UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO.       )

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SYSCO CORPORATION

 

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SYSCO CORPORATION

1390 Enclave Parkway

Houston, Texas 77077-2099

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held November 9, 2007

 

To the Stockholders of Sysco Corporation:

 

The Annual Meeting of Stockholders of Sysco Corporation, a Delaware corporation, will be held on Friday, November 9, 2007 at 10:00 a.m. at St. Regis Hotel located at 1919 Briar Oaks Lane, Houston, Texas 77027, for the following purposes:

 

 

Only stockholders of record at the close of business on September 11, 2007 will be entitled to receive notice of and to vote at the Annual Meeting. You may inspect a list of stockholders of record at the company’s offices during regular business hours during the 10-day period before the Annual Meeting. You may also inspect this list at the Annual Meeting.

 

We hope you will be able to attend the Annual Meeting in person. Whether or not you plan to attend in person, we urge you to promptly vote your shares by telephone, by the Internet or, if this proxy statement was mailed to you, by returning the enclosed proxy card in order that your vote may be cast at the Annual Meeting.

 

By Order of the Board of Directors

 

Richard J. Schnieders

Chairman of the Board and Chief
  Executive Officer

 

September 26, 2007

SYSCO CORPORATION
1390 Enclave Parkway
Houston, Texas 77077-2099

 

PROXY STATEMENT

 

2007 ANNUAL MEETING OF STOCKHOLDERS

 

 

September 26, 2007

 

Information About Attending the Annual Meeting

 

Our Annual Meeting will be held on Friday, November 9, 2007 at 10:00 a.m. at the St. Regis Hotel located at 1919 Briar Oaks Lane, Houston, Texas 77027.

 

Information About This Proxy Statement

 

We are providing you with a Notice of Internet Availability of Proxy Materials and access to these proxy materials because our Board of Directors is soliciting your proxy to vote your shares at the Annual Meeting. Unless the context otherwise requires, the terms “we,” “our,” “us,” the “company” or “SYSCO” as used in this proxy statement refer to Sysco Corporation.

 

Information About the Notice of Internet Availability of Proxy Materials

 

In accordance with rules and regulations recently adopted by the Securities and Exchange Commission, instead of mailing a printed copy of our proxy materials, including our annual report to stockholders, to each stockholder of record, we may now furnish proxy materials, including our annual report to stockholders, to our stockholders on the Internet. On or about September 27, 2007, we will send electronically a Notice of Internet Availability of Proxy Materials (the “E-Proxy Notice”) to those stockholders that have previously signed up to receive their proxy materials on the Internet. Also on or about September 27, 2007, we will begin mailing the E-Proxy Notice to all other stockholders. If you received the E-Proxy Notice by mail, you will not automatically receive a printed copy of the proxy materials or the annual report to stockholders. Instead, the E-Proxy Notice instructs you as to how you may access and review all of the important information contained in the proxy materials, including our annual report to stockholders. If you have previously signed up on the Internet to receive proxy materials and other stockholder communications on the Internet instead of by mail, you will be receiving the E-Proxy Notice electronically as well. The E-Proxy Notice also instructs you as to how you may submit your proxy on the Internet. If you received the E-Proxy Notice by mail and would like to receive a printed copy of our proxy materials, including our annual report to stockholders, you should follow the instructions for requesting such materials included in the E-Proxy Notice. We may choose to mail written proxy materials, including our annual report to stockholders, to one or more stockholders.

 

Stockholders may also sign up to receive future proxy materials, including E-Proxy Notices, and other stockholder communications electronically instead of by mail. This will reduce our printing and postage costs and eliminate bulky paper documents from your personal files. In order to receive the communications electronically, you must have an e-mail account, access to the Internet through an Internet service provider and a web browser that supports secure connections. Visit http://enroll.icsdelivery.com/syy for additional information regarding electronic delivery enrollment.

 

Who Can Vote

 

You can vote at the Annual Meeting if you owned shares at the close of business on September 11, 2007. You are entitled to one vote for each share you owned on that date on each matter presented at the Annual Meeting.

 

On September 11, 2007, there were 609,557,647 shares of SYSCO Corporation common stock outstanding. All of our current directors and executive officers (21 persons) owned an aggregate of 1,286,575 shares, which was less than 1% of our outstanding stock as of September 11, 2007. We expect that these individuals will vote their shares in favor of electing the three nominees named below, for approving the 2007 Stock Incentive Plan, for approval of the Amended and Restated 1974 Employees’ Stock Purchase Plan, and for ratification of the appointment of the independent accountants.

 

How to Vote

 

You may vote your shares as follows:

 

 

If you vote by proxy, the individuals named on the proxy card (your proxies) will vote your shares in the manner you indicate. You may specify whether your shares should be voted for, against or abstain with respect to all, some or none of the nominees for director. You may also abstain or specify whether your shares should be voted for or against approval of the 2007 Stock Incentive Plan, approval of the Amended and Restated 1974 Employees’ Stock Purchase Plan, and ratification of the appointment of the independent accountants.

 

If you sign and return your proxy card without indicating your voting instructions, your shares will be voted FOR the election of the three nominees for director, FOR approval of the 2007 Stock Incentive Plan, FOR approval of the Amended and Restated 1974 Employees’ Stock Purchase Plan, and FOR the ratification of the appointment of Ernst & Young as independent accountants for fiscal 2008.

 

If your shares are not registered in your own name and you plan to attend the Annual Meeting and vote your shares in person, you should contact your broker or agent in whose name your shares are registered to obtain a proxy executed in your favor and bring it to the Annual Meeting in order to vote.

 

How to Revoke or Change Your Vote

 

You may revoke or change your proxy at any time before it is exercised by:

 

 

The last vote that we receive from you will be the vote that is counted.

 

Broker Non-Votes

 

A broker non-vote occurs when a broker holding shares for a beneficial owner does not vote on a particular proposal because the broker does not have discretionary voting authority and has not received voting instructions from the beneficial owner.

 

Quorum Requirement

 

A quorum is necessary to hold a valid meeting. A quorum will exist if the holders of at least 35% of all the shares entitled to vote at the meeting are present in person or by proxy. Abstentions and broker non-votes are counted as present for establishing a quorum.

 

Votes Necessary for Action to be Taken

 

On May 11, 2007, the Board of Directors amended SYSCO’s Bylaws and the SYSCO Corporate Governance Guidelines to adopt a majority vote standard for uncontested director elections. Since the number of nominees timely nominated for the Annual Meeting does not exceed the number of directors to be elected, each director to be elected shall be elected if the number of votes cast “for” election of the director exceeds those cast “against.” Any incumbent director who is not re-elected will be required to tender his or her resignation promptly following certification of the stockholders’ vote. The Corporate Governance and Nominating Committee will consider the tendered resignation and recommend to the Board whether to accept or reject the resignation offer, or whether other action should be taken. The Board will act on the recommendation within 120 days following certification of the stockholders’ vote and will promptly make a public disclosure of its decision regarding whether to accept the director’s resignation offer.

 

The affirmative vote of a majority of the votes cast is required to approve the:

 

 

In addition, NYSE rules require that at least 50% of the shares outstanding as of the record date actually cast a vote (either for, against or abstain) with respect to the proposal to approve the 2007 Stock Incentive Plan. Abstentions are not counted for purposes of the election of directors, but will have the effect of a vote “against” the other proposals. Broker non-votes will be disregarded with respect to the election of directors and all other proposals, although they will not be counted as votes cast for purposes of the NYSE 50% vote requirement.

 

Who Will Count Votes

 

We will appoint one or more Inspectors of Election who will determine the number of shares outstanding, the voting power of each, the number of shares represented at the Annual Meeting, the existence of a quorum and whether or not the proxies and ballots are valid and effective.

 

The Inspectors of Election will determine, and retain for a reasonable period a record of the disposition of, any challenges and questions arising in connection with the right to vote and will count all votes and ballots cast for and against and any abstentions with respect to all proposals and will determine the results of each vote.

 

Cost of Proxy Solicitation

 

We will pay the cost of solicitation of proxies including preparing, printing and mailing this proxy statement should we choose to mail any written proxy materials, and the E-Proxy Notice. Solicitation may be made personally or by mail, telephone or electronic data transfer by officers, directors and regular employees of the company (who will not receive any additional compensation for any solicitation of proxies). We will also authorize banks, brokerage houses and other custodians, nominees and fiduciaries to forward copies of proxy materials and will reimburse them for their costs in sending the materials.

 

We have retained Georgeson Shareholder Communications to help us solicit proxies from these entities and certain other stockholders, in writing or by telephone, at an estimated fee of $11,000 plus reimbursement for their out-of-pocket expenses.

 

Other Matters

 

We do not know of any matter that will be presented at the Annual Meeting other than the election of directors and the proposals discussed in this proxy statement. However, if any other matter is properly presented at the Annual Meeting, your proxies will act on such matter in their best judgment.

 

Annual Report

 

We will furnish additional copies of our annual report to stockholders, including our Annual Report on Form 10-K, without charge upon your written request if you are a record or beneficial owner of SYSCO Corporation common stock whose proxy we are soliciting in connection with the Annual Meeting. Please address requests for a copy of the annual report to the Investor Relations Department, SYSCO Corporation, 1390 Enclave Parkway, Houston, Texas 77077-2099. The Annual Report on Form 10-K is also available on our website under “SEC Filings” at www.sysco.com/investor/investor.html.

 

Householding

 

Stockholders who share the same last name and address may receive only one copy of the E-Proxy Notice unless we receive contrary instructions from any stockholder at that address. This is referred to as “householding.” If you prefer to receive multiple copies of the E-Proxy Notice at the same address, additional copies will be provided to you promptly upon written or oral request, and if you are receiving multiple copies of the E-Proxy Notice, you may request that you receive only one copy. Please address requests for a copy of the E-Proxy Notice to the Investor Relations Department, SYSCO Corporation, 1390 Enclave Parkway, Houston, Texas 77077-2099. The Annual Report on Form 10-K is also available on our website under “SEC Filings” at www.sysco.com/investor/investor.html.

 

If your shares are not registered in your own name, you can request additional copies of the E-Proxy Notice or you can request householding by notifying your broker or agent in whose name your shares are registered.

 

ELECTION OF DIRECTORS
ITEM NO. 1 ON THE PROXY CARD

 

Three directors are to be elected at the meeting. The Board of Directors is currently divided into three classes of three, four and four directors each. The company’s governing documents provide that the Board of Directors shall be divided into three classes with no class of directors having more than one director more than any other class of directors. The directors in each class serve for a three-year term. A different class is elected each year to succeed the directors whose terms are expiring. Three incumbent directors are in the class of directors with terms expiring at the 2007 Annual Meeting.

 

The Board of Directors has nominated the following three persons, all of whom are currently serving as directors of SYSCO, for election as directors in Class III to serve for three-year terms or until their successors are elected and qualified:

 

 

Mr. John K. Stubblefield, Jr. was also a Class III director; however, he retired from the Board of Directors effective on June 30, 2007, the last day of the fiscal year, in connection with his retirement as the company’s Executive Vice President, Finance and Chief Financial Officer, and will not be standing for reelection. As a result of Mr. Stubblefield’s retirement, the size of the Board of Directors has been reduced from 12 members to its current size of 11.

 

All of the nominees have consented to serve if elected. Although management does not contemplate the possibility, in the event any nominee is not a candidate or is unable to serve as a director at the time of the election, the proxies will vote for any nominee who is designated by the present Board of Directors to fill the vacancy.

 

Set forth below is biographical information for each nominee for election as a director at the 2007 Annual Meeting.

 

Nominees for election as Class III Directors for terms expiring at the 2010 Annual Meeting:

 

John M. Cassaday, 54, has served as a director of SYSCO since November 2004. He is President and Chief Executive Officer of Corus Entertainment Inc., a media and entertainment company based in Canada, a position he has held since September 1999. He also serves as a director of Manulife Financial Corporation. Mr. Cassaday is Chairman of the Compensation Committee and is also a member of the Corporate Governance and Nominating Committee and the Executive Committee.

 

Manuel A. Fernandez, 61, has served as a director of SYSCO since November 2006. He has been the Managing Director of SI Ventures, a venture capital firm, since 1998 and Chairman Emeritus of Gartner, Inc., a leading information technology research and consulting company, since 2001. Prior to his present positions, Mr. Fernandez was Chairman, President, and Chief Executive Officer of Gartner. Previously, he was President and Chief Executive Officer at Dataquest, Inc., Gavilan Computer Corporation, and Zilog Incorporated. Mr. Fernandez also serves on the board of directors of Brunswick Corporation, Flowers Foods, Inc., The Black & Decker Corporation and several private companies and foundations, as well as the board of trustees of the University of Florida. Mr. Fernandez is a member of the Corporate Governance and Nominating Committee and the Finance Committee.

 

Jackie M. Ward, 69, has served as a director of SYSCO since September 2001. Ms. Ward founded in 1968, and later served as Chairman, President and Chief Executive Officer of, Computer Generation Incorporated, which was acquired in December 2000 by Intec Telecom Systems PLC, a technology company based in the United Kingdom. Ms. Ward is a director of Bank of America, Equifax Inc., Flowers Foods, Inc., Sanmina-SCI Corporation and WellPoint, Inc. Ms. Ward is Chairman of the Corporate Governance and Nominating Committee and is also a member of the Compensation Committee and the Executive Committee.

 

The Board of Directors recommends a vote FOR the nominees listed above.

 

 

Class I directors whose terms expire at the 2008 Annual Meeting:

 

Judith B. Craven, M.D., 61, has served as a director of SYSCO since July 1996. Dr. Craven served as President of the United Way of the Texas Gulf Coast from 1992 until her retirement in September 1998. Dr. Craven is also a director of Belo Corporation, Luby’s, Inc., Sun America Funds and VALIC. She is also a Regent for the University of Texas. Dr. Craven is a member of the Corporate Governance and Nominating Committee, the Finance Committee and the Employee Benefits Committee.

Richard G. Merrill, 76, has served as a director of SYSCO since July 1983. Currently retired, he formerly served as Executive Vice President of The Prudential Insurance Company of America. Mr. Merrill is a member of the Audit Committee and the Compensation Committee.

 

Phyllis S. Sewell, 76, has served as a director of SYSCO since December 1991. Currently retired, she formerly served as Senior Vice President of Federated Department Stores, Inc. Mrs. Sewell is a member of the Audit Committee and the Corporate Governance and Nominating Committee.

 

Richard G. Tilghman, 67, has served as a director of SYSCO since November 2002. Mr. Tilghman served as Vice Chairman and Director of SunTrust Banks from 1999 until his retirement in 2000. He served as Chairman and Chief Executive Officer of Crestar Financial Corporation, a bank holding company, from 1986 until 1999. Mr. Tilghman is Chairman of the Audit Committee and is also a member of the Compensation Committee and the Executive Committee.

 

Class II directors whose terms expire at the 2009 Annual Meeting:

 

Jonathan Golden, 70, has served as a director of SYSCO since February 1984. Mr. Golden is a partner of Arnall Golden Gregory LLP, counsel to SYSCO. Mr. Golden is a member of the Finance Committee.

 

Joseph A. Hafner, Jr., 62, has served as a director of SYSCO since November 2003. In November 2006, Mr. Hafner retired as Chairman of Riviana Foods, Inc., a position he had held since March 2005. He served as President and Chief Executive Officer of Riviana from 1984 until March 2004. Mr. Hafner is Chairman of the Finance Committee and is also a member of the Audit Committee and the Executive Committee.

 

Nancy S. Newcomb, 62, has served as a director of SYSCO since February 2006. Ms. Newcomb served as Senior Corporate Officer, Risk Management, of Citigroup from May 1998 until her retirement in 2004. She served as a customer group executive of Citicorp (the predecessor corporation of Citigroup) from December 1995 to April 1998, and as a division executive, Latin America from September 1993 to December 1995. From January 1988 to August 1993 she was the principal financial officer, responsible for liquidity, funding and capital management. Ms. Newcomb is also a director of Moody’s Corporation and The DIRECTV Group, Inc. Ms. Newcomb is a member of the Audit Committee and the Finance Committee.

 

Richard J. Schnieders, 59, has served as a director of SYSCO since July 1997. Mr. Schnieders has served as Chairman and Chief Executive Officer of SYSCO since January 2003. He assumed the additional role of President in July 2005, and served in that role until he stepped down on July 1, 2007, when Kenneth F. Spitler was promoted to President. Mr. Schnieders previously served as President from July 2000 through December 2002 and as Chief Operating Officer from January 2000 through December 2002. Mr. Schnieders served as Executive Vice President, Foodservice Operations from January 1999 to July 2000 and as Senior Vice President, Merchandising Services and Multi-Unit Sales from 1997 until January 1999. From 1992 until 1997, he served as Senior Vice President, Merchandising Services. From 1988 until 1992, Mr. Schnieders served as President and Chief Executive Officer of Hardin’s-Sysco Food Services, LLC. He has been employed by SYSCO since 1982. Mr. Schnieders is Chairman of the Executive Committee and the Employee Benefits Committee and is also a member of the Finance Committee.

 

Unless otherwise noted, the persons named above have been engaged in the principal occupations shown for the past five years or longer.

 

CORPORATE GOVERNANCE AND BOARD OF DIRECTORS MATTERS

 

Corporate Governance Guidelines

 

The Board of Directors has adopted the Sysco Corporation Corporate Governance Guidelines. These guidelines outline the functions of the Board, director responsibilities, and various processes and procedures designed to ensure effective and responsive governance. These guidelines also outline qualities and characteristics we consider when determining whether a member or candidate is qualified to serve on the Board, including diversity, skills, experience, time available and the number of other boards the member sits on in the context of the needs of the Board and SYSCO. We review these guidelines from time to time in response to changing regulatory requirements and best practices and revise them accordingly. We last revised the guidelines in May 2007. We have published the Corporate Governance Guidelines on our website at www.sysco.com/investor/governance.html. You may obtain the Corporate Governance Guidelines in print by writing to the Investor Relations Department, SYSCO Corporation, 1390 Enclave Parkway, Houston, Texas 77077-2099.

 

Code of Business Conduct

 

We require all of our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer and controller to comply with our long-standing Code of Business Conduct to help ensure that we conduct our business in accordance with the highest standards of moral and ethical behavior. Our Code of Business Conduct addresses:

 

 

The Code requires strict adherence to all laws and regulations applicable to our business. It also requires employees to report any violations or suspected violations of the Code; employees may utilize SYSCO’s ethics hotline for this purpose. The Code also includes an anti-retaliation statement. We have published the Code of Business Conduct on our website at www.sysco.com/investor/governance.html. You may obtain the Code in print by writing to the Investor Relations Department, SYSCO Corporation, 1390 Enclave Parkway, Houston, Texas 77077-2099.

 

Director Independence

 

Our Corporate Governance Guidelines require that at least a majority of our directors meet the criteria for independence that the New York Stock Exchange has established for continued listing and all applicable legal requirements. Additionally, we require that all members of the Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee be independent.

 

Under New York Stock Exchange listing standards, to consider a director to be independent, we must determine that he or she has no material relationship with SYSCO other than as a director. The standards specify the criteria by which we must determine whether directors are independent, and contain guidelines for directors and their immediate family members with respect to employment or affiliation with SYSCO or its independent public accountants.

 

In addition to the NYSE’s standards for independence, our Corporate Governance Guidelines provide that the following relationships will not impair a director’s independence:

 

 

 

The Board of Directors has reviewed all relevant relationships of the directors with SYSCO. The relationships reviewed included those described under “Certain Related Party Transactions,” and several relationships that did not automatically make the individual non-independent under the NYSE standards or our Corporate Governance Guidelines, either because of the type of affiliation between the director and the other entity or because the amounts involved did not meet the applicable thresholds. Such relationships include the following (for purposes of this section, “SYSCO”, “we,” “us” and “our” include our operating companies):

 

 

After reviewing such information, the Board of Directors has determined that each of Mr. Cassaday, Dr. Craven, Mr. Fernandez, Mr. Hafner, Mr. Merrill, Ms. Newcomb, Mrs. Sewell, Mr. Tilghman and Ms. Ward has no material relationship with SYSCO and is independent under the NYSE standards and the categorical standards set forth in the Corporate Governance Guidelines and described above. Mr. Golden is not considered to be independent. The Board has also determined that each member of the Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee is independent. Effective September 2006, we amended the Corporate Governance Guidelines to provide that no independent director who is a member of the Audit, Compensation or Corporate Governance and Nominating Committees may receive any compensation from SYSCO other than in his or her capacity as a non-employee director or committee member. The Board has determined that none of the above-named directors has received any compensation from SYSCO since September 2006, and no member of the Audit Committee has received any compensation from SYSCO at any time while he or she has served as such, other than in his or her capacity as a non-employee director or committee member.

 

Director Compensation

 

See “Director Compensation” beginning on page 58 for a discussion of compensation received by our non-employee directors during fiscal 2007.

Presiding Director

 

The non-management directors meet in executive session without members of management present at every regular Board meeting. During fiscal 2007, the non-management directors held five executive sessions without the CEO or any other member of management present. Mr. Tilghman presided at these executive sessions during fiscal 2007. The independent members of the Board have adopted a rotation system by which, beginning on the first day of SYSCO’s 2008 fiscal year, the chairs of the Corporate Governance and Nominating, Compensation, Finance (but only if such chair has been determined to be independent) and Audit Committees began rotating for one-year terms as presiding director. Ms. Ward, chair of the Corporate Governance and Nominating Committee, is the current presiding director for fiscal 2008. The presiding director, among other things, presides at meetings of the non-employee directors. In addition, the independent directors, exclusive of all directors who have not been determined to be independent, meet in executive session at least once a year, and the presiding director presides at such meetings.

 

Board Meetings and Attendance

 

The Board of Directors held nine meetings, including five regular meetings and four special meetings, during fiscal 2007, and all directors attended 75% or more of the aggregate of:

 

 

The Board generally expects directors to attend the Annual Meeting of Stockholders. In fiscal 2007, all directors who were in office at that time attended the Annual Meeting except for Ms. Newcomb, who was unable to attend.

 

Committees of the Board

 

The following directors serve on the committees indicated:

 

 

 

Audit Committee — The Audit Committee held 14 meetings during fiscal 2007. The Audit Committee oversees and reports to the Board with respect to various auditing and accounting matters, including:

 

 

The Committee also reviews with the Finance Committee enterprise-wide risk assessment and risk management policies, and assists the Board in its oversight of legal and regulatory compliance. Each member of the Audit Committee is financially literate and has been determined by the Board to be independent, as defined in the New York Stock Exchange’s listing standards and Section 10A(m)(3) of the Securities Exchange Act of 1934. No Audit Committee member serves on the audit committees of more than two other companies. The Board has determined that Messrs. Hafner, Merrill and Tilghman and Ms. Newcomb each meet the definition of an audit committee financial expert as promulgated by the Securities and Exchange Commission. The Report of the Audit Committee begins on page 61.

Compensation Committee — The Compensation Committee held six meetings during fiscal 2007. During fiscal 2007, Mr. Cassaday, Mr. Merrill, Mr. Tilghman and Ms. Ward served on the Compensation Committee. The function of the Compensation Committee is to determine and approve all compensation of the Chief Executive Officer and the other executive officers, including the named executive officers, and to oversee the administration of:

 

 

Except for decisions that impact the compensation of the Chief Executive Officer, the Compensation Committee is authorized to delegate any decisions it deems appropriate to a subcommittee. In such a case, the subcommittee must promptly make a report of any action that it takes to the full Compensation Committee. For a detailed description of the Compensation Committee’s processes and procedures for consideration and determination of executive compensation, including the role of executive officers and compensation consultants in recommending the amount and form of executive compensation, see “Compensation Discussion and Analysis” beginning on page 19.

 

Corporate Governance and Nominating Committee — The Corporate Governance and Nominating Committee held five meetings during fiscal 2007. The function of the Corporate Governance and Nominating Committee is to:

 

 

Finance Committee — The Finance Committee held five meetings during fiscal 2007. The function of the Finance Committee is to assist the Board in satisfying its fiduciary responsibilities relating to SYSCO’s financial performance and financial planning. The Committee:

 

 

The Finance Committee annually reviews with the Audit Committee SYSCO’s enterprise-wide risk assessment and risk management policies, policies regarding financial risk management and insurance risk management strategies. In addition, the Finance Committee assists the Audit Committee in reviewing and overseeing SYSCO’s environmental, health and safety matters and related regulatory compliance. The Finance Committee reports regularly, and makes recommendations to the Audit Committee, regarding specific actions to be taken in this area at least annually.

 

The Finance Committee is chaired by Mr. Hafner, and its members include Dr. Craven, Mr. Fernandez, Mr. Golden, Ms. Newcomb and Mr. Schnieders.

 

Executive Committee — The Executive Committee did not meet during fiscal 2007. The Executive Committee is authorized to exercise all of the powers of the Board when necessary, to the extent permitted by applicable law. The Executive Committee is chaired by Mr. Schnieders, and its members include Mr. Cassaday, Mr. Hafner, Mr. Tilghman and Ms. Ward.

 

Employee Benefits Committee — The Employee Benefits Committee’s purpose is to oversee the maintenance and administration of the Corporation’s employee stock purchase, employee welfare benefit, and tax-qualified retirement plans,

except that the Employee Benefits Committee does not have authority with respect to the compensation of executive officers. Mr. Schnieders chairs, and Dr. Craven serves as a member of, this Committee.

 

Current copies of the charters for the Audit Committee, the Compensation Committee, the Corporate Governance and Nominating Committee and the Finance Committee are published on our website at www.sysco.com/investor/governance.html and are available in print by writing to the Investor Relations Department, SYSCO Corporation, 1390 Enclave Parkway, Houston, Texas 77077-2099.

 

Nominating Committee Policies and Procedures in Identifying and Evaluating Potential Director Nominees

 

In accordance with its Charter, the Corporate Governance and Nominating Committee will observe the procedures described below in identifying and evaluating candidates for election to SYSCO’s Board of Directors.

 

In considering candidates for election to the Board, the Committee will determine the incumbent directors whose terms expire at the upcoming Annual Meeting and who wish to continue their service on the Board. The Committee will also identify and evaluate new candidates for election to the Board for the purpose of filling vacancies. The Committee will solicit recommendations for nominees from persons that the Committee believes are likely to be familiar with qualified candidates. These persons may include members of the Board, SYSCO’s management and stockholders who beneficially own individually or as a group at least five percent of SYSCO’s outstanding shares for at least one year and who have expressed an interest in recommending director candidates. The Committee may also determine to engage a professional search firm to assist in identifying qualified candidates. Where such a search firm is engaged, the Committee shall set its fees and scope of engagement.

 

The Committee will also consider candidates recommended by stockholders. The Committee will evaluate such recommendations using the same criteria that it uses to evaluate other candidates. Stockholders can recommend candidates for consideration by the Committee by writing to the Corporate Secretary, 1390 Enclave Parkway, Houston, Texas 77077, and including the following information:

 

 

The Committee typically recommends director candidates to the Board in early July of each year. The Committee will consider in advance of SYSCO’s next Annual Meeting of stockholders those director candidate recommendations that the Committee receives by May 1st.

 

With respect to all incumbent and new candidates that the Committee believes merit consideration, the Committee will:

 

 

 

In its discretion, the Committee may designate one or more of its members, or the entire Committee, to interview any proposed candidate. Based on all available information and relevant considerations, the Committee will recommend to the full Board for nomination those candidates who, in the view of the Committee, are most suited for membership on the Board.

 

If we receive by May 29, 2008 a recommendation of a director candidate from one or more stockholders who have beneficially owned at least five percent of our outstanding common stock for at least one year as of the date the stockholder makes the recommendation, then we will disclose in our next proxy materials relating to the election of directors the identity of the candidate, the identity of the nominating stockholder(s) and whether the Committee determined to nominate such candidate for election to the Board. However, we will not provide this disclosure without first obtaining written consent of such disclosure from both the nominating stockholder(s) and the candidate it is planning to identify. The Committee will maintain appropriate records regarding its process of identifying and evaluating candidates for election to the Board.

 

Communicating with the Board

 

Interested parties may communicate with the presiding director, the non-management directors as a group and the other members of the Board by confidential email. All emails will be delivered to the parties to whom they are addressed. The Board requests that items unrelated to the duties and responsibilities of the Board not be submitted, such as product inquiries and complaints, job inquiries, business solicitations and junk mail. You may access the form to communicate by email in the corporate governance section of SYSCO’s website at www.sysco.com/investor/contact_board.html.

 

EXECUTIVE OFFICERS

 

The following persons currently serve as executive officers of SYSCO. Each person listed below has served as an officer of SYSCO and/or its subsidiaries for at least the past five years.

 

 

 

 

Larry J. Accardi became SYSCO’s Executive Vice President, Sales on July 1, 2007. He has announced his planned retirement from SYSCO, effective December 31, 2007. Mr. Accardi began his career at SYSCO as Director of Program Accounts at its operating company in Memphis, Tennessee. He progressed through several positions at that company and was named President and Chief Operating Officer of SYSCO’s operation in Jackson, Mississippi in 1989, adding the title of Chief Executive Officer in 1992. In 1995, Mr. Accardi transferred to the Atlanta operating company as President and Chief Executive Officer and was then promoted to Senior Vice President of Operations of the Northeast Region in 1998. In 2000, he transferred to the corporate headquarters and was promoted to Executive Vice President of Merchandising Services. He then served as Executive Vice President of Contract Sales and President of the Specialty Distribution Companies from January 2002 until July 1, 2007, when he assumed his current responsibilities.

 

Kenneth J. Carrig has served as Executive Vice President and Chief Administrative Officer of SYSCO since 2005. Prior to accepting his current position, Mr. Carrig served as Senior Vice President of Administration from 1999 to 2005.

 

Robert J. Davis has served as Senior Vice President, Market Development, since July 2007. During his 33-year career, Mr. Davis has served in a variety of positions for SYSCO and its subsidiaries. He was named President and Chief Executive Officer of SYSCO’s operation in Rome, Georgia in 1985, and then transferred to SYSCO’s Asheville, North Carolina operation in 1990, where he progressed to President and Chief Executive Officer in 1991. In 1997, he assumed the role of President and Chief Executive Officer of SYSCO’s operation in Charlotte, North Carolina. He then transferred to corporate headquarters and served as Senior Vice President, Contract Sales, from October 2004 until July 2007.

 

William J. DeLaney was promoted to the role of SYSCO’s Executive Vice President and Chief Financial Officer, effective July 1, 2007. Mr. DeLaney began his SYSCO career in 1987 as assistant treasurer at SYSCO’s corporate headquarters. He was promoted to Treasurer in 1991, and in 1993 he was named a Vice President, continuing in those responsibilities until 1994. Mr. DeLaney joined Sysco Food Services of Syracuse in 1996 as Chief Financial Officer, progressed to Senior Vice President in 1998 and Executive Vice President in 2002. In 2004, Mr. DeLaney was appointed President and Chief Executive Officer of Sysco Food Services of Charlotte. He held that position until December 2006, when he was named Senior Vice President of Financial Reporting, a position he has held until his promotion to his current title.

 

Kirk G. Drummond has served as SYSCO’s Senior Vice President, Finance and Treasurer since December, 2005. Mr. Drummond joined SYSCO in 1986 as Controller of SYSCO’s Grand Rapids, Michigan subsidiary. In 1989 he transferred to SYSCO’s Atlanta operation as Chief Financial Officer and Controller, a position he held until 1992 when he assumed the added duties of Vice President of Finance. Mr. Drummond relocated to SYSCO’s corporate headquarters in Houston in 1997 when he was appointed Vice President and Controller. He was named Vice President and Chief Information Officer in 2000 and served in

that position until January 2005, when he was appointed to the role of Senior Vice President and Chief Information Officer. In December 2005, Mr. Drummond was appointed to his current duties.

 

G. Mitchell Elmer has served as Vice President and Controller since 2000 and assumed the added responsibility of Chief Accounting Officer in July 2005. Mr. Elmer began his SYSCO career in 1989 as a staff auditor in operations review at SYSCO’s corporate office in Houston. In 1991 he transferred to SYSCO’s Virginia subsidiary as Director of Finance, and the following year he was named Vice President of Finance and Administration. Mr. Elmer was appointed Vice President of Finance for SYSCO’s Louisville, Kentucky operation in 1995 and progressed to Senior Vice President of Marketing, Merchandising and Finance at that company in 1997. The following year he transferred to SYSCO’s Denver operation as Vice President of Finance. In 2000 he returned to SYSCO’s corporate office to serve as Vice President and Controller.

 

James D. Hope has served as Senior Vice President, Sales and Marketing, since July 2007. Mr. Hope started his 21-year career at SYSCO’s corporate headquarters as a financial analyst. He advanced through the Operations Review department, becoming Manager in 1992. He transferred to Sysco Food Services of Kansas City, Inc. in 1993 as Chief Financial Officer, where he was named President and Chief Executive Officer in 2000. Mr. Hope served as Group President, Demand, in the company’s Strategic Group from December 2005 until July 2007.

 

Michael C. Nichols has served as SYSCO’s General Counsel since 1998, assumed the added responsibility of Corporate Secretary in 2002, and was promoted to Senior Vice President in July 2006. Mr. Nichols began his SYSCO career in 1981 as General Counsel at SYSCO’s corporate office in Houston, a position he held through 1988. In 1991 he rejoined SYSCO Corporation as Vice President of Management Development and Human Resources, and in 1998 he advanced to the position of General Counsel.

 

Larry G. Pulliam has served as SYSCO’s Executive Vice President, Global Sourcing and Supply Chain since July 2007. Mr. Pulliam began his foodservice career in 1974 with a regional foodservice company in Fort Worth, Texas. He served in a variety of areas for that company, from warehouse operations to information services, before joining SYSCO’s corporate office in 1987. Mr. Pulliam was named Vice President of Operations for SYSCO’s Los Angeles operation in 1991, and in 1995 he transferred to the Baltimore subsidiary to serve as Executive Vice President and Chief Operating Officer. He returned to SYSCO’s corporate office in 1997 as Vice President and Chief Information Officer, a position he held until he was promoted to President and Chief Executive Officer of Sysco Food Services of Houston, LP in 2000. Mr. Pulliam then returned to SYSCO’s corporate office as Senior Vice President, Merchandising Services in 2002 and served in that role until 2005, when he was promoted to Executive Vice President, Merchandising Services.

 

Richard J. Schnieders is described under “Election of Directors” on page 5.

 

Kenneth F. Spitler was promoted to the role of President and Chief Operating Officer, effective July 1, 2007. Mr. Spitler is a 21-year SYSCO veteran. He has held a variety of executive positions with SYSCO, including serving as President and Chief Executive Officer of SYSCO’s Detroit and Houston broadline operating companies. In 2000, he was named Senior Vice President of Operations for the Northeast Region, with responsibility for 14 SYSCO operating companies in eight states. Mr. Spitler relocated to SYSCO’s corporate headquarters in 2002, when he was promoted to Executive Vice President of Redistribution and Foodservice Operations with responsibility for nationwide broadline operations and the development of redistribution facilities. He was promoted to the position of Executive Vice President and President of North American foodservice operations in January 2005, and served in that role until his promotion to his current position.

 

Succession Planning

 

The Board plans for succession to the position of CEO, and the Corporate Governance and Nominating Committee oversees this succession planning process. To assist the Board, the CEO periodically provides the Board with an assessment of senior executives and their potential to succeed to the position of CEO, as well as perspective on potential candidates from outside the company. The Board has available on a continuing basis the CEO’s recommendation should he be unexpectedly unable to serve. The CEO also provides the Board with an assessment of potential successors to key positions.

 

STOCK OWNERSHIP

 

The following table sets forth certain information with respect to the beneficial ownership of SYSCO’s common stock, as of September 11, 2007, by (i) each director, (ii) each named executive officer (as defined on page 19), and (iii) all directors and executive officers as a group. To our knowledge, no person or group beneficially owns more than 5% of our common stock. Unless otherwise indicated, each stockholder identified in the table has sole voting and investment power with respect to his or her shares. Fractional shares have been rounded down to the nearest whole share.

 

 

 

 

 

Stock Ownership Guidelines

 

To align the interests of our executives with those of our stockholders, SYSCO’s Board of Directors concluded that our executive officers should have a significant financial stake in SYSCO stock. To further that goal, for several years we have maintained stock ownership guidelines for our executives. In November 2006 and May 2007, our Corporate Governance Guidelines were amended to provide that the executives should own the number of shares, by position, as described in the following table:

 

 

The three- and five-year periods begin when the executive is elected to the listed position. If an individual is promoted from one listed position to another, he or she will be required to meet the new position ownership guideline by the third and fifth years following the promotion, while continuing to meet the guideline under his or her previous position.

 

For purposes of the guidelines, the shares counted towards ownership include shares owned directly or indirectly by the executive through the SYSCO Corporation Employee Stock Purchase Plan, as well as any other shares of vested, unvested or restricted stock held by the executive, but do not include shares held through any other form of indirect beneficial ownership or shares underlying unexercised options.

 

In the event that these ownership guidelines present an undue hardship for an executive, the Chairman of the Corporate Governance and Nominating Committee may make an exception or provide an alternative to address the intent of the guidelines, taking into consideration the executive’s personal circumstances.

 

Until November 2006, we expressed our ownership guidelines as a multiple of salary. Before adopting these revised stock ownership guidelines, we reviewed the executive stock ownership requirements used by numerous other companies and found that most companies expressed their ownership guidelines as a multiple of salary. We also found that the average CEO ownership requirement was five times salary, the requirements for other executives scaled down to as low as 1 times salary and the accumulation periods averaged five years. We adopted guidelines with a specific number of shares rather than a multiple of salary to protect executives from unnecessary concern regarding fluctuations in the stock price, and the Corporate Governance and Nominating Committee will periodically review the guidelines to determine if they need to be updated due to, among other things, significant changes in the price of SYSCO stock. Based on average prices for SYSCO stock over the past year, the CEO ownership requirement of 175,000 shares equals a value of more than five times Mr. Schnieders’ salary. The other officer ownership requirements are set at lower levels that SYSCO thinks are reasonable given their salaries and responsibility levels. The graduated approach of a three-year and then five-year requirement also allows a reasonable amount of time for an executive to accumulate the shares necessary to satisfy the ownership requirements imposed upon him following his appointment or promotion. The stock portion of the management incentive bonus, coupled with shares obtained from the exercise of stock options, provides all executives with ample opportunity to satisfy these requirements within the specified time frames.

 

We provide the Board of Directors with the status of the executives’ stock ownership at its regularly-scheduled meetings to ensure compliance with these holding requirements. As of September 11, 2007, all named executive officers met the then-applicable stock ownership requirement.

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Pursuant to Section 16(a) of the Securities Exchange Act of 1934 and the rules issued thereunder, our executive officers and directors and any persons holding more than ten percent (10%) of our common stock are required to file with the Securities and

Exchange Commission and the New York Stock Exchange reports of initial ownership of our common stock and changes in ownership of such common stock. To our knowledge, no person beneficially owns more than 10% of our common stock. Copies of the Section 16 reports filed by our directors and executive officers are required to be furnished to us. Based solely on our review of the copies of the reports furnished to us, or written representations that no reports were required, we believe that, during fiscal 2007, all of our executive officers and directors complied with the Section 16(a) requirements, except as follows: Mr. Accardi filed a Form 4 on August 18, 2006 reporting the exercise of certain stock options. The number of shares tendered through the attestation process to pay the exercise price of such options and related taxes was inadvertently understated by 192 shares. Mr. Accardi filed an amended Form 4 correcting the number of shares on September 6, 2006.

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Related Person Transactions Policies and Procedures

 

The Board has adopted written policies and procedures for review and approval or ratification of transactions with related persons. We subject the following related persons to these policies: directors, director nominees, executive officers, beneficial owners of more than 5% of our stock and any immediate family members of these persons.

 

We follow the policies and procedures below for any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships in which SYSCO was or is to be a participant, the amount involved exceeds $100,000, and in which any related person had or will have a direct or indirect material interest. These policies specifically apply without limitation to purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness, guarantees of indebtedness, and employment by SYSCO of a related person. The Board of Directors has determined that the following do not create a material direct or indirect interest on behalf of the related person, and are, therefore, not related person transactions to which these policies and procedures apply:

 

 

Any of our employees, officers or directors who have knowledge of a proposed related person transaction must report the transaction to our General Counsel. Whenever practicable, before the transaction goes effective or becomes consummated, the Corporate Governance and Nominating Committee of the Board of Directors will review and approve the proposed transaction in accordance with the terms of this policy. If the General Counsel determines that it is not practicable to obtain advance approval of the transaction under the circumstances, the Committee will review and, in its discretion may ratify, the transaction at its next meeting. In addition, the Board of Directors has delegated to the Chair of the Committee the authority to pre-approve or ratify, as applicable, any related person transaction in which the aggregate amount involved is expected to be less than $500,000.

 

In addition, if a related person transaction is ongoing in nature and the Committee has previously approved it, or the transaction otherwise already exists, the Committee will review the transaction during its first meeting of each fiscal year to:

 

 

We will consider a related person transaction approved or ratified if the transaction is authorized by the Corporate Governance and Nominating Committee or the Chair, as applicable, in accordance with the standards described below, after full disclosure of the related person’s interests in the transaction. As appropriate for the circumstances, the Committee will review and consider such of the following as it deems necessary or appropriate:

 

 

The Committee will review such additional information about the transaction as it in its sole discretion shall deem relevant. The Committee may approve or ratify the transaction only if the Committee determines that, based on its review, the transaction is in, or is not inconsistent with, the best interests of SYSCO. The Committee may, in its sole discretion, impose such conditions as it deems appropriate on SYSCO or the related person when approving a transaction. If the Committee or the Chair, as applicable, does not ratify a related person transaction, we will either rescind or modify the transaction, as the Committee or the Chair, as applicable, directs, as soon as practicable following the failure to ratify the transaction. The Chair will report to the Committee at its next regularly scheduled meeting any action that he or she has taken under the authority delegated pursuant to this policy. If any director has an interest in a related person transaction, he or she is not allowed to participate in any discussion or approval of the transaction, except that the director is required to provide all material information concerning the transaction to the Committee.

 

Transactions with Related Persons

 

Mr. Golden is the sole stockholder of Jonathan Golden, P.C., a partner in the law firm of Arnall Golden Gregory LLP, Atlanta, Georgia, counsel to SYSCO. During fiscal year 2007, SYSCO paid this firm approximately $2.7 million in legal fees, which fees we believe were fair and reasonable in view of the level and extent of services rendered. Due to this relationship, Mr. Golden is not considered to be an independent director under the NYSE standards or the categorical standards set forth in SYSCO’s Corporate Governance Guidelines.

 

Mr. Merrill’s adult son works for Sun Valley Group, which supplies some floral and related products to SYSCO. SYSCO paid the Sun Valley Group approximately $426,500 during fiscal 2007.

 

The Corporate Governance and Nominating Committee has approved all of the above transactions in accordance with the disclosed policies and procedures.

 

EQUITY COMPENSATION PLAN INFORMATION

 

The following table sets forth certain information regarding equity compensation plans as of June 30, 2007.

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

The following discussion and analysis, particularly the sections regarding target performance levels for our annual and mid-term incentive compensation, contains statements regarding future individual and company performance targets and goals. These targets and goals are disclosed in the limited context of SYSCO’s compensation programs and should not be interpreted as management’s expectations or estimates of results or other guidance. We specifically caution stockholders not to apply these statements to other contexts.

 

Introduction

 

SYSCO is the global leader in selling, marketing and distributing food products, equipment and supplies to the foodservice industry. As such, our long-term success depends on our ability to attract, retain and motivate highly talented individuals who are committed to SYSCO’s vision and strategy. One of the key objectives of our executive compensation program is to link executives’ pay to their individual performance and their advancement of SYSCO’s overall performance and business strategies, which we believe has made us successful in retaining key executives. Other objectives include aligning the executives’ interests with those of stockholders and encouraging high-performing executives to remain with SYSCO over the course of their careers. The five SYSCO executives who are identified in the Summary Compensation Table on page 36 are referred to as our “named executive officers.” These five executives have a combined total of more than 120 years of service with SYSCO and its affiliates, during which they have gained broad experience and earned promotions to increasing levels of responsibility. The amount of compensation for each named executive officer reflects extensive management experience, continued high performance and exceptional service to SYSCO and our stockholders over a long period of time.

 

Oversight of the Executive Compensation Program

 

Unless the context indicates otherwise, references to the “Committee” in this Compensation Discussion and Analysis and the executive compensation section following it refer to the Compensation Committee of the Board of Directors. The Committee determines and approves all compensation of the Chief Executive Officer, or CEO, and SYSCO’s other executive officers, including the named executive officers. Although the Compensation Committee meets jointly with the Corporate Governance and Nominating Committee to discuss both the CEO’s personal goals and his performance in achieving such goals in each fiscal year, the Compensation Committee solely approves all compensation awards and payout levels. The Committee develops and oversees programs designed to compensate our corporate officers, including the named executive officers, as well as the presidents and executive vice presidents of our operating companies. The Committee is also authorized to approve all grants of restricted stock, stock options and other awards under our equity-based incentive plans for SYSCO employees. For the past several years and through the first quarter of fiscal 2008, the Committee retained Mercer HR Consulting to assist with the development and design of our executive compensation programs. Mercer also advises the Corporate Governance and Nominating Committee regarding non-employee director compensation. Other than Mercer’s relationship with these two committees of the Board of Directors, SYSCO does not utilize the services of Mercer HR Consulting. Further information regarding the Committee’s responsibilities is found under “Committees of the Board” on page 8 and in the Committee’s Charter, available on the SYSCO website at www.sysco.com.

 

Executive Compensation Philosophy and Core Principles

 

Since the early 1970s, our executive compensation plans have directly linked a substantial portion of annual executive compensation to SYSCO’s performance, including increases in earnings per share, return on stockholders’ equity and operating company performance. These plans are designed to deliver superior compensation for superior individual and company performance; likewise, when individual and/or company performance falls short of expectations, certain programs deliver lower levels of compensation. However, the Committee tries to balance pay-for-performance objectives with retention considerations, so that even during temporary downturns in company performance, the programs continue to ensure that successful, high-achieving employees will remain at SYSCO. Furthermore, to attract and retain highly skilled management, our compensation program must remain competitive with that of comparable employers who compete with us for talent.

 

The Committee reviews our overall compensation program at least once annually. The current design of the program places a significant portion of our corporate officers’ pay at risk in order to provide incentives for superior individual and company performance. For example, the named executive officers only received amounts under the annual bonus plan for fiscal 2007 because SYSCO exceeded its minimum targets for increase in earnings per share and return on stockholders’ equity. These bonus amounts constituted approximately 53% of the CEO’s total cash compensation and an average of approximately 72% of the other named executive officers’ total cash compensation for fiscal 2007. Similarly, SYSCO had to meet minimum criteria regarding growth in earnings over a three-year period ending at the close of fiscal 2007 in order for the named executive officers

to receive any amounts under the company’s cash performance unit awards. In comparison to the relatively large percentage of variable performance-based compensation, base salary for fiscal 2007 constituted only approximately 15% of the CEO’s total cash compensation and approximately 20% of the other named executive officers’ total aggregate cash compensation. In developing our pay for performance plans, the Committee generally benchmarks each element of pay against a comparison peer group, discussed below under “— Internal and External Analysis.” The Committee does not have an exact formula for allocating between fixed and variable, cash and non-cash, or short-term and long-term compensation, allowing it to incorporate flexibility into our annual, mid-term and long-term compensation programs and adjust for the evolving business environment.

 

Due to the quality of our management, as well as the training and experience offered by a career at SYSCO, a number of our senior executives have been presented with other professional opportunities, including opportunities at potentially higher compensation levels or that offer generous compensation packages with less “at-risk” pay. The Committee supports executive retention by using continued service as a significant determinant of total pay opportunity. Key elements of compensation that are service-based include stock options that generally vest over a five-year period, cash plan incentives that pay out in three years, and the Supplemental Executive Retirement Plan. We believe that SYSCO’s compensation strategies have been effective in promoting retention and are aligned with our company culture, which places a significant value on the tenure of high-performing executives.

 

The Committee has built today’s executive compensation program upon a framework that includes the following components, each of which is described in greater detail later in this Compensation Discussion and Analysis:

 

Assuming that we achieve at least mid-single digit earnings growth and a return on equity near 30%, the Committee hopes that the senior executives will achieve total compensation, including all of the elements described above, between the 50^th and the 75^th percentile of total compensation paid to individuals in similar roles in SYSCO’s peer group. However, when our performance did not satisfy the criteria for payment of the MIB in fiscal 2006, the total compensation paid to our named executive officers was at a level below the 25th percentile of our peer group. We will continue to monitor the overall competitiveness of our compensation package. Possible changes to the bonus programs could include using different performance criteria or metrics allowed under the terms of the 2005 Management Incentive Plan, selecting different performance target levels and changing the mix of fixed and variable compensation. Overall, we believe our current compensation programs pay for performance and recognize each executive’s scope of responsibilities, demonstrated leadership abilities, management experience and effectiveness. Our plans also motivate key executives to achieve both superior short-term and long-term sustained results.

 

External and Internal Analysis

 

For the compensation package to be effective, the Committee must balance the components so that they are both externally competitive and internally equitable.

 

SYSCO is the largest food service distributor in North America, and other companies in the food service industry are significantly smaller. We believe that these smaller businesses would not create a satisfactory comparison group due to the greater skill levels and abilities required to manage a company of SYSCO’s size. Absent an industry peer group, the Committee concluded that the most comparable companies with respect to executive pay are companies whose business size and complexity are similar to ours and with which we compete for top executive positions. Therefore, the peer group developed for the executive compensation analysis is not the same peer group that is used in the stock performance graph in our annual report to stockholders.

 

In order to implement these conclusions regarding external comparison of executive pay, the Committee instructed Mercer to construct a peer group composed of publicly-traded U.S. companies with annual revenues of at least $5 billion that share similar business characteristics with SYSCO. In particular, Mercer examined industry leaders and other high-performing companies in logistics and distribution businesses that involve a high volume of relatively low-margin products and employ a large sales force. This review yielded a broad list of approximately 60 companies identified as possible peers based on the criteria. Mercer then scored each company based on size and performance, including sales growth, return on capital, total stockholder return and growth in earnings per share. Using this analysis and review, in May 2004, the Committee selected 15 companies to create the peer group used for SYSCO’s executive compensation analysis. The Committee annually reviews the peer group based on information provided by Mercer to ensure continued applicability. In May 2007, the Committee determined that General Mills should be removed from the peer group and AmerisourceBergen should be added in all future analysis, so that the peer group currently consists of the following 15 companies:

 

 

Peer group compensation data is limited to information that is publicly reported and, to the extent possible, the Committee uses it to benchmark all major components of compensation for our named executive officers. Mercer also provides supplemental survey-based information to assist the Committee with benchmarking various aspects of executive compensation.

 

With respect to annual salary and the various incentive awards available to the named executive officers, the Committee considers the internal equity of the compensation awarded by utilizing comparisons within the SYSCO organization. On an annual basis, the Committee compares the CEO’s compensation with that of the President and the Executive Vice Presidents to ensure that CEO compensation is reasonable and not perceived as being unfair. The Committee makes similar evaluations among the President, Executive Vice Presidents and Senior Vice Presidents. These comparisons only provide a point of reference as we do not use specific formulas to determine compensation levels reflecting the responsibilities of a particular officer position. Although officers at different levels of the organization receive a different percentage of their base salary as payment of the MIB, the financial criteria used for all corporate officers for payment of the MIB are identical. The Committee does not perform an independent internal equity analysis with respect to these annual bonuses.

Annual Compensation

 

Base Salary

 

Each year, Mercer completes an analysis of the executive officers’ base salaries by comparing them to the reported base salaries of individuals in the same or similar positions at the peer group companies. The Committee begins its review of executive base salaries by looking at the 25th percentile of the range Mercer indicates is paid to individuals in similar roles in our peer group. In setting base salaries, the Committee also takes into consideration each executive’s performance in the prior year and recent company performance, as well as each executive’s job responsibilities, management experience, individual contributions, number of years in his or her position and current salary and makes adjustments as appropriate. SYSCO’s culture has been built around the belief that establishing a relatively modest base salary and placing more of the executives’ annual pay at risk will drive both individual and company performance in order to achieve our business targets. The Committee’s determination of base salary is generally independent of decisions regarding other elements of compensation, although the Committee is knowledgeable of how an executive’s salary affects other elements of total compensation, such as the annual target bonus being based on a multiple of salary, and that base salary is one of the earnings components that determines future benefits under the SERP.

 

The Committee typically reviews base salaries annually, although the Committee has not necessarily increased salaries each year. The Committee considers the CEO’s recommendations, and modifies them where they deem appropriate, when determining the compensation of the other named executive officers and senior executives. The Committee, after reviewing the comparative peer group information provided by Mercer, approved base salary amounts for the named executive officers in November 2005, which were effective January 1, 2006, as follows:

 

 

The Committee reviewed and approved further base salary adjustments for the named executive officers in November 2006, which became effective on January 1, 2007. In an executive session, the members of the Committee considered its July 2006 performance evaluation undertaken in conjunction with the Corporate Governance and Nominating Committee, assessed SYSCO’s and Mr. Schnieders’ accomplishment of objectives during fiscal 2006 and the first quarter of fiscal 2007 and took into account the Committee’s own subjective assessment of Mr. Schnieders’ performance since the formal July 2006 performance evaluation. They noted that under Mr. Schnieders’ leadership, SYSCO completed its first redistribution center, or RDC, and began operating it profitably at near full capacity. SYSCO also began work on a second RDC site and began identifying property for a third site. In addition, our business review process was continuing to show significant results and spearheaded a reduction of expenses across all aspects of the business. In addition, Mr. Schnieders created and led a significant effort to identify and implement strategic initiatives which the Committee and management believe show great promise in accelerating sales and earnings growth. Therefore, in recognition of his performance and continued leadership, the Committee increased Mr. Schnieders’ base salary by 4% to $1,118,000. The Committee performed a similar review for each of the other named executives, and considered recommendations from the CEO to increase each of the other named executive officers’ salaries in light of the peer group compensation information provided by Mercer. Based on these considerations, the Committee increased base salaries for these named executive officers by between 4% and 7% to $615,000 for Mr. Stubblefield, $590,000 for Mr. Spitler, $580,000 for Mr. Accardi and $540,000 for Mr. Pulliam. Each of these base salaries placed the named executive officers between the 25th and 50th percentile in the peer group.

 

In addition, in February 2007 we announced that Mr. Spitler would become SYSCO’s President and Chief Operating Officer effective July 1, 2007. The Committee raised Mr. Spitler’s base salary for fiscal 2008 to $650,000, which is still between the 25th and 50th percentiles of the peer group. The Committee considered this increase in Mr. Spitler’s base salary to be appropriate in light of the increased scope of the responsibilities he would be assuming in connection with his new position, including responsibility for SYSCO’s merchandising, specialty distribution companies and SYGMA.

 

Management Incentive Bonus

 

The MIB is designed to offer opportunities for compensation tied directly to annual company performance. Under the terms of the plan, we pay the MIB in cash with payments made in the first quarter of the fiscal year for bonuses earned with respect to performance in the prior fiscal year. At that time, the plan also requires that we issue to the participants restricted shares of SYSCO common stock with a market value equal to 28% of their cash bonus. The cash component of the MIB, as adjusted by the Supplemental Plan described below for fiscal 2007, is added to the base salary to determine future benefits under the SERP. In addition, each of Messrs. Schnieders, Stubblefield, Accardi and Spitler were “protected persons” under the SERP at the time we amended it in March 2006, so that we consider both the cash MIB component and the stock match component for

fiscal years prior to 2006 in determining their alternative protected SERP benefit. For fiscal 2008 and future years, we have amended the SERP so that the supplemental bonus will not be considered in determining retirement benefits. We currently pay the MIB pursuant to the 2005 Management Incentive Plan, which is described in further detail under “Executive Compensation — 2005 Management Incentive Plan” on page 40.

 

Each year the Committee approves MIB agreements that are entered into between SYSCO and each of the named executive officers, as well as certain other executive officers. In June 2006, the Committee approved fiscal 2007 bonus agreements with each of the named executive officers pursuant to the 2005 Management Incentive Plan. In approving the agreements, the Committee generally targeted the cash portion of each named executive officer’s fiscal 2007 bonus at approximately 200% of his base salary, which would satisfy the Committee’s goal of having combined annual salary and cash bonus near the 75th percentile of our peer group. Above-target performance would produce higher payouts. The potential payout under the MIB encourages our executives to strive for excellence and the highest performance possible. However, the 2005 Management Incentive Plan provides that in no event will we pay a bonus to a named executive officer in excess of one percent of SYSCO’s earnings before income taxes as publicly disclosed in the “Consolidated Results of Operations” section of our Form 10-K filed with the Securities and Exchange Commission. For fiscal 2007, this limit, which would not apply to additional amounts granted under the Supplemental Plan, was approximately $16.2 million. The Committee chose this limit in order to comply with the disclosure regulations under Section 162(m) of the Internal Revenue Code.

 

As described under “Executive Compensation — 2005 Management Incentive Plan” on page 40, the MIB is currently based upon our overall corporate performance and, to a lesser extent, the performance of our operating companies. We chose the following performance measures to provide the best financial framework to incent executives to make decisions that create sustainable growth for our company and our stockholders:

 

 

 

We pay no bonuses to our corporate officers under the MIB unless SYSCO achieves both the earnings per share and return on stockholders’ equity goals.

 

 

We determine all of these performance measures in accordance with generally accepted accounting principles, which we apply on a consistent basis. Management typically prepares the grid used for calculating the earnings per share and return on equity components of the MIB based on prior years’ incentive plans and submits it for review by Mercer. Mercer reviews the grid to determine whether achievement of target performance levels would produce annual compensation results, comprised of annual base salary plus the cash portion of the MIB as adjusted by the supplemental bonus, which would approximate that of our peer group’s 75th percentile. The Committee then approves a final grid after consulting with Mercer. Because we keep executives’ base salaries at a relatively low level, we constructed the grid in a manner so that in most years the executives receive at least some level of bonus. However, in years in which our financial performance did not reach the minimum targeted objectives, the executives did not receive any bonus. For example, in fiscal 2006, earnings per share were not sufficient to meet

the minimum MIB performance level, and as a result the named executive officers did not receive any bonus. In the past, we have paid a bonus to executives only if the company satisfied the minimum criteria of a 6% increase in earnings per share and an 18% return on stockholder’s equity, except during fiscal 2007, when we temporarily set the minimum increase in earnings per share at 4% and permanently reduced the minimum return on stockholders’ equity to 14%. We believe that the targets for higher payouts are aggressive and challenging, but our stockholders typically expect high levels of performance from SYSCO and the higher payouts can be achieved, as demonstrated under “Annual Compensation (including MIB Shares) in Recent Fiscal Years” on page 27.

 

At the end of fiscal 2006, when we determined that the company’s performance did not satisfy the criteria for payment of the MIB, we reversed the amounts previously accrued for payment of corporate bonuses. This reversal increased fiscal 2006 earnings per share. Because the company must meet a specified level of increase in earnings per share for the executives to receive any bonus, the reversal raised the level of performance that would have been required to earn an MIB in fiscal 2007. Therefore, in September 2006, the Committee approved amendments to each named executive officer’s MIB agreement to adjust the performance criteria. The amendments reduced the required EPS minimum from a 6% increase to a 4% increase. The Committee determined that this change would provide an acceptable balance between performance objectives, employee incentive and retention. The Committee returned the minimum EPS requirement to its prior level in the MIB agreements relating to fiscal 2008. Because certain accounting changes that took effect in fiscal 2006, including the expensing of stock options, had the effect of permanently decreasing return on stockholders’ equity, in September 2006, the Committee also approved amendments to each named executive officer’s MIB agreement to reduce the minimum required return on stockholders’ equity from 18% to 14%.

 

In order to encourage equity ownership in SYSCO by all participants in the MIB, including the named executive officers, the plan provides that we will pay a portion of the annual bonus in shares of SYSCO common stock. We pay the bonus in cash and, in addition, we automatically issue to the participants restricted shares of SYSCO common stock with a market value equal to 28% of their cash bonus. The calculation of the 28% stock match excludes any additional amounts from the supplemental bonus described below if performance exceeds expectations, but takes into account any reduction under the supplemental agreements described below if performance does not meet expectations. In order to calculate the number of shares awarded, we use the closing price of our shares on the last trading day of the fiscal year to which the award relates. As part of our philosophy of fostering long-term careers at SYSCO, recipients are restricted from selling, transferring or gifting this stock until the second anniversary of the date of grant and all officers at the levels of Senior Vice President and above risk forfeiture of the shares if they leave SYSCO under certain circumstances during this period. If a recipient’s employment is terminated due to death, long-term disability or retirement under normal company policies, these restrictions will no longer apply to the employee’s shares.

 

Payouts for the fiscal 2007 MIB were approved by the Committee and paid in August 2007, as shown in the Summary Compensation Table on page 36. The payouts were based on our exceptional fiscal 2007 results, including an increase in basic earnings per share before the cumulative effect of accounting changes of 19.1%, a return on equity of 31% and on 79 of SYSCO’s 95 operating companies or subsidiaries achieving a 20% or greater return on capital. See “Historical Annual Compensation (including MIB Shares) in Recent Fiscal Years” below for a further correlation between performance and bonus payments. Because of SYSCO’s greatly improved performance in fiscal 2007 when compared to fiscal 2006, total annual compensation, comprised of annual base salary plus the cash portion of the MIB as adjusted by the supplemental bonus, for each of the named executive officers reflected the superior performance and exceeded the 75th percentile of our peer group.

 

Supplemental Performance Bonus

 

On June 9, 2006, the Committee recommended, and the SYSCO Board adopted, the 2006 Supplemental Performance Based Bonus Plan in order to provide a further connection between the executive management team’s performance and their potential total compensation. This plan, which we refer to as the “Supplemental Plan,” replaced a similar plan used only for Mr. Schnieders in fiscal years 2005 and 2006. Fiscal 2007 was the first year for which this plan applied to the larger group of executives. The executives are only eligible for the supplemental bonus if the minimum criteria to earn an MIB for the fiscal year are satisfied.

 

The Supplemental Plan helps to align a portion of the executives’ bonus compensation with non-financial performance goals not taken into account under the MIB formula, such as strategy development, organizational development and alignment, the development of talent and succession planning. The Supplemental Plan also allows the Committee to use some discretion in determining the total amount of the executives’ bonus payments. Each year SYSCO enters into agreements approved by the Committee pursuant to the Supplemental Plan with each named executive officer, as well as all other Executive Vice Presidents and Senior Vice Presidents. Under the Supplemental Plan agreements, the Committee, in its sole discretion, may increase or decrease by up to 25% the cash portion of the executives’ bonus earned under the MIB agreement for the fiscal year, depending

upon whether the Committee concludes that the executives’ performance “exceeded expectations” or was “below expectations” based on the criteria described under “Executive Compensation — 2006 Supplemental Performance Based Bonus Plan” on page 42. If the executives’ performance simply “meets expectations,” the executives will neither receive an additional bonus nor have their MIB reduced. Even if an executive exceeds expectations, we will not pay a supplemental bonus unless the executive earns an MIB for the fiscal year. The Committee intends that the goals and targets in the Supplemental Plan agreements be different from the threshold performance levels contained in the MIB. The supplemental goals are intended to be more operational in nature and include intangible goals that may not all be achieved in a single year, but that will provide long-term benefits to our operations.

 

Before the beginning of each fiscal year, the Committee, together with the Corporate Governance and Nominating Committee, meets to review and approve Mr. Schnieders’ personal fiscal year goals, including the goals under the Supplemental Plan. The individual performance measures in the Supplemental Plan agreements with Mr. Schnieders and each of the other named executive officers include key aspects of SYSCO’s enterprise-wide goals for the fiscal year, which are both more strategic and more operational in nature than the financial criteria required for payment of the MIB, as well as some of the team’s personal goals. For fiscal 2007, the goals were submitted by the CEO, then the Committee and the Corporate Governance and Nominating Committee engaged in discussion with the CEO regarding the goals and provided additional input, particularly regarding items that were less tangible and not included in the enterprise-wide goals. After appropriate revisions, the fiscal 2007 goals were adopted by the Committee since they agreed that achievement of the goals should directly result in increased stockholder value. See “Executive Compensation — 2006 Supplemental Performance Based Bonus Plan” on page 42 for a description of the fiscal 2007 goals.

 

Within 90 days after the fiscal year end, the Committee conducts an evaluation of the CEO. The Committee’s review of Mr. Schnieders’ fiscal 2007 performance and satisfaction of the supplemental goals (which are described in further detail under “Executive Compensation — 2006 Supplemental Performance Based Bonus Plan — Fiscal Year 2007 Supplemental Bonus Agreement with CEO” on page 42) included the following:

 

 

The Committee also commended Mr. Schnieders for his accessibility to the Board and the company’s leadership team. Therefore, based on the this evaluation and the Committee’s determination that Mr. Schnieders’ performance in fiscal 2007 exceeded expectations, the Committee increased the cash portion of Mr. Schnieders’ MIB by 17%, or $571,130.

 

Within 90 days after the fiscal year end, the Committee similarly conducts an evaluation of each named executive officer other than the CEO, together with the other executives who are designated as members of the management team, as a group. After consulting with the CEO, the Committee judges the management team’s alignment with SYSCO’s enterprise-wide goals for purposes of determining the supplemental bonus payout, if any. In addition, pursuant to the agreements for fiscal 2007, the Committee evaluated each executive individually based on the executive’s contribution to maximizing the management team’s collective performance. The Committee’s review of the named executive officer’s (other than Mr. Schnieders) fiscal 2007 performance and satisfaction of the supplemental goals (which are described in further detail under “Executive Compensation — 2006 Supplemental Performance Based Bonus Plan — Fiscal Year 2007 Supplemental Bonus Agreement with Executive and Senior Vice Presidents” on page 43) included the following:

 

 

The Committee also determined that each of the named executive officers functioned properly as part of the management team and that each of them should be treated similarly for purposes of the supplemental bonus.

 

Therefore, based on the this evaluation and the Committee’s determination that the management team’s performance in fiscal 2007 exceeded expectations, the Committee increased the cash portion of each named executive officer’s MIB as follows:

 

 

Under an amendment to the SERP approved by the Committee in September 2006, payments made under the Supplemental Plan for fiscal 2007 performance were considered as one of the earnings components that may determine future benefits under the SERP, except in the case of certain protected benefits based on prior plan provisions described under “Executive Compensation — Supplemental Executive Retirement Plan — Minimum Benefits” on page 49. The possible increased bonus under the Supplemental Plan offset a decrease in the MIB due to revisions in the minimum requirements for payment of the operating company component. Furthermore, the Supplemental Plan simply increases or decreases the MIB amount payable by up to 25%. In light of these and other considerations, the Committee considered it appropriate to include in the SERP calculations any additional amounts payable under the Supplemental Plan. However, given the large bonuses that were earned on fiscal 2007’s superior results, the Committee reconsidered this position and effective September 19, 2007, the SERP was changed so that payments made under Supplemental Plan will not be considered in the calculation of non-protected benefits for fiscal 2008.

 

May 2007 Agreements

 

In May 2007, the Committee approved agreements with each of the named executive officers under the Management Incentive Plan and the Supplemental Plan with respect to fiscal 2008. These agreements did not include Mr. Stubblefield, who retired effective June 30, 2007, or Mr. Accardi, who will be retiring December 31, 2007 and will be compensated pursuant to his Transition and Early Retirement Agreement. The terms of the fiscal 2008 MIB agreements and supplemental agreements are substantially similar to the fiscal 2007 agreements described above, with the exception of the minimum EPS requirements for payment of an MIB and some modifications in the specific goals and criteria under the Supplemental Plan agreements. The minimum EPS increase requirement for payment of the MIB, which was temporarily reduced in fiscal 2007 to offset the effect of the bonus accrual being reversed at the end of fiscal 2006 when the executives did not receive a bonus, was returned to its prior level of 6% in the agreements relating to fiscal 2008. For a more detailed discussion of these grants, see “Executive Compensation — 2005 Management Incentive Plan” on page 40 and “Executive Compensation — 2006 Supplemental Performance Based Bonus Plan” on page 42. The Committee’s rationale for making these grants in the form and amounts granted was substantially similar to that discussed above with respect to the grants made in June 2006 for fiscal 2007.

 

Annual Compensation (including MIB Shares) in Recent Fiscal Years

 

We believe that our pay-for-performance foundation underlying the MIB and the Supplemental Plan has been instrumental in achieving excellent SYSCO and subsidiary performance. The table below shows the annual compensation (base salary, the cash portion of the MIB and MIB shares) earned by each named executive officer for each of the past four fiscal years. As discussed earlier, company performance did not merit an MIB bonus in fiscal 2006. Because they cover a three-year

performance period, the cash performance units that were first paid out at the end of fiscal 2007 are not included in the table below.

 

 

 

 

 

 

The bonus amounts shown above reflect our year-to-year increase in basic earnings per share before the cumulative effect of any accounting changes as reported in our financial statements.

 

 

Our exceptional performance in fiscal 2004 resulted in the named executive officers receiving bonuses equal to an average of 3.8 times their base salary. In fiscal 2005, there was an increase in basic earnings per share before accounting change of only

7.1% and the bonus decreased to an average of 2.7 times the base salary. Fiscal 2006 showed a decrease in basic earnings per share, and the executives did not receive a bonus. Fiscal 2007 showed significantly increased performance with a 19.1% increase in basic earnings per share before accounting change with the named executive officers receiving bonuses equal to an average of 4.5 times their base salary.

 

Longer-Term Incentives

 

The Committee targets total longer-term incentive compensation between the 25th and the 50th percentiles for the peer group. However, we have often granted a smaller portion of our compensation in long-term incentives when compared to our peer group, with our total longer-term incentive grants historically falling near the 25th percentile. Our target for longer-term incentive compensation is based on the assumption that the cash performance units, referred to as CPUs, will eventually pay out at the target levels (rather than the minimum or maximum levels) and the Black-Scholes value of the stock options granted. The split between CPUs and stock options is not an exact formula, but is based on considerations relating to the break-down between cash and equity compensation, as well as the break-down of compensation over the three-year CPU incentive period compared to the longer term of stock option incentives. Executive officers at the same level, such as all of the Executive Vice Presidents, generally receive the same number of CPUs and options in any given year because each is a member of SYSCO’s leadership team that shares the responsibility for achieving the overall goals and performance of SYSCO. The Committee receives information from Mercer regarding the peer group compensation and the CEO provides input to the Committee to support his recommendations with respect to awards to the other executives.

 

Cash Performance Units

 

Under the SYSCO Corporation 2004 Mid-Term Incentive Plan, which was previously known as the SYSCO Corporation Long-Term Incentive Cash Plan, participants in the MIB have the opportunity to receive cash incentive payments based on SYSCO’s performance over a three-year period. We pay any awards earned under this plan in cash rather than in SYSCO stock or stock units in an effort to help participants diversify their investments and allow them flexibility in investing for their futures. CPU grants are forward-looking and typically do not take into account prior SYSCO or individual performance; however, the payout on CPUs is based on the company’s future performance.

 

The Committee established performance criteria for grants to the named executive officers in September 2004 covering the three-year performance period ended June 30, 2007 based on the average growth in net earnings per share. This measure is determined by averaging the growth in net earnings per share for each of the one-year periods in the performance period. The Committee established a sliding scale with target achievement providing a 100% payout, minimum achievement providing a 50% payout, and maximum achievement providing a 150% payout. The targets and payouts were recommended by Mercer after discussions with the CEO and other members of executive management. The Committee took the total value that was targeted at 100% payout for CPUs for a given level of participant and divided by the $35.00 value assigned to each unit to determine the number of units to be granted to such participants. Our reported average growth in net earnings per share over the three-year performance period ended on June 30, 2007 was 9.95%, which yielded a payout of 87.5% of the value of the units to each participant previously granted units. In order for generally accepted accounting principles to be applied consistently year-over-year, the performance measures for the CPUs may be calculated slightly differently from those in our financial statements. Actual payout amounts are listed on page 37 in footnote (3) to the Summary Compensation Table.

 

For the three-year performance periods ending in fiscal 2008, 2009 and 2010, the Committee set the performance criteria for all participants, including the named executive officers, and added a second component of average increase in sales, adjusted for product inflation and deflation for the periods ending in fiscal 2008 and 2009, in order to focus the executive team on sales growth. The scale works much like the previously granted CPUs, except that one-half of the payout is based on average growth in net earnings per share and one-half of the payout is based on average increase in adjusted sales. Again, achievement of the target yields a 100% payout, while the minimum satisfaction of only one criteria yields a 25% payout and maximum performance above target on both criteria will provide a 150% payout. We believe that the minimum and target amounts described under “Executive Compensation — 2004 Mid-Term Incentive Plan” on page 39 are achievable, although the maximum payout would be difficult to obtain. The earnings per share portion of the CPU calculation is generally easier to obtain than the sales growth portion. For Mr. Schnieders, the Committee increased the number of units being granted in 2005 because Mercer’s data showed that his longer-term incentive compensation was far below the 25th percentile of the company’s peer group. For the three year performance period ending fiscal 2009 only, we calculate earnings per share prior to the accruals for the MIB and the supplemental bonus. The Committee made this adjustment due to the difficulty of calculating earnings per share using these accruals and in order to avoid inconsistent results in years when we do not pay an MIB and/or supplemental bonus, but determined in fiscal 2008 to return to the previous method of calculation including these accruals, in order to tie payment of the bonus to increases in GAAP earnings per share. In addition, with respect to the grants made in fiscal 2008, we

will no longer adjust the increase in sales by inflation or deflation. As a result of this change, the threshold sales performance was increased from 4% to 6%, the target sales performance was increased from 6% to 8%, and the maximum sales performance was increased from 8% to 10%. The Committee made this change in order to tie the performance goals more closely to the Company’s internal business goals, which no longer adjust for inflation or deflation. Except for these changes, the grants made in fiscal 2008 that relate to the three year performance period ending in fiscal 2010 are substantially similar to those made in fiscal 2007.

 

Stock Options

 

Part of SYSCO’s total compensation package is the grant of stock options on an annual basis to a select group of key managers, including MIB participants and the named executive officers.

 

When determining the number of options and CPUs to grant to the executives, the Committee generally begins its analysis with data regarding the 25th and 50th percentiles of long-term incentive compensation for matched positions in the peer group, as provided by Mercer. Once the split between options and CPUs is made, Mercer uses the Black-Scholes valuation method to convert the comparative market data dollar amount into a number of SYSCO stock options. Comparing these results to the 25th and 50th percentile information, Mercer makes a recommendation regarding the number of options to be granted to each level of employee. However, the Committee may take into account a number of other factors when considering Mercer’s recommendation, as described below. The Committee reviews Mercer’s input and recommendations from the CEO on the other executives’ option grants, as well as considerations regarding the impact of share-based compensation expense on SYSCO’s results.

 

From calendar 1994 through mid-calendar 2006, the Committee generally issued options on a performance basis, meaning that grants were made only in years when participants in SYSCO’s Management Incentive Plan had earned a bonus. In September 2006, after reviewing SYSCO’s overall compensation strategy, the Committee determined that in order to remain competitive and provide the proper incentives, option grants should generally be made annually, without regard to whether or not MIB participants earned a bonus. The Committee indicated that options are only one part of SYSCO’s multi-faceted integrated compensation program used to strengthen short-term, mid-term and long-term performance. In general, SYSCO’s cash bonus plans are based on our overall annual financial performance. In contrast, the Committee may also take into consideration other criteria relating to SYSCO’s long-term performance. Therefore, after considering the target for total longer-term incentive compensation between the 25th and 50th percentiles, the Committee may consider, among other things, the following:

 

 

The Committee believes that considering these factors and granting options accordingly will benefit employee retention, particularly in years in which SYSCO’s performance does not create high cash compensation. It will also help to ensure that longer term strategic initiatives are not compromised by having executives focus solely on short-term profitability for payment of the MIB. SYSCO’s long-term performance ultimately determines the value of stock options, because gains from stock option exercises are entirely dependent on the long-term appreciation of our stock price. The Committee expects that this longer-term focus will benefit SYSCO and its stockholders, as it more closely aligns the executives’ interests with those of stockholders and focuses executives on strategies that increase long-term stockholder value. Existing ownership levels are not a factor in the Committee’s granting of options because it does not want to discourage executives from holding significant amounts of SYSCO stock.

 

In September 2006, Mercer discussed with the Committee the number of options to be granted at each officer level. While Mercer had suggested a higher number of option grants for executive officers in order to increase the company’s long-term compensation to a level more competitive with its peer group, Mr. Schnieders indicated that he disagreed. Mr. Schnieders suggested that although the other named executive officers were rated highly in their fiscal 2006 performance reviews, the options to be granted to each of the named executive officers should be no higher than the number of options granted in September 2005 due to the Company’s overall fiscal 2006 performance. The Committee also considered the executives’ implementation of SYSCO’s strategy and long-range plans, the mix of cash and equity compensation and long-term versus short-term compensation and concluded that overall fiscal 2006 performance did not merit the increase suggested by Mercer. Based on this analysis, in September 2006 the Committee granted approximately 6.5 million options to approximately 1,600 employees. Approximately 6.6% of these stock options were granted to the named executive officers. Because the Committee felt that each member of the executive team performed on par and wanted to treat them as a team, all Executive Vice

Presidents received the same grant and their awards, along with the CEO’s grant amount, were kept at the same level as the grants made in September 2005. The specific grants are shown under “Grants of Plan-Based Awards” on page 38.

 

Our stock options grant administrative guidelines were adopted in February 2007, as described under “ — Outstanding Equity Awards at Fiscal Year-End.” Under the guidelines, the Committee will generally not make grants during a period preceding an anticipated event which is likely to cause a substantial increase or a substantial decrease in the trading price of SYSCO’s common stock, such as an earnings release. The Committee will generally authorize and grant options during normal trading windows. If we have grants scheduled to occur outside of a normal trading window or when SYSCO is in possession of material non-public information, then:

 

 

Retirement/Career Incentives

 

Supplemental Executive Retirement Plan

 

SYSCO’s retirement plans are an important retention tool, the effectiveness of which the Committee tries to balance with the cost of providing them. Our history supports that this approach works, as our named executive officers had an average tenure of over 24 years with SYSCO at the end of the fiscal year. We provide annual retirement benefits to all employees under the broad-based tax-qualified SYSCO Corporation Retirement Plan, which we simply refer to as the “pension plan”. In addition, SYSCO offers a Supplemental Executive Retirement Plan, or SERP, to approximately 190 MIB participants, including the named executive officers. The Committee utilizes the SERP to increase the retirement benefits available to officers whose benefits under the pension plan are limited by law. Unlike the pension plan, the SERP is an unfunded, unsecured obligation of SYSCO and is not qualified for tax purposes. The earliest an executive can retire and receive any benefits under the SERP is age 55 with a minimum of 15 years of MIB Plan service. The SERP was designed to provide fully vested participants with post-retirement monthly payments up to 50% of a qualified participant’s final average annual compensation based on the highest five of the ten years preceding retirement, in combination with other retirement benefits, including other pension benefits, the company match under the 401(k) plan and social security payments. Annual retirement benefits from the SERP are generally limited to $2,200,000, as adjusted for cost-of-living increases. However, each of Messrs. Schnieders, Stubblefield, Spitler and Accardi qualify for a protected benefit under the SERP. This limit does not apply to the protected benefit, which we will pay if it is greater than the benefit under the current provisions.

 

The provisions under the SERP place SYSCO above the 75th percentile for retirement benefits provided by companies in SYSCO’s peer group, but the Committee believes that these benefits are appropriate in light of the company’s overall compensation structure. When the SERP benefits are added to the other elements of our compensation structure, the total package is still below the 75th percentile of our peer group. The specific benefits under the pension plan and SERP are described under “Executive Compensation — Pension Benefits” on page 46. The SERP also contains non-competition and non-disparagement clauses designed to protect SYSCO after an executive has retired or otherwise left SYSCO’s employment.

 

Nonqualified Deferred Compensation Plan

 

SYSCO offers the Third Amended and Restated Executive Deferred Compensation Plan, or EDCP, to provide MIB participants, including the named executive officers, the opportunity to save for retirement and accumulate wealth in a tax-efficient manner beyond what is available under SYSCO’s 401(k) retirement savings plan. The 401(k) plan is currently limited by law to $15,500 in individual contributions per year. The Committee believes that the EDCP motivates and assists in the retention of key employees by providing them with greater flexibility in structuring the timing of their compensation payments. The EDCP is an important retention and recruitment tool for SYSCO, as the companies with which we compete for executive talent typically provide a similar plan to their senior employees.

 

Participants may defer up to 100% of their base salary and up to 40% of the aggregate of any cash MIB payment and any Supplemental Plan bonus to the EDCP. SYSCO does not match any salary deferrals into the EDCP. For participants who defer a portion of their annual incentive bonus, SYSCO matches 15% on the first 20% deferred of the aggregate MIB cash bonus and supplemental bonus, making the maximum possible match to the EDCP 3% of the aggregate bonus (which was a decrease from

10% in January 2005), excluding the MIB stock match. See “Executive Compensation — 2005 Management Incentive Plan” on page 40 for a description of the MIB stock match. This match generally vests at the tenth anniversary of the crediting date, subject to earlier vesting in the event of death, disability, a change in control or the executive’s attaining age sixty. Participants who defer under the EDCP may choose from a variety of investment options, including Moody’s Average Corporate Bond Yield plus 1%, with respect to amounts deferred. Company-matching contributions are credited with the Moody’s Average Corporate Bond Yield plus 1%.

 

Severance Agreements

 

In prior years, the Committee approved, and the Board of Directors ratified, severance agreements for Messrs. Schnieders, Stubblefield, Accardi and Spitler, although Mr. Accardi’s severance agreement was replaced with a Transition and Early Retirement Agreement in May 2007, as discussed below. The Committee and the Board believe that these agreements are necessary in order to retain highly-qualified executives. Such protections are commonly offered by other companies to ease an employee’s transition following termination of employment by SYSCO. Each of the severance agreements also requires a general release from separated executives, as well as non-compete and non-disparagement provisions.

 

The severance agreements do not contain any classic “single trigger” provisions that would cause an immediate payment obligation solely as a result of a change in control of SYSCO. It is the Committee’s intent that provisions in the severance agreements regarding an executive’s termination following a change of control preserve executive morale and productivity and encourage retention in the face of the disruptive impact of an actual or rumored change in control of SYSCO. In addition, these provisions align executive and stockholder interests by enabling executives to consider corporate transactions that are in the best interests of SYSCO’s stockholders and other constituents without undue concern over whether the transactions may jeopardize the executives’ own employment and compensation. The Committee does not believe that the severance agreements provide undue incentive for the executive officers to encourage a change in control. Finally, the provisions protect stockholder interests in the event of a change in control by helping assure management continuity, which could improve company performance and maintain stockholder stock value.

 

Under the terms of these agreements, if we terminate the executive without cause or the executive terminates his employment for good reason, as these terms are defined in the agreement, the executive is entitled to two years’ base salary plus two years’ MIB, based on his average MIB over the prior five years, in 24 equal monthly installments. In addition, if the termination occurs before the end of a year in which a bonus would have been earned but for the termination, the executive will receive a pro rated share of the cash bonus payable. If termination occurs before age 60, we will treat the executive as if he retired at age 60, so that he will receive a benefit in accordance with the provisions of the SERP. We will also pay the executive a lump sum payment equal to 100% of his vested and unvested benefits under the EDCP, including deferrals and company matches thereon, if applicable. The Committee concluded that these provisions were necessary and appropriate to remain competitive with our peer companies for compensation purposes.

 

If we make payments to certain executives that are contingent on a change in control as provided for under Section 280G of the Internal Revenue Code, the IRS may impose an excise tax on the executives pursuant to Section 4999 of the Internal Revenue Code with respect to such payments. In that event, the severance agreements provide that the executives will be entitled to receive an indemnity payment of any such tax and a “gross up” of that payment so that the executives have no out of pocket costs as a result of the tax and tax reimbursement payments. The Committee has reviewed the costs associated with these payments and determined that they were fair and appropriate for several reasons. The excise tax tends to penalize long-serving employees in favor of new hires and to penalize individuals who do not exercise options in favor of those who do. In addition, the lapse of restrictions and acceleration of vesting on equity awards can cause an executive to incur excise tax liability before actually receiving any cash severance payments. The severance agreements are described under “Executive Compensation — Executive Severance Agreements” on page 51.

 

To help assure smooth transitions in succession plans, the Committee also concluded it may be appropriate to provide transition agreements or other benefits to key executives who announce their intention to retire. The terms and conditions of any such transition agreement will be established by the Committee on a case by case basis. Generally, under any such agreements, the executive would continue to be employed for a limited period, receive an annual salary and continue with normal or increased participation in benefit and retirement plans. During this period, the executive would assist us in the transition to his or her successor, would be available to assist SYSCO on an as-needed basis and would execute an agreement not to compete with SYSCO.

 

John K. Stubblefield, Jr., the company’s former Executive Vice President, Finance and Chief Financial Officer and a former member of the Board of Directors, had contemplated taking early retirement on several occasions, but was asked by Mr. Schnieders and the Board of Directors to continue his employment with SYSCO for various periods of time. In December

2006, Mr. Stubblefield informed the Board members that he would soon be retiring from his positions as an officer and director of SYSCO. Under the terms of the SERP, if he had retired on December 31, 2006, Mr. Stubblefield would have been 60% vested in his accrued SERP benefit based on his age at retirement, his 22-1/2 years of credited service with SYSCO and his 14-1/2 years of service under SYSCO’s Management Incentive Plans. Mr. Stubblefield would have been 80% vested in his accrued SERP benefits if he served for an additional twelve-month period and retired at the beginning of the 2008 calendar year. On December 8, 2006, the Committee determined that it would credit Mr. Stubblefield with 1.5 years of additional service under SYSCO’s Management Incentive Plans so that he would be 85% vested in his accrued benefits under the SERP. These benefits were granted in recognition of Mr. Stubblefield’s contributions to SYSCO, including remaining in his position at the request of the CEO and Board of Directors, as well as his eight years of non-MIP service that are not counted for purposes of calculating benefits under the SERP, and as an inducement to him to remain at SYSCO during the transition to a new Chief Financial Officer through the end of the 2007 fiscal year.

 

In February 2007, Mr. Accardi, at that time our Executive Vice President, Contract Sales and President, Specialty Distribution Companies, announced his planned retirement from SYSCO, effective December 31, 2007 at age 59. In connection with Mr. Accardi’s planned retirement, in May 2007, we entered into the Transition and Early Retirement Agreement described under “Executive Compensation — Executive Severance Agreements — Transition and Early Retirement Agreement with Larry J. Accardi on page 53, which includes provisions for:

 

 

In exchange for these benefits, Mr. Accardi agreed to certain expanded non-competition, non-disclosure, non-disparagement and non-solicitation provisions for a period of three years following termination of employment, and has agreed to assist SYSCO during the transition regarding his departure through December 31, 2007. He and SYSCO have also agreed to specified release and hold harmless provisions. Mr. Accardi will only receive the $500,000 payment, additional years of service and treatment as retired in good standing if he enters into an agreed form of release and either remains in our employ through December 31, 2007 or we terminate him without cause prior to that date. The Transition and Early Retirement Agreement terminated Mr. Accardi’s Executive Severance Agreement with SYSCO dated August 18, 2004, as amended on September 3, 2004, including the provisions that would have caused Mr. Accardi to forfeit his benefits under the SERP if he retired prior to age 60. Except as described above, all of Mr. Accardi’s rights under SYSCO employee benefit plans remain unaffected. The Committee, after consultation with the Board of Directors, determined that entering into this arrangement with Mr. Accardi was in the best interests of SYSCO and its stockholders.

 

Benefits, Perks and Other Compensation Considerations

 

Benefits, Perks and Other Compensation

 

We provide additional benefits for executives beyond those discussed above. To the extent required by Securities and Exchange Commission Rules, these benefits are reflected in the All Other Compensation column in the Summary Compensation Table on page 36. We believe that these benefits are reasonable, particularly since the cost of these benefits constitutes a very small percentage of each named executive officer’s total compensation.

 

SYSCO’s named executive officers are eligible to participate in SYSCO’s regular employee benefit programs, which include the defined benefit pension plan, a 401(k) plan, our employee stock purchase plan, group medical and dental coverage, group life insurance and other group benefit plans. We adjust employees’ contributions towards the monthly cost of the medical plan according to salary level; therefore, executives pay a higher percentage of the cost of these benefits than do non-executives. We also provide MIB participants, including the named executive officers, with additional life insurance benefits, long-term disability coverage (including disability income coverage) and long-term care insurance and reimbursement for an annual comprehensive wellness examination by a physician of their choice.

 

MIB participants, including the named executive officers, are encouraged to have their spouses accompany them at business dinners and other business functions in connection with meetings of the Board of Directors, certain business meetings and other corporate-sponsored events, and SYSCO pays, either directly or by reimbursement, all expenses associated with their

spouses’ travel to and attendance at these business-related functions. This payment or reimbursement is described in further detail in footnote (5) to the Summary Compensation Table. Furthermore, SYSCO owns fractional interests in private aircraft which are made available to members of the Board of Directors, executives and other members of management for business use, but are not allowed to be used for personal matters. Spouses may from time to time accompany executive officers on such flights in connection with travel to and from business-related functions if there is space available on the aircraft.

 

Officers, as well as many other associates, are provided with cell phones and PDA devices which are paid for by SYSCO, are intended primarily for business use and which we consider to be necessary and integral to their performance of their duties. All employees, including our named executive officers, and members of our Board of Directors are also entitled to receive discounts on all products carried by SYSCO and its subsidiaries.

 

Other than approximately $12,000 paid to Mr. Accardi for reimbursement of legal counseling related to his Retirement and Separation Agreement, SYSCO generally does not provide its executives with automobiles, security monitoring, split-dollar life insurance or reimbursement for legal or personal financial counseling.

 

Additional Benefits Following a Change in Control

 

As discussed above, we have no “single trigger” provisions in the Severance Agreements that would cause an immediate payment obligation solely as a result of a change in control of SYSCO. We have included provisions regarding a change in control in the severance agreements and several of SYSCO’s benefit plans and agreements, including 100% vesting of the SERP, unvested EDCP amounts, options, restricted stock and CPUs upon a change in control. See “Executive Compensation — Quantification of Termination/Change in Control Payments” beginning on page 54 for a detailed explanation of potential benefits under the various provisions. As with the Severance Agreements, the Committee believes that these provisions will preserve executive morale and productivity and encourage retention in the face of the disruptive impact of an actual or rumored change in control of SYSCO.

 

Potential Impact on Compensation from Executive Misconduct

 

If the Board determines that an executive has engaged in fraudulent or intentional misconduct, the Board will take appropriate action to remedy the misconduct, prevent its recurrence and impose discipline on the wrongdoer. Discipline would vary depending on the facts and circumstances, and could include, without limit,

 

 

These remedies would be in addition to, and not in lieu of, any actions imposed by law enforcement agencies, regulators or other authorities.

 

Income Deduction Limitations

 

Section 162(m) of the Internal Revenue Code generally sets a limit of $1 million on the amount of non-performance-based compensation that SYSCO may deduct for federal income tax purposes in any given year with respect to the compensation of each of the named executive officers other than the chief financial officer. The Committee has adopted a general policy of structuring the performance-based compensation arrangements, including the MIB and CPUs but not the Supplemental Plan, in order to preserve deductibility to the extent feasible after taking into account all relevant considerations. However, the Committee also believes that SYSCO needs flexibility to meet its incentive and retention objectives, even if SYSCO may not deduct all of the compensation paid to the named executive officers.

 

Based on its review of the analysis provided by the Committee’s compensation consultant, the Committee granted the CEO an increase of $43,000 in his base salary to $1,118,000 effective January 1, 2007 in order to remain competitive. The Committee determined that the additional base salary is appropriate even though the excess over $1 million is not deductible. Furthermore, amounts paid under the Supplemental Plan do not qualify as “performance-based compensation” under Section 162(m). In approving the Supplemental Plan, the Committee concluded that the importance of aligning a portion of the executives’ compensation with additional performance goals not taken into account under the MIB, combined with the desirability of preserving a certain level of Committee discretion over the total amount of the executives’ bonus payments, outweighs the potential cost to SYSCO that could result from the non-deductibility of any compensation paid under the plan.

Section 409A of the Internal Revenue Code

 

Section 409A of the Internal Revenue Code deals specifically with non-qualified deferred compensation plans. We have made some amendments to the SERP and EDCP in order to comply with Section 409A and have administered the SERP and EDCP in compliance with it. We intend to make further amendments to the SERP and EDCP to comply with further clarifications in Section 409A of the Code and to amend the severance agreements. As such, the above description of the timing of benefit payments to the executives pursuant to their severance agreements may change in order to comply with Section 409A.

 

Stock Ownership Guidelines

 

See “Stock Ownership — Stock Ownership Guidelines” on page 15 for a description of our executive stock ownership guidelines.

 

Total Compensation

 

After reviewing the information discussed above, as well as tally sheets detailing total compensation and an analysis prepared by Mercer regarding compensation among the peer group, the Committee has determined that each named executive officer’s total fiscal 2007 compensation provided the executive with fair compensation. The Committee has also determined that each named executive officer’s total fiscal 2007 compensation was appropriate given SYSCO’s improved performance in fiscal 2007 and the executives’ performance.

 

COMPENSATION COMMITTEE REPORT

 

The Compensation Committee of the Board of Directors of SYSCO Corporation has reviewed and discussed the foregoing Compensation Discussion and Analysis as required by Item 402(b) of Regulation S-K with management and, based on such review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Annual Report on Form 10-K and this Proxy Statement.

 

COMPENSATION COMMITTEE

 

  John M. Cassaday, Chairman

  Richard G. Merrill

  Richard G. Tilghman

  Jackie M. Ward

EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The following table sets forth information with respect to each of the named executive officers — the Chief Executive Officer, the Chief Financial Officer at the end of the fiscal year, and the three other most highly compensated executive officers of SYSCO and its subsidiaries employed at the end of fiscal 2007. In determining the three other most highly compensated executive officers, we excluded the amounts shown under “Change in Pension Value and Nonqualified Deferred Compensation Earnings.”

 

 

 

 

 

 

 

 

 

 

 

 

a. the amount paid for accidental death and dismemberment insurance coverage for each individual,

b. the amount paid for long-term care insurance,

c. the amount reimbursed to the individual for an annual medical exam,

d. the amounts paid for long-term disability coverage under the company’s disability income plan,

e. the amount paid for spousal travel in connection with business events (which amounts reflect only commercial travel; no incremental costs were incurred in connection with travel of spouses on the company plane with executive officers to and from business events),

f. the estimated amount paid for spousal meals in connection with business events, and

g. with respect to Mr. Accardi, $12,000 for reimbursement of legal counseling related to his Retirement and Separation Agreement.

 

No executive received any single perquisite or benefit with a value greater than $25,000.

 

 

 

Grants of Plan-Based Awards

 

The following table provides information on CPU grants, stock options and MIB and Supplemental Plan awards we granted in fiscal 2007 to each of the named executive officers.

 

 

 

 

2004 Mid-Term Incentive Plan

 

The SYSCO Corporation 2004 Mid-Term Incentive Plan was formerly known as the SYSCO Corporation 2004 Long-Term Incentive Cash Plan and is referred to herein as the “Mid-Term Plan.” The Mid-Term Plan provides for certain key employees, including the named executive officers, the opportunity to earn cash incentive payments based on pre-established performance criteria over performance periods of at least three years. We refer to these units as “CPUs”. The Committee currently makes grants annually for performance periods ending at the end of the third fiscal year, including the year of grant. The Committee may make grants under the Mid-Term Plan until September 4, 2009 unless the Board terminates it earlier.

 

Under the plan, the Committee may select performance goals from those specified in the plan, based on the performance of SYSCO generally or on the performance of subsidiaries or divisions. With respect to all currently outstanding grants, the Committee set performance criteria based on the average increases in SYSCO’s net earnings per share (except that for the three year performance period ending in fiscal 2009 only, we calculate earnings per share prior to the accruals for the MIB and the supplemental bonus) and sales over the performance periods, adjusting the sales growth for inflation and deflation for all performance periods ending in 2010 or earlier, but removing this adjustment for the fiscal 2008 grant relating to the three-year performance period ending in 2010. In addition to the awards that the named executives received in September 2004 and that we paid to them in August/September 2007, as discussed in footnote (3) to the Summary Compensation Table. The named

executives currently hold grants that they received in September of each of 2005, 2006 and 2007 in the amounts and for the performance periods set forth below: