UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

SCHEDULE 14A

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AVNET, INC.

 

AVNET, INC.

 

 

 

NOTICE OF 2011 ANNUAL MEETING OF SHAREHOLDERS

 

 

 

To Be Held Friday, November 4, 2011

 

TO ALL SHAREHOLDERS OF AVNET, INC.:

 

NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of AVNET, INC., a New York corporation (“Avnet”), will be held at the Avnet, Inc. Corporate Headquarters, 2211 South 47th Street, Phoenix, Arizona 85034 on Friday, November 4, 2011, at 7:30 a.m., local time, for the following purposes:

 

 

The Board of Directors has fixed the close of business on September 6, 2011 as the record date for the Annual Meeting. Only holders of record of shares of Avnet’s Common Stock at the close of business on such date shall be entitled to notice of and to vote at the Annual Meeting or any adjournment thereof.

 

By Order of the Board of Directors

 

 

Jun Li

Secretary

 

September 19, 2011

 

TABLE OF CONTENTS

 

AVNET, INC.

2211 South 47th Street

Phoenix, Arizona 85034

 

 

 

 

PROXY STATEMENT

Dated September 19, 2011

 

 

 

 

FOR ANNUAL MEETING OF SHAREHOLDERS

To Be Held November 4, 2011

 

This Proxy Statement is being furnished in connection with the solicitation of proxies by the Board of Directors of Avnet, Inc. (“Avnet” or the “Company”) to be voted at the annual meeting of shareholders to be held at Avnet’s Corporate Headquarters, 2211 South 47th Street, Phoenix, Arizona 85034 on November 4, 2011, and at any and all postponements or adjournments thereof (the “Annual Meeting”), with respect to the matters referred to in the accompanying notice. The approximate date on which this Proxy Statement and the enclosed form of proxy are first being sent or given to shareholders is September 19, 2011. Only holders of record of outstanding shares of the Company’s Common Stock, par value $1.00 per share (the “Common Stock”), at the close of business on September 6, 2011, the record date, are entitled to notice of and to vote at the Annual Meeting. Each shareholder is entitled to one vote per share held on the record date. The aggregate number of shares of Common Stock outstanding (net of treasury shares) at September 6, 2011 was 152,120,109, comprising all of Avnet’s capital stock outstanding as of that date.

 

At the meeting you will be asked to elect the ten director nominees named in the Proxy Statement, conduct an advisory vote on executive compensation, conduct an advisory vote on the frequency of future advisory votes on executive compensation, approve a proposal to amend and restate the Avnet Employee Stock Purchase Plan to authorize an additional 500,000 shares for sale under the Plan and ratify the appointment of KPMG LLP as the independent registered public accounting firm to audit the consolidated financial statements of Avnet for the fiscal year ending June 30, 2012.

 

Proxies for shares of Common Stock may be submitted by completing and mailing the proxy card that accompanies this Proxy Statement or by submitting your proxy voting instructions by telephone or through the Internet. Shareholders who hold their shares through a broker, bank or other nominee should contact their nominee to determine whether they may submit their proxy by telephone or Internet. Shares of Common Stock represented by a proxy properly signed or submitted and received at or prior to the Annual Meeting will be voted in accordance with the shareholder’s instructions. If a proxy card is signed, dated and returned without indicating any voting instructions, shares of Common Stock represented by the proxy will be voted as the Board recommends. The Board of Directors is not currently aware of any business to be acted upon at the Annual Meeting other than as described herein. If, however, other matters are properly brought before the Annual Meeting, the persons appointed as proxies will have discretion to vote according to their best judgment, unless otherwise indicated on any particular proxy. The persons appointed as proxies will have discretion to vote on adjournment of the Annual Meeting. Proxies will extend to, and be voted at, any adjournment or postponement of the Annual Meeting to the extent permitted under the Business Corporation Law of the State of New York and the Company’s By-laws.

 

Any person who signs and returns the enclosed proxy or properly votes by telephone or Internet may revoke it by submitting a written notice of revocation or a later dated proxy that is received by Avnet prior to the Annual Meeting, or by voting in person at the Annual Meeting. However, a proxy will not be revoked by simply attending the Annual Meeting and not voting. All written notices of revocation and other communications with respect to revocation by Avnet shareholders should be addressed as follows: Secretary, Avnet, Inc., 2211 South 47th Street, Phoenix, Arizona 85034. To revoke a proxy previously submitted by telephone or Internet, a shareholder of record can simply vote again at a later date, using the same procedures, in which case the later submitted vote will be recorded and the earlier vote will thereby be

revoked. Please note that any shareholder whose shares are held of record by a broker, bank or other nominee and who provides voting instructions on a form received from the nominee may revoke or change his or her voting instructions only by contacting the nominee who holds his or her shares. Such shareholders may not vote in person at the Annual Meeting unless the shareholder obtains a legal proxy from the broker, bank or other nominee.

 

The presence at the Annual Meeting, in person or by proxy, of the shareholders of record entitled to cast at least a majority of the votes that all shareholders are entitled to cast is necessary to constitute a quorum. Each vote represented at the Annual Meeting in person or by proxy will be counted toward a quorum. If a quorum should not be present, the Annual Meeting may be adjourned from time to time until a quorum is obtained. Abstentions and broker non-votes, which are more fully discussed below, will not be counted as a “vote cast” and therefore will have no effect on the outcome of any proposal.

 

Brokers holding shares of record for a customer have the discretionary authority to vote on certain limited matters if they do not receive timely instructions from the customer regarding how the customer wants the shares voted. There are also some matters (“non-routine matters”) with respect to which brokers do not have discretionary authority to vote if they do not receive timely instructions from the customer. When a broker does not have discretion to vote on a particular matter and the customer has not given timely instructions on how the broker should vote, then what is referred to as a “broker non-vote” results. Any broker non-vote would be counted as present at the meeting for purposes of determining a quorum, but would be treated as not entitled to vote with respect to non-routine matters. Therefore, a broker non-vote would not count as a vote in favor of or against such matters and, accordingly, would not affect the outcome of the vote.

 

The election of directors (Proposal 1), the advisory vote on executive compensation (Proposal 2), the advisory vote on the frequency of the advisory vote on executive compensation (Proposal 3) and the proposal to amend and restate the Employee Stock Purchase Plan (Proposal 4) are classified as non-routine matters. Accordingly, brokers, banks and other nominees will not be permitted to vote on any proposal other than the ratification of the appointment of the independent registered public accounting firm (Proposal 5) without instructions from the beneficial owners. As a result, the Company encourages all beneficial owners to provide voting instructions to your nominees to ensure that your shares are voted at the Annual Meeting.

 

Proposal 1

 

To be elected, each director nominee must receive the affirmative vote of a plurality of the votes of the Common Stock present or represented at the Annual Meeting and entitled to vote. Votes may be cast in favor of or withheld with respect to each nominee. Votes that are withheld will be counted toward a quorum, but will be excluded entirely from the tabulation of votes for the election of directors and, therefore, will not affect the outcome of the vote on such election. However, Avnet’s Corporate Governance Guidelines (the “Guidelines”) require that, in an uncontested election, any director nominee who receives a greater number of votes “withheld” than votes “for” in the election must promptly submit a letter of resignation to the Board following the certification of the shareholder election results. The Guidelines specify the procedures that the Board of Directors must follow in such event and the time frame within which the Board must determine and publicly announce the results of its deliberation.

 

Proposal 2

 

As required by Section 14A of the Securities Exchange Act of 1934 (the “Exchange Act”), the Board of Directors is requesting that the Company’s shareholders approve, on a non-binding basis, the

compensation of the Company’s Named Executive Officers as disclosed in this Proxy Statement. Approval, on a non-binding basis, of this proposal requires the affirmative vote of a majority of the votes cast on the proposal at the Annual Meeting. Only votes cast “for” or “against” the proposal will be counted in determining whether the proposal has been adopted. Brokers who hold shares of Common Stock as nominees will not have discretionary authority to vote such shares on this proposal. Thus, a shareholder who does not vote on this proposal at the Annual Meeting (whether due to abstention or a broker non-vote) will not affect the outcome of the vote but will reduce the number of affirmative votes required to achieve a majority for this matter by reducing the total number of shares from which the majority is calculated. Although the vote is non-binding, the Compensation Committee and the Board of Directors will review the results of the vote, consider shareholder concerns and take them into account in future determinations concerning the executive compensation program.

 

Proposal 3

 

As required by Section 14A of the Exchange Act, shareholders are being asked to express a preference, on a non-binding basis, as to how frequently future advisory votes on executive compensation should take place. Shareholders may choose to hold a vote on executive compensation every one, two, or three years, or abstain from voting. The frequency that receives a majority of the votes cast on this proposal will be deemed to be the frequency selected by shareholders. Brokers who hold shares of Common Stock as nominees will not have discretionary authority to vote such shares on this proposal. Thus, a shareholder who does not vote on this proposal at the Annual Meeting (whether due to abstention or a broker non-vote) will not affect the outcome of the vote but will reduce the number of affirmative votes required to achieve a majority for this matter by reducing the total number of shares from which the majority is calculated. Although as an advisory vote this proposal is not binding upon Avnet or the Board, the Board will carefully consider shareholder’s views when determining how frequently to hold the advisory vote on executive compensation.

 

Proposal 4

 

As required by Section 423 of the Internal Revenue Code of 1986, as amended, the Company is seeking to amend and restate the Avnet Employee Stock Purchase Plan to authorize an additional 500,000 shares for sale under the Plan. The affirmative vote of a majority of the votes cast at the Annual Meeting on this proposal is required for the adoption of this proposal. Only votes cast “for” or “against” the proposal will be counted in determining whether the proposal has been adopted. Brokers who hold shares of Common Stock as nominees will not have discretionary authority to vote such shares on this proposal. Thus, a shareholder who does not vote at the Annual Meeting (whether due to abstention or a broker non-vote) will not affect the outcome of the vote but will reduce the number of affirmative votes required to achieve a majority for this matter by reducing the total number of shares from which the majority is calculated.

 

Proposal 5

 

Ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for fiscal 2012 requires the affirmative vote of the holders of a majority of the Common Stock present or represented at the meeting and entitled to vote. Abstentions are not counted in determining the votes cast in connection with the ratification of the appointment of KPMG LLP, but do have the effect of reducing the number of affirmative votes required to achieve a majority for this matter by reducing the total number of shares from which the majority is calculated.

 

The Board of Directors recommends you vote “FOR” all of the directors named in Proposal 1, “FOR” proposals 2, 4 and 5, and for a frequency of every year in Proposal 3.

 

We will announce preliminary results at the Annual Meeting. We will report final results in a filing with the U.S. Securities and Exchange Commission (“SEC”) on Form 8-K.

 

Avnet is committed to good corporate governance practices. This commitment is not new — the Company has developed and evolved its corporate governance practices over many years. The Board of Directors believes that good corporate governance practices provide an important framework that promotes long-term value, strength and stability for shareholders.

 

The Corporate Governance Guidelines collect in one document many of the corporate governance practices and procedures that have evolved at Avnet over the years. Among other things, the Guidelines address the duties of the Board of Directors, director qualifications and selection process, director compensation, Board operations, Board committee matters and director orientation and continuing education. The Guidelines also provide for annual self-evaluations by the Board and its committees. The Board reviews the Guidelines on an annual basis, most recently at its regularly scheduled meeting in May 2011. The Guidelines are available on the Company’s website at www.ir.avnet.com/documents.cfm.

 

As a general policy, as set forth in the Guidelines, the Board recommends certain limits as to the service of directors on other boards of public companies. These limits are as follows: (1) the Company’s Chairman of the Board and its Chief Executive Officer may serve on up to two additional boards; (2) Directors who are actively employed on a full-time basis may serve on up to two additional boards; and (3) Directors who are retired from active full-time employment may serve on up to five additional boards.

 

The Board of Directors believes that a substantial majority of its members should be independent directors. For a director to be considered independent, the Board must determine that the director does not have any direct or indirect material relationship with the Company. The Board has established guidelines to assist it in determining director independence, which conform to the independence requirements in the New York Stock Exchange (“NYSE”) listing standards.

 

The Board has reviewed all known material transactions and relationships between each Director, or any member of his or her immediate family, and the Company, its senior management and its independent registered public accounting firm. Based on this review, the Board has affirmatively determined that all of the non-employee directors — Eleanor Baum, J. Veronica Biggins, Ehud Houminer, James A. Lawrence, Frank R. Noonan, Ray M. Robinson, William H. Schumann, III, William P. Sullivan and Gary L. Tooker — are independent (“Independent Directors”).

 

The Corporate Governance Committee is responsible for identifying, screening and recommending candidates for election to the Company’s Board of Directors. The Committee reviews the business experience, education and skills of candidates as well as character and judgment. Although the Corporate Governance Committee does not have a formal policy concerning diversity, the charter of the Corporate Governance Committee includes a statement that it considers diversity as an important factor for service on the Board and reviews factors such as age, gender, race and culture. These factors, and others considered useful by the Board, are reviewed in the context of an assessment of the perceived needs of the Board at a particular point in time. Directors must also possess the highest personal and professional ethics, integrity and values and be committed to representing the long-term interests of all shareholders. Board members are expected to diligently prepare for, attend and participate in all Board and applicable Committee meetings. Each Board member is expected to see that other existing and future commitments do not materially interfere with the member’s service as a Director.

 

The Corporate Governance Committee also reviews whether a potential candidate will meet the Board’s independence standards and any other director or committee membership requirements imposed by law, regulation or stock exchange rules.

Director candidates recommended by the Corporate Governance Committee are subject to full Board approval and subsequent election by the shareholders. The Board of Directors is also responsible for electing directors to fill vacancies on the Board that occur due to retirement, resignation, expansion of the Board or other events occurring between the shareholders’ annual meetings. The Corporate Governance Committee may retain a search firm, from time to time, to assist in identifying and evaluating director candidates. When a search firm is used, the Committee provides specified criteria for director candidates, tailored to the needs of the Board at that time, and pays the firm a fee for these services. Recommendations for director candidates are also received from Board members and management and may be solicited from professional associations as well.

 

The Corporate Governance Committee will consider recommendations of director candidates received from shareholders on the same basis as recommendations of director candidates received from other sources. The director selection criteria discussed above will be used to evaluate all recommended director candidates. Shareholders who wish to suggest an individual for consideration for election to the Company’s Board of Directors may submit a written recommendation to the Corporate Governance Committee by sending it to: Secretary, Avnet, Inc., 2211 South 47th Street, Phoenix, Arizona 85034. Shareholder recommendations must contain the following information:

 

 

Under the Company’s By-laws, shareholders may also nominate a candidate for election at an annual meeting of shareholders. Details regarding this nomination procedure and the required notice and information are set forth elsewhere in this Proxy Statement under the heading “2012 Annual Meeting.”

 

Shareholders and other interested parties may contact any or all of the Company’s Directors by writing to the Board of Directors or to the Secretary, Avnet, Inc., 2211 South 47th Street, Phoenix, AZ 85034. They may also submit an email to the Lead Director, the chair of the Audit Committee or the non-employee Directors as a group, by filling out the email form on the Company’s website at www.ir.avnet.com/governance.cfm under the caption “Committee Composition.”

 

Communications received are distributed to the Board, or to any individual Director or group of Directors as appropriate, depending on the facts and circumstances outlined in the communication. The Avnet Board of Directors has requested that items that are unrelated to the duties and responsibilities of the Board be excluded, including spam, junk mail and mass mailings, product and services inquiries, product and services complaints, resumes and other forms of job inquiries, surveys and business solicitations or advertisements. Any product and services inquiries or complaints will be forwarded to the proper department for handling. In addition, material that is unduly hostile, threatening, illegal or similarly unsuitable will be excluded. Any such communication will be made available to any non-employee Director upon request.

 

The Company adopted a Code of Conduct that applies to Directors, officers and employees, including the Chief Executive Officer and all financial and accounting personnel. A copy of the Code of Conduct can be reviewed at www.ir.avnet.com/documents.cfm. Any future amendments to, or waivers for executive officers and Directors from certain provisions of the Code of Conduct, will be posted on the Company’s website.

 

The Audit Committee of the Board of Directors has established procedures for employees, shareholders, vendors and others to communicate concerns about the Company’s ethical conduct or business practices including accounting, internal controls or financial reporting issues. Matters may be reported in the following ways:

 

Employees of the Company are encouraged to contact their manager, Human Resources representative or the Code of Conduct Advisor(s) assigned to their facility to report and discuss matters of concern.

 

All persons, including employees, may contact:

 

 

Pursuant to the Company’s Corporate Governance Guidelines, the Board of Directors has the flexibility to decide whether it is best for the Company at a given point in time for the roles of the Chief Executive Officer and Chairman of the Board to be separate or combined and, if separate, whether the Chairman should be selected from the independent directors or be an employee of the Company. The Board believes that the Company and its shareholders are best served by maintaining this flexibility rather than mandating a particular leadership structure.

 

Historically, the positions of Chief Executive Officer and Chairman were held by the same individual. As a result of the Company’s multi-year CEO succession planning process and the Board’s ongoing review of its leadership structure, the Board determined that the positions of the Chief Executive Officer and Chairman should be held by two separate individuals. Currently, Mr. Vallee, the Company’s former Chief Executive Officer, serves as Executive Chairman of the Board and Mr. Hamada serves as the Company’s Chief Executive Officer. The Board determined that the separation of these roles would allow the Company’s Chief Executive Officer to focus on our day-to-day business, while allowing the Executive Chairman to lead the board in its fundamental role of providing guidance to, and oversight of, management and to be actively involved in selected business development efforts, including strategic mergers and acquisitions.

 

The Company’s Guidelines provide for an independent and active Lead Director, which is currently filled by Mr. Noonan. The Lead Director has the following responsibilities:

 

 

 

To promote free and open discussion and communication, Independent Directors meet in executive session without management present at regularly scheduled Board meetings. Non-employee Directors may meet at other times at the discretion of the Lead Director or upon the request of any Independent Director.

 

The Board of Directors has concluded that the current leadership structure provides an appropriate framework for the Directors to provide independent, objective and effective oversight of management. While the Guidelines do not require the Chairman and Chief Executive Officer positions to be separate, the Board believes that having separate positions and a Lead Director is the appropriate leadership structure for the Company at this time. The Board, however, periodically reviews the leadership structure and may make such changes in the future as it deems appropriate.

 

The Board has adopted stock ownership guidelines providing that each Director should own, within four years of joining the Board, 10,000 shares of Avnet Common Stock. Shares that are awarded to Directors as part of director compensation, as well as Phantom Stock Units acquired by Directors under the Avnet Deferred Compensation Plan for Outside Directors, count towards the ownership requirements under the guidelines, but options, even if vested, do not. All Directors are in compliance with this requirement.

 

In addition to the information about Avnet and its subsidiaries contained in this Proxy Statement, extensive information about the Company can be found on its website located at www.avnet.com, including information about the Company’s management team, products and services and its corporate governance practices.

 

The corporate governance information on Avnet’s website includes the Company’s Corporate Governance Guidelines, the Code of Conduct, the charters for each of the standing committees of the Board of Directors, how a shareholder can communicate with the Corporate Governance Committee to nominate a director candidate for election and how shareholders and other interested parties can communicate with the Lead Director, the chair of the Audit Committee and the non-employee Directors as a group. In addition, amendments to the Code of Conduct and waivers granted to the Company’s Directors and executive officers under the Code of Conduct, if any, will be posted in this area of the website. These documents can be accessed at www.ir.avnet.com/documents.cfm. Printed versions of the Corporate Governance Guidelines, the Code of Conduct and the charters for the Board committees can be obtained, free of charge, by writing to the Company at: Secretary, Avnet, Inc., 2211 South 47th Street, Phoenix, AZ 85034.

 

In addition, the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those Reports, if any, filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as well as Section 16 filings made by any of the Company’s executive officers and Directors with respect to Avnet Common Stock, are available on the Company’s website (www.avnet.com under the “Investor Relations — SEC Filings” caption) as soon as reasonably practicable after the report is electronically filed with, or furnished to, the SEC.

 

This information about Avnet’s website and its content, together with other references to the website made in this Proxy Statement, is for information only. The content of the Company’s website is not and should not be deemed to be incorporated by reference in this Proxy Statement or otherwise filed with the SEC.

 

Avnet’s Board of Directors held five meetings during fiscal 2011 — four regular quarterly meetings and one meeting held in connection with management’s presentation of its annual strategic plan. The non-employee Directors met separately in executive session four times during fiscal 2011.

 

During fiscal 2011, each Director standing for re-election attended at least 75% of the combined number of meetings of the Board held during the period for which the Director served and of the committees on which such Director served. All members of the Board of Directors are expected to attend the annual meeting of shareholders, unless unusual circumstances prevent such attendance. Board and committee meetings are scheduled in conjunction with the annual meeting of shareholders. All of the Directors standing for election (other than Mr. Lawrence who joined the Board in May 2011) attended Avnet’s 2010 annual meeting of shareholders.

 

The Board currently has, and appoints the members of, a standing Audit Committee, Compensation Committee, Corporate Governance Committee and Finance Committee. Each of these committees is comprised solely of non-employee Directors, reports regularly to the full Board and annually evaluates its performance. The members of the committees as of the date of this Proxy Statement are identified in the following table.

 

 

The Audit Committee is charged with assisting and representing the Board of Directors in fulfilling its oversight responsibilities with respect to the integrity of the financial statements of the Company, the independence and performance of the Company’s corporate audit and independent registered public accounting firm, and compliance with legal and regulatory requirements, as well as the Company’s internal ethics and compliance program and enterprise risk management activities. Moreover, the Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the independent registered public accounting firm. Additionally, the Audit Committee reviews and approves transactions with any related person in which the Company is a participant and involves an amount known that equals or exceeds $120,000 per year. All of the members of the Audit Committee are independent under the independence requirements of the NYSE listing standards, the independence standards adopted by the Board, and also meet the additional requirements for audit committee independence established by the SEC. The Board of Directors has determined that three members of the Audit Committee (Messrs. Houminer, Noonan and Schumann) qualify as “audit committee financial experts,” as defined in rules adopted by the SEC. Please see the Audit Committee Report set forth elsewhere in this Proxy Statement for more information about the Committee and its operations. The Committee operates under a written charter that outlines the Committee’s purpose, member qualifications, authority and responsibilities. The Committee reviews its charter and conducts an evaluation of its own effectiveness annually. The charter is available on the Company’s website at www.ir.avnet.com/documents.cfm. During fiscal 2011, the Audit Committee held eight meetings.

 

The Compensation Committee is responsible for reviewing and approving compensation of all of the Company’s executive officers other than the CEO and for evaluating the performance of the CEO and, on the basis of such evaluation, for recommending to the Independent Directors the CEO compensation for consideration and approval. In addition, the Compensation Committee administers all of Avnet’s equity compensation plans. All members of the Committee meet the independence requirements of the NYSE listing standards and the independence standards adopted by the Board of Directors. The Committee operates under a written charter that outlines the purpose, member qualifications, authority and responsibilities of the Committee. The Committee reviews its charter and conducts an evaluation of its own effectiveness annually. A copy of the Committee charter is available on the Company’s website at www.ir.avnet.com/documents.cfm. During fiscal 2011, the Compensation Committee held six meetings.

 

The Corporate Governance Committee is charged with identifying, screening and recommending to the Board of Directors appropriate candidates to serve as directors of the Company and is responsible for overseeing the process for evaluating the Board of Directors and its Committees. This Committee also oversees and makes recommendations with respect to corporate governance issues affecting the Board of Directors and the Company. All of the members of the Corporate Governance Committee are independent under Avnet’s independence standards and the NYSE listing standards. The Committee operates under a written charter that outlines the Committee’s purpose, member qualifications, authority and responsibilities. The Committee reviews its charter and conducts an evaluation of its own effectiveness annually. The charter is available on the Company’s website at www.ir.avnet.com/documents.cfm. During fiscal 2011, the Corporate Governance Committee held four meetings.

 

The Finance Committee is responsible for evaluating the Company’s short and long-term financing needs and capital structure and for making recommendations about future financing. The Committee also has the oversight responsibility for the Avnet Pension Plan and Trust and the Avnet 401(k) Plan and Trust. The Committee operates under a written charter that outlines the Committee’s purpose, member qualifications, authority and responsibilities. The Committee reviews its charter and conducts an evaluation of its own effectiveness annually. The Committee’s charter is available on the Company’s website at www.ir.avnet.com/documents.cfm. During fiscal 2011, the Finance Committee held four meetings.

 

The Board of Directors has an Executive Committee which is charged with the authority of the full Board and, between meetings of the Board, is authorized to exercise the powers of the Board in the management of the business and affairs of Avnet to the extent permitted by law. The Executive Committee is comprised of the Chairman and four other Directors. All of the Independent Directors rotate service on the Executive Committee. The Executive Committee did not meet in fiscal 2011.

 

One function of the Board is oversight of risk management at Avnet. “Risk” is present in every business, and the Board seeks to understand and advise on risk in conjunction with the activities of the Board and its committees. The Board considers “risk” for these purposes to be the possibility that an undesired event could occur that adversely affects the achievement of the Company’s objectives. Examples of the types of risks that a company faces include:

 

 

 

A business deals with risks in various ways. Some risks may be easily perceived and controlled, while others are unknown. Some risks can be avoided or mitigated by particular behavior, while some risks are unavoidable. Potential impacts and the severity of the potential impacts vary, and the appropriate range of response to a perceived risk can vary depending upon the potential severity of the adverse effects that might occur in connection with the risk. Some risk taking is engaged in voluntarily by Avnet and most businesses, particularly where risk may be acceptable because of the greater perceived potential for reward. Avnet engages in numerous activities seeking to align its voluntary risk-taking with company strategy, especially in the area of encouraging innovation.

 

Management is responsible for identifying risk and risk controls related to significant business activities, and developing programs and recommendations to determine the sufficiency of risk identification, the balance of potential risk to potential reward and the appropriate manner in which to control risk. The Board implements its risk oversight responsibilities by having management provide periodic briefing and information sessions on the significant voluntary and involuntary risks that the company faces and how the company seeks to control risk when appropriate. In some cases, risk oversight in specific areas is a responsibility of a Board committee, such as the Finance Committee’s oversight of the company’s financing structure and needs from time to time, and the Audit Committee’s oversight of issues related to internal control over financial reporting and the Compensation Committee’s oversight of risks related to compensation programs.

 

The Compensation Committee has assessed the Company’s compensation programs and concluded that the Company’s compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company. The Compensation Committee and management assessed Avnet’s executive and broad-based compensation and benefits programs on a worldwide basis to determine if the programs’ provisions and operations create undesired or unintentional risk of a material nature. Management has evaluated all compensation programs and focused on the programs with variability of payout, with the ability of a participant to directly affect payout and the controls on participant action and payout.

 

Based on the foregoing, Management believes that the Company’s compensation policies and practices do not create inappropriate or unintended significant risk to the Company as a whole, and that the incentive compensation programs provide incentives that do not encourage risk-taking beyond the Company’s ability to effectively identify and manage significant risks. Further, management believes that the incentive compensation programs are compatible with effective internal controls and the Company’s risk management practices, and are supported by the oversight and administration of the Compensation Committee with regard to executive compensation programs.

 

Ten Directors are to be elected at the Annual Meeting to hold office until the next annual meeting of shareholders and until their successors have been elected and qualified. It is the intention of the persons named in the enclosed proxy card to vote each properly signed and returned proxy (unless otherwise directed by the shareholder executing such proxy) for the election as Directors of Avnet of each of the ten nominees listed below. Each nominee has consented to being named herein and to serving if elected. All of the nominees were elected Directors at the Annual Meeting of Shareholders held on November 5, 2010, except for Mr. Hamada who joined the Board on February 11, 2011, and Mr. Lawrence who joined the Board on May 12, 2011.

 

Mr. Tooker, a director since 2000, is retiring from the Board of Directors and will not stand for reelection. The Company would like to publicly recognize Mr. Tooker for his contributions and dedicated service to the Company.

 

Directors will be elected by a plurality of the votes properly cast at the Annual Meeting. Only votes cast “for” the election of Directors will be counted in determining whether a nominee for Director has been elected. Thus, shareholders who do not vote, or who withhold their vote, will not affect the outcome of the election. Additionally, brokers do not have discretionary authority to vote on the election of directors if they do not receive timely instructions from the beneficial owners. As a result, the Company encourages all beneficial owners to provide voting instructions to your nominees to ensure that your shares are voted in the election of directors.

 

Under the Corporate Governance Guidelines, however, any director nominee who receives a greater number of votes “withheld” than votes “for” in the election must promptly submit a letter of resignation to the Board following the certification of the election results. The Board must then determine whether to accept the director’s resignation in accordance with the procedures set forth in the Corporate Governance Guidelines and publicly announce the results of its deliberation.

 

In case any of the nominees below should become unavailable for election for any presently unforeseen reason, the persons named in the enclosed form of proxy will have the right to use their discretion to vote for a substitute or to vote for the remaining nominees and leave a vacancy on the Board of Directors. Under Avnet’s By-laws, any such vacancy may be filled by a majority vote of the Directors then in office or by the shareholders at any meeting thereof. Alternatively, the Board of Directors may reduce the size of the Board to eliminate the vacancy.

 

The information set forth below as to each nominee has been furnished by such nominee as of September 6, 2011:

 

 

The Audit Committee represents and assists the Board in fulfilling its oversight responsibilities with respect to the integrity of the Company’s financial statements, the independence, qualification and performance of the Company’s corporate auditor and its independent registered public accounting firm, and compliance with legal and regulatory requirements. The Audit Committee operates under a written charter, which sets forth its purpose, member qualifications, authority and responsibilities. The Audit Committee reviews its charter on a regular basis and most recently reviewed and approved it at the Committee’s regularly scheduled meeting on May 12, 2011. The charter is available on the Company’s website at www.ir.avnet.com/governance.cfm.

 

The Audit Committee monitors the activities and performance of the Company’s internal audit function, including scope of reviews, department staffing levels and reporting and follow-up procedures. The Audit Committee also oversees the Company’s efforts and plans in enterprise risk management. In addition, the Audit Committee oversees the Company’s internal ethics and compliance program and receives quarterly reports from the Chief Governance and Compliance Officer. The Audit Committee also meets quarterly with KPMG LLP, the Company’s independent registered public accounting firm (“KPMG”), and with the Company’s Director of Corporate Audit and the Chief Financial Officer in separate, executive sessions. Management has responsibility for the preparation, presentation and integrity of the Company’s financial statements and the reporting process, including the system of internal controls.

 

The Audit Committee meets with KPMG and management to review the Company’s interim financial results before publication of the Company’s quarterly earnings press releases and the filing of the Company’s quarterly reports on Form 10-Q and annual report on Form 10-K. The Committee also monitors the activities and performance of KPMG, including audit scope, audit fees, auditor independence and non-audit services performed by KPMG. All services to be performed by the Company’s independent registered public accounting firm are subject to pre-approval by the Audit Committee and management provides quarterly reports to the Committee on the status and fees for all such projects.

 

The Audit Committee has reviewed and discussed the consolidated financial statements for fiscal year 2011 with management and KPMG. This review included a discussion with KPMG and management of Avnet’s accounting principles, the reasonableness of significant estimates and judgments, including disclosure of critical accounting estimates, and the conduct of the audit. The Committee has discussed with KPMG the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. KPMG provided the Audit Committee with the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board regarding KPMG’s communications with the Audit Committee concerning independence and the Committee discussed with KPMG its independence. The Audit Committee has concluded that KPMG is independent from the Company and its management. KPMG also discussed with the Committee its internal quality control procedures and the results of its most recent peer review. In reliance on this review and these discussions, and the report of KPMG, the Audit Committee has recommended to the Board, and the Board has approved, the inclusion of the audited financial statements in the Company’s Annual Report on Form 10-K for the year ended July 2, 2011 for filing with the Securities and Exchange Commission.

 

 

The table below provides information relating to fees charged for services performed by KPMG LLP, the Company’s independent registered public accounting firm, in both fiscal 2011 and fiscal 2010. All of the services described in the table were approved in conformity with the Audit Committee’s pre-approval process.

 

 

Audit Services.  In both years, Audit Services consisted of work performed by the principal auditor associated with the audit of the Company’s consolidated financial statements, including reviews performed on the Company’s Form 10-Q filings, certain statutory audits required for the Company’s subsidiaries, and fees incurred in connection with the audit of internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002. Audit fees also included assistance with registration statements filed by the Company, including consents and, in fiscal 2010, comfort letters.

 

Audit-Related Services.  In both years, Audit-Related Services included certain compliance-related, agreed-upon procedures and assistance with certain acquisition due diligence efforts.

 

Tax Services.  In both years, Tax Services consisted primarily of assistance with respect to global tax compliance (federal, international, state and local), tax audits, tax advice associated with organizational structure and tax-related due diligence in connection with certain acquisitions.

 

All services to be provided by the Company’s independent registered public accounting firm are subject to pre-approval by the Audit Committee. The Audit Committee has adopted an “External Auditor Scope of Services Policy,” which requires the Audit Committee’s pre-approval of all services to be performed by the Company’s independent registered public accounting firm. In each case, pre-approval is required either by the Audit Committee or by the Chair of the Audit Committee, who is authorized to approve individual projects up to $250,000 with the total for such projects not to exceed $500,000, and must then report them to the full Committee by the next Committee meeting. Management provides quarterly reports to the Audit Committee on the fees for all projects requiring services by KPMG, LLP.

 

The following table sets forth information with respect to the Common Stock of Avnet beneficially owned at September 6, 2011 or, in respect of any 5% Holder, the date of such holder’s most recent Schedule 13D or Schedule 13G filed with the SEC, by (a) persons that, to Avnet’s knowledge, were the beneficial owners of more than 5% of Avnet’s outstanding Common Stock (“5% Holders”), (b) each Director and director nominee of Avnet, (c) each of the executive officers named in the Summary Compensation Table in this Proxy Statement (“named executive officers” or “NEOs”) and (d) all Directors and executive officers of Avnet as a group. Except where specifically noted in the table, all the shares listed for a person or the group are directly held by such person or group members, with sole voting and dispositive power.

 

 

 

 

 

Pursuant to Section 16(a) of the Exchange Act, Avnet’s Directors, executive officers and beneficial owners of more than 10% of the outstanding Common Stock are required to file reports with the Securities and Exchange Commission concerning their ownership of and transactions in Avnet Common Stock and are also required to provide Avnet with copies of such reports. Based solely on such reports and related information furnished to Avnet, Avnet believes that in fiscal 2011 all such filing requirements were complied with in a timely manner by all Directors and executive officers.

 

The current executive officers of the Company are:

 

 

Mr. Vallee joined the Company in February 1977 and was appointed Executive Chairman of the Board of Directors in July 2011. He previously served as Chairman of the Board and Chief Executive Officer from July 1998 to July 2011. Prior thereto, he was Vice Chairman of the Board since November 1992 and also President and Chief Operating Officer since March 1992.

 

Mr. Birk has been Senior Vice President of Avnet since November 1992. Mr. Birk was elected Vice President and General Counsel in September 1989 and previously held the position of Secretary from July 1997 to November 2003 and from January 2005 to November 2007. Mr. Birk served on the board of UAP Holding Corp. from 2007 — 2008.

 

Mr. Church has been Senior Vice President of Avnet since November 1995 and was appointed as Chief Business Development and Process Officer in August 2010. He previously served as Chief Operational Excellence Officer from April 2009 to August 2010. Mr. Church served as Chief Human Resources and Organizational Development Officer from August 2005 to March 2009.

 

Mr. Fay was appointed Chief Logistics and Operations Officer in July 2011 and previously served as Senior Vice President of Global Strategic Accounts for Avnet United from August 2005 to July 2011. Mr. Fay joined Avnet in 2005 with the company’s acquisition of electronic component distributor Memec, where he served as President of Memec Americas. He began his career with Memec in October 1996.

 

Mr. Feldberg has been Senior Vice President of Avnet since November 2004. He became an executive officer in July 2004 when he was promoted to President of Avnet Electronics Marketing. Mr. Feldberg previously served as President of Avnet Electronics Marketing Americas from June 2002 until June 2004 and has served as a corporate Vice President since November 1996. Mr. Feldberg served as President of Avnet Electronics Marketing Asia from December 2000 to June 2002.

 

Mr. Gallagher was appointed President of Avnet Technology Solutions in March 2009 and has been Senior Vice President of Avnet since November 2007. Mr. Gallagher served as President of Avnet Electronics Marketing Americas from July 2004 until March 2009.

 

Mr. Hamada was appointed as a Director in February 2011 and Chief Executive Officer in July 2011. He previously served as President from May 2010 until July 2011 and served as the Chief Operating Officer from July 2006 until July 2011. He was Senior Vice President of Avnet from November 2002 until August 2010. Mr. Hamada served as the President of Technology Solutions from July 2003 until July 2006 and

President of the Computer Marketing operating group from January 2002 until July 2003. He was appointed Vice President of Avnet in November 1999. Mr. Hamada is a member of the College of Business Administration Advisory Board for San Diego State University.

 

Ms. Miller was appointed Senior Vice President of Avnet in May 2011 and served as Vice President of Avnet from November 2009 to May 2011. She has served as Chief Human Resources Officer since April 2009. She previously served as corporate Senior Vice President Global Human Resources from July 2008 to March 2009 and corporate Vice President of Talent and Organizational Effectiveness from July 2006 to June 2008. Prior to joining Avnet, Ms. Miller served as Vice President, Human Resources — Electronic Systems at Goodrich Corporation from July 2001 to July 2006.

 

Mr. Phillips has been Vice President of Avnet since November 2006 and Chief Information Officer since July 2006. He joined Avnet with the July 2005 acquisition of Memec where he had served as Senior Vice President and Chief Information Officer since May 2004. Prior to joining Memec, Mr. Phillips was Senior Vice President and Chief Information Officer for Gateway Inc. He joined Gateway in June 1999 and served as Vice President of Information Technology in London and San Diego before his appointment in August 2003 as Chief Information Officer. Mr. Phillips serves as a Director of Wick Communications, a private newspaper and specialty publication company.

 

Mr. Sadowski has been Senior Vice President of Avnet since November 1992 and Chief Financial Officer since February 1993. Prior thereto, Mr. Sadowski has held various management positions in Avnet’s finance organization including the position of Controller.

 

Officers of the Company are generally elected each year at the meeting of the Board of Directors following the annual meeting of shareholders and hold office until the next such annual meeting or until their earlier death, resignation or removal.

 

 

The Compensation Committee has reviewed the Compensation Discussion and Analysis (“CD&A”) and discussed it with management. Based on its review and discussion with management, the Committee recommended to the Board of Directors that the CD&A be included in the Company’s 2011 Proxy Statement and incorporated by reference into the Company’s annual report on Form 10-K. This Report is provided by the following independent directors, who comprise the Committee:

 

 

 

Introduction

 

This section explains how the Compensation Committee of Avnet’s Board of Directors made its compensation decisions for the fiscal year ended July 2, 2011 (“fiscal 2011”) for the Named Executive Officers (the “NEOs”). The compensation paid to the NEOs for fiscal 2011 is set forth in the Summary Compensation Table, which is included elsewhere in this Proxy Statement. These officers and their titles during fiscal 2011 are:

 

 

Effective for fiscal 2012, Mr. Vallee was appointed Executive Chairman of the Board and Mr. Hamada was appointed Chief Executive Officer.

 

The Company’s executive compensation program is designed to achieve the following objectives:

 

 

While the Board and the Committee monitor the Company’s TSR, compensation related performance measures are currently linked to the achievement of metrics within the control of the Company’s executives, such as business plan results, achieving strategic objectives and growing economic profits. As executives gain responsibility and seniority at Avnet and exercise more direct influence over the Company’s financial and operational performance, base salary as a percentage of total compensation will typically decrease and incentive-based pay will increase. Through the use of equity based compensation that represents a significant portion of total compensation and meaningful share ownership requirements, the Board and the Committee provide a strong focus on the Company’s TSR.

 

When setting compensation, Avnet generally targets median peer group compensation levels for each pay element, taking into consideration factors such as the quality of the job match and the long-term performance of the individual executive. In instances of exceptional financial performance, compensation received may exceed median levels of the market. Conversely, in instances where either Avnet and/or an individual executive did not achieve pre-established performance goals, actual compensation earned may be below median levels of the market.

 

 

Avnet’s compensation programs are designed to provide a meaningful portion of compensation in the form of equity-based awards to support the goal of having executives think and behave like owners and to consider the impact of their actions on TSR. The Company believes that executive ownership of Avnet shares further enhances a strong alignment with Avnet’s shareholders by supporting growth of economic profits and shareholder value.

 

 

The following were in effect during fiscal 2011 and help demonstrate Avnet’s compensation governance framework and pay-for-performance philosophy:

 

 

 

During fiscal 2011, the Company delivered record sales and operating income in the face of continued economic uncertainty, and achieved positive results in other areas of the Company’s operations. As shown in the chart below, the Company’s performance in fiscal 2011 improved significantly over the prior year and was better than expected in several of the key financial measures that the Company believes help drive shareholder value. As a result, the average compensation paid to the Company’s CEO and other NEOs increased in fiscal 2011 from the prior year, consistent with Avnet’s pay-for-performance philosophy.

 

 

 

 

The table below displays the Company’s sales and the as adjusted net income and as adjusted operating income over the last five fiscal years.

 

 

 

 

In March 2011, Avnet was named No. 1 for the third consecutive year in the Wholesaler: Office Equipment and Electronics category in Fortune magazine’s annual “World’s Most Admired Companies” list. In this year’s Fortune list, Avnet ranked first in four reputation attributes, including people management, quality of products/services, quality of management and social responsibility.

 

In view of the Company’s financial and other business accomplishments and after a review of the Company’s compensation program in comparison to its peer group, in August 2010, the Compensation Committee and/or the Board took the following actions:

 

 

Additionally, during fiscal 2011, the Company revised the change of control agreements for Mr. Vallee, then the Company’s Chief Executive Officer and Chairman, and Mr. Hamada, then the Company’s President and Chief Operating Officer, to eliminate tax gross-ups for excise taxes related to payments made upon a change of control.

 

The primary components of the Company’s compensation program and the objectives of each component are set forth in the table below.

 

The table below shows the proportions of each pay component based on the executive’s target compensation for fiscal 2011 for NEOs.

 

 

 

 

In support of what the Committee feels is a strong pay-for-performance orientation, an executive’s compensation is heavily weighted toward incentive (variable) compensation, most of which is paid out based on the long-term performance of the Company.

 

How Compensation Decisions are Made.  Guided by the overall executive compensation philosophy and objectives described earlier in this CD&A, discussions with respect to executive compensation typically start in conjunction with the review of the Company’s budget for the new fiscal year at the Board’s strategic planning session held in June. The strategic planning session is focused heavily on the review of management’s proposed budget for the new fiscal year in a format conducive to in-depth discussions on strategic issues and initiatives around management’s 3-year business planning. After discussion, the Board approves the 3-year budget. This budget then becomes the basis for the target achievement levels for the annual cash incentive plan.

 

At the Committee’s regularly scheduled meeting in August, the CEO, the Chief Human Resources Officer (“CHRO”) and the Committee’s compensation consultant present marketplace data developed by the independent consultant and compensation recommendations for each executive officer to the Committee for its review and consideration. The CHRO and the Committee’s compensation consultant assists the Committee in its deliberations with respect to CEO compensation and in gathering market and industry data and analyses relating to CEO compensation. The Committee uses the comparative data as a reference for determining whether the compensation plans and levels targeted by the Committee appear to be near the median amount paid by peer companies. The Committee typically compares the compensation paid to an NEO to similarly positioned officers at comparator companies.

 

Role of the Compensation Committee.  The Compensation Committee has primary responsibility for the approval and implementation of the compensation programs for executive officers, determines compensation for all NEOs except the CEO, and recommends the compensation of the CEO to the independent directors of the Board for their consideration and approval. In addition to determining or recommending the compensation to be received, the Compensation Committee reviews, at least annually, the Company’s incentive compensation arrangements for the executive officers to ensure that performance goals and objectives, while challenging, do not encourage excessive risk taking.

 

Following the end of each fiscal year, the Committee leads the Board in conducting an annual assessment of CEO performance in light of the performance goals and objectives established for the Company and the CEO for the fiscal year just ended. The Committee also solicits written input from each Director using a CEO evaluation form approved by the Committee. The evaluation covers topics including, among others, enterprise performance, economic profit, profitable growth initiatives and succession planning. Along with the CEO evaluation form, each Director also receives a written self-evaluation from the CEO. The Committee analyzes these written responses and reports results back to the full Board. The results of the evaluations are discussed with the CEO and are then considered by the Committee in setting new goals and the compensation plan for the CEO for the new fiscal year.

 

In assessing the compensation plans for the CEO and the other executive officers, the Committee considers total compensation opportunities, both short and long-term, while at the same time focusing attention on the competitiveness of each component of compensation. Actual cash incentive payouts, actual value received from long-term incentive awards and actual overall compensation levels with respect to any given year for any particular officer may vary from the targeted levels based on Avnet’s enterprise and business unit performance, and relative performance to its industry.

 

As it relates to the design of the annual and long-term incentive plans, the Committee has determined that the goal-setting process, including the metrics utilized and specific targets established, were appropriate for Avnet in its current circumstances and that the metrics focused on items that are necessary to drive long-term growth of shareholder value. The Committee believes that it is not likely that the design of either the annual or long-term incentive plan, or the specific performance metrics and targets used, could cause management to take excessive risks in operating the Company’s business.

 

The process for setting the compensation of the Executive Chairman will be similar to the process of setting the compensation of the CEO.

 

Role of Management.  Historically, at the beginning of each fiscal year, the CEO evaluates the performance of the Chief Operating Officer (“COO”) and the CEO or COO evaluates the performance of the other executive officers against the strategic operating plan for the prior fiscal year. The CEO’s and the COO’s evaluations of individual performance also focus on executive officers’ performance relative to each person’s development goals. Beginning with fiscal year 2012, Mr. Hamada, as CEO, will evaluate the performance of each of the executive officers, except for the Executive Chairman, whose performance will be reviewed by the independent directors.

 

Objectives for each executive officer are tailored to the duties and responsibilities of the particular officer and the challenges that his or her business or functional unit faces during a particular period. Objectives typically include financial related objectives, such as sales, net and gross profit, operating income and economic profit, and objectives relating to other major business initiatives, such as implementation of new enterprise resource planning software or integrating a significant acquisition.

 

As part of the performance management process, each executive officer is also evaluated on ten performance dimensions, which reference the quantity and quality of work, as well as the manner in which the individual accomplishes his or her goals, including commitment to Avnet’s “core values” of integrity, customer service, accountability, teamwork and innovation. These core values form the foundation of Avnet’s performance and values-based culture of excellence and underpin Avnet’s overall strategies focused on profitable growth, operational excellence and people development, which are the driving forces behind Avnet’s quest to be the premier global technology marketing, distribution and services company. While this “qualitative” evaluation does not carry a specific weight, it does factor in to the overall assessment of the executive’s performance when setting target compensation levels.

 

During fiscal 2011, Mr. Vallee and Mr. Hamada, in consultation with the Company’s CHRO, developed compensation recommendations for the other executive officers related to base salary and annual and long-term incentives. Factors that are weighed in making individual target compensation recommendations include the following:

 

 

The Company does not have a pre-defined framework that determines which of these factors may be more or less important, and the emphasis placed on specific factors may vary among the executives depending on the specific roles and responsibilities of an executive officer, as well as the particular challenges — both in terms of business and professional development — faced by the executive. Once an executive officer’s role and responsibilities are defined, “value of the job in the marketplace” and “relative importance of the position within the executive ranks” are the most determinative factors in setting compensation targets for that executive officer, adjusted to take into consideration the executive officer’s experience and past and expected future performance.

 

Role of Compensation Consultants.  The Committee has engaged Steven Hall & Partners, represented by Mr. Steven Hall, as the Committee’s independent compensation consultant since 2008. During fiscal 2011, Mr. Hall attended, either in person or by telephonic conference call, each of the six meetings of the Committee, and he met with the Committee chair before every Committee meeting.

 

The compensation consultant provides the Committee with additional expertise relating to compensation philosophy, compensation levels, market trends and peer group analysis. In addition, the compensation consultant advises the Committee on best-practice ideas for governance of executive compensation as well as areas of potential risk and concern in the Company’s executive compensation program, and undertakes special projects at the request of the Committee chair.

 

The Committee has sole authority with regards to hiring, firing and approving fees for its independent consultant.

 

Comparator Group and Benchmarking.  As the independent advisor to the Compensation Committee on matters related to executive compensation, Steven Hall & Partners conducted a comprehensive review of the executive compensation program at the Company as compared to a fourteen-company comparator group. The group includes companies with a similar industry focus and/or of similar size and complexity with whom Avnet competes for talent.

 

The comparator group is comprised of:

 

 

Avnet’s revenues of $19.2 billion for the fiscal year ended July 3, 2010, were substantially larger than the median comparator group’s fiscal 2010 revenue of $10.3 billion.

 

To benchmark Avnet compensation levels for the CEO, CFO, COO and Group Presidents positions, data derived from the SEC filings of the comparator group have been supplemented with a variety of relevant, published surveys which provided data on compensation in the technology sector and general industry. For other positions for which SEC proxy data is not widely available, only survey data compiled by the compensation consultant has been utilized. Published survey data is collected and provided to the Committee throughout the fiscal year by both Avnet’s human resources department and by the Committee’s compensation consultant. All of the data sources have been weighted based on relevance, reliability and an assessment of the appropriateness of the match of responsibilities.

 

Following the completion of the benchmarking review by the consultants, the Committee and management review the data in light of trends, past compensation levels and the percentage changes as part of the executive compensation decision-making process. As part of this process, each executive’s proposed individual target compensation is evaluated against the marketplace data, including a review of the individual compensation elements such as base pay, variable cash incentive and long-term incentives. This allows for the determination of any gaps in compensation that may need to be addressed. While the

target is the median marketplace compensation level for each pay element, individual executives may be paid above or below the median, based on other factors, such as the quality of the job match and the long-term performance of the individual executive. While benchmarking data is one consideration in this process, it is not the sole determinative factor. For further information on this process, please see “Role of Compensation Committee” and “Role of Management” above.

 

The Committee continually monitors the make-up of the peer group used and evaluates the peer group against the Company’s operations.

 

Base Salary.  Each year, the Company undertakes the process described above in the “Overview of Avnet’s Compensation Practices” section of this CD&A. In light of the global economy and to reduce costs associated with the Company’s compensation program, the Committee froze fiscal 2010 salaries at the fiscal 2009 level (except as it related to Mr. Gallagher’s promotion to President of Avnet Technology Solutions). Given the fiscal 2010 performance and the improving economic outlook, the Committee increased base salaries for fiscal 2011 in order to aid in retention and to align with market trends. For fiscal 2011 the Compensation Committee approved the following salary increases in fiscal 2011 for the NEOs:

 

 

Annual Cash Incentive Compensation.  In addition to base salary, executive officers are eligible to receive annual incentive cash compensation based on the performance of the Company and, where appropriate, the business unit for which the executive has direct responsibility. Awards are made pursuant to the Executive Incentive Plan (the “Incentive Plan”) most recently approved by shareholders at the Company’s 2007 annual meeting.

 

The process for setting the annual cash incentive compensation begins in conjunction with the review of the Company’s budget for the new fiscal year at the Board’s strategic planning session held in June. When determining the budget, the Board seeks to ensure that it is fair, challenging and forward-looking, without encouraging excessive risk taking. Additionally, when determining the fiscal 2011 budget, the Board considered the uncertainty and projected growth in the global economy, the Company’s operating environment as projected by industry analysts and the Company’s significantly improved results in fiscal 2010. At the meeting in August, the Committee or the Board, as appropriate, finalizes the target cash incentive compensation and payout ranges under the Incentive Plan.

 

The performance goals for the NEOs that are not operating group presidents are based on the results of the entire Company. Performance goals for operating group presidents are weighted more heavily on the performance of the applicable operating group (75% of target award) but contain a component based on the performance of the entire Company as well (25% of target award). Goals include performance of either pre-tax income or net income to budgeted levels, adjusted by a factor measuring performance of return on capital employed against pre-established goals.

The table below outlines the payout range that applies to each performance level.

 

 

The target cash incentive compensation for fiscal 2011 for the NEOs is set forth in the following table:

 

 

The target cash incentive compensation for NEOs that are not operating group presidents is based on the percentage achievement of Avnet’s 2011 net income after tax (“NIAT”), excluding certain items, as modified by the ratio of actual return on capital employed (“ROCE”) to target ROCE. NIAT and ROCE were selected as the performance metrics because the Committee believes that those metrics are aligned with the creation of long-term shareholder value. The NIAT target for fiscal 2011 represents a 16% increase over NIAT actually achieved in fiscal 2010.

 

Targets for Avnet’s operating group presidents are set to take into account results at both the operating group level and the company-wide level. For Mr. Feldberg and Mr. Gallagher, 75% of their total target incentive is based upon the achievement of their respective operating group’s Net Income Before Tax (“NIBT”) and 25% of their total target incentive is based upon the NIAT of Avnet. In each instance, the target incentive is modified by a ratio of the actual ROCE to target ROCE of the respective operating group and Avnet, respectively. The NIBT target for fiscal 2011 for the Electronics Marketing operating group represents a 23% increase over the NIBT actually achieved by this group in fiscal 2010. The NIBT target for fiscal 2011 for the Technology Solutions operating group represents a 6% increase over the NIBT actually achieved by this group in fiscal 2010.

 

The factor on the NIAT and/or NIBT portion of the incentive is linear for actual results between 95% and 105% of the goal. If actual NIAT to goal were less than 95% or greater than 105%, the factor would be equal to the percentage of actual results to goal squared. For example, if actual NIAT were 110% of the goal, a factor of 121% (110% times 110%) would be applied to the target incentive compensation and if actual NIAT were 90% of the goal, a factor of 81% (90% times 90%) would be applied to the target incentive compensation. The maximum compensation for the incentive relating to the results of Avnet, EM and TS are each capped at 225% of the target compensation tied to such incentive. No compensation will be earned if actual performance is less than 50% of the established goals.

 

Based upon actual performance of the Company and the operating group, where applicable, the NEOs were paid the following cash incentive amounts:

 

 

 

The percentages of target incentive earned were calculated as follows:

 

 

 

 

The actual annual incentive earned for fiscal 2011 substantially exceeded the target payout due to the significant improvement in the Company’s operating performance and the fact that such performance was above the budgeted NIAT and NIBT targets, and in most instances, ROCE targets.

 

Long-Term Incentive Compensation.  The Board believes that long-term incentive compensation in the form of equity awards for all executive officers is a valuable compensation component. Long-term incentive compensation provides a strong incentive to increase shareholder value over time and improve TSR, as well as aids in retention. When granting long-term incentive compensation awards under the Company’s LTIP, the Committee reviews the marketplace data and targets the median marketplace compensation level for long-term incentives. As discussed above, marketplace data is not the sole determinative factor and awards under the LTIP may be above or below the median, based on other factors, such as the long-term performance of the individual executive and the executive’s potential to contribute to the long-term success of the Company.

 

During fiscal 2011, the long-term incentive awards to executive officers, including the NEOs, included restricted stock units (“RSUs”), stock options and performance share units (“PSPs”). For awards made in August 2010, covering the 2011-2013 performance period, PSPs represented 50% of the award and RSUs and stock options each represented 25% of the award.

 

Restricted Stock Units.  The Committee (or the independent directors as a group in the case of the CEO) annually awards RSUs to eligible employees, including the CEO and other executive officers in recognition of operating results achieved by the Company as a whole or by particular operating groups or business units in the preceding fiscal year and the expected contribution by the executive to the Company’s future performance. RSUs typically vest in five installments, with the first installment vesting in January of the

following year and the balance vesting in four equal annual installments thereafter, contingent upon continued employment (except in the case of death, disability, retirement of the employee or a change of control).

 

Stock Options.  The Committee (or the independent directors as a group in the case of the CEO) grants stock options to eligible employees, including the CEO and other executive officers, in consideration of their potential to contribute to the long-term success of the Company and in order to align their interests with those of the Company’s shareholders. The Committee has the authority to make awards of stock options from time to time, in its discretion, based on its evaluation of accomplishments achieved by an executive or other employee, upon a promotion or upon the hiring of an executive. Stock options typically vest in four equal annual installments on the anniversaries of the grant date and expire after 10 years.

 

Performance Share Units.  The Committee (or the independent directors as a group in the case of the CEO) awards PSPs to eligible employees, including the CEO and other executive officers. The PSPs provide for the delivery of a number of shares of the Company’s common stock at the end of a three-year period based upon the Company’s relative economic profit improvement compared to an index of technology distributors and a large competitor for the three-year period. The Committee awards PSPs based on relative economic profit improvement because the Board believes that economic profit growth and the creation of shareholder value ultimately leads to growth in TSR. For purposes of the PSP awards, relative economic profit improvement means the cumulative increase in Avnet’s economic profit during the relevant performance period over its economic profit during the prior three-year period compared to the cumulative increase during the performance period in the economic profit of selected group of companies or index, adjusted for size, and expressed as the percentage by which Avnet’s economic profit increase exceeds or is exceeded by that of the group of companies or index. Economic profit for a business means operating income after tax, less a capital charge on the amount of capital invested in the business. For this purpose, operating income excludes certain items as determined by the Committee, such as restructuring charges, asset writedowns, impairments, gains on the disposition of businesses and financial impact of accounting, tax, and regulatory changes, etc.

 

The Committee awards PSPs so that the Company’s compensation program remains competitive and closely linked to the Company’s generation of economic profits, thereby further aligning the long-term interests of executives with those of shareholders. For awards made in fiscal 2012, which cover the 2012-2014 performance period, TSR will be a component of the PSP awards, along with relative economic profit performance.

 

Based upon the Company’s actual relative economic profit improvment during the three-year performance period, the executive is eligible to receive a percentage of the target number of shares ranging from 0% to 200% of his or her targeted number of shares.

 

 

The performance comparator group for awards covering the 2011-2013 performance period consists of (i) the S&P Supercomposite Technology Distributors Index Sub-Industry Index (excluding Avnet and Arrow Electronics, Inc.) and (ii) Arrow Electronics, Inc., with each being weighted at 50%.

Fiscal 2011 Awards.  The 2011 LTIP awards to the NEOs are listed in the following table:

 

 

Equity Grant Practices.  Historically, the Compensation Committee makes its compensation recommendations and decisions at its regularly scheduled meeting in August, which is generally scheduled at least one year in advance. For fiscal 2011, all compensation recommendations and decisions, except as noted in the next sentence, were made at the August 2010 meeting. The Committee delayed awarding PSPs and RSUs to members of the Avnet Executive Board, which consists of 11 C-level executives, until after the 2010 Stock Compensation Plan was approved by shareholders on November 5, 2010. Pursuant to the Company’s equity incentive plans, the exercise price of each stock option awarded to the executive officers is the closing price of Avnet’s common stock on the date of grant. Options and other equity-based awards may be granted in connection with a new hire or a promotion, in which case awards may be granted at the Committee meeting at or about the time of hiring or promotion. Scheduling decisions are made without regard to anticipated earnings or the major announcements by the Company.

 

Stock Ownership Guidelines and Holding Requirements.  With a significant portion of each executive officer’s total compensation delivered in the form of equity-based incentives, executive officers have a substantial interest and incentive to ensure profitable growth of the Company and to drive long-term shareholder value and TSR. To further reinforce this focus, the Committee has established stock ownership guidelines for all executive officers. The guidelines provide that the NEOs should hold shares of the Company’s common stock or restricted stock units, with a market value equal to a multiple of each officer’s base salary, as set forth below:

 

 

Until the ownership level under the guidelines is met, the guidelines provide that a covered officer must hold at least 50% of any net shares he or she receives upon the exercise of options or upon the delivery of any RSU or PSP awards.

 

Pension Plan and SERP.  Avnet maintains a pension plan (the “Pension Plan”) which covers United States employees of Avnet, including all of the named executive officers. The Pension Plan is a broad-based tax-qualified defined benefit plan with a cash balance feature. In addition, Avnet provides the Supplemental Executive Officer’s Retirement Plan (“SERP”) in which each NEO participates. The benefit formula under the Pension Plan and the SERP is described in the Pension Benefits Table.

 

The Pension Plan and the SERP are important retention tools in the Avnet compensation program because the receipt of benefits under these plans is contingent upon the satisfaction of certain age and service requirements. The Company balances the effectiveness of these plans as a compensation and retention tool with the cost to the Company of providing them. Additionally, the SERP contains confidentiality, non-solicitation and non-competition provisions.

 

Deferred Compensation.  The Company maintains a Deferred Compensation Plan for highly compensated employees including all of the named executive officers. The program permits these employees to set aside a portion of their income for retirement on a pre-tax basis, in addition to the amounts allowed under the Company’s 401(k) Plan, at a minimal administrative cost to the Company. Under this unfunded program, amounts deferred by a participant are credited with earnings based upon the returns actually

obtained through the “deemed investment” selected by the executive, as described in more detail following the Nonqualified Deferred Compensation Table.

 

Perquisites.  The Company provides named executive officers with a limited number of perquisites that the Company and the Committee believe are reasonable and consistent with Avnet’s overall compensation program, and necessary to remain competitive. Costs associated with perquisites provided by the Company are included under All Other Compensation in the following Summary Compensation Table.

 

Employment Agreements and Change of Control Agreements.  Each of the named executive officers has entered into an employment agreement and a change of control agreement with the Company. The change of control agreements are intended to encourage retention in the face of the disruptive impact of an actual or attempted change of control of the Company. The agreements are also intended to align executive and shareholder interests by enabling executives to consider corporate transactions that are in the best interests of the shareholders and other constituents of the Company without undue concern over whether the transactions may jeopardize the executives’ own employment. More detailed descriptions of these programs are included under the heading “Potential Payouts Upon Termination and Change of Control.”

 

As permitted by Section 726 of the Business Corporation Law of New York, Avnet has in force directors’ and officers’ liability insurance and corporate reimbursement insurance. The policy insures Avnet against losses from claims against its directors and officers when they are entitled to indemnification by Avnet, and insures Avnet’s directors and officers against certain losses from claims against them in their official capacities. All duly elected directors and officers of Avnet and its subsidiaries are covered under this insurance. The primary insurer is Federal Insurance Company, a Chubb Group insurance company. Excess insurers include ACE American Insurance Company, Arch Insurance Company, Zurich American Insurance Company, National Union Fire Insurance Co. of Pittsburgh, PA, Allied World National Assurance Company, Federal Insurance Company, and Lloyd’s of London. The coverage was renewed effective August 1, 2011 for a one year term. The total premium paid for both primary and excess insurance was $1,155,620.

 

Section 162(m) of the Internal Revenue Code of 1986, as amended (“Section 162(m)”), limits to $1 million the amount of remuneration that Avnet may deduct in any calendar year for its CEO and three other highest-paid named executive officers, other than the CFO. The limitation applies only to compensation that is not considered “performance based” as defined in the Section 162(m) regulations.

 

In designing the Company’s compensation programs, the Committee considers the effect of Section 162(m), as well as other factors relevant to the Company’s business needs. The Company has historically taken, and intends to continue to take, reasonable and appropriate actions in respect of achieving deductibility of annual incentive and long-term compensation. To maintain flexibility, the Committee does not have a policy requiring all compensation to be deductible.

 

The following table sets forth information concerning the compensation during Avnet’s last three fiscal years of its Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer and the two executive officers at the end of the last fiscal year who had the highest individual total compensation during Avnet’s fiscal year ended July 2, 2011:

 

SUMMARY COMPENSATION TABLE

 

 

 

 

 

Grants of Plan-Based Awards

 

The following table provides information about equity and non-equity plan-based awards to the named executive officers in fiscal 2011 relating to (1) annual cash incentive awards; (2) the PSPs; (3) the RSUs and (4) the option grants. The actual payouts in fiscal 2011 under the Non-Equity Incentive Plan Awards are included in the Summary Compensation Table as are the grant date fair values associated with the awards under the Equity Incentive Plan, All Other Stock Awards and All Other Option Awards in the table below.

 

 

 

 

 

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table provides information on the current holdings of stock options and stock awards by the named executive officers as of July 2, 2011. This table includes unexercised and unvested option grants, unvested RSUs, or PSPs with performance conditions that have not yet been satisfied. Each equity grant is shown separately for each named executive officer. The vesting schedule for each grant is shown following this table, based on the option grant date or stock award date. The market value of the stock awards is based on the closing market price of Avnet Common Stock as of July 2, 2011, which was $32.55. The PSPs are subject to specified performance objectives over the performance period. The market values as of July 2, 2011, shown in columns (h) and (j) below, assume 100% achievement of these performance objectives. For additional information about the option grants and stock awards, see the description of equity incentive compensation in the Compensation Discussion and Analysis included elsewhere in this Proxy Statement and Note 12 to the Company’s Consolidated Financial Statements included in Avnet’s Form 10-K for the fiscal year ended July 2, 2011.