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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P. H. GLATFELTER COMPANY

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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P. H. GLATFELTER COMPANY

96 South George Street, Suite 500

York, Pennsylvania 17401

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

TO BE HELD ON

 

May 4, 2011

 

TO SHAREHOLDERS:

 

The 2011 Annual Meeting of the Shareholders of P. H. Glatfelter Company (“Annual Meeting”), a Pennsylvania corporation, will be held at the York Expo Center, 334 Carlisle Avenue, York, Pennsylvania, in the Pennsylvania Room, on Wednesday, May 4, 2011 at 10:00 a. m., to consider and act upon the following items:

 

 

Only holders of record of the Company’s common stock at the close of business on March 10, 2011 (the “Record Date”) will be entitled to notice of, and to vote at, the Annual Meeting.

 

It is important that your shares be represented and voted at the Annual Meeting. Whether or not you currently plan to attend the meeting, please vote your proxy by telephone at 1-866-540-5760, on line at http://www.proxyvoting.com/glt, or by completing and signing the enclosed proxy card and returning it promptly in the enclosed envelope (requiring no postage if mailed in the United States). If you choose, you may still vote in person at the Annual Meeting, even if you previously voted by telephone, internet or by mailing a completed proxy card.

 

Thomas G. Jackson

Secretary

 

March 30, 2011

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
THE 2011 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 4, 2011.

 

P. H. Glatfelter Company’s proxy statement for the 2011 Annual Meeting of Shareholders and P. H. Glatfelter Company’s 2010 Annual Report, are available via the Internet at www.glatfelter.com/about_us/investor_relations/sec_filings.aspx, as well as on line at http://www.proxyvoting.com/glt.

 

TABLE OF CONTENTS

 

 

 

PROXY STATEMENT

 

The accompanying proxy is being solicited by the Board of Directors (the “Board”) of P. H. Glatfelter Company (“we,” “us,” or the “Company”), 96 South George Street, Suite 500, York, Pennsylvania 17401, in connection with the 2011 Annual Meeting of shareholders to be held on Wednesday, May 4, 2011 at 10:00 a.m., 334 Carlisle Avenue, York, Pennsylvania, in the Pennsylvania Room. This proxy statement and the accompanying proxy card are being mailed on or about March 30, 2011 to shareholders of record as of March 10, 2011.

 

What is the purpose of the Annual Meeting?

 

At the Annual Meeting, shareholders will be asked to consider and act upon the following matters:

 

 

Why are shareholders receiving these proxy materials?

 

Shareholders are receiving these proxy materials in connection with the solicitation of proxies by the Board of Directors for the matters to be considered at the 2011 Annual Meeting, and, therefore, shareholders are encouraged to read this proxy statement and to vote their shares by mailing the attached proxy card, voting on line or by telephone, or voting in person at the Annual Meeting. The Board has appointed directors Richard L. Smoot and Lee C. Stewart, or either of them (the “Proxy Holders”) with power of substitution, to vote all properly executed proxies at the Annual Meeting or at any adjournment of the Annual Meeting which are received from shareholders who are entitled to vote.

 

Who may vote?

 

Shareholders of record as of the close of business on March 10, 2011, the record date, may vote at the Annual Meeting. At the close of business on March 10, 2011, there were 45,999,846 shares of the Company’s common stock issued and outstanding and eligible to vote at the Annual Meeting.

 

What is a beneficial owner?

 

If on March 10, 2011 a shareholder’s shares were not held in the shareholder’s name, but rather in the name of a brokerage firm, bank, dealer, or other similar organization, then the shareholder is the beneficial owner of shares and those shares are referred to as being held in “street name.” The broker, bank or firm that is holding the shareholder’s shares is the shareholder of record for purposes of voting at the Annual Meeting. As the beneficial owner of any shares held in street name, a shareholder has the right to direct the broker or other agent that is holding the shareholder’s shares how to vote those shares on those matters which will be considered at the Annual Meeting.

 

How does a shareholder vote?

 

The procedures for voting are fairly simple: A shareholder is entitled to one vote per share of stock owned on the record date, on each item of business presented at the Annual Meeting, except that each shareholder has cumulative voting rights with respect to electing directors. Cumulative voting means that a shareholder is entitled to as many votes in electing directors as is equal to the number of shares of common stock that are owned by the shareholder on the record date, multiplied by the number of directors to be elected. Accordingly, for the election of eight directors, a shareholder may cast that total number of votes “For,” or “Withhold” all of those votes from, a single nominee, or may distribute or withhold the total number of votes between the eight nominees as the shareholder determines, up to the number of shares of common stock that are owned by the shareholder on the record date, multiplied by eight. The persons named in the accompanying proxy card as Proxy Holders will vote the shareholder’s shares as the shareholder designates on the proxy card, including any exercise of cumulative voting rights, through the distribution of votes among the nominees as indicated on the proxy card. Absent such designation, the Proxy Holders may use their discretionary authority to vote the shareholder’s shares as the Proxy Holders shall determine including voting those shares cumulatively.

 

For the proposal to ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2011, a shareholder may vote “For” or “Against” or “Abstain” from voting.

 

For the advisory vote on executive compensation, commonly known as a “say-on-pay” vote, a shareholder may vote “For” or “Against” the proposal, or “Abstain” from voting.

 

For the non-binding advisory vote on the frequency with which the Company will conduct a non-binding advisory vote on executive compensation, a shareholder may vote that such

a vote be taken every year, every two years, or every three years, or may abstain from voting.

 

Only shareholders of the Company’s common stock on the Record Date may attend the Annual Meeting, and those shareholders attending in person will need an admission ticket or other proof of stock ownership to be admitted to the Annual Meeting.

 

 

How can a shareholder change his vote?

 

A shareholder of record can revoke their proxy at any time before their shares are voted if they (1) deliver a written revocation of their proxy to the Company’s Secretary; (2) submit a later dated proxy (or voting instruction form if they hold their shares in street name); or (3) vote in person at the Annual Meeting. A shareholder who is a beneficial owner should follow the instructions provided by their broker or bank to change their vote.

 

What is a quorum?

 

As of March 10, 2011, there were 45,999,846 shares of the Company’s common stock outstanding and entitled to vote. The presence of shareholders entitled to cast at least a majority of the votes that all shareholders are entitled to cast on a particular matter will constitute a quorum for the purposes of such matter. Abstention or broker “non-votes” are counted as present and entitled to vote for purposes of determining a quorum. A broker “non-vote” occurs when a broker or bank holding shares for a beneficial owner does not vote on a particular matter because the broker or bank does not have discretionary voting authority to vote on the proposal and the beneficial owner has not provided voting instructions.

 

How does discretionary voting authority apply?

 

If a shareholder of record signs and returns the accompanying proxy card, but does not make any selections, the Board’s appointed Proxy Holders will have discretion to vote the shareholder’s shares on behalf of the shareholder at the Annual Meeting as recommended by the Board.

 

If a shareholder who is a beneficial owner of shares does not provide the bank or broker that holds such shares with specific voting instructions, under the rules of various national and regional securities exchanges, the shareholder’s bank or broker may generally vote on routine matters but cannot vote on non-routine matters. Proposal 1 (election of directors), Proposal 3 (advisory vote on executive compensation) and Proposal 4 (advisory vote on the frequency of the vote on executive compensation) are not routine matters. The Company believes Proposal 2 (ratification of auditors) will be considered routine.

 

If a shareholder’s bank or broker does not receive instructions from the shareholder on how to vote their shares on a non-routine matter, the shareholder’s bank or broker will inform the Company that they do not have the authority to vote on this matter with respect to the beneficial owner’s shares. We encourage shareholders to provide voting instructions to the bank, broker or agent that holds their shares by carefully following the instructions in the notice provided by the shareholder’s bank, broker or agent.

 

What is the Board’s recommendation?

 

The Board recommends a vote:

 

What vote is needed to elect directors and for the proposals to be adopted?

 

 

Who pays for the proxy solicitation related to the Annual Meeting?

 

The Company pays the cost of preparing, printing, assembling and mailing this proxy statement and other proxy solicitation materials. The Company will also reimburse brokers and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding the proxy statement and other proxy soliciting materials to beneficial owners. In addition to the solicitation of proxies by mail, some of our directors, officers, other employees and agents may solicit proxies personally, by telephone and by other means. The officers and directors who may solicit proxies personally receive no special compensation for any solicitation activities.

 

Will any business other than that discussed in this proxy statement be considered or acted upon at this Annual Meeting?

 

No. The Company’s by-laws required shareholders to submit advance notice of all director nominations and shareholder proposals to be considered at the 2011 Annual Meeting to the Company by November 30, 2010, regardless of whether the shareholder seeks inclusion of their nomination or proposal in this proxy statement, or intends to solicit proxies on their own. Because the Company did not receive any such notice of nominations or proposals, no other director nominations, shareholder proposals or other matters will be considered at the 2011 Annual Meeting.

 

When are shareholder proposals due for inclusion in the proxy statement for the 2012 Annual Meeting?

 

A proposal that a shareholder would like to present at the 2012 Annual Meeting must be submitted to the Company’s Secretary prior to the preparation of the 2012 proxy statement. To be included in the proxy statement for the 2012 Annual Meeting, a shareholder proposal must be submitted in writing to the Company’s Secretary and delivered to, or mailed and received by the Company no later than November 29, 2011. The Company’s by-laws prescribe the procedures a shareholder must follow to bring business before shareholder meetings. To bring matters before the 2012 Annual Meeting, and to include a matter in the proxy statement for that meeting, a notice that includes all of the information required by the Company’s by-laws must be received by November 29, 2011.

 

How can a shareholder nominate director candidates?

 

A shareholder may recommend nominees for consideration by the Board’s Nominating and Corporate Governance Committee for nomination for election to the Board. Shareholder recommendations for director nominees will receive the same consideration by the Board’s Nominating and Corporate Governance Committee that all other director nominee recommendations receive. If a shareholder wishes to recommend a nominee for director, the shareholder should submit such recommendation in writing, together with any supporting materials deemed appropriate, to the Company’s Secretary.

 

A shareholder may nominate a person for election to the Board, provided the recommendation is made in accordance with the procedures described herein and in the Company’s by-laws. To nominate a candidate for director at the 2012 Annual Meeting, notice of the nomination must be in writing and delivered to, or mailed and received at the Company, no later than November 29, 2011.

What must be included in the notice to submit a shareholder proposal or to nominate a director candidate?

 

The notice must include:

 

 

This is a general description of the notice required to submit a proposal or nomination for consideration at the 2012 Annual Meeting. The Company’s by-laws contain a complete description of the notice requirements for shareholder proposals. Copies of the Company’s by-laws may be obtained from the Company’s website at www.glatfelter.com/about_us/ corporate_governance/bylaws.aspx or free of charge from the Secretary.

 

The proposal and notice must otherwise comply with the requirements of Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

To the Company’s knowledge, the following table sets forth information regarding ownership of the Company’s outstanding common stock as of March 10, 2011, (except as otherwise noted) by: (i) each person who is known by the Company to own beneficially more than 5% of the common stock of the Company; (ii) each director, director nominee and Named Executive Officer; and (iii) all directors, director nominees and executive officers as a group. Except as otherwise indicated and subject to applicable community property laws, each owner has sole voting and investment powers with respect to the securities listed. The number of shares beneficially owned by each person is determined under the rules of the Securities and Exchange Commission (“SEC”) and the information is not necessarily indicative of beneficial ownership for any other purpose. Under the rules of the SEC, all shares of which a person has the right to acquire beneficial ownership within sixty 60 days are considered beneficially owned by that person.

 

 

 

* Less than 1%

 

 

 

The following table provides certain information as of December 31, 2010 regarding the Company’s equity compensation plans.

 

 

 

 

 

 

Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, and persons who own more than ten percent (10%) of a registered class of the Company’s equity securities (“10% Holders”), to file reports of holdings and transactions in the Company’s common stock with the SEC and the New York Stock Exchange (the “NYSE”). Based on the Company’s review of such reports (and amendments thereto), the Company believes that, in 2010, its directors, executive officers and 10% Holders filed all required reports of holdings and transactions in the Company’s common stock with the SEC and the NYSE on a timely basis, except that, due to a change in administrative personnel responsible for filing such reports, Form 4s were filed late in May 2010 to report common stock received by each non-employee director as part of the director’s annual retainer fee.

 

 

At the Annual Meeting, the Company’s shareholders will vote to fill eight (8) director positions, each for one-year terms expiring on the date of the Company’s 2012 Annual Meeting of Shareholders and until their respective successors are elected and qualified. The Board recommends that shareholders vote “For” each of the following director nominees: Kathleen A. Dahlberg, Nicholas DeBenedictis, J. Robert Hall, Richard C. Ill, Ronald J. Naples, Dante C. Parrini, Richard L. Smoot and Lee C. Stewart, each of whom are currently serving as directors of the Company, for one-year terms expiring at the 2012 annual meeting of shareholders and until their respective successors are duly elected and qualified. The nominees have consented to serve if elected to the Board.

 

If a nominee is unable to serve as a director at the time of the Annual Meeting, an event that the Board does not anticipate, the persons named in the accompanying proxy card will vote for such substitute nominee as may be designated by the Board, unless the Board reduces the number of directors accordingly.

 

Board of Directors

 

The following table sets forth information on the director nominees. The information included in the table was obtained in part from the respective nominees and in part from the records of the Company.

 

 

The Audit Committee of the Board of Directors has appointed Deloitte & Touche LLP (“Deloitte”) as the Company’s independent registered public accounting firm for the fiscal year 2011, subject to ratification by the Company’s shareholders. Deloitte audited the Company’s consolidated financial statements for the fiscal year ended December 31, 2010.

 

A Deloitte representative is expected to attend the Annual Meeting, will be given the opportunity to make a statement if he or she chooses to do so, and will be available to respond to appropriate shareholder questions.

 

What did the Company pay its independent registered public accounting firm in 2010 and 2009?

 

For the years ended December 31, 2010 and 2009, the aggregate fees billed to and paid by the Company by Deloitte were as follows:

 

 

 

All services rendered for the Company by Deloitte in 2010 were permissible under applicable laws and regulations, and were pre-approved by the Audit Committee. The Audit Committee’s Audit and Non-Audit Services Pre-Approval Policy (“Pre-Approval Policy”) provides for the pre-approval of audit and non-audit services performed by the Company’s independent registered public accounting firm. Under the policy, the Audit Committee may pre-approve specific services, including fee levels, by the independent registered public accounting firm in a designated category (audit, audit-related, tax services and all other services). The Audit Committee may delegate this authority in writing to one or more of its members, provided that the member or members to whom such authority is delegated must report their decisions to the Audit Committee at its next scheduled meeting.

The Board believes that the ratification of Deloitte as the Company’s independent registered public accounting firm for the year ending December 31, 2011 is in the best interest of the Company and the shareholders, and unanimously recommends a vote FOR the proposal.

 

Executive compensation is an important matter for our shareholders. At the core of our executive compensation philosophy is the belief that compensation should reflect performance, be fair, competitive and reasonable, and should be determined in a manner consistent with the Company’s long-term strategy, competitive industry practice, sound corporate governance principles, and shareholder interests. We believe our compensation program is strongly aligned with the long-term interests of our shareholders. We urge our shareholders to read the Compensation Discussion and Analysis (“CD&A”) section of this proxy statement for additional details on the Company’s compensation philosophy and objectives and the 2010 compensation of the Named Executive Officers.

 

We are asking shareholders to vote on the following resolution:

 

RESOLVED, that the shareholders of P. H. Glatfelter Company (the “Company”) approve the compensation philosophy, policies and procedures described in the Compensation Discussion & Analysis, and the compensation of the Company’s Named Executive Officers as disclosed in this proxy statement in accordance with the Securities Exchange Act of 1934 and the implementing rules of the U.S. Securities and Exchange Commission.

 

As an advisory vote, the results of the voting on this proposal are non-binding. Nevertheless, the Board of Directors and the Compensation Committee value the opinions of our shareholders, and will consider the outcome of the vote when making future compensation decisions for our Named Executive Officers.

 

Vote Required

 

The affirmative vote of a majority of the shares of the Company’s common stock present or represented by proxy and voting at the Annual Meeting, together with the affirmative vote of a majority of the required quorum, is required for approval of this proposal. If you own shares through a bank, broker or other holder of record, you must instruct your bank, broker or other holder of record how to vote in order for them to vote your shares so that your vote can be counted on this proposal.

 

The Board of Directors recommends that the shareholders vote FOR Proposal No. 3.

 

Recently enacted Say-on-Pay legislation requires that companies ask their shareholders how often they would like to be presented with the say-on-pay vote: every year, every two years, or once every three years.

 

Accordingly, we are asking shareholders to choose the frequency of the Say-on-Pay advisory vote by choosing every year, every two years, or every three years on the proxy card, or by abstaining if they do not wish to vote on this matter. The option that receives the most votes will be deemed to be the shareholders’ recommendation with respect to the frequency with which the Say-on-Pay vote appears in the Company’s proxy statement.

 

As an advisory vote, the results of the voting on this proposal are non-binding. Nevertheless, the Board of Directors values the opinions of our shareholders, and will consider the outcome of the vote when determining how often a Say-on-Pay proposal will appear in the Company’s proxy statement.

 

Vote Required

 

The affirmative vote of a majority of the shares of the Company’s common stock present or represented by proxy and voting at the Annual Meeting, together with the affirmative vote of a majority of the required quorum, is required for approval of this proposal. If you own shares through a bank, broker or other holder of record, you must instruct your bank, broker or other holder of record how to vote in order for them to vote your shares so that your vote can be counted on this proposal.

 

The Board of Directors recommends that an advisory vote on executive compensation be held every three (3) years in order to allow shareholders adequate time to assess the effectiveness of the Company’s programs and to make recommendations for changes, if applicable, prior to the next say-on-pay vote.

 

The Board and management of the Company are dedicated to effective corporate governance. The Board has adopted Corporate Governance Principles to provide a framework for governance of the Company. These Corporate Governance Principles are set forth in full on the Company’s website at www.glatfelter.com/about_us/corporate_governance/principles.aspx and available in print upon request directed to the Secretary of the Company at 96 South George Street, Suite 520, York, PA 17401-1434.

 

What is the composition of the Board?

 

The Board currently consists of nine (9) members, but will be reduced to eight (8) members at the close of the Annual Meeting. Each year, the Board elects one of its members to serve as Chairman. The Company does not have a lead independent director.

In conjunction with its election of a Chairman, the Board reviews its governance structure and the qualifications of each director and determines which director is best qualified to chair the Board.

 

Under the Board’s governance structure, the Chairman:

 

 

The Board believes that the Company and its shareholders are best served by having a Chairman who has a wide-ranging, in-depth knowledge of the Company’s business operations and the Company’s industry, and who can best execute the strategic plan approved by the Board. Although the Board believes that the interests of the Company and the shareholders are best served by having the same person serve as both Chairman and Chief Executive Officer (“CEO”), the Board determined that the roles of CEO and Chairman should be briefly held by two separate people. Based on his extensive experience and knowledge of the Company’s operations, industry, competitive challenges and opportunities, the Board has determined that, at this time, Dante C. Parrini is the director best qualified to serve in the role of Chairman, and in March 2011 elected Mr. Parrini to be Chairman, subject to his re-election as a director at the Annual Meeting.

 

Effective January 2011, Dante C. Parrini was promoted to President and CEO. Mr. Parrini, who previously was Executive Vice President and Chief Operating Officer of the Company, and who has held various executive positions with the Company since 1997, was elected to the Board in June 2010 to facilitate the execution of its executive succession plan for Mr. Glatfelter, who retired at the end of 2010 as CEO.

 

The Board believes that shareholders are best served by this leadership structure. The Corporate Governance Principles and the Company’s policies and procedures provide for an empowered, independent Board and the full involvement of the independent members of the Board in the Board’s operations and its decision making.

 

In the Company’s Governance Principles, the Board has adopted the NYSE standards for determining the independence of directors, which require that a director not have a material relationship with the Company.

 

On an annual basis, each member of the Board is required to complete a questionnaire designed in part to provide information to assist the Board in determining whether the director is independent under NYSE rules and our Corporate Governance Principles. In addition, each director or nominee for director has an affirmative duty to disclose to the Nominating and Corporate Governance Committee relationships between and among that director (or an immediate family member), the Company, and/or the management of the Company.

 

The Board has determined the following directors are independent and do not have any material relationship with the Company: Ms. Dahlberg and Messrs. DeBenedictis, Hall, Ill, Naples, Smoot and Stewart. The Board determined that Mr. Glatfelter and Mr. Parrini have a material relationship with the Company because Mr. Glatfelter is the former CEO, and Mr. Parrini is the President and Chief Executive Officer. Thus, Mr. Glatfelter and Mr. Parrini are deemed not to be independent directors by NYSE standards and the Company’s Governance Principles.

 

What committees has the Board established?

 

The Company’s Board of Directors has four standing committees: the Audit Committee, the Compensation Committee, the Finance Committee, and the Nominating and Corporate Governance Committee. The Board appoints the members of all of these standing committees and their Chairpersons each year for one-year terms which expire at the close of the following year’s Annual Meeting of shareholders.

 

The Board has adopted a written charter for each of its standing committees, all of which are posted on the Company’s corporate website at www.glatfelter.com/about_us/corporate_governance/committees.aspx, and available in print upon request directed to the Secretary of the Company at 96 South George Street, Suite 520, York, PA 17401-1434.

 

Audit Committee. The Audit Committee, established in accordance with Section 3(a)(58)(A) of the Exchange Act, currently consists of four (4) directors: Messrs. Hall (Chair), DeBenedictis, Ill and Naples. In the opinion of the Board, all four Audit Committee members meet the director independence requirements set forth in the listing standards of the NYSE and the applicable rules and regulations of the SEC in effect on the date of this proxy statement. The Board has determined that, based on their experience, Messrs. Hall, DeBenedictis, Ill and Naples are audit committee financial experts, as that term is defined in the applicable SEC regulations, and that all members of the Audit Committee are financially literate within the meaning of the NYSE listing standards. The Audit Committee held ten (10) meetings during 2010.

 

In accordance with its Board-approved charter, the purpose of the Audit Committee is to assist the Board in its oversight of (i) the quality and integrity of the accounting, auditing, and financial reporting practices of the Company, (ii) the compliance by the Company, its directors and officers with applicable laws and regulations and its Code of Business Conduct, (iii) the independent auditors’ qualifications and independence, and (iv) the performance of the Company’s internal audit function and independent auditors. The Audit Committee:

 

 

 

The Audit Committee has the authority to retain special legal, accounting, or other experts as it deems necessary to carry out its duties.

 

Compensation Committee. The Compensation Committee currently consists of five (5) directors: Mr. Naples, (Chair), Ms. Dahlberg, and Messrs. DeBenedictis, Smoot and Stewart. In the opinion of the Board, all five Compensation Committee members meet the director independence requirements set forth in the NYSE listing standards in effect on the date of this proxy statement. The Compensation Committee held nine (9) meetings during 2010.

 

In accordance with its Board-approved charter, the Compensation Committee is responsible for discharging the Board’s duties related to compensation of the Company’s executives and also reviews, recommends for approval by the Board and oversees the Company’s management incentive and equity-based incentive compensation plans, defined benefit and contribution plans, and other welfare benefit plans. In addition to, or in furtherance of, the Compensation Committee’s functions described above, the Compensation Committee:

 

 

 

The Compensation Committee has the authority to engage independent compensation consultants, legal counsel or advisors, as it may deem appropriate in its sole discretion, and to approve related fees and retention terms of such consultants, counsel, or advisors, and routinely holds executive sessions without management.

 

The committee has engaged Compensation Strategies, Inc. (“Consultant”), an independent executive compensation consulting firm, to provide advice and assistance to the committee and to the Company’s management in the area of executive and non-employee director’s compensation for the Company. The Consultant reports directly to the committee but has been authorized by the committee to work with certain executive officers of the Company as well as other employees in the Company’s human resources, legal, and finance departments. The Consultant conducts regular reviews of total compensation of the Company’s executive group, based on the process described in the CD&A, for review by management and the committee in determining the appropriate levels of compensation for each executive.

 

The Consultant also conducts regular reviews of total compensation of the Company’s non-employee directors and assists the committee with development of recommended changes in such compensation for approval by the Board of Directors. The Consultant also provides advice to the committee and management on other executive and Board compensation issues that arise throughout the year. During 2010, the scope of the Consultant’s assignments included a pay-for-performance analysis of the Company’s bonus pay versus that of its peer group, advice on the design of the Company’s Management Incentive Plan and long term incentive programs for 2010 and for 2011, as discussed in the CD&A; and advice on executive succession planning.

 

The Chair of the Compensation Committee is responsible for leadership of the committee and development of the meeting agendas. The committee may form subcommittees and delegate authority to them, as it deems appropriate. The meetings of the Compensation committee are regularly attended by the CEO and the committee’s independent compensation consultant, but the committee usually meets in executive session at each meeting. The CEO, the Vice President of Human Resources, and the Secretary generally attend, and the Chief Financial Officer occasionally attends, Compensation Committee meetings, but none are present for executive sessions or any discussion of their own compensation.

 

The CEO performs performance assessments and compensation recommendations for each executive officer of the Company (other than himself) on an annual basis. The Compensation Committee considers the CEO’s recommendations with the assistance of the Consultant and approves the compensation of the executive officers (other than the CEO). In the case of the CEO, the committee develops its own recommendation in executive session without the CEO, or any other member of management present, and then provides this recommendation to the independent members of the Board for approval in executive session.

 

Finance Committee. The Finance Committee currently consists of five (5) directors: Mr. Ill, (Chair) and Messrs. Glatfelter, Hall, Parrini and Stewart. The Finance Committee provides advice to the Board on the financial policies of the Company and has oversight over matters of financial significance to the Company. Specifically, pursuant to its Board-approved charter, the Finance Committee:

 

 

The Finance Committee held three (3) meetings during 2010.

Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee currently consists of five (5) directors: Mr. Stewart (Chair), Ms. Dahlberg, and Messrs. DeBenedictis, Hall and Smoot. In the opinion of the Board, all five members of the Nominating and Corporate Governance Committee meet the director independence requirements as set forth in the NYSE listing standards in effect on the date of this proxy statement. Pursuant to its Board-approved charter, the Nominating and Corporate Governance Committee:

 

 

The Nominating and Corporate Governance Committee reviews all director nominations submitted to the Company, including individuals recommended by shareholders, directors or members of management. When evaluating whether to recommend an individual for nomination or re-nomination, the Nominating and Corporate Governance Committee will consider, at a minimum and in accordance with the Company’s Governance Principles, the nominee’s independence, availability to serve on the Board and the candidate’s knowledge, experience, skills, expertise, wisdom, integrity, business acumen and understanding of the Company’s business environment.

 

In evaluating director candidates, the committee considers a wide variety of qualifications, attributes and other factors and recognizes that a diversity of viewpoints and practical experiences can enhance the effectiveness of the Board. Accordingly, as part of its evaluation of each director candidate, the committee takes into account how that candidate’s background, experience, qualifications, attributes and skills may complement, supplement or duplicate those of other prospective candidates.

 

The committee specifically reviews the qualifications of each director candidate for election or re-election, including for incumbent directors, the director’s understanding of the Company’s businesses and the environment within which the Company operates, attendance and participation at meetings, and independence, including any relationships with the Company. Prior to nomination, each candidate for director must consent to stand for election, and each director nominee must agree in writing to abide by the Company’s majority voting policy.

 

After the committee has completed its evaluation of all director candidates, it presents its recommended slate of directors to the Board for consideration and approval. The committee also discusses with the Board any candidates who were considered by the committee but not recommended for election or re-election as directors.

 

We will report any material change to this procedure in a quarterly or annual filing with the SEC. In addition, we will make any changes to this procedure available promptly by posting that information on the Corporate Governance section of our website at http://www.glatfelter.com/about_us/corporate_governance/default.aspx.

 

On March 3, 2011, Mr. Glatfelter informed the Board that he did not intend to stand for re-election at the Annual Meeting. Based on the process described above, the committee recommended and the Board determined to nominate each of the remaining incumbent directors for re-election at the Annual Meeting. The committee and Board concluded that each of the remaining incumbent directors should be nominated for re-election based on their individual experience, qualifications, attributes and skills which are summarized in the biographical information contained under “Election of directors” on pages 8-9. The committee and the Board assessed these factors in light of the Company’s businesses, which provide a diverse line of specialty papers and fiber-based engineered materials. In particular, the committee and the Board considered the following factors:

 

 

 

Any shareholder who wishes to recommend a nominee for election to the Board should follow the procedures set forth on page 3 of this proxy statement.

 

The committee periodically reviews and oversees orientation programs for newly elected directors and continuing education programs for incumbent directors. The committee also reviews shareholder proposals submitted for presentation at the Annual Meeting and proposed responses from the Board, and makes recommendations to the Board concerning Board procedures. The Nominating and Corporate Governance Committee is charged with developing and recommending corporate governance principles to the Board and reviewing these principles for appropriateness and compliance with SEC and NYSE requirements. The Nominating and Corporate Governance Committee reviews the senior management organization and succession plan.

 

The Nominating and Corporate Governance Committee has the authority to retain director search consultants, outside counsel or other experts as it deems necessary to carry out its duties, and the Company makes funds available to the committee for such retention. The Nominating and Corporate Governance Committee held six (6) meetings during 2010.

 

How may a shareholder communicate with the Company’s Board or the non-management directors of the Company?

 

A shareholder may address written correspondence to the Board or any individual director (whether management or non-management), c/o Mr. Thomas G. Jackson, Vice President General Counsel and Secretary, P. H. Glatfelter Company, 96 South George Street, Suite 500, York, PA 17401-1434.

 

The Company’s Board has approved a process whereby the Secretary of the Company will receive, review and, as appropriate, forward any communications which are addressed to the Board or a director to the Chair of the committee responsible for the matter addressed in the communication. All communications that relate to concerns regarding accounting, internal controls or auditing matters will be forwarded to the Chair of the Audit Committee.

 

Alternatively, the Board has established a method for interested parties to communicate directly with the entire Board or any non-management director by calling the Company’s toll-free Helpline at 800-346-1676.

 

Does the Company have a majority-voting policy?

 

Yes. The Company’s Governance Principles include a majority-voting policy for the election of directors. A summary of the Company’s majority voting policy is provided on page 3.

 

In the event of a Majority Withheld Vote, the Nominating and Corporate Governance Committee will consider the resignation which is tendered by the affected director and make a recommendation to the Board as to whether or not to accept it. The Board will act on the Nominating and Corporate Governance Committee’s recommendation within ninety (90) days following certification of the shareholder vote. In making their determinations, the Nominating and Corporate Governance Committee and the Board may consider any factors or other information that they consider appropriate or relevant. Thereafter, the Board will promptly disclose its decision whether or not to accept the director’s resignation (and the reasons for rejecting the resignation, if applicable) in a press release or filing with the SEC. Any director who tenders his or her resignation pursuant to this provision may not participate in the Nominating and Corporate Governance Committee’s recommendation or Board action regarding whether or not to accept the resignation. However, if each member of the Nominating and Corporate Governance Committee received a Majority Withheld Vote at the same meeting, then the remaining independent directors who did not receive a Majority Withheld Vote will consider the resignations and determine whether or not to accept them. If the directors who did not receive a Majority Withheld Vote in the same election constitute three or fewer directors, all directors may participate in the action regarding whether to accept the resignations, provided, however, that each director’s resignation will be acted upon separately and no director may participate in the Board action regarding whether or not to accept his or her resignation. A director whose resignation is not accepted by the Board shall continue to serve until the next annual meeting at which he or she is up for election and until his or her successor is duly elected, or until his or her earlier resignation or removal. If a director’s resignation is accepted by the Board, or if a nominee for director who is not an incumbent director is deemed to have been elected and to have immediately resigned, then the Board, in its sole discretion, may fill any resulting vacancy pursuant to the Company’s by-laws or may amend the Company’s by-laws to decrease the size of the Board. The Nominating and Corporate Governance Committee will make a recommendation to the Board as to whether or not the Board should fill any vacancy or amend the Company’s by-laws to reduce the size of Board.

What is the Company’s policy regarding director attendance at the Annual Meeting?

 

The Company does not have a policy regarding director attendance at the Annual Meeting, however directors, including persons nominated for election at the Annual Meeting, generally attend the Annual Meeting.

 

How often did the Board meet during 2010?

 

The Board held eight (8) meetings during 2010.  The standing committees established by the Board held a total of twenty-eight (28) meetings in 2010. Each of the incumbent directors attended at least 96% of the aggregate of the meetings of the Board and Board committees on which he or she served in 2010. Non-management directors meet in regularly scheduled executive sessions (without management), at which the Chair of the Nominating and Corporate Governance Committee presides.

 

Where can additional Corporate Governance and related information be obtained?

 

The Company’s corporate website (www.glatfelter.com) includes a Corporate Governance page consisting of, among others, the Company’s Governance Principles and Code of Business Conduct, a listing of our Board of Directors and Executive Officers, Nominating, Audit and Compensation Committees of the Board of Directors and their respective Charters, the Company’s Code of Business Ethics for the CEO and Senior Financial Officers of Glatfelter, and other related material. The Company intends to satisfy the disclosure requirement for any future amendments to, or waivers from, its Code of Business Conduct or Code of Business Ethics for the CEO and Senior Financial Officers by posting such information on its website. The Company will, upon request, provide a copy of its Code of Business Conduct or Code of Business Ethics for the CEO and Senior Financial Officers, at no charge.

 

How were directors compensated?

 

Base Compensation. Non-employee directors received an annual retainer fee of $35,000, two thirds of which consisted of shares of the Company’s common stock with an equivalent market value on the grant date, and one third paid in cash. In addition to the annual retainer, non-employee directors were paid in cash $1,500 for each Board or committee meeting that they attended. Non-employee directors serving as committee chairpersons of the Audit or Compensation Committees were paid an additional $10,000 (in cash) annually for their service and the Chairperson of the Finance and Nominating and Corporate Governance Committees each received an additional $5,000 annually in cash. In addition, each non-employee director received an annual restricted stock unit (RSU) award valued at $30,000, on the grant date. Such awards will vest over a three-year period. All accrued, but unpaid, director cash compensation payments are made on each May 1 and November 1. RSUs granted to directors since 2009 will immediately vest upon a change in control. The RSUs granted to the directors prior to 2009 do not vest upon a change in control.

 

Deferred Compensation. Pursuant to the Company’s Deferred Compensation Plan for directors (the Deferred Compensation Plan), every year each director may elect to defer 50%, 75% or 100% of his or her annual retainer paid to such director for serving on the Board, but not including any fees paid to a director for attending meetings of the Board or any committee or for serving as a chairperson of a committee of the Board. No such elections were made with respect to fees earned in 2010.

 

Benefits. Each non-employee director is covered by the Company’s director’s and officers’ liability insurance, as well as the Company’s travel accident insurance.

 

Share Ownership Guidelines. The Company has established share ownership guidelines for its non-employee directors in order to further enhance alignment with shareholders. The share ownership guidelines require that each director own shares of the Company’s common stock which, in aggregate, are equal in value to at least 5X the current annual Board retainer, which equates to 14,600 shares based on a stock price of $12.00 per share. Directors have up to five (5) years to attain this guideline share ownership level. Shares owned directly by the director, unvested restricted stock and RSUs, and stock units held in the Deferred Compensation Plan are counted toward satisfying the share ownership guideline for directors. As of December 31, 2010, all of the non-employee directors were in compliance with the share ownership guideline.

 

 

 

 

 

Executive Summary

 

The Compensation Committee of the Board of Directors (the “Committee”) approves the Company’s compensation philosophy and supervises the compensation program for the Named Executive Officers (“NEOs”) and other executives of the Company. The Committee has designed the Company’s compensation programs to attract, retain, motivate, and reward the executives who are crucial to the Company’s success. The Committee believes that compensation should reflect performance and should be fair, competitive and reasonable in light of a person’s responsibilities and experience and the overall profitability of the Company. The Committee believes that executive pay should vary according to the performance of the Company and that the best way to achieve these principles and objectives is by providing a mix of compensation programs that focus on long-term and short-term performance as well as progress in furthering the goals of the Company’s strategic plan. The Committee wants the interests of the Company’s executives to be aligned with the interests of shareholders.

 

As a result, the total compensation paid to the NEOs and other Company executives consists of several forms of compensation, including base salary, annual incentives, long-term incentives, minimal perquisites, and benefits. Moreover, the Committee generally structures total compensation opportunities to target the 50th percentile of market levels, which, it believes, provides a competitive level of compensation relative to the Company’s industry and is consistent with its compensation philosophy. A significant portion of each NEO’s compensation opportunity consists of annual and long-term variable compensation. Though both are subject to downward adjustment based on individual performance, annual variable compensation is contingent on the achievement of specific Company financial goals, while long-term variable compensation is contingent on the achievement of specific Company financial goals (depending on program design for a given year) and is subject to future stock price performance. All variable compensation is also designed to align the NEO’s interests with those of shareholders. The opportunity to earn at-risk variable compensation is different for each NEO and generally increases commensurate with the NEO’s level of responsibility within the Company. As discussed on page 12 of this proxy statement, the Committee annually reviews the Company’s incentive compensation plans to determine whether those plans present undue risk to the Company. In addition, the mix of annual and long-term incentive compensation varies among the NEOs in that the relative proportion of long-term incentive compensation is greater for greater levels of responsibility.

 

For 2010, the Company’s annual compensation was cash-based, while long-term compensation consisted primarily of performance-based equity awards. For 2011, annual compensation will continue to be cash-based, but long-term compensation will be modified to consist 100% of performance-based equity awards. The Committee does not specifically target any particular allocation between cash and equity-based compensation or between annual and long-term incentive compensation; instead, the Committee sets each component of compensation for the NEOs to generally target the 50th percentile of market levels, as described below. However, the Committee does review the mix of compensation components for each NEO to ensure that they are in an appropriate range relative to the market.

 

In 2010, the Company’s annual net sales grew by 22.9% from $1.2 billion in 2009 to $1.5 billion, reflecting growth in the legacy businesses as well as the successful addition of the Company’s new Advanced Airlaid Materials business. Adjusted earnings (which exclude certain unusual, non-recurring items) also increased in 2010 by 38% from $29.4 million ($0.64 per diluted share) in 2009 to $40.9 million ($0.88 per diluted share).

 

The Committee (and the Board of Directors in the case of the CEO) approved the following items with respect to the Company’s executive compensation programs for 2010:

 

 

 

In addition, the Company has adopted other policies that it believes align the interests of the Company’s executives with the interests of shareholders while still attracting, retaining, motivating, and rewarding its executives. To that end, the Company maintains executive share ownership guidelines that require senior executives, including the NEOs, to meet minimum stock ownership levels. These guidelines are discussed below under the heading “Other Equity Ownership Policies.”

 

In 2009, the Company also modified all future awards of RSUs and SOSARs to provide for “double-trigger” vesting (requiring a termination without “Good Cause” or for “Good Reason” in order for vesting to be accelerated) upon a change in control of the Company. This modification was intended to parallel a double trigger provision which was already in place for cash severance payments upon a change in control. Since the Committee believes that perquisites should be a minimal part of executive compensation, the Company offers perquisites to certain NEOs that represent only a small portion of each NEO’s total compensation. In fact, two of the NEOs received no perquisites during 2010, and the value of perquisites for each of the other three NEOs was below $25,000.

 

The Compensation Process

 

Except in the case of the CEO (whose compensation is approved by the Board), the Committee determines the overall compensation strategy and policies for the NEOs and other key executives, and approves their compensation. In doing so, the Committee, as appropriate, seeks input from certain NEOs and other executives with respect to compensation decisions. Specifically:

 

 

The NEOs noted above may, at the invitation of the Committee, attend portions of the Committee meetings; however, the Committee’s usual practice is to meet in executive session both alone and with the Consultant to reach final decisions about NEO compensation.

 

The compensation level for each NEO, except the CEO, is approved by the Committee after consideration of the specific recommendation of the CEO. In the case of the CEO, the Committee, with assistance from the Consultant, develops recommendations in executive session without the CEO or any other member of management in attendance, and then provides its recommendation to the independent members of the Company’s Board of Directors (the “Board”) for consideration and approval in executive session. All references to actions by the Committee with respect to setting the compensation of the NEOs shall mean, without further reference, that the Committee acts with respect to all NEOs except the CEO. Further, all references to actions by the Committee with respect to CEO compensation shall mean, without further reference, that the independent members of the Board have acted with respect to CEO compensation after receiving the recommendation of the Committee.

 

The Committee has delegated to the Vice President, Human Resources and Administration authority to take certain administrative actions with respect to the Company’s incentive compensation plans and retirement and other benefit plans. Moreover, within the limits and guidelines specified in the Company’s approved incentive compensation plans, the CEO is authorized to determine incentive compensation for employees other than the NEOs and other officers of the Company, and, depending on the vehicle used for such incentive compensation, the amounts awarded by the CEO may be subject to terms and overall amounts approved by the Committee. The design and administration of pension, savings, welfare, and vacation benefit plans and practices generally are handled by Company’s Human Resources, Finance, and Legal personnel, although the Committee retains authority for approving major design changes, material changes to benefits that affect the NEOs and other executive officers, and certain administrative decisions that affect executive officers.

 

The Committee has sole authority to retain and terminate any consultants directly assisting it. The Committee also has the sole authority to approve the fees and other engagement terms for its consultants. For 2010, the Committee retained Compensation Strategies, Inc. (“CSI”) as its Consultant. In preparation to establish fiscal year 2010 compensation, the Committee used CSI to assess the competitiveness of the executive compensation program, to make recommendations regarding the program design based on prevailing market practices and business conditions, to advise the Committee on: i) the level of each NEO’s compensation, ii) peer group composition, iii) incentive plan performance metric conventions and design, (iv) external trends and regulatory developments, and (v) executive succession planning, and to conduct research and analysis as directed by the Committee. The Consultant also performed an analysis of bonuses paid under the Company’s Management Incentive Program relative to the Company’s peer group and financial performance. Moreover, the Consultant continued to provide competitive market data on executive compensation during 2010 which was used to evaluate the overall competitiveness of the Company’s compensation program and to develop recommendations on the total compensation paid to NEOs and other executives of the Company. The Consultant attended portions of Committee meetings and regularly met in executive session with the Committee with no members of management present. The Consultant does not provide any other human resources, benefits, or related services to the Company, Committee, or Board of Directors.

 

The Committee has established several practices to ensure the Consultant’s independence, candor, and objectivity. The Consultant is engaged by and reports directly to the Committee, frequently meets separately with the Committee with no members of management present, and consults with the Committee’s Chairman between meetings. Management periodically reports to the Committee the fees paid for services performed by the Consultant, and the Committee approves annually the work plan and budget for the Consultant.

 

Determination of Compensation Levels

 

As indicated above, the Committee generally structures total compensation opportunities to target the 50th percentile of market levels, which, it believes, provides a competitive level of compensation relative to the Company’s industry. In order to determine the 50th percentile of market levels, the Committee reviews a market analysis of total compensation for similarly situated executives from peer group companies and other broader-based market compensation data that is prepared by the Consultant. This market analysis is performed annually with respect to the CEO and CFO positions and every other year with respect to remaining NEOs. However, if market compensation levels with respect to the CEO or CFO are found to have changed substantially during the off-years, a full review of total compensation for the CEO, CFO and the NEOs is conducted. For 2010, the review included the total compensation of all of the NEOs. Consistent with standard practices, due to the varying sizes of the companies included in the peer group companies, statistical analysis is used to normalize the market compensation data collected to reflect the relative annual revenues of the Company and each of the peer group companies. This process ensures that all market compensation data is properly adjusted to reflect the Company’s current size. In determining appropriate individual compensation levels for the NEOs, the Committee considers the adjusted market compensation data and the NEO’s tenure, experience, and particular set of skills as well as the NEO’s and Company’s overall performance.

 

The Company’s peer group for compensation benchmarking (“Compensation Peer Group”) for 2010 is unchanged from 2009. The annual revenues of the companies included in the Compensation Peer Group for 2010 ranged from $250 million

to $6.0 billion with a median revenue of $1.5 billion (which approximates the Company’s 2010 annual revenue). Since the Company competes for executive talent with a broad range of companies and industries, the companies included in the Compensation Peer Group are not the same as those companies which are included in the Company’s performance graph in the Company’s Annual Report to Shareholders. The companies which are included in the Compensation Peer Group, together with information on which of these companies are also included in the performance graph that appears in the Company’s Annual Report on Form 10-K, is provided below:

 

 

Base Salary

 

Although the Committee has structured the compensation of the NEOs such that a significant portion of each NEO’s compensation opportunity consists of annual and long-term variable compensation, it believes that reasonable, fixed, annual compensation appropriately meets the Company’s compensation objectives. The base salaries of the NEOs are reviewed and approved annually by the Committee, typically during the first quarter of the calendar year. Consistent with the Committee’s compensation philosophy, base salaries for the NEOs are generally targeted at the 50th percentile of the market. The Committee believes this compensation level is sufficient to achieve the objectives of the Company’s compensation program. In addition to assessing base salaries against comparable market data, in setting the annual base salary of each NEO, the Committee considers several factors, including salary recommendations from the CEO, the relative importance of the job to the Company, the external competitiveness of the NEO’s total compensation package, the nature and complexity of the job duties, the performance of the NEO and the Company, as well as internal equity considerations. The Committee does not assign relative weightings to any of these factors. The Committee reviews base salaries annually, but may adjust salaries at any point during the year. The Committee does not necessarily adjust the NEOs’ base salaries each year.

 

For 2010, the Committee, after reviewing the base salaries of the NEOs as well as each NEO’s performance, approved base salary increases ranging from 3% to 6% for all but one of the NEOs who received an increase of 20% due to the fact that he was significantly below the 50th percentile of the market, effective as of February 1, 2010. Subsequently, in August 2010, the CFO’s base salary was further increased by 10% to reflect the addition of the Company’s global IT organization to his responsibilities. As a group, the NEOs’ base salaries were virtually equal to the 50th percentile of the market for 2010.

 

For 2011, the Committee has approved base salary increases for the NEOs other than Mr. Parrini ranging from 0% to 8%, effective as of February 1, 2011. Mr. Parrini received a base salary increase to $630,000 as of January 1, 2011, in connection with his promotion to President & Chief Executive Officer. Mr. Parrini does not have an employment agreement with the Company. As a group, the NEOs’ base salaries are slightly below the 50th percentile of the market for 2011.

 

Annual Incentives

 

The Committee believes that annual incentive awards, or bonuses, provide important performance incentives for the NEOs and other eligible Company executives and help to further the Committee’s compensation philosophy. The Company currently provides an annual incentive bonus opportunity to the NEOs under the Company’s Management Incentive Plan (the “MIP”). By design, the incentive bonuses, which NEOs are eligible to earn under the MIP, comprise a significant portion of the NEOs’ total compensation. Consistent with the Committee’s philosophy, the MIP is designed to ensure that incentive bonus awards represent at-risk compensation for the NEOs, to reward the achievement of corporate objectives that are pre-established by the Committee, and to provide incentive compensation that is competitive with the market for each position.

 

Each year the Committee approves a target bonus under the MIP for each NEO, expressed as a percentage of the NEO’s base salary with the exception of the CEO, whose target bonus is approved by the Board of Directors. The Committee generally establishes target bonuses for the NEOs at the 50th percentile of the competitive marketplace. Given that the NEOs’ 2010 base salaries were generally equal to 50th percentile of the market as a group and each NEO’s target bonus percentage was either at or slightly below the 50th percentile, the NEOs’ target bonuses, as a dollar amount, were slightly below the 50th percentile of the market. For 2010, the Committee did not modify the target bonus percentages for any of the NEOs from the levels established during 2009. For 2011, target bonus percentages for the NEOs, with the exception of Mr. Jacunski and Mr. Parrini,

remain unchanged from 2010. The 2011 target bonus percentage for Mr. Jacunski has been increased from 55% to 60% to reflect additional responsibilities which have been assigned to Mr. Jacunski, and Mr. Parrini’s target bonus has been increased to 80% as a result of his new responsibilities as President and CEO.

 

The following table sets forth targeted bonus levels for each NEO:

 

 

Usually, in February each year, after the Company’s audited, consolidated, year-end financial results are available, the Committee recommends to the Board whether the pre-established MIP corporate performance metrics have been met and, based upon the Board’s determination that the metrics have been met, decides whether and, at what level, to award bonuses to the NEOs. As discussed further below, the amount ultimately received by the NEOs and other eligible executives is dependent on the extent of achievement of performance metrics established annually by the Committee for the MIP. The MIP provides that the Committee may, in its discretion, adjust any bonus earned by any NEO or other executive downward but the Committee does not have discretion to increase any bonus earned by any NEO or other executive.

 

For 2010, the Committee adopted a MIP design which incorporates the following two metrics: ONI and Free Cash Flow for all NEOs including the leaders of the Company’s business units. These metrics were chosen to focus the NEOs and other key executives not only on earnings but also on cash flow management. As in previous years, ONI consisted of net income determined in accordance with United States’ generally accepted accounting principles (“US GAAP”) adjusted to exclude after-tax pension income or pension expense, gains from the sale of timberlands, legal defense costs associated with a significant environmental matter that is currently in litigation, and the benefit of a one-time tax credit. Free Cash Flow consisted of operating cash flows minus capital expenditures. These metrics were weighted 80% ONI and 20% Free Cash Flow. The target performance level of ONI accounted for the additional net income that was expected to be realized from the Company’s acquisition of Concert Industries and was established slightly higher than the Company’s 2010 budget to encourage management to successfully integrate that acquisition. The target performance level of Free Cash Flow was set at the Company’s budgeted level of Free Cash Flow.

 

In keeping with past practice, the Committee also incorporated a design feature in the 2010 MIP which required that the Company achieve a pre-established minimum level of performance for each MIP metric before any bonus may be earned by any eligible executive, including the NEOs, under the MIP (“Bonus Threshold Performance Level”). For 2010, the Bonus Threshold Performance Level was 80%% of the targeted performance level for each MIP metric. Payment amounts for achievement of the Bonus Threshold Performance Levels remained unchanged from prior years at 50% of the target opportunities, and payment amounts for achievement of the maximum performance levels also remained unchanged at 200% of the target opportunities.

 

The following table summarizes the level of Company performance associated with each MIP metric and the corresponding target bonus level for the NEOs:

 

 

In 2010, the Company’s ONI totaled $32.0 million and Free Cash Flow totaled $75.4 million, resulting in a bonus payout level for the NEOs of 97% of the NEO’s bonus target level.

 

The Committee believes the ONI and Free Cash Flow target levels were set at levels to sufficiently challenge the NEOs, meet the short term performance objectives of the Company, and satisfy the Company’s compensation objectives. The following table summarizes the NEO’s target bonus opportunities for 2010 as a percentage of their base salaries:

 

 

The ranges set forth above are based on advice received from the Consultant regarding market practices. All payments to the NEOs under the MIP are based entirely on actual ONI and Free Cash Flow performance of the Company; no portion of a NEO’s MIP payment is based on the individual performance of the NEO. However, the Committee has the authority to reduce payments under the MIP based on the Committee’s assessment of individual performance during the year, with the approval of the independent members of the Board of Directors in the case of the CEO. No such reductions were made for 2010.

 

For 2011, the Committee has adopted a MIP design that continues to use ONI and Free Cash Flow for all NEOs. ONI will, again, consist of net income determined in accordance with US GAAP adjusted to exclude certain items as determined by the Committee. Free Cash Flow will continue to consist of operating cash flows minus capital expenditures. For those NEOs who are not leaders of the Company’s business units, these metrics will continue to be weighted 80% ONI and 20% Free Cash Flow. However, for the business unit leaders, ONI and Free Cash Flow will make up only 60% of their total MIP opportunity; the remaining 40% will consist

of performance against business unit operating profit goals for their respective units. The target performance level of ONI, Free Cash Flow, and business unit Operating Profit have been set at the Company’s budgeted levels for 2011. Payment amounts for achievement of the threshold performance levels remained unchanged from prior years at 50% of the target opportunities, and payment amounts for achievement of the maximum performance levels also remained unchanged at 200% of the target opportunities.

 

Long-Term Incentives

 

Over the long term, the Committee believes that executive compensation should be substantially linked with corporate performance and shareholder value creation. The Committee believes that long-term compensation provides strong incentives for executives to improve the Company’s long-term performance, deliver value to its shareholders and remain employed by the Company. Accordingly, again generally targeting the 50th percentile of the competitive marketplace, and with advice from the Consultant, the Committee determines annually the amount of long-term compensation that will be granted to executives under the Company’s shareholder approved Amended and Restated Long Term Incentive Plan (“LTIP”). The Committee also reviews on an annual basis the appropriateness and relative weightings of the long-term incentive compensation vehicles available under the LTIP.

 

2008 — 2010 Cash LTIP. In 2008, the Committee supported a cash component of long-term incentive compensation, representing 40% of each NEO’s total long-term incentive opportunity. The Cash LTIP was designed to provide performance-based cash awards to participants if the Company achieved preset financial targets by the end of a specified multi-year period and to reduce the number of shares of the Company’s common stock that would be required to be issued under the LTIP. Under the terms of the Cash LTIP, NEOs were eligible to receive cash payments following the close of a three-year period if certain pre-established cumulative ONI and average ROCE goals are met. The ONI portion of the Cash LTIP represented 40% of the total award, while the remaining 60% was dependent on the Company’s three-year average ROCE performance. The target performance goals were consistent with the Company’s long-term strategic objectives at the time of grant and, in the Committee’s opinion, represented reasonably aggressive performance levels. Payment amounts for achievement of the threshold performance goals were designed to equal 50% of the target opportunities, and achievement of the maximum performance levels would result in payments equal to 150% of the target opportunities.

 

The following table sets forth targeted cash LTIP levels for each NEO:

 

 

The following table summarizes the level of Company performance associated with each cash LTIP metric and the corresponding payment levels for the NEOs:

 

 

For the period 2008 — 2010, the Company’s cumulative ONI totaled $105.3 million and its three-year average ROCE was 8.1%. As a result, the NEOs’ earned payments under the Cash LTIP which were equal to 88.6% of each NEO’s target opportunity.

 

As a result of the uncertain impact of the global economic crisis that continued during 2009, the Committee concluded that setting multi-year financial performance targets for the Company was too speculative, and that it was appropriate to suspend the Cash LTIP.

 

2010 Long-Term Incentive Program. For 2010, the Company’s LTIP consisted of RSUs and SOSARS, with RSUs representing 20% and SOSARs representing 80% of each NEO’s total long-term incentive. Based on market information provided by the Consultant, the Committee believes this mix of equity-based compensation, at the relative weightings discussed above provided the appropriate balance of performance-based and retention-based grants.

 

RSUs. During 2010, the Committee granted RSUs under the LTIP to the NEOs and certain of the Company’s other executives. The number of RSUs granted to the NEOs during 2010 ranged from 2,020 to 8,190, depending on the position of the NEO, the NEO’s performance and information provided by the Consultant regarding competitive market compensation practices for each NEO. The NEOs, like each grant recipient of RSUs, received cash payments during 2010 equal to the dividends paid on an equivalent number of shares of the Company’s common stock. The RSUs granted to the NEOs vest ratably over a five-year period, with one-third of the units vesting on the third, fourth, and fifth anniversaries of each grant. Upon full vesting of each grant of RSUs, the units are converted to shares of the Company’s common stock at a 1:1 ratio, and those shares are transferred to the RSU grant recipient. There is no required holding period for RSU grants. RSU grants made by the Committee in 2005, 2006 and 2007 either vested or resulted in the payment of dividend

equivalent payments to the NEOs in 2010, as indicated in the Summary Compensation Table.

 

SOSARs. During 2010, the Committee also granted SOSARs under the LTIP to the NEOs and certain of the Company’s other executives. SOSARs are intended to directly link executive compensation to the interests of shareholders through awards which have a value that is entirely dependent on appreciation in the Company’s common stock price from the date the awards are granted. The SOSARs granted to the NEOs during 2010 ranged from 25,300 to 102,500 depending on the position of the NEO, the NEO’s performance, and information provided by the Committee’s external compensation consultant regarding competitive market compensation practices for each position. The SOSARs granted by the Committee during 2010 had an exercise price equal to the Company’s closing common stock price on the date of grant, or $13.95, a ten-year expiration term, and vest ratably, with one-third of the SOSARs vesting on the first, second, and third anniversaries of the date of grant. This vesting schedule is designed to retain the NEOs and other key executives of the Company for an appropriate length of time prior to the SOSARs becoming vested or exercisable. Upon exercise of a vested SOSAR, the NEO will receive shares of Company common stock with a value equal to the appreciation of the Company’s common stock from the date of grant. The re-pricing of SOSARs is not permitted under the LTIP.

 

RSU Grant to Mr. Parrini. In addition to the RSU grants described above, on June 28, 2010, Mr. Parrini received an award of 55,360 RSUs which will vest 100% on the fifth anniversary of grant. This award was made in conjunction with the Company’s announcement that Mr. Parrini was being promoted to President & Chief Executive Officer and as consideration for a non-compete agreement which Mr. Parrini signed with the Company.

 

Mr. Glatfelter’s Outstanding Grants. Pursuant to its authority under the LTIP, the Committee agreed to treat Mr. Glatfelter’s retirement as a qualifying retirement event under the LTIP. As a result, a pro-rated portion of Mr. Glatfelter’s outstanding and unvested SOSARs and RSUs became vested as of his retirement date which was December 31, 2010. This treatment resulted in the vesting of 192,877 SOSARs and 19,061 RSUs which had previously been granted to Mr. Glatfelter. In addition, Mr. Glatfelter will be eligible to exercise any vested SOSARs and options during the three-year period following his retirement date, instead of ninety (90) days.

 

Stock Options. In response to changes in the accounting rules governing the treatment of the cost of granting stock options, the Committee has not approved any stock option awards to any of the NEOs or other key executives since 2004 and only one NEO still holds unexpired options that were granted in prior periods. Those stock options were granted with an exercise price equal to the closing price of Company’s common stock on the grant date. There is no required holding period for stock options. Like SOSARs, stock options reward the option holder if the Company’s common stock price rises above the exercise price specified in the stock option. The Company does not reprice options.

 

The Company’s 2011 LTIP design has been modified to be 100% performance-based. For 2011, the Company has replaced RSUs, which were used in the program in past years and which had a time-based vesting schedule, with a grant of the Company’s common stock which will only vest upon the achievement of specified corporate performance goals (“Performance Shares”). Under the 2011 LTIP, each NEO’s total long-term incentive will consist of 50% SOSARs and 50% Performance Shares. NEOs may receive Performance Shares if, following the close of a three-year period ending with fiscal year 2013, certain pre-established performance criteria are met. The Committee has selected cumulative adjusted EBITDA (i.e., earnings before interest, taxes, depreciation, amortization, and pension expense and excluding unusual items) and ROCE as the dual criteria for determining the vesting of Performance Shares. The Committee believes that cumulative adjusted EBITDA and ROCE are key drivers to the Company’s strategic plan and are directly associated with increasing shareholder value. To that end, 40% of the NEO’s Performance Share award will be dependent on the Company’s achievement of the cumulative adjusted EBITDA criteria and 60% of the NEO’s Performance Share award will be dependent on the Company’s achievement of a three-year average ROCE goal. Payment amounts for achievement of the threshold performance levels equal 50% of the target opportunities, and achievement of the maximum performance levels results in payments equal to 200% of the target opportunities. The number of SOSARs granted to the NEOs on March 3, 2011 ranged from 21,860 to 88,140, and the target number of Performance Shares granted to the NEOs also on March 3, 2011 ranged from 6,100 to 24,610, depending on the position of the NEO, the NEO’s performance, and information provided by the Committee’s compensation consultant regarding competitive market practices for each position. The SOSARs had an exercise price equal to the Company’s closing common stock price on the date of grant, or $12.56.

 

On March 3, 2011, the Committee also approved, as a one-time award, 4,700 RSUs for Mr. Rapp in recognition of additional responsibilities which were temporarily assigned to him in connection with a recent acquisition. The RSUs granted to the Mr. Rapp will vest ratably over a three-year period, with one-third of the units vesting on the first, second and third anniversaries of his grant.

 

Based on market information provided by the Consultant, the Committee believes this mix of equity based compensation, at the relative weightings discussed above, provides the appropriate level of performance-based grants and aligns the NEOs’ interests with those of shareholders.

 

In recent years it has been the Committee’s practice to consider recommendations for equity-based grants to the NEOs and certain other key executives of the Company at its

meeting that occurs in March of each year. If such equity-based grants are approved by the Committee, the Committee then recommends to the Board of Directors that it approve those grants at the March meeting of the Board of Directors.

 

Other Equity Ownership Policies

 

The Company has established several policies for its NEOs and certain other executives of the Company in order to reinforce the importance of aligning the financial interests of executives and shareholders, and that impose certain controls and restrictions on the ability of an executive officer to buy or sell securities.

 

Executive Share Ownership Guidelines. The Company’s executives historically have held a significant portion of their personal wealth in the form of the Company’s common stock (or RSUs, stock options, or SOSARs that mirror the performance of the Company’s common stock). The Committee believes it is important to require the Company’s senior executives, including the NEOs, to meet minimum stock ownership guidelines (the “Executive Share Ownership Guidelines”). These guidelines were established in 2002 and updated in 2009; the minimum stock ownership targets reflect a stock price valuation of approximately $13.00 (the closing price of the Company’s common stock on the date that the guidelines were initially adopted) and the base salary at the time the individual became subject to the guidelines. The Committee expresses these guidelines in terms of the value of equity holdings as a multiple of each senior executive’s base salary. Depending on the executive’s position, the Executive Share Ownership Guidelines require the executive to own a sufficient number of shares of Company stock having a market value that ranges in value from 1 times to, in the case of the CEO, 4 times the senior executive’s base salary.

 

Equity interests that count toward satisfaction of the Executive Share Ownership Guidelines include shares owned outright by the executive, or his or her spouse and dependent children, vested and unvested RSUs, shares held in a Section 401(k) or deferred compensation account, and 50% of any appreciation on either unexercised vested stock options or SOSARs. Newly hired or promoted executives have up to five years from the time that the executive became subject to the Executive Share Ownership Guidelines to meet the applicable guideline. The Committee may reduce future long-term incentive awards for any executive who fails to meet the Executive Share Ownership Guidelines, depending on the circumstances. Each year, the Committee reviews whether the Company’s executives meet the Executive Share Ownership Guidelines. As of December 31, 2010, all NEOs were either in compliance with the applicable guideline for their position or were on track to satisfy their applicable guideline within the allotted period.

 

 

Blackout Periods and Pre-Clearance of Securities Transactions.  The Company’s Insider Trading Policy prohibits certain employees, including all of the NEOs, from purchasing or selling the Company’s securities beginning on the first business day of the last month of each calendar quarter until the second business day after the Company releases its earnings for the quarter (a “Blackout Period”). The Company may also impose additional blackout periods on its executives if it concludes that executives are in possession of material, non-public information regarding the Company’s securities. In addition, the Company requires certain employees, including all of the NEOs, to pre-clear purchase or sale transactions involving the Company’s stock or securities, including stock option and SOSARs exercises. The Committee regularly reviews the list of Company “Insiders” who are subject to these trading restrictions.

 

Change in Control Arrangements

 

The Company has entered into Change-in-Control Employment Agreements with each of the NEOs, as well as certain other executives of the Company, the terms of which are discussed on pages 37-38 of this proxy statement. Generally, these agreements provide for severance and other benefits to be paid to executives upon a qualifying change of control (as defined in the agreements), including an amount to cover applicable excise taxes imposed under the Code. The Committee intends that these arrangements will serve as an incentive for executives to act in the interest of shareholders during a takeover, despite the risk of losing their jobs. Potential payments under these arrangements do not directly impact the yearly decisions made regarding other elements of executive compensation. The Company’s equity grant agreements outline the terms and conditions for the acceleration of equity vesting when a change in control occurs.

 

 

In the wake of general marketplace and shareholder concerns about executives potentially earning undue benefits that take effect after mergers and acquisitions, the Committee, in March 2009, directed that all subsequent grants of RSUs and SOSARs made to the NEOs and other eligible executives incorporate “double trigger” change of control provisions. In general, a single trigger provision provides that accelerated vesting of equity awards would occur in the event of a change of control irrespective of a corresponding termination. A double trigger provision, by contrast, only accelerates vesting in the event of a change of control and in the event that the executive is terminated without “Good Cause” or quits with “Good Reason” (as those terms are defined in the applicable agreement). As a result, vesting of RSUs or SOSARS that are granted after March 2009 and that have been held for at least six (6) months will accelerate vesting only upon such a termination that occurs within two (2) years of a change-in-control event. The Committee believes that the incorporation of the double trigger provision will ensure continuity of management during mergers and acquisitions and assist with attracting and retaining key executives, ultimately benefitting shareholders.

 

Post-Employment Compensation

 

The Company provides post-employment compensation to its executives, including the NEOs, under the Company’s qualified pension plan for salaried employees (collectively the “Pension Plan”). Compensation that is paid under the Pension Plan is subject to legal limits specified in the Code. The Committee believes that offering post-employment compensation allows the Company to attract, retain, recruit and motivate qualified employees and executives in the current competitive marketplace. To that end, the Committee has established a non-qualified Supplemental Executive Retirement Plan (SERP) consisting of two post-employment benefits for certain NEOs and other executives who have been nominated by the Company and approved by the Committee to participate in this plan. The first benefit available under the SERP, referred to as the “Restoration Pension Benefit” provides those executives whose benefits under the Pension Plan may be reduced due to legal limits applicable to qualified pension plans under the Code with a supplemental pension benefit, which will restore the portion of the pension benefit that was earned under the Pension Plan that cannot be paid from the Pension Plan due to the legal limits provided in the Code. Eligible executives may receive the Restoration Pension Benefit as an annuity or as a lump sum, depending on the value of the benefit at the time the executive terminates employment with the Company. Effective February 10, 2010, the Committee approved a revision to the Restoration Pension Benefit which revised the procedure for approval of the executives who will be eligible for this benefit. Subject to approval of the Committee, employees will generally be eligible for the Restoration Pension Benefit if they have at least one year of pensionable compensation in excess of the Code’s annual compensation limit for qualified pension plans.

 

The second post-employment benefit available under the SERP is referred to as the Final Average Compensation or “FAC” Pension. The FAC Pension pays a monthly pension benefit equal to a designated percentage of the executive’s average compensation over the five (5) years immediately preceding his retirement, offset by an equivalent value of the participant’s benefits under the Pension Plan and certain Company-sponsored nonqualified defined benefit pension arrangements, including the Restoration Pension. The FAC Pension is payable following the executive’s retirement on or after age 55 in the form of an annuity or a lump sum, depending on the value of the benefit at the time it is scheduled to commence. If the FAC Pension is payable prior to age 62, the monthly amount of the benefit is reduced to reflect its early commencement. A survivor benefit is also payable under the FAC Pension to the participant’s surviving spouse in the event of the participant’s death before the FAC Pension commences. Pursuant to transition rules under Section 409A of the Code, in 2008, participants in the FAC Pension were afforded a one-time opportunity to elect to have their FAC pensions paid as a lump sum. As of 2010, only Mr. Glatfelter and Mr. Parrini were eligible for the FAC Pension and each has elected, under the transition rule, a lump sum distribution of their FAC Pension. Given Mr. Glatfelter’s retirement as of December 31, 2010, Mr. Parrini is currently the only eligible participant in the FAC Pension.

 

The Committee has also established a Supplemental Management Pension Plan (“SMPP”) consisting of two (2) benefits. The first benefit, known as the MIP Adjustment Supplement is a historic restoration benefit that currently benefits none of the NEOs. Prior to 2005, the Company’s MIP included a deferral feature by which MIP recipients could defer payment of all or a portion of their MIP bonuses. That deferral feature was eliminated for MIP bonuses paid after 2005. However, under the Company’s Pension Plan, a deferred MIP bonus was not considered as part of pensionable compensation under the terms of the Pension Plan. The MIP Adjustment Supplement was intended to restore the MIP deferral to pensionable compensation under the Pension Plan and pays the difference, if any, between the benefit earned by the employee under the Pension Plan and the benefit that the executive would have earned had the MIP bonus not been deferred and therefore eligible for inclusion as part of pensionable earnings. The MIP Adjustment Supplement benefits a smaller number of employees each year because (i) the MIP Adjustment Supplement is currently not available to any executive who receives a benefit under the Company’s SERP, and (ii) the Pension Plan’s final average compensation formula takes into account a participant’s five (5) full consecutive years of employment in which his pensionable compensation was the highest. Prior to its elimination, Mr. Glatfelter deferred a portion of his prior MIP bonuses under this deferral feature. Since no MIP deferrals have been permitted since 2005, however, none of the other NEOs have or are eligible to benefit from this feature and the need for the MIP Adjustment Supplement has ended The second

benefit, known as the Early Retirement Supplement, is available to certain management and executive employees, who are not eligible for the FAC Pension under the SERP, who retire from employment with the Company on or after age 55 but prior to age 65, normal retirement age under the Company’s tax-qualified Pension Plan. The Pension Plan permits a participant who retires early to receive a reduced monthly early retirement pension that begins immediately following retirement, or to postpone commencement of the pension until a later date, but not later than normal retirement age. If the participant agrees to postpone commencement of his or her Pension Plan pension until at least thirty-six (36) months following early retirement (or, if earlier, until his or her normal retirement date following attainment of age 65) (the “Deferred Pension Plan Commencement Date”), then the Early Retirement Supplement will pay a supplemental benefit during the postponement period. The Early Retirement Supplement is equal to the monthly amount of the Pension Plan pension (or the sum of the Pension Plan pension and the Restoration Pension under the SERP, if applicable) payable on the Deferred Pension Plan Commencement Date in the form of a single life annuity. The benefit begins on the first day of the month on or next following early retirement and continues for 36 months (or until normal retirement date) when the deferred Pension Plan pension begins to be paid. There is a limited benefit payable for the surviving spouse if the participant dies before the end of the 36-month payment period.

 

Perquisites

 

Perquisites are offered by the Company to certain NEOs and other executives on a limited basis in order for the Company to remain competitive with the market and to attract and retain highly qualified executive talent. The Committee believes that perquisites should be a minimal part of executive compensation. The principal perquisites that the Company may provide to certain of its executives include, in the United States, country club memberships and in Europe, a car allowance. From time to time, the Company may provide additional perquisites to an executive officer on an individual and isolated basis. The Company values perquisites based on their incremental cost to the Company. Detail on perquisites offered to the NEOs can be found in the Summary Compensation Table.

 

Clawback Policy

 

The Committee intends to adopt an executive compensation clawback policy with respect to the Company’s incentive programs that is in compliance with the new requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act after the SEC issues final rules implementing these requirements.

 

Deductibility of Executive Compensation

 

Certain awards made under the LTIP and the 2005 Management Incentive Plan will qualify as performance-based compensation that will be exempt from the federal income tax $1 million deduction limitation imposed under Section 162(m) of the Code. However, while the Committee has established procedures to help maximize tax deductibility, in order to design compensation programs that address the Company’s needs, the Committee has not established a policy that requires that all executive compensation be exempt from the limitations on business deductions provided in Section 162(m) of the Code, as amended. The Committee expects that all 2010 MIP bonus payments, payments under the cash LTIP or Performance Shares, or any compensation received by Company executives from the exercise of stock options or SOSARs will be exempt from the Section 162(m) deduction limitation as performance-based compensation.

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis set forth on pages 18 through 27 of this proxy statement (the “Compensation Discussion and Analysis”) with the management of the Company.

 

Based on the review and discussions describe above, the Compensation Committee has recommended to the Company’s Board that the Company’s Compensation Discussion and Analysis be included in the Company’s proxy statement for the Annual Meeting.

 

The information disclosed in the Company’s Report of the Compensation Committee shall not be deemed to be “soliciting material,” or to be “filed” with the SEC or subject to Regulation 14A or 14C or to the liabilities of Section 18 of the Exchange Act.

 

Ronald J. Naples (Chair)

Kathleen A. Dahlberg

Nicholas DeBenedictis

Richard L. Smoot

Lee C. Stewart

 

The following table sets forth certain information concerning compensation of the Chief Executive Officer of the Company, the Chief Financial Officer of the Company and the Company’s three most highly compensated executive officers in 2010 other than the Chief Executive Officer and the Chief Financial Officer. The titles in the table below were current as of December 31, 2010, however Mr. Glatfelter retired as CEO on that date and was succeeded by Mr. Parrini.

 

 

 

 

 

 

 

 

 

The following table sets forth information concerning grants of plan-based awards in 2010: