UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

 

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

Exchange Act of 1934

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

o  Preliminary Proxy Statement

o  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

þ  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to § 240.14a-12

 

Sanderson Farms, Inc.

(Name of Registrant as Specified in its Charter)

 

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

 

PAYMENT OF FILING FEE (Check the appropriate box):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 14, 2011

Dear Stockholder:

     The 2011 annual meeting of stockholders of the Company will be held in the Multi-Purpose Room of the Company’s General Corporate Offices in Laurel, Mississippi, at 10:00 AM on Thursday, February 17, 2011. The purposes of the annual meeting are set forth in the accompanying Notice and Proxy Statement.

     The 2010 Annual Report, which is enclosed, contains financial and other information concerning the Company and its business for the fiscal year ended October 31, 2010. The Annual Report is not to be considered part of the proxy solicitation materials.

     We cordially invite you to attend the annual meeting. If you cannot attend, please complete and return the enclosed proxy using one of the voting methods described in the enclosed materials so that your vote can be recorded.

SANDERSON FARMS, INC.
P.O. Box 988
Laurel, Mississippi 39441

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TIME AND DATE		10:00 AM (local time) on Thursday, February 17, 2011
PLACE		The Multi-Purpose Room of the Company’s General Corporate Offices, 127 Flynt Road, Laurel, Mississippi 39443
ITEMS OF BUSINESS		(1) To elect Class A Directors to serve until the 2014 annual meeting;
		(2) To approve the Sanderson Farms, Inc. and Affiliates Amended and Restated Stock Incentive Plan;
		(3) To approve, in a non-binding advisory vote, the compensation of the Company’s Named Executive Officers;
		(4) To determine, in a non-binding advisory vote, the frequency with which the Company should hold future non-binding, advisory votes on executive compensation like Item 3, above;
		(5) To consider and act upon a proposal to ratify and approve the selection of Ernst & Young LLP as the Company’s independent auditors for the fiscal year ending October 31, 2011; and
		(6) To transact such other business as may properly come before the meeting or any adjournment.
RECORD DATE		You can vote if you are, or if a nominee through which you hold shares is, a stockholder of record on December 28, 2010.
ANNUAL REPORT AND PROXY STATEMENT		Our 2010 Annual Report, which is not a part of the proxy solicitation material, is enclosed. Details of the business to be transacted at the annual meeting are more fully described in the accompanying Proxy Statement.
PROXY VOTING		It is important that your shares be represented and voted at the meeting. You can vote your shares by completing and returning the proxy card sent to you. Most stockholders also have the options of voting their shares on the Internet or by telephone. If Internet or telephone voting is available to you, voting instructions are printed on your proxy card included with your proxy materials. You can revoke your proxy before it is voted at the meeting by following the instructions in the accompanying Proxy Statement.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON FEBRUARY 17, 2011

The Notice of Annual Meeting of Stockholders, the Proxy Statement, and our 2010 Annual Report are also available on-line at:

www.sandersonfarms.com/proxy

TABLE OF CONTENTS

PROXY STATEMENT			1
PROPOSAL NO. 1 — ELECTION OF DIRECTORS			3
Nominees for Class A Directors			3
Directors Continuing in Office			5
Board Qualifications and Biographical Information			5
Corporate Governance			8
EXECUTIVE COMPENSATION			14
Compensation Discussion and Analysis			14
Tables:
2010 Bonus Award Opportunities			20
2010 Bonus Awards — EPS Component			21
2010 Bonus Awards — Operational Performance Component			22
2010 Bonus Award Payments			22
2010 Performance Share Criteria			24
2011 Performance Share Criteria			25
Performance Shares Earned			26
2010 Health Benefits			27
Stock Ownership Guidelines			29
Discretionary Restricted Stock Grant			31
Fiscal 2011 Compensation Actions			32
Director Cash Fees			33
Summary Compensation Table			34
All Other Compensation			35
Grants of Plan-Based Awards Fiscal Year 2010			36
Outstanding Equity Awards at Fiscal 2010 Year-End			39
Option Exercises and Stock Vested Fiscal Year 2010			41
Potential Payments — Change-in-Control			43
Potential Payments — Termination Without Cause or for Good Reason			44
Potential Payments — Retirement			44
Potential Payments — Disability			44
Potential Payments — Death			45
Director Compensation — Fiscal Year 2010			45
Compensation and Risk Management			47
PROPOSAL NO. 2 — SANDERSON FARMS, INC. AND AFFILIATES AMENDED AND RESTATED STOCK INCENTIVE PLAN			48
PROPOSAL NO. 3 — ADVISORY VOTE ON EXECUTIVE COMPENSATION			61
PROPOSAL NO. 4 — ADVISORY VOTE ON FREQUENCY OF EXECUTIVE COMPENSATION VOTE			62
PROPOSAL NO. 5 — INDEPENDENT AUDITORS			63
OTHER MATTERS			64
STOCKHOLDER PROPOSALS			64
METHODS AND COST OF SOLICITING PROXIES			65
ADDITIONAL INFORMATION AVAILABLE			65

PROXY STATEMENT

General

     Our Board of Directors is soliciting the enclosed proxy in connection with our 2011 annual meeting of stockholders to be held on February 17, 2011, as well as in connection with any adjournments of that meeting. Our post office address is Sanderson Farms, Inc., P. O. Box 988, Laurel, Mississippi 39441. These materials are being mailed to stockholders and posted on-line at www.sandersonfarms.com/proxy on or about January 14, 2011.

     Even if you submit a proxy, you may still attend the annual meeting in person, and you may revoke your proxy by voting in person at the meeting. You may also revoke your proxy before it is voted at the meeting in any of the following ways:

	•		by filing with our Corporate Secretary a written notice of revocation;
	•		by submitting to our Corporate Secretary a properly completed and signed proxy dated a later date; or
	•		by re-voting by Internet or by telephone before 11:59 PM on February 16, 2011 using the instructions contained in the enclosed materials, if telephone or Internet voting is available to you.

     Unless you revoke your proxy, it will be voted at the meeting according to your instructions, as long as you have properly completed and submitted it to us.

     If you properly complete and submit a proxy but you do not specify how your proxy should be voted, then:

•

the proxy will be voted FOR the following proposals:

Proposal No.		Description
1.		The election of the nominees for Class A Director set forth in this Proxy Statement;
2.		The approval of the Sanderson Farms, Inc. and Affiliates Amended and Restated Stock Incentive Plan;
3.		The approval of the compensation of the Company’s Named Executive Officers in a non-binding advisory vote; and
5.		The ratification and approval of Ernst &Young LLP as the Company’s independent auditors for the fiscal year ending October 31, 2011; and

•

the proxy will be voted on Proposal No. 4 to hold future non-binding, advisory votes on executive compensation, like Proposal No. 3 above, every THREE years.

     The Proxyholders named on the enclosed proxy card will vote all proxies in their discretion on all other matters that may properly come before the meeting. As of the date of this Proxy Statement, we have not received notice and we are not aware of any business to be transacted at the meeting other than the matters that are listed in the notice and described in this Proxy Statement.

     If you hold shares of our common stock in your broker’s name (sometimes called “street name” or “nominee name”), then you must provide voting instructions to your broker. If you do not provide instructions to your broker, your shares will not be voted on any matter on which your broker does not have discretionary authority to vote for you. Under federal law, your broker does not have the discretion to vote your shares in the election of directors or in matters relating to executive compensation. Therefore, if you do not give voting instructions to your broker, your shares will not be voted in Proposals 1, 2, 3 and 4. A vote that is not cast for this reason is called a “broker non-vote.” We will treat broker non-votes as shares present for the purpose of determining whether a quorum is present at the meeting, but we will not consider them present for purposes of calculating the vote required on a particular proposal, nor will we count them as a vote FOR or AGAINST a matter or as an ABSTENTION on the proposal.

     We are paying the cost of soliciting the proxies.

     Our 2010 Annual Report accompanies this Proxy Statement, but is not to be considered a part of the proxy solicitation material. The record date for the annual meeting is December 28, 2010.

Capital Stock

     Our authorized capital stock consists of 5,000,000 shares of non-voting preferred stock, of which 500,000 shares have been designated Series A Junior Participating Preferred Stock, par value $100.00 per share, none of which shares have been issued, and 100,000,000 shares of voting common stock, par value $1.00 per share, of which 22,673,410 shares were outstanding and entitled to vote as of December 28, 2010, the record date for the annual meeting. Only stockholders of record at the close of business on such date are entitled to notice of and to vote at the annual meeting. Each such stockholder is entitled to one vote for each share of common stock held at that date.

Beneficial Ownership

     The following table sets forth information, as of January 5, 2011, concerning (a) the only stockholders known by us to own beneficially more than 5% of our outstanding common stock, which is our only class of voting securities outstanding, (b) the beneficial ownership of common stock of our executive officers named in the “Summary Compensation Table” below, and (c) the beneficial ownership of common stock by all of our directors and executive officers as a group. On January 5, 2011, there were 22,678,591 shares of our common stock outstanding and entitled to vote.

		Amount
		Beneficially								Percent
Beneficial Owner(s) and Address		Owned (1)								of Class
Trustmark National Bank (2)			1,838,599		shares						8.11	%
Joe F. Sanderson, Jr. (3)			1,088,341		shares						4.80	%
Lampkin Butts (4)			115,243		shares							(9)
Mike Cockrell (5)			60,190		shares							(9)
James A. Grimes (6)			28,754		shares							(9)
BlackRock, Inc. (7)			1,441,864		shares						6.36	%
Royce & Associates, LLC (7)			3,051,849		shares						13.46	%
All directors and executive officers as a group (15 persons) (8)			1,494,423		shares						6.59	%

PROPOSAL NO. 1

ELECTION OF DIRECTORS

     Our amended Articles of Incorporation provide that our Board of Directors shall be divided into three classes (Class A, Class B and Class C), with each class containing one-third, or as close to one-third as possible, of the total number of directors, and that the total number of directors shall be fixed by the Board of Directors in the By-Laws. The Board of Directors has fixed the number of directors at fifteen, resulting in there being five director positions in each class. One Class B director position is currently vacant. At each annual meeting of stockholders, directors constituting one class are elected for a three-year term. At the 2011 annual meeting, stockholders will elect five Class A Directors, whose terms will expire at the 2014 annual meeting.

     The address of each director is Post Office Box 988, Laurel, Mississippi 39441.

Nominees for Class A Directors

     The Board of Directors proposes for election as Class A Directors the five nominees listed below, each to serve as a Class A Director until the 2014 annual meeting or until his or her successor is elected and has qualified. Any vacancy on the Board of Directors may be filled either by the Board of Directors or by the stockholders, and the term of any director elected to fill a vacancy will expire at the next stockholders’ meeting at which directors are elected.

     You may vote proxies in the enclosed form for the election as Class A Directors only the nominees named below or substitute nominees who may be named by the Board of Directors to replace any of the nominees who become unavailable to serve for any reason. No such unavailability is presently known to the Board of Directors. There are no arrangements or understandings relating to any person’s service or prospective service as a Class A Director of the Company. No person listed below will be elected as a Class A Director unless such person receives the affirmative vote of the holders of a majority of the shares entitled to vote and represented (whether in person or by proxy) at the annual meeting at which a quorum is present. If more persons than the number of directors to be elected receive a majority vote, then those persons receiving the highest number of votes will be elected. The Proxyholders named in the accompanying proxy card will vote FOR the nominees listed below (or substitutes as stated above) unless otherwise directed in the proxy. Abstentions by holders of shares entitled to vote and represented at the meeting will be counted as shares present but not voting for the purposes of calculating the vote with respect to the election of Class A Directors. Broker non-votes will be treated as not present for purposes of calculating the vote with respect to the election of the Class A Directors, and will not be counted either as a vote FOR or AGAINST or as an ABSTENTION with respect thereto.

     The following table lists the nominees for Class A Directors and shows, as of January 5, 2011, their respective beneficial ownership of common stock of the Company.

										Shares
						Director				Beneficially				Percent
Nominees for Class A Director		Age				Since				Owned (1)				Of Class
Class A (Term expiring in 2014)
Lampkin Butts (2)			59				1998				115,243					(6)
Beverly Hogan (3)			59				2004				13,627					(6)
Phil K. Livingston (3)(4)			67				1989				25,150					(6)
Charles W. Ritter, Jr. (3)			73				1988				34,605					(6)
Joe F. Sanderson, Jr. (5)			63				1984				1,088,341				4.80	%

     The Board of Directors recommends a vote FOR the election of Lampkin Butts, Beverly Hogan, Phil K. Livingston, Charles W. Ritter, Jr. and Joe F. Sanderson, Jr.

Directors Continuing in Office

     The following tables list the Class B and Class C Directors of the Company, whose terms expire at the 2012 and 2013 annual meetings, respectively, and show, as of January 5, 2011, the beneficial ownership of common stock by each of them.

										Shares
						Director				Beneficially				Percent
Name of Continuing Director		Age				Since				Owned (1)				Of Class
Class B (Term expiring in 2012)
John H. Baker, III (2)			69				1994				49,590					(4)
John Bierbusse (2)			55				2006				9,264					(4)
Mike Cockrell (3)			53				1998				60,190					(4)
Rowan H. Taylor (2)			86				1989				18,981					(4)
Class C (Term expiring in 2013)
Fred Banks, Jr. (2)			68				2007				13,191					(4)
Toni D. Cooley (2)			50				2007				10,267					(4)
Robert C. Khayat (2)			72				2007				9,671					(4)
Dianne Mooney (2)			67				2007				9,824					(4)
Gail Jones Pittman (2)			57				2002				7,725					(4)

Board Qualifications and Biographical Information

     As discussed more fully below under “Corporate Governance — Nominating and Governance Committee,” we have sought director candidates with a diverse range of business, personal and geographic backgrounds, and the experience and perspective necessary to effectively oversee a multi-state operation of our size and type.

     The following paragraphs identify the principal occupations of all continuing directors and nominees for director. We have also included the specific experience, qualifications, attributes or skills that led to the conclusion that the person should serve as a director in light of our business and structure. Except as otherwise indicated, each director has served for at least five years in the position shown.

     John H. Baker, III is a native of Meridian, Mississippi and has been the sole proprietor of John H. Baker Interests, a real estate and development company in Houston, Texas, since 1968.

     The Board believes Mr. Baker should serve as a director because of his extensive experience and contacts with both the Mississippi and Texas business communities, where a significant portion of our operations are located. Additionally, Mr. Baker is a successful entrepreneur who founded and has successfully grown and operated his own business. Mr. Baker has also been active in Mississippi and Texas state politics.

     Fred Banks, Jr. has been a partner in the General Litigation Group in the Jackson, Mississippi office of the law firm of Phelps Dunbar LLP since 2001. Since 2008, he has been a non-equity senior partner with that firm. From 1991 to 2001, he was a Justice of the Mississippi Supreme Court, and at the time of his retirement from the court in 2001, he was serving as Presiding Justice. Before serving on the Mississippi Supreme Court, Mr. Banks served as a Circuit Court Judge in Hinds and Yazoo Counties, Mississippi for six years. From 1976 until 1985, he served in the Mississippi House of Representatives.

     The Board believes Mr. Banks should serve as a director because of extensive experience in law, both in the areas of business transactions and litigation, and because of his perspective on the legal landscape in Mississippi. Mr. Banks’ knowledge of Mississippi’s corporate law under which the company is organized eminently qualifies him to serve as chair of the Board’s Nominating and Governance committee. Mr. Banks has extensive contacts in Mississippi’s legal and business communities, and is a visionary leader in numerous civic and philanthropic organizations.

     John Bierbusse was employed by Duff and Phelps, Inc. from 1981 to 1987, and by A.G. Edwards from 1987 to 2004. Mr. Bierbusse served as Assistant Manager, Securities Research between 1999 and 2002 at A.G. Edwards, and as Manager, Research Administration from 2002 until his retirement in 2004. Mr. Bierbusse served on the New York Stock Exchange’s Series 16 Test Committee from 2002 to 2007 and on the New York Stock Exchange’s Research Analyst Qualification Examination Committee from 2003 to 2007. Mr. Bierbusse has been a Chartered Financial Analyst since 1987, and is currently retired.

     The Board believes Mr. Bierbusse should serve as a director because of his experience as a financial analyst, particularly in the protein industry. He has extensive knowledge of the dynamics of poultry companies and the impact of grain markets and other external factors on the industry.

     Lampkin Butts served from 1996 to 2004 as Vice President-Sales for the Company. On October 21, 2004, Mr. Butts was elected President and Chief Operating Officer of the Company. He began his career with our Company in 1973. Mr. Butts is a member of the Company’s Executive Committee, which is a management committee, not a committee of directors.

     The Board believes Mr. Butts should serve as a director because of his role as one of the top three executives in our Company and the extensive experience and insight he has gained from his 37-year tenure at Sanderson Farms. Mr. Butts’ experience in most every aspect of our operations, including processing and sales, and his knowledge of our operations, contribute significantly to the Board. Mr. Butts has served in management capacities in every facet of our business, and that broad perspective is valuable to the Board.

     Mike Cockrell has served, since 1993, as Treasurer and Chief Financial Officer for the Company. Before joining us, Mr. Cockrell was a shareholder and member of the law firm Wise Carter Child & Caraway, Professional Association, of Jackson, Mississippi. He is also a certified public accountant and was employed in the audit division of a public accounting firm from 1979 to 1980. Mr. Cockrell is a member of the Company’s Executive Committee, which is a management committee, not a committee of directors.

     The Board believes Mr. Cockrell should serve as a director because of his role as one of our top three executives and his 17 years of experience as the CFO of our Company. In addition, Mr. Cockrell oversees or has a key role in many aspects of our operations and administration that are not typical for chief financial officers of public companies, including investor relations, our grain purchasing strategy, legal affairs and risk management. As a result, he contributes a broad perspective on our operations to the Board process.

     Toni D. Cooley founded and has been president of Systems Electro Coating, LLC, a tier one supplier to Nissan of electro coated frames and other vehicle components, since 2001. She has also served as president of Systems Consultants Associates, Inc., a management training and consulting firm established with the express purpose of assisting Jackson, Mississippi-based minority firms with capacity building, since 1993. Ms. Cooley is also co-owner of Systems IT, Inc., a new horizon computer learning center in Jackson, Mississippi. From 1992 to 1993, Ms. Cooley worked as an International Contract Administrator for the international sales team of the former Turner Broadcasting Systems. She is a director of Trustmark National Bank.

     The Board believes Ms. Cooley should serve as a director because of her experience founding and significantly growing Systems Electro Coating in a very short period of time, as well as her experience in executive management. Her experience leading one of Mississippi’s largest minority owned businesses provides to the Board a unique perspective on boardroom matters. Ms. Cooley’s active involvement in the Mississippi business community has also been advantageous to the Board process.

     Beverly Wade Hogan has served, since May 2002, as President of Tougaloo College in Jackson, Mississippi, a private, historically African-American, liberal arts college. Before becoming President of Tougaloo College, Ms. Hogan served for one year as Interim President. Before that, she served for ten years as a Commissioner for the Mississippi Workers Compensation Commission.

     The Board believes that Ms. Hogan should serve as a director because of her 25-year plus career in executive leadership, management and administration, and her experience and perspective on employment and training issues. In addition, the Board has benefitted from the experience and insight Ms. Hogan has gained from her active involvement in local, state and national civic affairs, and her work pioneering numerous Mississippi community programs.

     Robert C. Khayat served as the Chancellor of the University of Mississippi from July 1995 until his retirement in July 2009. Before that, he served the university in various capacities, including as professor of law at the University of Mississippi School of Law from 1982 to 1995. Mr. Khayat served on the Board of Directors of Mississippi Power Company, a subsidiary of The Southern Company, and Mississippi Valley Title Insurance Company, until his retirement from both boards in 2009.

     The Board believes Mr. Khayat should serve as a director because of his immense skill and experience as head of the University of Mississippi. During his 14-year tenure, he led a major transformation of the university that resulted in higher academic standards, tripled African-American enrollment, significantly higher private financial support and recognition of the university by many independent organizations as one of the country’s leading public universities. Among countless other accomplishments, his efforts to “re-brand” Ole Miss culminated in unprecedented national attention from its successful bid, led by Mr. Khayat, to host the first 2008 U.S. presidential debate.

     Phil K. Livingston served as President and Chief Executive Officer of Citizens National Bancshares, Inc. in Hammond, Louisiana, from its organization in 1983, until its merger into Deposit Guaranty Corporation on May 19, 1995. Mr. Livingston retired in 1998, but continued to serve as a banking consultant to AmSouth Corporation following his retirement until 2001.

     The Board believes Mr. Livingston should serve as a director because of his extensive experience as a banking executive, in particular his experience in growing and selling one community bank, his involvement with several bank acquisitions and his involvement in the Louisiana and Mississippi business communities, where a large part of our operations are located. The Board has also benefitted from his experience with executive compensation matters and past work with compensation consultants.

     Dianne Mooney founded and served as Executive Director and Senior Vice President of Southern Living at Home, a direct sales division of Southern Progress Corporation, from 1999 until her retirement in 2007. Ms. Mooney was directly responsible for the launch and record growth of this $200 million division. Before that time, she was an employee of Southern Progress Corporation for over thirty years in various positions, including Vice President of Business Development and Vice President of Custom Publishing. Southern Progress Corporation is a division of Time, Inc.

     The Board believes Ms. Mooney should serve as a director because of her vast experience in brand management and corporate growth at Southern Progress, as well as in marketing, market research, international sourcing, and new product development. In addition, Ms. Mooney brings to the Board significant experience in crisis and risk management.

     Gail Jones Pittman has served, since its founding in 1979, as Chief Executive Officer of Gail Pittman, Inc., an entrepreneurial business creating individually hand-painted, semi-vitreous china dinnerware and home accessories. It is located in Ridgeland, Mississippi.

     The Board believes that Ms. Pittman should serve as a director because of her success, skill, experience and perspective as a successful entrepreneur. Ms. Pittman is recognized by many as Mississippi’s preeminent female business executive, and one of the South’s most noted philanthropists. Her active involvement in the Mississippi business community brings a valuable perspective to the Board.

     Charles W. Ritter, Jr. served, from 1967 to 2002, as President and a Director of the Attala Company, which is principally engaged in the business of milling and selling feed and corn meal. He now serves as a management consultant to the Attala Company. He has also served as President of JRS, Inc., a family owned real estate investment firm, since 1973. Mr. Ritter is a director of First M & F Corp. and Merchants & Farmers Bank, Kosciusko, Mississippi, and chairs the audit committee of First M & F Corp.’s Board of Directors. First M & F Corp. has a class of securities registered with the Securities and Exchange Commission.

     The Board believes Mr. Ritter should serve as a director because of his experience in and knowledge of both the banking and grain industries. He is our longest serving outside director. Mr. Ritter contributes a broad business perspective to the Board of Directors as well as a long-term perspective on the evolution of our Company from a family business to a large, publicly held corporation. He knew personally the founders of our Company and brings an understanding of their long-term vision and core values to the Board table.

     Joe F. Sanderson, Jr. served as President of the Company from November 1, 1989 to October 21, 2004, and has served as Chief Executive Officer since November 1, 1989 and as Chairman of the Board of Directors since January 8, 1998. Mr. Sanderson continues to serve as Chief Executive Officer and Chairman of the Board of Directors. Before his tenure as an executive officer of the Company, he was continuously employed by Sanderson Farms in numerous positions starting in 1969. Mr. Sanderson is a member of the Company’s Executive Committee, which is a management committee, not a committee of directors. Mr. Sanderson’s father, Joe Frank Sanderson, was one of the founders of our Company.

     The Board believes Mr. Sanderson should serve as a director because of his outstanding leadership of our Company since 1989. Under his tenure, our Company has experienced tremendous growth, including growth in annual revenues from $184 million in 1989 to almost $2 billion in 2010, and in earnings per share from $0.68 in 1989 to $6.07 in 2010, and has opened five new plants. Mr. Sanderson is primarily responsible for the overall operation and strategic vision of our business, and as a result makes an invaluable contribution to the Board process.

     Rowan H. Taylor served as President of Mississippi Valley Title Insurance Company from 1975 until 1989, and as Chairman of the Board and Chief Executive Officer of that company from 1989 until 1992. Until December 1, 2001, Mr. Taylor served as counsel to the Jackson, Mississippi law firm of Alston & Jones. Mr. Taylor served as an advisory director of Trustmark Corporation and Trustmark National Bank located in Jackson, Mississippi until his retirement from such position in 1995, and served as counsel for First American Title Insurance Company of Santa Ana, California until his retirement in 2002.

     The Board believes Mr. Taylor should serve as a director because of his successful business career, his legal background and his active involvement and contacts in the Mississippi business community, which has been particularly helpful to the Board in identifying past director candidates. Mr. Taylor is also actively involved in Mississippi’s civic, education and political communities, and brings to the Board table an institutional knowledge and deep understanding of the Company’s history, its growth and its core values and principles.

Corporate Governance

     Director Independence

     Our Board of Directors has determined that the following directors are “independent” under the listing standards of The Nasdaq Stock Market: Ms. Cooley, Ms. Hogan, Ms. Mooney, Ms. Pittman, and Messrs. Baker, Banks, Khayat, Livingston, Ritter and Taylor.

     Leadership Structure

     Currently, Joe F. Sanderson, Jr. serves as both our Chief Executive Officer and the Chairman of the Board of Directors. The Board believes that Mr. Sanderson is best qualified to hold each of those positions and that it is in our stockholders’ best interest that he do so because of his role overseeing all aspects of our operations, his 42 years of experience with our Company and his long-term vision for our strategic plan.

     Our By-Laws provide that if at any time the Chairman of the Board is also an officer of the Company, the independent directors must appoint a Lead Independent Director. The Lead Independent Director must be “independent” under the rules of The Nasdaq Stock Market and is appointed by the other independent directors for a one-year term. He or she is responsible for:

	•		presiding at all meetings of the Board of Directors at which the Chairman of the Board is not present, including executive sessions of the independent directors;
	•		serving as a liaison between the Chairman of the Board and the independent directors;
	•		approving information sent to the Board of Directors in preparation for meetings of the Board of Directors;
	•		approving agendas for meetings of the Board of Directors and meeting schedules to ensure that there is sufficient time for discussion of all agenda items; and
	•		being available for communications with our stockholders.

          The Lead Independent Director also has the authority to call meetings of the independent directors.

          The independent directors have appointed Phil K. Livingston as the Company’s Lead Independent Director.

     The Board of Directors believes that its leadership structure is appropriate because it strikes an effective balance between management and independent director participation in the Board process. The Lead Independent Director role helps to ensure greater communication between management and the independent directors. It also increases the independent directors’ understanding of management decisions and Company operations and provides an additional layer of independent oversight of the Company.

     Risk Oversight

     The Board takes very seriously its oversight role in the Company’s risk management. The Company’s senior management committee, called the Executive Committee, is primarily responsible for managing the day-to-day risks of the Company’s business, and is best equipped to assess and manage those risks. The Board receives reports on the Company’s exposure to risk and its risk management practices from the senior managers of the Company’s major divisions, including reports on the Company’s biosecurity program, growth plans, information technology safeguards, financial and accounting controls and security measures, grain purchasing strategy, environmental compliance, human resources, legal matters and customer and product mix, among other things. The Board regularly receives updates about and reassesses the management of these risks throughout the year. In addition, the Board reviews the Company’s risk disclosures in its draft periodic reports before they are filed and has the opportunity to question management about those risks. The Board is confident that the CEO, as the head of the Company’s Executive Committee, will promptly report new material risks or material changes in the Company’s risk profile to the Board. The Board also feels that, together with the CEO, it has cultivated a corporate culture and board leadership structure in which managers who report to the CEO and the other top officers of the Company have access to the Lead Independent Director and the other independent directors, and can communicate freely and candidly about risks to the Company.

     Board Meetings and Committees of the Board

     During our 2010 fiscal year, the Board of Directors held nine meetings, four of which were telephonic meetings. The Board of Directors strongly encourages all directors to attend the Company’s annual meetings of stockholders, and all directors attended the 2010 annual meeting. The Board of Directors has appointed three standing committees: the Audit Committee, the Compensation Committee and the Nominating and Governance Committee. Each member of these committees is “independent” under the listing standards of The Nasdaq Stock Market. Every incumbent director attended at least 75% of the total of (i) all of the Board of Directors meetings held during the period for which he or she was a director and (ii) all of the meetings held by the committees of the Board on which he or she served (during the period in which he or she served).

     The current charter of each committee of the Board of Directors is available in the “Investor Relations” section of our website at www.sandersonfarms.com.

     Nominating and Governance Committee

     The members of the Nominating and Governance Committee are Ms. Hogan and Ms. Mooney (Vice Chair) and Messrs. Banks (Chair), Livingston, Ritter and Taylor. The committee considers all director candidates recommended for election to the Board of Directors. It also recommends all compensation paid to our non-employee directors, leads the Board in its annual self-evaluation and from time to time makes recommendations concerning our corporate governance policies. In fiscal 2010, the Committee held three meetings.

     As noted above, the Nominating and Governance Committee considers potential nominees for director proposed by its members, members of the Board of Directors, our stockholders or management. Stockholders who are not also members of our Board of Directors or management should submit notice of their proposed nominees for director in writing to the Nominating and Governance Committee at the Company’s general offices. That address is Post Office Box 988, Laurel, Mississippi 39441.

     Stockholders should include the following information in their written notice:

	•		The stockholder’s name and address;
	•		A representation that the stockholder is a holder of record or a beneficial owner (in which case evidence of such beneficial ownership must be submitted if requested by the Nominating and Governance Committee) of shares of the Company’s common stock as of the date of the notice;
	•		The name, age, business and residence addresses, and principal occupation and experience of each proposed nominee;
	•		Such other information regarding each proposed nominee that the stockholder wishes the Nominating and Governance Committee to consider;
	•		The consent of each proposed nominee to serve as director of the Company if elected; and
	•		A representation signed by each proposed nominee that states that such proposed nominee meets all of the qualifications set forth in Article IV of our By-Laws, which requires that directors must be at least 21 years old and citizens of the United States.

     Persons wishing to propose nominees for consideration at our annual meeting of stockholders must submit notice of their proposed nominee to the Nominating and Governance Committee no later than September 15 of the year prior to the annual meeting.

     Anyone proposing nominees to the Nominating and Governance Committee should consider the minimum qualifications, skills and qualities that the Nominating and Governance Committee believes are necessary for a director of the Company, as follows:

	•		significant business experience in production, preferably related to agriculture, or in marketing, finance, accounting or other professional disciplines;
	•		prominence and a highly respected reputation in his or her profession;
	•		a global business and social perspective;
	•		a proven record of honest and ethical conduct, personal integrity and good judgment;
	•		a commitment to congeniality with and mutual respect for other members of the Board and management;
	•		concern for the long-term interests of our stockholders; and
	•		significant time available to devote to Board activities and to enhance his or her knowledge of our industry.

     To date, the Board has ensured that these minimum qualifications were met by recommending to our stockholders only nominees whom our incumbent directors knew personally. In this way, the Board has had the benefit of reliable, first-hand reports about the nominees’ personal integrity and reputation.

     Although the Board does not have a formal policy on diversity with respect to the Board, it has worked hard to indentify director candidates who represent a diverse range of personal and business backgrounds. The Board has identified such persons through directors’ personal contacts in the local business communities where we operate. Board members currently reflect racial and gender diversity and our directors have worked in a variety of fields including finance, banking, law, higher education, heavy industry, agriculture, publishing and brand management. The Board has also endeavored to indentify directors from the various communities in which our operations are located, including Mississippi, Louisiana and Texas. When searching for candidates for future Board positions, the Nominating and Governance Committee may focus its attention on candidates from Georgia and North Carolina, where our newer plants are located.

     The Nominating and Governance Committee annually assesses its effectiveness at composing a diverse and qualified group of directors through an anonymous self-evaluation process. The full Board also has the opportunity to comment anonymously on the size and composition of the Board.

     The Nominating and Governance Committee may interview candidates for nomination for election as director who are not incumbent directors. The Nominating and Governance Committee may elect to invite members of our management to participate in the interviews. When all interviews are complete, the Nominating and Governance Committee votes to determine a slate of nominees to be submitted to the Board of Directors. The Nominating and Governance Committee uses the same process to evaluate potential nominees proposed by stockholders as it uses to evaluate any other potential nominee.

     Nothing in the committee’s polices will prevent a stockholder from nominating persons for election as directors from the floor at any annual or special meeting of stockholders called for that purpose by following the advance notification procedures set forth in Article III of our By-Laws. These procedures are described under “STOCKHOLDER PROPOSALS, Procedure” in this Proxy Statement.

     Audit Committee

     The Audit Committee is established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The members of the Audit Committee are Ms. Pittman and Ms. Mooney and Messrs. Baker (Vice Chair), Khayat, Livingston, and Ritter (Chair). The committee, among other things, appoints or replaces the independent auditors, reviews the scope of the independent auditors’ audit, reviews our major accounting and financial reporting policies, practices and systems for compliance with applicable statutes and regulations, and reviews our internal auditing functions. The Audit Committee held nine meetings during fiscal 2010, five of which were telephonic meetings.

Audit Committee Report

     To the extent provided by Instruction 1 to Item 407(d) of Regulation S-K of the Securities and Exchange Commission (SEC), this section shall not be deemed to be proxy “soliciting material” or to be “filed” with the SEC or subject to its proxy regulations or to the liabilities imposed by Section 18 of the Exchange Act.

     The Audit Committee has reviewed and discussed the audited financial statements with management, and the Audit Committee has discussed with the independent auditors the matters required to be discussed by the statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. SAS 61 requires the independent auditor to provide the Audit Committee with information regarding the scope and results of an audit that may assist the Audit Committee in overseeing management’s financial reporting and disclosure process. The Audit Committee has received the written disclosures and the letter from the independent auditors required by applicable requirements of the Public Company Accounting Oversight Board, and has discussed with the independent accountants the independent auditors’ independence. Based on the review and discussions referred to above, the Audit Committee recommended that the audited financial statements for the fiscal year ended October 31, 2010 be included in our Annual Report on Form 10-K for that fiscal year for filing with the SEC.

The Audit Committee:

John H. Baker, III (Vice Chair)
Robert Khayat
Phil K. Livingston
Dianne Mooney
Gail J. Pittman
Charles W. Ritter, Jr. (Chair)

     Compensation Committee; Compensation Committee Interlocks and Insider Participation

     The members of the Compensation Committee are Ms. Cooley, Ms. Hogan, Ms. Pittman (Vice Chair) and Messrs. Baker, Khayat, Livingston (Chair), Ritter and Taylor. The committee determines the philosophy, components, levels and terms of our executive compensation. In fiscal 2010, the Compensation Committee held five meetings, one of which was telephonic.

     The committee’s processes and procedures for the consideration and determination of executive pay, as well as the role of management and outside consultants in that process, are more fully described in the “EXECUTIVE COMPENSATION” section, below.

     The Compensation Committee may form and delegate its authority to subcommittees consisting only of persons who are members of the Compensation Committee.

     During fiscal 2010, none of the members of the Compensation Committee was an officer or employee of the Company and no member of the committee is a former officer of the Company. In addition, during fiscal 2010, none of our executive officers served on the board of directors of any entity whose directors or officers served on our Board of Directors.

     Communications Between Stockholders and the Board of Directors

     The Board of Directors has adopted a formal procedure that stockholders may follow to send communications to the Board of Directors. Stockholders may send communications to the Board by writing to:

Internal Audit Department
Sanderson Farms, Inc.
P. O. Box 988
Laurel, MS 39441-0988

     Stockholders desiring to send a communication to the full Board of Directors should mark the envelope “Attention: Board of Directors.” Envelopes intended for a committee of the Board should be marked to the attention of the particular committee. Stockholders may also communicate with directors who are “independent directors” under the rules of The Nasdaq Stock Market by marking the envelope “Attention: Independent Directors” at the address given above.

     We will forward all communications we receive as addressed on a quarterly basis, unless management determines by individual case that a communication should be forwarded more promptly. However, any stockholder communication concerning employee fraud or accounting matters will be forwarded as addressed, with a copy to the Audit Committee, immediately upon receipt.

     Review and Approval of Certain Transactions

     The Audit Committee’s charter charges it with reviewing on an on-going basis certain transactions between the Company and its directors, officers, major stockholders and certain other persons for conflicts of interest. The types of transactions that are subject to this review are those “related party transactions” that must be disclosed in our proxy statement under the rules of the SEC. The Audit Committee must recommend to a special committee of qualified, independent directors whether or not the transaction should be approved. The special committee may retain independent legal, accounting or other advisors to advise it in this process. During our 2010 fiscal year, there were no transactions between the Company and related persons that required review by the Audit Committee or that required disclosure in this Proxy Statement.

     Section 16(a) Beneficial Ownership Reporting Compliance

     Section 16(a) of the Exchange Act requires our directors, officers and persons who own more than 10% of our outstanding common stock to file with the SEC reports of changes in their ownership of our common stock. Officers, directors and greater than 10% stockholders are also required to furnish us with copies of all forms they file under this regulation. Based solely on a review of written information provided by these persons, our officers, directors and greater than 10% stockholders are in compliance with all Section 16(a) filing requirements, except that Ms. Pittman filed a late Form 4 on August 27, 2010 reporting her sale of 875 shares of common stock on December 9, 2009.

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

     Executive Summary

     This Compensation Discussion and Analysis (CD&A) describes our compensation philosophies, factors considered in developing our compensation packages and the decision-making process followed in setting compensation for our Named Executive Officers during our 2010 fiscal year. It should be read in conjunction with the tables and accompanying narratives that follow. Other than our principal executive officer and principal financial officer, there are only two individuals at our Company who meet the definition of “executive officer” under SEC rules, and therefore our four executive officers are our only “Named Executive Officers” under the SEC’s proxy statement rules. They are:

	•		Joe F. Sanderson, Jr., Chairman of the Board and Chief Executive Officer (CEO);
	•		Lampkin Butts, President and Chief Operating Officer (COO);
	•		Mike Cockrell, Treasurer and Chief Financial Officer (CFO); and
	•		James A. Grimes, Secretary and Controller (Secretary).

     The goal of this CD&A is to describe our executive compensation philosophies and programs with transparency and clarity. Our Compensation Committee met five times during the year and retained Towers Watson as its independent executive compensation consultant. We believe that our executive compensation programs reflect our Company’s pay-for-performance philosophy, assist us in creating long-term value for our stockholders and are effective in retaining and motivating our current executives. Although we generally strive to appoint executives from within our Company, our compensation programs will allow us to attract top management candidates from outside our Company, should the need arise.

     Sanderson Farms has always had a pay-for-performance culture. We expect top performance from our people every year and are willing to pay for that success. Accordingly, a substantial part of the compensation package for each Named Executive Officer is at risk and is only earned if performance so warrants. In addition to base salary, we offer our Named Executive Officers the opportunity to earn an annual bonus if certain performance goals are met, and we also grant long-term incentives to our Named Executive Officers to align their pay with the long-term success of our Company. Our long-term incentives have both a performance-based component, as well as a time-based element to assist us in retaining our management team. We encourage our Named Executive Officers, other members of management and our Board of Directors to follow our stock ownership guidelines. In addition, our executives participate in our Employee Stock Ownership Plan and can elect to participate in our Management Share Purchase Plan, which further aligns them with our stockholders.

     We use a peer group and appropriate published surveys (based on appropriate industry and revenue size comparisons) to set compensation levels. We do not target our compensation levels at any particular point in the range established by data we gather, but we do consider the median of those markets as a general guide, along with a multitude of other factors, in setting our pay opportunity. However, with above-target performance, our Named Executive Officers can earn above-market pay.

     For purposes of our annual bonus award plan, we measure operational performance using Agristats, a private industry benchmarking service that analyzes performance data submitted weekly by a significant majority of the poultry industry, and through earnings per share. Even if we meet the operational and earnings per share targets, executives will not receive payments under the bonus award plan unless we also meet a return on equity threshold. For our long-term performance share plan, we measure performance by return on sales and return on equity, and our stock price also factors into the final amount of the award to the Named Executive Officers.

     In fiscal 2010, we benefitted from favorable market conditions and solid execution in our operations, and earned a record $6.07 in earnings per share for the year. Overall chicken prices were higher during fiscal 2010 than during 2009, our volume of processed chicken was higher than in past years, and our costs for feed grains were lower than in 2009. We paid bonuses under our bonus award plan for 2010 equal to about 83% of the maximum bonus opportunity. We paid bonuses for fiscal 2009 at about 50% of the maximum opportunity.

     Two of our long-term performance share cycles were completed at the end of fiscal 2010. Performance shares granted for our 2008 fiscal year were earned and paid out at near the target level for the return on equity component of those awards. Performance shares granted for our 2009 fiscal year were earned at the maximum level for both the return on sales and the return on equity components, but are subject to an additional one-year vesting period and will be paid out at the end of fiscal 2011. There are two additional long-term performance share cycles currently in place under our long-term performance share plan, and the payouts on those awards, if achieved, will occur at the end of fiscal 2012 and 2013.

     We completed a public offering of 2.3 million shares of our common stock in April 2010. Under the terms of our bonus program, the earnings per share targets used to determine the amount of the bonus awards were automatically adjusted to neutralize the effect of the additional shares. In addition, the Committee determined to neutralize the effect of the offering on our stockholders’ equity when calculating our average return on equity for our fiscal 2008, 2009, 2010 and 2011 performance shares.

     Finally, our CEO, at his request, received no equity awards under the long-term incentive program from its inception through our 2009 fiscal year. The Committee determined, and he agreed, that he again be considered for long-term incentive awards beginning in the 2010 fiscal year.

     Principles and Objectives of the Executive Compensation Program

     The main objectives of our executive compensation programs have been to reward outstanding performance by our executives appropriately and to ensure that management and stockholder interests are closely aligned. The Committee strives to structure compensation packages that create incentives for our executives to maximize stockholder value, rather than to maximize their individual pay. A significant portion of our executive compensation opportunity is related to factors that directly and indirectly influence stockholder value, including stock performance, earnings per share, operational performance, return on sales and return on equity.

     Another significant factor in the Committee’s decisions to make equity-based awards to our executives is stockholder dilution, and the Committee strives to minimize the dilutive effect of those awards on our stockholders. Our Board of Directors has also adopted a share repurchase program under which we may repurchase up to one million shares of our common stock, in part to offset the dilutive effect of our equity compensation plans.

     We believe our executive culture is unique within our industry. Our management team is motivated by a strong “tone from the top” that has fostered our core mission to create returns for our stockholders. We believe our executives should be rewarded fairly for their loyalty to that mission, especially in years when we perform at the top of our industry.

     Management, the Board of Directors and the Compensation Committee recognize that our business is cyclical and seasonal, and often times the level of profitability we achieve is significantly influenced by factors beyond our control. These factors include swings in the market prices for our primary product, fresh chicken, and our two primary input costs, corn and soybean meal. Accordingly, the Compensation Committee believes it is important to measure and reward outstanding performance as much by operational performance relative to our peers as in absolute dollars per share and other typical measuring tools. This concept of placing significant emphasis on operational performance relative to our peers permeates our overall compensation plans and philosophy.

     We expect top-level performance from our management team even during downturns in our industry and during periods of Company expansion. Accordingly, the criteria that the Committee has established for our performance-based awards have been historically very challenging to achieve. Indeed, fiscal 2010 was the first year in which any of our performance shares were earned since the inception of the program in 2005. Nevertheless, even in years for which we have incurred a net loss, our Company has still performed better than most of our peers. The Committee has considered these factors in evaluating our compensation plans and has made adjustments to the plans or discretionary awards, described further below, to take into account our strong performance relative to the industry and our significant Company growth.

     The Committee intends to continue its strategy of employing compensation programs that emphasize performance-based incentive compensation. We have structured our executive compensation packages with an understanding of the cyclical nature of our business, and with a goal to achieve an appropriate balance between our short and long-term performance. We have also tried to balance the focus of our pay elements between our operational performance versus the industry and our financial performance on the one hand, and stockholder return on the other.

     Benchmarking and Competitive Analyses

     The Committee uses information gathered by analyzing the compensation levels and programs of a peer group and, in some cases, composite survey data compiled from companies of appropriate size and industry (although the survey data does not specifically identify contributing companies). The peer group serves as the chief point of comparison of the level and structure of executive pay, and is composed of companies similar to Sanderson Farms in size, industry, geographic location and/or performance. The Committee also uses data from a reference group of direct competitors that are considerably larger than Sanderson Farms as a comparator for components of executive pay, but not for pay levels. Selection of the peer and reference groups was based on the research of Towers Watson, with input from the Committee, the CEO, and the CFO.

     The comparator groups yield information about the general level and components of pay for comparable executive positions at other companies. The Committee uses this information as a general guide in its deliberations, but it does not target our executive compensation levels at any point in the range established by the comparisons. Instead, the Committee bases its final decisions on its business judgment, which may be influenced by the median level of that range, as well as a variety of other factors discussed below. The companies comprising the comparator groups for fiscal years 2010 and 2011 are shown below:

Peer Group

Brown-Forman
Cal-Maine Foods
Central Garden & Pet Company
Del Monte Foods
Flowers Foods
Hain Celestial Group
JM Smucker
Lancaster Colony
Lance
M&F Worldwide
McCormick
Oxford Industries
Ralcorp Holdings
Seaboard
Seneca Foods
Treehouse Foods
United Natural Foods

Reference Group

Hormel
Smithfield Foods
Tyson Foods

     The Compensation Committee Process and the Role of Management and Compensation Consultants

     Both management and the Compensation Committee recognize the importance of maintaining sound principles for the development and administration of compensation and benefit programs. Our Compensation Committee has taken steps to significantly enhance its ability to carry out its responsibilities effectively, as well as to ensure that the Company maintains strong links between executive pay and performance. Examples of actions that the Committee has taken in the past few years include:

•		Retained an independent compensation consultant, Towers Watson, to advise on executive and director compensation issues.
•		Met regularly in executive sessions with the compensation consultant and legal and accounting advisors without Company management present; and
•		Made significant changes to our executive and director compensation programs, including:

	•		Establishing a peer group for primary comparisons of the level and structure of executive and director pay;
	•		Establishing a broader reference group of companies with a business environment similar to ours to assist in comparing the elements of executive and director compensation (not levels of pay);
	•		Developing a long-term incentive program for executives designed to offer a variety of equity-based awards that are linked to stockholder value, and making adjustments to the program where necessary to take into account our significant Company growth and strong performance relative to our peers;
	•		Implementing incentive programs to promote increased Company stock ownership by management and non-employee directors;
	•		Instituting share ownership guidelines for both management and non-employee directors;
	•		Adopting a compensation recoupment policy for incentive-based compensation, discussed below;
	•		Undertaking a formalized annual review of executive compensation packages with advice from the compensation consultant in light of market standards, company and industry performance and individual merit; and
	•		Bringing the mix of the top officers’ cash compensation closer to marketplace standards by increasing the maximum performance-based bonus award opportunity for the CEO from 100% to 150% of base salary, and for the COO and the CFO from 100% to 120% of base salary.

     The Committee has the sole authority to retain or terminate Towers Watson (or any other compensation consultant) and to approve the consultant’s fees and other terms and conditions of its engagement. In July 2009, as in prior years, the Committee engaged Towers Watson to review its executive compensation components and levels and recommend any changes for fiscal 2010 necessary to bring our programs in line with market standards. The Board or the Nominating and Governance Committee have also retained Towers Watson periodically, most recently in September 2009, to review the compensation of our outside directors. In December 2009, the Committee also retained Towers Watson on the recommendation of management to perform a limited review of the salary ranges of selected salaried employees, but the fees for this review were less than $120,000. The Committee will take measures to ensure that any future engagement of Towers Watson by our Company does not impair Towers Watson’s independence.

     Typically, the Committee chairman meets with representatives from Towers Watson at the outset of any engagement to discuss the Committee’s goals and objectives and to outline the parameters of the review that Towers Watson will undertake. The CFO is generally present for those meetings as a liaison with management, and Towers Watson uses the CFO to gather internal information necessary for its work. The Committee chairman also corresponds with Towers Watson directly during an engagement as questions arise. Because the CEO is the Committee’s chief source of information about the overall performance of the Company and of senior management, the Committee or its chairman may also meet privately with the CEO to inform him of the Committee’s thinking on any particular issue and to get his feedback and recommendations. Although the CEO has substantial influence on the Company’s compensation and could contact or meet with Towers Watson or the Committee if he chooses, he is usually not directly involved in the Committee’s decision-making process or in meetings with Towers Watson.

     When compensation questions arise for the Committee’s consideration, management is generally present for Towers Watson’s presentations and to answer any questions by directors. However, when the Committee sets levels and components of compensation, management is ultimately excused from the meeting to permit the Committee to meet with Towers Watson and legal and accounting advisors in executive session and to vote. The Committee may ask the CEO to be present for the deliberations on the compensation of the other Named Executive Officers, but he is excused from the deliberations and vote on his own compensation.

     Elements of Executive Compensation

     The compensation of our executive officers consists of the following elements:

	•		Base salary
	•		Annual cash incentive (bonus) awards
	•		Long-term equity incentive awards, including:

	•		Restricted stock
	•		Performance shares
	•		Management share purchase rights

	•		In-service and post-employment benefits
	•		Perquisites

     The Committee has used these elements of compensation to create a flexible package that reflects the cyclical nature of the poultry business and can reward both the short and long-term performance of the Company and the individual. Each item of compensation is considered individually, followed by consideration of the overall package, with the goal of treating executives equitably and rewarding outstanding performance. The Committee also considers how our executive pay compares to the peer and reference companies and to similar positions included in published survey data, with respect to both levels and components of total pay. Generally, the Committee does not consider the amounts realizable from prior compensation in setting future benefits. However, the Committee has restructured our long-term performance incentives to reflect more fairly the conditions in our industry when past awards have failed to vest because of cyclical downturns in the poultry market and inefficiencies stemming from our significant internal growth. This is discussed in more detail below.

     The CEO’s 2010 total compensation, as reported in the Summary Compensation Table below, was approximately 141% and 170%, respectively, higher than the total compensation for the COO and CFO because of his higher level of responsibility within our Company and his more pervasive influence over our performance. The compensation of the COO and CFO was likewise approximately 256% and 218%, respectively, higher than the Secretary’s for the same reasons.

     In 2009, we entered into employment agreements with the CEO, the COO and the CFO. Among other benefits, the agreements provide for a severance payment to be paid to the officers if:

	•		before a change in control of our Company, the officers are terminated without cause, except in the case of poor performance;
	•		at or after a change in control, the officers are terminated without cause; or
	•		the officers resign for good reason.

     The amount of the severance payments will be, in the case of Mr. Sanderson, three times, and in the case of Messrs. Butts and Cockrell, two times, the following amounts:

	•		the officer’s annual base salary in effect at the time of his termination, plus
	•		fifty percent of the maximum bonus available to the executive under the Company’s bonus program in effect for the year of termination.

     The Committee believes these benefits are important officer retention tools that will protect the Company and its stockholders against an unexpected departure of our most senior management. In addition, the commitment to pay severance is counterbalanced by an agreement from the officers not to disclose confidential information about us during and after their employment, and not to engage in certain competitive activity during their employment and for two years after the termination of their employment for any reason other than poor performance. The Committee also believed it was crucial to structure the agreements so that, except in the case of a change in control, the officers will not be paid severance if they are terminated for poor performance. In the context of a change in control, the severance is not payable unless the officer is subsequently terminated without cause. This is sometimes referred to as a “double trigger.” In the case of a merger or other transaction that would allow our stockholders to profit from a sale of control of our Company, such provisions can help ensure that management will not be distracted in the transaction negotiations by concerns that they will be arbitrarily terminated by new management without any economic protection after the change of control is complete.

     The agreements are discussed further below in the narrative following the table entitled, “Grants of Plan-Based Awards.”

     Base Salaries

     Salaries are used to provide a fixed amount of compensation for the executive’s regular work. The Committee reviews the salaries of the Named Executive Officers annually in October, with input from the outside compensation consultant, and makes final salary decisions at that time. Salary increases are based on an evaluation of Company performance, the individual’s performance, and the individual’s level of pay compared to the pay levels for similar positions in the peer group. Although the peer group suggests a range of competitive levels for base salaries, exact levels are determined by the Committee based on each executive’s merit. The Committee also takes into account years of service, responsibilities, our future growth plans and our current ability to pay.

     For fiscal year 2010, each of the named executive officers received a 4% salary increase. In determining the increase, the Committee took note of expected economic and market conditions for the 2010 fiscal year, as well as each executive’s individual performance. For more information about the factors the Committee considered in setting fiscal 2010 compensation, see the subsection below entitled “Evaluation of Executive Performance.”

     The effective date for salary increases typically is November 1 of each year. Salary increases can also occur upon an individual’s promotion.

     Annual Cash Bonus Awards

     We maintain a bonus award plan under which our salaried employees, including the Named Executive Officers, are eligible for fiscal year-end cash incentive awards equal to a percentage of their base salary based on the Company’s performance (“Bonus Award Program”). These awards are designed to reward short-term performance and the achievement of designated operational results. For officers and key management employees, the total award has two components: a percentage based on our achieving certain target earnings per share goals, and a percentage based on our operational performance versus our industry peers as measured by Agristats.

     The earnings per share targets established under the Bonus Award Program are set each year, and reflect our growth and ability to generate earnings. We have experienced significant growth in production capacity over the past 15 years, and our ability to generate earnings has likewise grown significantly. As a result, the earnings per share targets established under the Bonus Award Program have moved higher to reflect our increased earnings capacity. We have historically performed at or near the top of the industry in operational measures, and the targets set for operational goals under the Bonus Award Program reflect our culture and expectations of achieving superior performance relative to our peers. However, it is possible that even if we operate at the top of the industry, we still might not achieve an acceptable level of profitability, due to factors such as the cyclical nature of the industry, external forces that influence profitability that are beyond the control of management, and our significant internal growth in recent years and resulting short-term inefficiencies. Therefore, unless we achieve at least an 8% return on average stockholders’ equity (computed after taking into account any bonus to be paid), no payments are made under the Bonus Award Program even if the operational targets are reached, and payments are not cumulative.

     Generally, earnings per share targets are established by reference to our earnings per pound of poultry products sold during years of significant profitability. That is, our rate of earnings per pound in high performing years is applied to pounds we expect to produce and sell in the coming year. We also consider our five-year average return on sales and what earnings level would result in an acceptable return on average equity. Through this exercise, we establish a dollar earnings target that is then translated into an earnings per share target for purposes of the Bonus Award Program. While the Committee recognizes that there are many factors beyond the control of management that might affect our ability to achieve these results, it attempts to make the program competitive by awarding a relatively high percentage of salary payouts in years in which we achieve these aggressive targets. Likewise, the Committee sets aggressive targets when setting operational goals. Unless we operate in the top 30% of the industry in terms of operating profit per head of chickens sold, no operational awards are made. For participants to earn the top bonus, we must operate in the top 10% of the industry.

     The following table shows, for fiscal 2010, the percentage of base salary that the Named Executive Officers were eligible to receive from each component of the bonus award:

2010 Bonus Award Opportunities

						Bonus Opportunity as
		Bonus Opportunity as				Percentage of Base
		Percentage of Base				Salary from
		Salary from EPS				Operational
Position		Component				Component
CEO			75	%			75	%
COO, CFO			50	%			50	%
Secretary			25	%			25	%

     The following table shows, for fiscal 2010, the earnings per share objectives and the corresponding percentages of the earnings per share component of a participant’s bonus award that could have been earned. The program provides that the earnings per share targets will be adjusted to reflect changes in the number of shares outstanding due to business combinations, recapitalizations, stock splits or other changes in our corporate structure. As discussed above, the earnings per share objectives below reflect such automatic adjustments to neutralize the effect of the 2.3 million new shares we issued in the common stock offering we completed in April 2010.

2010 Bonus Awards — EPS Component

		Percentage of EPS-
Per Share Return*		Based Award
$4.72			100.0	%
$4.67			95.0	%
$4.61			90.0	%
$4.56			85.0	%
$4.51			80.0	%
$4.46			75.0	%
$4.41			70.0	%
$4.36			65.0	%
$4.30			60.0	%
$4.25			55.0	%
$4.20			50.0	%
$4.15			45.0	%
$4.10			40.0	%
$4.05			35.0	%
$3.99			30.0	%
$3.94			25.0	%
$3.89			20.0	%
$3.84			15.0	%
$3.79			10.0	%
$3.74			5.0	%

     The earnings per share component of the bonus award program is based on our net income net of the bonus. Our fiscal 2010 net earnings, after taking into account bonus accruals we made at the 100% bonus level, were $6.07 per share. Therefore, the Named Executive Officers received 100% of the portion of their total bonus award that is based on earnings per share.

     The following table shows, for fiscal 2010, the performance objectives based on our performance versus our industry peers as reported by Agristats and the corresponding percentages of the operational component of a participant’s bonus award that could have been earned:

2010 Bonus Awards — Operational Performance Component

		Percentage of
		Operational
		Performance-Based
Agristats Ranking — Operating Profit per Head of Chickens Sold		Award
1			100	%
2			100	%
3			100	%
4			66 2/3	%
5			66 2/3	%
6			33 1/3	%
7			33 1/3	%

     For 2010, the Named Executive Officers received 66 2/3% of the portion of their total bonus award that is derived from operational performance.

     The following table shows, for the 2010 fiscal year, the maximum percentages of base salary that the Named Executive Officers could have received under the Bonus Award Program, the percentage actually received based on the Company’s actual 2010 performance and the dollar amount of actual awards. The actual cash awards are also shown in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table that follows this Compensation Discussion and Analysis. For fiscal 2010, the Company’s actual performance reflected slightly more favorable market prices for poultry products than during fiscal 2009, an increase in the volume of pounds of poultry we sold compared with fiscal 2009, outstanding operational performance and lower grain prices compared with last year.

2010 Bonus Award Payments

		Maximum Bonus Award				Percentage of Base
		Opportunity as a				Salary Actually
		Percentage of Base				Earned under Bonus				Dollar Amount of
Position		Salary				Award Program				Actual Awards
CEO			150	%			125.0	%		$	1,516,440
COO			100	%			83.3	%			502,650
CFO			100	%			83.3	%			430,710
Secretary			50	%			41.7	%			101,865

     Each January, the Committee reviews and reconsiders the Bonus Award Program, the maximum bonus opportunities, the performance criteria under the program and the earnings per share targets for the then-current fiscal year. As part of its review, it receives reports from the outside compensation consultant concerning the level of similar short-term cash incentives paid by the peer group companies. It also receives management’s recommendations as to the appropriate targets for earnings per share and operational performance based on management’s estimates of what would qualify as superior performance.

     The Committee generally adopts the program in January for the current fiscal year. The parameters of the program and the performance criteria are then communicated to the participants. In general, once the Committee adopts the program, the bonus awards are determined solely according to the program criteria and are not subject to the discretion of the Committee. The program does provide that adjustments can be made to awards in the event of extraordinary operating conditions, errors in Agristats reporting or significant changes in the number of Agristats participants, changes in law or accounting procedures or substantial and unforeseen fluctuations in sales pounds or dollars during the year. We have never made any such adjustments. Bonuses earned for a completed fiscal year are usually paid in December following the fiscal year.

     Long-Term Equity Incentive Awards

     Equity-based compensation and ownership ensures that our executive officers and directors have a continuing stake in the long-term success of the Company. Generally, the Committee considers equity incentive awards to the Named Executive Officers each October, after its annual evaluation of executive pay. The awards, if made, usually become effective in November at the start of the Company’s new fiscal year.

     Under the Stock Incentive Plan, the Board may grant restricted stock, performance shares, stock options, stock appreciation rights, phantom stock, management share purchase rights and other stock-based awards. Since its inception in 2005, awards to the Named Executive Officers under the plan have consisted of restricted stock, performance shares and management share purchase rights.

     The Committee, with input from Towers Watson, has made specific grants by comparing the executive’s current long-term incentive levels with the market range established by published survey and peer proxy data. Based on market studies, it has then identified a typical multiple of the average base salary for the individual’s management level that his or her long-term incentives should represent. These multiples are reconsidered annually based on the then-current market data. For fiscal 2009, the multiple was 135% for the COO and CFO and 50% for the Secretary. The CEO’s multiple was 250% in 2009, but he declined to participate in the program from the plan’s inception through 2009, requesting instead that the Board permit him to have additional vacation time. For fiscal 2010, the Committee determined, and the CEO agreed, that he be considered for equity-based awards. The Committee used multiples for fiscal 2010 compensation of 120% for each of the CEO, COO and CFO, and 40% for the Secretary. (The CEO’s multiple was half of the 240% that Towers Watson identified as typical for the market, in light of his receipt of additional vacation time in lieu of equity awards in prior years.) For fiscal 2011, the Committee used multiples of 265% for the CEO, 135% for the COO and the CFO, and 40% for the Secretary.

     This calculation yields a target annual long-term incentive award level that is then converted into a recommended number of shares to be awarded using the approximate stock price quoted on Nasdaq at that time. As discussed above, the Committee also bases its final decisions as to the award level on factors such as individual merit, responsibilities, individual and Company performance, and the dilutive effect of the award on our stockholders. The Committee then divides the total recommended share award equally between performance shares and restricted stock.

     All of our restricted stock and Management Share Purchase Plan agreements provide that stock awarded under those plans will become fully vested in the event of a change in control of our Company and fully or partially vested upon certain other events, as described more fully in the “Potential Payments Upon Termination or Change-in-Control” section below. These provisions were adopted because they are customary for equity incentive awards of those types and because the Board of Directors deemed them to be reasonable and fair to our management. In the context of a merger or other transaction that would allow our stockholders to profit from a sale of control of our Company, such provisions can help ensure that management will not be distracted in the transaction negotiations by concerns that the value of their awards will decline after the change of control is complete. The potential payments under these provisions played no part in the Committee’s decisions regarding other elements of our executive compensation.

•

Restricted Stock

     Shares of restricted stock are a promise to pay to the recipients actual shares of Sanderson Farms stock at the end of a vesting period when the restrictions lapse. The CEO, COO, CFO and Secretary and certain other salaried employees of the Company received restricted stock as part of their long-term incentive award in November 2009 for the 2010 fiscal year. These shares vest, in general, on the fourth anniversary of the award, as long as the holder remains continuously employed by us during the restricted period.

     Recipients of restricted stock have all the rights of a stockholder of the Company, including the right to receive dividends, beginning on the grant date. In the event a recipient forfeits shares of restricted stock before such shares vest, the shares are cancelled.

•

Performance Shares

     Performance shares provide a material incentive to executives by offering potential increased stock ownership in the Company tied directly to our stockholders’ return. The CEO, COO, CFO, Secretary and certain other salaried employees received performance share grants as part of their long-term incentive awards in November 2009. The performance share program entitles the holder to earn shares of Sanderson Farms common stock if we achieve certain relative levels of performance on stockholder return over a multi-year period following the grant, as long as the holder remains continuously employed by us until the end of the performance period and any additional vesting period. The length of the performance period reflects the cyclical nature of the poultry business, and is designed, generally, to measure our performance over an industry cycle. For awards granted for fiscal years before 2009, the performance period was three years, and beginning with the fiscal 2009 awards, the performance period is two years. In addition, beginning with the fiscal 2009 awards, there is an additional one-year vesting period after the shares are earned before they are paid out.

     Performance shares carry no dividend or voting rights until they are issued after achievement of the performance objectives and the expiration of any additional vesting period.

     The Board of Directors may pay earned and vested performance shares in cash, shares of Sanderson Farms common stock, or in a combination of both. Once the performance criteria are established and the awards are granted, the payment of earned shares is not subject to the discretion of the Committee or the Board.

     Performance share awards are made in a target amount of shares based on our average return on equity (which we call ROE) and a target amount based on our average return on sales (which we call ROS). The award establishes three possible non-discretionary percentages of those target amounts that the recipient could actually receive, depending on our actual performance measured at the end of the performance period.

     As a result, the performance criteria for fiscal 2010 awards were structured as follows:

2010 Performance Share Criteria

						Threshold				Target				Maximum
Measure		Weight				(50% Payout)				(100% Payout)				(200% Payout)
ROE			50	%			9.7	%			11.0	%			20.6	%
ROS			50	%			3.0	%			3.5	%			4.7	%

     If our average ROE or average ROS is otherwise between the threshold and maximum percentages, the number of performance shares received will be calculated using a straight-line interpolation. If average ROE or ROS is less than the threshold, the recipient will not be entitled to receive any shares of the applicable target award.

     The threshold level represents our median performance over the course of 18 historical two-year periods. The target level represents the 65th percentile of performance during the historical measurement period and the maximum level represents the 83rd percentile. Average ROE is equal to the mathematical average of the net return on average equity for each of the two years in the performance period. Net return on average equity is computed by adding together stockholders’ equity at the beginning and end of each fiscal year on our audited financial statements and dividing by two. The resulting number is then divided into net income for the fiscal year as reported on our audited financial statements to reach net return on average equity for the year. Average ROS is equal to the mathematical average of the net return on net sales for the two years in the performance period. Net return on net sales is computed by dividing net income by net sales, as both numbers are reported on our audited financial statements for the year.

     Using the same methodology and 19 two-year periods, the performance criteria for the fiscal 2011 awards were established as follows:

2011 Performance Share Criteria

						Threshold				Target				Maximum
Measure		Weight				(50% Payout)				(100% Payout)				(200% Payout)
ROE			50	%			9.6	%			10.7	%			19.8	%
ROS			50	%			2.8	%			3.5	%			4.6	%

     As discussed above, the Committee determined, pursuant to the provisions of the Stock Incentive Plan, to neutralize the effect of our April 2010 equity offering on our average ROE by providing that our total equity for each of the years in the performance period for the fiscal 2010 and 2011 awards will be reduced by $115.1 million, which was the amount of the net proceeds of the equity offering.

     Since the inception of the Stock Incentive Plan, we have granted six cycles of performance shares, one for each of the fiscal years from 2006 through 2011. None of our fiscal year 2006 and 2007 performance shares were earned. Fiscal 2010 was the first year in which any of our performance shares were earned, specifically, those granted for fiscal years 2008 and 2009, which had performance periods ending on October 31, 2010. The following table shows the performance criteria for these awards, our actual performance over the performance period, and the percentage of the awards actually earned. As discussed above, the Committee determined that for purposes of calculating the earned shares, our ending equity for our 2010 fiscal year would be reduced by $115.1 million, the amount of the net proceeds of our 2010 equity offering.

Performance Shares Earned

						Performance Criteria																								Actual
						Threshold								Target								Maximum								Company								Payout
Performance						(50% Payout)								(100% Payout)								(200% Payout)								Performance								as a Percentage of Target
Period		Payout Date(1)				ROE				ROS				ROE				ROS				ROE				ROS				ROE				ROS				ROE				ROS				Total
11/1/07-10/31/10			12/13/2010				10.8	%			3.7	%			12.7	%			3.9	%			21.2	%			4.7	%			12.48	%			3.02	%			94.18	%			0	%			47.09	%
11/1/08-10/31/10			11/1/2011				10.1	%			3.37	%			12.77	%			3.93	%			20.64	%			5.23	%			24.40	%			5.77	%			100	%			100	%			200	%

     The following table shows the number of shares actually earned by each Named Executive Officer according to the percentage payouts reflected in the table above.

						Total Payout as				Target Award				Actual Shares Earned				Value on Payout Date(2)
Position		Performance Period				Percentage of Target				(#)				(#)(1)				($)
CEO(3)			11/1/2007 - 10/31/2010				—				—				—				—
			11/1/2008 - 10/31/2010				—				—				—				—
COO			11/1/2007 - 10/31/2010				47.09	%			11,638				5,480			$	232,790
			11/1/2008 - 10/31/2010				200	%			9,800				19,600				—
CFO			11/1/2007 - 10/31/2010				47.09	%			11,638				5,480			$	232,790
			11/1/2008 - 10/31/2010				200	%			9,800				19,600				—
Secretary			11/1/2007 - 10/31/2010				47.09	%			1,868				879			$	37,340
			11/1/2008 - 10/31/2010				200	%			1,450				2,900				—

•

Management Share Purchase Rights

     Under our Management Share Purchase Plan, executive officers and other key employees may defer up to 15% of their annual base salaries and up to 75% of their bonuses earned under the Bonus Award Program for the purchase of restricted stock at the current market price. The Company matches 25% of the employee’s contribution to the plan to purchase additional shares. The shares purchased or granted through the plan generally vest on the third anniversary of their acquisition by the participant. Recipients of the shares purchased or granted have all the rights of a stockholder during the restricted period. If the shares fail to vest, any dividends paid on the Company matched shares must be returned to us. In fiscal 2010, the COO was the only Named Executive Officer who participated in the plan. You can find more information about the plan in the narrative accompanying the Grant of Plan-Based Awards table, below.

     In-Service and Post-Employment Benefits

     As mentioned above, we believe strongly in aligning the interests of management with those of our stockholders. We were among the first in our industry to adopt an Employee Stock Ownership Plan, and each of the Named Executive Officers participates in the plan on the same basis as all of our other employees. Participants are automatically enrolled in the plan after one year of service and become fully vested after six years. We contribute funds to the plan in profitable years, and on October 31, 2010, we contributed $9.0 million to the plan.

     We also sponsor a 401(k) retirement plan that is available to all of our employees after one year of service. The Named Executive Officers participate on the same basis as all other employees. Eligible employees may contribute up to 15% of their salary to the plan on a pre-tax basis through payroll deductions. We began matching employee contributions to the plan in 2000, and will match 100% of an employee’s contribution up to 3% of his or her salary, and 50% of such contribution that exceeds 3% but does not exceed 5% of his or her salary. Sanderson Farms common stock is not an investment option under the plan.

     We also provide other benefits such as medical, dental and long-term/short-term disability (up to 66 2/3% of salary not exceeding $270,000 per year in long-term disability payments) coverage, as well as vacation and other paid holidays. Beginning with our 2001 fiscal year, we began paying premiums on term life insurance policies for all employees who participate in our health plan. The death benefit under these policies equals the employee’s annual salary, up to a maximum of $100,000 and a minimum of $50,000. These benefit programs are comparable to those provided at other large companies. They are designed to provide certain basic quality of life benefits and protections to our employees and at the same time enhance our attractiveness as an employer.

     In 2008, the Committee adopted a Supplemental Disability Plan for the CEO. The plan provides that if the CEO becomes disabled as defined in our long term disability plan for all our salaried employees, he will receive a monthly benefit equal to 66 2/3% of his salary beginning one year from the date of disability until the date that he has received five years of payments or his 70th birthday, whichever occurs first, with a minimum of 12 months of payments. This is the same benefit that is provided to all participants in our long term disability plan who are 60 years or older. However, the Committee adopted the supplemental plan because our long term disability plan places an annual dollar limit on the benefit that participants can receive, which would have resulted, if the CEO became disabled at the time the supplemental plan was adopted, in a benefit to him of only 26% of his then current salary. The employment agreements that the Company entered into with the COO and CFO in 2009 made those officers participants in the supplemental plan, and, due to their current ages, the monthly benefit would be paid until those officers’ 65^th birthday, with a minimum of 12 months of payments.

     The Company’s portion of the cost of health benefits provided in the 2010 fiscal year for the Named Executive Officers was as follows:

2010 Health Benefits

		Cost to Company of Active
Officer		Health Benefits
CEO		$	7,202
COO		$	7,202
CFO		$	7,202
Secretary		$	7,202

     The 401(k) contribution, health plan and life insurance premiums, as well as dividends paid on restricted stock and matching charitable contributions under our charitable gift program are ratified by the Committee in January of the year following the year for which they were made. The Board of Directors approves the annual ESOP contribution, if any, in October of each year.

     All employees may elect to continue participating in our health benefit plan following their retirement, but they must pay 100% of the premium cost.

     In rare instances, we have continued, because of the applicable circumstances, to pay the base salaries of certain key employees for a short period of time after their deaths. None of those employees served at any time as an executive officer of Sanderson Farms. However, the employment agreements we entered into with the CEO, COO and CFO in 2009 provide that we will continue to make base salary payments to their designated beneficiary or estate for a period of one year from the date of the officer’s death.

     Perquisites

     We provide certain perquisites to our executives, which consist primarily of personal use of our Company aircraft by the CEO and his immediate family. This perquisite provides flexibility to the CEO and increases travel efficiencies, allowing more productive use of executive time, in turn allowing greater focus on Sanderson Farms-related activities. The Company also permits the COO and CFO to use Company aircraft in times of family or other emergencies. In some cases, the Company also permits and pays for the Named Executive Officers’ spouses to accompany them on the corporate aircraft. We also reimbursed the CEO for the cost of the preparation of his annual income tax return during 2009, although since then we have discontinued that practice. The amounts of these perquisites are ratified by the Committee in January of the year following payment. More detail on our perquisites may be found in the narrative following the Summary Compensation Table, below.

     Compensation Recoupment Policy

     In 2010, the Committee adopted a policy requiring the Board or the Committee to seek to recoup incentive-based compensation paid to our directors, executive officers or other personnel whenever required by law or the rules of the Nasdaq Stock Market. In addition, the Board or the Committee, it its discretion, may determine, as a result of a restatement of our financial statements or misconduct that adversely affects us by a member of our management executive committee or a director, to take such actions it deems necessary or appropriate and in our best interests with respect to the executive committee member, or the director in the case of director misconduct, to address the restatement or misconduct. Such actions may include, to the extent permitted by law and our charter and By-Laws:

	•		Requiring the executive or director to repay some or all of any incentive compensation paid, including bonus, performance shares or restricted stock;
	•		Requiring the executive or director to repay gains realized on the exercise of stock options or the sale of vested stock;
	•		Cancelling all or part of the executive’s or director’s incentive awards;
	•		Adjusting the executive’s or director’s future cash or non-cash compensation or fees, as applicable;
	•		Terminating the executive or seeking to remove the director; or
	•		Initiating legal action against the executive or director.

     The recoupment policy is in addition to the authority under the Stock Incentive Plan to cancel awards or recoup the value of shares in the event of detrimental activity by the participant.

     Stock Ownership Guidelines

     In October 2004, the Committee recommended and the Board of Directors adopted non-binding stock ownership guidelines for our management, in an effort to encourage increased ownership of our Company by key employees and directors. Towers Watson has periodically reviewed the guidelines and advised the Committee that they continue to be appropriate. We believe that these guidelines are reasonable to achieve and will be a long-term benefit to all of our stockholders by helping to align management and stockholder interests. They also encourage officers and directors to hold purchased shares and vested option shares, restricted stock and performance shares, as applicable, for long-term investment. “Stock ownership” includes stock owned directly, indirectly through the 401(k) plan or Employee Stock Ownership Plan, restricted stock, and earned or unearned performance shares. The guidelines are based on a multiple of base salary at 2005 levels and current director annual retainer fees, and are set forth in the table below. All of our Named Executive Officers and directors have exceeded the guidelines below.

Stock Ownership Guidelines

						Desired				Number of
		Average Base				Ownership				Shares (assuming
Position		Salary/Annual Retainer				Multiple				$45 per share)1
CEO		$	800,000				6				107,000
COO, CFO		$	300,000				4				27,000
Secretary		$	170,000				3				11,000
Director		$	25,000				8				4,000

     It is Sanderson Farms’ policy that our directors and all employees, including the Named Executive Officers, not trade their Sanderson Farms stock, other than shares underlying options, on a short-term basis (i.e., shares must be held for a minimum of six months). Additionally, employees and directors may not purchase Sanderson Farms stock on margin, nor may they buy or sell put or call options linked to Sanderson Farms stock.

     Tax and Accounting Considerations

     For income tax purposes, we may not deduct any portion of compensation that is in excess of $1 million paid in a taxable year to the CEO, CFO, COO and Secretary, unless that compensation qualifies as “performance-based compensation” under Section 162(m) of the Internal Revenue Code of 1986, as amended (referred to as the “Code”). Our Bonus Award Program and certain awards we may make under our Stock Incentive Plan, like the performance shares, are based on the Company meeting specified performance criteria. However, Section 162(m) of the Code requires that the performance criteria and material terms of these plans be approved by our stockholders every five years and comply with certain other requirements to meet the definition of “performance-based” and thus make the awards deductible. While the Committee generally strives to structure employee compensation in order to preserve maximum deductibility, it may from time to time make awards that do not meet the Code’s definition of “performance-based compensation.” For example, we have not sought to qualify our Bonus Award Program under Section 162(m) because Section 162(m) would require us to remove certain discretionary features of the program that we believe are critical for management retention, and therefore are in the best interest of our stockholders.

     In the first quarter of our 2006 fiscal year, we adopted Revised Statement of Financial Accounting Standards No. 123, “Share-Based Payment” (FAS 123(R)). FAS 123(R) requires all share-based payments to employees, including grants of employee stock options, restricted stock and performance shares, to be recognized in our income statement based on their fair values. Before the adoption of FAS 123(R), we accounted for share-based payments to employees using an intrinsic value method and, therefore, we generally recognized no compensation cost for employee stock options. Based upon the provisions of FAS 123(R), we are required to accrue stock-based compensation expense as it is earned. This change in accounting rules has influenced the Committee to make restricted stock and performance share awards in lieu of option awards. Other factors that have made restricted stock and performance share awards more attractive than option awards include their generally smaller dilutive effect and the performance incentive they provide even in times when our stock price is depressed.

     Evaluation of Executive Performance

     In evaluating the performance of the individual Named Executive Officers before setting or adjusting compensation, the Committee and the Board of Directors do not rely solely on predetermined formulas. Rather, they focus on those officers’ individual objectives. The Committee evaluates the CEO’s performance in consultation with the Board, and it evaluates the other Named Executive Officers with the input of the CEO.

     In 2009, the Committee and the Board based their decisions for fiscal 2010 compensation on the assessment of the Company’s fiscal 2009 performance and the Named Executive Officers’ objectives and strategies, as follows:

	•		We successfully ramped up production at our Waco, Texas facility to 100% capacity in the third quarter of fiscal 2009.
	•		Although market conditions continued to be difficult, including improved, but still historically high grain costs, a continued oversupply of fresh chicken during much of the year, a weak national economy and consumer demand worse than even 2008 levels, we earned $3.99 per fully diluted share for fiscal 2009, and had the highest quarterly earnings in our Company’s history of $2.09 per fully diluted share for our third fiscal quarter.
	•		After detailed study and analysis, management recommended and the Board approved the resumption of the development of our new poultry complex in Kinston, North Carolina. As a result of the strategic delay that management recommended in June 2008, the cost of the project was reduced and resulted in $5.1 million of savings to the Company. The new plant will add 1.25 million head of chicken to our total processing volume and continues our plan of strategic growth.
	•		We continued to outperform our peers, finishing in the top third of our industry as measured by Agristats, due primarily to our efficient, low-cost operations and the additional processing volume we gained from our new plants in Waco and Moultrie, Georgia.
	•		Our CEO again demonstrated his exceptional leadership, highlighted by his vision for long term growth to build value for our stockholders. He continued to impress the investment community with his skill, including at our first ever investor conference held in October 2009.
	•		Our COO led our successful effort to ramp up operations at our Waco plant to profitable levels more rapidly than our prior new plant start-ups, especially in light of hot weather conditions in Texas that typically result in lower bird weights.
	•		Our CFO did an outstanding job of managing our balance sheet and continuing our conservative approach and favorable debt to capital ratio. In addition to his role overseeing our accounting, financial reporting, audit functions, and financial strategy as well as his participation in our grain purchasing strategy and capital raising, he heads or has a key role in areas that are not typical for chief financial officers of public companies, such as investor relations, legal affairs and risk management.
	•		The CEO was pleased with the performance of the other senior officers and the Company’s performance overall.
	•		The Committee took note of the CEO’s decision to be considered for long-term incentive awards, in contrast to prior years when he declined such awards.
	•		The Committee also took into account Towers Watson’s recommendation that no extraordinary market adjustments for the Named Executive Officers’ compensation were needed for 2010.

     In evaluating management’s outstanding performance during fiscal 2009, the Committee determined that it would be appropriate and in the best interest of our stockholders to make a one-time, discretionary grant of restricted stock to participants in the long-term incentive program. The consensus of the Committee and its advisors was that the Company performed remarkably well under extraordinary circumstances in the poultry and grain markets and the national economy. Moreover, management was able to achieve that performance even given the inefficiencies that naturally resulted from the opening of our new Waco and Moultrie complexes and the start of construction of our new Kinston, North Carolina complex.

     In light of these factors, in December 2009, the Committee approved a one-time grant of restricted stock for our management in an amount equal to 10% of the average base salary for an individual’s management level, divided by an assumed stock price of $38 per share, including for our Named Executive Officers as follows:

Discretionary Restricted Stock Grant

						Grant Value of
		Number of Shares				Restricted Stock
Position		of Restricted Stock				Awards
CEO			3,100			$	130,014
COO			1,400			$	58,716
CFO			1,400			$	58,716
Secretary			530			$	22,228

     Fifty percent of the shares granted vested immediately on the grant date. The remaining 50% vested on the first anniversary of the grant, so that the award was fully vested on December 21, 2010.

     In 2010, the Committee considered the following factors in setting fiscal 2011 compensation:

	•		Despite a weak national economy, soft demand for fresh chicken in food service markets, challenges in the export markets and relatively high grain prices compared with historical averages, we earned $6.07 per share for fiscal year 2010, the highest annual earnings per share in our Company’s history. While the Company has earned higher margins in the past, our record earnings during fiscal 2010 were due in large part to the additional pounds of poultry we processed as a result of our growth strategy and solid execution in our operations.
	•		We continued to perform near the top of the industry in terms of operating profit per head of chickens processed because of increased processing volume and our low-cost, efficient operations, and finished in the top 20% of our industry as measured by Agristats.
	•		We successfully completed an offering of our common stock in April 2010, our first public offering since our initial public offering in 1987. Our top three officers, particularly the CEO, were instrumental to the success of the offering.
	•		The Committee was impressed with the CEO’s leadership during 2010 and his vision for the long-term strategy of the Company.
	•		Our CEO was pleased with the performance of the other Named Executive Officers and recommended that they receive above average pay, given the Company’s outstanding performance in 2010.
	•		Our COO continues to assume more responsibility for all of our operations, and successfully dealt with operational challenges such as extreme heat, which negatively impacts live operations and bird weights, which in turn results in fewer pounds processed and sold, and marketing challenges caused by interruptions in our export markets.
	•		In addition to overseeing our financial, accounting, auditing, legal and administrative functions, our CFO continued to play a key role in many other aspects of our operations that are not typical for the CFO of a public company, as discussed above.
	•		The Committee considered management’s success during 2010 in completing on time and within budget the construction of our new poultry complex in Kinston, North Carolina, scheduled to begin operations in January 2011.
	•		The Committee took into account Towers Watson’s recommendation that no extraordinary market adjustments for the Named Executive Officers’ compensation were needed for 2011.
	•		The Committee considered early indications that market conditions in fiscal 2011 may be challenging, due mainly to increasing market prices for feed grains, our largest input costs.
	•		Because of a limit in our Stock Incentive Plan on the number of shares that may be granted as restricted stock, the Committee determined to consider an award of restricted stock to the CEO at its meeting in February 2011, following a vote by our stockholders at the 2011 annual meeting on whether to increase the restricted share limit in the plan, among other changes.

     Based on the assessment detailed above, the Committee approved the following compensation for the Named Executive Officers for fiscal 2011.

Fiscal 2011 Compensation Actions

										Number
										of Shares				Grant				Target				Grant Value of
										of				Value of				Number of				Target
						Percent				Restricted				Restricted				Performance				Performance
Position		Salary				Increase				Stock				Stock Awards				Shares				Share Awards
CEO		$	1,298,076				7	%			—				—				35,750			$	1,500,785
COO		$	633,336				5	%			8,500			$	356,830				8,500			$	356,830
CFO		$	542,700				5	%			8,500			$	356,830				8,500			$	356,830
Secretary		$	256,704				5	%			1,000			$	41,980				1,000			$	41,980

     In addition to these elements of 2011 compensation, the Committee determined to increase the maximum bonus opportunity for the COO and the CFO under our Bonus Award Program beginning with the 2011 fiscal year from 100% to 120% of salary.

     In December 2010, it was determined that due to an administrative error, we had exceeded the 562,500 share limit in our Stock Incentive Plan on the number of shares that may be granted as restricted stock, beginning with our November 1, 2009 grant. Therefore, the Committee determined on December 13, 2010 to rescind all of the restricted shares granted to participants on November 1, 2010.

     In addition to the shares granted on November 1, 2010, we granted 26,461 restricted shares in excess of the plan limit, net of restricted shares that were either forfeited or withheld at the election of participants to pay tax obligations.

     To address these 26,461 shares, the COO and CFO agreed as of December 13, 2010 that certain of their outstanding, unvested awards would be made contingent upon our stockholders approving the increase to the restricted stock limit in the Stock Incentive Plan at the 2011 annual meeting, as follows:

		Shares Granted on				Shares Granted on				Shares Granted on
Officer		December 21, 2009				November 1, 2009				January 29, 2009
COO			700				8,500				4,031
CFO			700				8,500				4,031

They also agreed they would not vote the shares listed in the table above at the annual meeting. If the stockholders do not approve the increased limit, the COO and CFO will return those shares to us and any dividends that have been paid with respect to them.

     We expect that the Committee will re-grant the restricted shares it had originally intended to grant to the other plan participants on November 1, 2010, including the COO, CFO and Secretary, if the increased limit is approved.

     Elements of compensation paid for the 2010 fiscal year are set forth in the Summary Compensation Table, below.

     Director Compensation

     The Nominating and Governance Committee is charged with recommending all cash and non-cash compensation of our non-employee directors. Towers Watson reviews and reassesses our director pay every other year and makes recommendations to the Nominating and Governance Committee. In fiscal 2010, our non-employee directors received cash fees for their service on the Board and its committees as set forth below:

Director Cash Fees

		Amount
Annual Stipend		$	25,000
Each Board of Directors meeting attended in person		$	7,500
Each telephonic Board of Directors or Board committee meeting attended		$	1,000	(1)
Each committee meeting attended in person, not in conjunction with a Board meeting		$	6,000
Received annually by Audit Committee Chair		$	10,000 annually
Received annually by other committee chairs		$	6,000 annually
Received annually by the Lead Independent Director		$	15,000 annually

     Non-employee directors receive an annual grant of 2,300 shares of restricted stock, or 6,900 shares over the course of their three-year term. The annual grants have staggered one, two or three-year vesting periods, so that upon the expiration of a director’s three-year term, he or she has 6,900 vested shares. These awards combined with the cash fees achieve an approximately 60-40 equity and cash pay mix.

     In October 2009, the Nominating and Governance Committee recommended and the Board approved an annual allowance of up to $5,000 for outside directors to attend continuing education seminars related to corporate board of directors service and other topics relevant to the Company. The chairman of our Nominating and Governance Committee must pre-approve the particular seminar requested by a director for reimbursement. In October 2010, the Nominating and Governance Committee recommended and the Board approved a $5,000 increase in the allowance, so that the total annual allowance is now $10,000.

     Non-employee directors may participate in the Management Share Purchase Plan by deferring up to 100% of their director fees toward the purchase of restricted shares of Sanderson Farms common stock. The Company matches 25% of the director’s contribution to purchase additional restricted shares. Restricted shares held through the plan generally vest on the third anniversary of their acquisition by the director, as long as, with respect to the matching portion, he or she has served on the Board continuously through that date.

     Non-employee directors may also participate in the Company’s medical plan, but they must pay 100% of the premium cost with after-tax dollars.

     More information about the actual compensation paid to non-employee directors is set forth in the Director Compensation table, below.

Compensation Committee Report

     The Compensation Committee has reviewed and discussed with management the foregoing Compensation Discussion and Analysis section of our 2011 Proxy Statement. Based on its review and discussions with management, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in our Proxy Statement for 2011.

The Compensation Committee:

	John H. Baker, III		Phil K. Livingston (Chair)
	Toni D. Cooley		Gail Jones Pittman (Vice Chair)
	Beverly Wade Hogan		Charles W. Ritter, Jr.
	Robert C. Khayat		Rowan H. Taylor

Executive Compensation Tables

     The table below includes information about compensation paid to or earned by our Named Executive Officers for our fiscal years ended October 31, 2008, 2009 and 2010.

Summary Compensation Table

																										Change in
																										Pension
																										Value and
																										Nonqualified
																						Non-Equity				Deferred
														Stock				Option				Incentive Plan				Compensation				All Other
Name and Principal														Awards2				Awards				Compensation3				Earnings				Compensation				Total
Position		Year				Salary ($)1				Bonus ($)				($)				($)				($)				($)				($)				($)
Joe F. Sanderson, Jr. Chairman of the Board of Directors and Chief Executive Officer			2010				1,213,152				—				745,807				—				1,516,440				—				141,860				3,617,259
			2009				1,166,496				—				0				—				860,288				—				118,785				2,145,569
			2008				1,023,240				—				0				—				0				—				141,586				1,164,826
Lampkin Butts, President and Chief Operating Officer			2010				603,180				—				343,633				—				502,650				—				51,024				1,500,487
			2009				579,984				—				380,693				—				285,157				—				44,959				1,290,793
			2008				527,256				—				139,425				—				0				—				35,475				702,156
Mike Cockrell, Treasurer and Chief Financial Officer			2010				516,852				—				342,158				—				430,710				—				49,799				1,339,519
			2009				496,968				—				376,238				—				244,342				—				40,063				1,157,611
			2008				451,788				—				140,912				—				0				—				27,864				620,564
James A. Grimes, Secretary			2010				244,476				—				49,754				—				101,865				—				24,348				420,443
			2009				235,068				—				55,448				—				57,787				—				21,696				369,999
			2008				217,656				—				35,009				—				0				—				13,259				265,924

						Grant Date Value of Performance Shares
Name		Year				Assuming Maximum Performance
Mr. Sanderson			2010			$	1,361,600
			2009				—
			2008				—
Mr. Butts			2010			$	625,600
			2009				749,504
			2008				810,005
Mr. Cockrell			2010			$	625,600
			2009				749,504
			2008				810,005
Mr. Grimes			2010			$	77,280
			2009				110,896
			2008				130,013

     The amounts included in the table above under “All Other Compensation” consist of the following:

All Other Compensation

																														Amounts
										Dividends				401(k)								Term Life								Reimbursed
						Matching				Paid on				Matching				ESOP				Insurance								for the Payment of
						Charitable				Restricted				Contribution				Contribution				Premium				Perquisites1				Taxes2
Name		Year				Contributions				Stock				($)				($)				($)				($)				($)
Mr. Sanderson			2010				2,500				74,431				8,250				7,819				233				48,627				0
			2009				2,500				57,000				8,250				7,819				233				42,983				0
			2008				2,500				56,000				6,973				0				233				59,598				16,282
Mr. Butts			2010				2,500				29,887				9,429				7,819				233				1,156				0
			2009				2,500				23,158				9,429				7,819				233				1,820				0
			2008				2,500				21,393				8,470				0				233				2,797				82
Mr. Cockrell			2010				2,500				29,485				9,762				7,819				233				0				0
			2009				0				22,249				9,762				7,819				233				0				0
			2008				2,500				16,075				9,036				0				233				0				20
Mr. Grimes			2010				2,000				9,406				4,890				7,819				233				0				0
			2009				1,000				7,898				4,746				7,819				233				0				0
			2008				1,000				6,947				5,079				0				233				0				0

Grants of Plan-Based Awards
Fiscal Year 2010

																																										Exercise
																																		All Other				All Other				or
																																		Stock Awards:				Option Awards:				Base				Grant Date
																						Estimated Future Payouts												Number of				Number of				Price				Fair Value of
										Estimated Future Payouts Under												Under Equity Incentive Plan												Shares of				Securities				of				Stock and
										Non-Equity Incentive Plan Awards1												Awards2												Stock or				Underlying				Option				Option
		Grant				Approval				Threshold				Target				Maximum				Threshold				Target				Maximum				Units				Options				Awards				Awards4
Name		Date				Date				($)				($)				($)				(#)				(#)				(#)				(#)				(#)				($/Sh)				($)
Joe F. Sanderson, Jr.											348,781				1,061,508				1,819,728
Chairman of the Board of
Directors and Chief Executive Officer			11/01/09				10/21/09																9,250				18,500				37,000				18,500												680,800
			12/21/09				12/21/09																												3,100												130,014
Lampkin Butts President and Chief Operating Officer											115,609				351,855				603,180
			11/01/09				10/21/09																4,250				8,500				17,000				8,500												312,800
			12/21/09				12/21/09																												1,400												58,716
		Various					02/17/05																												35	3											1,476
Mike Cockrell, Treasurer and Chief Financial Officer											99,063				301,497				516,852
			11/01/09				10/21/09																4,250				8,500				17,000				8,500												312,800
			12/21/09				12/21/09																												1,400												58,716
James A. Grimes, Secretary											23,429				71,305				122,238
			11/01/09				10/21/09																525				1,050				2,100				1,050												38,640
			12/21/09				12/21/09																												530												22,228