recommendations to the Committee. The Committee has sole responsibility for determining the compensation for the CEO and for approving all other executive compensation.

 

Timing of Equity Grants

 

For many years it has been our practice to grant stock options, SSARs, PCSUs, or other equity awards on the date of the first regular Board of Directors meeting in the calendar year. The option or SSAR exercise price is based on the closing price of our stock on that date. The recipients and the corresponding number of shares of equity awards, including stock options or SSARs and PCSUs, are approved by the Committee at its regular meeting on the day prior to the Board of Directors meeting.

 

We occasionally make special stock option or SSAR awards to new employees. In such case, the exercise price is based on the closing price of our stock on the recipient’s first day of regular employment.

 

We also occasionally make stock option or SSAR awards or grants of restricted stock units to a corporate officer in recognition of a promotion or a change in position status. The effective date of these awards is the day following approval by the Committee.

 

Grants of Restricted Stock Units

 

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

 

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

 

In February of 2009, three new officers were elected and awarded the special one-time grant referenced above, including Mr. Tiede, who is a NEO.

Restatement or Adjustment of Performance Measures

 

The Committee has elected not to adopt a formal policy for adjustment or recovery of incentive awards or payments in the event that the performance measures upon which they are based are restated or otherwise adjusted in a manner that would reduce the size of an award or payment. The Committee prefers to retain the flexibility to address each such situation on its merits and determine the proper and appropriate course of action in fairness to shareholders and award recipients.

 

2009 COMPENSATION ACTIONS BY THE COMMITTEE

 

The following sections of this report include a discussion of the specific actions the Committee has taken with regard to 2009 compensation awarded to the NEOs and the rationale for those actions. The tables, accompanying narrative and footnotes which follow this report reflect the decisions covered by the discussion below.

 

Base Salary

 

Each year at its April meeting, the Committee reviews the base salary of all senior executives, including the CEO, the CFO and the other NEOs. The total amount of merit increases for the executive officer group as a whole takes into account market survey data as to the projected salary movement for executive positions at the surveyed companies during the calendar year, the average wage increase being given to other levels of our employees and the current economic environment in which we are operating. Individual merit increase awards are based on each executive’s performance in his or her position during the past year, and the relationship of his or her current salary to his or her position’s base salary competitive benchmark midpoint.

 

At its April 2009 meeting, Mr. DeLoach recommended that the executive officers of Sonoco not receive a merit increase due to poor economic conditions. Executive officers have not received a salary increase since June 2007 (except in cases of added responsibility).

 

Annual Cash Incentive Awards

 

In 2000, the Board of Directors adopted, and the shareholders approved, the Performance-Based Annual Incentive Plan for Executive Officers. Under the terms of this plan, an annual maximum of 2.75% of income from operations, as defined in the plan, was established as an incentive pool for the CEO and the other NEOs. The total amount of annual incentive awards paid to these individuals cannot exceed this maximum. For 2009, this maximum incentive pool was $7,688,588, which was allocated among the participants so that the maximum that could be received by any individual participant could not exceed 30% of the pool ($2,306,576). The amounts of actual incentive awards made by the Committee to these participants were less than the maximum amount.

 

The Committee has established procedures for administration of the plan and the setting of annual performance elements, and their respective weightings as a percentage of annual incentive compensation. The elements and weightings the Committee used to arrive at actual 2009 annual incentive awards are set forth below. The Committee’s philosophy is that annual incentive plan elements should ordinarily be limited to no more than four to maximize concentration on those most critical to the success of our business in the

forthcoming year. Base earnings per share, earnings before interest and taxes for business unit officers, revenue growth, and working capital management are all considered to be key performance variables essential to maximizing shareholder value.

 

Shown below are the weightings of these performance variables for each NEO in 2009:

 

 

Base earnings per share is defined as earnings per share excluding the impact of restructuring charges and certain non-recurring, infrequent or unusual items, and is used to place primary focus on year-over-year operating results. For incentive calculations, for 2009 only, targets also excluded the impact of year-over-year change in pension expense. Revenue growth excludes revenue from acquisitions completed during the year. Working capital improvement is based on a year-over-year 12-month comparison, and is stated in terms of working capital or cash gap days (days of accounts receivable and inventory less days of accounts payable). Earnings before interest and taxes is based on business unit performance.

 

We believe that base earnings per share will be the most critical measure in driving share price and, in turn, shareholder value. Consequently, the Committee felt that a 60% weighting of this element for executive officers with responsibility for overall company or broad sector responsibility was appropriate. This weighting applies to Mr. DeLoach, Mr. Hupfer, Mr. Sullivan and Mr. Sanders.

 

For Mr. Tiede, and similarly for other executive officers with business unit responsibility, we believe that the elements used for annual cash incentive awards should be primarily based on business unit performance. Consequently, the Committee felt that for Mr. Tiede, a 50% weighting was appropriate for earnings before interest and taxes and only a 10% weighting should be placed on base earnings per share.

 

For all NEOs, revenue growth was weighted at 20%. The Committee felt that this was an important objective, but profitable revenue growth was more important, and therefore the earnings related measures were weighted more than revenue. Working capital improvement was included as an element for all NEOs to encourage efforts to increase cash flow through the reduction in our working capital requirements. This element was also weighted 20%.

2009 Annual Incentive Plan Performance Targets

 

Targets established under the plan at the beginning of the plan year for Mr. DeLoach, Mr. Hupfer, Mr. Sullivan and Mr. Sanders were as follows:

 

 

Targets, including business unit targets, established under the plan at the beginning of the plan year for Mr. Tiede were as follows:

 

 

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

 

Our base earnings per share less the impact of year-over-year change in pension expense were $2.13. Therefore, all of the NEOs earned 110.7% of the target incentive compensation earnings on this component of the overall incentive opportunity as defined by the Committee at the beginning of the performance period.

 

For incentive awards for Mr. DeLoach, Mr. Hupfer, Mr. Sullivan and Mr. Sanders, revenue for the year was $3,597,331,000 which was below the goal established for threshold performance, and therefore, the four NEOs earned no incentive compensation earnings on this component. Cash gap days were 41.4 days which exceeded the maximum performance level and, as a result, these four NEOs earned 200% of target on this component.

 

For Mr. Tiede’s incentive award, business unit revenues were $343,044,000 which equated 46% of target incentive on this component. Business unit earnings before interest and taxes were $20,467,000 which exceeded the maximum performance level and, as a result, Mr. Tiede earned 142.9% of target under the plan for this component of the overall compensation opportunity. Business unit cash gap days were 52.6 days which exceeded the maximum performance level and, as a result, Mr. Tiede earned 200% of target on this component of the overall compensation opportunity.

 

The above goals were established at the beginning of the plan year during a time when the Company had very little precision in its ability to forecast annual performance results due to the economic recession and unusual volatility in the financial markets. At that time the Committee discussed the need to set challenging goals to protect against windfalls if economic recovery was faster than anticipated, but also retain the flexibility to re-visit the goals when the duration and extent of the recession were better understood.

 

At the conclusion of the plan year, the Committee reviewed the Company’s results compared to the previously established goals, as well as the Company’s overall performance in the context of the dramatic change that occurred in overall business activity due to the global recession. Rather than adjust the goals to reflect the degree of difficulty associated with this change in business activity, the Committee elected to stay within the plan parameters and, instead, adjust the final payments for certain officers as permitted under the administrative procedures for the plan. The administrative procedures require that such adjustments not exceed 20% of the maximum incentive amount for the officer group as a whole and the Committee made adjustments that fell within these limits.

 

In determining the specific adjustments, the Committee took into account the impact the recession had on overall performance results. The Committee also evaluated the actions each officer took in response to the change in business activity, and the officer’s success in achieving associated business plan objectives established at the beginning of the year and communicated to the officers. As a result, the Committee increased the award by $511,800 to Mr. DeLoach, $139,491 to Mr. Hupfer, $203,078 to Mr. Sullivan and $200,001 to Mr. Sanders. No additional award was made to Mr. Tiede because his particular business unit revenues and related earnings were not significantly impacted by the recession.

The following table shows the dollar amount of annual incentive compensation awarded to each of the NEOs for 2009 based on our 2009 performance discussed above, the percentage of target, and the percentage change in annual incentive compensation earnings from the prior year.

 

 

2009 Long-Term Incentive Program

 

As described above under the caption “Determining Competitive Benchmarks — Total Direct Compensation” on page 32, the 2009 long-term incentive program consists of two elements: SSARs and PCSUs, which were previously awarded pursuant to the shareholder approved 2008 Long-Term Incentive Plan. As explained in that section, the base salary midpoint or actual base salary (whichever is greater) and the target (50% of the maximum incentive) for annual incentive compensation are subtracted from total direct compensation to arrive at the target dollars available for long-term compensation for each executive officer, and that target is converted 25% to SSARs and 75% to PCSUs.

 

For SSARs and PCSUs, awards were granted above, at or below the competitive benchmark depending on performance. For 2009, the NEOs who received shares above the competitive benchmark exceeded the targets in their financial or strategic objectives for the past year and demonstrated superior performance. Likewise, the NEOs who received shares at or below the competitive benchmark met all or most targets in their financial or strategic objectives and demonstrated acceptable performance for the year.

 

Stock-Settled Stock Appreciation Rights

 

On February 3, 2009 (the day prior to the full Board of Directors meeting), the Committee approved SSAR grants to 546 key employees, including the NEOs. The SSARs have a one-year vesting period and the grant price was set at $23.69 per share, the closing market price of our common stock on the date of grant (February 4, 2009). Accordingly, these SSARs will be valuable to the recipients only if the market price of our stock exceeds $23.69 during the term of the award. The grant date fair values and the number of SSARs granted to each of the NEOs are included in the “Grants of Plan-Based Awards” table on page 52. Target grants were calculated as described under the caption “Determining Competitive Benchmarks — Total Direct Compensation” on page 32.

 

The Committee awarded to Mr. DeLoach a grant of 190,000 shares, which represents 25,000 shares above the competitive benchmark.

 

In granting this award, as well as the additional Performance-Contingent Restricted Stock Units which are in excess of competitive benchmark and are described next, the Committee recognized Mr. DeLoach’s achievements related to further successful implementation of the Company’s consumer packaging strategy, his

work related to senior level succession planning and his strong leadership of the Company during the very challenging second half of 2008 and particularly the last quarter, when the economy worsened rapidly. The Committee felt his strong and aggressive response to factors that could be controlled was critical to positioning the Company to perform well in the difficult business environment emerging in 2009.

 

The awards to the other NEOs ranged from a reduction of 9,900 shares below the competitive benchmark to 5,000 shares above the competitive benchmark based on the general performance guidelines described above.

 

Performance-Contingent Restricted Stock Units

 

On February 3, 2009, the Committee also approved PCSU grants to 194 key employees, including the NEOs. The FASB ASC Topic 718 grant date fair values of PCSUs and the number of shares available at threshold, target, and maximum are shown in the “Grants of Plan-Based Awards” table on page 52. The Committee increased the award of PCSUs to Mr. DeLoach by 6,700 shares above his target for a total of 100,000 shares, which reflects the accomplishments outlined in the above paragraph related to the grant of stock-settled stock appreciation rights. The awards for the other NEOs ranged from an increase of 200 shares above the competitive benchmark to 7,700 shares above the competitive benchmark.

 

Three-year accelerated vesting of the awards is dependent on our achieving the specified performance levels set forth in the table below of cumulative increases in base earnings per share (“BEPS”) and average return on net assets employed (“RONAE”) for the three-year performance period. The Committee feels that both elements are critical drivers of long-term shareholder returns and has weighted them equally in the plan. The Committee established the starting point for BEPS at $1.55 and adjusted it by the year-over-year change in pension expense between 2008 and 2009, resulting in a starting point of $1.90.

 

 

 

 

To encourage continued employment, the plan provides that if less than the number of threshold shares are earned at the end of the three-year performance period, the remainder of the threshold shares will time vest in equal amounts in the fourth and fifth years of the plan, subject to the participant’s continued employment for that period. Except for death, disability, or retirement, termination of a participant’s employment prior to vesting will result in forfeiture of any unvested award. If officers elect to accept shares in settlement of PCSUs when they vest, they must hold those PCSUs, net of taxes, for one year from the vesting date. However, officers who do not meet our stock ownership guidelines for their positions may not dispose of any shares received upon settlement of PCSUs that vest until such guidelines are met.

Upon consummation of a change in control that meets the criteria specified under Internal Revenue Code (“IRC”) Section 409A and the related regulations, all unvested PCSUs will vest at target on a prorata basis if the change in control occurs during the three-year performance period or at threshold on a prorata basis if the change in control occurs during the time-vesting period in year four or five. A lump sum payment equal to the aggregate fair market value of the PCSUs will be issued to the participant within 30 days following the change in control unless the PCSUs were subject to a deferral election or mandatory deferral under IRC Section 162(m).

 

The plan does not permit the use of discretion if performance targets are not met. Performance goals will not be adjusted for sales, divestitures or acquisitions of businesses.

 

Earned PCSU Awards in 2009

 

On February 6, 2007, the Committee granted PCSUs to 29 executives, including the NEOs as well as 186 key managers. The vesting of these shares was dependent on achieving pre-determined levels of cumulative BEPS and average RONAE for the three-year performance period from January 1, 2007 through December 31, 2009.

 

Target performance over the three-year period was set at $7.19 cumulative BEPS as previously described, which equated to an annual growth rate of 6% for 2007, 2008 and 2009, and at 11.5% average three-year RONAE. Actual performance was $6.47 cumulative BEPS which was less than threshold performance under the plan. Average RONAE which was 10.82% was also less than threshold performance under the plan. As a result, PCSUs were earned (subject to forfeiture as discussed below) at the threshold award level at the end of the three-year period, but vesting of the awards is deferred over the following two years.

 

Under the provisions of the plan, if less than threshold shares vest at the end of the three-year performance period of the plan, then one-half of the threshold shares under the plan will vest at the end of year four, or December 31, 2010 and one-half of the threshold shares under the plan will vest at the end of year five, or December 31, 2011. The NEOs, or any other participants who received grants under the plan, must be employed on those dates to qualify for shares, unless termination of employment was a result of death, disability or retirement. The PCSUs for the 2007-2009 performance period that have been earned but have not yet vested are shown in the Outstanding Equity Awards at 2009 Fiscal Year End table on page 53.

 

Value of Perquisites in 2009

 

Ten executive officers used our aircraft for personal travel in 2009. This use is valued at the “aggregate incremental cost” to us, and was $54,818 in 2009 for the officer group as a whole. Included in this amount was Mr. DeLoach’s personal use of the aircraft which was valued at $32,510.

 

Tax gross-ups are provided to eight officers, including four of the NEOs, remaining in the frozen executive permanent life insurance program described under the section titled “Executive Life Insurance” on page 34. The value of the gross-up was $99,350 for Mr. DeLoach, $13,591 for Mr. Hupfer, $57,323 for Mr. Sullivan and $16,277 for Mr. Sanders. These gross-up amounts are reflected in the “All Other Compensation” column of the “Summary Compensation Table” on page 49.

 

The Executive Compensation Committee has reviewed and discussed the “Compensation Discussion and Analysis” included in this Proxy Statement with management. Based on that review and discussion, the Executive Compensation Committee recommended to our Board of Directors that the “Compensation Discussion and Analysis” be included in our Annual Report on Form 10-K for the year ended December 31, 2009, and in this Proxy Statement.

 

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

 

 

 

 

 

 

 

None of the remaining NEOs received perquisites in excess of $10,000.