Ford Motor Company

 

Important Notice Regarding the Availability of Proxy

Materials for the Shareholder Meeting

to Be Held on May 14, 2009

 

Notice of 2009

Annual Meeting of Shareholders

and Proxy Statement

 

 

Ford Motor Company

One American Road

Dearborn, Michigan 48126-2798

 

April 3, 2009

 

 

Dear Shareholders:

 

Our 2009 annual meeting of shareholders will be held at the Hotel du Pont, 11th and Market Streets, Wilmington, Delaware, on Thursday, May 14, 2009. The annual meeting will begin promptly at 8:30 a.m., Eastern Time. If you plan to attend the meeting, please see the instructions on page 4.

 

Please read these materials so that you’ll know what we plan to do at the meeting. Also, please either sign and return the accompanying proxy card in the postage-paid envelope or instruct us by telephone or via the Internet as to how you would like your shares voted. This way, your shares will be voted as you direct even if you can’t attend the meeting. Instructions on how to vote your shares by telephone or via the Internet are on the proxy card enclosed with this proxy statement.

 

 

William Clay Ford, Jr.

Chairman of the Board

 

Whether or not you plan to attend the meeting, please provide your proxy by calling the toll-free telephone number, using the Internet, or filling in, signing, dating, and promptly mailing the accompanying proxy card in the enclosed envelope.

 

Table of Contents

 

 

 

 

 

Peter J. Sherry, Jr.

Secretary

 

April 3, 2009

 

 

“Annual Incentive Compensation Plan” or “Incentive Bonus Plan” means Ford’s Annual Incentive Compensation Plan.

 

“Class B Stock” means Ford’s Class B Stock.

 

“Deferred Compensation Plan” means Ford’s Deferred Compensation Plan.

 

“Dividend Equivalent” means cash or shares of common stock (or common stock units) equal in value to dividends, if any, paid on shares of common stock.

 

“Final Award” means shares of common stock, Restricted Stock Units, and/or cash awarded by the Compensation Committee under a Performance Stock Right, Stock Right, or Performance Unit.

 

“Ford” or “we” or “Company” means Ford Motor Company.

 

“Long-Term Incentive Plan” means Ford’s 1998 or 2008 Long-Term Incentive Plan.

 

“Named Executives” means the executives named in the Summary Compensation Table on p. 47.

 

“NYSE” means the New York Stock Exchange, Inc.

 

“Performance Stock Right” or “Stock Right” or “Performance Unit” means, under the Long-Term Incentive Plan, an award of the right to earn up to a certain number of shares of common stock, Restricted Stock Units, or cash, or a combination of cash and shares of common stock or Restricted Stock Units, based on performance against specified goals established by the Compensation Committee.

 

“Restricted Stock Equivalent” or “Restricted Stock Unit” means, under the Long-Term Incentive Plan and/or the Restricted Stock Plan for Non-Employee Directors, the right to receive a share of common stock, or cash equivalent to the value of a share of common stock, when the restriction period ends, as determined by the Compensation Committee.

 

“SEC” means the United States Securities and Exchange Commission.

 

“Senior Convertible Notes” means the Ford Motor Company 4.25% Senior Convertible Notes due 2036.

 

“Trust Preferred Securities” means the Ford Motor Company Capital Trust II 6.50% Cumulative Convertible Trust Preferred Securities.

 

“1998 Plan” means Ford’s 1998 Long-Term Incentive Plan.

 

“2008 Plan” means Ford’s 2008 Long-Term Incentive Plan.

Ford Motor Company

 

 

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The Board of Directors is soliciting proxies to be used at the annual meeting of shareholders to be held on Thursday, May 14, 2009, beginning at 8:30 a.m., Eastern Time, at the Hotel du Pont, 11th and Market Streets, Wilmington, Delaware. This proxy statement and the enclosed form of proxy are being made available to shareholders beginning April 3, 2009.

 

A proxy is another person that you legally designate to vote your stock. If you designate someone as your proxy in a written document, that document also is called a proxy or a proxy card.

 

It is a document that SEC regulations require that we make available to you when we ask you to vote your stock at the annual meeting.

 

At our annual meeting, shareholders will act upon the matters outlined in the notice of meeting, including the election of directors, ratification of the selection of the Company’s independent registered public accounting firm, authorization to issue common stock in excess of 20% of amount outstanding, authorization to issue common stock in excess of 1% of amount outstanding to an affiliate, and consideration of eight shareholder proposals, if presented at the meeting. Also, management will report on the state of the Company and respond to questions from shareholders.

 

The record date for the annual meeting is March 18, 2009. The record date is established by the Board of Directors as required by Delaware law. Holders of common stock and holders of Class B Stock at the close of business on the record date are entitled to receive notice of the meeting and to vote at the meeting and any adjournments or postponements of the meeting.

 

Holders of common stock and holders of Class B Stock at the close of business on the record date may vote at the meeting. Holders of Trust Preferred Securities and Senior Convertible Notes cannot vote at this meeting.

 

On March 18, 2009, 2,333,012,583 shares of common stock and 70,852,076 shares of Class B Stock were outstanding and, thus, are eligible to be voted.

 

Holders of common stock and holders of Class B Stock will vote together without regard to class on the matters to be voted upon at the meeting. Holders of common stock have 60% of the general voting power. Holders of Class B Stock have the remaining 40% of the general voting power.

 

Each outstanding share of common stock will be entitled to one vote on each matter to be voted upon.

 

The number of votes for each share of Class B Stock is calculated each year in accordance with the Company’s Restated Certificate of Incorporation. At this year’s meeting, each outstanding share of Class B Stock will be entitled to 21.952 votes on each matter to be voted upon.

 

If your shares are registered directly in your name with Computershare Trust Company, N.A., the Company’s stock transfer agent, you are considered the shareholder of record with respect to those shares.

 

If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of these shares, and your shares are held in “street name.”

 

If you are a shareholder of record, you can give a proxy to be voted at the meeting:

 

 

The telephone and Internet voting procedures have been set up for your convenience and have been designed to authenticate your identity, to allow you to give voting instructions, and to confirm that those instructions have been recorded properly. If you are a shareholder of record and you would like to vote by telephone or by using the Internet, please refer to the specific instructions set forth on the enclosed proxy card. If you wish to vote using a paper format and you return your signed proxy to us before the annual meeting, we will vote your shares as you direct.

 

If you are a Company employee or retiree participating in either of the Company’s Savings and Stock Investment Plan for Salaried Employees or Tax-Efficient Savings Plan for Hourly Employees, then you may be receiving this material because of shares held for you in those plans. In that case, you may use a proxy card to instruct the plan trustee how to vote those shares. The trustee will vote the shares in accordance with your instructions and the terms of the plan. If you hold shares in any of these plans, the trustee may vote the shares held for you even if you do not direct the trustee how to vote. In these cases, the trustee will vote any shares for which the trustee does not receive instructions in the same proportion as the trustee votes the shares for which the trustee does receive instructions.

 

If you hold your shares in “street name,” you must vote your shares in the manner prescribed by your broker or nominee. Your broker or nominee has enclosed, or explained how you can access, a voting instruction card for you to use in directing the broker or nominee how to vote your shares.

 

The votes of all shareholders will be held in confidence from directors, officers and employees of the Company except: (a) as necessary to meet applicable legal requirements and to assert or defend claims for or against the Company; (b) in case of a contested proxy solicitation; (c) if a shareholder makes a written comment on the proxy card or otherwise communicates his or her vote to management; or (d) to allow the independent inspectors of

election to certify the results of the vote. We will also continue, as we have for many years, to retain an independent tabulator to receive and tabulate the proxies and independent inspectors of election to certify the results.

 

Yes. If you are a shareholder of record, you may vote your shares at the meeting by completing a ballot at the meeting.

 

However, if you are a “street name” holder, you may vote your shares in person only if you obtain a signed proxy from your broker or nominee giving you the right to vote the shares.

 

Even if you currently plan to attend the meeting, we recommend that you also submit your proxy as described above so that your vote will be counted if you later decide not to attend the meeting.

 

In the election of directors, you may vote for all nominees, or you may vote against one or more nominees. The proposal related to the election of directors is described in this proxy statement beginning at p. 5.

 

For each of the other proposals, you may vote for the proposal, against the proposal, or abstain from voting on the proposal. These proposals are described in this proxy statement beginning at p. 68.

 

Proposals 1, 2, 3, and 4 will be presented at the meeting by management, and the rest are expected to be presented by shareholders.

 

The Board of Directors recommends a vote FOR all of the nominees for director (Proposal 1), FOR ratifying the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2009 (Proposal 2), FOR approval to issue common stock in excess of 20% of amount outstanding (Proposal 3), FOR approval to issue common stock in excess of 1% of amount outstanding to an affiliate (Proposal 4), and AGAINST the shareholder proposals (Proposals 5 through 12).

 

If you do not specify on your proxy card (or when giving your proxy by telephone or over the Internet) how you want to vote your shares, we will vote them FOR all of the nominees for director (Proposal 1), FOR ratifying the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2009 (Proposal 2), FOR approval to issue common stock in excess of 20% of amount outstanding (Proposal 3), FOR approval to issue common stock in excess of 1% of amount outstanding to an affiliate (Proposal 4), and AGAINST the shareholder proposals (Proposals 5 through 12).

 

Yes. You can revoke your proxy at any time before it is exercised in any of three ways:

 

 

A majority of the votes that could be cast by shareholders who are either present in person or represented by proxy at the meeting is required to elect the nominees for director and to approve each proposal. The votes are computed for each share as described on p. 2.

 

The total number of votes that could be cast at the meeting is the number of votes actually cast plus the number of abstentions. Abstentions are counted as “shares present” at the meeting for purposes of determining whether a quorum exists and have the effect of a vote “against” any matter as to which they are specified.

 

Proxies submitted by brokers that do not indicate a vote for some or all of the proposals because they don’t have discretionary voting authority and haven’t received instructions as to how to vote on those proposals (so-called “broker non-votes”) are not considered “shares present” and will not affect the outcome of the vote.

 

If you are a shareholder of record and you plan to attend the annual meeting, please let us know by indicating in the appropriate place when you return your proxy. Please tear off the top portion of your proxy card where indicated and bring it with you to the meeting. This portion of the card will serve as your ticket and will admit you and one guest.

 

If you are a “street name” shareholder, tell your broker or nominee that you’re planning to attend the meeting and would like a “legal proxy.” Then simply bring that form to the meeting and we’ll give you a ticket at the door that will admit you and one guest. If you can’t get a legal proxy in time, we can still give you a ticket at the door if you bring a copy of your brokerage account statement showing that you owned Ford stock as of the record date, March 18, 2009.

 

Each shareholder and guest will be asked to present valid government-issued picture identification, such as a driver’s license or passport, before being admitted to the meeting. Cameras (including cell phones with built-in cameras), recording devices, and other electronic devices will not be permitted at the meeting and attendees will be subject to security inspections. We encourage you to leave any such items at home. We will not be responsible for any items checked at the door.

 

We do not know of any other matters to be presented or acted upon at the meeting. Under our By-Laws, no business besides that stated in the meeting notice may be transacted at any meeting of shareholders. If any other matter is presented at the meeting on which a vote may properly be taken, the shares represented by proxies will be voted in accordance with the judgment of the person or persons voting those shares.

 

Thirteen directors will be elected at this year’s annual meeting. Each director will serve until the next annual meeting or until he or she is succeeded by another qualified director who has been elected.

 

William Clay Ford, who had been a member of the Board of Directors since 1948, retired from the Board effective May 12, 2005. As with previous years, the Board of Directors has again requested that Mr. Ford serve as Director Emeritus so that the Board can continue to avail itself of his wisdom, judgment and experience, and Mr. Ford has agreed to so serve. Mr. Ford is entitled to attend Board and committee meetings and participate in discussion of matters that come before the Board or its committees, although he is not entitled to vote upon any such matters and no longer receives compensation as a non-employee Board member.

 

We will vote your shares as you specify when providing your proxy. If you do not specify how you want your shares voted when you provide your proxy, we will vote them for the election of all of the nominees listed below. If unforeseen circumstances (such as death or disability) make it necessary for the Board of Directors to substitute another person for any of the nominees, we will vote your shares for that other person.

 

Each of the nominees for director is now a member of the Board of Directors, which met twelve times during 2008. Each of the nominees for director attended at least 75% of the combined Board of Director and committee meetings held during the periods served by such nominee in 2008 (except for Messrs. Earley and Gephardt, who were elected to the Board of Directors in 2009). The nominees provided the following information about themselves as of February 1, 2009.

 

Nominees

 

 

The Audit Committee is composed of four directors, all of whom meet the independence standards contained in the NYSE Listed Company rules, SEC rules and Ford’s Corporate Governance Principles, and operates under a written charter adopted by the Board of Directors. A copy of the Audit Committee Charter may be found on the Company’s website, www.ford.com. The Audit Committee selects, subject to shareholder ratification, the Company’s independent registered public accounting firm.

 

Ford management is responsible for the Company’s internal controls and the financial reporting process. The independent registered public accounting firm, PricewaterhouseCoopers LLP (“PricewaterhouseCoopers”), is responsible for performing independent audits of the Company’s consolidated financial statements and internal control over financial reporting and issuing an opinion on the conformity of those audited financial statements with United States generally accepted accounting principles and on the effectiveness of the Company’s internal control over financial reporting. The Audit Committee monitors the Company’s financial reporting process and reports to the Board of Directors on its findings.

 

Audit Fees

 

PricewaterhouseCoopers served as the Company’s independent registered public accounting firm in 2008 and 2007. The Company paid PricewaterhouseCoopers $43.7 million and $39.0 million for audit services for the years ended December 31, 2008 and 2007, respectively. Audit services consisted of the audit of the financial statements included in the Company’s Annual Report on Form 10-K, reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-Q, attestation of the effectiveness of the Company’s internal controls over financial reporting, preparation of statutory audit reports, and providing comfort letters in connection with Ford and Ford Motor Credit Company funding transactions.

 

Audit-Related Fees

 

The Company paid PricewaterhouseCoopers $7.7 million and $13.3 million for audit-related services for the years ended December 31, 2008 and 2007, respectively. Audit-related services included support of funding transactions, due diligence for mergers, acquisitions and divestitures, employee benefit plan audits, attestation services, internal control reviews, and assistance with interpretation of accounting standards.

 

Tax Fees

 

The Company paid PricewaterhouseCoopers $5.7 million and $5.5 million for tax services for the years ended December 31, 2008 and 2007, respectively. The types of tax services provided included assistance with tax compliance and the preparation of tax returns, tax consultation, planning and implementation services, assistance in connection with tax audits, tax advice related to mergers, acquisitions and divestitures, and tax return preparation services provided to international service employees (“ISEs”) to minimize the cost to the Company of these assignments. In 2005, the Company began the transition to a new service provider for tax return preparation services to ISEs. Of the fees paid for tax services, the Company paid 57% and 60% for tax compliance and the preparation of Company tax returns in 2008 and 2007, respectively.

 

All Other Fees

 

The Company did not engage PricewaterhouseCoopers for any other services for the years ended December 31, 2008 and 2007.

 

Total Fees

 

The Company paid PricewaterhouseCoopers a total of $57.1 and $57.8 million in fees for the years ended December 31, 2008 and 2007, respectively.

 

Auditor Independence

 

During the last year, the Audit Committee met and held discussions with management and PricewaterhouseCoopers. The Audit Committee reviewed and discussed with Ford management and PricewaterhouseCoopers the audited financial statements and the assessment of the effectiveness of internal controls over financial reporting, contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. The Audit Committee also discussed with PricewaterhouseCoopers the matters required to be discussed by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, as well as by SEC regulations.

 

PricewaterhouseCoopers submitted to the Audit Committee the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the audit committee concerning independence. The Audit Committee discussed with PricewaterhouseCoopers such firm’s independence.

 

Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, filed with the SEC.

 

The Audit Committee also considered whether the provision of other non-audit services by PricewaterhouseCoopers to the Company is compatible with maintaining the independence of PricewaterhouseCoopers and concluded that the independence of PricewaterhouseCoopers is not compromised by the provision of such services.

 

Annually, the Audit Committee pre-approves categories of services to be performed (rather than individual engagements) by PricewaterhouseCoopers. As part of this approval, an amount is established for each category of services (Audit, Audit-Related, and Tax Services). In the event the pre-approved amounts prove to be insufficient, a request for incremental funding will be submitted to the Audit Committee for approval during the next regularly scheduled meeting. In addition, all new engagements greater than $250,000 will be presented in advance to the Audit Committee for approval. A regular report is prepared for each regular Audit Committee meeting outlining actual fees and expenses paid or committed against approved fees.

 

Audit Committee

 

Stephen G. Butler (Chair)

Kimberly A. Casiano

Irvine O. Hockaday, Jr.

Gerald L. Shaheen

 

Ford has operated under sound corporate governance practices for many years. We believe it is important to disclose to you a summary of our major corporate governance practices. Some of these practices have been in place for many years. Others have been adopted in response to regulatory and legislative changes. We will continue to assess and refine our corporate governance practices and share them with you.

 

Nominating and Governance Committee

 

The Nominating and Governance Committee is composed of eight directors, all of whom are considered independent under the NYSE Listed Company rules and Ford’s Corporate Governance Principles. The Committee operates under a written charter adopted by the Board of Directors. A copy of the charter may be found on Ford’s website at www.ford.com.

 

Composition of Board of Directors/Nominees

 

The Nominating and Governance Committee recommends to the Board the nominees for all directorships to be filled by the Board or by you. The Committee also reviews and makes recommendations to the Board on matters such as the size and composition of the Board in order to ensure the Board has the requisite expertise and its membership consists of persons with sufficiently diverse and independent backgrounds. Between annual shareholder meetings, the Board may elect directors to vacant Board positions to serve until the next annual meeting.

 

The Board proposes to you a slate of nominees for election to the Board at the annual meeting. You may propose nominees (other than self-nominations) for consideration by the Committee by submitting the names, qualifications and other supporting information to: Secretary, Ford Motor Company, One American Road, Dearborn, MI 48126. Properly submitted recommendations must be received no later than December 6, 2009 to be considered by the Committee for inclusion in the following year’s nominations for election to the Board. Your properly submitted candidates are evaluated in the same manner as those candidates recommended by other sources. All candidates are considered in light of the needs of the Board with due consideration given to the qualifications described below.

 

Qualifications

 

Because Ford is a large and complex company, the Committee considers several qualifications when considering candidates for the Board. Among the most important qualities directors should possess are the highest personal and professional ethical standards, integrity, and values. They should be committed to representing the long-term interests of all of the shareholders. Directors must also have practical wisdom and mature judgment. Directors must be objective and inquisitive. Ford recognizes the value of diversity and we endeavor to have a diverse Board, with experience in business, government, education and technology, and in areas that are relevant to the Company’s global activities. Directors must be willing to devote sufficient time to carrying out their duties and responsibilities effectively, and should be committed to serve on the Board for an extended period of time. Directors should also be prepared to offer their resignation in the event of any significant change in their personal circumstances that could affect the discharge of their responsibilities as directors of the Company, including a change in their principal job responsibilities.

 

Identification of Directors

 

The Charter of the Committee provides that the Committee conducts all necessary and appropriate inquiries into the backgrounds and qualifications of possible candidates as directors. It has the sole authority to retain and terminate any search firm to be used to assist it in identifying and evaluating candidates to serve as directors of the Company.

 

The Committee identifies candidates through a variety of means, including search firms, recommendations from members of the Committee and the Board, including the Executive Chairman and the President and CEO, and

suggestions from Company management. Upon the recommendation of the Committee, Richard A. Gephardt and Anthony F. Earley, Jr., were elected to the Board of Directors on March 20, 2009. Mr. Gephardt was proposed to the Committee by the President and CEO and an independent director. Mr. Earley was proposed to the Committee by the Executive Chairman and an independent director. Both candidates were selected from among several names submitted by directors and identified by a search firm. Messrs. Gephardt and Earley were interviewed by the Chair of the Committee, certain other Committee members, the Chairman and the President and CEO prior to their election. The Company on behalf of the Committee has paid fees to third-party firms to assist the Committee in the identification and evaluation of potential Board members.

 

Director Independence

 

A majority of the directors must be independent directors under the NYSE Listed Company rules. The NYSE rules provide that no director can qualify as independent unless the Board affirmatively determines that the director has no material relationship with the listed company. The Board has adopted the following standards in determining whether or not a director has a material relationship with the Company and these standards are contained in Ford’s Corporate Governance Principles and may be found at the Company’s website, www.ford.com.

 

 

 

Based on these independence standards and all of the relevant facts and circumstances, the Board determined that none of the following directors had any material relationship with the Company and, thus, are independent: Stephen G. Butler, Kimberly A. Casiano, Anthony F. Earley, Jr., Richard A. Gephardt, Irvine O. Hockaday, Jr., Richard A. Manoogian, Ellen R. Marram, Homer A. Neal, Gerald L. Shaheen, and John L. Thornton. Additionally, Jorma Ollila, who left the Board during 2008, was determined by the Board to have had no material relationship with the Company during the time of his service and, thus, was independent.

 

Disclosure of Relevant Facts and Circumstances

 

With respect to the independent directors listed above, the Board considered the following relevant facts and circumstances in making the independence determinations:

 

From time to time during the past three years, Ford purchased goods and services from, or financing arrangements were provided by, various companies with which certain directors were or are affiliated either as members of such companies’ boards of directors or, in the case of Ms. Casiano and Mr. Earley, as officers. In addition to Ms. Casiano and Mr. Earley, these directors included Mr. Gephardt, Mr. Hockaday, Mr. Manoogian, Ms. Marram, Mr. Ollila, and Mr. Shaheen. The Company also made donations to certain institutions with which certain directors are affiliated. These included Dr. Neal and Ms. Casiano. Additionally, a company with which Mr. Manoogian is affiliated purchased products from Ford. None of the relationships described above were material under the independence standards contained in our Corporate Governance Principles.

 

In addition, Richard A. Manoogian is a member of the Board of Trustees of The Henry Ford and he and Mr. Earley are members of the Board of Directors of Detroit Renaissance. The Company and its affiliates contributed to The Henry Ford amounts that exceeded the greater of $1 million or two percent of The Henry Ford’s total annual discretionary receipts during its three most recently completed fiscal years. Likewise, the Company and its affiliates contributed to Detroit Renaissance amounts that exceeded the greater of $1 million or two percent of Detroit Renaissance’s total discretionary receipts during its three most recently completed fiscal years. It was further noted that in February 2008, Ford, with the approval of the Board, decided to invest up to $10 million over the next two to four years in the Detroit Renaissance’s Venture Capital Fund I. Other large companies in Southeastern Michigan have also made monetary commitments to the fund in order to support local venture capital firms in Southeast Michigan. Pursuant to the Company’s Corporate Governance Principles, the independent directors listed above (excluding Mr. Earley and Mr. Manoogian), considering all of the relevant facts and circumstances, determined that the Company’s contributions to The Henry Ford and Detroit Renaissance and the presence of Mr. Earley and Mr. Manoogian on those Boards did not constitute a material relationship between Ford and Messrs. Earley and Manoogian. Consequently, these independent directors determined Messrs. Earley and Manoogian to be independent. With respect to The Henry Ford, the directors gave due consideration to the composition of the Board of Trustees of The Henry Ford, which includes Edsel B. Ford II, William Clay Ford and William Clay Ford, Jr., and the Company’s history of support for The Henry Ford, which predated Mr. Manoogian’s service. Likewise, with respect to Detroit Renaissance, the directors gave due consideration to the composition of the Board of Directors of Detroit Renaissance, which includes William Clay Ford, Jr., and Mr. James Vella, President of the Ford Fund, as well as Detroit Renaissance’s mission to promote the economic development of Southeastern Michigan, and the Company’s history of contributions to Detroit Renaissance and to the development of Southeastern Michigan. In both cases, the directors determined that the Company was not unduly influenced to make contributions to The Henry Ford or Detroit Renaissance because of Mr. Earley’s or Mr. Manoogian’s presence on those boards, nor was Mr. Earley or Mr. Manoogian unduly influenced by the contributions made by the Company to The Henry Ford or Detroit Renaissance.

 

Corporate Governance Principles

 

The Nominating and Governance Committee developed and recommended to the Board a set of corporate governance principles, which the Board adopted. Ford’s Corporate Governance Principles may be found on its website at www.ford.com. These principles include: a limitation on the number of boards on which a director may serve, qualifications for directors (including a director retirement age and a requirement that directors be prepared to resign from the Board in the event of any significant change in their personal circumstances that could affect the discharge of their responsibilities), director orientation, continuing education and a requirement that the Board and each of its Committees perform an annual self-evaluation. Although Messrs. Hockaday and Manoogian have reached the normal retirement age of 72 years, the Board has waived the retirement age for them as permitted under our Corporate Governance Principles. Shareholders may obtain a printed copy of the Company’s Corporate Governance Principles by writing to our Shareholder Relations Department, Ford Motor Company, One American Road, Suite 1026, Dearborn, Michigan 48126-2798.

 

Policy and Procedure for Review and Approval of Related Party Transactions

 

Business transactions between Ford and its officers or directors, including companies in which a director or officer (or an immediate family member) has a substantial ownership interest or a company where such director or officer (or an immediate family member) serves as an executive officer (“related party transactions”), are not prohibited. In fact, certain related party transactions can be beneficial to the Company and its shareholders.

 

It is important, however, to ensure that any related party transactions are beneficial to the Company. Accordingly, any related party transaction, regardless of amount, is submitted to the Nominating and Governance Committee in advance for review and approval. All existing related party transactions are reviewed at least annually by the Nominating and Governance Committee. The Office of the General Counsel reviews all such related party transactions, existing or proposed, prior to submission to the Nominating and Governance Committee, and our General Counsel opines on the appropriateness of each related party transaction. The Nominating and Governance Committee may, at its discretion, consult with outside legal counsel.

 

Any director or officer with an interest in a related party transaction is expected to recuse himself or herself from any consideration of the matter.

 

The Nominating and Governance Committee’s approval of a related party transaction may encompass a series of subsequent transactions contemplated by the original approval, i.e., transactions contemplated by an ongoing business relationship occurring over a period of time. Examples include transactions in the normal course between the Company and a dealership owned by a director or an executive officer (or an immediate family member thereof), transactions in the normal course between the Company and financial institutions with which a director or officer may be associated, and the ongoing issuances of purchase orders or releases against a blanket purchase order made in the normal course by the Company to a business with which a director or officer may be associated. In such instances, any such approval shall require that the Company make all decisions with respect to such ongoing business relationship in accordance with existing policies and procedures applicable to non-related party transactions (e.g., Company purchasing policies governing awards of business to suppliers, etc.).

 

In all cases, a director or officer with an interest in a related party transaction may not attempt to influence Company personnel in making any decision with respect to the transaction.

 

Committee Charters/Codes of Ethics

 

The Company has published on its website (www.ford.com) the charter of each of the Audit, Compensation, Finance, Nominating and Governance, and Sustainability Committees of the Board, as well as its Code of Conduct Handbook, which applies to all officers and employees, a code of ethics for directors, and a code of ethics for the Company’s chief executive officer as well as senior financial and accounting personnel. Any waiver of, or amendments to, the

codes of ethics for directors or executive officers, including the chief executive officer, the chief financial officer and the principal accounting officer, may be approved only by the Nominating and Governance Committee and any such waivers or amendments will be disclosed promptly by the Company by posting such waivers or amendments to its website. The Committee also reviews management’s monitoring of compliance with the Company’s Code of Conduct. Printed copies of each of the committee charters and the codes of ethics referred to above are also available by writing to our Shareholder Relations Department, Ford Motor Company, One American Road, Suite 1026, Dearborn, Michigan 48126-2798.

 

Executive Sessions of Non-Employee Directors

 

Non-employee directors ordinarily meet in executive session without management present at regularly scheduled Board meetings and may meet at other times at the discretion of the presiding independent director or at the request of any non-employee director. Currently, Irvine O. Hockaday, Jr., is the presiding independent director for the executive sessions of non-management directors. Additionally, all of the independent directors meet periodically (but not less than annually) without management or non-independent directors present.

 

Audit Committee

 

The Charter of the Audit Committee provides that a member of the Audit Committee generally may not serve on the audit committee of more than two other public companies. The Board has designated Stephen G. Butler as an Audit Committee financial expert. Mr. Butler meets the independence standards for audit committee members under the NYSE Listed Company and SEC rules. The lead partner of the Company’s independent registered public accounting firm is rotated at least every five years.

 

Compensation Committee Operations

 

The Compensation Committee establishes and reviews our overall executive compensation philosophy and strategy and oversees our various executive compensation programs. The Committee is responsible for evaluating the performance of and determining the compensation for our Executive Chairman, the President and CEO, and other executive officers, and approving the compensation structure for senior management, including officers. The Committee is composed of three directors who are considered independent under the NYSE Listed Company rules and our Corporate Governance Principles. The Committee’s membership is determined by our Board of Directors. The Committee operates under a written charter adopted by our Board of Directors. The Committee annually reviews the charter. A copy of the charter may be found on our website at www.ford.com.

 

The Committee makes decisions regarding the compensation of our officers that are Vice Presidents and above, including the Named Executives. The Committee has delegated authority, within prescribed share limits, to a Long-Term Incentive Compensation Award Committee (comprised of William Clay Ford, Jr., Alan Mulally, and Lewis W. K. Booth) to approve grants of options, Performance Units, Restricted Stock Units and other stock-based awards, and to the Annual Incentive Compensation Award Committee to determine bonuses, for other employees.

 

The Board of Directors makes decisions relating to non-employee director compensation. Any proposed changes are reviewed in advance and recommended to the Board by the Nominating and Governance Committee.

 

The Compensation Committee considers recommendations from Mr. Ford, Mr. Mulally, and the Group Vice President — Human Resources and Corporate Services, in developing compensation plans and evaluating performance of other executive officers. The Committee’s consultant also provides advice and analysis on the structure and level of executive compensation. Final decisions on any major element of compensation, however, as well as total compensation for executive officers, are made by the Compensation Committee.

 

In 2008, the Committee engaged Semler Brossy Consulting Group, LLC, an independent compensation consulting firm, to advise the Committee on executive compensation and benefits matters. Semler Brossy is retained directly by

the Committee and it has the sole authority to review and approve of the budget of the independent consultant. Semler Brossy does not advise our management and receives no other compensation from us. The same Semler Brossy principal attended all eight of the Committee meetings in 2008. In addition, the Committee relied on survey data provided by the Towers Perrin Executive Compensation Database. See “How We Determine Compensation” in the “Compensation Discussion and Analysis” on pp. 31-32. Towers Perrin does not assist the Compensation Committee in determining or recommending compensation of executive officers. Towers Perrin is retained by Ford management, not the Committee.

 

The Committee met eight times during 2008. Committee meetings typically occur prior to the meetings of the full Board of Directors. Bonus target grants, bonus awards, stock option grants, Performance Unit grants, final stock awards, and Final Awards of Restricted Stock Units typically are decided at the February or March Committee meeting (see “Compensation Discussion and Analysis — Equity-Based Compensation — D. Timing of Awards” on pp. 40-41). Officer salaries are reviewed in December each year. Beginning in 2010, the Committee will review officer salaries in March of each year, consistent with the review of other salaried employees. The Company has decided that there will be no annual merit increases to salary for salaried employees for 2009.

 

See the “Compensation Discussion and Analysis” on pp. 29-46 for more detail on the factors considered by the Committee in making executive compensation decisions.

 

The Committee reviews our talent and executive development program with senior management. These reviews are conducted periodically and focus on executive development and succession planning throughout the organization, at the Vice President level and above.

 

Our policy, approved by the Compensation Committee, to limit outside board participation by our officers, is shown below:

 

 

Board Committees

 

Only independent directors serve on the Audit, Compensation and Nominating and Governance Committees, in accordance with the independence standards of the NYSE Listed Company rules and the Company’s Corporate Governance Principles. The Board, and each committee of the Board, has the authority to engage independent consultants and advisors at the Company’s expense.

 

Communications with the Board/Annual Meeting Attendance

 

The Board has established a process by which you may send communications to the Board. You may send communications to our Directors, including any concerns regarding Ford’s accounting, internal controls, auditing, or other matters, to the following address: Board of Directors, Ford Motor Company, P.O. Box 685, Dearborn, MI 48126-0685 U.S.A. You may submit your concern anonymously or confidentially. You may also indicate whether you are a shareholder, customer, supplier, or other interested party. Communications relating to the Company’s accounting, internal controls, or auditing matters will be relayed to the Audit Committee. A summary of the other communications will be relayed to the Nominating and Governance Committee. Communications will be referred to other areas of the Company for handling as appropriate under the facts and circumstances outlined in the communications. Ford will acknowledge receipt of all communications sent to the address above that disclose a return address. You may also find a description of the manner in which you can send communications to the Board on the Company’s website (www.ford.com).

 

All members of the Board are expected to attend the annual meeting, unless unusual circumstances would prevent such attendance. Last year, all eleven of the nominated directors who were then directors attended the annual meeting.

 

The following table shows how much Ford stock each director, nominee, and Named Executive beneficially owned as of February 1, 2009 (except for Mr. Earley who purchased additional shares after February 1 but prior to joining the Board). No director, nominee or executive officer, including Named Executives, beneficially owned more than 0.24% of Ford’s total outstanding common stock. Directors and executive officers as a group, including the Named Executives, beneficially owned 0.58% of Ford common stock as of February 1, 2009. These persons held options exercisable on or within 60 days after February 1, 2009 to buy, and/or beneficially owned as of February 1, 2009 Trust Preferred Securities convertible into, 24,361,777 shares of Ford common stock.

 

 

Notes

 

⁽¹⁾Amounts shown include restricted shares of common stock issued under the Restricted Stock Plan for Non-Employee Directors, as follows: 700 shares each for Kimberly A. Casiano, Edsel B. Ford II, Irvine O. Hockaday, Jr., and Ellen R. Marram.

 

For executive officers, included in the amounts for “All Directors and Executive Officers as a group” are Restricted Stock Equivalents and/or Restricted Stock Units issued under the 1998 Plan as long-term incentive grants in 2008 and prior years for retention and other incentive purposes.

Also, amounts shown include restricted shares of common stock issued under the 1998 Plan and 2008 Plan as follows: 126,598 shares for Edsel B. Ford II as payment for his services pursuant to a consulting agreement with the Company (see p. 25). In addition, amounts shown include Restricted Stock Equivalents and/or Restricted Stock Units issued under the 1998 Plan as follows: 715,230 units for Mr. Mulally, 190,720 units for Lewis W. K. Booth, 258,877 units for Mr. Fields, 42,405 units for Mr. Farley, 131,880 units for Mr. Leitch, and 236,163 units for Mr. Leclair.

 

⁽²⁾In addition to the stock ownership shown in the table above: Edsel B. Ford II has disclaimed beneficial ownership of 105,698 shares of common stock and 55,533 shares of Class B Stock that are either held directly by his immediate family, by charitable funds which he controls or by members of his immediate family in custodial or conservatorship accounts for the benefit of other members of his immediate family. William Clay Ford, Jr., has disclaimed beneficial ownership of 91,842 shares of common stock and 88,177 shares of Class B Stock that are either held directly by members of his immediate family or by members of his immediate family in custodial accounts for the benefit of other members of his immediate family. Present directors and executive officers as a group have disclaimed beneficial ownership of a total of 197,540 shares of common stock and 143,710 shares of Class B Stock.

 

Also, on February 1, 2009 (or within 60 days after that date), the Named Executives and directors listed below have rights to acquire shares of common stock through the exercise of stock options under Ford’s stock option plans and/or through conversion of Trust Preferred Securities, as follows:

 

Person		Number of Shares
Lewis W. K. Booth			1,068,251
James D. Farley			100,922
Mark Fields			1,558,507
William Clay Ford, Jr.			9,290,778
Donat R. Leclair			1,353,564
David G. Leitch			649,899
Richard A. Manoogian			56,498
Alan Mulally			4,264,463

 

The amounts of common stock shown above for Mr. Manoogian are a result of his ownership of Trust Preferred Securities, which are convertible into Ford common stock. In Mr. Manoogian’s case, he is deemed to be the beneficial owner of certain Trust Preferred Securities as a result of his being a trustee of a charitable foundation that owns the Trust Preferred Securities. Additionally, Mr. Manoogian pledged as security 200,000 shares of common stock held in a trust of which he is a trustee. Mr. Ford has pledged 2,199,501 shares of common stock.

 

⁽³⁾Pursuant to SEC filings, the Company was notified that as of December 31, 2008, the following entities had more than a 5% ownership interest of Ford common stock, or owned securities convertible into more than 5% ownership of Ford common stock, or owned a combination of Ford common stock and securities convertible into Ford common stock that could result in more than 5% ownership of Ford common stock: Bank of America Corporation, 100 North Tryon Street, Floor 25, Bank of America Corporate Center, Charlotte, North Carolina 28255, and certain affiliates, owned 332,320,307 shares of common stock (15.91%), including 315,505,881 shares deemed owned by Bank of America, N.A., by virtue of one of its affiliate’s status as investment manager under Ford’s 401(k) plans; and Wellington Management Company, LLP, 75 State Street, Boston, Massachusetts 02109, owned 125,037,926 shares of common stock (5.39%).

 

⁽⁴⁾In general, these are common stock units credited under a deferred compensation plan and payable in cash. For Alan Mulally, included are 200,000 Restricted Stock Units payable in cash that were granted to him under the 1998 Plan in connection with his appointment as President and CEO of Ford.

 

⁽⁵⁾As of February 1, 2009, the following persons owned more than 5% of the outstanding Class B Stock: Lynn F. Alandt, c/o Ford Estates, Detroit, Michigan, beneficially owned 7,294,064 shares (10.30%), Benson Ford, Jr., c/o Ford Estates, Detroit, Michigan, beneficially owned 4,055,739 shares (5.72%), Eleanor F. Sullivan, c/o Ford

Estates, Detroit, Michigan, beneficially owned 5,622,973 shares (7.94%), Josephine F. Ingle, c/o Ford Estates, Detroit, Michigan, beneficially owned 4,554,709 shares (6.43%), Alfred B. Ford, c/o Ford Estates, Detroit, Michigan, beneficially owned 3,566,801 shares (5.03%), William Clay Ford, c/o Ford Estates, Detroit, Michigan, beneficially owned 10,161,331 shares (14.34%) and Sheila F. Hamp, c/o Ford Estates, Detroit, Michigan, beneficially owned 3,703,330 (5.23%). In addition to the above, David M. Hempstead , c/o Ford Estates, Detroit, Michigan controlled 6,251,516 shares (8.82%) as trustee of various trusts. Mr. Hempstead disclaims beneficial ownership of these shares.

 

Of the outstanding Class B Stock, 52,016,831 shares are held in a voting trust of which Edsel B. Ford II, William Clay Ford, and William Clay Ford, Jr. are among the trustees. The trust requires the trustees to vote the shares as directed by a plurality of the shares in the trust.

 

Impact Resulting From Spin-off of Associates First Capital Corporation and Visteon Corporation and Implementation of the Value Enhancement Plan

 

The value of the Company’s common stock changed as a result of:

 

 

To account for these changes in value, the following items held by officers or directors of the Company as of April 9, 1998, June 28, 2000 and August 2, 2000, respectively, were adjusted in each case to ensure that the aggregate value of the item before and after each of these events would be approximately equal: common stock units, deferred contingent credits, Performance Stock Rights, Restricted Stock Equivalents, and stock options. (References in this proxy statement to any of these items that were issued before August 2, 2000 are to the adjusted amounts.)

 

Based on Company records and other information, Ford believes that all SEC filing requirements applicable to its directors and executive officers were complied with for 2008 and prior years, except that, due to clerical oversight, Mark Fields had one late report of one transaction, Derrick M. Kuzak had one late report of one transaction, and Thomas K. Brown had one late report of a holding.

 

* Indicates Current Directors

 

⁽¹⁾Standard Compensation Arrangements

 

Fees.  On July 13, 2006, the Board of Directors voluntarily reduced Board fees payable to non-employee directors by half. Accordingly, the following fees were paid to non-employee directors during 2008:

 

Annual Board membership fee		$	100,000
Annual Committee chair fee		$	2,500
Annual Presiding Director fee		$	5,000

 

For 2009, the Board voluntarily agreed to forgo the cash portion of the annual fees. Consequently, $60,000 (60% of the Annual Board membership fee) will be credited to the directors’ accounts under the Deferred Compensation Plan for Non-Employee Directors (see below). Directors will not receive any other cash payments relative to board fees during 2009.

 

Deferred Compensation Plan.  Under this plan, 60% of a director’s annual Board membership fee must be deferred in common stock units. Directors also can choose to have the payment of all or some of the remainder of their fees deferred in the form of cash and/or common stock units. Each common stock unit is equal in value to a share of common stock and is ultimately paid in cash. These common stock units generate Dividend Equivalents in the form of additional common stock units (if dividends are paid on common stock). These units are credited to the directors’ accounts on the date common stock cash dividends are paid. Any fees deferred in cash are held in the general funds of the Company. Interest on fees deferred in cash is credited semi-annually to the directors’ accounts at the then-current U.S. Treasury Bill rate plus 0.75%. In general, deferred amounts are not paid until after the director retires from the Board. The amounts are then paid, at the director’s option, either in a lump sum or in annual installments over a period of up to ten years.

 

Restricted Stock Plan.  Effective July 1, 2004, Ford amended the Restricted Stock Plan for Non-Employee Directors providing for its termination, except with respect to outstanding grants of restricted stock and stock equivalents. Each non-employee director who had served for six months received 3,496 shares of common stock subject to

restrictions on sale. In general, the restrictions expire for 20% of the shares each year following the year of the grant. No new grants of restricted stock will be made under the plan.

 

Stock awards outstanding at December 31, 2008, for each of the directors listed above consisted of restricted shares of common stock issued under the Restricted Stock Plan for Non-Employee Directors, as follows: 700 shares each for Ms. Casiano, Mr. Ford, Mr. Hockaday, and Ms. Marram.

 

Insurance.  Ford provides non-employee directors with $200,000 of life insurance and $500,000 of accidental death or dismemberment coverage. Effective December 31, 2008, the Board amended this plan so that life insurance coverage ends for all currently retired directors and directors who retire in the future, except for those currently retired directors who had previously elected the reduction in life insurance and the $15,000 annuity discussed below, in which case only the annuity would continue. A director who retired from the Board after age 70 or, after age 55 with Board approval, and who had served for at least five years, may have elected to have the life insurance reduced to $100,000 and receive $15,000 a year for life. The accidental death or dismemberment coverage may, at the director’s expense, be supplemented up to an additional $500,000 and ends when the director retires from the Board.

 

Evaluation Vehicle Program.  We provide non-employee directors with the use of up to two Company vehicles free of charge. Directors are expected to provide evaluations of the vehicles to the Company.

 

⁽²⁾William Clay Ford, Jr., our Chairman of the Board, is not shown in the table above because he is employed as Executive Chairman of Ford and does not receive non-employee director compensation. Additionally, Mr. Ford is not identified as a Named Executive in the Summary Compensation Table on p. 47 because he did not meet the definition of a Named Executive under SEC rules.

 

⁽³⁾As indicated in footnote 1, under “Deferred Compensation Plan,” non-employee directors are required to defer at least 60% of their annual Board membership fee. The following summarizes director deferrals for 2008: Messrs. Butler, Ford and Manoogian, Ms. Casiano, Ms. Marram, and Dr. Neal: $60,000 each; Messrs. Shaheen and Thornton: $100,000 each; Mr. Hockaday: $82,500; Mr. Bond: $50,000; and Mr. Ollila: $83,333.

 

⁽⁴⁾The amount shown for Edsel B. Ford II reflects the expense recognized pursuant to FAS 123R due to grants of restricted shares of common stock awarded under the 1998 Plan and 2008 Plan pursuant to a January 1999 consulting agreement between the Company and Mr. Ford. The amount shown also reflects the grant date fair value calculated pursuant to FAS 123R of these awards. Under the agreement, the consulting fee is $125,000 per calendar quarter, payable in restricted shares of common stock. The restrictions on the shares lapse one year from the date of grant and are subject to the conditions of the 1998 Plan and 2008 Plan. Mr. Ford is available for consultation, representation, and other duties under the agreement. Additionally, the Company provides facilities (including office space), an administrative assistant, and security arrangements. This agreement will continue until either party ends it with 30 days’ notice.

⁽⁵⁾The following table summarizes the amounts shown in column (d).

 

All Other Compensation in 2008

 

 

⁽ⁱ⁾The amount shown for Mr. Bond reflects fees paid pursuant to a consulting agreement with the Company dated September 13, 2006. Under the agreement, Mr. Bond served as a consultant and senior advisor to the Executive Chairman, working on financial and other matters. The consulting fee was $25,000 per day for actual days worked, payable in arrears. Total fees would not exceed $262,500 for any twelve month period, unless specifically agreed to by the Company and Mr. Bond. The agreement was terminated upon Mr. Bond’s resignation from the Board on October 17, 2008. During the term of the agreement, Ford reimbursed Mr. Bond for customary and reasonable business-related expenses, travel and lodging, consistent with Company policies. While the agreement was in effect, the Company provided Mr. Bond with an office and other incidental support in connection with the services provided under the agreement.

 

The amount shown for Dr. Neal reflects fees paid as a member of the board of managers of Ford Global Technologies, LLC, a wholly-owned entity that manages the Company’s intellectual property. As a non-employee director of such board, Dr. Neal receives the customary fees paid to non-employee directors. Currently, the fees are: Annual Fee: $10,000, Attendance Fee: $1,000 per meeting. Dr. Neal attended both meetings of the board of managers of Ford Global Technologies, LLC, during 2008.

 

⁽ⁱⁱ⁾All amounts shown in this column reflect the cost of evaluation vehicles provided to Directors (see footnote (1) above) and the actual cost incurred for birthday and Holiday gifts. We calculate the aggregate incremental costs of providing the evaluation vehicles by estimating the lease fee of a comparable vehicle under our Management Lease Program. The lease fee under that program takes into account the cost of using the vehicle, maintenance, license, title and registration fees, and insurance.

 

⁽ⁱⁱⁱ⁾The amounts in this column reflect the cost of providing Accidental Death and Dismemberment insurance discussed in footnote (1) above.

 

Since January 1993, Ford has had a consulting agreement with William Clay Ford. Under this agreement, Mr. Ford is available for consultation, representation, and other duties. For these services, Ford pays him $100,000 per year and provides facilities (including office space), an administrative assistant, and security arrangements. This agreement will continue until either party ends it with 30 days’ notice.

 

In February 2002, Ford entered into a Stadium Naming and License Agreement with The Detroit Lions, Inc., pursuant to which we acquired for $50 million, paid by us in 2002, the naming rights to a new domed stadium located in downtown Detroit at which the Lions began playing their home games during the 2002 National Football League season. We named the stadium “Ford Field.” The term of the naming rights agreement is 25 years, which commenced with the 2002 National Football League season. Benefits to Ford under the naming rights agreement include exclusive exterior entrance signage and predominant interior promotional signage. In June 2005, the naming rights agreement was amended to provide for expanded Ford exposure on and around the exterior of the stadium, including the rooftop, in exchange for approximately $6.65 million to be paid in varying installments over the next ten years, of which $564,933 was paid during 2008. Beginning in 2005, the Company also agreed to provide to the Lions, at no cost, eight new model year Ford, Lincoln or Mercury brand vehicles manufactured by Ford in North America for use by the management and staff of Ford Field and the Lions and to replace such vehicles in each second successive year, for the remainder of the naming rights agreement. We paid the cost of providing the vehicles for 2007 and 2008 in 2007 and, therefore, no cost was incurred for 2008. William Clay Ford is the majority owner of the Lions. In addition, William Clay Ford, Jr., is one of five minority owners and is a director and officer of the Lions.

 

Paul Alandt, Lynn F. Alandt’s husband, owns a Ford-franchised dealership and a Lincoln-Mercury-franchised dealership. In 2008, the dealerships paid Ford about $81.8 million for products and services in the ordinary course of business. In turn, Ford paid the dealerships about $17.5 million for services in the ordinary course of business. Also in 2008, Ford Motor Credit Company LLC, a wholly-owned entity of Ford, provided about $111 million of financing to the dealerships and paid $555,918 to them in the ordinary course of business. The dealerships paid Ford Credit about $107.9 million in the ordinary course of business. Additionally, in 2008 Ford Credit purchased retail installment sales contracts and Red Carpet Leases from the dealerships in amounts of about $11.6 million and $52.6 million, respectively.

 

Mr. Alandt also owns a Volvo franchised dealership. Volvo Cars is a wholly-owned entity of Ford. During 2008 the dealership paid Volvo Cars about $8.5 million for products and services in the ordinary course of business. In turn, Volvo Cars paid the dealership about $1.8 million for services in the ordinary course of business. Also in 2008, Ford Credit provided about $11.7 million of financing to the dealership and paid $12,893 to it in the ordinary course of business. The dealership paid Ford Credit about $12.5 million in the ordinary course of business. Additionally, in 2008 Ford Credit purchased retail installment sales contracts and retail leases from the dealership in amounts of $265,093 and about $1.9 million, respectively.

 

Edsel B. Ford II owns Pentastar Aviation, LLC, an aircraft charter, management, maintenance, and catering company. During 2008, the Company paid Pentastar, or its affiliates, $291,970 for services provided to the Company in the ordinary course of business.

 

In March 2001, Marketing Associates, LLC, an entity in which Edsel B. Ford II has a majority interest, acquired all of the assets of the Marketing Associates Division of Lason Systems, Inc. Before the acquisition, the Marketing Associates Division of Lason Systems, Inc. provided various marketing and related services to the Company and this continued following the acquisition. In 2008, the Company paid Marketing Associates, LLC approximately $26.8 million for marketing and related services provided in the ordinary course of business.

 

The spouse of Donat R. Leclair, our retired Chief Financial Officer, is an employee of the Company. During 2008, Mr. Leclair’s spouse received $411,157 in salary and equity-based compensation.

Pursuant to SEC filings, the Company was notified that as of December 31, 2008, Bank of America Corporation, 100 North Tryon, Floor 25, Bank of America Corporate Center, Charlotte, North Carolina 28255, and certain affiliates, owned approximately 15.91% of common stock (which includes shares deemed to be owned by virtue of an affiliate of Bank of America, N.A., status as investment manager under Ford’s 401(k) plans). During 2008, the Company paid Bank of America and certain of its affiliates approximately $29.4 million in the ordinary course of business. Additionally, the Company and its affiliates has approximately $1 billion of revolving credit facilities with Bank of America and its affiliates.

 

Pursuant to SEC filings, the Company was notified that as of December 31, 2008. Wellington Management Company, LLP, 75 State Street, Boston, Massachusetts 02109, owned approximately 5.39% of the Company’s common stock. During 2008, the Company paid Wellington Management Company approximately $3.6 million in the ordinary course of business.

 

The compensation of our executive officers for 2008 was intended to focus executive performance on achieving important business objectives. Due in large part to the significant rise in gas prices in the first half of 2008, the continued worsening of the credit market crisis, and the resultant economic downturn, our 2008 performance against metrics for our performance-based programs fell short of many of our objectives for the year. This performance was reflected in the compensation received by the Named Executives. Despite the challenging environment, our executives, including the Named Executives, demonstrated exemplary leadership in driving achievement of 2008 objectives that were more directly within their control. For instance, we continued to make significant progress in our quality and cost performance and in implementing the “ONE Ford” plan.

 

Ford is acutely aware that current economic conditions have had a significant adverse impact on our shareholders, customers, dealers, employees, and other stakeholders. These conditions include plunging consumer confidence, a severe downturn in auto sales, a significant decrease in home values, and rising unemployment. In response to these developments, the Company and the Committee decided to take the following compensation actions in order to reduce costs and conserve cash:

 

 

We do not view these actions as merely symbolic but as a necessary step in the restructuring our business, in which our stakeholders also have been asked to participate.

 

The following discussion of our compensation philosophy and objectives provides you with the framework within which compensation programs were developed. The discussion of the Company’s compensation objectives and business strategy provides you with background of those areas that were determined to be important in moving the Company forward in its goal of accelerating our ONE Ford transformation.

 

A. Compensation Philosophy and Strategy Statements

 

Our Compensation Committee has adopted the following Philosophy Statement with respect to all salaried employees:

 

“Compensation and benefits programs are an important part of the Company’s employment relationship, which also includes challenging and rewarding work, growth and career development opportunities, and being part of a leading company with a diverse workforce and great products. Ford is a global company with consistent compensation and benefits practices that are affordable to the business.

 

Pay for performance is fundamental to our compensation philosophy. We reward individuals for performance and contributions to business success. Our compensation and benefits package in total will be competitive with leading companies in each country.”

 

In addition, the Committee has approved the following Strategy Statement:

 

“Compensation will be used to attract, retain, and motivate employees and to reward the achievement of business results through the delivery of competitive pay and incentive programs. Benefits provide employees with income security and protection from catastrophic loss. The Company will develop benefit programs that meet these objectives while minimizing its long-term liabilities.”

 

The Philosophy and Strategy Statements are reviewed by the Committee on a regular basis. In 2006, the Committee amended the Strategy Statement to include retention of employees as an objective to emphasize the importance of this goal as we execute our turnaround plan. Attraction and retention of talented executives has proven to be even more challenging as conditions in the economy and our industry have worsened. There were no changes to the Philosophy and Strategy Statements in 2008.

 

B. Compensation Objectives and Business Strategy

 

Consistent with the statements above, our compensation programs are designed to:

 

 

As noted above, one of the primary objectives of our compensation program is to drive executive behavior to accomplish key strategic goals. The Compensation Committee, in consultation with the Executive Chairman, the President and Chief Executive Officer, and the Group Vice President — Human Resources and Corporate Services, determined that emphasizing certain metrics in performance-based incentive plans would best assist in our turnaround efforts.

 

Our President and Chief Executive Officer, Alan Mulally, further developed the Company’s strategic priorities under the heading of ONE Ford. ONE Ford provides a single definition of not only what we need to accomplish but how we need to deliver those accomplishments to achieve success globally. ONE Ford aligns our efforts toward a common definition of success, which includes One Team executing One Plan to deliver One Goal.

 

One Team means people working together as a lean, global enterprise for automotive leadership.

 

One Plan means to:

 

1. Aggressively restructure our business to operate profitably at current demand and changing model mix.

 

2. Accelerate the development of new products our customers want and value.

 

3. Finance our plan and improve our balance sheet.

 

4. Work together effectively as one team.

 

One Goal means an exciting, viable Ford delivering profitable growth for all.

 

Given these priorities, the Committee decided to emphasize global and business unit profitability, as well as total Automotive operating-related cash flow and cost performance metrics in our incentive plans for 2008. These metrics support the goals of aggressively restructuring our business to operate profitably, as well as financing our plan and improving our balance sheet. Additionally, the Committee emphasized quality and market share metrics in our

incentive programs. These metrics support our goals of accelerating the development and introduction of new products our customers want and value. All of these objectives require effective teamwork in order to accomplish our goals.

 

As discussed in greater detail below, performance in these critical areas drove the compensation decisions related to performance-based Restricted Stock Units for Named Executives for 2008. For more detail on these metrics and how they were used in our incentive programs, refer to “Equity-Based Compensation — A. Annual Performance Unit and Stock Option Grants” and “C. Senior Executive Retention Program” on pp. 34-40.

 

How We Determine Compensation

 

With the above objectives and strategy in mind, the Compensation Committee determines compensation for our executives. Among the tools the Committee uses are competitive surveys, internal pay equity, and equity-value accumulation analyses, as well as recommendations from the Executive Chairman, the President and CEO, the Committee’s consultant, and our Human Resources department.

 

 

In December 2008, the Committee reviewed a report on Ford’s compensation programs for executives. The Company utilized the Towers Perrin Executive Compensation Database as the data source for the Company’s analysis of executive compensation. The compensation data was collected during the second quarter of 2008 and, therefore, included bonuses paid in early 2008 for 2007 performance, as well as equity grants for 2008. The report discussed how our executive compensation program compared with those of peer companies on base salary, bonus, long-term incentives, and total direct compensation. Towers Perrin develops data using a survey of several leading companies that we have historically used as comparator companies, adding stability and reliability to the survey data over time. In addition to General Motors and Chrysler, the survey also included 20 leading companies in other industries:

 

 

These companies were selected because, like Ford, they are generally Fortune 100 manufacturing companies with significant revenue (generally over $15 billion) and with global operations employing a large number of individuals in manufacturing, product engineering, and sales. Although many of these companies had more successful years than Ford and its competitors in 2007 and 2008, we believe the comparator group provides a good basis for assessment of our compensation programs. The market for executive talent is broad; to narrow the survey group to automotive-related companies or those whose recent performance matched Ford’s would be to ignore the fact that executives often move between industries. In addition, compensation data for many other automotive manufacturers is not readily available.

 

While the Committee uses the survey as a reference point, it is not, and was not in 2008, the sole determining factor in executive compensation decisions. The survey group data is used primarily to ensure that our executive compensation program as a whole is competitive when the Company achieves targeted performance levels. We generally seek to provide total compensation opportunities, which include salary, annual bonus and long-term incentives, at or around the survey group’s median total compensation. We do not establish rigid targets for total compensation, or any individual element of compensation, relative to the survey group. Rather, consistent with our compensation objectives discussed above, we incorporate flexibility into our compensation programs and in the executive assessment process to respond to, and adjust for, changes in the business/economic environment and individual accomplishments, performance, and circumstances.

 

Although we discuss how the total direct compensation of our Named Executives compares to that of the survey group, Messrs. Fields and Farley did not have exactly comparable positions within the survey group. The 2008 survey results indicated that the total direct compensation for our Named Executives as a group was about 19% above the median. This result was expected given that we met or exceeded most of our objectives for 2007 performance. In general, 2007 cash compensation for the Named Executives was significantly above the median of the survey group, and equity-based compensation was approximately at the median on average. The Committee noted that for 2006, total direct compensation was significantly below the median, which was consistent with our performance against objectives for that year. These results reinforce the Committee’s pay for performance compensation philosophy (see “A. Compensation Philosophy and Strategy Statements” on pp. 29-30).

 

An analysis of how each element of compensation listed below compared to the survey data for 2008, as well as how the factors described above, including the competitive survey data review, affected Named Executive compensation decisions during 2008, is included in the discussion of each element.

 

B. Internal Pay Equity and Equity-Value Accumulation Analyses

 

Each year, the Committee reviews all components of compensation, both recent historical and prospective, of our executive officers, including the Named Executives. This review includes data on salary, annual bonuses, and equity-based awards, as well as data on perquisites and other benefits, and is prepared by the Company’s Human Resources department. The Committee also takes into account relative pay considerations within the officer group and data covering individual performance. In general, this analysis did not result in any significant differences in awarding of compensation among Named Executives during 2008.

 

The Committee also considers analyses of the accumulation of the value of outstanding equity grants. For instance, the Committee reviewed the value of equity-based awards at certain price levels of Ford stock. This review also included data on the increase in shareholder value at these stock price levels. This allows the Committee to assess the reasonableness of equity-based awards in comparison to potential increases in the Company’s market value. In light of our stock price and our desire to conserve cash, the Committee believes our equity-based compensation programs are appropriate to motivate and retain executives.

 

C. Management Recommendations

 

The Committee considers recommendations from William Clay Ford, Jr., our Executive Chairman, Mr. Mulally, and the Group Vice President — Human Resources and Corporate Services, in developing compensation plans and evaluating performance of other executive officers. The Committee’s consultant also provides advice and analyses on the structure and level of executive compensation (see Compensation Committee Operations on pp. 19-20). As noted in the Executive Summary above, Mr. Mulally established the ONE Ford corporate priorities and, subsequently, our incentive plan metrics were developed in consultation with our Human Resources and Finance departments to support these priorities. In addition, these metrics and related targets were developed from our 2008 business plan. Final decisions on any major element of compensation, however, as well as total compensation for each executive officer, are made by the Compensation Committee.

 

Named Executive Officers

 

The Named Executives are:

 

Elements of Compensation

 

The table below lists the elements of our total compensation program and why we provide these elements:

 

 

Each compensation element is supported by the philosophy, objectives, and strategy discussed in the Executive Summary on pp. 29-30. In addition, the Committee awards cash, stock options, restricted or unrestricted stock, and/or Restricted Stock Units to key executives when it deems it appropriate for promotion, retention, recognition, or incentive purposes. The special awards made during 2008, discussed in more detail below, were performance-based (see “Equity-based Compensation — C. Senior Executive Retention Program” on p. 40).

 

To achieve our objectives and to support our business strategy, compensation paid to our executives is structured to ensure that there is an appropriate balance among the various forms of compensation. The charts below show the various balances we achieved compared to the balances achieved by the survey group:

 

 

 

As the charts indicate, cash compensation makes up a higher percentage of our executives’ compensation than that of the comparator group’s median. Furthermore, equity-based compensation makes up a lower percentage of our executives’ compensation than that of the comparator group. We believe this is reasonable and not unexpected given that we are in the midst of our turnaround plan and our recent stock price performance.

 

The Committee attempts to strike appropriate balances by analyzing the competitive market for executive talent, our business results and forecasts, and our key strategic goals for the year. The Committee emphasized the accomplishment of short-term goals to keep us on track on our restructuring plan. Given the persistent adverse economic conditions that occurred during 2008, we accelerated our turnaround plans. Despite these efforts, we were forced to adjust our goal to return to North American Automotive Operations profitability to 2011. Although the Committee emphasized achievement of short-term objectives, our equity-based incentive programs were also designed with restriction periods in order to continue to focus executive behavior on our longer-term interests and align their interests with yours (see “Equity-Based Compensation” on pp. 34-41).

 

Annual Compensation

 

Annual compensation for our executives includes salary and incentive bonus, if earned, paid in cash.

 

A. Salaries

 

Salaries are an essential component of a compensation package that helps attract, retain, and motivate performance. When considering increases to base salaries, the Compensation Committee takes into account the following factors:

 

 

The Compensation Committee reviews salaries of the Named Executives annually and at the time of a promotion or other major change in responsibilities. Mr. Booth received a 14% salary increase upon his election as our Chief Financial Officer. As part of our objective to control costs, we did not grant annual merit increases to salaries for any of the Named Executives in 2008.

 

Throughout 2008 the salaries for the Named Executives were above the median of the survey group. We believe that paying base salaries at the high end of the competitive survey is appropriate to retain executives throughout the business cycle because total compensation may be much lower than competitive levels while we restructure (see “How We Determine Compensation — A. Competitive Survey” on pp. 31-32). The relative salary level is also explained by the fact that Ford is in general larger and more complex than many of the companies in the group.

 

B. Incentive Bonuses

 

As noted above, in response to adverse economic conditions and in order to conserve cash and reduce expense, management recommended and the Committee decided that no payout would be made in March 2009 under the Incentive Bonus Plan for the 2008 performance period. Although performance to metrics would have resulted in a modest payout, the Committee determined that the business need to conserve cash outweighed other considerations.

 

The metrics, weightings, and performance targets used for the 2008 Incentive Bonus Plan are identical to those used for the 2008 Performance Unit program (see “Equity-Based Compensation — A. Annual Performance Unit and Stock Option Grants” on pp. 35-39). For a discussion of the threshold, target, and maximum payouts for the Named Executives for the Incentive Bonus Plan for the 2008 performance period, see the Grants of Plan-Based Awards in 2008 Table and footnote 1 on p. 50.

 

Equity-Based Compensation

 

Our equity-based incentive awards are tied to our performance and the future value of our common stock. These awards are intended to focus executive behavior on our longer-term interests, because today’s business decisions

affect Ford over a number of years. For 2008, our equity-based compensation consisted of new grants of Performance Units and stock options, payouts from past Performance Stock Rights grants, and retention grants to certain Named Executives, as explained in more detail below.

 

As discussed above, the competitive survey indicates that equity-based compensation for the Named Executives is approximately at the median of the comparator group on average. For Mr. Mulally, the survey showed that his total equity-based compensation was 14% above the median of the survey group. For the other Named Executives, the survey showed that total equity-based compensation was approximately at the median of the comparator group on average. This reinforces our desire to, on average, pay at or near the median of equity compensation compared to the survey group.

 

A. Annual Performance Unit and Stock Option Grants

 

In 2008, the Committee continued the equity-based incentive program for the Named Executives by deciding to grant only two types of equity-based compensation, as was done in 2007: stock options and Performance Units (see Grants of Plan-Based Awards in 2008 Table and related footnotes on pp. 50-51). The Committee decided that eliminating new grants of Performance Stock Rights (last granted in 2006) removed a level of complexity from the annual equity grant process. Because the Committee desired to place equal weight on the two types of equity-based compensation granted, the Committee awarded 50% of the value of each executive’s annual equity award in stock options and 50% in Performance Units.

 

In general, the total value of these grants in 2008 was determined based on the following considerations:

 

 

The stock options vest over three years, have a ten-year term, and function as our longest-term incentive. The Committee believes this focuses executive behavior and decision making on our long-term interests and aligns the interests of our executives with those of our shareholders. The Performance Units are awarded based on a one-year performance period, but are paid out in service-based Restricted Stock Units, which add an additional two-year retention element. In granting the Performance Units, the Committee chose a one-year performance period in order to focus executive behavior on achieving key short-term business objectives, similar to the Incentive Bonus Plan. The two-year restriction period, however, adds an intermediate element that serves to retain executives and focus their behavior beyond the initial one-year performance period. In addition, because executive decisions regarding product development, marketing, sales, etc., can affect our performance over several years, the Committee believes that it is important to structure equity-based awards so that executives will focus on the long-term consequences of their decisions. This also further aligns executive interests with your interests as shareholders.

 

The target awards for 2008 Performance Unit grants for the Named Executives are shown in column (h) of the Grants of Plan-Based Awards Table in 2008 on p. 50. These amounts represent the maximum award opportunity. Payouts could range from 0% to 100% of the target award depending on performance. The Committee could decrease, but not increase, an award for Named Executives.

 

In 2008, for Named Executives whose primary responsibilities involved a particular business unit, the Committee set a formula that was based on metrics that took into account Company and relevant business unit performance as follows:

 

 

The Committee determined that this structure best took into account Company as well as individual performance for those Named Executives responsible for specific business units.

 

Those Named Executives whose duties are of a global nature were placed in the “Corporate” business unit. For these executives, the performance metrics used for 2008 were the following:

 

 

The Committee chose these metrics because they supported our key 2008 objectives identified as top priorities for the year (see “Executive Summary” on pp. 29-30). The formula has a sliding scale, based on various levels of achievement for each metric. If certain performance levels are not met for all metrics, the payout would be zero.

 

*We define total Automotive operating-related cash flow as automotive pre-tax profits (excluding special items as detailed in Ford’s Annual Report on Form 10-K for the year ended December 31, 2008) adjusted for the following:

 

 

The following are excluded in the total Automotive operating-related cash flow:

 

 

The Named Executives who participated in the 2008 Performance Unit program and their respective business unit are as follows:

 

Named Executive		Business Unit
Alan Mulally		Corporate
Lewis W. K. Booth†		Corporate (17%) — Ford of Europe (41.5%) — Volvo (41.5%)
Mark Fields		The Americas
James D. Farley		Corporate
David G. Leitch		Corporate
Donat R. Leclair		Corporate

 

 

For the business units in which Named Executives participated, the following table shows the performance metric, weighting, and the target for each metric.

 

2008 Performance Unit Metrics, Weightings, and Targets

 

 

The table below shows the performance results for each metric for each business unit and the total performance results against the metrics for 2008. The Committee reviewed Ford’s performance for 2008 against the goals. Based on this performance, the Committee determined the percentage of each of the six performance goals achieved and the percent of the target award earned for each business unit in which a Named Executive participated (see column (h) of Grants of Plan-Based Awards in 2008 Table and footnote 2 on pp. 50-51 ).

 

2008 Performance Unit Performance Results
(% of Target Achieved)

 

 

*The Performance Results column for the Quality metric shows the combined percent achieved for the Things-Gone-Wrong target and Warranty Spending target, weighted equally as shown in the 2008 Performance Unit Metrics, Weightings, and Targets table on p. 37.

 

In its discretion, the Committee determined not to reduce payouts and granted Final Awards Restricted Stock Units based on the percentage earned for each business unit indicated in the far right hand column of the above table. The Committee made this decision for the following reasons: (i) reward the Named Executives for the progress made, particularly for the Cost Performance and Quality metrics; (ii) Final Awards of Restricted Stock Units do not have an adverse impact on our cash flow in the current period; (iii) the two-year restriction period of the Restricted Stock

Units serves as a retention tool; (iv) the two-year restriction period focuses executive behavior on our longer-term interests; and (v) Final Awards of Restricted Stock Units align executive interests with yours.

 

B. Performance Stock Rights

 

Final Awards for the 2006-2008 Performance Period

 

In March 2006, the Committee granted Performance Stock Rights to Messrs. Booth, Fields, Leitch, and Leclair, as well as certain other top executives (Messrs. Mulally and Farley were not employees at the time of these grants and thus did not participate in this program). These Performance Stock Rights covered the performance period 2006-2008 and paid Dividend Equivalents in cash (if we paid dividends on our common stock) based on 100% of the targeted payout. The target payouts were primarily determined by considering executives’ job responsibilities at the time of the grant and their expected future contributions. Final Awards of common stock could range from 0% to 150% of the targeted payout. The targets for the participating Named Executives are shown below:

 

 

In 2006, the Committee decided that the metrics and weightings shown below supported Ford’s business strategy at that time of improving market share, customer satisfaction, and cost efficiency, as well as focusing on shareholder returns. While these objectives continue to be important, the Committee has shifted emphasis to other goals (see “Executive Summary” on pp. 29-31). As stated in the introduction to “Equity-Based Compensation,” the Committee decided that the 2006-2008 performance period would be the final grant of Performance Stock Rights (see pp. 34-35). The following table shows the metrics, weightings, target goals, and the performance results.

 

2006-2008 Performance Stock Rights
(Target Goals and Performance Results)

 

*Things-Gone-Wrong Per 1000 (TGW/1000) at Three Months-In-Service is a unit of measure for reporting and trending customer vehicle concerns after three months of ownership. TGW represents customer-perceived product defects and its greatest value is as a diagnostic aid. TGW data are used in relative terms to track customer reported troubles over time. The data cannot be used as absolute indicators of trouble frequency, since not all owners are able to discern the nature of specific troubles accurately. It is important to note that a higher TGW provides more diagnostic feedback and does not necessarily imply lower quality. Consequently, TGW is not the sole measure of quality and, thus, we also use the Customer Satisfaction Survey to provide additional feedback regarding the quality of our vehicles.

 

Based on this performance, the formula produced awards of 72% of the shares covered by the Performance Stock Rights for Messrs. Booth, Fields, Leitch, and Leclair. The 2008 Final Awards of common stock relating to Performance Stock Rights for the 2006-2008 performance period were paid out in March 2009. The Committee in its discretion determined not to reduce the payouts because the formula inherently took into account the level of performance achieved.

 

C. Senior Executive Retention Program

 

In response to Mr. Mulally’s strategic priority of working together effectively as one team working toward one goal, the Committee decided to settle an equity incentive program initiated for certain executives in March 2006. The consideration for settling the program was a cash payment made to participants based on actual and expected achievement of certain goals during the 2006-2008 performance period. Payments made to Messrs. Booth, Fields, and Leclair are shown in column (g) of the Summary Compensation Table on p. 47 for 2006 compensation and further explained in footnote 3 on p. 48.

 

To continue to provide a powerful retention element and incentive to work together effectively as one team to accomplish key initiatives, the Committee decided to grant to certain senior executives, including Messrs. Booth, Fields, Leitch and Leclair, additional stock options as well as Performance Units in March 2007. The award opportunity for each participant was valued at eight times base salary and reinforces the importance of accomplishing our key strategic goals. In addition, the Committee believes an opportunity of this size will serve as a strong retention incentive for key executives that have been identified as critical in implementing our turnaround. The retention of key executives who are tasked with leading our drive to ONE Ford is extremely important.

 

We reduced the award opportunity for Messrs. Booth, Fields, and Leclair by the amount of their cash payout for the settled program referred to above. The value of the net amount of the award opportunity was delivered 50% in stock options and 50% in Performance Units, consistent with the mix of the annual equity grant. See footnote 2 of the Grants of Plan-Based Awards in 2008 Table on pp. 50-51 for a description of the terms and conditions of the Performance Unit portion of this award opportunity.

 

For the performance against the 2008 target goals, refer to the “2008 Performance Unit Performance Results” Table on p. 38. The extent to which Restricted Stock Units were earned and paid out for each business unit is indicated in the far right hand column of the above referenced table.

 

D. Timing of Awards

 

Annual grants of equity awards are typically determined at a February Compensation Committee meeting. At that time, data for previous performance periods are available to determine the amount of the Final Awards. The Committee also decides the effective date of the annual equity-based grants of options and Performance Units. Due to administrative complexity relating to valuation and notification, the Committee approved the annual 2009 equity-based Final Awards and grants on February 25, 2009, and the Board approved an effective date of March 11, 2009. A similar practice was also followed for the 2008 annual equity-based Final Awards and grants. The release of earnings information for the prior fiscal year is sufficiently in advance of the annual grant date for the public to be aware of the information.

 

The Committee does not time equity grant dates to affect the value of compensation either positively or negatively. Executive officers did not play a role in the selection of the grant dates. Special grants, whether approved by the Compensation Committee for officers or the Long-Term Incentive Compensation Award Committee for non-officers, are effective either on a specified future date (e.g., a date that coincides with a promotion or hiring date, or quarterly grant date), or the date of approval. In the case of an approval by written consent, the grant date cannot be earlier than the date when the Committee member approvals have been obtained. See Corporate Governance — Compensation Committee Operations at pp. 19-20 for more information on the Long-Term Incentive Compensation Award Committee.

 

E. Stock Option Exercise Price Determination

 

Under the 1998 Long-Term Incentive Plan, the terms of which were approved by our shareholderes, the exercise price of options is the average of the high and low trading prices of our common stock traded on the NYSE on the effective date of the grant. For exercise prices of the 2008 option grants, see column (l) of the Grants of Plan-Based Awards in 2008 Table on p. 50. Under the 2008 Long-Term Incentive Plan, the terms of which were approved by you at the 2008 Annual Meeting, the exercise price of options will be the closing price on the date of grant. The Committee decided to use the closing price as the fair market value for option grants to reduce complexity and because it is more in line with SEC disclosure requirements.

 

Stock Ownership Goals

 

In 1994, the Compensation Committee created stock ownership goals for executives at or above the Vice President level to further align the interests of the executives with those of shareholders. The following table shows the officer level and respective ownership goal.

 

		Ownership Goal
Officer Level		(% of salary)
Vice Presidents and Senior Vice Presidents			100	%
Group Vice Presidents			200	%
Executive Vice Presidents			300	%
Executive Chairman and President & CEO			500	%

 

Executives have five years from taking their position to achieve their goal.

 

We review progress toward achievement of the ownership goals periodically. All forms of stock ownership — including directly and indirectly owned shares of common stock, final awards of stock equivalents or restricted stock units, and units that are based on common stock — count toward the goal. As of December 31, 2008, all of the Named Executives are still within the five year period to achieve their goals.

 

Compensation Programs for 2009

 

As noted in the “Executive Summary” on p. 29, we took several compensation actions in 2008 and for 2009 in response to the economic environment. The Committee decided that an incentive equity award was appropriate for certain executives in order to further tie compensation to accomplishment of our restructuring plan. Consequently, in addition to the annual grants of stock options and Performance-based Restricted Stock Units, the Committee decided to grant certain officers, including Messrs. Mulally and Farley, incentive equity-based grants in March 2009. Messrs. Booth, Fields, and Leitch did not participate in the March 2009 incentive grants because of their participation in the Senior Executive Retention Program (see p. 40). For Mr. Mulally, he received a grant of Performance-based Restricted Stock Units that have a two year performance period. The performance metric is an acceleration of the ONE Ford plan to restructure our business as measured by a reduction in global Ford brand

platforms in 2009 and 2010. This is foundational to the development of global powertrain architectures and reduction in nameplates, while improving the Company’s cost performance and investment efficiency.

 

After the performance period, the Committee will determine the level of achievement against the metric. A Final Award, if any, will consist of unrestricted common stock. Dividend equivalents will not be paid or accrued during the performance period.

 

Similar to other officers who participated in the March 2009 incentive grant, Mr. Farley received a grant of time-based Restricted Stock Units. The Restricted Stock Units will have a two year vesting period. The Committee determined that a time-based Restricted Stock Unit grant was appropriate because it aligned executive interests with yours and serves as an incentive to drive performance over the next two years in returning the Company to automotive profitability in 2011.

 

Retirement Plans

 

In general, we believe that the retirement plans described below serve several worthwhile business purposes, including attracting and retaining top leadership talent. In addition, they provide income security to long serving executives, and provide flexibility to us in transferring executives among our operations. We believe these programs to be reasonable and appropriate in light of competitive practices and our executives’ total compensation program. The competitive survey showed that the Pre-2004 Plans discussed below are competitive with the median retirement plans of the comparator group. The Post-January 1, 2004 Plans, however, are significantly under competitive when compared to the survey’s comparator group. As explained below, we adopted the Ford Retirement Plan for employees hired or re-hired by Ford on or after January 1, 2004, in order to reduce balance sheet volatility. For additional information, see the Pension Benefits in 2008 Table on p. 56 and Potential Payments Upon Termination or Change of Control on pp. 59-65.

 

A. Pre-2004 Plans

 

Our General Retirement Plan (“GRP”) provides a tax-qualified benefit for each year of non-contributory participation by employees in the United States hired before January 1, 2004, and added benefits for those who make contributions. We also have two other non-qualified retirement plans for certain employees: the Supplemental Executive Retirement Plan (“SERP”) that provides a supplemental monthly benefit calculated on a percentage of Final Average Pay (0.2%-0.9% depending on executive position) and service, and the Benefit Equalization Plan (“GRP-BEP”). Under the GRP-BEP, eligible employees receive benefits substantially equal to those they could have received under the GRP but were not able to because of Internal Revenue Code limitations. Messrs. Booth, Fields, and Leclair are eligible for benefits under the GRP, SERP, and GRP-BEP.

 

Certain eligible executives who separate from employment after age 55 (age 52 if retiring under our Select Retirement Plan (“SRP”)) and prior to age 65 may be eligible for monthly benefits under our Executive Separation Allowance Plan (“ESAP”) that provides a percentage of salary, based on age and service, at time of separation until age 65. The SRP is a voluntary retirement program offered from time-to-time for select U.S. management employees. In 2006 the Committee requested that its consultant, Semler Brossy Consulting Group, LLC, and the Company jointly conduct a review of the SRP as a severance vehicle. The review compared present values of the SRP benefit with traditional severance packages, examined potential changes, and considered benefits to the Company and to executives. The Committee reviewed the report and concluded that the SRP should remain in its current form to facilitate the reduction in work force then being undertaken by the Company and to provide flexibility to accommodate any future reductions. Mr. Leclair retired effective November 1, 2008. The Committee approved his retirement arrangement, which included benefits under the ESAP, SERP, and SRP (see Pension Benefits in 2008 Table on p. 56 and Potential Payments Upon Termination or Change of Control — Donat R. Leclair on p. 65).

Benefits under SERP, SRP, ESAP, and GRP-BEP are not funded. In addition, in accordance with Code Section 409A, benefits that accrued or vested on or after January 1, 2005 under these plans may not be paid to certain key executives until at least six months following their separation from employment.

 

B. Post-January 1, 2004 Plan

 

Ford has a different tax qualified retirement plan, the Ford Retirement Plan (“FRP”), for salaried employees hired or rehired on or after January 1, 2004 in the U.S. As mentioned above, the FRP was adopted in order to provide us with more predictable retirement benefit costs and reduced financial statement volatility. These goals are achieved through a stable contribution schedule and the transfer of financial and demographic risks from us to plan participants while still providing employees with the opportunity for adequate income in retirement. Employees who participate in this plan, including Messrs. Mulally, Farley and Leitch, are not eligible to participate in the GRP (with respect to future service) GRP-BEP, SERP, or ESAP.

 

Deferred Compensation Plan

 

Under our Deferred Compensation Plan, certain salaried employees may defer up to 50% of base salary and up to 100% of awards under the Incentive Bonus Plan and certain other awards. This unfunded plan provides the opportunity to save for the future while postponing payment of income taxes on the deferred compensation. For more information on the Deferred Compensation Plan, see the Nonqualified Deferred Compensation in 2008 Table and related footnotes on pp. 58-59.

 

Perquisites and Other Benefits

 

We provided certain perquisites and other benefits to senior management in 2008, the most significant of which are summarized below. The Committee periodically reviews our policies on officer perquisites.

 

Company Aircraft:  During most of 2008, Mr. Mulally was required to use our aircraft for all business and personal air travel for security reasons. Mr. Mulally’s family and, persons authorized by him, were allowed to accompany him on our aircraft. In addition, in order to ease the burden of Mr. Mulally moving to Southeast Michigan and away from his family in Seattle, Washington, the Compensation Committee clarified that his arrangement covers travel by his family (and accompanying authorized persons) on Company aircraft at Company expense, at his request. Except for the Executive Chairman, no other executive was permitted to use our aircraft for personal reasons.

 

In December 2008, we closed our Air Transportation operation and are in the process of selling our corporate aircraft. Company policy does not allow Mr. Mulally to fly commercially due to security concerns. The Company will pay the charter costs of Mr. Mulally’s use of private aircraft for his business and personal travel. Mr. Mulally’s family will be allowed to accompany him on trips when he travels on private aircraft. In addition, the Company will pay the cost of coach-class commercial aircraft flights for his family when their travel is at his request.

 

Requiring Mr. Mulally to use Company or private aircraft for all travel provides several benefits to Ford. First, the policy is intended to ensure the personal safety of Mr. Mulally, who maintains a significant public role as CEO of Ford. Second, use of private aircraft ensures his availability and maximizes the time available for Ford business.

 

In addition, for retention purposes the Company pays the costs, including first class commercial airfare, for personal travel for Mr. Fields to and from his home in Florida. The Company continues to provide tax relief as a result of the imputed income associated with Mr. Fields’ arrangement.

 

Evaluation Vehicle Program:  We maintain a program that provides our officers with the use of two Company vehicles free of charge. This program requires officers to provide written evaluations on a variety of our vehicles, providing important feedback on the design and quality of our products. Most officers must rotate their vehicle choices among our different vehicle brands based on a predetermined schedule. Those officers whose responsibilities are

focused on a particular vehicle brand are required to drive vehicles related to that brand. For the Named Executives, such cost, including related fuel, is included in column (i) of the Summary Compensation Table on p. 47.

 

Other Services:  For certain executive officers, including the Named Executives, we provide a home security evaluation and security system. The cost of the evaluation and system is included in column (i) of the Summary Compensation Table on p. 47. We also provide an allowance to senior managers for financial counseling services and estate planning. We pay for approximately 75% of the cost of this service up to $7,500 and it is reflected in column (i) of the Summary Compensation Table on p. 47. The safety and security (personal and financial) of our executives is critically important. We believe the benefits of providing these programs outweigh the relatively minor costs associated with them.

 

Alan Mulally

 

Effective September 1, 2006, we entered into an agreement with Mr. Mulally relating to his hiring as President and Chief Executive Officer. That agreement contained a “change in control” provision that provides that if we terminate Mr. Mulally’s employment for reasons other than for cause during the first five years of his employment or if there is a change in control of the Company during the first five years of his employment and he terminates his employment for good reason, he will receive certain payments and benefits (see Potential Payments Upon Termination or Change in Control — Alan Mulally on pp. 60-61). If Mr. Mulally leaves us pursuant to these arrangements, he may not work for a competitor for five years after the date of his termination. Mr. Mulally will not be entitled to any severance payment if he is terminated for cause.

 

The Committee believes these termination provisions are reasonable. The sunset provision of five years is an appropriate length of time to compensate Mr. Mulally to leave his prior position and assume a leadership role with a company in the midst of a turnaround. The non-compete clause also protects the Company from competitive harm should Mr. Mulally separate from Ford under these conditions. In addition, under a change in control scenario, Mr. Mulally’s employment either must be terminated or he must terminate his employment for “good reason” in order to receive the termination benefits.

 

Mr. Mulally also was granted the option to live in temporary housing near the Company’s headquarters for the first two years of employment at Company expense. In September 2008, the Committee decided to continue this arrangement indefinitely. The Committee believes the arrangement is beneficial to Mr. Mulally and the Company by allowing him to continue to focus on our turnaround efforts. The cost of this benefit is included in column (i) of the Summary Compensation Table on p. 47. He is eligible for relocation assistance pursuant to our relocation program if he chooses to relocate his household.

 

James D. Farley

 

In October 2007, we entered into an agreement with Mr. Farley relating to his joining Ford as Group Vice President, Chief Marketing and Communications Officer. Among other provisions, the agreement provided for Mr. Farley’s annual salary (see column (c) of the Summary Compensation Table on p. 47), guaranteed bonuses based on his Incentive Bonus targets paid in 2008 and 2009 (see column (d) of the Summary Compensation Table on p. 47), relocation assistance (see column (i) of the Summary Compensation Table on p. 47), certain retirement benefits, and a severance arrangement (see Potential Payments Upon Termination or Change of Control — James D. Farley on p. 64).

 

The severance provision provides that in the event Mr. Farley’s employment is terminated for any reason other than for cause during the first two years of his employment, he is entitled to two years base salary plus the equivalent of two years of his Incentive Bonus target. Mr. Farley would be prohibited from working for a competitor of Ford for two years after his employment is terminated.

 

Under the terms of the employment agreement, Mr. Farley participates in the Ford Retirement Plan and, in consideration of the retirement benefits Mr. Farley forfeited with his prior employer, we agreed to provide him a

series of lump-sum payments designed to make-up the forfeited amounts. The lump-sum amounts will be determined as follows, less any retirement benefit otherwise payable from his prior employer or from Ford:

 

 

The Committee approved the compensation arrangements in order to persuade Mr. Farley to join Ford from his previous position at Toyota. The Committee believes these compensation terms, which provided upfront cash and equity incentives, as well as recognition of Mr. Farley foregoing certain retirement benefits, were reasonable given Mr. Farley’s experience and success at his prior employer. The severance terms are reasonable in amounts and duration and appropriately protect Mr. Farley’s interests in joining a company in the midst of a turnaround and our interests in protecting the Company should we terminate his employment.

 

David G. Leitch

 

In March 2005, we entered into an agreement with Mr. Leitch relating to his joining Ford as Senior Vice President and General Counsel. Among other provisions, the agreement provided for certain retirement benefits (see Potential Payments Upon Termination or Change of Control — David G. Leitch on p. 63) and an initial grant of stock options and restricted stock equivalents (see Outstanding Equity Awards at 2008 Fiscal Year-End on p. 52 and Option Exercises and Stock Vested in 2008 Table on p. 55).

 

Under the terms of the employment agreement, Mr. Leitch participates in the Ford Retirement Plan. In addition, if Mr. Leitch’s employment is terminated following ten years’ employment, he will receive a supplemental lump sum payment equal to the amount contributed by Ford into the Benefit Equalization Plan related to the Ford Retirement Plan. Furthermore, if Mr. Leitch dies or becomes totally and permanently disabled prior to completion of ten years’ employment, he or his estate will receive a lump sum payment equal to the amount contributed by Ford into the Benefit Equalization Plan related to the Ford Retirement Plan prorated for the time he was an active employee.

 

The Committee believed these arrangements were reasonable and appropriate to attract someone of Mr. Leitch’s experience and credentials to lead our legal team. The equity-based compensation provided appropriate incentives, while the cash compensation was commensurate with the competitive market for the position of general counsel at leading companies at that time.

 

Tax and Other Considerations

 

A. Internal Revenue Code § 162(m)

 

Code Section 162(m) generally disallows Federal tax deductions for compensation in excess of $1 million paid to the Chief Executive Officer and the next three highest paid officers (other than the Chief Financial Officer) whose compensation is required to be reported in the Summary Compensation Table of the proxy statement (“Covered Executives”). Certain performance-based compensation is not subject to this deduction limitation. In our case, this exemption applies to certain awards under the Incentive Bonus Plan, the 1998 Plan, and the 2008 Plan. Specifically, 2008 awards of stock options and Final Awards related to Performance Units and Performance Stock Rights were not subject to the deduction limit.

 

In contrast, service-based Restricted Stock Units awarded to Covered Executives in prior years are subject to the deduction limit. Additionally, since the salaries of certain Covered Executives exceed $1 million (see Summary

Compensation Table on p. 47), we cannot deduct the portion of their salaries in excess of $1 million, as well as the cost of their perquisites.

 

Generally, we strive to maximize the tax deductibility of our compensation arrangements. In the highly competitive market for talent, however, we believe the Committee needs flexibility in designing compensation that will attract and retain talented executives and provide special incentives to promote various corporate objectives. The Committee, therefore, retains discretion to award compensation that is not fully tax deductible.

 

B. Internal Revenue Code § 409A

 

Code Section 409A provides that amounts deferred under nonqualified deferred compensation plans are includible in an employee’s income when vested, unless certain requirements are met. If these requirements are not met, employees are subject to additional income tax. All of our supplemental retirement plans, severance arrangements, and other nonqualified deferred compensation plans presently meet these requirements. As a result, employees will be taxed when the deferred compensation is actually paid to them. We will be entitled to a tax deduction at that time.

 

C. Internal Revenue Code § 280G

 

Code Section 280G disallows a company’s tax deduction for “excess parachute payments.” Additionally, Code Section 4999 imposes a 20% excise tax on any person who receives excess parachute payments. Presently, only Mr. Mulally is entitled to payments upon termination of his employment following a change in control of the Company, which may qualify as “excess parachute payments.” Accordingly, our tax deduction for any such excess parachute payments would be disallowed under Code Section 280G. Not all of the payments to which Mr. Mulally may become entitled would be excess parachute payments. None of the other Named Executives has a “change-in-control” provision.

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis (CD&A) with management. Based on this review and discussion, the Committee recommended to the Board of Directors that the CD&A be included in this Proxy Statement and incorporated by reference into our annual report on Form 10-K.

 

Compensation Committee

 

Richard A. Manoogian (Chair)
Ellen R. Marram
John L. Thornton

 

The Compensation Committee is comprised of Richard A. Manoogian, Ellen R. Marram, and John L. Thornton, none of whom is an employee or a current or former officer of the Company.

 

The table below shows the before-tax compensation for Alan Mulally, who served as President and CEO during 2008, Donat R. Leclair, who served as Executive Vice President and Chief Financial Officer during part of 2008, Lewis W. K. Booth, who served as Executive Vice President and Chief Financial Officer during part of 2008, and the three most highly compensated executive officers at the end of 2008.

 

SUMMARY COMPENSATION TABLE