SCHEDULE 14A INFORMATION

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AVERY DENNISON CORPORATION

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AVERY DENNISON CORPORATION

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AVERY DENNISON CORPORATION
150 North Orange Grove Boulevard
Pasadena, California 91103

 

PROXY STATEMENT

 

This proxy statement is furnished to the stockholders on behalf of the Board of Directors (“Board”) of Avery Dennison Corporation, a Delaware corporation (hereinafter called “Avery Dennison” or the “Company”), for solicitation of proxies for use at the Annual Meeting of Stockholders (the “Annual Meeting”) to be held on Thursday, April 22, 2010, at 1:30 p.m. at 150 North Orange Grove Boulevard, Pasadena, California and at any and all adjournments and postponements thereof. A stockholder giving a proxy pursuant to the present solicitation may revoke it at any time before it is exercised by delivering a later dated proxy, by delivering to the Secretary of the Company a written notice of revocation prior to the voting of the proxy at the Annual Meeting, or by voting in person at the Annual Meeting. Simply attending the Annual Meeting will not revoke your proxy. Votes cast by proxy or in person at the Annual Meeting will be tabulated by the election inspectors appointed for the meeting and the inspectors also will determine whether or not a quorum is present. At the Annual Meeting: (i) shares represented by proxies that reflect abstentions or “broker non-votes” (i.e., shares held by a broker or nominee that are represented at the meeting, but with respect to which such broker or nominee is not empowered to vote on a particular proposal) will be counted as shares that are present and entitled to vote at the Annual Meeting for purposes of determining the presence of a quorum; (ii) there is no cumulative voting and the director nominees receiving a majority of the votes cast (in uncontested elections) will be elected (for purposes of determining the vote required to elect directors, “a majority of the votes cast” shall mean that the number of shares voted “for” a director’s election exceeds the number of votes cast against that director (with abstentions not counted as votes cast)); (iii) the affirmative vote of at least 80% of the total voting power of all shares of stock of Avery Dennison entitled to vote in the election of directors shall be required for adoption of Proxy Item 3; and (iv) for all matters other than the election of directors and Proxy Item 3, the affirmative vote of the majority in voting power of the shares represented at the Annual Meeting and entitled to vote on the matter shall be the act of the stockholders and, therefore, abstentions as to a particular proposal will have the same effect as a vote against that proposal and broker non-votes will have no effect on the vote. The Company has retained D. F. King & Co., Inc. to assist in soliciting proxies for this meeting at a fee estimated at $11,500 plus out of pocket expenses. Expenses incident to the preparation and mailing of the notice of meeting, proxy statement and form of proxy are to be paid by the Company. This proxy statement is to be mailed to stockholders on or about March 19, 2010.

 

The purpose of the meeting and the matters to be acted upon are set forth in the preceding Notice of Annual Meeting. In addition to the election of three directors and ratification of the appointment of PricewaterhouseCoopers LLP as independent auditors for the Company, a proposal to eliminate the supermajority voting requirements and the interested person stock repurchase provision in the Restated Certificate of Incorporation (“Certificate of Incorporation”) of the Company, and a proposal on the Stock Option and Incentive Plan, as amended and restated (“Stock Plan”), will be submitted for approval by the Company’s stockholders. The Stock Plan has been previously approved by stockholders, and is proposed to be amended to increase the total number of shares issuable thereunder by 2.8 million shares, to provide that equity awards may also be granted to members of the Board, and to increase the aggregate number of shares represented by full-value awards (such as restricted stock, restricted stock units and performance units) that may be granted by 1.2 million out of the total of 2.8 million.

 

As of the date of this proxy statement, management knows of no other business that will be presented for consideration at the meeting. However, if any such other business shall properly come before the meeting, votes will be cast pursuant to these proxies in respect of any such other business in accordance with the best judgment of the persons acting under these proxies. See “GENERAL — Stockholder Proposals.”

 

 

ELECTION OF DIRECTORS (Proxy Item 1)

 

The Bylaws of the Company presently provide for twelve directors, divided into three classes. Three directors are to be elected at the 2010 Annual Meeting and will hold office until the Annual Meeting in 2013 and until their successors are elected and have qualified. It is intended that the persons so appointed in the enclosed proxy will, unless authority is withheld, vote for the election of the three nominees proposed by the Board, all of whom are presently directors of the Company. In voting for the election of directors, each share has one vote for each position to be filled. All of the nominees have consented to being named herein and to

 

 

 

2010 NOMINEES

 

The Board recommends a vote FOR the three nominees below.

 

 

 

 

CONTINUING DIRECTORS

 

 

 

was President of Payless ShoeSource, Inc. He has been a director of Avery Dennison Corporation since July 2007. During the past five years, Mr. Hicks also served as a director of J.C. Penney Company. Mr. Hicks’ qualifications to be a member on our Board include his experience as a president and chief merchandising officer and his twenty-eight years of experience in the retail and apparel industries and in the consulting profession. His present term expires in 2011.

 

Debra L. Reed, age 53. Since February 2007, Ms. Reed has served as Chairperson, President and Chief Executive Officer of Southern California Gas and San Diego Gas & Electric, the regulated utilities of Sempra Energy. From April 2004 through October 2006, she served as Chief Operating Officer, and in October 2006, she became Chief Executive Officer of Southern California Gas and San Diego Gas & Electric. Prior to serving as Chief Operating Officer, Ms. Reed was the Chief Financial Officer for Southern California Gas and San Diego Gas & Electric. Ms. Reed also serves on the board of Halliburton Company. Ms. Reed has been a director of Avery Dennison Corporation since October 2009, and was recommended by Korn/Ferry, an executive search firm. During the past five years, Ms. Reed also served as a director of Genentech, Inc. Ms. Reed’s qualifications to be a member on our Board include her experience as a chairperson, president, chief executive officer and chief financial officer, as well as her thirty years of experience in the energy services industry. Her present term expires in 2011.

 

John T. Cardis, age 68. Mr. Cardis is a private investor. In May 2004, Mr. Cardis retired as National Managing Partner — Global Strategic Clients of Deloitte & Touche USA LLP, an audit, tax, consulting and financial advisory service company. From 1991 through June 1999, Mr. Cardis served as Office Managing Partner, Los Angeles, for Deloitte & Touche. He was also a member of the executive committee and a member of the board of directors. He also is a director of Edwards Lifesciences Corporation, a cardiovascular disease treatment company. He has been a director of Avery Dennison Corporation since October 2004. During the past five years, Mr. Cardis also served as a director of Energy East Corporation. Mr. Cardis’ qualifications to be a member on our Board include his forty years of experience dealing with public company financial accounting matters for complex global organizations. His present term expires in 2012.

 

David E.I. Pyott, age 56. Since February 2006, Mr. Pyott has been Chairman and Chief Executive Officer of Allergan, Inc., a global healthcare company. From April 2001 through January 2006, Mr. Pyott was Chairman, President and Chief Executive Officer and from January 1998 through March 2001, he was President and Chief Executive Officer of Allergan. He is also a director of Edwards Lifesciences Corporation, a cardiovascular disease treatment company. He has been a director of Avery Dennison Corporation since November 1999. During the past five years, Mr. Pyott also served as a director of Pacific Mutual Holding Company. Mr. Pyott’s qualifications to be a member on our Board include his experience as a chairman, president and chief executive officer, as well as his thirty years of international and domestic experience in the health care industry. His present term expires in 2012.

 

Dean A. Scarborough, age 54. Since May 2005, Mr. Scarborough has been President and Chief Executive Officer of Avery Dennison Corporation, a global leader in pressure-sensitive technology. From May 2000 through April 2005, Mr. Scarborough served the Company as President and Chief Operating Officer. From November 1999 through April 2000, Mr. Scarborough served the Company as Group Vice President, Fasson Roll Worldwide. Prior to November 1999, Mr. Scarborough held other executive positions with the Company. He is also a director of Mattel Corporation, a manufacturer and marketer of toys and family products. He has been a director of Avery Dennison Corporation since May 2000. Mr. Scarborough’s qualifications to be a member on our Board include his twenty-five years of international and domestic experience in the pressure-sensitive materials industry, the last five years as our Chief Executive Officer and the last ten years as our President. His present term expires in 2012.

 

Julia A. Stewart, age 54. Since June 2008, Ms. Stewart has been Chairman and Chief Executive Officer of DineEquity, Inc. (formerly IHOP Corporation), which owns, operates and franchises the IHOP and Applebee’s restaurant chains. From May 2006 through May 2008, Ms. Stewart was Chairman and Chief Executive Officer, and from May 2002 through April 2006, Ms. Stewart was President, Chief Executive Officer and Chief Operating Officer of IHOP. She has been a director of Avery Dennison Corporation since January 2003. Ms. Stewart’s qualifications to be a member on our Board include her experience as a chairman, president and chief executive officer, as well as her nearly forty years of experience in the restaurant industry. Her present term expires in 2012.

 

RETIRING DIRECTORS

 

Richard M. Ferry, age 72. Mr. Ferry is a private investor. Since July 2001, Mr. Ferry has been Founder Chairman of Korn/Ferry International, an international executive search firm. In June 2001, Mr. Ferry retired as Chairman of Korn/Ferry, a position he had held since May 1997; and in June 2002, he left the Korn/Ferry board. From May 1991 through May 1997, Mr. Ferry was Chairman and Chief Executive Officer of Korn/Ferry. He has been a director of Avery Dennison Corporation since December 1985. During the past five years, Mr. Ferry also served as a director of Dole Food Company, Inc., Pacific Mutual Holding Company and Mrs. Fields Famous Brands, LLC. Mr. Ferry’s qualifications to be a member on our Board include his experience as a chairman and chief executive officer and his thirty-five years of experience in the international executive search profession. Mr. Ferry will retire at the Annual Meeting in April.

 

Kent Kresa, age 71. Since December 2005, Mr. Kresa has served as non-executive Chairman of Avery Dennison Corporation. During the period from March 30 until July 10, 2009, Mr. Kresa also served as Interim Chairman of General Motors Corporation. Since October 2003, he has been Chairman Emeritus of Northrop Grumman Corporation, a defense systems manufacturer. In October 2003, Mr. Kresa retired as Chairman of Northrop Grumman, a position he had held since September 1990. From September 1990 through March 2003, he served as Chairman and Chief Executive Officer of Northrop Grumman. He is also a director of Fluor Corporation, an engineering, procurement, construction, and maintenance services company; General Motors Corporation, an automotive manufacturer; and MannKind Corporation, a pharmaceutical manufacturer. He has been a director of Avery Dennison Corporation since February 1999. Mr. Kresa’s qualifications to be a member on our Board include his experience as a chairman and chief executive officer, as well as his forty years of experience in the defense systems industry. Mr. Kresa will retire at the Annual Meeting in April.

 

SECURITY OWNERSHIP OF MANAGEMENT

 

The following table shows the number of shares of the Company’s common stock beneficially owned by each director of the Company and each of the executive officers named on page [11], and the aggregate number of such shares beneficially owned by all directors and executive officers as of December 31, 2009.

 

		Amount and
		Nature of
		Beneficial				Percent
Name of Beneficial Owner		Ownership(1)				of Class
Dean A. Scarborough			831,132	(3)		(2)
Richard M. Ferry			68,647	(4)		(2)
Peter W. Mullin			108,020	(5)		(2)
Kent Kresa			55,165	(6)		(2)
David E.I. Pyott			40,589	(7)		(2)
Julia A. Stewart			32,142	(8)		(2)
Peter K. Barker			32,716	(9)		(2)
John T. Cardis			24,817	(10)		(2)
Rolf Börjesson			18,051	(11)		(2)
Patrick T. Siewert			22,850	(12)		(2)
Ken C. Hicks			19,274	(13)		(2)
Debra L. Reed			490	(14)		(2)
Daniel R. O’Bryant			360,976	(15)		(2)
Donald A. Nolan			59,768	(16)		(2)
Timothy S. Clyde			304,433	(17)		(2)
Robert M. Malchione			327,849	(18)		(2)
All Directors and Executive Officers as a Group (24 persons, including those named)			2,915,937	(19)		2.5%

 

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, as amended (“1934 Act”) requires the Company’s executive officers and directors, and persons who own more than 10% of a registered class of the Company’s equity securities (collectively, “Insiders”), to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission (“SEC”) and the New York Stock Exchange (“NYSE”). Insiders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. To the Company’s knowledge, based solely on its review of the copies of such reports furnished to the Company and written representations from certain Insiders that no other reports were required for such Insiders, the Company believes that, during the 2009 fiscal year, Insiders complied with the Section 16(a) filing requirements applicable to Insiders, except Mr. Butier filed a Form 4 one day after its due date.

 

BOARD OF DIRECTORS AND COMMITTEE MEETINGS

 

During 2009, there were six meetings of the Board and twenty-nine meetings of committees of the Board. All of the Avery Dennison directors attended at least 75% of the aggregate number of meetings of the Board and meetings of Board committees (of which they were members) held during 2009, or if shorter, the period of time they served on the Board and committees. The Company has a policy of encouraging directors to attend the Annual Meeting of Stockholders, and ten of the directors attended the 2009 Annual Meeting.

 

After review and discussion of the relevant facts and circumstances for each director, including any relationships with Avery Dennison, the Board has determined that the following directors, who (i) have no material relationships with Avery Dennison, and (ii) meet the Board’s categorical independence standards for directors (which are attached as Exhibit A), are independent based on the NYSE listing standards: Peter K. Barker, Rolf Börjesson, John T. Cardis, Richard M. Ferry, Ken C. Hicks, Kent Kresa, David E.I. Pyott, Debra L. Reed, Patrick T. Siewert and Julia A. Stewart. These ten directors constitute a majority of the Board. As part of its independence determinations, the Board considered sales and purchases of products and services, in the ordinary course of business, between the Company and its subsidiaries and the companies at which some of the Company’s directors were officers during 2009. However, the amounts paid to or received from these companies during the last three years were less than the 2.0% threshold in the Board’s independence standards for these ten directors. The Board also determined that none of these relationships impaired the independence of these ten directors.

 

Corporate Governance

 

The Board and Avery Dennison management have taken a number of steps to enhance the Company’s corporate governance policies and procedures, and to comply with the Sarbanes-Oxley Act, as well as the NYSE listing standards. This year the Company is proposing to eliminate supermajority voting requirements in the Certificate of Incorporation and in the Bylaws. In 2011, the Company will propose declassification of the Board, which will result in annual elections of directors, and the Company will provide a “say-on-pay” proposal. There is a corporate governance section on the Company’s web site, which includes key information about the Company’s corporate governance. You can access this information by going to www.averydennison.com, selecting the “Investors / Corporate Governance” section to find the Company’s Corporate Governance Guidelines; Charters for the Audit, the Compensation and Executive Personnel, and the Nominating and Governance Committees; Code of Ethics and Business Conduct for Directors, Officers and Employees; Code of Ethics for the Chief Executive Officer (“CEO”) and Senior Financial Officers; and the Audit Committee Complaint Procedures. The Company’s web site address provided above is not intended to function as a hyperlink, and the information on the Company’s web site is not and should not be considered part of this proxy statement and is not incorporated by reference herein.

On December 1, 2005, the Board elected Kent Kresa as non-executive Chairman. Mr. Kresa presides at executive sessions of the Board. During 2009, the Board held five executive sessions with non-management directors only during regularly scheduled Board meetings, including one executive session with independent directors only.

 

Board Leadership Structure

 

The Board believes that it should have the flexibility to decide whether the offices of Chairman of the Board (“Chairman”) and CEO should be combined or separate. The Board also believes that determining the responsibilities of these roles can be a useful part of the succession planning process, and should be reevaluated periodically by the Board.

 

Since December 2005, the roles of Chairman and CEO have been separate, with Mr. Kresa serving as Chairman and Mr. Scarborough serving as CEO, following the retirement of our then Chairman and CEO, Philip M. Neal. At the time of Mr. Kresa’s election as Chairman, the Board determined that his prior service as a member of the Board since 1999 provided him the familiarity with the Company, its businesses, operations and stockholders to carry out the Chairman’s responsibilities effectively and to provide leadership to the Board. Mr. Scarborough was elected by the Board as CEO in May 2005, and has been a member of the Board since 2000. As CEO, Mr. Scarborough is responsible for the general supervision, direction and control of the business and affairs of the Company, for which he has served in various significant positions since 1983.

 

With Mr. Kresa’s pending retirement from the Board, the Board believes that it is in the best interests of the Company to again combine the roles of Chairman and CEO, and on February 26, 2010 elected Mr. Scarborough to serve in the dual roles, effective as of Mr. Kresa’s retirement following the 2010 Annual Meeting. The Board believes that this is in the best interests of the Company and the stockholders because it allows the Company to leverage Mr. Scarborough’s experience and knowledge as CEO and as a director. The Board believes that Mr. Scarborough at this time is best positioned to identify matters of operating and strategic importance for the Board, and can serve as a bridge between management and the Board. This combined leadership structure enhances the Chairman/CEO’s ability to provide insight and direction on important strategic initiatives to both the Board and management and, at the same time, ensures that the appropriate level of independent oversight is applied to Board decisions.

 

With the combined roles of Chairman and CEO, the Board believes that it is appropriate to have a Lead Independent Director who will, among other things, preside over executive sessions of the Board, serve as liaison between the Chairman and the non-management Directors, have the authority to call meetings of the non-management directors, and have the authority to review materials prepared for the Board. Having served on the Board since 1999, Mr. Pyott is familiar with the Company and the operations of the Board and is well qualified to fill this role.

 

Stockholders and other interested parties may write to Mr. Kresa (prior to April 23, 2010) and to Mr. Pyott (from April 23, 2010) concerning matters other than accounting and auditing matters c/o Secretary, Avery Dennison Corporation, 150 North Orange Grove Boulevard, Pasadena, California 91103. Stockholders and other interested parties may also write to John T. Cardis, Chairman of the Audit Committee, regarding accounting and auditing matters c/o Secretary at the same address.

 

Risk Oversight

 

Although the Company’s management is responsible for the day-to-day management of risks to the Company, the Board has broad oversight responsibility for the Company’s risk management programs. In this oversight role, the Board is responsible for satisfying itself that the risk management processes designed and implemented by the Company’s management are functioning, and that necessary steps are taken to foster a culture of risk-adjusted decision-making within the organization. In carrying out its oversight responsibility, the Board has delegated to individual Board Committees certain elements of its oversight function. In this context, the Audit Committee regularly discusses the Company’s risk assessment and risk management processes to determine that our risk management programs are effective. Employees who supervise various day-to-day risks provide reports and information to Board Committees and when appropriate to the Board. The Board receives updates from its Committees on individual areas of risk, such as: updates on accounting, credit, operational, financial reporting, and environmental, health and safety risks from the Audit Committee; updates on financing related matters and risks, including liquidity risk, from the Finance Committee; updates on compensation program issues and risks from the Compensation and Executive Personnel Committee; updates on business ethics and conflict of interest matters and risks from the Ethics and Conflict of Interest Committee; and updates on corporate governance matters and risks from the Nominating and Governance Committee. Significant potential risks to the Company are identified and discussed in the Company’s public filings with the SEC.

Risk Considerations in our Compensation Programs

 

The Compensation and Executive Personnel Committee (“Compensation Committee”) believes that the Company’s executive compensation and other employee compensation programs have been designed to provide the appropriate level of incentives that do not encourage our executive officers to take unnecessary risks in managing their businesses, or other employees to take unnecessary risks in carrying out their responsibilities. A majority of our executive officers’ compensation is performance-based, consistent with our executive compensation philosophy. Our annual incentive award program is designed to reward annual financial and/or strategic performance in areas considered important to the short and long-term success of the Company. Our longer term equity incentive awards are directly aligned with long-term stockholder interests through their link to our stock price and multi-year vesting, and our executive stock ownership guidelines further support a long-term focus by requiring our executives to personally acquire and retain significant levels of the Company’s stock. In combination, the Committee believes that the various elements of our compensation programs sufficiently tie our executives’ and other employees’ compensation opportunities to the Company’s sustained long-term performance.

 

Criteria and Diversity

 

In considering whether to recommend any candidate for inclusion in the Board’s slate of recommended director nominees, including candidates recommended by stockholders, the Nominating and Governance Committee applies a number of criteria, including what is set forth in the Company’s Corporate Governance Guidelines. The Guidelines provide that the Board will have a majority of directors who meet the criteria for independence required by the NYSE and that the Nominating and Governance Committee is responsible for reviewing with the Board the requisite skills and characteristics of new Board members, as well as the composition of the Board as a whole. This assessment includes consideration of members’ and nominees’ qualifications as independent, as well as relevant business experience (considering factors such as size, the particular industry, scope, complexity and international operations); attendance; time commitments; conflicts of interest; ability to contribute to the oversight and governance of the Company; as well as an ability to represent the balanced interests of stockholders as a whole, rather than those of any special interest group in the context of the needs of the Board.

 

Nominees for Directorship are selected by the Nominating and Governance Committee. The Committee seeks nominees with a broad diversity of experience, professions, skills, geographic representation and backgrounds. The Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all prospective nominees. The Board believes that the backgrounds and qualifications of the directors, considered as a group, should provide a significant composite mix of experience, knowledge and abilities that will allow the Board to fulfill its responsibilities.

 

Standing Committees of the Board of Directors

 

The Audit Committee, which is composed of the following independent directors: John T. Cardis (Chairman), Peter K. Barker, Richard M. Ferry, Ken C. Hicks and Kent Kresa, met eight times during 2009, including meetings prior to the Company’s issuing its quarterly and annual news releases concerning financial results. Debra L. Reed was appointed to the Audit Committee by the Board on February 26, 2010. The Audit Committee is appointed by the Board to assist the Board with its oversight responsibilities in monitoring (i) the integrity of the financial statements of the Company; (ii) the independent auditors’ qualifications and independence; (iii) the performance of the Company’s internal audit function and independent auditors; and (iv) the compliance by the Company with legal and regulatory requirements. A copy of the Audit Committee Charter is available on the Company’s web site. The Board has designated Mr. Cardis and Mr. Barker as “audit committee financial experts” (as defined by applicable SEC regulations). The Board has determined that each of the members of the Audit Committee is “independent” (as defined by applicable SEC regulations).

 

The Compensation Committee, which is composed of the following independent directors: David E.I. Pyott (Chairman), Peter K. Barker (who was a member during a majority of the year), Richard M. Ferry, Debra L. Reed and Julia A. Stewart, met seven times during 2009. The Compensation Committee is appointed by the Board to discharge the Board’s responsibilities relating to compensation of the Company’s directors, Chairman, and CEO and other executive officers. The Compensation Committee has overall responsibility for approving and evaluating compensation plans, policies and programs of the Company, as they affect the directors, CEO and executive officers. In addition, the Compensation Committee reviews plans and candidates for succession to CEO and other executive officers. The Compensation Committee is also responsible for providing a report concerning its review of the Compensation Discussion and Analysis section of this annual proxy statement. A copy of the Compensation Committee’s Charter is available on the Company’s web site.

 

The Ethics and Conflict of Interest Committee, which is composed of the following directors: Julia A. Stewart (Chairman), Rolf Börjesson, John T. Cardis, Kent Kresa and Patrick T. Siewert, met twice during 2009. The functions of the Ethics and Conflict of Interest Committee are to: survey, monitor and provide counsel as to the business relationships, affiliations and financial transactions of directors, officers and key employees, as they may relate to possible conflicts of interest or to the Company’s Legal and Ethical Conduct Policy; monitor the Company’s compliance program; and report and make recommendations to the Board in instances where it is believed that possible violations of Company policy could exist.

 

The Finance Committee, which is composed of the following directors: Peter K. Barker (Chairman), Rolf Börjesson, John T. Cardis, Peter W. Mullin and Patrick T. Siewert, met three times during 2009. The functions of the Finance Committee are to: assist the Board in consideration of matters relating to the financial affairs and capital requirements of the Company; provide an overview of the financial planning and policies of the Company; and review significant borrowings and changes in the financial structure of the Company.

 

The Nominating and Governance Committee (“Nominating Committee”), which is composed of the following independent directors: Richard M. Ferry (Chairman), Rolf Börjesson, Ken C. Hicks, David E.I. Pyott and Julia A. Stewart, met six times during 2009. The Nominating Committee is appointed by the Board to: (i)  assist the Board by identifying individuals qualified to become Board members consistent with criteria approved by the Board, and to recommend to the Board the director nominees for the next annual meeting of stockholders, as well as between annual meetings when appropriate; (ii)  review and recommend to the Board, the Company’s Corporate Governance Guidelines; (iii)  oversee the evaluations of the Board and management (related to corporate governance); and (iv)  recommend to the Board director nominees for each committee. A copy of the Nominating Committee’s Charter is available on the Company’s web site. The Nominating Committee has a process under which all director candidates are evaluated. The Nominating Committee uses certain criteria in evaluating any candidate’s capabilities to serve as a member of the Board including: attendance, independence, number of other board directorships, time commitments, education, relevant geographical experience, conflict of interest, senior management experience with a multinational business or other organization with the size, scope, and complexity of the Company, as well as an ability and desire to contribute to the oversight and governance of the Company and to represent the balanced interests of stockholders as a whole, rather than those of special interest groups. Further, the Nominating Committee reviews the qualifications of any candidate with those of current directors to determine coverage and gaps in experience in related industries and in diverse functional areas, such as finance, manufacturing, technology, and investing. Sources for identifying potential nominees include members of the Nominating Committee, other Board members, executive officers of the Company, third-party search firms, and stockholders. Stockholders desiring to make recommendations concerning new directors should submit the candidate’s name, together with biographical information and professional experience, and the candidate’s written consent to nomination c/o Secretary, Nominating and Governance Committee of the Board of Directors, Avery Dennison Corporation, 150 North Orange Grove Boulevard, Pasadena, California 91103. Stockholders wishing to nominate new directors for election at an annual meeting must comply with the requirements described under the heading “GENERAL — Stockholder Proposals” on page [46].

 

In addition to the standing committees noted above, the Board has an Ad Hoc Committee, which is composed of the following directors: Kent Kresa (Chairman) and David E.I. Pyott, met three times during 2009. The Ad Hoc Committee is appointed by the Board and has been assigned the oversight responsibility for, and is empowered to take action (or if deemed appropriate to make recommendations to the Board) with respect to, the Company’s response to pending competitive practices related litigation.

DIRECTOR COMPENSATION FOR 2009

The following table provides information regarding compensation earned or awarded by the Company’s non-employee directors during 2009:

														Change in
		Fees												Pension
		Earned												Value and
		or Paid				Stock				Option				NQDC				All Other
Name		in Cash(2)				Awards(3)				Awards(4)				Earnings(5)				Compensation(6)				Total
Peter K. Barker		$	97,500			$	19,260			$	12,830				—			$	10,000			$	139,590
Rolf Börjesson		$	80,500			$	19,260			$	12,830				—				—			$	112,590
John T. Cardis		$	95,500			$	19,260			$	12,830				—			$	10,000			$	137,590
Richard M. Ferry		$	103,500			$	19,260			$	12,830			$	190,895			$	10,000			$	336,485
Ken C. Hicks		$	83,500			$	19,260			$	12,830				—			$	10,000			$	125,590
Kent Kresa(1)		$	248,500			$	19,260			$	12,830			$	2,865			$	10,000			$	293,455
Peter W. Mullin		$	68,500			$	19,260			$	12,830			$	22,359			$	10,000			$	132,949
David E.I. Pyott		$	101,500			$	19,260			$	12,830			$	16,341			$	10,000			$	159,931
Debra L. Reed		$	18,250				—			$	44,124				—			$	10,000			$	72,374
Patrick T. Siewert		$	71,500			$	19,260			$	12,830				—				—			$	103,590
Julia A. Stewart		$	92,500			$	19,260			$	12,830				—			$	7,954			$	132,544

As President and CEO of the Company, Mr. Scarborough receives no fees for services rendered in his capacity as a director. For 2009, each non-employee director was paid an annual retainer fee of $55,000; the non-executive Chairman was paid an annual retainer of $220,000. Directors were paid attendance fees of $1,500 per Board meeting attended, and $2,000 per committee meeting attended as Chairman of a committee or $1,500 per committee meeting attended as a member of the committee (whether it was a standing or an ad hoc committee). The Chairmen of the Audit and the Compensation Committees were each also paid an annual retainer fee of $10,000; the Chairmen of the Finance, the Nominating and Governance, and the Ethics and Conflict of Interest Committees were each paid an annual retainer fee of $5,000. See Exhibit B for a summary of non-employee director compensation for 2009. Under the DVDCP, fees that are deferred accrue earnings at the rate of return of certain bond and equity investment funds managed by an insurance company. Under the DDECP, directors may defer fees into stock units, which will be paid out in shares of Company stock at retirement. As of December 31, 2009, the following directors held stock units in the DDECP: Mr. Barker – 5,816; Mr. Cardis – 317; Mr. Ferry – 6,062; Mr. Hicks – 2,774; Mr. Kresa – 33,465; Mr. Pyott – 19,089; Ms. Reed – 490; and Ms. Stewart –

12,242. The Company has a matching gift program under which the Company will match an amount of up to $10,000 that a director contributes to charitable and/or educational institutions.

Each non-employee director who was a member of the Board on June 30, 2009, received a stock award of 750 shares of the Company’s common stock, as a portion of their director compensation for 2009. Non-employee directors also participated in the Director Equity Plan, which provided for each non-employee director to receive a 5,000 stock option grant upon joining the Board, and an annual grant of 2,000 stock options thereafter. In February 2009, options to purchase a total of 20,000 shares (2,000 options for each non-employee director) of Company stock were granted to the non-employee directors under this plan. When the stock options were granted, the option price was 100% of the fair market value of the Company’s common stock on the date of grant. These options granted have a term of ten years, and become exercisable in two equal installments on the first and second anniversaries of the grant date, except that all options held by a director, which are otherwise unexercisable on the date the director retires from the Board at or after age 72, will become fully vested and exercisable on the date of such retirement.

EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

The Compensation Discussion and Analysis (“CD&A”) provides an overview and analysis of the Company’s executive compensation program. Refer to “Additional Information Regarding Executive Compensation” below for a series of tables containing information about the compensation for the following individuals, whom the Company refers to as named executive officers, or NEOs, of the Company:

	•		Dean A. Scarborough, President and Chief Executive Officer (“CEO”)
	•		Daniel R. O’Bryant, Executive Vice President, Finance and Chief Financial Officer (“CFO”)
	•		Donald A. Nolan, Group Vice President, Roll Materials
	•		Timothy S. Clyde, Group Vice President, Specialty Materials and Converting
	•		Robert M. Malchione, Senior Vice President, Corporate Strategy and Technology

The discussion below is intended to provide an understanding of the detailed information contained in the tables following the CD&A and provide further information about the Company’s overall compensation program.

EXECUTIVE SUMMARY

The Compensation Committee designs and sets the Company’s executive compensation program and levels consistent with the Company’s compensation strategy to provide a compensation package that attracts, motivates and retains executive talents, and to reward performance and provide downside risk for underperformance. When the Compensation Committee met at the beginning of 2009 to establish the incentive program, there were a number of economic and business related factors to consider. Of particular concern was the recessionary environment throughout North America and Europe and expected slower growth in Asia. As a result, the Compensation Committee ratified management’s recommendation that there be no salary increases for our U.S.-based employees, including the NEOs due to the challenging economic environment. The Compensation Committee also made annual equity awards with values lower than the NEO’s targeted long-term incentive award values. For the 2009 annual bonus, the Compensation Committee left the target bonus levels for the NEOs unchanged, but did establish funding hurdles (gates), based on free cash flow and earnings per share, before any annual bonus award could be paid. Despite a decline in revenues in 2009, the Company improved or maintained its market share in key businesses and exceeded target goals for both free cash flow and earnings per share.

For 2010, executive incentives will be focused on rewarding profitable growth, with a greater emphasis on revenue growth in order to create shareholder value as markets recover.

ROLE OF COMPENSATION COMMITTEE & EXECUTIVE OFFICERS

The Compensation Committee is appointed by the Board to manage the Board’s responsibilities relating to the compensation of the Company’s directors, CEO, other NEOs and other executive officers.

The Compensation Committee’s major responsibilities are to:

1. Review and approve Company objectives and goals related to CEO compensation annually, evaluate the CEO’s performance in light of those goals and objectives, and determine and approve the CEO’s overall compensation level based on this evaluation. In determining the incentive components of the CEO’s compensation, the Compensation Committee considers the Company’s performance and strategic direction and the value of incentive awards to CEOs at companies of similar size.

2. Review and approve the annual base salary increases and annual bonus awards of the other executive officers, as well as long-term cash and equity-based incentive awards. In addition, the Compensation Committee provides periodic reports and makes recommendations to the Board on the Company’s compensation program for the other executive officers. The Compensation Committee also reviews and approves employment agreements and special or supplemental compensation and benefits for the CEO and other executive officers, including supplemental retirement benefits and perquisites. The Compensation Committee also submits the CEO’s compensation package, which has been reviewed and approved by the Compensation Committee, to the Board for ratification.

3. Select, retain and terminate any compensation consultant used to assist the Compensation Committee in the evaluation of compensation for directors, the CEO and other executive officers. The Compensation Committee has sole authority to approve the consultant’s fees and other terms and conditions.

4. Conduct evaluations of, and make reports to, the Board on succession planning for the CEO and the CEO’s direct reports. To that end, the Compensation Committee meets throughout the year to review and discuss succession planning for the CEO and his direct reports. As part of this process, the Compensation Committee reviews the executives’ skill sets, experience and readiness for their next roles. In addition, development plans are reviewed. The Board also reviews succession planning and potential successors to the CEO annually.

5. Review the Compensation Committee Charter annually and recommend any proposed changes to the Board for approval.

The Chairman of the Board reviews and evaluates the CEO’s annual performance and makes compensation recommendations to the Compensation Committee concerning salary and incentive awards for the CEO. The CEO makes compensation recommendations, including salary adjustments and incentive awards, to the Compensation Committee, for the other NEOs and other executive officers based on the CEO’s annual review of each officer’s performance. These recommendations are presented to the Compensation Committee for review and approval. The Compensation Committee exercises its discretion when modifying recommended salary adjustments or incentive awards.

The CEO and the Senior Vice President and Chief Human Resources Officer, and in some cases the CFO, participate during portions of Compensation Committee meetings to:

	•		review and recommend performance objectives and goals for the annual bonus and long-term incentive plans
	•		review performance against goals for the annual bonus and long-term incentive plans
	•		review changes to the executive compensation program

The Compensation Committee has retained the services of Towers Watson (formerly Watson Wyatt), an independent executive compensation consultant, to assist the Compensation Committee in determining the overall compensation program. The Compensation Committee has the authority to engage, as well as to terminate, the services of the compensation consultant. During 2009, Towers Watson provided the Compensation Committee with support in its review of the executive severance program (which provides certain benefits when an executive is terminated without cause), and the Company’s stock ownership guidelines for executives, which are designed to achieve greater alignment with the interests of the Company’s stockholders. In addition, Towers Watson conducted a risk assessment of the Company’s executive compensation program. Utilizing qualitative and quantitative factors developed for its assessment, Towers Watson concluded that the Company’s executive compensation program strikes an appropriate balance between corporate risk mitigation and executive pay for performance. The Compensation Committee conducted its annual assessment of the consultant’s performance during the Compensation Committee’s December meeting, which also included a review of fees paid to Towers Watson. In 2009, Towers Watson provided no services for Company management (outside of its work for the Compensation Committee), but the Company may request services from Towers Watson in the future.

COMPENSATION PHILOSOPHY AND OBJECTIVES

The Board believes that hiring and retaining effective leaders and providing appropriate incentives for executives are essential to the Company’s success in the marketplace and to creating an attractive investment for stockholders. The Compensation Committee of the Board has responsibility for establishing and implementing the Company’s executive compensation program.

The Compensation Committee has established a compensation strategy and supporting plans that tie a significant portion of executive compensation to the Company’s success in meeting specified performance goals and positively influencing the appreciation of the Company’s stock price. The objectives of this strategy are to attract and retain the best possible executive talent, to motivate these executives to achieve the Company’s near- and long-term goals, to link the interests of executives and stockholders through equity-based plans and to provide a compensation program that recognizes individual contributions, as well as overall business results.

The Compensation Committee believes that the Company’s compensation program should be balanced, providing a mix of incentive plans that balance short- and long-term objectives, provide potential upside for exceeding performance targets and downside risk for missing performance targets. In addition, the program should balance retention with reward for stockholder value creation, while also ensuring that the elements of the program, individually and in the aggregate, do not encourage excessive risk-taking. Consistent with this approach, the Compensation Committee has also adopted a compensation recovery (“clawback”) policy, which is described on Page [14].

SETTING EXECUTIVE COMPENSATION AND NEO PAY POSITIONING IN RELATION TO THE MARKET

The Compensation Committee has established a total direct compensation positioning strategy for executive officers in the third quartile of companies similar in size, global scope and complexity with which the Company may compete for executive talent. Using the third quartile for its positioning strategy allows the Compensation Committee to use a range to reflect executive experience, skills and performance. In 2009, average target total direct compensation for the NEOs was positioned at the 60^th percentile. “Total direct compensation” is base salary plus annual bonus (based on market reference data) and annual long-term incentive opportunities (which may include cash, stock options, performance units and restricted stock units). In general, base salary is positioned around the market median with target incentive opportunities driving the overall total direct compensation positioning. The Compensation Committee believes this positioning is appropriate given the Company’s business portfolio mix, product diversity and the global nature of the Company’s operations, which require its executives to have a wide range of business leadership experiences and skills. In addition, this positioning strategy is intended to drive performance, because a significant portion of executive compensation is tied to incentive compensation.

COMPENSATION SURVEYS AND PEER COMPANIES

The Company performs competitive benchmarking of executive pay levels and Company performance based on competitive peer groups and survey data, as follows:

	•		Executive officer compensation: broad cross section of U.S.-based companies to reflect similarly broad talent market, as provided in executive compensation surveys, adjusted and regressed for revenue size. Each year, the Company reviews surveys prepared by independent third parties to understand the compensation practices of publicly-traded companies and to assess the Company’s competitiveness. In 2009, primary sources were Hewitt Associates and Towers Perrin executive compensation surveys.
	•		Performance Unit (“PU”) vesting determination: For 2009, the financial metric is based solely on the Company’s relative total shareholder return (“TSR”) compared to other companies in the S&P 500 Industrials and Materials subsets. The Company is in the S&P 500 Industrials subset.
	•		Restricted Stock Unit (“RSU”) performance vesting determination: Company’s relative annual return on total capital (“ROTC”) compared to a market basket of peer companies (set forth below) consisting of 50 publicly-traded U.S. companies selected on the basis of market diversity, international focus and investment, market volatility, and product line mix.

The Company’s market basket of peer group companies is comprised of Air Products & Chemicals Inc., ArvinMeritor Inc., Baker-Hughes, Inc., Ball Corporation, Bemis Company, Inc., Black & Decker Corporation, Cabot Corporation, Cooper Tire & Rubber Company, Crane Company, Crown Holdings, Inc., Cummins Inc., Dana Holding Corporation, Danaher Corporation, Dover Corporation, Eaton Corporation, Ecolab Inc., Ferro Corporation, FMC Corporation, H. B. Fuller Company, Goodrich Corporation, W. R. Grace & Company, Harley-Davidson, Inc., Harris Corporation, Harsco Corporation, Illinois Tool Works Inc., Ingersoll-Rand Company, MASCO Corporation, MeadWestvaco Corporation, NACCO Industries, Newell Rubbermaid Inc., Olin Corporation, Owens-Illinois, Inc., PACCAR Inc., Parker-Hannifin Corporation, Pentair Inc., Pitney Bowes Inc., PolyOne Corporation, Potlatch Corporation, P.P.G. Industries Inc., The Sherwin-Williams Company, Smurfit-Stone Container Corporation, Snap-On Inc., Sonoco Products Company, The Stanley Works, Tecumseh Products Company, Temple-Inland Inc., Thermo Fisher Scientific, Inc., Thomas & Betts Corporation, Timken Company and Trinity Industries.

KEY COMPONENTS OF COMPENSATION PROGRAM

The key components of the Company’s executive compensation program are:

	•		base salary
	•		performance-based compensation
	•		benefits
	•		perquisites

For the Company’s executive officers, the largest component of total direct compensation opportunity is performance-based. To motivate the Company’s executives, the Compensation Committee allocates compensation between cash and equity compensation based on its assessment of the Company’s objectives and the competitive practices of other public companies. Further, the Compensation Committee considers the Company’s business portfolio to provide appropriate linkage of incentives to the Company’s objectives. Accordingly, the Company’s compensation program includes annual and long-term incentive awards.

For fiscal year 2009, approximately 80% of Mr. Scarborough’s and approximately 70% of the other NEOs’ total direct compensation consisted of performance-based compensation from the annual bonus plan and long-term incentive plans. In February 2010, the Compensation Committee approved the 2009 annual bonus payments and the annual equity awards for 2010. In 2009, the CEO and other NEOs were eligible to receive stock options and PUs under the Employee Stock Option and Incentive Plan, which are targeted to represent approximately 60% and 40%, respectively, of their long-term incentive opportunity.

Base Salary

Base salary provides executives with a base level of monthly income and compensates them for services rendered during the fiscal year reflecting:

	•		the responsibilities of the position
	•		the experience and performance of the individual
	•		the Company’s or business group’s financial results
	•		other objectives, including leadership development, environmental health and safety, Company values and operating principles, and employee relations
	•		internal equity
	•		the competition for executive talent
	•		the projected annual base salary increases for executives based on salary surveys

In both 2008 and 2009, the CEO and the other NEOs did not receive an annual salary increase in response to global economic conditions and the Company’s outlook for performance.

Performance-Based Compensation

The Company structures its performance-based compensation program to reward the NEOs based on the Company’s performance, as well as the individual executive’s contributions. The NEOs are awarded incentive compensation in the event certain Company and individual performance objectives are achieved. The CEO’s targeted long-term incentive opportunity represents approximately 80% of his performance-based compensation. For the other NEOs, their targeted long-term incentive opportunity represents approximately 75% of their performance-based compensation.

Performance-based compensation consists of the following:

	•		Annual Bonus Plan
	•		Long-Term Incentives

Compensation Recovery (Clawback) Policy

In February 2009, the Compensation Committee adopted a compensation recovery (clawback) policy. Under this policy, in the event of fraud or other intentional misconduct on the part of an employee that necessitates a restatement of our financial results, the employee will be required to reimburse the Company for any bonus awards or other incentive compensation paid or issued to the employee in excess of the amount that would have been paid or issued based on the restated financial results. The Compensation Committee approved this policy after consideration of market practices and to further align the interests of our employees with our stockholders.

Annual Bonus Plan

The annual bonus plan compensates the NEOs based on the achievement of annual performance objectives and enhances the NEOs’ motivation to achieve above target results.

In 2009, the CEO and other executive officers were eligible for an annual cash bonus under the Company’s Senior Executive Annual Incentive Plan (“SEAIP”). On March 6, 2009, the SEAIP was approved by the Compensation Committee and subsequently approved by the stockholders at the 2009 Annual Meeting in April. Under the SEAIP, if a performance goal, based upon the Company’s annual gross profit less marketing, general and administrative expense (“Performance Measure”) determined from the Company’s annual Consolidated Statement of Income, is achieved, participants (including the NEOs) will be eligible for an annual bonus payment based on a percentage of the Performance Measure, subject to Compensation Committee review and to the exercise of downward discretion on the part of the Compensation Committee. If the goal is achieved, the CEO will be eligible for a bonus award of up to 1.5% ($4.77 million in 2009), and the other NEOs and participants for an individual bonus award of up to 0.75% ($2.38 million in 2009), respectively, of the Performance Measure.

The Compensation Committee has the discretion to decrease, but not to increase, awards calculated under the SEAIP. As part of this process, the Compensation Committee uses a market reference bonus opportunity consistent with the Company’s total direct compensation positioning strategy (110% of base salary for Mr. Scarborough, and 60% for the other NEOs, based on their salary at the end of the fiscal year). In addition, participants are eligible for an individual modifier based on their respective performance against objectives; however, no bonus payment can exceed the calculated maximum SEAIP award. Annual bonus payments are included in the Non-Equity Incentive Plan Compensation column in the Summary Compensation Table following the CD&A.

The following formula is used for calculating the annual bonus award (using a market reference bonus opportunity): Salary at year end × Bonus Opportunity % × Financial Modifier × Individual Modifier = Bonus Award

Financial Modifier: The amount payable under the Company’s annual bonus plan is based on the performance of the Company. The performance is converted into a financial modifier based on the performance achieved and weighting of the selected performance objectives. So that executive officers receive bonus awards that are based on Company performance, and to give management incentive to take necessary actions to provide for long-term value creation, the Compensation Committee may modify performance-based bonus awards based on adjustment items that the Compensation Committee establishes within the first 90 days of the fiscal year.

For 2009, the Company achieved a 136% financial modifier based on the Company’s financial results for sales growth (1/3^rd), free cash flow (“FCF”) (1/3^rd) and earnings per share (“EPS”) (1/3^rd). These metrics and relative percentages were determined by the Compensation Committee in consultation with its compensation consultant. Our performance is measured by our achievement of these metrics that were established at the beginning of the performance period and that are based on our corporate strategies and objectives established as part of our annual operating plan process. See the table and narrative below for the Company’s results against these goals. Given the uncertain economic and business outlook at the beginning of 2009, the Compensation Committee added FCF as a metric in determining the financial modifier, with a weighting equal to the weighting given to EPS. For 2009, the Compensation Committee established annual bonus award funding gates to focus participants on the importance of generating profits and managing cash. Before any annual bonus awards could be made, the Company needed to achieve either the EPS or the FCF target (100% payout level). As noted below, the Company exceeded both the EPS and the FCF targets.

2009 Annual Bonus Results

		Sales Growth								FCF				Financial
		(ex-currency)				EPS				(in millions)				Modifier
Target			-3.9	%		$	1.35			$	265.0				100	%
As Reported			-11.3	%		$	(7.21	)		$	465.7				—
Currency Translation(1)			3.7	%			—				—				—
			-7.6	%		$	(7.21	)		$	465.7				87	%
Adjustment Factors
Goodwill and indefinite-lived intangible asset impairment charges(2)			—			$	7.84				—				—
Restructuring costs(3)			—			$	1.34				—				49	%
Adjusted Results			-7.6	%		$	1.97			$	465.7				136	%

 

 

Although sales declined in 2009, our key businesses were able to improve or maintain market share in a challenging global economic environment. In addition, the Company successfully managed FCF and overall profitability. The goodwill and intangible asset impairment charges were non-cash items.

Over the last three fiscal years, including 2009, the financial modifier for the Company has averaged 81%.

		AIP Payout %
2007			88%
2008			19%
2009			136%
3 year average			81%

Individual Modifier: The NEOs have individual performance objectives that are designed to improve the Company’s performance. Individual objectives may include leadership development, employee relations, environmental health and safety, Company values and overall impact on the Company. Achievement of individual objectives is evaluated and translated into an individual modifier, which can range from 0% to 150%. For 2009, individual modifiers for the NEOs averaged 120%, based upon the annual review of performance objectives established at the beginning of the year. The Compensation Committee determines the individual modifier for the CEO, based on its assessment of the CEO’s performance; and the CEO recommends the individual modifiers for the other NEOs based on his assessment of their individual performance. The Compensation Committee considers the CEO’s recommendations before finalizing the other NEOs individual modifiers.

During 2009, the Corporate Leadership Team (CLT), of which all the NEOs are members, developed a plan to address the numerous challenges presented by the global economy and competitive pressures. In addition to the financial performance, the Company created a New Growth Platform organization and a new Company vision and growth plan to foster a culture of innovation. The Company also continued to invest in its strategic marketing capabilities. At the same time, the Company continued its efficiency efforts through the utilization of enterprise lean sigma (ELS) tools to deliver significant working capital and customer service improvements and execute an estimated $160 million restructuring plan. Finally, key personnel changes were made to bring in new skills and enhanced end-customer industry experience.

Long-Term Incentives

In order to focus alignment more closely with the interests of the stockholders, the Company’s long-term incentives for 2009 consisted solely of equity awards granted under the Employee Stock Option and Incentive Plan; in prior years, the Company has had a cash-based long-term incentive plan. In 2009, after discussions with its compensation consultant, the Compensation Committee targeted the following percentages for the NEOs’ long-term incentives:

	•		60% stock options
	•		40% PUs

The Compensation Committee believes denominating all of the NEOs’ long-term incentives in the form of equity awards strengthens the alignment with stockholders and enhances the risk/reward relationship between actual awards and economic opportunity. Company stock price appreciation directly impacts the actual value of the equity awards, and for the PUs, the number of shares that may be earned.

Employee Stock Option and Incentive Plan (“Stock Plan”): The Company’s Stock Plan provides for equity awards, including nonqualified stock options, stock appreciation rights, restricted stock, RSUs, PUs and dividend equivalents. This long-term incentive program is designed to:

	•		enhance the link between the creation of stockholder value and long-term incentive compensation
	•		provide an opportunity for increased equity ownership
	•		maintain competitive levels of total direct compensation

Under the Stock Plan, stock options are granted at fair market value (the average of the high and the low prices on the NYSE) on the date of the grant. Annual stock options are granted on the date of the Board meeting immediately following the Compensation Committee meeting at which awards are made. Annual stock option awards vest at a rate of 25% per year over the first four years of a ten-year option term. The 2009 annual equity awards (stock options and PUs) to the NEOs (and all other equity eligible employees) were approximately 25% lower than their target Long-Term Incentive (LTI) opportunities.

Under the mid-term incentive program (“MTIP”), participants receive PU awards in the first year, which are settled in Company stock after the end of each three-year performance cycle (a new cycle begins each year) based on meeting certain performance objectives. During the performance period, the PU award recipients will not accrue dividends or dividend equivalents. The Compensation Committee believes that by denominating the MTIP equity awards in PUs, the NEOs’ compensation will be linked to a greater extent to the stock price, thus increasing the alignment with stockholder interests to create long-term value through stock price appreciation.

The performance objectives for PUs awarded under the MTIP are determined by the Compensation Committee during the first 90 days of each cycle. Company goals are set at threshold (50% payout), target (100% payout) and maximum (200% payout) levels. For the 2009-2011 MTIP cycle, the performance objective is relative TSR compared to other companies in the S&P 500 Industrials and Materials subsets. Threshold performance was set at the 40^th percentile, target performance at the 50^th percentile and maximum performance at the 80^th percentile of the S&P 500 Materials and Industrials subsets.

The NEOs (except Mr. Nolan) were granted performance vesting RSUs in 2005 and 2006. The 2005 performance vesting RSUs were eligible to vest in 2009, however, they did not vest because the Company’s 2008 ROTC did not meet or exceed the 67^th percentile of the market basket of peer group companies. The 2005 and 2006 performance vesting RSUs will be eligible to vest in 2010 based on the Company’s 2009 ROTC.

To further align the interests of the NEOs with those of stockholders, the Compensation Committee believes that the NEOs should acquire and maintain an equity interest in the Company. To achieve this objective, the Compensation Committee reviewed the Company’s stock ownership policy for the NEOs to acquire and maintain certain levels of stock ownership during their tenure with the Company. At the recommendation of Towers Watson, the Compensation Committee increased the targeted ownership levels. Recognizing the impact of a changing stock price the Compensation Committee established guidelines that will allow executives to achieve the new ownership guideline level using the lesser of the number of shares equal to a multiple of salary, or a fixed number of shares. The new ownership guidelines are effective as of January 1, 2010 and the executives will have a five-year transition period to achieve the new guideline levels. See Exhibit C for further information concerning these guidelines. It is expected, however, that the executives will make progress toward their new ownership levels during the transition period. The Compensation Committee will review the ownership levels annually at the December Compensation Committee meeting, starting in 2010, to assess progress. If an executive has not reached the guideline ownership levels by the end of the transition period, the executive will be required to hold all net shares acquired (shares remaining after the payment of taxes and transaction fees following the vesting of a stock award or an exercise of a stock option). The CEO is a Level 1 executive and the other NEOs are Level 2 executives.

Targeted Levels of Stock Ownership (to be achieved generally within five years of assuming the position):

		STOCK OWNERSHIP GUIDELINES(1)
		Multiple of Base				Fixed Shares
Position/Levels		Salary				or Units
CEO			5X				95,000
Level 2			3X				27,000
Level 3			2X				17,000
Level 4			1X				4,000

Under the Stock Plan and the Charter of the Compensation Committee, the Compensation Committee has the authority to make equity awards to executive officers and other employees of the Company. The Compensation Committee reviews and approves the total annual pool of stock options, PUs and RSUs, as well as annual and special equity awards to executive officers, including the size of the awards and related terms and conditions. The Compensation Committee has delegated the authority to the Compensation Committee chairman to approve special equity grants to executive officers. The Compensation Committee has also delegated the authority to the CEO to make equity awards for annual and special equity grants of stock options, PUs and RSUs to employees, other than executive officers. Following approval by the Compensation Committee or the CEO, as appropriate, special equity awards (other than those granted at the time of the annual grant) are granted and dated on the first day of the next third, sixth, ninth, or twelfth calendar month (if the NYSE is closed on that date, then on the first day thereafter that the NYSE is open). Special equity grants (including those for new hires, promotions, retention, and special recognition) may have different terms and vesting schedules depending on the purpose of the grant.

Benefits

The Company provides a benefit program for all eligible employees in the United States, including the NEOs, to provide them with retirement, savings, health and welfare, and disability coverage. The Compensation Committee works with the Committee’s consultant and management to provide a benefit program that is competitive with other companies in the industries in which it competes for executive talent. The Compensation Committee wants the benefits program to support the recruiting and retention of employees, including the NEOs.

Defined Benefit Retirement Plans

The Company provides retirement benefits for all eligible employees, including the NEOs, under the Avery Dennison Pension Plan (“Pension Plan”), the successor plan to the Retirement Plan for Employees of Avery Dennison Corporation and the Avery Associate Retirement Plan, which merged on November 30, 2008. The Company also provides the Benefit Restoration Plan (“BRP”) for eligible employees as described below. Effective January 1, 2009, the Pension Plan and the BRP have been closed to new employees.

Benefits under the Pension Plan are based on pensionable earnings, length of service, when benefits commence and how they are paid, and are currently calculated separately for each year of service. Employees vest in the Pension Plan after five years of service.

Employees who participated in the Pension Plan at any time from December 1, 1986 through November 30, 1997, may also have a benefit under the Stock Holding and Retirement Enhancement Plan of Avery Dennison Corporation (“SHARE Plan”). In order to receive a maximized benefit under the Pension Plan, these employees have the option to transfer their SHARE Plan balance to the Pension Plan, which will be converted into an annual annuity and combined with the monthly benefit from the Pension Plan. If they choose not to transfer their SHARE Plan balance, they will receive a lump-sum payment from the SHARE Plan.

Amounts payable under the Pension Plan may be reduced in accordance with certain Code provisions, which, as applied to plan years beginning on or after December 1, 1994, currently limit the annual amount of compensation used to determine annual benefit accruals under the Pension Plan to the first $245,000 of covered compensation as of December 31, 2009. In December 1994, the Company established the BRP to provide for the payment of supplemental retirement benefits to eligible employees, including the NEOs, whose benefits under the Pension Plan are limited under the foregoing Code provisions. The BRP is a nonqualified excess benefit plan. Benefits are payable under the BRP in amounts equal to the amount by which a participant’s benefits, otherwise payable under the Pension Plan, are reduced under applicable provisions of the Code.

All NEOs currently have a benefit in at least one of the plans discussed above.

Supplemental Executive Retirement Plan

The Supplemental Executive Retirement Plan (“SERP”) is designed to provide participants with additional incentives to further the Company’s growth and development, and as an inducement to remain with the Company. Participants designated by the Compensation Committee are offered benefits under this plan to supplement other retirement benefits. The Company believes that it is in the stockholders’ best interests to retain key executives in critical roles in order to provide continuity of leadership and to focus them on the Company’s long-term success. The Compensation Committee has designated Messrs. Scarborough and O’Bryant as participants in this plan. Benefits will commence generally upon the later of age 60 for Mr. Scarborough and age 55 for Mr. O’Bryant and separation from service (at the same time as the BRP) at a benefit level that, when added to the benefits to which they will be entitled from the Pension Plan, the BRP, the SHARE Plan at the time of retirement, certain Company contributions (plus interest) to the 401(k) Plan, fixed amounts representative of contributions plus interest to the deferred compensation plans and Social Security payments, will equal 62.5% for Mr. Scarborough, and 52.5% for Mr. O’Bryant of their respective final average compensation (annual average of their salary for the three highest twelve month periods out of their last sixty months of employment with the Company plus the average of their three highest earned annual bonuses during their last sixty months of employment with the Company). Survivor and disability benefits are also payable under the SERP under certain circumstances. If benefits are payable prior to age 62 for Mr. Scarborough and age 65 for Mr. O’Bryant, they are subject to a reduction for early commencement.

Defined Contribution Retirement Plan

The Employee Savings Plan (“401(k) Plan”) is a tax-qualified retirement savings plan that permits employees to defer up to 25% of their annual salary and bonus or, if lower, the limit prescribed by the Internal Revenue Service, to the 401(k) Plan on a before-tax basis. The employees’ elective deferrals are immediately vested upon contribution to the 401(k) Plan. The Company currently makes matching contributions to the 401(k) Plan in an amount equal to fifty cents for each dollar a participant contributes up to a maximum of 6% of the participant’s annual salary and bonus contributed, subject to certain other Code limits. After three years of service, participants vest in the amounts contributed by the Company. Employees of the Company are immediately eligible to participate in the 401(k) Plan.

Deferred Compensation

All eligible employees, including the NEOs are eligible to defer up to 75% of their base salary and 100% of cash bonuses to the 2005 Executive Variable Deferred Retirement Plan (“EVDRP”), which is a nonqualified plan. Deferrals are 100% vested. This plan provides NEOs and other employees with a long-term capital accumulation opportunity. The EVDRP provides a number of investment opportunities, including fixed income and mutual fund alternatives. Certain NEOs also participated in prior deferred compensation plans that are no longer available for new deferrals.

The Company makes an annual contribution to each NEO’s deferred compensation account equal to 3% of cash compensation (salary and annual bonus) in excess of the 401(k) Plan limit. This contribution is added to their deferred compensation account at the beginning of each plan year as long as the NEO has contributed at least the pre-tax limit into the 401(k) Plan during the prior plan year and is employed by the Company at year end. This benefit is designed to supplement pre-tax 401(k) contributions that are limited for certain executives (by the Code).

Retiree Medical

Retirees, including the NEOs, may be eligible for medical coverage under the Company’s plan until they are eligible for Medicare provided they meet the following criteria: elect to retire immediately following separation from the Company; receive a pension benefit from the Pension Plan; and are age 55 or older with 15 or more years of service. For employees who are at least age 60 and have 20 years of service, the cost for this coverage is shared by the Company and the retiree.

Medical Insurance

All NEOs contribute to, and participate in, medical plans available to employees. In addition, the Company provides each NEO, the NEO’s spouse and dependent children, with supplemental medical coverage, which reimburses the NEOs for medical costs not covered under the basic medical plan. Mr. Scarborough has reimbursement coverage up to $30,000 per year for himself and for each covered family member, and the other NEOs have coverage up to $20,000 per year for themselves and for each covered family member.

Dental Insurance

All NEOs contribute to, and participate in, dental plans available to employees. In addition, the Company provides each NEO, the NEO’s spouse and dependent children, supplemental dental coverage, which reimburses the NEOs for dental costs not covered under the basic dental plan. Mr. Scarborough has reimbursement coverage up to $2,000 per year for himself and for each covered family member, and the other NEOs have coverage up to $1,500 per year for themselves and for each covered family member. This benefit includes orthodontia coverage ($4,000 lifetime maximum) for dependents up to age 19.

Life Insurance

The Company provides $50,000 in life insurance for all employees, including the NEOs. In addition, the Company provides each NEO supplemental life insurance equal to three times the NEO’s base salary less $50,000 (which is covered under the Company’s basic plan) up to a maximum coverage of $700,000.

Perquisites

The Company provides the NEOs with perquisites to attract and retain executives. The Compensation Committee periodically reviews the perquisites provided to the NEOs.

Annual Physical

The NEOs are encouraged to have an annual physical, which is paid for by the Company. The results are confidential between the physician and the NEO.

Car Program

The NEOs are eligible to participate in the executive car allowance program under which the Company provides each NEO with a monthly allowance. The executive is responsible for leasing or purchasing his own vehicle, as well as for paying for all insurance and maintenance costs. The monthly allowances for the NEOs range from $1,700 to $2,500.

Airline Clubs

The NEOs may participate in two airline clubs to use when traveling and the Company reimburses the NEOs for the cost.

Other

The NEOs are entitled to enroll in one health club and the Company reimburses the NEOs for the cost. In addition, certain NEOs are entitled to reimbursement of monthly dues for business and social club memberships.

Financial Counseling

The NEOs are entitled to receive an annual reimbursement amount for financial counseling that ranges from $15,000 to $25,000.

Home Computer

The Company provides each NEO with a home computer and related equipment.

Employment Agreements

On December 3, 2009, the Compensation Committee adopted the Key Executive Change of Control Severance Plan (the “COC Severance Plan”) under which the NEOs and other designated executives are eligible (or will be eligible on January 1, 2011) for severance payments upon termination of employment in connection with a “change of control” of the Company, subject to the terms and conditions in the COC Severance Plan. In the event of a covered termination of employment, a participant designated as a Tier A executive will receive three times the sum of his annual pay, his highest annual bonus received in the preceding three years and the cash value of his qualified medical and dental benefits, and a participant designated as a Tier B executive will receive two times the sum of his annual pay, his highest annual bonus received in the preceding three years and the cash value of his qualified medical and dental benefits. Each participant in the COC Severance Plan will also receive a pro-rata bonus for the year of termination based on the highest annual bonus received by such participant in the preceding three years, as well as outplacement services for up to one year following the termination of employment. In certain circumstances, if a participant would otherwise incur excise taxes under Section

4999 of the Internal Revenue Code of 1986, as amended (the “Code”), such participant’s payments may be reduced to the “safe harbor amount” (as defined in the COC Severance Plan), such that no such excise taxes would be due; participants are not provided with an excise tax gross-up. Payments under the COC Severance Plan are offset by payments received by the participant under any other Company severance plan or agreement and any other statutory, legislative and regulatory requirements.

On December 3, 2009, the Compensation Committee also adopted the Executive Severance Plan (the “Severance Plan”) under which the NEOs and other designated executives are eligible (or will be eligible on January 1, 2011) for severance payments upon termination of employment upon certain involuntary terminations of employment initiated by the Company or any of its affiliates or subsidiaries, subject to the terms and conditions described in the Severance Plan. In the event of a covered termination of employment, a participant designated as a Level 1 executive will receive two times the sum of his annual pay, his highest annual bonus received in the preceding three years and the cash value of his health benefits, and a participant designated as a Level 2, Level 3 or Level 4 executive will receive the sum of his annual pay, his highest annual bonus received in the preceding three years and the cash value of his health benefits. Participants in the Severance Plan will also be eligible for outplacement services for up to one year following termination of employment. Payments under the Severance Plan are offset by payments received by the participant under any statutory, legislative and regulatory requirement or under any other Company severance plan or agreement.

On December 15, 2009, the Company provided a notice to Messrs. Scarborough, O’Bryant, Clyde and Malchione that their individual employment agreements will be terminated on December 31, 2010. As of January 1, 2011, Messrs. Scarborough, O’Bryant, Clyde and Malchione will be eligible to participate in the Change of Control Severance Plan and the Severance Plan. Mr. Scarborough was designated a Tier A participant in the COC Severance Plan and a Level 1 participant in the Severance Plan, and Messrs. O’Bryant, Clyde and Malchione were designated as Tier B participants in the COC Severance Plan and Level 2 participants in the Severance Plan. Mr. Nolan, who did not have an individual employment agreement, was designated a Tier B participant in the COC Severance Plan and a Level 2 participant in the Severance Plan as of January 1, 2010.

On August 1, 1997, the Company entered into an agreement with Mr. Scarborough, which was amended on May 1, 2005, to reflect his promotion to President and CEO, providing that, if his employment is terminated for any reason other than for cause, death, disability, or voluntary resignation without good reason (as such terms are defined in the agreement), he (i) would receive a payment equivalent to a pro-rated annual bonus for the year of termination; (ii) would receive salary and bonus (based on his highest combined annual base salary plus bonus in any of the three previous years) for one year before a change of control and three years after a change of control (“severance period”); (iii) would receive additional retirement and supplemental retirement benefits that would have accrued during the severance period; (iv) would continue to participate in benefit plans (including medical, dental, and life insurance) during the severance period (but reduced to the extent such benefits are provided by another employer); (v) would receive additional age and service credit under a deferred compensation plan following termination during the severance period (or the minimum age and service credit required for early retirement benefits and the retirement interest rate); and (vi) if such termination occurs after a change of control, the Company would pay for outplacement services not to exceed $50,000. Benefits and amounts to which Mr. Scarborough would be entitled under the agreement would be reduced to the extent of any benefits and earned income from any new employment or services performed during the severance period. Mr. Scarborough would receive a gross-up payment for any excise taxes that are imposed under Section 4999 of the Code.

On September 1, 2000, the Company entered into an agreement with Mr. Malchione; on January 2, 2001, the Company entered into an agreement with Mr. O’Bryant; and on January 1, 2002, the Company entered into an agreement with Mr. Clyde. These agreements are substantially the same as Mr. Scarborough’s, including the change of control provisions described above.

On March 31, 2005, the Company entered into a retention agreement with Mr. O’Bryant under which he will remain employed by the Company in his present position and the Company (i) contributed $1 million on April 1, 2005 to Mr. O’Bryant’s deferred compensation account, which contribution (and any earnings thereon) will vest at age 55; (ii) granted to him 30,000 shares of restricted stock, which will vest in two equal installments on April 1, 2009 and August 14, 2012; and (iii) during the period 2005-2011, agreed to grant to him incremental options each year equal to $180,000 divided by the Black-Scholes value of the Company’s stock used at the time of the annual stock option grant, with such options to vest under the same terms as other annual options granted to Mr. O’Bryant. These benefits vest upon death or disability, involuntary (not for cause) termination, good reason termination, or a change of control.

TAX AND ACCOUNTING IMPLICATIONS

Deductibility of Executive Compensation

With its performance-based compensation programs, the Company aims to compensate the NEOs in a manner that is tax effective for the Company.

Under the 1993 Omnibus Budget Reconciliation Act (“OBRA”) and Section 162(m) of the Code, income tax deductions of publicly-traded companies may be limited to the extent total compensation for certain executive officers exceeds $1 million in any one year, except for compensation payments that qualify as “performance-based.” To qualify as “performance-based,” compensation payments must be based solely upon the achievement of objective performance goals and made under a plan that is administered by the Compensation Committee. In addition, the material terms of the plan must be disclosed to and approved by the stockholders and the Compensation Committee must certify that the performance goals were achieved before payments can be made. The Compensation Committee has designed certain of the Company’s compensation programs to conform with Section 162(m) of the Code and related regulations so that total compensation paid to any employee covered by Section 162(m) generally should not exceed $1 million in any one year, except for compensation payments that qualify as “performance-based.” However, the Company may pay compensation that is not deductible in certain circumstances.

Section 409A of the Internal Revenue Code

Section 409A of the Code requires that “nonqualified deferred compensation” be deferred and paid under plans or arrangements that satisfy the requirements of the statute with respect to the timing of deferral elections, timing of payments and certain other matters. Failure to satisfy these requirements can expose employees and other service providers to accelerated income tax liabilities, penalty taxes and interest on their vested compensation under such plans. Accordingly, as a general matter, it is our intention to design and administer our compensation and benefits plans and arrangements for all of our employees and other service providers, including our, NEOs, so that they are either exempt from, or satisfy the requirements of, Section 409A.

Section 280G of the Internal Revenue Code

Section 280G of the Code disallows a tax deduction with respect to excess parachute payments to certain executives of companies which undergo a change in control. In addition, Section 4999 of the Internal Revenue Code imposes a 20 percent penalty on the individual receiving the excess payment. Parachute payments are compensation that is linked to or triggered by a change in control and may include, but are not limited to, bonus payments, severance payments, certain fringe benefits, and payments and acceleration of vesting from long-term incentive plans including stock options and other equity-based compensation. Excess parachute payments are parachute payments that exceed a threshold determined under Section 280G based on the executive’s prior compensation. In approving the compensation arrangements for our NEOs in the future, the Compensation Committee will periodically consider the elements of the cost to our Company of providing such compensation, including the potential impact of Section 280G. However, our Compensation Committee may, in its judgment, authorize compensation arrangements that could give rise to loss of deductibility under Section 280G and the imposition of excise taxes under Section 4999, when the Compensation Committee believes that such arrangements are appropriate to attract and retain executive talent.

Accounting Standards

Accounting Standards Codification (“ASC”) Topic 718, Compensation—Stock Compensation (referred to as ASC Topic 718 and formerly known as Statement of Financial Accounting Standards No. 123(R), requires us to recognize an expense for the fair value of equity-based compensation awards. Grants of stock options, restricted stock, restricted stock units and performance units under our equity incentive award plans will be accounted for under ASC Topic 718. Our Compensation Committee will periodically consider the accounting implications of significant compensation decisions, especially in connection with decisions that relate to our equity incentive award plans and programs. As accounting standards change, we may revise certain programs to appropriately align accounting expenses of our equity awards with our overall executive compensation philosophy and objectives.

COMPENSATION AND EXECUTIVE PERSONNEL COMMITTEE REPORT

The Compensation and Executive Personnel Committee of the Board of Directors has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included or incorporated by reference in the Company’s annual report on Form 10-K and this Proxy Statement.

February 25, 2010

David E.I. Pyott, Chairman
Richard M. Ferry
Debra L. Reed
Julia A. Stewart

The above Report of the Compensation and Executive Personnel Committee of the Board of Directors does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates this Report by reference therein.

(1)	Mr. Nolan became an NEO in 2009; Mr. Clyde became an NEO in 2008.
(2)	Amounts shown include amounts earned and deferred at the election of these officers under the Employee Savings Plan, a qualified defined contribution plan under Section 401(k) of the Code, and the nonqualified deferred compensation plan.
(3)	Amounts paid under the annual bonus plan, which prior to 2006 were reported in the Bonus column, are reported in the Non-Equity Incentive Plan Compensation column.
(4)	Amounts shown do not reflect compensation actually received by the NEOs. Rather, the amounts shown are the aggregate grant date fair value of stock awards granted during 2009, without adjustment for forfeitures. For values actually received by the NEOs during 2009, see the Value Realized on Vesting column in the Option Exercises and Stock Vested for 2009 table. These stock awards granted during 2009 will vest at the end of a three-year cliff period provided that certain performance objectives are achieved. Target amounts are shown in the above table. The payout levels range from 50% of the target amounts for threshold performance and up to 200% of the target amounts for maximum performance. The fair value of stock awards is estimated as of the date of grant using the Monte-Carlo simulation method, which utilizes multiple input variables, including expected volatility and other assumptions to estimate the probability of satisfying the market condition target stipulated in the award.
(5)	Amounts shown do not reflect compensation actually received by the NEOs. Rather, the amounts shown are the aggregate grant date fair value of option awards granted during 2009, without adjustment for forfeitures. For values actually received by the NEOs during 2009, see the Value Realized on Exercise column, in the Option Exercises and Stock Vested for 2009 table.
	These option awards granted during 2009 will vest ratably over a 4-year period. The fair value of stock option awards is estimated as of the date of grant using the Black-Scholes option-pricing model. This model requires input assumptions for expected dividend yield, expected volatility, risk-free interest rate and the expected life of the options. The underlying assumptions used were as follows:

(6)	Amounts in the table include the bonuses earned under the Company’s annual bonus plan in 2009, but paid in 2010.

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(7)	Reflects the increase during 2009 in the actuarial present value of each NEO’s accumulated benefits under the Pension Plan, BRP, and SERP (as applicable), and, with respect to Mr. Scarborough, above-market earnings of $3,421 earned in 2009 based on his participation in a legacy deferred compensation plans (which was frozen prior to 2009 and is no longer open for additional Company or executive contributions). This amount is also reported in the Aggregate Earnings in Last Fiscal Year column of the Nonqualified Deferred Compensation table. Above-market earnings mean a crediting interest rate in excess of 120% of the applicable federal rate (“AFR”). For 2009, the AFR was 5.19%, and the crediting rate was 5.63% for the Executive Deferred Retirement Plan (“EDRP”). The increase in pension value for Mr. Scarborough was primarily because the age at which he can receive an unreduced SERP benefit was changed by the Compensation Committee in 2009 from age 65 to 62, so as to be consistent with the Company’s Pension Plan. In addition, required changes in actuarial assumptions also provided a significant portion of the total increase in pension value.
(8)	The following table describes the components of items for the All Other Compensation column in the Summary Compensation Table.

	(1)	Amounts include fitness, business and social club dues.
	(2)	During 2009, as part of his retention agreement, which is described in the CD&A, Mr. O’Bryant received dividends on his unvested restricted stock in the form of additional restricted stock. On each dividend payment date, additional shares of restricted stock are credited to Mr. O’Bryant’s account. The number of shares of restricted stock to be credited is determined by dividing the dividend that would have been paid on the shares represented by the restricted stock in his account by the closing price of the Company’s common stock on the NYSE on each dividend payment date. During 2009, 1,138 shares of restricted stock were credited to his account as a result of these dividends.

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(1)

These amounts represent the annual bonus opportunities (based on market reference data) under the annual bonus plan for 2009, as described in the CD&A. Target bonuses (shown in the table above) were established by multiplying base salary at time of grant by the applicable percentage shown below. Actual amounts earned were determined in February 2010 and paid in March 2010, and are included in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table.

	Payout levels range from 50% of the target amounts for threshold performance to 300% of the target amounts for maximum performance. Actual payouts were determined by the Compensation Committee in February 2010, and are included in the Summary Compensation Table in the Non-Equity Incentive Plan Compensation column.
(2)	These payout opportunities represent PUs awarded under the 2009-2011 MTIP cycle. These PUs are settled in shares of Company common stock at the end of a three-year performance period, provided that certain performance objectives are achieved at the end of the performance period. Payout levels range from 50% of the target units for threshold performance and up to 200% of the target units for maximum performance.

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