UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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[X] Definitive Proxy Statement
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[ ] Soliciting Material Pursuant to Rule 14a-12
WASTE MANAGEMENT, INC.
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(Name of Registrant as Specified In Its Charter)
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[WASTE MANAGEMENT LOGO]
1001 FANNIN STREET, SUITE 4000
HOUSTON, TEXAS 77002
Dear Stockholder:
We invite you to attend our Annual Meeting of Stockholders on May 17, 2002,
in Houston, Texas. At the meeting, you will hear a report on our operations and
have a chance to meet your directors and executives.
This booklet includes the formal notice of meeting and the proxy statement.
The proxy statement tells you more about the agenda and procedures for the
meeting. It also describes how the Board operates and gives personal information
about our director candidates.
For those stockholders with access to the Internet, we encourage you to
access http://www.proxyvote.com to vote your shares over the Internet. Also, we
encourage you to elect to receive future annual reports, proxy statements and
other materials over the Internet, by following the instructions in the proxy
statement. This electronic means of communication is quick and convenient and
can save the Company a substantial amount of money in printing and postage
costs.
Even if you only own a few shares, we want your shares to be represented at
the meeting. Whether or not you attend the meeting, please vote your shares
either by returning your proxy card or by voting by telephone or Internet as
soon as possible (see the proxy card for instructions on how to vote by
telephone or Internet).
We hope you'll be able to attend the meeting and look forward to seeing you
on May 17th.
Sincerely yours,
/s/ A. MAURICE MYERS
A. MAURICE MYERS
Chairman of the Board,
President and CEO
April 8, 2002
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OF WASTE MANAGEMENT, INC.
DATE AND TIME:
May 17, 2002 at 11:00 a.m., Central Time
PLACE:
The St. Regis Hotel
1919 Briar Oaks Lane
Houston, Texas 77027
PURPOSE:
- Elect two directors;
- Ratify appointment of independent auditors;
- Vote on a proposal to amend the Company's Restated Certificate of
Incorporation to provide for election of directors annually;
- Vote on a stockholder proposal relating to the Company's disclosure of
its strategy on opposition to privatization; and
- Conduct other business that is properly raised.
Only stockholders of record on March 22, 2002 may vote at the meeting.
Your vote is important. Please complete, sign, date and return your proxy
card promptly in the enclosed envelope, or vote by telephone or over the
Internet by following the instructions on the proxy card.
/s/ DAVID P. STEINER
DAVID P. STEINER
Senior Vice President, General Counsel
and Corporate Secretary
April 8, 2002
TABLE OF CONTENTS
PAGE
----
General Information......................................... 1
Board of Directors.......................................... 2
Director Nominees......................................... 2
Directors Continuing in Office............................ 3
Director Compensation..................................... 4
Meetings and Board Committees............................. 4
Director and Officer Stock Ownership........................ 6
Persons Owning More than 5% of Waste Management Stock....... 7
Section 16(a) Beneficial Ownership Reporting Compliance..... 7
Executive Compensation...................................... 8
Compensation Committee Report............................... 11
Compensation Committee Interlocks and Insider
Participation............................................. 13
Related Party Transactions.................................. 13
Stock Performance Graph..................................... 14
Audit Committee Report...................................... 14
Ratification of Independent Auditors........................ 15
Approval of Amendment to Restated Certificate of
Incorporation............................................. 17
Stockholder Proposal........................................ 18
Other Matters............................................... 20
Other Information........................................... 20
i
GENERAL INFORMATION
ABOUT THIS PROXY STATEMENT
We sent you these proxy materials because Waste Management's Board of
Directors is soliciting your proxy to vote your shares at the Annual Meeting.
This Proxy Statement summarizes information that we are required to provide to
you under the rules of the Securities and Exchange Commission ("SEC") and that
is designed to assist you in voting your shares. On April 8, 2002 we began
mailing these proxy materials to all stockholders of record at the close of
business on March 22, 2002.
WHO MAY VOTE
Stockholders of Waste Management, as recorded in our stock register at the
close of business on March 22, 2002, may vote at the meeting. Each share of
Waste Management common stock is entitled to one vote. As of March 22, 2002,
there were 617,852,674 shares of common stock outstanding and entitled to vote.
HOW TO VOTE
You may vote in person at the meeting or by proxy. We recommend you vote by
proxy even if you plan to attend the meeting. You can always change your vote at
the meeting, in which case your proxy will be revoked.
HOW PROXIES WORK
Waste Management's Board of Directors is asking for your proxy. There are
three ways to vote by proxy:
- By telephone -- You can vote by telephone by following the instructions
on the proxy card;
- By Internet -- You can vote on the Internet by following the instructions
on the proxy card; and
- By mail -- You can vote by mail by signing, dating and mailing the
enclosed proxy card.
Giving us your proxy means you authorize us to vote your shares at the
meeting in the manner you direct. If you sign your proxy but do not give voting
instructions, we will vote your shares in favor of our director candidates; in
favor of the ratification of the independent auditors; in favor of the amendment
to the Restated Certificate of Incorporation; and against the stockholder
proposal relating to the Company's disclosure of its strategy on opposition to
privatization. For any other matters that may properly come before the meeting,
your shares will be voted at the discretion of the proxy holders. You may vote
for both, either or none of our director candidates. You may also vote for or
against the other proposals, or you may abstain from voting.
You may receive more than one voting or proxy card depending on how you
hold your shares. Shares registered in your name and shares held in the Employee
Stock Purchase Plan and the Retirement Savings Plan are covered by three
separate cards. If you hold shares through someone else, such as a broker, you
may also get material from them asking how you want to vote. You should complete
and return each proxy or other voting instruction request provided to you.
REVOKING A PROXY
You may revoke your proxy before it is voted by submitting a new proxy with
a later date; by voting in person at the meeting; or by notifying Waste
Management's Corporate Secretary in writing at the following address. Your most
current telephone or Internet vote is the one that is counted unless you vote in
person at the meeting.
Waste Management, Inc.
Attn: Corporate Secretary
1001 Fannin Street, Suite 4000
Houston, Texas 77002
QUORUM
In order to carry on the business of the meeting, we must have a quorum.
This means that at least a majority of the outstanding shares eligible to vote
must be present at the meeting, either by proxy or in person. Abstentions and
broker non-votes are counted as present at the meeting for determining whether
we have a quorum. A broker non-vote occurs when a broker signs and returns a
proxy but does not vote on a particular proposal because the broker does not
have discretionary voting power for that particular item and has not received
voting instructions from the beneficial owner.
VOTES NEEDED
Directors are elected by a plurality of shares present at the meeting,
meaning that the director nominee with the most affirmative votes for a
particular slot is elected to that slot.
The proposal to amend the Company's Restated Certificate of Incorporation
to provide for the election of directors annually requires the favorable vote of
at least two-thirds of the total outstanding shares.
The stockholder proposal and the ratification of the independent auditors
require the favorable vote of a majority of the shares present at the meeting,
either by proxy or in person, and entitled to vote on such matters.
Abstentions have the same effect as a vote against a matter because they
are present for purposes of the meeting and entitled to vote on such matter, but
are not a vote for such matter.
Broker non-votes will have no effect on the vote on any matter, except that
they have the same effect as a vote against the proposal to amend the Company's
Restated Certificate of Incorporation because broker non-votes are counted in
the total number of outstanding shares but are not voted for the proposal.
ATTENDING IN PERSON
Only stockholders, their proxy holders and Waste Management's guests may
attend the meeting. If you plan to attend, please bring identification and, if
you hold shares in street name, you should bring your bank or broker statement
showing your beneficial ownership of Waste Management stock for admittance to
the meeting.
BOARD OF DIRECTORS
The Board of Directors consists of nine directors divided into three
classes (Class I, Class II and Class III) serving staggered three-year terms.
The Class I directors are up for election at the Annual Meeting, and the
nominees for election are Class I directors. No nominees will be recognized
other than those that are nominated in accordance with the provisions contained
in the By-laws of the Company. No nominees, other than those proposed by the
Board, were presented for the 2002 Annual Meeting.
DIRECTOR NOMINEES
(ITEM 1 ON THE PROXY CARD)
The first proposal on the agenda for the Annual Meeting will be electing
two directors to serve as Class I directors for three-year terms beginning at
this Annual Meeting and expiring at the 2005 Annual Meeting of Stockholders. The
Board has nominated two current directors -- Pastora San Juan Cafferty and
Steven G. Rothmeier -- and recommends that you vote for their reelection. The
two nominees receiving the greatest number of votes at this Annual Meeting will
be elected.
Ralph F. Cox is also currently a Class I director; however, he is not
standing for reelection as he is retiring from the Board at this Annual Meeting
in accordance with the Company's Corporate Governance Guidelines.
The following is a brief biography of each nominee. You will find
information on their holdings of Waste Management stock in the "Director and
Officer Stock Ownership" section on page 6.
2
Pastora San Juan Cafferty is 61 years old. She has been a director of the
Company or one of its predecessors since 1994, and her current term as a Class I
director expires in 2002. She has been a Professor since 1985 at the University
of Chicago, where she has been a member of the faculty since 1971. She currently
serves as a director of Kimberly-Clark Corporation, People's Energy Corporation,
Bankmont Financial Corporation and its subsidiaries, Harris Bankcorp, Inc. and
Harris Trust and Savings Bank. She is also a Trustee of Rush-Presbyterian St.
Luke's Medical Center and the Lyric Opera of Chicago.
Steven G. Rothmeier is 55 years old. He has been a director of the Company
or one of its predecessors since 1997, and his current term as a Class I
director expires in 2002. He has been Chairman and CEO of Great Northern
Capital, a private investment management, consulting and merchant banking firm,
since March 1993. He is a director of GenCorp., Inc., Department 56, Inc., and
Precision Castparts Inc.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF PASTORA
SAN JUAN CAFFERTY AND STEVEN G. ROTHMEIER.
DIRECTORS CONTINUING IN OFFICE
The Class II and Class III directors will continue in office following the
Annual Meeting, and their terms will expire in 2003 (Class II) or 2004 (Class
III), with the exception of Mr. Arnelle, a Class III director, who will retire
at the 2003 Annual Meeting of Stockholders in accordance with the Company's
Corporate Governance Guidelines. The following are brief biographies of each of
these directors.
Robert S. Miller is 60 years old. He has been a director of the Company or
one of its predecessors since 1997, and his current term as a Class II director
expires in 2003. Mr. Miller is a turn-around specialist dealing with troubled
companies. He has been Chairman of the Board and Chief Executive Officer of
Bethlehem Steel Corporation, a steel manufacturing company, since September
2001. He served as Chairman of Federal Mogul Corporation, an automotive parts
manufacturing firm, from September 2000 to October 2001, and was CEO of Federal
Mogul from September 2000 until January 2001. In October 2001, Bethlehem Steel
and Federal Mogul both filed for bankruptcy under Chapter 11 of the Bankruptcy
Code. Mr. Miller served as special advisor to Aetna, Inc., a health insurer,
from February 2000 until September 2000. From November 1999 until February 2000,
Mr. Miller served as President and a Director of Reliance Group Holdings, Inc.,
a property and casualty insurance company that filed for bankruptcy under
Chapter 11 of the Bankruptcy Code in June 2001. He served as President and Chief
Executive Officer of Waste Management from August 1999 until November 1999 and
as non-executive Chairman of the Board of the Company from July 1998 until May
1999. Mr. Miller is a director of Federal Mogul Corporation, Pope & Talbot,
Inc., and Symantec Corp.
A. Maurice Myers is 61 years old. He has been a director of the Company
since November 1999, and his current term as a Class II director expires in
2003. He has been Chairman of the Board, President and CEO of the Company since
November 1999. He served as Chairman of the Board of Yellow Corporation, a
freight transportation company, from July 1996 until November 1999, and as a
director, President and CEO from April 1996 until November 1999. He is a
director of Tesoro Petroleum Corporation and Hawaiian Electric Industries, Inc.
Carl W. Vogt is 65 years old. He has been a director of the Company since
December 2001, and his current term as a Class II director expires in 2003. Mr.
Vogt is "Of Counsel" to Fulbright & Jaworski L.L.P., a law firm headquartered in
Houston, Texas, where he was formerly a senior partner. He is currently a
director of the Deutsche Alex. Brown Flag Investors Funds, the ISI Managed
Funds, Yellow Corporation and American Science and Engineering Inc. He was a
director of the National Passenger Railroad Corporation (AMTRAK) from 1990 until
1992, and Chair of the U.S. National Transportation Safety Board from 1992 until
1994. He is a Trustee of Williams College where he served as interim President
from 1999 until 2000, Chair of the Flight Safety Foundation and a member of the
American Council on Germany. Mr. Vogt is a Fellow of the Royal Aeronautical
Society, a Fellow of the American Bar Foundation and an Industrial Fellow,
Linacre College, Oxford University, England.
H. Jesse Arnelle is 68 years old. He has been a director of the Company or
one of its predecessors since 1991, and his current term as a Class III director
will expire in 2003, when he will retire from the Board in
3
accordance with the Company's Corporate Governance Guidelines. He is "Of
Counsel" to Womble, Carlyle, Sandridge and Rice, a law firm headquartered in
Winston-Salem, North Carolina. He was senior partner of Arnelle, Hastie, McGee,
Willis and Greene, a San Francisco-based law firm, until 1996. He is a director
of Florida Power & Light, Eastman Chemical Corporation, Textron Corporation,
Gannett Corporation, Armstrong World Industries, Inc. and Metropolitan Life's
Series Fund.
John C. Pope is 53 years old. He has been a director of the Company or one
of its predecessors since 1997, and his current term as a Class III director
expires in 2004. He serves as Chairman of the Board of PFI Group, a private
investment firm. He served as Chairman of the Board of MotivePower Industries,
Inc., a manufacturer and remanufacturer of locomotives and locomotive components
from January 1996 to November 1999. He is a director of Federal Mogul
Corporation, Wallace Computer Services, Inc., Air Canada Corporation, Per-Se
Technologies, Inc., Dollar Thrifty Automotive Group, Inc. and Kraft Foods, Inc.
Ralph V. Whitworth is 46 years old. He has been a director of the Company
since 1998, and his current term as a Class III director expires in 2004. He has
been a principal and managing member of Relational Investors LLC, a private
asset management company, since March 1996. He has also been a partner in
Batchelder & Partners, Inc., a financial advisory and investment-banking firm
based in San Diego, California, since January 1997. He served as Acting Chairman
of the Board of Waste Management from July 1999 to August 1999 and as Chairman
of the Board from August 1999 until November 1999. He has served as Chairman of
the Board of Apria Healthcare Group Inc. since April 1998 and has been a
director since January 1998. He is a director of Tektronix Inc. and Mattel Inc.
DIRECTOR COMPENSATION
Waste Management employees receive no extra compensation for serving as
directors. In 2001, nonemployee directors received a base fee of $30,000 per
year, Board and committee meeting fees of $1,250 for each meeting attended and
reimbursement of meeting expenses. In addition, committee chairpersons received
an additional $625 for each committee meeting chaired. Under the Company's
deferred compensation plan for non-employee directors, directors can choose to
receive their cash compensation in cash, in phantom stock, or in a combination
of cash and phantom stock. Each phantom stock unit is equal in value to a share
of Waste Management stock and is ultimately paid in cash. These units are
credited to the directors' accounts at the same time the annual retainer would
otherwise be paid. Any fees that are deferred are held in the general funds of
the Company. In general, deferred amounts are not paid until after the director
retires from the Board. The amounts are then paid in a lump sum. We also pay a
portion of director compensation in stock. Every year, each nonemployee director
receives 10,000 options to purchase the Company's common stock at the fair
market value on the date of grant.
Starting in 2002, the nonemployee directors' annual retainer has been
increased to $35,000 per year, plus the reimbursement of meeting expenses. Also
starting in 2002, members of the Board receive $1,400 for each Board meeting
attended. They continue to receive $1,250 for each committee meeting attended
and committee chairpersons continue to receive an additional $625 for each
committee meeting they chair.
MEETINGS AND BOARD COMMITTEES
Last year, the Board held 8 meetings. Each member of the Board of Directors
attended at least 75% of the meetings of the Board and the committees on which
he or she served.
The Board appoints committees to help carry out its duties. In particular,
Board committees work on key issues in greater detail than would be possible at
full Board meetings. Each committee reviews the results of its meetings with the
full Board, and all members of the Board are invited to attend all Committee
meetings. The Board has three standing committees: the Audit Committee, the
Compensation Committee and the Nominating and Governance Committee.
Additionally, the Board has the power to appoint additional committees, as it
deems necessary.
The Audit Committee currently consists of Ms. Cafferty, Mr. Cox, Mr. Pope
(Chairman), Mr. Rothmeier and Mr. Vogt. In 2001, the Audit Committee consisted
of Mr. Montrone (who resigned from
4
the Board in December 2001), Mr. Pope (Chairman) and Mr. Rothmeier. Each member
of the Audit Committee is "independent" as defined in the New York Stock
Exchange listing standards. During 2001, the Audit Committee held 6 meetings.
The duties of the Audit Committee generally are:
- to review the annual audited financial statements with management and
recommend to the Board whether those financial statements should be
included in the Company's Annual Report on Form 10-K;
- to review with management and the independent auditor the Company's
quarterly financial statements prior to the filing of the Company's Form
10-Q;
- to recommend to the Board independent auditors to annually audit the
Company's books and records;
- to approve the fees to be paid to the independent auditors;
- to review the independence of the independent auditors;
- to review external and internal audit plans, staffing, reports and
activities;
- to review with management, the independent auditors and internal auditors
the Company's financial reporting, accounting and auditing practices and
the adequacy and effectiveness of accounting and financial controls that
could affect the Company's financial statements; and
- to report the results of its reviews to the Board.
The Audit Committee has a written charter, a copy of which was attached as
an exhibit to the Company's Proxy Statement relating to its 2001 Annual Meeting
of Stockholders.
The Compensation Committee currently consists of Mr. Arnelle, Ms. Cafferty
(Chairperson), Mr. Miller, Mr. Rothmeier and Mr. Whitworth. In 2001, the
Compensation Committee consisted of Ms. Cafferty, Mr. Montrone (Chairman) and
Mr. Whitworth. During 2001, the Compensation Committee met 6 times. The duties
of the Compensation Committee generally are:
- to review and recommend to the Board compensation for the Company's
executive officers and senior management;
- to recommend to the Board new, and changes to existing, compensation and
benefit plans;
- to recommend to the Board annual incentive compensation plan bonus goals
for executive officers and senior management and grant options under the
Company's stock option plans;
- to review and consider the annual evaluation of the CEO prepared by the
Nominating and Governance Committee and recommend to the Board the
compensation of the CEO;
- to annually review, and make recommendations to the Board with respect
to, compensation of the non-employee directors; and
- to make regular reports to the Board.
The Nominating and Governance Committee currently consists of Mr. Arnelle,
Mr. Cox, Mr. Miller, Mr. Pope, Mr. Vogt and Mr. Whitworth (Chairman). In 2001,
the Nominating and Governance Committee consisted of Mr. Arnelle, Mr. Cox, Mr.
Miller and Mr. Whitworth (Chairman). The Nominating and Governance Committee met
4 times in 2001. The duties of the Nominating and Governance Committee generally
are:
- to review, and make recommendations to the Board regarding, the overall
effectiveness, organization and structure of the Board and its
committees;
- to establish criteria for membership on the Board and its committees and
identify and propose to the Board nominees to fill Board vacancies as
they occur;
- to coordinate an annual evaluation of the CEO by non-employee directors
and provide the results of such evaluation to the Compensation Committee;
5
- to coordinate an annual evaluation by the directors of the Board's
performance and procedures;
- to review, and make recommendations to the Board regarding, corporate
governance matters; and
- to make regular reports to the Board.
Additionally, the Nominating and Governance Committee will consider
stockholders' suggestions for nominees for directors. To suggest a nominee, you
should submit your candidate's name, together with biographical information and
his or her written consent to nomination to the Corporate Secretary, Waste
Management, Inc., 1001 Fannin, Suite 4000, Houston, Texas 77002, between
November 9, 2002 and December 9, 2002.
DIRECTOR AND OFFICER STOCK OWNERSHIP
These tables show how much common stock each director, director nominee and
executive officer named in the Summary Compensation Table on page 8 owned on
March 22, 2002. None of these individuals, nor the directors and officers as a
group, own more than 1% of the Company's outstanding shares.
SHARES OF COMMON
STOCK COVERED BY SHARES COVERED BY
SHARES OF COMMON OPTIONS EXERCISABLE PHANTOM STOCK
NAME STOCK OWNED WITHIN 60 DAYS UNITS(1)
---- ---------------- ------------------- -----------------
H. Jesse Arnelle.................... 1,126 40,875 2,316
Pastora San Juan Cafferty........... 3,625 40,875 --
Ralph F. Cox........................ 8,500 95,000 3,753
Robert S. Miller.................... 14,726 442,708 4,136
John C. Pope(2)..................... 4,338 32,175 2,110
Steven G. Rothmeier................. 1,239 34,350 244
Carl W. Vogt........................ 56,455 -- 578
Ralph V. Whitworth(3)............... 4,578,500 295,000 2,900
A. Maurice Myers(4)................. 213,412 841,667 --
William L. Trubeck(5)............... 27,960 250,000 --
Lawrence O'Donnell, III(6).......... 23,493 218,750 --
Robert P. Damico.................... 8,345 216,854 --
David R. Hopkins.................... 145 178,750 --
All directors and executive officers
as a group (24 persons)........... 5,008,215 3,923,770 16,037
---------------
(1) The phantom stock units are paid to participating non-employee directors
through the Company's deferred compensation plan, as discussed under the
section titled "Director Compensation" on page 4. A phantom stock unit is a
fictitious share of the Company's common stock that is credited to the
director's account. The phantom stock unit has the same value as a share of
Company common stock on the day it is credited, and receives dividends in
the same amount and at the same time as if it were a real share of the
Company's common stock. The value of the phantom stock unit plus any accrued
dividends is paid out on a future date as elected by the director.
(2) The number of shares owned by Mr. Pope includes 435 shares held in a trust
for the benefit of his children.
(3) The number of shares owned by Mr. Whitworth are held by limited partnerships
and managed accounts controlled by Relational Investors LLC, of which Mr.
Whitworth is a principal and managing member. Mr. Whitworth disclaims
beneficial ownership of these shares.
(4) The number of shares owned by Mr. Myers represents shares granted pursuant
to a restricted stock award, of which 125,079 are vested. The number of
shares covered by options includes 100,260 options
6
owned by a trust for the benefit of Mr. Myers' children, for which Mr. Myers
serves as trustee. Mr. Myers has disclaimed beneficial ownership of those
securities.
(5) The number of shares owned by Mr. Trubeck includes 25,740 shares granted
pursuant to a restricted stock award, of which 11,866 shares are vested.
(6) The number of shares owned by Mr. O'Donnell includes 21,239 shares granted
pursuant to a restricted stock award, of which 10,620 shares are vested.
PERSONS OWNING MORE THAN 5% OF WASTE MANAGEMENT STOCK
The table below shows the beneficial ownership of the Company's common
stock as of March 22, 2002, for persons that we know own 5% or more of our
common stock, based on Schedules 13D and 13G filed with the SEC.
SHARES BENEFICIALLY OWNED
--------------------------
NAME AND ADDRESS NUMBER PERCENT
---------------- ------------ ---------
Legg Mason, Inc. ........................................... 40,513,106 6.45%
100 Light Street
Baltimore, Maryland 21202
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the federal securities laws, executive officers, directors and
stockholders who own more than 10% of Waste Management common stock are required
to file reports of their ownership, as well as any changes in their ownership,
with the SEC and the New York Stock Exchange. They are also required to provide
the Company with copies of any forms they file.
After reviewing the copies of the forms given to the Company and written
representations from the executive officers and directors, the Company believes
that during the last fiscal year, the executive officers and directors complied
with all of their requirements to report their stock ownership and any changes
in their ownership.
7
EXECUTIVE COMPENSATION
These tables show the compensation of Waste Management's CEO and the four
most highly paid executives other than the CEO. You can see the Compensation
Committee's report starting on page 11 for an explanation of the Company's
compensation philosophy.
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
AWARDS
ANNUAL COMPENSATION -----------------------------
------------------------------------------ SECURITIES
OTHER ANNUAL RESTRICTED STOCK UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(1) AWARD(S)($) OPTIONS
--------------------------- ---- --------- --------- ------------------ ---------------- ----------
A. Maurice Myers............. 2001 850,000 496,300 65,063 -- 300,000
Chairman of the Board, 2000 850,000 1,010,700 -- -- 275,415
President and CEO 1999 124,230 650,000 -- 4,124,063(3) 1,500,000
William L. Trubeck........... 2001 518,750 291,800 -- -- 200,000
Executive Vice President 2000 411,538 445,894 -- 386,738(4) 400,000
and Chief Financial Officer 1999 -- -- -- -- --
Lawrence O'Donnell, III...... 2001 511,250 324,800 -- -- 175,000
Executive Vice President -- 2000 415,769 419,140 -- 370,355(5) 350,000
Western Group 1999 -- -- -- -- --
Robert P. Damico............. 2001 433,846 238,800 -- -- 115,000
Senior Vice President -- 2000 414,615 648,660(6) -- -- 150,000
Midwest Group 1999 400,000 0 -- -- 0
David R. Hopkins............. 2001 443,245 237,500 -- -- 115,000
Senior Vice President -- 2000 378,173 1,289,200(7) -- -- 150,000
Southern Group 1999 275,000 220,000 -- -- 0
ALL OTHER
NAME AND PRINCIPAL POSITION COMPENSATION($)(2)
--------------------------- ------------------
A. Maurice Myers............. 40,616
Chairman of the Board, 33,498
President and CEO 25,698
William L. Trubeck........... 28,454
Executive Vice President 7,829
and Chief Financial Officer --
Lawrence O'Donnell, III...... 30,929
Executive Vice President -- 7,800
Western Group --
Robert P. Damico............. 24,232
Senior Vice President -- 7,800
Midwest Group 7,200
David R. Hopkins............. 16,203
Senior Vice President -- 0
Southern Group 0
---------------
(1) In accordance with SEC rules, perquisites and other personal benefits that
total less than $50,000 have not been included. For 2001, Other Annual
Compensation for Mr. Myers includes a payment of approximately $49,000 for
the purchase of life insurance.
(2) All Other Compensation includes Company contributions to the Retirement
Savings Plan ("RSP"), the Retirement Savings Restoration Plan ("RSRP") and
life insurance premiums. Amounts for fiscal year 2001 for the persons named
above are as follows:
RSP RSRP LIFE
------ ------- ------
Myers............................................. $7,650 $29,423 $3,543
Trubeck........................................... $7,650 $18,720 $2,084
O'Donnell......................................... $5,100 $23,870 $1,959
Damico............................................ $7,650 $14,831 $1,751
Hopkins........................................... -- $14,452 $1,751
(3) Mr. Myers was awarded 265,000 shares of restricted stock, valued at
$4,124,063, when he was hired on November 11, 1999. The shares of restricted
stock vest in three equal installments, beginning on the first anniversary
of the date of grant. At December 31, 2001, only 88,333 shares were still
restricted, and were valued at $2,818,706, based upon the closing price of
$31.91 per share of common stock on the New York Stock Exchange on December
31, 2001. Mr. Myers receives dividends on the shares of restricted stock.
(4) Mr. Trubeck was awarded 27,748 shares of restricted stock, valued at
$385,004, on March 7, 2000. The shares of restricted stock vest in four
equal installments, beginning on the first anniversary of the date of grant.
At December 31, 2001, only 20,811 shares were still restricted, and were
valued at $664,079, based upon the closing price of $31.91 per share of
common stock on the New York Stock Exchange on December 31, 2001. Mr.
Trubeck receives dividends on the shares of restricted stock.
(5) Mr. O'Donnell was awarded 21,239 shares of restricted stock, valued at
$300,001, on February 14, 2000. The shares of restricted stock vest in four
equal installments, beginning on the first anniversary of the date of grant.
At December 31, 2001, only 15,929 shares were still restricted, and were
valued at $508,294,
8
based upon the closing price of $31.91 per share of common stock on the New
York Stock Exchange on December 31, 2001. Mr. O'Donnell receives dividends
on the shares of restricted stock.
(6) As reported in the Company's proxy statement for the 2000 annual meeting,
Mr. Damico was not included in the Company's revised 1999 annual incentive
compensation plan. Because he was not included in the revised 1999 annual
incentive compensation plan and received no bonus under that plan, in May
2000 it was determined appropriate to pay a bonus of $274,640 to Mr. Damico.
This payment is included in Mr. Damico's 2000 bonus payment shown in the
table above.
(7) Mr. Hopkins served as Senior Vice President -- International Operations and
CEO of Waste Management International, Inc. from July 1998 through March
2000, at which time he became Senior Vice President -- Southern Area. Mr.
Hopkins' 2000 bonus includes a payment of $323,700 under the 2000 annual
incentive compensation plan and $965,500 under the International Divestiture
Incentive Plan, reflecting compensation for Mr. Hopkins' involvement in the
Company's divestiture of its international operations.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS(a)
------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(b)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION ------------------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
---- ---------- ------------ -------------- ---------- ------------- --------------
A. Maurice Myers............... 300,000 2.8% $24.01 3/01/2011 $4,529,928 $11,479,727
William L. Trubeck............. 200,000 1.8% $24.01 3/01/2011 $3,019,952 $ 7,653,152
Lawrence O'Donnell, III........ 175,000 1.6% $24.01 3/01/2011 $2,642,458 $ 6,696,508
Robert P. Damico............... 115,000 1.1% $24.01 3/01/2011 $1,736,472 $ 4,400,562
David R. Hopkins............... 115,000 1.1% $24.01 3/01/2011 $1,736,472 $ 4,400,562
---------------
(a) The exercise price of the option is the market price of Waste Management
common stock on the grant date. Options granted to senior executives in
2001 become exercisable in 25% annual increments beginning one year after
the date of grant and expire 10 years from the date of grant.
(b) These columns show the gains the executives could realize if Waste
Management's common stock appreciates at a 5% or 10% rate over the ten-year
term of the options. These growth rates are arbitrary assumptions specified
by the SEC, not Waste Management's predictions.
OPTION EXERCISES AND VALUES AT FISCAL YEAR END
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR END FISCAL YEAR END*
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ --------- ----------- ------------- ----------- -------------
A. Maurice Myers(1)............. -- -- 766,667 1,308,748 $12,533,089 $18,550,666
William L. Trubeck.............. -- -- 100,000 500,000 $ 1,772,250 $ 6,896,750
Lawrence O'Donnell, III......... -- -- 87,500 437,500 $ 1,342,906 $ 5,411,219
Robert P. Damico................ -- -- 155,157 297,500 $ 641,156 $ 2,831,969
David R. Hopkins................ -- -- 112,500 277,500 $ 641,156 $ 2,831,969
---------------
* The difference between the option exercise price and the market value of
Waste Management common stock at year-end, which was $31.91 based on the
closing price on the New York Stock Exchange on December 31, 2001. The
actual gain, if any, an executive realizes will depend on the market price
of Waste Management stock at the time of exercise. "In-the-money" means the
market price of the stock is higher than the exercise price of the option on
the date specified.
9
(1) Included in Mr. Myers' calculations are the number and value of 100,260
options owned by a trust for the benefit of his children, for which Mr.
Myers serves as trustee. Mr. Myers has disclaimed beneficial ownership of
these options.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of the
executive officers named in the Summary Compensation Table under the section
titled "Executive Compensation" on page 8, and with other officers of the
Company. The employment agreements are for three to five-year terms, and
continuously renew for like periods. The agreements provide for the payment of
minimum annual base salaries, a target annual bonus and participation in all
Waste Management benefit plans and programs.
The agreements also provide for certain severance payments and benefits in
the case of termination of employment or in the event of a change in control of
the Company. If employment ends because of death or total disability, generally
salary is paid for two years, although for Mr. Damico, salary is paid through
the remaining term of his agreement. Additionally, all options vest and there is
one year in which the options may be exercised, and Company benefits are paid in
accordance with the terms of the Company's benefit plans.
If the Company terminates the executive's employment for "cause," as
defined in the employment agreements, the Company will pay any accrued but
unpaid salary, expenses required to be reimbursed, vacation and any earned but
unpaid bonuses for prior periods. Company benefits will be paid in accordance
with the terms of the Company's benefit plans and all unvested options or other
awards will be cancelled on the date of termination. If the executive decides to
leave the Company other than for "good reason," as defined in the employment
agreements, the severance is the same, except the executive will generally have
90 days after terminating his employment to exercise any already vested options.
If the Company terminates the executive's employment without cause or the
executive leaves the Company with "good reason," as defined in the employment
agreements, the Company will pay to the executive all accrued or earned but
unpaid amounts due to him as of the date of termination plus an amount equal to
two times the sum of his base salary plus his target annual bonus. Generally,
all benefits will continue for two years and all stock options and other awards
will continue to vest over the two-year period, to the extent the vesting is not
accelerated as of the date of termination in accordance with the terms of the
employment agreement. The executive will generally have two years and six months
from the date of termination to exercise any of the awards other than Mr.
Damico, whose agreement provides for one year after termination. In no event can
an option be exercised after its term.
The agreements also provide for certain severance payments and benefits if
there is a "change in control," as defined in the employment agreements, of the
Company and the executive (i) leaves the Company for good reason thereafter,
(ii) is terminated without cause thereafter, or (iii) the termination of
employment in (i) or (ii) occurs "in contemplation" of a change in control. In
these cases, the executive will receive the same severance as described in the
preceding paragraph, except the severance generally will be three times the base
salary and target annual bonus instead of two times and the benefits generally
will continue for three years instead of two years. The stock options and other
awards will become fully vested and generally will remain exercisable for three
years after termination, but not to exceed the term of the option. The executive
shall also receive a prorated bonus at the maximum bonus level. Additionally, if
there are any payments under the agreements due to a change in control, the
executives will receive certain gross-up payments such that the net amount
received by the executive pursuant to the agreement will not be reduced by any
excise taxes.
The employment agreements also include covenants not to compete and not to
solicit employees after leaving the Company, as well as confidentiality
provisions as are customary, in nature and scope, for such agreements.
Additionally, Mr. Myers' agreement provides for the payment by the Company
of supplemental retirement benefits in the amount of $600,000 annually, provided
Mr. Myers remains employed by the Company until the fifth anniversary of his
employment. In the event Mr. Myers' employment is terminated
10
before the fifth anniversary, annual payments are pro-rated as follows: $500,000
on and after the fourth anniversary; $400,000 on and after the third
anniversary; and $100,000 on and after the 18-month anniversary. Mr. Myers'
tenure with the Company as of the date of this Proxy Statement would provide him
with a retirement benefit of $100,000 per year.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors has prepared the
following report regarding 2001 executive compensation. The Compensation
Committee is composed entirely of non-employee directors and is responsible for
establishing and administering the Company's policies governing annual
compensation, restricted stock awards and long-term incentive awards. The
Committee periodically evaluates the Company's compensation programs and
compares them with those of other companies. This report provides specific
information regarding compensation for the Company's CEO as well as compensation
information for all executives of the Company.
COMPENSATION PHILOSOPHY AND OBJECTIVES OF EXECUTIVE COMPENSATION
PROGRAMS
It is the policy of the Company and the Committee that all compensation
programs should (i) link pay to individual's and the Company's performance and
(ii) be competitive in the market to enable the Company to attract, motivate,
reward and retain the executive talent required to achieve corporate objectives.
The Company also focuses strongly on compensation linked to stock price
performance, in order to provide the strongest link to enhanced stockholder
value. The Committee regularly works with compensation consultants to assist
with the design, implementation and communication of various compensation plans.
The Company determines competitive levels of compensation by looking at
compensation data for companies with revenues comparable to the Company and
information obtained from compensation consultants. The Company's compensation
for executives includes base salaries, annual performance-based incentives,
certain executive benefits and long-term incentives.
In designing Waste Management's compensation programs, the Compensation
Committee's primary consideration is the Company's achievement of strategic
business goals that serve to enhance stockholder value. Section 162(m) of the
Internal Revenue Code, as amended, limits a company's ability to deduct
compensation paid in excess of $1 million during any fiscal year to the Chief
Executive Officer and the four highest paid officers other than the CEO, unless
such compensation meets certain performance-based requirements. The Company's
stock option grants currently meet the performance-based requirements under
Section 162(m). The Company's Performance-Based Incentive Compensation Plan has
been designed to meet the performance-based requirements under Section 162(m).
The Committee may, however, authorize payment of non-deductible compensation in
the future if it determines that such action would be in the best interests of
the Company.
BASE SALARIES
Base salaries for the Company's executives in 2001 were determined after
reviews of the competitive market data described above. In determining base
salaries, the Committee, using its discretion, considers market base salary
rates, average annual salary increases for executives in companies of relative
size across the country, and overall corporate financial performance. The
Committee also reviews executives' individual performance in making base salary
increase decisions. The Company's policy is to target base salary at the 50th
percentile of the competitive market. Salary actions taken by the Compensation
Committee in 2001, with respect to the executive officers, were consistent with
the policies and practices described above.
PERFORMANCE-BASED ANNUAL INCENTIVE COMPENSATION
The Company's Performance-Based Incentive Compensation Plan links incentive
compensation to the Company's and the executive's achievement of specific
performance goals. These goals are established at the
11
beginning of each period by the Compensation Committee based upon corporate
objectives determined by the Board, and for 2001 included:
(1) Return on Capital Employed (measured against internal objectives);
(2) Earnings Before Income Tax, Depreciation, and Amortization
(measured against internal objectives); and
(3) Individual performance (measured against specific personal
performance objectives).
With the intent of strengthening the link between senior executives'
compensation and Company performance, additional analysis of appropriate
financial measures was performed. As a result, the decision was made to change
the financial measures for three of the executives responsible for overall
corporate results to allow a more direct link between stockholder value creation
and executive compensation. The new plan measures for Messrs. Myers, Trubeck,
and O'Donnell are:
(4) Earnings Per Share (measured against internal year-over-year
continuous improvement targets);
(5) Return on Capital Employed (measured against internal objectives);
and
(6) Individual performance (measured against specific personal
performance objectives).
Because the performance measures were changed in December 2001, all payments
made under this plan to any named executive officer in excess of $1 million are
disqualified from 162(m) deduction for 2001.
Each performance goal, including the specific criteria for such goal, is
weighted based upon the relative importance of each goal as determined by the
Compensation Committee.
A bonus target, ranging up to 100% of base salary, is established for each
of the Company's executives under the Company's Performance-Based Incentive
Compensation Plan. These bonus targets are based upon individual position, level
of responsibility and each individual's ability to impact the Company's success.
In 2001, the Company targeted annual incentive compensation at the 75th
percentile of the market. Actual bonus awards are determined based on the
Company's and the individual executive's achievement of the performance goals
and can range from 0% to 200% of bonus target. Targeted bonuses for the named
executive officers in 2001 generally fell between the market 50th and 75th
percentiles. Actual bonuses for 2001 were less than target since Waste
Management's performance was below the established levels.
LONG-TERM INCENTIVE COMPENSATION
The Company believes that its executives should have an ongoing stake in
the long-term success of the Company. The Company also believes these key
employees should have a considerable portion of their total compensation tied to
the Company's stock price performance, since stock-related compensation is
directly linked to stockholder value. The Company targets long-term incentive
compensation to be between the 50th and 75th percentile of the competitive
compensation data described above.
The Company primarily uses stock options to deliver long-term incentives to
executive officers. Stock options provide a strong link between pay and
performance, since executives only realize value from stock options if the
Company's share price rises after the date of grant. The Compensation Committee
annually reviews competitive market data to determine appropriate stock awards
to executives. All stock options in 2001 were granted with exercise prices at
100% of fair market value of the Company's common stock at the time of grant.
The aggregate 2001 stock option grants for named officers as a group fell within
the market 50th to 75th percentile range.
OTHER EXECUTIVE BENEFITS AND PERQUISITES
The Company also provides certain benefits and perquisites to its
executives. These benefits and perquisites are not linked to any formal
performance criteria and are intended to serve as part of a competitive total
compensation package. These benefits and perquisites include such things as
supplemental retirement
12
plans and change-in-control arrangements. Levels of Company benefits and
perquisites for executives were in line with market 50th to 75th percentile
levels in 2001.
2001 CHIEF EXECUTIVE OFFICER COMPENSATION
BASE SALARY
The Committee established Mr. Myers' annualized base salary at $850,000 in
November 1999 when he joined the Company. This base salary was set below the
1999 competitive market 50th percentile in recognition of the stock-based
compensation awards provided to Mr. Myers when he was hired. Mr. Myers did not
receive an adjustment to his base salary in 2000, or in 2001.
ANNUAL BONUS
Mr. Myers received a bonus of $496,300 for 2001, based on the achievement
of performance goals described above, under "Performance-Based Annual Incentive
Compensation."
LONG-TERM INCENTIVES
Mr. Myers received an option grant of 300,000 options in March 2001 under
the Company's annual stock option grant process. The grant of these stock
options was made pursuant to his performance as evaluated by the Board of
Directors. The options were granted with exercise prices at 100% of fair market
value of the Company's common stock on the date of grant. This stock option
grant was consistent with market 50th percentile norms.
The Compensation Committee believes that executive compensation for 2001
adequately reflects its policy to align compensation with overall business
strategy, values and management initiatives and to ensure the Company's goals
and performance are consistent with the interests of its stockholders.
The Compensation Committee of the
Board of Directors
Pastora San Juan Cafferty, Chairperson
H. Jesse Arnelle
Robert S. Miller
Steven G. Rothmeier
Ralph V. Whitworth
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2001, Mr. Montrone (who resigned from the Board in December 2001),
Ms. Cafferty and Mr. Whitworth served on the Compensation Committee. During
2001, none of the Company's executive officers served as:
- a member of a compensation committee of another company, one of whose
executive officers served on Waste Management's Compensation Committee;
- a director of another company, one of whose executive officers served on
Waste Management's Compensation Committee; or
- a member of a compensation committee of another company, one of whose
executive officers served as a director of Waste Management.
RELATED PARTY TRANSACTIONS
The Company is not aware of any related party transactions that would
require disclosure.
13
STOCK PERFORMANCE GRAPH
The graph below shows the relative investment performance of Waste
Management common stock, the Dow Jones Pollution Control Index and the S&P 500
for the last five years, assuming reinvestment of dividends at date of payment
in the common stock. The following graph is presented pursuant to SEC rules. The
Company believes that while total stockholder return is an important corporate
performance indicator, it is subject to the fluctuations of the market.
COMPARISON OF FIVE-YEAR CUMULATIVE RETURN
[PERFORMANCE GRAPH]
-------------------------------------------------------------------------------------------------
12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01
-------------------------------------------------------------------------------------------------
Waste Management $100 $123 $146 $ 54 $ 87 $100
Dow Jones Pollution
Control Index $100 $111 $115 $ 64 $ 90 $111
S&P 500 $100 $133 $171 $207 $188 $166
AUDIT COMMITTEE REPORT
The role of the Audit Committee is to oversee the Company's financial
reporting process on behalf of the Board of Directors and to recommend to the
Board that the Company's financial statements be included in its annual report.
Company management is primarily responsible for the Company's financial
statements as well as for its financial reporting process, accounting principles
and internal controls. The Company's independent auditors are responsible for
performing an audit of the Company's financial statements and expressing an
opinion as to the conformity of such financial statements with generally
accepted accounting principles.
The Audit Committee has reviewed and discussed the Company's audited
financial statements as of and for the year ended December 31, 2001 with
management and the independent auditors, and has taken the following steps in
making its recommendation that the Company's financial statements be included in
its annual report:
- First, the Audit Committee discussed with Arthur Andersen LLP, the
Company's independent accountants for fiscal year 2001, those matters
required to be discussed by Statement on Auditing Standards No. 61,
including information regarding the scope and results of the audit. These
14
communications and discussions are intended to assist the Audit Committee
in overseeing the financial reporting and disclosure process.
- Second, the Audit Committee discussed with Arthur Andersen LLP its
independence and received from Arthur Andersen LLP a letter concerning
independence as required under applicable independence standards for
auditors of public companies. This discussion and disclosure helped the
Audit Committee in evaluating such independence. The Audit Committee also
considered whether the provision of financial information systems design
and implementation services and other non-audit services to the Company
is compatible with the auditor's independence.
- Finally, the Audit Committee reviewed and discussed, with the Company's
management and Arthur Andersen LLP, the Company's audited consolidated
balance sheets at December 31, 2001, and consolidated statements of
income, cash flows and stockholders' equity for the fiscal year ended
December 31, 2001, including the quality, not just the acceptability, of
the accounting principles, the reasonableness of significant judgments
and the clarity of the disclosure.
The Committee has also discussed with the Company's internal and
independent auditors the overall scope and plans of their respective audits. The
Committee meets periodically with both the internal and independent auditors,
with and without management present, to discuss the results of their
examinations and their evaluations of the Company's internal audit.
The members of the Audit Committee are not engaged in the accounting or
auditing profession and, consequently, are not experts in matters involving
auditing or accounting. In the performance of their oversight function, the
members of the Audit Committee necessarily relied upon the information,
opinions, reports and statements presented to them by Company management and by
the independent auditors.
Based on the reviews and discussions explained above (and without other
independent verification), the Audit Committee recommended to the Board (and the
Board has approved) that the Company's financial statements be included in its
annual report for its fiscal year ended December 31, 2001. The Committee and the
Board have also recommended the selection of Ernst & Young LLP as the Company's
independent auditors for fiscal year 2002.
The Audit Committee of the Board of
Directors
John C. Pope, Chairman
Pastora San Juan Cafferty
Ralph F. Cox
Steven G. Rothmeier
Carl W. Vogt
RATIFICATION OF INDEPENDENT AUDITORS
(ITEM 2 ON THE PROXY CARD)
The next proposal on the agenda for the Annual Meeting will be ratifying
the Board's appointment of Ernst & Young LLP as the Company's independent
auditors for fiscal year 2002.
On March 21, 2002, the Company dismissed its former accountants and
determined to appoint Ernst & Young as its new independent auditors. This
determination followed the Company's decision to seek proposals from independent
accountants to audit the Company's financial statements, and was approved by the
Board upon the recommendation of the Audit Committee. Prior to the selection of
Ernst & Young, Arthur Andersen LLP served as the Company's independent auditors.
Arthur Andersen's reports on the Company's consolidated financial
statements for each of the years ended December 31, 2001 and 2000 did not
contain an adverse opinion or disclaimer of opinion, nor were they qualified or
modified as to uncertainty, audit scope or accounting principles. During the
years ended December 31, 2001 and 2000 and through the date hereof, there were
no disagreements with Arthur Andersen
15
on any matter of accounting principle or practice, financial statement
disclosure, or auditing scope or procedure which, if not resolved to Arthur
Andersen's satisfaction, would have caused them to make reference to the subject
matter in connection with their report on the Company's consolidated financial
statements for such years.
As disclosed in Arthur Andersen's report to stockholders and the Board in
connection with its audit of the Company's financial statements for the year
ended December 31, 1999, Arthur Andersen was unable to review the Company's
quarterly financial data for the interim periods within 1999 in accordance with
standards established by the American Institute of Certified Public Accountants
because it believed the Company's internal controls for the preparation of
interim financial information did not provide an adequate basis for them to
complete such a review. On November 5, 1999, Arthur Andersen had reported in
writing to the Audit Committee their belief that there were material weaknesses
in the Company's system of internal controls over accounting and financial
reporting. On May 15, 2000, Arthur Andersen further reported to the Audit
Committee that although the Company had issued its financial statements for the
year ended December 31, 1999 on a timely basis, the preparation of those
statements required an extraordinary level of external assistance. At that time,
Arthur Andersen again communicated their belief that based on their observations
during the audit of 1999 financial statements, there were material weaknesses in
the Company's internal controls. On November 9, 2000, Arthur Andersen reported
to the Audit Committee that they had performed testing procedures, the results
of which indicated that all previously identified material weaknesses in
internal controls had been mitigated. The report further stated that each of the
material weaknesses had either been improved to control deficiency status, was
classified as a business improvement opportunity or
was completely resolved and no longer considered an internal control issue.
There were no other reportable events as defined in Item 304(a)(1)(v) of
Regulation S-K of the Securities Act of 1933, as amended ("Reg S-K").
The Company provided Arthur Andersen with a copy of the foregoing
disclosures. A copy of Arthur Andersen's letter, dated March 25, 2002, stating
its agreement with such statements was filed as Exhibit 16 to the Company's
Current Report on Form 8-K, filed with the SEC on March 27, 2002, and is
incorporated herein by reference. A copy of Arthur Andersen's letter, dated
March 25, 2002, will be provided to stockholders upon receiving an oral or
written request to the Company's Corporate Secretary at 1001 Fannin Street,
Suite 4000, Houston, Texas 77002, phone number 713-512-6200.
During the years ended December 31, 2001 and 2000 and through the date
hereof, the Company did not consult Ernst & Young with respect to the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
the Company's consolidated financial statements, or any other matters or
reportable events as set forth in Items 304(a)(2)(i) and (ii) of Reg S-K.
Representatives of Arthur Andersen and Ernst & Young will be at the
meeting. They will be able to make a statement if they want, and will be
available to answer any proper questions stockholders may have.
AUDIT FEES
Arthur Andersen's fees for our 2001 audit and the reviews of our quarterly
financial statements were approximately $13.7 million.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
There were no fees paid to Arthur Andersen in 2001 for professional
services with respect to financial information systems design and
implementation.
ALL OTHER FEES
Arthur Andersen's fees for all other professional services during 2001 were
approximately $9.6 million. This includes consulting services of approximately
$2.8 million, primarily related to advising management with respect to
improvements in the Company's systems, processes and controls over its
accounting and financial
16
reporting; approximately $3.0 million related to tax-related services; and
approximately $3.6 million related to other services. Other services included
approximately $900,000 related to systems controls assessment and testing;
approximately $950,000 related to benefit plan audits; approximately $800,000
related to statutory audits; approximately $400,000 related to consultation on
the implementation and effects of new Statements of Financial Accounting
Standards that will be applicable to the Company; and approximately $350,000
related to the audit of a Company subsidiary that was sold in 2002. As set forth
in the Audit Committee Report on page 14, the Audit Committee has considered
whether the provision of these non-audit services is compatible with maintaining
auditor independence.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OF
ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR FISCAL YEAR 2002.
APPROVAL OF AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION
FOR DECLASSIFICATION OF THE BOARD OF DIRECTORS
(ITEM 3 ON THE PROXY CARD)
The next item on the agenda for the Annual Meeting will be approving the
Board's adoption of an amendment to the Company's Restated Certificate of
Incorporation providing for the election of all directors annually. The Company
agreed to include this resolution in its Proxy Statement as part of its
settlement agreement with the Connecticut Retirement Plans and Trust Funds, the
lead plaintiff in the class action lawsuit entitled In Re Waste Management, Inc.
Securities Litigation.
RESOLVED, that Paragraphs (B) and (E) of Article Ninth of the
Company's Restated Certificate of Incorporation as set forth below be
deleted in their entirety:
"(B) Commencing with the election of directors at the 1995 Annual
Meeting of Stockholders, the directors, other than those who may be
elected by the holders of any class or series of Preferred Stock
voting separately by class or series, shall be classified, with
respect to the time for which they severally hold office, into three
classes, Class I, Class II and Class III, which shall be as nearly
equal in number as possible, as shall be provided in the manner
specified in the bylaws of the Corporation. Each initial director in
Class I shall hold office for a term expiring at the 1996 annual
meeting of stockholders; each initial director of Class II shall hold
office initially for a term expiring at the 1997 annual meeting of
stockholders; and each initial director of Class III shall hold office
for a term expiring at the 1998 annual meeting of stockholders.
Notwithstanding the foregoing provision of this Article, each director
shall serve until his successor is duly elected and qualified or until
his earlier death, resignation or removal. At each annual meeting of
stockholders following the 1995 annual meeting, the successors to the
class of directors whose term expires at that meeting shall be elected
to hold office for a term expiring at the annual meeting of
stockholders held in the third year following the year of their
election and until their successors have been duly elected and
qualified or until their earlier death, resignation or removal.
(E) Vacancies in the Board of Directors, however caused, and
newly-created directorships shall be filled solely by a majority vote
of the directors then in office, whether or not a quorum, and any
director so chosen shall hold office for a term expiring at the annual
meeting of stockholders at which the term of the class to which the
director has been chosen expires and when the director's successor is
elected and qualified, subject, however, to prior death, resignation,
retirement, disqualification or removal from office."; and
RESOLVED FURTHER, that deleted Paragraphs (B) and (E), as set
forth above, be replaced with the paragraphs set forth below in
Article Ninth of the Company's Restated Certificate of Incorporation:
"(B) Commencing with the election of directors at the 2003 Annual
Meeting of Stockholders, all directors, other than those who may be
elected by the holders of any class or series of Preferred Stock
voting separately by class or series, shall be elected annually.
Notwithstanding the foregoing
17
provision of this Article, each director shall serve until his successor is
duly elected and qualified or until his earlier death, resignation or
removal.
(E) Vacancies in the Board of Directors, however caused, and
newly-created directorships shall be filled solely by a majority vote
of the directors then in office, whether or not a quorum, and any
director so chosen shall hold office until his successor is duly
elected and qualified or until his earlier death, resignation or
removal."
STATEMENT OF THE BOARD OF DIRECTORS AND MANAGEMENT WITH REGARD TO PROPOSAL
The Company's Board of Directors is currently divided into three classes.
Under this system, each director serves a three-year term, each class is nearly
as equal as possible in size and one of the three classes is elected each year.
Many companies believe that classified boards enhance stockholder value by
providing continuity and stability to the Company's business strategies and
policies by ensuring that at least a majority of the directors at all times will
have in-depth knowledge of the Company and its business, which assists the Board
in conducting effective long-term strategic planning. However, a staggered Board
can also be used to make it more difficult to replace a majority of the Board,
and thus lead to entrenchment by Board members.
Many stockholders believe that one of the most effective ways to improve
director accountability is to require all directors to be elected annually.
Director elections afford stockholders one of the few opportunities available to
express their views on the performance of the Board generally and of directors
individually. The Company agrees with this philosophy, and, together with the
Connecticut Retirement Plans and Trust Funds, recommends that stockholders vote
in favor of the proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE
PROPOSAL FOR DECLASSIFICATION OF THE BOARD OF DIRECTORS.
STOCKHOLDER PROPOSAL
(ITEM 4 ON THE PROXY CARD)
The following proposal was submitted by the AFSCME Employees Pension Plan.
The Company will promptly provide information regarding the stockholder's
address, as well as the number of shares of common stock owned, upon receiving
an oral or written request to the Company's Corporate Secretary at 1001 Fannin
Street, Suite 4000, Houston, Texas 77002, phone number 713-512-6200.
STOCKHOLDER PROPOSAL
RESOLVED that shareholders of Waste Management, Inc. ("WMI" or the
"Company") request that the Board of Directors report to shareholders on the
effect on WMI's business strategy of measures to oppose privatization of the
provision of waste collection, disposal, transfer and recycling services. For
purposes of this proposal, "privatization" means the shift from provision of
such services by governmental entities to provision by private companies.
Measures to oppose privatization should include initiatives, including "living
wage" requirements, whose purpose or effect is to prohibit privatization or make
the provision of privatized services more expensive for private service
providers.
STOCKHOLDER SUPPORTING STATEMENTS
Our Company provides solid waste services to commercial, industrial and
residential customers. As explained in WMI's most recent filing on Form 10-K,
residential services are provided under a contract with, or franchise granted
by, a municipality or regional authority giving WMI the exclusive right to
service all or a portion of the homes in that jurisdiction.
According to a June 28, 2001 industry report by Salomon Smith Barney, the
municipal segment makes up 20% of WMI's core municipal solid waste business. The
report characterizes the municipal segment, which offers "less attractive
economics," as the "most competitive." We are concerned that measures to oppose
privatization may make this segment even less attractive from a financial
perspective.
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In recent years, there has been significant opposition to privatization.
States have imposed requirements designed to ensure accurate cost comparisons,
require a minimum level of cost savings before services can be contracted out,
require contractors to provide "prevailing" wages and benefits and assistance to
displaced public employees, and limit contract terms. Some states have even
prohibited outright the privatization of certain kinds of services, for example:
Illinois prohibits the privatization of correctional services.
Similarly, "living wage" laws, which require employers who accept service
contracts, operating grants, or tax abatements from local governments to pay
more than the federal minimum wage, have proliferated. According to the
community organization ACORN, 74 municipalities and counties have adopted living
wage ordinances, and campaigns are underway in 75 locations. The Employment
Policy Foundation states that "[the] high monetary and potential legal costs
imposed by [living wage] ordinances serve to make municipal contracting more
risky and less attractive."
We believe that opposition to privatization will likely increase. The Wall
Street Journal reported on November 20, 2001, that such opposition had begun to
increase as a result of the September 11th terrorist attacks, although it noted
that the "beginnings of a backlash were stirring" before the attacks. The
article pointed to the decision to federalize airport security workers and the
postponement of planned privatizations of certain Pentagon back-office and
mapping operations. Attitudes toward privatization of more prosaic services,
such as the Amtrak and the New Orleans water system, were also reported to have
shifted.
We believe shareholders should be better informed regarding the risks
created by measures to oppose privatization and the way in which WMI weighs
those risks when establishing business strategy. We urge shareholders to vote
for this proposal!
WASTE MANAGEMENT RESPONSE TO STOCKHOLDER PROPOSAL
The proponent is the AFSCME Employees Pension Plan, which is the pension
plan for the American Federation of State, County and Municipal Employees
("AFSCME" or the "Union"). The AFSCME is a union that represents state, county
and municipal employees. Obviously, to the extent that a municipality decides to
privatize, members of the AFSCME may lose their jobs, and the Union loses
members. The Union website contains extensive resources relating to efforts and
strategies of the Union to oppose privatization of governmental services,
including waste collection and disposal. Included among these resources are
excerpts from several articles maligning the Company and its activities in the
municipal sector. Moreover, the Union has opposed the Company's efforts to enter
into contracts with municipalities, and has voiced its opposition as recently as
January 9, 2002 at a city council meeting in Flint, Michigan. Thus, although the
proposal is drafted in such a way that it appears to relate to matters of
general interest to all stockholders, the Company believes the proponent is
using the proposal as one of many tactics designed to assist the Union in its
opposition to the Company's efforts to enter into municipal contracts.
The Company believes the proponent is acting on behalf of the Union in
seeking to compel the Company to report on the Company's business strategy to
enable the Union to gain private strategic business information of the Company
for its own ends. Although the proponent claims that it is not an affiliate of
the Union, the Company believes that the distinction is legalistic rather than
actual. The Company does not believe that the motivation for the proposal has
any connection to what is fair and equitable for the stockholders of the
Company. Instead, the Company believes the proposal was lodged in direct support
of, and to gain additional publicity in connection with, the Union's own efforts
to oppose such privatization.
The Company believes that forcing the Company to report on the effect on
its business strategy of measures to oppose privatization would not benefit any
group other than the Union. Such information would provide the Union with
insights into the Company's strategic planning that in turn would assist the
Union in its efforts to oppose privatization of the provision of waste
collection and disposal services. The Company believes that such a proposal
would be of no benefit to Company stockholders at large and, indeed, would
disadvantage the Company and its stockholders. Consequently, the Company
believes that the information requested would
19
not be of significance to any persons other than a group attempting to damage
such portion of the Company's business. The Company believes the Union is such a
group.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST THE ADOPTION OF
THIS PROPOSAL.
OTHER MATTERS
Neither the Company nor its directors intend to bring any matters before
the Annual Meeting other than the election of the two directors, the
ratification of the Company's independent auditors and the proposal to amend the
Restated Certificate of Incorporation to declassify the Board of Directors.
Also, they have no present knowledge that any other matters will be presented by
others for action at the meeting, other than the stockholder proposal described
above. If any other matters are properly presented, your proxy card authorizes
the people named as proxies to vote as they think best.
OTHER INFORMATION
STOCKHOLDER PROPOSALS FOR THE 2003 ANNUAL MEETING
Eligible stockholders who want to have proposals considered for inclusion
in the Proxy Statement for our 2003 Annual Meeting should notify the Corporate
Secretary of the Company. The written proposal must be received at our offices
no later than December 9, 2002 and no earlier than November 9, 2002. A
stockholder must have been the registered or beneficial owner of at least 1% of
our outstanding common stock or stock with a market value of $1,000 for at least
one year before submitting the proposal. Also, the stockholder must continue to
own the stock through the date that the 2003 Annual Meeting is held.
EXPENSES OF SOLICITATION
We pay the cost of preparing, assembling and mailing this proxy-soliciting
material. In addition to the use of the mail, proxies may be solicited
personally, by telephone or telegraph, or by Waste Management officers and
employees without additional compensation. We pay all costs of solicitation,
including certain expenses of brokers and nominees who mail proxy materials to
their customers or principals. Also, Mellon Investor Services has been hired to
help in the solicitation of proxies for the 2002 Annual Meeting for a fee of
approximately $7,000 plus associated costs and expenses.
ANNUAL REPORT
A copy of our 2001 Annual Report to Stockholders, including our Annual
Report on Form 10-K, which includes our financial statements for fiscal year
2001, is enclosed with this Proxy Statement. Neither the Annual Report to
Stockholders nor the Annual Report on Form 10-K is incorporated by reference
into this Proxy Statement or deemed to be a part of the materials for the
solicitation of proxies.
HOW TO RECEIVE NEXT YEAR'S PROXY STATEMENT AND ANNUAL REPORT ON-LINE
You can elect to receive future Waste Management proxy statements and
annual reports over the Internet, instead of receiving paper copies in the mail.
You can do this by going directly to http://www.icsdelivery.com/wm and following
the instructions given, or by going to our website at http://www.wm.com, and
clicking on the link that says "To enroll for electronic delivery of your annual
report & proxy statement, click here."
20
Additionally, most stockholders who vote their shares for the 2002 Annual
Meeting over the Internet will be given the opportunity to consent to future
Internet delivery of our documents when voting. If you are not given an
opportunity to consent to electronic delivery when you vote your proxy, you may
contact the holder of record through which you hold your shares and ask about
the availability of Internet delivery. If you do consent to Internet delivery, a
notation will be made in your account. When the Proxy Statement and Annual
Report for our Annual Meeting in 2003 become available, you will receive an
email notice instructing you on how to access them over the Internet.
21
WASTE MANAGEMENT, INC.
Annual Meeting of Stockholders - May 17, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder(s) of Waste Management, Inc., a Delaware
corporation, hereby acknowledge(s) receipt of the Proxy Statement dated April 8,
2002, and hereby appoint(s) A. Maurice Myers and David P. Steiner, and each of
them, proxies and attorneys-in-fact, with full power to each of substitution, on
behalf and in the name of the undersigned, to represent the undersigned at the
Annual Meeting of Stockholders of Waste Management, Inc., to be held May 17,
2002 at 11:00 a.m., Central time, at The St. Regis Hotel, Houston, Texas 77027,
and at any adjournment(s) thereof, and to vote all shares of Common Stock which
the undersigned would be entitled to vote if then and there personally present,
on all matters set forth on the reverse side.
ATTENTION PARTICIPANTS IN 401(K) PLANS: If you have an interest in the Common
Stock of Waste Management, Inc. through participation in the Waste Management
Retirement Savings Plan or the Waste Management Retirement Savings Plan for
Collectively Bargained Employees, you may confidentially instruct the Trustee(s)
of the respective plan on how to vote the shares representing your proportionate
interest in such plan's assets. The Trustee(s) shall vote shares in accordance
with any instructions received. Any shares for which the Trustee(s) has not
received timely voting instructions shall be voted by the Trustee(s) in its sole
discretion.
[WASTE MANAGEMENT LOGO] VOTE BY INTERNET - www.proxyvote.com
1001 FANNIN STREET Use the Internet to transmit your voting
SUITE 4000 instructions and for electronic delivery of
HOUSTON, TX 77002 information up until 11:59 P.M. Eastern Time
the day before the cut-off date or meeting
date. Have your proxy card in hand when you
access the web site. You will be prompted to
enter your 12-digit Control Number which is
located below to obtain your records and to
create an electronic voting instruction
form.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit
your voting instructions up until 11:59 P.M.
Eastern Time the day before the cut-off date
or meeting date. Have your proxy card in
*HOUSEHOLDING OPTION hand when you call. You will be prompted to
MARK "FOR" TO ENROLL THIS enter your 12-digit Control Number which is
ACCOUNT TO RECEIVE CERTAIN located below and then follow the simple
FUTURE SECURITY HOLDER instructions the Vote Voice provides you.
DOCUMENTS IN A SINGLE PACKAGE
PER HOUSEHOLD. MARK "AGAINST" IF VOTE BY MAIL
YOU DO NOT WANT TO PARTICIPATE. Mark, sign, and date your proxy card and
SEE ENCLOSED NOTICE. return it in the postage-paid envelope we
have provided or return it to Waste
TO CHANGE YOUR ELECTION IN THE Management, Inc., c/o ADP, 51 Mercedes Way,
FUTURE, CALL 1-800-542-1061. Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE WASTE1 KEEP THIS PORTION
OR BLACK INK AS FOLLOWS: FOR YOUR RECORDS
--------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
________________________________________________________________________________
WASTE MANAGEMENT, INC.
VOTE ON DIRECTORS
1. Proposal to elect FOR WITHHOLD FOR ALL
01) Pastora San Juan Cafferty ALL ALL EXCEPT
02) Steven G. Rothmeier [ ] [ ] [ ]
To withhold authority to vote, mark "For All Except"
and write the nominee's number on the line below.
_____________________________________________________
VOTE ON PROPOSALS
2. Proposal to ratify the appointment of Ernst & FOR AGAINST ABSTAIN
Young LLP as the independent auditors for 2002. [ ] [ ] [ ]
3. Proposal to amend Restated Certificate of
Incorporation to provide for election of
directors annually. [ ] [ ] [ ]
THE DIRECTORS RECOMMEND A VOTE "AGAINST"
PROPOSAL 4
4. Proposal relating to the Company's
disclosure of its strategy on
opposition to privatization. [ ] [ ] [ ]
FOR AGAINST
*HOUSEHOLDING OPTION ----------------- [ ] [ ]
Note: In their discretion, upon such other matters that may properly come before
the meeting or any adjournment or adjournments thereof.
The shares represented by this proxy, when properly executed, will be voted in
the manner directed herein by the undersigned stockholder(s). If no direction is
made, this proxy will be voted FOR items 1, 2 and 3, and AGAINST item 4. If any
other matters properly come before the meeting, the persons named in this proxy
will vote in their discretion.
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