Polaris Industries Inc.

2100 Highway 55

Medina, Minnesota 55340

763-542-0500

Fax: 763-542-0599

 

March 10, 2009

 

Dear Fellow Shareholder:

 

The Board of Directors of Polaris Industries Inc. joins me in extending a cordial invitation to attend our 2009 Annual Meeting of Shareholders which will be held at our corporate headquarters, 2100 Highway 55, Medina, Minnesota, 55340, on Thursday, April 30, 2009 at 9:00 a.m. local time.

 

In addition to voting on the matters described in the accompanying Notice of Annual Meeting and Proxy Statement, we will review Polaris’ 2008 business and discuss our direction for the coming years. There will also be an opportunity, after conclusion of the formal business of the meeting, to discuss other matters of interest to you as a shareholder.

 

This year, we will be using the “Notice and Access” method of furnishing proxy materials to you over the Internet. We believe that this new process will provide you with a convenient and quick way to access your proxy materials and vote your shares, while allowing us to reduce the environmental impact of our annual meeting and the costs of printing and distributing the proxy materials. On or about March 10, 2009 we will mail to many of our shareholders a Notice of Internet Availability of Proxy Materials containing instructions on how to access our proxy statement and annual report and vote electronically over the Internet. The Notice also contains instructions on how to receive a paper copy of your proxy materials. We will not be mailing the Notice to shareholders who previously elected to receive paper copies of the proxy materials.

 

It is important that your shares be represented at the meeting whether or not you plan to attend in person. Please vote electronically over the Internet or by telephone or, if you receive a paper copy of the proxy card by mail, by returning your signed proxy card in the envelope provided. If you do attend the meeting and desire to vote in person, you may do so even though you have previously sent a proxy.

 

We hope that you will be able to attend the meeting and we look forward to seeing you.

 

Sincerely,

 

 

Gregory R. Palen

Chairman of the Board

 

Enclosures

 

POLARIS INDUSTRIES INC.
2100 Highway 55
Medina, Minnesota 55340
March 10, 2009

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

Polaris Industries Inc. will hold its 2009 Annual Meeting of Shareholders at its corporate headquarters located at 2100 Highway 55, Medina, Minnesota, 55340, on Thursday, April 30, 2009. The meeting will begin at 9:00 a.m. local time. At the meeting, we will:

 

1. Elect the following directors:

 

 

2. Approve amendments to the Polaris Industries Inc. Deferred Compensation Plan for Directors to (i) increase the reserve by 50,000 shares and (ii) extend the term of the plan, which currently expires on May 31, 2010, to May 31, 2020.

 

3. Approve amendments to the Polaris Industries Inc. 2007 Omnibus Incentive Plan to increase the reserve for all awards under the plan by 1,000,000 shares.

 

4. Reapprove the material performance terms and approve additional business criteria under the Polaris Industries Inc. Senior Executive Annual Incentive Compensation Plan.

 

5. Reapprove the material performance terms and approve additional business criteria under the Polaris Industries Inc. Long Term Incentive Plan.

 

6. Ratify the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal 2009.

 

7. Act on any other matters that may properly come before the meeting.

 

The Board recommends that shareholders vote FOR the director nominees named in the accompanying Proxy Statement. The Board recommends that shareholders vote FOR the approval of the amendments to the Deferred Compensation Plan for Directors and the 2007 Omnibus Incentive Plan and reapproval of the material performance terms and approval of additional business criteria under the Senior Executive Annual Incentive Compensation Plan and the Long Term Incentive Plan. The Board recommends that shareholders vote FOR the ratification of the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal 2009, as described in the Company’s accompanying Proxy Statement.

 

Only shareholders of record at the close of business on March 2, 2009 may vote at the Annual Meeting or any adjournment thereof.

 

By Order of the Board of Directors

 

 

Michael W. Malone

Vice President — Finance,

Chief Financial Officer and Secretary

 

YOUR VOTE IS IMPORTANT

 

Whether or not you plan to attend the meeting, we urge you to vote as soon as possible via the toll-free telephone number or over the Internet, as described in the enclosed materials. If you received a copy of the proxy card by mail, you may sign, date and mail the proxy card in the envelope provided.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE 2009 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 30, 2009.

 

The Company’s Proxy Statement for the 2009 Annual Meeting of Shareholders, the Company’s Annual Report to Shareholders for the fiscal year ended December 31, 2008 and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 are available at www.proxydocs.com/pii

 

TABLE OF CONTENTS

 

POLARIS INDUSTRIES INC.
2100 Highway 55

Medina, Minnesota 55340

PROXY STATEMENT

 

 

 

 

 

 

 

 

The following table sets forth certain information with respect to the beneficial ownership of the Company’s common stock as of February 17, 2009 by each person known to the Company who then beneficially owned more than 5% of the outstanding shares of common stock, each director of the Company, each nominee for director, each executive officer named in the Summary Compensation Table on page 35 and all current executive officers and directors as a group. As of February 17, 2009, there were 32,258,762 shares of common stock outstanding. Except as otherwise indicated, the named beneficial owner has sole voting and investment powers with respect to the shares held by such beneficial owner. The table also includes information with respect to common stock equivalents credited as of February 17, 2009 to the accounts of each director under the Company’s Deferred Compensation Plan for Directors that is described in this Proxy Statement under the heading “Corporate Governance — Director Compensation.”

 

 

 

 

 

Our Board of Directors has adopted Corporate Governance Guidelines, which may be viewed online on our website at www.polarisindustries.com or may be obtained in print by any shareholder who requests it. Under our Corporate Governance Guidelines, which adopt the current standards for “independence” established by the New York Stock Exchange (“NYSE”), a majority of the members of the Board of Directors must be independent as determined by the Board of Directors. In making its determination of independence, among other things, the Board of Directors must have determined that the director has no material relationship with Polaris either directly or indirectly as a partner, shareholder or officer of an organization that has a relationship with Polaris. The Board of Directors has determined that Ms. Clayton and Messrs. Caulk, Menard, Palen, Schreck, Van Dyke and Wiehoff are independent. The Board of Directors has also determined that Mr. Baltins is independent for all purposes other than service on the Company’s Audit Committee because he is a member of one of the law firms that provides legal services to the Company. Mr. Wine, our Chief Executive Officer, and Mr. Tiller, our Senior Program Advisor and former Chief Executive Officer, are not considered to be independent by the Board of Directors. Accordingly, a majority of our Board of Directors is considered to be independent. Additionally, all current members of our Audit, Compensation and Corporate Governance and Nominating Committees are considered to be independent.

 

We have also adopted a Code of Business Conduct and Ethics applicable to all employees, including our Chief Executive Officer, our Chief Financial Officer and all other senior executives, and the directors. A copy of the Polaris Code of Business Conduct and Ethics is available on our website at www.polarisindustries.com and in print to any shareholder who requests it.

 

Under our Corporate Governance Guidelines, a process has been established by which shareholders and other interested parties may communicate with members of the Board of Directors. Any shareholder or other interested party who desires to communicate with the Board of Directors, individually or as a group, may do so by writing to the intended member or members of the Board of Directors, c/o Corporate Secretary, Polaris Industries Inc., 2100 Highway 55, Medina, Minnesota, 55340.

 

All communications received in accordance with these procedures will be reviewed initially by the office of our Corporate Secretary to determine that the communication is a message to one or more of our directors and will be relayed to the appropriate director or directors unless the Corporate Secretary determines that the communication is an advertisement or other promotional material. The director or directors who receive any such communication will have discretion to determine whether the subject matter of the communication should be brought to the attention of the full Board of Directors or one or more of its committees and whether any response to the person sending the communication is appropriate.

 

During 2008, the full Board of Directors met five times in person. Each of the in-person meetings was preceded and/or followed by an executive session of the Board of Directors without management in attendance, chaired by Mr. Palen. Each of our directors attended 75% percent or more of the meetings of the Board of Directors and any committee on which they served in 2008. The Board also acted through two written actions in 2008. The Company does not maintain a formal policy regarding the Board’s attendance at annual shareholder meetings; however, Board members are expected to regularly attend all Board meetings and meetings of the committees on which they serve. All members of the Board of Directors attended our 2008 Annual Meeting, except for Scott W. Wine, who was appointed to the Board effective October 23, 2008.

 

The Board of Directors has designated four standing committees. The Audit Committee, the Compensation Committee, the Corporate Governance and Nominating Committee and the Technology Committee each operate under a written charter which is available on our website at http://www.polarisindustries.com and is also available in

print to any shareholder who requests it. The current membership of each committee and its principal functions, as well as the number of times it met during fiscal 2008, are described below.

 

Audit Committee

 

Compensation Committee

 

 

Corporate Governance and Nominating Committee

 

 

Technology Committee

 

 

During 2008, the law firm of Kaplan, Strangis and Kaplan, P.A. (“KSK”) provided ongoing legal services to the Company and certain subsidiaries in connection with various matters. Andris A. Baltins, a member of the Board of Directors, is a member of that firm. Due to the nature of Mr. Baltins’ interest in KSK, disclosure of this relationship is not required under applicable SEC regulations. However, the relationship is periodically reviewed by the Corporate Governance and Nominating Committee and the Board of Directors. The level of fees paid by the Company to KSK for services rendered is not material to either the Company or to KSK and the Board of Directors has concluded that the relationship does not constitute a material relationship that would impair Mr. Baltins’ independence.

 

Polaris’ Related-Person Transactions Approval Policy, which is applicable to all directors, executive officers and five-percent shareholders of the Company and their respective immediate family members, prohibits “related-person transactions” unless approved or ratified by the Corporate Governance and Nominating Committee.

 

Matters considered to be a related-person transaction subject to the policy include:

 

 

The following are not considered to be related-person transactions subject to the policy:

 

 

Directors and executive officers are required to consult with Polaris’ General Counsel as to any questions of whether a transaction could be considered a related-person transaction. Additionally, each of Polaris’ directors and executive officers also completes a questionnaire on an annual basis designed to elicit information about any potential related-person transactions.

 

Any potential related-person transaction that is raised will be analyzed by the General Counsel, in consultation with management and with outside counsel, as appropriate, to determine whether the transaction or relationship constitutes a related-person transaction requiring compliance with the policy. The potential related-person transaction and the General Counsel’s conclusion and the analysis thereof is also to be reported to the chair of the Corporate Governance and Nominating Committee.

 

Matters that are concluded to be related-person transactions are to be submitted for approval by the Corporate Governance and Nominating Committee in accordance with consideration of the approval factors described below. The presentation to the Committee is to include a description of the participants, the terms of the transaction, the business purpose of the transaction, the benefits to Polaris and to the relevant director, executive officer or five-percent shareholder.

 

In determining whether to approve a related-person transaction, the Committee is to consider the following factors, among others, to the extent deemed relevant by the Committee to the related-person transaction:

 

 

Any related-person transaction that is not approved or ratified, as the case may be, shall be voided, terminated or amended, or such other actions shall be taken, in each case as determined by the Committee, so as to avoid or otherwise address any resulting conflict of interest.

 

All current members of the Compensation Committee are considered independent under our Corporate Governance Guidelines. No interlocking relationships exist between the Board of Directors or the Compensation Committee and the Board of Directors or compensation committee of any other company.

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s directors and executive officers to file initial reports of ownership and reports of changes of ownership of the Company’s common stock with the SEC. Executive officers and directors are required to furnish the Company with copies of all Section 16(a) reports that they file. To the Company’s knowledge, based solely upon a review of the reports filed by the executive officers and directors during 2008 and written representations that no other reports were required, the Company believes that, during the year ended December 31, 2008, all filing requirements applicable to its directors, executive officers and 10% beneficial owners, if any, were complied with, except that the Company failed to timely file a Form 4 for Thomas C. Tiller with respect to the forfeiture of 33,000 shares of performance based restricted stock that did not vest on February 1, 2008.

 

The Board of Directors of the Company is divided into three classes. The members of one class are elected at each annual meeting of shareholders to serve three-year terms. The Class III directors currently serving on the Board, whose terms expire at the 2009 Annual Meeting, are Ms. Annette K. Clayton and Messrs. Gregory R. Palen and John P. Wiehoff. In addition, the Board of Directors appointed Mr. Scott W. Wine as a Class I director, effective October 23, 2008, to fill the vacancy created by an increase in the number of directors from nine to ten. Mr. Wine has consented to serve a one-year term, which will expire at the 2010 Annual Meeting when the term of all Class I directors will expire.

 

Upon the recommendation of the Corporate Governance and Nominating Committee of the Board, the Board of Directors proposes that Scott W. Wine be elected by the shareholders as a Class I director for a one-year term expiring in 2010. Mr. Wine was appointed as a director of Polaris by the Board of Directors on October 23, 2008 upon the recommendation of the Corporate Governance and Nominating Committee in connection with his employment as Chief Executive Officer of the Company.

 

Upon the recommendation of the Corporate Governance and Nominating Committee of the Board, the Board of Directors also proposes that the following nominees, all of whom are currently serving as Class III directors, be elected as Class III directors for three-year terms expiring in 2012:

 

Annette K. Clayton
Gregory R. Palen
John P. Wiehoff

 

The persons named in the proxy intend to vote your proxy for the election of each of the four nominees, unless you indicate on the proxy that your vote should be withheld from any or all of the nominees. If you are voting by telephone or on the Internet, you will be told how to withhold your vote from some or all of the nominees. Each nominee elected as a director will continue in office until his or her successor has been elected, or until his or her death, resignation or retirement.

 

After the election of one Class I director and three Class III directors at the Annual Meeting, the Board will consist of ten directors, including five continuing directors whose present terms extend beyond this Annual Meeting (Class I will consist of four directors and Classes II and III will each consist of three directors). There are no family relationships between or among any executive officers or directors of the Company.

 

We expect each nominee standing for election as a Class I director or as a Class III director to be able to serve if elected. If any nominee is not able to serve, proxies will be voted in favor of the remainder of those nominated and may be voted for substitute nominees designated by the Board, unless an instruction to the contrary is indicated on the proxy.

 

The Board of Directors unanimously recommends a vote FOR the election of these nominees as Directors.

 

The principal occupation and certain other information about the nominees and other directors whose terms of office continue after the Annual Meeting are set forth on the following pages.

 

 

The following discussion and analysis describes the Company’s compensation objectives and policies and the compensation awarded to the following executive officers (the “Executive Officers”) during 2008:

 

 

The practice of the Compensation Committee is to meet in January of each year to: (i) establish the annual base salary and annual incentive compensation opportunity for each of the Executive Officers for the current year, (ii) determine the annual incentive compensation to be paid to each Executive Officer for services provided during the prior year, (iii) determine the payout, if any, to be made under the Company’s long-term incentive plan to employees of the Company, including the Executive Officers other than Mr. Tiller, for the three-year performance period ended on the immediately preceding December 31st; (iv) establish plan targets and performance measures for the three-year performance period beginning on January 1 of the current year for long-term incentive plan participants, and (v) determine stock option and restricted share awards, if any, to be granted to Executive Officers.

 

Process

 

When making individual compensation decisions for Executive Officers, the Compensation Committee takes many factors into account. These factors include the individual’s performance; the performance of the Company overall; retention concerns; the individual’s tenure and experience with the Company and in his or her current position; the recommendations of management; the individual’s current and historical compensation; the Compensation Committee’s compensation philosophy; and comparisons to other comparably situated executive officers (both those of the Company and those of the Company’s peer group).

 

Annual Compensation

 

Base Salary — The Company targets the base salary of its Executive Officers at the 50th percentile of the market based on survey results. There is a description of the base salaries of the Executive Officers on page 25 of this Proxy Statement.

 

Annual Incentive Awards under Senior Executive Annual Incentive Compensation Plan — Annual incentive awards are made to Executive Officers under the Senior Executive Annual Incentive Compensation Plan. This plan was implemented and approved by the Company’s shareholders in 2004 and was designed and is administered so that the annual incentive compensation paid to participants will be fully tax deductible under Section 162(m) of the Internal Revenue Code. In administering the plan, the Compensation Committee has determined a targeted incentive opportunity for each Executive Officer expressed as a percentage of base salary. On an annual basis, the Compensation Committee establishes performance metrics that must be achieved to qualify for varying levels of incentive compensation and determines the actual amount of incentive compensation to be paid for performance. The financial operating targets are aligned with the Company’s internal operating plan for the year. In order for the Executive Officers to qualify to receive an annual incentive award at least at the level of their target annual incentive opportunity, Polaris has to achieve earnings from continuing operations per diluted share that exceeds the guidance provided to shareholders in January of the year of the earnings from continuing operations per diluted share expected for the year. The Compensation Committee sets these challenging targets in order to generate and reward

superior performance. The Company met these targets three out of five times during the 2004-2008 period. The amount of an Executive Officer’s actual incentive award payment for a performance period is based predominantly upon Polaris’ financial performance measured against pre-established performance metrics as described above. However, the Committee also considers corporate performance against specific strategic priorities established for the year, business unit or departmental performance and individual performance to achieve pre-established objectives and contributions to strengthening Polaris’ business. There is a description of annual incentive awards made to Executive Officers under the Senior Executive Annual Incentive Plan for 2008 and targets established for 2009 on pages 26 to 28 of this Proxy Statement.

 

Long-Term Compensation

 

Long-term compensation awarded by the Company includes long-term cash-based incentive awards under the LTIP and stock options and performance-based stock awards under the Omnibus Plan. The Company strives to find an appropriate balance between stock price based long-term compensation opportunities and the cash-based awards under the LTIP or performance-based stock awards under the Omnibus Plan that are dependent upon achievement of specific financial measures to drive shareholder value. Accordingly, approximately 60% of the grant date value of long-term compensation opportunities is provided to each Executive Officer in the form of stock options, with the remaining 40% allocated to cash awards under the LTIP or performance-based stock awards under the Omnibus Plan

 

Long Term Incentive Plan (LTIP) Awards — Each of the current Executive Officers participates in the LTIP. Payouts under the LTIP are based on Polaris’ financial performance measured over a period of three consecutive fiscal years. In determining the performance targets for the LTIP, the Compensation Committee evaluates the external economic environment, the anticipated demand for the products sold by the Company and the Company’s long term business plan.

 

At the beginning of each three-year performance period, participants choose whether their payout will be calculated based upon: (1) cash value at the time of award; or (2) cash value tied to Polaris stock price movement over the three-year performance period. Each Executive Officer has chosen to have his payout calculated based upon cash value tied to Polaris stock price movement over the three-year performance period. Similar to the Senior Executive Annual Incentive Compensation Plan, Polaris establishes an LTIP target in January of each year for each Executive Officer participant expressed as a percentage of base salary based on that individual’s level of responsibility. There is a description of LTIP and the targets for the 2008-2010 Performance Cycle and for the 2009-2011 Performance Cycle on pages 28 to 30 of this Proxy Statement.

 

Stock Option Awards — The Compensation Committee generally awards stock options under the Omnibus Plan to Executive Officers on an annual basis as a component of its long term compensation opportunity. The Compensation Committee awards the options after reviewing market compensation data for each Executive Officer and considering the need to retain key executives and align incentives with shareholder interests. The value of and the number of shares subject to the awards are based on benchmarked comparisons conducted by the Compensation Committee’s compensation consultant of similar positions at comparable companies. There is a description of the stock option awards to Executive Officers in 2008 and 2009 on pages 31 to 32 of this Proxy Statement.

 

Performance Based Restricted Share Awards — The Company makes awards of performance-based restricted stock on a selective and limited basis under its Omnibus Plan. Generally such awards are made in connection with promotions, outstanding performance, hiring of new executives and extensions of existing employment arrangements. There is more detail on the performance based restricted share awards on pages 41 to 42 of this Proxy Statement.

 

In addition to the primary forms of compensation discussed above, the Executive Officers are also eligible for other perquisites and benefits as discussed on pages 32 to 33 of this Proxy Statement.

 

Objectives of Polaris’ Compensation Program

 

Polaris’ executive compensation philosophy aligns executive compensation decisions with its desired business direction, strategy and performance. The primary objectives and priorities of the compensation program for Polaris’ Executive Officers are to:

 

 

To achieve these objectives, the Company has designed an executive compensation program that emphasizes performance-based incentives and consists of three key components:

 

 

 

 

Awards under the Senior Executive Plan, LTIP, and Omnibus Plan provide Executive Officers with incentives to achieve the Company’s business objectives and also serve as a retention tool. The value and attainment of these awards are driven by the Company’s financial and stock price performance. The incentive award target percentages of each Executive Officer under the Senior Executive Plan and the LTIP, as well as the number of stock options and performance-based stock awards under the Omnibus Plan to each Executive Officer, are determined by the Compensation Committee after consideration of the position held by the Executive Officer and the expected level of contribution to the achievement of the desired business objectives.

 

To attract and retain talented individuals, the compensation of Executive Officers must also be competitive with other companies. Accordingly, the Company uses survey data, as described in the section entitled “Factors Used in Determining Compensation” below, to structure the total compensation opportunities provided to Executive Officers that (a) will approximate over time the median total compensation opportunities within the survey group as adjusted for company size, and (b) will result in higher than the median compensation if Polaris outperforms the corporate objectives established by the Board, executives contribute meaningfully to that performance and the Polaris stock price appreciates in value. Individual Executive Officer compensation opportunities and actual compensation are further influenced by Company performance and individual performance.

 

Polaris’ compensation philosophy for Executive Officers distinguishes between the compensation opportunities made available to Executive Officers and the compensation paid to Executive Officers. Polaris’ objective is to provide compensation opportunities that are consistent with its pay philosophy and correspondingly with the market values of comparable positions of the benchmark companies. In particular, those opportunities are comprised of salary, target cash incentive awards, and the grant date value of long-term incentives. Importantly, what is actually earned from these pay opportunities, especially from the annual cash incentive awards and long-term incentive

arrangements, are entirely a function of realized results. Accordingly, the extent that actual or earned compensation varies from its targeted total compensation percentile, is a function of performance of the individual and/or the Company.

 

Total compensation opportunities for each of the Executive Officers are also a function of their respective roles and responsibilities. In the marketplace surveys conducted by the Company’s compensation consultant, experienced Chief Executive Officers are paid more than those in other positions. Moreover, the mix of compensation opportunities for a Chief Executive Officer also differs from other positions. Likewise, compensation opportunities for a Chief Operating Officer, Chief Financial Officer and each of the other Executive Officers reflect the labor market for each of those areas of expertise. Accordingly, compensation opportunities of the Company are established to reflect the reality of competitive labor markets and the business strategy of the Company. For example, in structuring Mr. Wine’s compensation package, the Committee decided that his target bonus opportunity would be set to approximate the 50th percentile of the marketplace at 100% of his base salary. The target opportunity is 100% of base salary for the Chief Operating Officer and 80% of base salary for the other Executive Officers. The variation reflects the difference in responsibility for the overall performance of the Company and the mix and amount of compensation opportunities available for similar positions based on marketplace surveys. Similarly, base salaries and long term incentive opportunities for the Chief Executive Officer, Chief Operating Officer and the other Executive Officers will differ to reflect their respective levels of responsibility in the Company and marketplace surveys.

 

The annualized value of target total compensation opportunity for 2008 for Messrs. Morgan and Malone was between the 40th and 50th percentiles of target total compensation of comparable positions in the comparator group, whereas target total compensation opportunity for Messrs. Bjorkman and Corness approximated the 75^th percentile relative to comparable positions in the comparison group. Messrs. Bjorkman and Corness have historically had higher targets because of their years of experience both inside and outside of the Company in similar positions and their time in position at Polaris.

 

When Mr. Tiller’s 2007 Employment Agreement was being negotiated, a comprehensive market survey was completed for the Compensation Committee by the Company’s compensation consultant. Mr. Tiller’s compensation for 2008 reflects the terms of his 2007 Employment Agreement and decisions made by the Company when it entered into its first employment contract with Mr. Tiller in 1998 to emphasize annual and long-term variable pay to a greater extent than the usual 50^th percentile practices in market surveys for similar positions. As a result his targeted variable pay opportunity and, accordingly, his targeted total compensation opportunity has been in the top quartile.

 

Mr. Wine became the Company’s Chief Executive Officer on September 1, 2008 and comes to Polaris with considerable leadership experience, but he is new to the chief executive officer position. His compensation package emphasizes long-term performance, retention, and competitiveness with chief executive officer compensation generally. The annualized value of his total compensation is predominantly performance based with 75% of his compensation opportunity associated with either short- or long-term performance. Mr. Wine’s total compensation opportunity is currently at about the 40^th percentile of comparably situated chief executive officers. The Company expects that Mr. Wine’s compensation opportunity will approximate the 50^th percentile of target total compensation over time as he gains experience. As with the other Executive Officers, if the Company’s performance is strong, the potential exists to earn actual compensation that is above the median. The Company established a target annual incentive award opportunity for Mr. Wine of 100% of base salary compared to a median target annual incentive opportunity of approximately 90%-100% of base salary. Similarly, Mr. Wines’ long-term equity awards are performance based in that his performance based restricted share awards can only be earned if specific long-term earnings growth objectives are achieved and the potential value of his stock option awards can only be realized if the stock price rises above the option grant price. Mr. Wine is also eligible to participate in the Company’s LTIP, the value of which is dependent on Company performance.

 

Factors Considered in Determining Compensation

 

The Compensation Committee annually reviews competitive executive compensation levels based upon a report compiled by its independent compensation consultant, Hewitt Associates, Inc, (“Hewitt”) that includes comparative compensation data from a survey of a group of companies that are primarily engaged in the manufacturing industry

and have annual sales ranging from $1.0 billion to $5.0 billion. The criteria used to identify the survey group of companies remain consistent from year-to-year, although the actual companies within the survey group will vary depending on changes in reported sales. The Company believes that these criteria are effective in identifying a survey group of companies comparable to Polaris, which is a manufacturing entity that had annual sales of $1.9 billion and $1.8 billion for the years ended December 31, 2008 and December 31, 2007, respectively. All of the companies surveyed to establish the 2008 and 2009 compensation opportunities are listed below:

 

 

Utilizing the survey group information, the Compensation Committee conducts its own review of the various components of Polaris’ executive compensation program and, with the assistance of the Chief Executive Officer, the President and Chief Operating Officer and the Vice President — Human Resources, determines the base salary and annual and long-term incentive targets and opportunities of the Executive Officers as a group and individually. In doing so, the Compensation Committee conducts an evaluation of the compensation opportunities and individual performance of each Executive Officer. Each executive’s skills, experience, time in position, achievements and level of contribution towards desired business objectives is reviewed. The Compensation Committee uses this

information to determine the amount and mix of compensation opportunities and the actual compensation for the Company’s Executive Officers is based upon these assessments.

 

In connection with selecting Mr. Wine to be the Company’s Chief Executive Officer in September 2008, market data was assembled for the role and a total compensation package was designed with combined effort of the Compensation Committee, the Vice President — Human Resources, and Hewitt. This design reflects Mr. Wine’s role, market practices, the Company’s pay philosophy, and arrangements he would be forfeiting at his previous employer.

 

Impact of Income Tax Treatments

 

The Compensation Committee made decisions regarding executive compensation using forms of compensation that were compliant with Section 162(m) of the Internal Revenue Code. Section 162(m) generally provides that a publicly held corporation will not be entitled to deduct for federal income tax purposes compensation paid to either its chief executive officer or any of its four other most highly compensated executive officers in excess of $1 million in any year if that compensation is not performance related. In April 2004, shareholders approved the Senior Executive Plan and the LTIP. Senior executives of the Company, to whom Section 162(m) may apply, participate in the Senior Executive Plan in lieu of the Company-wide profit sharing plan. Awards under both plans, which were approved by shareholders in 2004, would meet the requirements of Section 162(m) and be tax deductible to Polaris. Additionally, outstanding grants under the Company’s stock-based compensation programs, including stock option and performance-based stock award programs, are performance-based for purposes of Section 162(m). The Company believes that all compensation paid to Polaris executives for 2006 through 2008 is deductible under the Internal Revenue Code. In January 2009, the Compensation Committee granted certain awards under the Senior Executive Plan for 2009 and the LTIP for 2009 — 2011 that will be earned only if the Company achieves specific performance targets. Such awards, if earned, will qualify as performance-based for purposes of Section 162(m) of the Internal Revenue Code only if Shareholders reapprove the material business terms of the Senior Executive Plan and the LTIP by approving proposals 4 and 5 as set forth beginning on page 66 of this proxy statement.

 

Stock Ownership Guidelines

 

The Company’s Board of Directors has adopted stock ownership guidelines, which provide that the Chief Executive Officer and other Executive Officers are expected to own, directly or indirectly, shares of common stock or restricted share awards having a value computed at the time of their appointment to their positions of at least five and three times, respectively, their current annual base salaries. Compliance with the stock ownership guidelines is voluntary but is monitored by the Vice President — Finance, Chief Financial Officer and Secretary of the Company. All Executive Officers are expected to satisfy the stock ownership guidelines within four years following the date of their becoming an Executive Officer. The following chart sets forth the stock ownership of each of the Executive Officers as of December 31, 2008 relative to the stock ownership guidelines:

 

 

 

 

Role of Executive Officers in Determining Compensation

 

The Compensation Committee meets with the Chief Executive Officer annually to review the performance of the Company’s other Executive Officers. The meeting includes an in-depth review of the performance of each Executive Officer, achievement of individual performance objectives established at the beginning of the year and individual contributions towards achievement of the Company’s business goals. A summary of the performance review is presented to the full Board of Directors each year.

 

The Chief Executive Officer and the Vice President — Human Resources assist the Compensation Committee in reviewing performance under the Senior Executive Plan metrics, including pre-established incentive award targets, Company performance and individual performance for the other Executive Officers and recommend incentive award amounts for such persons to the Compensation Committee. In addition, the Chief Executive Officer makes recommendations to the Compensation Committee with respect to equity-based incentive awards for the other Executive Officers.

 

Annual Compensation

 

Base Salary.  Polaris targets the base pay of its Executive Officers at the 50th percentile of the survey group of companies identified above in order to remain competitive with compensation levels of executives at comparable companies. Polaris believes that targeting base pay at a competitive level helps to meet its compensation program objective of attracting and retaining high quality executives. Each Executive Officer’s salary varies from the 50th percentile target based on the level of his or her responsibility, experience, time in position, internal equity considerations and individual performance. Executive Officer base salaries are reviewed by the Compensation Committee on an annual basis and specific salary adjustments take into account these factors and the current market for management talent. An Executive Officer’s base salary will also generally be reviewed at the time of a promotion or other change in responsibilities.

 

2008 Base Salaries

 

In January, 2008, the Compensation Committee set the base salaries for the Executive Officers for 2008. The base salary of Mr. Tiller remained unchanged at $750,000 in accordance with his employment agreement. The base salaries of Messrs. Bjorkman and Corness were increased by the Compensation Committee by 4% which brought Mr. Bjorkman’s base salary to $295,000 and Mr. Corness’s base salary to $285,000. These increases brought those bases salaries closer to the 50th percentile target and were consistent with the performance of those Executive Officers and of the Company. The base salary of Mr. Morgan was increased by 7% to $400,000, which continues to be below the market median. The Compensation Committee determined that Mr. Morgan’s increasing experience as President and Chief Operating Officer and individual performance warranted such an increase. The base salary of Mr. Malone, which was below market median, was increased by 7% to $375,000, reflecting the Compensation Committee’s view that as an experienced Chief Financial Officer who has been a strong performer in that role for over ten years, Mr. Malone’s base salary should now be at least at the target level.

 

Mr. Wine’s base salary was set at $575,000 at the time he joined the Company in September, 2008. In addition to his base salary, Mr. Wine received a one-time cash payment of $530,000 at the time he was appointed Chief Executive Officer of the Company in September, 2008 to reflect the amount of compensation Mr. Wine expected to forgo from his previous employer as a result of joining Polaris. Mr. Wine also received compensation for certain relocation expenses.

 

2009 Base Salaries

 

In January 2009, the Compensation Committee determined not to increase the base salaries of the Executive Officers in consideration of what it expected to be a very difficult industry cycle and a challenging macroeconomic climate during 2009. In addition, the Executive Officers, along with all other salaried employees in the Company, have agreed to an approximately 1.9% reduction in base salary to be paid in 2009 in exchange for an additional week of vacation.

Senior Executive Plan.  Polaris awards annual incentives under the Senior Executive Plan based on the achievement of performance criteria established for a specific year. Polaris believes that the opportunities provided under the Senior Executive Plan fulfill all of its compensation program objectives by:

 

 

The Company’s Chief Executive Officer and other members of senior management selected by the Compensation Committee of the Board of Directors of the Company participate in the Senior Executive Plan in lieu of the Company’s broad based annual profit sharing plan. The Senior Executive Plan was designed and is administered so that the annual incentive compensation paid to participants would be tax deductible without regard to the limitation on deductibility imposed by Section 162(m) of the Internal Revenue Code and the plan has been approved by the Company’s shareholders. In order to comply with Section 162(m), the Senior Executive Plan provides for maximum incentive compensation payment opportunities based on the Company’s performance relative to financial operating targets established early in the year by the Compensation Committee; however, the Compensation Committee may exercise its discretion to reduce or even eliminate the annual incentive awards that could be paid upon achievement of the targets. The Compensation Committee has regularly exercised its discretion to award less than the maximum amount that could be paid under the Senior Executive Plan.

 

In administering the plan, the Compensation Committee has established the following target annual incentive opportunities under the plan for each Executive Officer (expressed as a percentage of base salary):

 

 

These target annual incentive opportunities are based on the respective executive’s level of responsibility, consistent with comparable positions in the market when considering total cash compensation. These targets reflect the Compensation Committee’s view that the compensation opportunities of Messrs. Wine and Morgan, and previously Mr. Tiller, who have the greatest overall responsibility for Company performance, should be weighted more heavily towards performance based compensation.

 

During January of each year the Compensation Committee establishes a matrix for each Executive Officer of maximum annual incentive payouts, expressed as a percentage of base salary, across a range of levels of earnings from continuing operations per diluted share for the year. Historically, the Committee has believed that earnings from continuing operations per diluted share is the most effective and appropriate of the numerous business measurement criteria available under the Senior Executive Plan for a number of reasons, including, but not limited to: a) it is easily understood by the Executive Officers, shareholders and employees of the Company, b) it is a measurement that is communicated in the audited financial statements of the Company, and c) it is a measurement that is identical to the measurement used for purposes of determining the annual payments under the Company’s broad based annual profit sharing plan for all eligible non-executive employees of the Company. In determining the maximum payments at various levels of earnings from continued operations per diluted share, the Compensation

Committee reviews the market for the products sold by the Company, the general economic environment and the Company’s internal operating plans for the upcoming year. The financial operating targets are heavily influenced by the Company’s internal operating plan for the year, which is not publicly disclosed. In order for the Executive Officers to qualify to receive an annual incentive award at least at the level of their target annual incentive opportunity, Polaris must achieve earnings from continuing operations per diluted share that exceeds the guidance provided to shareholders in January for such year. The Compensation Committee sets challenging targets in order to focus executives on delivering a high level of performance. From 2004 through 2008, the annual performance targets have required year over year growth of earnings from continuing operations per diluted share of between 10% and 16% in order for the Executive Officers to qualify for an award equal to their target annual incentive opportunities. During that same period, the Company has met or exceeded the required growth metric in three out of five years and the Executive Officers have received annual incentive payments at or above their target incentive opportunity those three years. In 2008, Mr. Wine joined the company as Chief Executive Officer and his target incentive opportunity is 100% of base salary and will be pro-rated for his first year with the Company.

 

The amount of an Executive Officer’s actual incentive award payment for a performance period is based predominantly upon Polaris’ financial performance measured against pre-established performance metrics. However, the Committee also considers corporate performance against specific strategic priorities established for the year, business unit or departmental performance and individual achievement of pre-established objectives and contributions to strengthening Polaris’ business. Accordingly, awards under the Senior Executive Plan, which are paid prior to March 15th following the year during which performance is measured, fulfill Polaris’ compensation objectives of supporting the Company’s business plans and annual goals and generating and rewarding superior performance.

 

The following graph shows for fiscal years 2004 through 2008 the average annual incentive payments as a percent of target for the Executive Officers and percentage of internal operating plan achieved since the Senior Executive Plan was adopted, which illustrates the correlation between achievement of the internal operating plan and the actual payouts received by the Executive Officers:

 

 

Senior Executive Plan Awards for 2008 — Awarded in February 2009

 

In January 2008, the Compensation Committee established award targets under the Senior Executive Plan for fiscal year 2008 (the “2008 Senior Executive Plan Awards”) that required the Company to achieve earnings from continuing operations per diluted share of $3.47 in order for the Executive Officers to qualify for an award equal to their target annual incentive opportunities. Mr. Wine joined the Company in September, 2008 and was eligible to participate in the 2008 Senior Executive Plan Awards on a prorated basis to the number of months he was employed by the Company in 2008. The Company actually achieved earnings from continuing operations per diluted share of

$3.50 for 2008, a 13 percent increase from 2007, which the Compensation Committee considers to be excellent performance in a difficult economic environment. The award targets and annual incentive awards are as follows:

 

 

As noted above, the Compensation Committee’s determination of the amount of the annual incentive awards to be paid for 2008 was based upon Polaris’ financial performance against pre-established performance metrics, corporate performance against specific strategic priorities established for the year, business unit or departmental performance and individual achievement of pre-established objectives and contributions to strengthening Polaris’ business.

 

The 2008 Senior Executive Plan Awards paid to Executive Officers in February 2009 are reflected in column (g) of the Summary Compensation table appearing on page 35 of this Proxy Statement.

 

Senior Executive Plans Awards for 2009 — To Be Awarded in February 2010

 

In January 2009, the Compensation Committee established a performance and payout matrix for 2009 under the Senior Executive Plan which reflects the economic challenges that the Company expects to face in 2009 (the “2009 Senior Executive Plan Awards”). After considering the market for the products sold by the Company, the general economic environment and the Company’s plans for the upcoming year in what is expected to be an unprecedented, very difficult industry cycle and macroeconomic climate, the Compensation Committee set performance targets for achievement of earnings from continuing operations per diluted share for 2009 below the actual results from 2008. The performance and payout matrix for the 2009 Senior Executive Plan Awards approved by the Compensation Committee establishes a range of payout percentages that requires the Company to achieve earnings from continuing operations per diluted share in excess of the upper-end of the guidance range provided to shareholders in January 2009 of $3.00 in order for the Executive Officers to qualify for an award equal to their target annual incentive opportunities. The matrix establishes a maximum payout at 140% of the target amount for each of the Executive Officers if the actual results are approximately 20% or more above the targeted earnings from continuing operations per diluted share growth for the fiscal year ending December 31, 2009 and a minimum payout of 25% of the target amount if actual results are no more than 20% below the target amounts. If actual 2009 earnings from continuing operations per diluted share are more than 20% below target, then the Executive Officers will not be eligible to receive annual incentive awards for 2009 performance. Accordingly, as in previous years, the Compensation Committee views these targets to be challenging and designed to generate and reward superior performance. The Compensation Committee anticipates making payments in February 2010 to the Executive Officers under the 2009 Senior Executive Plan Awards.

 

Long-Term Compensation

 

Long-term compensation awarded by the Company includes long-term cash-based incentive awards under the LTIP, stock options under the Omnibus Plan and performance-based stock awards under the Omnibus Plan. The Omnibus Plan, which was adopted in April 2007, is used to grant equity and performance-based awards similar to those previously granted under the Stock Option Plan, Restricted Stock Plan, the Polaris Industries Inc. 2003 Non-Employee Director Stock Option Plan (“Director Stock Option Plan”) and the Polaris Industries Inc. 1999 Broad Based Stock Option Plan. Such plans were frozen upon adoption of the Omnibus Plan. All outstanding awards under the existing plans remain outstanding; however, no further awards will be granted pursuant to such plans. The Company strives to find an appropriate balance between stock price based long-term compensation opportunities

and the cash-based awards under the LTIP or performance-based stock awards under the Restricted Stock Plan or Omnibus Plan that are dependent upon achievement of specific financial measures to drive shareholder value. Accordingly, approximately 60% of the grant date value of long-term compensation opportunities is provided to each Executive Officer in the form of stock options, with the remaining 40% allocated to cash awards under the LTIP or performance-based restricted stock awards.

 

LTIP.  Long-term cash-based incentives under the LTIP are intended to:

 

 

Each of the current Executive Officers participates in the LTIP. Mr. Tiller did not participate in the LTIP under the terms of his employment agreement. The plan was adopted with the intention that awards would be made under this plan in substitution for annual awards previously made under the Restricted Stock Plan. Payouts under the LTIP are based on financial performance measured over a period of three consecutive fiscal years. In determining the performance targets for the LTIP, the Compensation Committee evaluates the external economic environment, the anticipated demand for the products sold by the Company and the Company’s long term business plan.

 

At the beginning of each three-year performance period, participants choose whether their payout will be calculated based upon: (1) cash value at the time of award; or (2) cash value tied to Polaris stock price movement over the three-year performance period. Each Executive Officer has chosen to have his payout calculated based upon cash value tied to Polaris stock price movement over the three-year performance period. Similar to the Senior Executive Plan, Polaris establishes an LTIP target in January of each year for each Executive Officer expressed as a percentage of base salary based on that individual’s level of responsibility. A plan target of 100% and 80% of base salary was established under the LTIP for Mr. Morgan and the other Executive Officer participants, respectively, for the 2008-2010 performance period (“2008 LTIP Grant”). A plan target of 100% of base salary was established under the LTIP for Mr. Wine prorated to the time he is employed by the Company during 2008 — 2010 performance cycle. A plan target of 100% of base salary was established under the LTIP for Mr. Wine and Mr. Morgan and 80% of base salary for the other Executive Officer participants for the 2009 — 2011 performance period (“2009 LTIP Grant”). The Compensation Committee has discretion under the LTIP to either (i) disregard the impact of any extraordinary or unusual events (such as significant acquisitions or divestitures by the Company) in determining whether a performance objective has been obtained or (ii) to make appropriate adjustments in any performance objective to reflect the occurrence of such an event.

 

2008-2010 Performance Cycle

 

Target awards under the 2008 LTIP Grant will be dependent upon the level of achievement of two performance criteria: three-year compound annual sales growth and three-year compound earnings from continuing operations per diluted share growth using actual 2007 financial results as the base period. Under the terms of his employment agreement, Mr. Wine will be eligible to participate in the 2008 LTIP Grant prorated to the number of months during such performance cycle that he is employed by the Company.

 

 

The Company will apply a non-discretionary sliding scale of percentages of base salary based upon the foregoing threshold, target and maximum award amounts to determine the amount of incentive award payable to each Executive Officer if actual Company performance falls between the threshold and target performance criteria or between the target and maximum performance criteria.

 

2009-2011 Performance Cycle

 

Target awards under the 2009 LTIP Grant will be dependent upon the level of achievement of three performance criteria. The Compensation Committee determined that the performance criteria for the 2009 LTIP Grant should emphasize profitability due to the challenges to the Company resulting from difficult economic conditions. The 2009 LTIP Grant requires, in order for the Executive Officers to be eligible to receive target-level payouts, that the Company achieve during 2011, a minimum of a 15% return on invested capital and a minimum of $120 million of net income. If the two minimum conditions are satisfied, the compensation opportunities under the 2009 LTIP Grant are a function of the level of Polaris’ 2011 net income from continuing operations expressed as a percentage of sales (net margin percentage).

 

 

Mr. Bjorkman did not receive a 2009 LTIP Grant due to the timing of his retirement.

 

The Company will apply a non-discretionary sliding scale of percentages of base salary based upon the foregoing threshold, target and maximum award amounts to determine the amount of incentive award payable to each Executive Officer if actual Company performance falls between the threshold and target performance criteria or between the target and maximum performance criteria.

 

Stock Option Awards.  The Company makes grants in the form of nonqualified stock options under the Omnibus Plan. The value of the stock options is inherently tied to the performance of the Company, as reflected in its stock price, and provides Executive Officers with an opportunity to have an equity stake in the Company. Thus, the Company believes that the award of stock options furthers its compensation objectives by:

 

 

 

The Compensation Committee approves each stock option grant to Executive Officers under the Omnibus Plan. The number of stock options awarded is based upon the Company’s operating performance, individual performance, and market competitiveness as well as valuation data provided by the Company’s compensation consultant. Executive Officers are generally eligible to receive stock option grants on an annual basis. The Company ensures that stock option awards approved by the Compensation Committee will be granted subsequent to any planned release of material non-public information. The Company does not engage in the backdating, cancellation or re-pricing of stock options and has not engaged in such practices in the past.

 

The Compensation Committee considers stock option grants to Executive Officers in January of each year at the same time that it reviews other elements of Executive Officer compensation.

 

2008 Stock Option Grant — In January 2008, the Compensation Committee granted nonqualified stock options under the Omnibus Plan to several key employees, including Messrs. Malone, Morgan, Bjorkman and Corness, in an effort to further its objective of retaining valuable talent and to provide the Executive Officers with an opportunity to have an equity stake in the Company. Each of the stock options in the following table was granted on January 31, 2008 at an exercise price of $43.57, the closing price of the Company’s common stock on the grant date. The options become exercisable on January 31, 2011, expire on January 31, 2018 and were granted in the following amounts:

 

 

In September 2008, in connection with beginning employment as Polaris’ Chief Executive Officer, Mr. Wine was awarded stock options with respect to 232,000 shares of Company stock. An option with respect to 52,000 shares vests on the third anniversary of the date of grant and an option with respect to 180,000 shares vests in three equal tranches on the fourth, fifth and sixth anniversaries of the grant date. The stock options granted have a ten-year life and were issued at an exercise price of $45.09 per share, which was the fair market value of a share of Polaris common stock on the date of the grant. The Black-Scholes value of Mr. Wine’s stock option awards was $2,575,185. In October 2008, in order to reward his strong performance, Mr. Morgan was granted a stock option with respect to 25,000 shares of Polaris common stock, which has a ten-year life and three-year cliff vesting. The option was issued at an exercise price of $27.27 per share, which was the fair market value of a share of Polaris common stock on the date of the grant. The Black-Scholes value of Mr. Morgan’s stock option award was $131,515.

 

2009 Stock Option Grant — In January 2009, the Compensation Committee awarded stock options to Messrs. Malone, Morgan and Corness. The effective date of the grant of such awards was February 2, 2009. On February 10, 2009, the Compensation Committee awarded stock options to Mr. Wine. The stock options granted have a ten-year life, and vest with respect to 50% of the shares subject to the option on the second anniversary of the date of grant and vest with respect to the remaining 50% of the shares subject to the option on the fourth anniversary of the date of grant. The options were issued at an exercise price of $19.80 per share ($20.06 per share for Mr. Wine), which was the fair market value of a share of Polaris common stock on the date of the grant. The number of shares

subject to the stock options granted and their computed value at the time of the grant in accordance with the Black-Scholes method of valuation was as follows:

 

 

The amount of the each award in 2008 and 2009 was based on market-based compensation surveys for comparable positions and the retention risk for each Executive Officer. In addition, the same individual performance factors discussed in the “Senior Executive Plan” above were also factors in determining the amount of the award for each Executive Officer.

 

Performance Based Restricted Share Awards.  The Company makes awards of performance-based restricted stock on a selective and limited basis under its Omnibus Plan. Generally such awards are made in connection with promotions, outstanding performance, hiring of new executives and extensions of existing employment arrangements. The Company believes that awards of performance-based restricted stock are a vital factor in:

 

 

On September 1, 2008, Mr. Wine was granted a 50,000 share performance-based restricted share award under the Omnibus Plan in connection with his employment as Chief Executive Officer. The fair market value of the share price on the date of the grant was $45.09. The award has a performance target of at least 12% compounded growth in earnings from continuing operations per diluted share over a four-year period from 2008 through 2011 or, if not attained during such period, over a five-year period from 2008 through 2012. The awards will vest on the earlier of December 31, 2011 or December 31, 2012 depending on the date of attainment of the performance target.

 

On October 23, 2008, the Compensation Committee granted Mr. Morgan a 25,000 share performance-based, restricted share award under the Omnibus Plan in recognition of his strong performance and to further its objective of retaining valuable talent and to ensure the performance goals of the new Chief Executive Officer and Mr. Morgan remained closely aligned. The fair market value of the share price on the date of the grant was $27.27. The award has a performance target of at least 12% compounded growth in earnings from continuing operations per diluted share over a four-year period from 2008 through 2011 or, if not attained during such period, over a five-year period from 2008 through 2012. The awards will vest on the earlier of December 31, 2011 or December 31, 2012 depending on the date of attainment of the performance target.

 

Benefits

 

Polaris provides a full range of benefits to its Executive Officers, including the standard medical, dental and disability coverage available to employees generally.

 

Polaris also sponsors a 401(k) Retirement Savings Plan (“401(k) Plan”) that allows employees to make plan contributions on a pre-tax basis. Employees are automatically enrolled at 5% of gross income and can elect to contribute 0-50% of covered compensation into the 401(k) Plan. Polaris matches employee contributions dollar-for-dollar up to 5% of covered compensation. Although Executive Officers are eligible to participate in the 401(k) Plan, the application of the annual limitation on contributions under Section 401(a) (17) of the Internal Revenue Code prevents Executive Officers from participating at the same level as non-executives. The Polaris Industries Inc. Supplemental Retirement/Savings Plan (“SERP”) provides executives who participate in the 401(k) Plan with the opportunity to defer up to 5% of covered compensation by making contributions to the SERP that are then matched by the Company as if they had been made under the 401(k) Plan. The SERP is intended solely to restore contributions lost because of the application of the annual limitations under the Internal Revenue Code that are applicable to the 401(k) Plan. This additional benefit, which assists the Executive Officers in accumulating funds

for retirement, is consistent with observed competitive practices of similarly situated companies. Executives have the option to defer 50% of their base salary, up to 100% of amounts payable under the Senior Executive Incentive Plan and up to 100% of amounts payable under the LTIP into their established SERP account.

 

Other than the restorative SERP, the Company does not maintain a defined benefit supplemental retirement savings plan or a pension plan for the Executive Officers.

 

Perquisites

 

Polaris provides a limited number of perquisites to its Executive Officers in an effort to remain competitive with similarly situated companies.

 

Club Dues.  Polaris reimburses each Executive Officer for entrance or initiation fees and monthly club dues. During 2008 and 2007, only two of the Executive Officers received reimbursement for club dues. Polaris also provides tax gross-ups to Executive Officers on the amount of club due reimbursements.

 

Tax, Estate and Financial Planning Fees.  Polaris also reimburses its Executive Officers for tax, estate and financial planning fees. In addition, Polaris provides tax gross-ups to Executive Officers on the amount of tax, estate and financial planning fee reimbursements.

 

Exec-U-Care Coverage. The Executive Officers are eligible to receive broad medical and dental coverage up to $50,000 a year through the Exec-U-Care program. Exec-U-Care supplements an Executive Officer’s basic health plan by reimbursing annual expenses not covered under the basic medical and dental benefit plans that are available on a Company-wide basis. Examples of such expenses include deductibles, co-insurance amounts, special health equipment and chiropractic care. Annual physicals at the Mayo Clinic are also covered for each Executive Officer and his or her spouse.

 

Polaris Products.  The Company provides each Executive Officer with temporary use of Polaris products to encourage a first-hand understanding of the riding experience of Polaris customers and to provide Executive Officers with an opportunity to evaluate product design and efficiency. The Chief Executive Officer and the President and Chief Operating Officer are provided with 12 Polaris products and other Executive Officers are given their choice of six Polaris products, with a maximum of two from each product line. In connection with his employment agreement, Mr. Tiller was provided with usage of unlimited Polaris products. The products used by the Executive Officers are returned to Polaris at the end of a defined usage period based upon months, miles or hours, depending upon the product line. Polaris sells the returned products to dealers at an amount greater than the cost of such products to the Company. All Executive Officers also receive related Polaris parts, garments and accessories.

 

Corporate Aircraft Use.  Executive Officers are eligible to use the Company’s aircraft for personal travel. Under the Company’s Corporate Travel and Expense Reimbursement Policy, all incremental variable operating costs associated with such personal aircraft use must be reimbursed by the Executive Officer to the Company. Executive Officers did not use the Company’s aircraft for personal travel during 2006-2008.

 

Severance Arrangements

 

The Company has entered into severance arrangements with the Executive Officers, which provide for certain benefits in the event an Executive Officer is involuntarily terminated, terminated in connection with a change in control or, in the case of the Chief Executive Officer, if he terminates his employment for good reason. The severance arrangements are provided to enhance the loyalty and performance of Executive Officers and induce the continued employment of Executive Officers, thereby creating continuity of management. The benefits provided under the Company’s severance arrangements are positioned to be relative to common market practice.

 

The severance arrangements are described in more detail under the section entitled “Potential Payments Upon Termination or Change-in-Control” “— Severance Arrangements with Executive Officers” and “— Potential Payments to Executive Officers Upon Termination” beginning on pages 47 and 51, respectively, of this Proxy Statement.

Employment Agreements

 

The Company is party to employment agreements with its Chief Executive Officer, Scott W. Wine, and its President and Chief Operating Officer, Bennett J. Morgan. Although Polaris does not typically enter into employment agreements with its executives, it believes that such agreements are important to secure the leadership of these key management individuals. The employment agreement with Mr. Wine provides that he will serve as Chief Executive Officer of the Company at an annual salary of at least $575,000, which may be increased at the discretion of the Board of Directors, an opportunity to earn a target bonus of 100% of base salary under the Senior Executive Plan, an opportunity to earn awards under the LTIP and the Company’s equity based compensation plans and participation under the Company’s benefit plans and perquisites identified above. In addition, Mr. Wine received a one-time cash bonus, stock option and performance restricted share award upon beginning his employment with the Company. The employment agreement with Mr. Morgan provides for an annual base salary of at least $350,000 per year, which may be increased at the discretion of the Board of Directors, an opportunity to earn awards under the Senior Executive Plan, the LTIP and the Company’s equity based compensation plans and participation under the Company’s benefit plans and perquisites identified above.

 

During 2008, the Company was party to an employment agreement with Thomas C. Tiller, which provided for an annual base salary of at least $750,000 per year, an opportunity to earn a target bonus of 200% of base salary under the Senior Executive Plan and participation under the Company’s benefit plans and perquisites identified above. Mr. Tiller and the Company entered into a new agreement in January 2009, which will secure his services as Senior Program Advisor through December 31, 2011 at an annual base salary of $50,000. The Company believes that such agreements were necessary to secure the leadership of Mr. Tiller during his service as Chief Executive Officer and thereafter and to ensure his assistance in strategic matters within his experience and expertise during the transition of his responsibilities to his successor.

 

In addition, on November 20, 2008 the Company entered into an agreement with its Vice President — Operations, Jeffrey A. Bjorkman. Polaris entered into the agreement with Mr. Bjorkman to provide for his continued service as Vice President — Operations until the appointment of his successor, which is expected to occur prior to May 1, 2009, and thereafter in the role of Senior Operations Advisor in order to effect an orderly transition of his responsibilities and relationships to his successor. The level of ongoing compensation and benefits provided to each of Messrs. Tiller and Bjorkman reflects the Company’s view of the time and level of assistance which will be required from such executives.

 

The terms of the agreements with Messrs. Tiller and Bjorkman are described in more detail under the sections entitled “Potential Payments Upon Termination or Change-in-Control — Severance Arrangements with Executive Officers — Employment and Change in Control Agreement with Mr. Tiller” and ‘‘— Letter Agreement with Mr. Bjorkman” appearing on pages 49 and 50, respectively, of this Proxy Statement.

 

The following table shows, for the fiscal years completed December 31, 2006, 2007 and 2008, the annual compensation paid to or earned by the Executive Officers.

 

 

 

 

 

As described under the section entitled “Compensation Discussion and Analysis — Elements of Executive Compensation — Perquisites” beginning on page 33 of this Proxy Statement, Executive Officers are provided with the use of various Polaris products. There is no aggregate incremental cost to the Company associated with such use because Polaris sells the returned products to its dealers at an amount greater than the cost to the Company. In addition, Executive Officers are eligible to use the Company’s aircraft for personal travel, however, all incremental variable operating costs associated with such personal aircraft use must be reimbursed to the Company. During 2006, 2007 and 2008, none of the Executive Officers used the Company’s corporate aircraft for personal travel.

 

The following table shows all grants of awards under the Company’s incentive plans in 2008 to each of the Executive Officers named in the Summary Compensation Table and the estimated future payouts with respect to such awards. To the extent that an award only provides for a single estimated payout, that amount is reported as the “target” in columns (d) or (g) below.

 

 

 

 

Following is a description of material factors necessary to an understanding of the information disclosed in the Summary Compensation Table and the Grants of Plan-Based Awards Table above.

 

Generally, the Company does not enter into employment agreements with its executives, except with respect to the Chief Executive Officer and President and Chief Operating Officer, for whom the Company believes such agreements are important in securing their continued leadership. Accordingly, the Company is party to employment agreements with Scott W. Wine, its Chief Executive Officer, and Bennett J. Morgan, its President and Chief Operating Officer. In addition, through the end of 2008, the Company was party to an employment agreement with Thomas C. Tiller, which set forth the terms of his employment until December 31, 2008. These agreements, which are described in more detail under the section entitled “Compensation Discussion and Analysis — Elements of Executive Compensation — Employment Agreements” beginning on page 34 of this Proxy Statement, set forth the base salaries, incentive opportunities, benefits and perquisites available to Messrs. Wine, Morgan and Tiller, as applicable, which are reflected in the Summary Compensation Table above.

 

The Company has also entered into letter agreements with Mr. Tiller and Jeffrey A. Bjorkman, Vice President — Operations, which set forth the compensation opportunities and other terms of employment applicable to their continuing roles with the Company as they transition their respective responsibilities to their successors. The terms of these agreements became effective in 2009 and, therefore, are not reflected in the foregoing Summary Compensation Table.

 

The Company has not entered into employment agreements with Messrs. Malone or Corness. More information regarding the base salaries, incentive opportunities, benefits and perquisites awarded to Messrs. Malone, Bjorkman and Corness, which are reflected in the Summary Compensation Table above, may be found under the section entitled “Compensation Discussion and Analysis” beginning on page 19 of this Proxy Statement.

 

Senior Executive Plan

 

As described under the section entitled “Compensation Discussion and Analysis — Elements of Executive Compensation — Annual Compensation — Senior Executive Plan” beginning on page 26 of this Proxy Statement, the Company grants annual incentive cash compensation awards to each of the Executive Officers and other eligible employees pursuant to the Senior Executive Plan in January of each year. The amount of such awards are set forth in column (g) of the Summary Compensation Table appearing on page 35 of this Proxy Statement. In January of each plan year, the Compensation Committee determines which employees will be eligible to participate in the Senior