UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

 

SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No.      )

 

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þ  Definitive Proxy Statement

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International Flavors & Fragrances Inc.

(Name of Registrant as Specified In Its Charter)

 

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

 

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International Flavors & Fragrances Inc.

 

521 West 57^th Street
New York, NY 10019

 

Dear Shareholder:

 

I am pleased to invite you to attend the 2009 Annual Meeting of Shareholders of International Flavors & Fragrances Inc. to be held on Tuesday, April 28, 2009 at 10:00 A.M. Eastern Time at our offices at 521 West 57^th Street, New York, New York 10019. (Attendees are requested to enter at 533 West 57^th Street.) Details regarding the business to be conducted are described in the accompanying Notice of Annual Meeting and Proxy Statement.

 

This year we have elected to take advantage of the SEC’s rule that allows us to furnish our proxy materials to our shareholders over the Internet. We believe electronic delivery will expedite the receipt of materials and, by printing and mailing a smaller volume, will help lower our costs and reduce the environmental impact of our annual meeting materials. Beginning on March 10, 2009, a Notice of Internet Availability of Proxy Materials (which we refer to as the “Notice of Internet Availability”) will be mailed to our shareholders. This Notice contains instructions on how to access the Notice of Annual Meeting, Proxy Statement and Annual Report to Shareholders online. You will not receive a printed copy of these materials, unless you specifically request one. The Notice of Internet Availability contains instructions on how to receive a paper copy of the proxy materials.

 

Your vote is very important to us. Whether or not you plan to attend the meeting, I hope that you will vote as soon as possible. You may vote over the Internet, by telephone or by completing, signing and mailing a proxy card.

 

Sincerely,

 

Robert M. Amen
Chairman and Chief Executive Officer

 

March 10, 2009

2009 ANNUAL MEETING OF SHAREHOLDERS
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT

 

TABLE OF CONTENTS

 

INTERNATIONAL FLAVORS & FRAGRANCES INC.

521 West 57^th Street

New York, NY 10019

 

 

By Order of the Board of Directors,

 

Dennis M. Meany

Senior Vice President, General Counsel

and Secretary

 

Why am I receiving these proxy materials?

 

We are providing you with a Notice of Internet Availability of Proxy Materials (“Notice of Internet Availability”) and access to these proxy materials in connection with the solicitation by the Board of Directors of International Flavors & Fragrances Inc., a New York corporation (“IFF,” the “Company,” “we,” “us” or “our”), of proxies to be used at our 2009 Annual Meeting of Shareholders and at any adjournment or postponement. Shareholders are invited to attend the 2009 Annual Meeting, which will take place at 10:00 a.m. on Tuesday, April 28, 2009, and are requested to vote on the proposals described in this Proxy Statement.

 

A Notice of Internet Availability will be sent to record and beneficial shareholders starting on or around March 10, 2009, and the proxy materials, including the Notice of Annual Meeting, Proxy Statement, and 2008 Annual Report, will be made available to shareholders on the Internet on March 10, 2009.

 

Why did I receive a Notice of Internet Availability of Proxy Materials this year instead of a full set of proxy materials?

 

Pursuant to new rules adopted by the Securities and Exchange Commission, we are providing access to the Company’s proxy materials over the Internet rather than printing and mailing the proxy materials to all shareholders. We believe electronic delivery will expedite the receipt of materials and will help lower our costs and reduce the environmental impact of our annual meeting materials. Therefore, a Notice of Internet Availability will be mailed to shareholders (or e-mailed, in the case of shareholders that have previously requested to receive proxy materials electronically) starting on or around March 10, 2009. The Notice of Internet Availability will provide instructions as to how shareholders may access and review the proxy materials on the website referred to in the Notice of Internet Availability or, alternatively, how to request that a copy of the proxy materials, including a proxy card, be sent to them by mail. The Notice of Internet Availability will also provide voting instructions. In addition, shareholders may request to receive the proxy materials in printed form by mail or electronically by e-mail on an ongoing basis for future shareholder meetings. Please note that, while our proxy materials are available at the IFF website referenced in the Notice of Internet Availability, no other information contained on the website is incorporated by reference in or considered to be a part of this document.

 

What information is contained in these materials?

 

The information included in this Proxy Statement relates to proposals you will vote on at the 2009 Annual Meeting, the voting process, the compensation of directors and our most highly paid executive officers in 2008 and certain other information.

 

How may I obtain directions to attend the 2009 Annual Meeting of Shareholders and vote in person?

 

You may obtain directions to attend the meeting and vote in person by contacting the IFF operator at (212) 765-5500.

 

Why did I receive more than one Notice of Internet Availability?

 

You may receive multiple Notices of Internet Availability if you hold your shares of IFF’s common stock in multiple accounts (such as through a brokerage account and an employee benefit plan). If you are a participant in the Company’s Retirement Investment Fund Plan (401(k)) and have common stock in a plan account, you may receive a separate Notice of Internet Availability, and your proxy, when executed in accordance with the instructions in that Notice of Internet Availability, will serve as voting instructions for the plan trustee. If you hold your shares of IFF’s common stock in multiple accounts, you should vote your shares as described in each separate Notice of Internet Availability you receive.

If you are a shareholder of record, you may contact the Office of the Secretary, International Flavors & Fragrances Inc., 521 West 57^th Street, New York, New York 10019 (telephone: (212) 765-5500) if you are currently receiving multiple Notices of Internet Availability and want to request delivery of a single Notice of Internet Availability in the future. If your shares are held in “street name” and you want to increase or decrease the number of Notices of Internet Availability delivered to your household in the future, you should contact your broker, bank or other custodian who holds the shares on your behalf.

 

What is the difference between a “shareholder of record” and a “street name” holder?

 

If your shares are registered directly in your name with IFF’s transfer agent, American Stock Transfer & Trust Company (“AST”), you are considered a “shareholder of record” or a “registered shareholder” of those shares. In this case, your Notice of Internet Availability has been sent to you directly by IFF.

 

If your shares are held in a stock brokerage account or by a bank, trust or other nominee or custodian, including shares you may own as a participant in the Company’s Retirement Investment Fund Plan (401(k)), you are considered the “beneficial owner” of those shares, which are held in “street name.” A Notice of Internet Availability has been forwarded to you by or on behalf of your broker, bank, trustee or other holder who is considered the shareholder of record of those shares. As the beneficial owner, you have the right to direct your broker, bank, trustee or other holder of record as to how to vote your shares by following its instructions for voting.

 

Who is entitled to vote at the 2009 Annual Meeting?

 

IFF’s Board of Directors has established March 2, 2009 as the record date for the 2009 Annual Meeting of Shareholders. Only shareholders of record at the close of business on the record date are entitled to receive notice of the annual meeting and to vote at the 2009 Annual Meeting. At the close of business on March 2, 2009, there were 78,765,641 outstanding shares of IFF’s common stock. Each share of common stock is entitled to one vote on each matter properly brought before the 2009 Annual Meeting.

 

What will I vote on?

 

There are two proposals scheduled to be voted on at the 2009 Annual Meeting:

 

 

How many votes must be present to hold the 2009 Annual Meeting?

 

A “quorum” is necessary to hold the 2009 Annual Meeting. A quorum is established if the holders of a majority of the votes entitled to be cast by shareholders are present at the meeting, either in person or by proxy. Abstentions and broker non-votes are counted as present for purposes of determining a quorum, but are not counted for purposes of determining the approval of the proposals to be acted upon. Shares of common stock represented by executed proxies received by the Company will be counted for purposes of establishing a quorum at the meeting, regardless of how or whether such shares are voted on any specific proposal.

 

What are the voting recommendations of IFF’s Board of Directors?

 

IFF’s Board of Directors recommends that you vote your shares as follows:

 

 

How do I vote?

 

You may vote in several different ways:

 

In person at the 2009 Annual Meeting

 

You may vote in person at the 2009 Annual Meeting. You may also be represented by another person at the meeting by executing a proxy properly designating that person. If you are the beneficial owner of shares held in “street name,” you must obtain a legal proxy from your broker, bank or other holder of record and present it to the inspectors of election with your ballot to be able to vote at the meeting.

 

By telephone

 

You may vote by calling the telephone number specified on the website provided in the Notice of Internet Availability. Please have your Notice of Internet Availability handy when you call and use any touch-tone phone to transmit your voting instructions.

 

By Internet

 

You may vote by using the Internet, www.proxyvote.com, to submit your voting instructions. Please have your Notice of Internet Availability handy when you go online. If you vote on the Internet, you may also request electronic delivery of future proxy materials.

 

By mail

 

You may vote by completing, signing, dating and returning a proxy card which will be mailed to you if you request delivery of a full set of proxy materials. A proxy card may also be mailed to you, at the Company’s option, beginning on or after the tenth day following the mailing of the Notice of Internet Availability. In either case, a postage-paid envelope will be provided along with the proxy card.

 

Telephone and Internet voting for shareholders of record will be available until 11:59 PM Eastern Time on April 27, 2009. A mailed proxy card must be received by April 27, 2009 in order to be voted at the Annual Meeting. If you are a 401(k) plan participant, telephone and Internet voting will be available until, or your mailed proxy card must be received by, 11:59 P.M. Eastern Time on April 23, 2009. The availability of telephone and Internet voting for beneficial owners of other shares held in “street name” will depend on your broker, bank or other holder of record and we recommend that you follow the voting instructions on the Notice of Internet Availability that you receive from them.

 

If you are mailed a set of proxy materials and a proxy card or voting instruction card and you choose to vote by telephone or by Internet, you do not have to return your proxy card or voting instruction card. However, even if you plan to attend the 2009 Annual Meeting, we recommend that you vote your shares in advance so that your vote will be counted if you later decide not to attend the meeting.

 

How can I change my vote?

 

If you are a shareholder of record, you may revoke your proxy before it is exercised by:

 

 

If you are a beneficial owner of shares held in “street name”, you may submit new proxy voting instructions by contacting your bank, broker or other holder of record.

 

How are votes counted?

 

In the election of the directors, your vote may be cast “FOR” or “AGAINST” a nominee or you may “ABSTAIN”. Likewise, for the other proposal, your vote may be cast “FOR”, “AGAINST” or you may “ABSTAIN”.

 

Under New York law, abstentions and broker non-votes, if any, will not be counted as votes cast, and therefore will have no effect on the outcome of the matters to be voted on at the 2009 Annual Meeting.

 

All executed proxies will be voted in accordance with the voting instructions contained in those proxies. If you are a shareholder of record and you furnish your proxy using the Internet, by phone or by returning a proxy card but do not indicate your voting preferences, the persons named in the proxy will vote your shares represented by that proxy in accordance with the recommendation of our Board of Directors as described on page 6 under the heading “What are the voting recommendations of IFF’s Board of Directors?”.

 

Who will count the votes?

 

A representative from Broadridge Investor Communication Solutions, Inc. will tabulate the votes and serve as the Company’s inspector of election at the 2009 Annual Meeting.

 

What is an abstention?

 

An “abstention” occurs when a shareholder executes a proxy using the Internet, by phone or by returning a proxy card, but he or she refrains from voting as to a particular matter by indicating that he or she “abstains” as to that matter.

 

What is a broker non-vote?

 

A “broker non-vote” occurs when a brokerage firm or other nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have authority to vote on that particular proposal without receiving voting instructions from the beneficial owner. Under New York Stock Exchange (“NYSE”) rules, certain proposals, such as the election of directors (Item 1 in this Proxy Statement) and the ratification of the selection of an independent registered public accounting firm (Item 2 in this Proxy Statement), are considered “routine” matters, and brokers generally may vote on behalf of beneficial owners who have not furnished voting instructions, subject to the rules of the NYSE concerning transmission of proxy materials to beneficial owners, and subject to any proxy voting policies and procedures of those brokerage firms. For “non-routine” proposals, brokers may not vote on the proposals unless they have received voting instructions from the beneficial owner, and to the extent that they have not received voting instructions, brokers report such number of shares as “non-votes”.

 

How many votes are needed to approve the proposals?

 

The affirmative vote of a majority of the votes cast is required for the election of directors, which means that a nominee must receive a greater number of votes “FOR” his or her election than votes “AGAINST” in order to be elected. Votes cast do not include any abstentions with respect to a nominee’s election. Our Board of Directors approved amendments to our By-laws in December 2008 to adopt this majority voting standard for uncontested elections and to provide that any director nominee in an uncontested election who does not receive an affirmative majority of votes cast must promptly offer his or her resignation. A description of the process which, under our By-laws and Corporate Governance Guidelines, will be followed if such an event occurs is located in this Proxy Statement under the heading “Proposals Requiring Your Vote-Item 1-Election of Directors”.

 

The affirmative vote of a majority of the votes cast is required to ratify the selection of PricewaterhouseCoopers LLP (PwC) as the Company’s independent registered public accounting firm for 2009.

Where can I find the voting results of the 2009 Annual Meeting?

 

IFF will announce preliminary voting results at the 2009 Annual Meeting and publish final results in our Quarterly Report on Form 10-Q for the 2009 second quarter.

 

Do I need an admission ticket to attend the 2009 Annual Meeting?

 

You will need either an admission ticket or proof that you own IFF shares to enter the 2009 Annual Meeting. If you plan to attend the meeting and have received a proxy card, please bring the admission ticket accompanying the proxy card and check the box on that proxy card indicating that you will be attending. If you are a shareholder of record and you vote by Internet or telephone, you may also indicate if you plan to attend the meeting. If you do not have an admission ticket, you must bring evidence of your ownership of IFF stock (which, if you are a beneficial holder, can be obtained from your bank, broker or other record holder of your shares), in order to be admitted. You may also request a ticket by writing to the Office of the Secretary, International Flavors & Fragrances Inc., at the address noted above. Evidence of your ownership must accompany your letter. You must also present a form of personal photo identification in order to be admitted to the meeting.

 

How do I obtain a separate Notice of Internet Availability if I share an address with other shareholders?

 

When more than one shareholder of record of IFF’s common stock shares the same address, we may deliver only one Notice of Internet Availability to that address unless we have received contrary instructions from one or more of those shareholders. Similarly, brokers and other nominees holding shares of IFF’s common stock in “street name” for more than one beneficial owner with the same address may deliver only one Notice of Internet Availability to that address if they have received consent from those beneficial owners. We will deliver promptly upon written or oral request a separate Notice of Internet Availability to any shareholder, including a beneficial owner of shares held in “street name,” at a shared address to which a single Notice of Internet Availability was delivered. To receive additional Notices of Internet Availability, or if you are a shareholder of record and would like to receive separate Notices of Internet Availability for future annual meetings, you may call or write the Office of the Secretary, International Flavors & Fragrances Inc., 521 West 57^th Street, New York, New York 10019 (telephone: 212-765-5500). If you are a beneficial owner of shares held in “street name” and would like to receive separate Notices of Internet Availability, you may contact your bank, broker or other holder of record. In addition, if you are a shareholder of record who shares the same address with another shareholder of record and you currently receive separate copies of the Notice of Internet Availability, you may write or call the Office of the Secretary as indicated above to request that a single Notice of Internet Availability be delivered to that address.

 

Who pays for the cost of this proxy solicitation?

 

IFF will pay the entire cost of soliciting proxies. In addition to solicitation by mail, proxies may be solicited on the Company’s behalf by directors, officers or employees in person, by telephone, by facsimile or by electronic mail. The Company has retained Georgeson Inc. to assist in proxy solicitation for a fee of $6,500 plus expenses. The Company will reimburse banks, brokers and other custodians, nominees and fiduciaries for their costs in sending proxy materials to the beneficial owners of the Company’s common stock.

 

How can I obtain a copy of IFF’s Annual Report on Form 10-K for the year ended December 31, 2008?

 

IFF will on a request in writing provide without charge to each person from whom proxies are being solicited for the 2009 Annual Meeting a copy of our Annual Report on Form 10-K for the year ended December 31, 2008, including the financial statements and any schedules, required to be filed with the Securities and Exchange Commission, excluding exhibits. We may impose a reasonable fee for providing the exhibits to the Form 10-K. Requests should be made to Office of the Secretary, International Flavors & Fragrances Inc., 521 West 57^th Street, New York, N.Y. 10019. IFF’s Annual Report on Form 10-K is also available free of charge through the Investor Relations—SEC Filings link on our website, www.iff.com.

 

Our Board of Directors has responsibility for overseeing the management of the Company. The Board has adopted Corporate Governance Guidelines which summarize the practices the Board will follow with respect to Board membership and selection, responsibilities of directors, Board meetings, evaluation of the Chief Executive Officer (“CEO”), succession planning, Board committees and director compensation. In December 2008 the Nominating and Governance Committee and the Board reviewed and revised the Corporate Governance Guidelines. A copy of the Company’s Corporate Governance Guidelines is available through the Investor Relations—Corporate Governance link on the Company’s website, www.iff.com, and is available in print to any shareholder who requests it.

 

Our Board has an Audit Committee, a Compensation Committee and a Nominating and Governance Committee, each of which operates under a written charter adopted by the Board. Each committee reviews its charter at least annually and recommends charter changes to the Board as appropriate. In December 2008, each of the Audit Committee, the Compensation Committee and the Nominating and Governance Committee reviewed and revised its charter. The revised charter of each committee was subsequently approved by the Board. Under the charter of each committee, the committee annually reviews the committee’s own performance. A current copy of each of the Audit Committee, Compensation Committee and Nominating and Governance Committee charters is available through the Investor Relations—Corporate Governance link on the Company’s website, www.iff.com. Each of these documents is also available in print to any shareholder who requests it.

 

The table below provides current membership for each of the Board committees and identifies our current Lead Director.

 

 

 

 

Our Audit Committee oversees and reviews the Company’s financial reporting process and the integrity of the Company’s financial statements and related financial information, the Company’s internal control environment, systems and performance, the audit process of the Company’s independent accountant and the qualifications, independence and performance of the independent accountant, the process and performance of the Company’s internal audit function and the procedures for monitoring compliance with laws and regulations and with the Company’s Code of Business Conduct and Ethics.

 

Our Board has determined that each of Mr. Howell, Ms. Hudson and Mr. Martinez is an “audit committee financial expert” under applicable rules of the SEC and has accounting or related financial management expertise as required by applicable NYSE rules. The Board has also determined that all members of the Audit Committee meet the financial literacy standards of the NYSE. None of our Audit Committee members currently serves on the audit committee of more than three public companies. The Audit Committee has established, together with members of the Company’s management, a hiring policy for employees or former employees of the Company’s independent accountant, consistent with the requirements of the NYSE. Under procedures adopted by the Audit Committee, the Audit Committee also reviews and pre-approves all audit and non-audit services performed by the Company’s independent accountant.

 

Our Compensation Committee is responsible for establishing executive officer compensation, for making recommendations to the full Board concerning chief executive officer and director compensation and for overseeing the compensation and benefit programs for other employees.

 

Role of the Compensation Committee

 

Under our Compensation Committee’s charter, the Compensation Committee has responsibility to assist the Board in ensuring that long term and short term compensation provide performance incentives to management, and that compensation plans are appropriate and competitive and reflect the goals and performance of management and the Company. As discussed in more detail under the heading Compensation Discussion & Analysis beginning at page 27, the Compensation Committee considers, as appropriate and as contemplated by Company policies, plans and programs, Company-wide performance against applicable annual and long-term performance goals pre-established by the Compensation Committee. If the Compensation Committee deems it appropriate, it may delegate any of its responsibilities to one or more Compensation Committee members or subcommittees.

 

The Compensation Committee works with the Board, the Nominating and Governance Committee and the Company’s senior management and meets regularly in executive session, without Company management present. The Compensation Committee establishes an annual schedule for matters to be considered by it, including approving our senior executives’ performance objectives and taking compensation actions. The Compensation Committee makes recommendations to the Board concerning the compensation and benefits of non-employee directors, after reviewing and considering recommendations from management and/or its independent compensation consultant, and makes recommendations to the Board regarding the chief executive officer’s compensation. The Compensation Committee also reviews and adopts, and where necessary or appropriate, recommends for Board and/or shareholder approval, our compensation and benefits policies, plans and programs and amendments thereto, taking into account economic and business conditions, and comparative/competitive compensation and benefit performance levels. Eligible employees and the type, amount and timing of compensation and benefits under our compensation and benefits policies, plans and programs also are determined by the Compensation Committee. In fulfilling its responsibilities, the Compensation Committee conducts or authorizes studies and surveys on compensation practices in relevant industries to maintain the Company’s competitiveness and ability to recruit and to retain highly qualified personnel. At least every two years, with the assistance of an experienced independent compensation consultant, the Compensation Committee conducts a survey of comparative/competitive executive officer

compensation. The Compensation Committee is authorized to retain compensation consultants or advisors to assist it in evaluating CEO, senior executive and outside director compensation. The Compensation Committee has the sole authority to retain and to terminate any such consultants or advisors, including the sole authority to approve their fees and other retention terms. The Compensation Committee’s independent compensation consultant for 2008 was W.T. Haigh & Company.

 

Role of Compensation Consultants

 

As discussed in more detail in this Proxy Statement under the heading Compensation Discussion & Analysis—Role of Outside Advisors and Management at page 32, the Compensation Committee directly engaged W.T. Haigh & Company as its independent expert compensation consultant to conduct a “benchmarking” survey in 2008. The Compensation Committee also directly engaged W.T. Haigh & Company for recommendations on executive and non-employee director compensation in 2008. Our CEO and our Senior Vice President, Human Resources work with the Compensation Committee and the Committee’s independent compensation consultant. Management also retains its own outside compensation consultants. In 2008, management retained Steven Hall & Partners for advisory services in connection with executive compensation plans, including the Company’s post-employment benefits, and Buck Consultants for actuarial work, plan structure and similar services for the Company’s retirement plans. With the assistance of management and W.T. Haigh & Company, our Compensation Committee recommends changes to the compensation and benefits of non-employee directors that it deems appropriate to the full Board.

 

Role of Management

 

Our Compensation Committee relies on management for legal, tax, compliance, finance, and human resource recommendations, data and analysis for the design and administration of the Company’s compensation, benefits and perquisite programs for our senior executives. The Compensation Committee combines this information with the recommendations and information from its independent compensation consultant.

 

Our CEO and Senior Vice President, Human Resources, and Senior Vice President, General Counsel and Secretary or Vice President, Deputy General Counsel and Assistant Secretary generally attend Compensation Committee meetings. Our CEO does not participate in making decisions for his own compensation. CEO performance and compensation are discussed by the Compensation Committee in executive session, with advice and participation from the Company’s independent compensation consultant where and as requested by the Committee. Our CEO and Senior Vice President, Human Resources, without the presence of any other members of senior management, actively participate in the performance and compensation discussions for our senior executives, including making recommendations to the Compensation Committee as to the amount and form of compensation. Our CEO and Senior Vice President, Human Resources discuss the appropriate form and amount of non-employee director compensation with the Compensation Committee for consideration in preparing that Committee’s recommendation to the Board.

 

Our Nominating and Governance Committee monitors Board composition and director qualification requirements, identifies qualified individuals to serve on the Board, recommends to the Board a slate of nominees for election by the shareholders at the annual meeting of shareholders, reviews potential Board candidates, reviews management succession plans and monitors corporate governance issues. In addition, this Committee has developed a process for conducting an annual evaluation of the effectiveness of the Board as a whole, as well as for reviewing the contributions of individual directors.

 

The role of our Lead Director includes (i) presiding over meetings of non-employee directors and providing prompt feedback regarding those meetings to the Chairman and CEO, (ii) providing suggestions for Board meeting agendas, with the involvement of our Chairman and CEO and input from other directors, (iii) assuring that the Board and the Chairman and CEO understand each other’s views on all critical

matters, (iv) monitoring significant issues occurring between Board meetings and assuring Board involvement when appropriate, (v) serving as a sounding board for our Chairman and CEO and (vi) ensuring, in consultation with our Chairman and CEO, the adequate and timely exchange of information and supporting data between the Company’s management and the Board.

 

The Board has affirmatively determined that each of Mmes. Adame, Herzan and Hudson, Drs. Blobel and Buck and Messrs. Bottoli, Cook, Georgescu, Howell, Martinez, Tansky and Tough has no material relationship with the Company affecting his or her independence as a director and that each is “independent” within the meaning of the Board’s independence standards, which are the same categorical independence standards as established by the New York Stock Exchange (“NYSE”) in Section 303A.02 of the NYSE Listed Company Manual. In making each of these independence determinations, the Board considered and broadly assessed, from the standpoint of materiality and independence, all of the information provided by each director in response to detailed inquiries concerning his or her independence and any direct or indirect business, family, employment, transactional or other relationship or affiliation of such director with the Company. Our review of the information provided in response to these inquiries indicated that none of our independent directors engaged in any transactions, relationships or arrangements that might affect the determination of their independence or which would require Board review. The Board has also determined that each member of the Audit Committee, Compensation Committee and Nominating and Governance Committee is independent under these independence standards and, with respect to each member of the Audit Committee, is also independent under the independence criteria required by the SEC for audit committee members and with respect to each member of the Compensation Committee, is an “outside director” pursuant to the criteria established by the Internal Revenue Service and is a “non-employee director” pursuant to criteria established by the SEC.

 

In 2007, the Board of Directors adopted a written policy for the review and the approval or ratification of any related person transaction. This policy is available through the Investor Relations—Corporate Governance link on the Company’s website, www.iff.com. The policy defines “related person” and “related person transaction” in a detailed manner. Under the policy, a related person transaction requires the approval or ratification of the Nominating and Governance Committee. The Audit Committee will be consulted if accounting issues are involved in the transaction. Under the policy, a related person transaction will be approved or ratified only if the Nominating and Governance Committee determines that it is being entered into in good faith and on fair and reasonable terms which are in the interest of the Company and its shareholders. No related person is to participate in the review of a transaction in which he or she may have an interest. In addition, except for non-discretionary contributions made pursuant to the Company’s matching contributions program, a charitable contribution by the Company to an organization in which a related person is known to be an officer, director or trustee will be subject to approval or ratification under the policy by the Nominating and Governance Committee.

 

There were no “related person transactions” since the beginning of 2008 involving any director, director nominee or executive officer of the Company, any known 5% shareholder of the Company or any immediate family member of any of the foregoing persons (together “related persons”). A “related person transaction” generally means a transaction involving more than $120,000 in which the Company is a participant and in which a related person has a direct or indirect material interest under SEC rules.

 

Our Board of Directors held six meetings during 2008. The Audit Committee held eight meetings, the Compensation Committee held four meetings and the Nominating and Governance Committee held three meetings during 2008. Each of our directors attended at least 75% of the total meetings of the Board and Committees on which he or she served during 2008. All of our directors who were serving on the day of last year’s Annual Meeting attended that meeting. Under our Corporate Governance Guidelines, unless there are mitigating circumstances, such as medical, family or business emergencies, Board members should

endeavor to participate (either in person or by telephone) in all Board meetings and all Committee meetings of which the director is a member and to attend the Company’s annual meeting of shareholders. The non-management directors of the Company meet in executive session, without the presence of any corporate officer or member of management, in conjunction with regular meetings of the Board. During 2008, the non-management directors met in executive session as part of every Board meeting.

 

Shareholders and other parties interested in communicating directly with the Lead Director, with the non-management directors as a group or with all directors as a group, may do so by writing to the Lead Director or the Non-Management Directors or the Board of Directors, in each case, c/o Secretary, International Flavors & Fragrances Inc., 521 West 57^th Street, New York, New York 10019. The Nominating and Governance Committee has approved a process for handling letters received by the Company and addressed to the Lead Director, the non-management members of the Board or the entire Board. Under that process, the Secretary of the Company forwards to the Lead Director all correspondence received, without opening or screening.

 

Our Nominating and Governance Committee has established a policy regarding the consideration of director candidates, including candidates recommended by shareholders. The Nominating and Governance Committee, together with other Board members, will from time to time as appropriate identify the need for new Board members. Proposed director candidates who would satisfy the criteria described below and who otherwise qualify for membership on the Board are identified by the Nominating and Governance Committee. In identifying candidates, the Nominating and Governance Committee seeks input and participation from other Board members and other appropriate sources so that all points of view can be considered and so that the best possible candidates can be identified. The Nominating and Governance Committee may also engage a search firm to assist it in identifying potential candidates.

 

Members of the Nominating and Governance Committee and other Board members, as appropriate, will interview selected director candidates, evaluate the director candidates and determine which candidates are to be recommended by the Nominating and Governance Committee to the Board.

 

Under the Company’s policy regarding director candidates, if a shareholder wishes to submit a director candidate for consideration by the Nominating and Governance Committee, the shareholder must submit that recommendation to the Nominating and Governance Committee, c/o the Secretary of the Company, in writing, not less than 120 days nor more than 150 days prior to the anniversary date of the prior year’s annual meeting. The request must be accompanied by the same information concerning the director candidate and nominating shareholder as described in Article I, Section 3(a) of the Company’s By-laws for shareholder nominations for director to be presented at an annual shareholders meeting. The Nominating and Governance Committee may also request any additional background or other information from any director candidate or recommending shareholder as it may deem appropriate.

 

Board candidates are considered based on various criteria which may change over time and as the composition of the Board changes. At a minimum, our Nominating and Governance Committee considers the following factors as part of its review of all director candidates and in recommending potential director candidates to the Board:

 

 

 

We have adopted a Code of Business Conduct and Ethics (the “Code”) that applies to our chief executive officer, principal financial officer, principal accounting officer and to all other Company directors, officers and employees. A copy of the Code is available through the Investor Relations—Corporate Governance link on our website, www.iff.com. The Code is also available in print to any shareholder who requests it. Only the Board of Directors or the Audit Committee of the Board may grant a waiver from any provision of the Code in favor of a director or executive officer, and any such waiver will be publicly disclosed. The Company will disclose substantive amendments to and any waivers from the Code granted to the Company’s chief executive officer, principal financial officer or principal accounting officer, as well as any other executive officer or director, on the Company’s website, www.iff.com.

 

Annual Director Cash and Equity Compensation

 

Each non-employee director receives an annual retainer of $175,000. Of this amount, $75,000 is paid in cash in November of each year, and $100,000 is paid in Restricted Stock Units (“RSUs”) issued under our 2000 Stock Award and Incentive Plan. The RSUs are granted on the date of each annual meeting of shareholders, cliff vest on the third anniversary of the grant date and are subject to accelerated vesting upon a change in control. The number of RSUs issued is based on the closing market price of the Company’s common stock on the grant date. Once the RSUs vest, each non-employee director is required to defer all of the vested RSUs under our Deferred Compensation Plan until he or she separates from service on our Board of Directors. Given that RSUs will be deferred until each director’s separation from service and each director’s stock ownership will increase during his or her term of service, the minimum share ownership requirements that formerly applied to directors have been eliminated.

 

Annual Committee Chair and Lead Director Compensation

 

The Chairperson of the Audit Committee receives an annual cash retainer of $15,000. The Chairpersons of the Compensation Committee and Nominating and Governance Committee each receives an annual cash retainer of $10,000.

 

The Lead Director receives an annual cash fee of $15,000.

 

Directors who are employees of the Company do not receive any additional compensation for their service as a director.

 

Participation in the Company’s Deferred Compensation Plan

 

In addition, non-employee directors are eligible to participate in our Deferred Compensation Plan (DCP). A non-employee director may defer all or a portion of his or her cash compensation, as well as any RSUs, subject to tax law requirements. Earnings on any deferrals into the interest bearing account of the DCP were not above market and thus are not included in the Director Compensation Table at page 17. Additional details regarding our DCP are located in this Proxy Statement under the heading Non-Qualified Deferred Compensation at page 62. Non-employee directors are not entitled to matching contributions or the 25% premium on deferrals into our common stock fund described in that section.

 

Other

 

We also reimburse our non-employee directors for travel and lodging expenses incurred in connection with their attendance at Board and Committee meetings, our shareholder meetings and other Company-related activities.

 

In addition, each current and former director, including any former employee directors, who began service as a director before May 14, 2003 is eligible to participate in our Director Charitable Contribution Program (DCCP). Under the DCCP, directors are paired together and the Company purchases $2,000,000 joint life insurance policies on the lives of each paired set of participating directors. The Company is the owner and sole beneficiary of the policies. After a covered director dies, the Company will donate $500,000 to one or more qualifying charitable organizations previously designated by the deceased director. In addition, the IFF Foundation will donate an additional $500,000 in contributions to charitable organization(s) of its choice. Assuming no changes to current Federal tax laws relating to charitable contributions, and if certain other assumptions are met, the Company expects to be reimbursed for all of the premium costs paid by the Company and the after-tax cost of the Company’s anticipated charitable contributions pursuant to this program. Although individual directors derive no financial benefit from the DCCP since all tax deductions relating to the contributions accrue solely to the Company, the premiums the Company paid under this program are included in the All Other Compensation column of the Director Compensation Table at page 17. Although eligible to participate, Mr. Martinez is not a participant in the DCCP. Instead, the Company has committed to pay $500,000 to qualifying organizations of Mr. Martinez’s choosing, upon his death. The Company is self-funding this commitment.

Directors first elected on or after May 14, 2003 do not participate in the DCCP. However, all current directors, including those who participate in our DCCP, are eligible to participate in our Matching Gift Program. Under this Program, The IFF Foundation matches, on a dollar for dollar basis, contributions to qualifying charitable organizations up to a maximum of $10,000 per year.

 

The following table details the compensation paid to or earned by our non-employee directors for the year ended December 31, 2008.

 

 

 

 

 

 

 

 

 

 

 

Directors and Executive Officers

 

The following table sets forth certain information regarding the beneficial ownership of the Company’s Common Stock as of February 16, 2009, by each director and nominee for director, the persons named in the Summary Compensation Table in this proxy statement and all directors and executive officers as a group.

 

 

Certain Other Owners

 

The following table sets forth information regarding beneficial owners of more than 5% of the Company’s outstanding Common Stock as of February 16, 2009 based on a review of filings with the Securities and Exchange Commission (the “SEC”).

 

 

 

 

 

 

 

 

 

 

 

 

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers to file reports of their initial holdings of IFF common stock and any subsequent transactions in Company shares with the SEC and to provide the Company with copies of all such filings. The Company must report any failures to file by the required dates. Based on a review of our 2008 records we believe that our directors and officers who were subject to Section 16 met all applicable filing requirements.

 

 

Our By-laws provide for the indemnification of our officers and directors against certain liabilities that could potentially be incurred by them in connection with the performance of their duties to the Company and its subsidiaries. In 2008, our Board of Directors approved an amendment to our By-laws to authorize the Company to provide indemnification and advancement rights by separate agreement to certain persons, including our officers and directors, and subsequently approved a form of indemnification agreement to be entered into with each of our directors and officers. The Company also maintains directors and officers indemnification insurance coverage. This insurance covers director and officers individually where exposures exist, other than those for which the Company is able to provide direct or indirect indemnification. The current policies run from March 18, 2008 through March 18, 2009 and are in the process of being renewed. The primary carrier under the current policy is ACE American Insurance Company. The current annual premium for this program is $1,053,688. No sums have been paid under this coverage to the Company or any directors or officers nor have any claims for reimbursement been made under this policy.

 

 

In order for a shareholder proposal to be considered for inclusion in IFF’s proxy materials for next year’s annual meeting of shareholders, the Secretary of the Company must receive the written proposal no later than November 10, 2009. Under Article I, Section 3 of the Company’s By-laws, in order for a shareholder to submit a proposal or to nominate any director at an annual meeting of shareholders, the shareholder must give written notice to the Secretary of the Company not less than 60 days nor more than 90 days prior to the anniversary date of this year’s annual meeting of shareholders. The notice must also meet all other requirements contained in the Company’s By-laws, including the requirement to contain specified information about the proposed business of the candidate and the shareholder making the proposal. If the next annual meeting is scheduled on a date that is not within 30 days before or after the anniversary date of this year’s annual meeting, the Secretary of the Company must receive the notice given by the shareholder not later than the close of business on the tenth day following the day on which the notice of the date of next year’s annual meeting is mailed or public disclosure of the date of next year’s annual meeting is made, whichever occurs first.

 

Our Board of Directors currently has thirteen members. Each of these Board members, other than Dr. Gunter Blobel, is standing for election to hold office until the next annual meeting of shareholders. Our By-laws provide that each director must retire effective as of the annual meeting of shareholders following his or her 72nd birthday. Accordingly, Dr. Blobel, who is 72, will retire as a director as of the 2009 Annual Meeting.

 

The affirmative vote of a majority of the votes cast is required for the election of directors, which means that a nominee must receive a greater number of votes “FOR” his or her election than votes “AGAINST” in order to be elected. Votes cast do not include any abstentions with respect to a nominee’s election.

 

Our Board of Directors approved amendments to our By-laws in December 2008 to adopt this majority voting standard for uncontested elections and to provide that any director nominee in an uncontested election who does not receive an affirmative majority of votes cast must promptly offer his or her resignation. If this situation were to occur, the process outlined in our By-laws and Corporate Governance Guidelines would be followed and generally the Nominating and Governance Committee of our Board of Directors would consider the resignation offer and make a recommendation to the Board. The independent directors on the Board would then evaluate and determine whether to accept or reject the resignation based on the relevant facts and circumstances. Any director who so tenders a resignation will not participate in the deliberations of either the Nominating and Governance Committee or the independent directors. The Board of Directors will promptly disclose its decision and the basis for that decision in a filing with the Securities and Exchange Commission. Under our By-laws, as amended, a plurality voting standard would apply in a contested director election, which would occur if, as of the record date for the meeting where directors are to be elected, the number of director nominees exceeds the number of directors to be elected at such meeting.

 

Each nominee elected as a director will continue in office until his or her successor has been elected and qualified, or until his or her earlier death, resignation or retirement. We expect each nominee for election as a director to be able to serve if elected. If any nominee is not able to serve (which is not anticipated), proxies will be voted in favor of the remainder of those nominated and may be voted for substitute nominees, unless the Board chooses to reduce the number of Directors serving on the Board.

 

The principal occupation and certain other information about the nominees are set forth on the following pages. All of the nominees are presently directors of the Company and all of the nominees except Ms. Hudson and Mr. Tough were elected by the shareholders at the Company’s 2008 Annual Meeting of Shareholders. In September 2008, Ms. Hudson and Mr. Tough were appointed by the Board to fill newly-created Board positions. Both new directors were recommended to the Nominating and Governance Committee following a requested search by an independent global search firm and interviews by existing directors including the Chair of the Nominating and Governance Committee, the Lead Director and the Chairman of the Board. Both new directors were recommended for a number of valuable characteristics they would bring to the Board, including Ms. Hudson’s financial expertise and experience on the boards of other public companies and Mr. Tough’s broad business experience including various international roles.

 

IFF’s Board of Directors recommends a vote FOR the election of the nominees as Directors.

Information About Nominees

 

 

The Audit Committee has selected PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2009, and the Board of Directors has directed that our management submit that selection for ratification by our shareholders at the 2009 Annual Meeting. Although ratification is not required by our By-laws or otherwise, we are submitting the selection of PricewaterhouseCoopers LLP to our shareholders for ratification as a matter of good corporate governance. The Audit Committee will consider the outcome of our shareholders vote in connection with the Audit Committee’s selection of the Company’s independent registered public accounting firm in the next fiscal year, but is not bound by the shareholders vote. Even if the selection is ratified, the Audit Committee may, in its discretion, direct the appointment of a different independent auditor at any time it determines that a change would be in the best interests of the Company and our shareholders.

 

Representatives of PricewaterhouseCoopers LLP are expected to attend the 2009 Annual Meeting, where they will be available to respond to questions and, if they desire, to make a statement.

 

IFF’s Board of Directors recommends a vote FOR the ratification of the Audit Committee’s selection of PricewaterhouseCoopers LLP as the Company’s Independent Registered Public Accounting Firm for 2009.

 

The following table provides detail about fees for professional services rendered by
PricewaterhouseCoopers LLP for the years ended December 31, 2008 and December 31, 2007.

 

 

 

 

The Audit Committee’s policy is to pre-approve all audit and non-audit services by category, including audit-related services, tax services and other permitted non-audit services, to be provided by the independent registered public accounting firm to the Company. In accordance with the policy, the Audit Committee regularly reviews and receives updates on specific services provided by the independent registered public accounting firm, and the Company’s management may present additional services for approval.

 

The Audit Committee may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting.

 

All services rendered by PricewaterhouseCoopers LLP to the Company are permissible under applicable laws and regulations. During 2008, all services performed by PricewaterhouseCoopers LLP were approved in advance by the Audit Committee in accordance with the pre-approval policy.

 

The Audit Committee (“we”, “us” or the “Committee”) oversees the Company’s financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal control over financial reporting and disclosure controls designed to ensure compliance with accounting standards and applicable laws and regulations.

 

The Company’s independent auditors, PricewaterhouseCoopers LLP (“PwC”), report directly to us. We have sole authority to appoint, oversee, evaluate and discharge the independent auditors and to approve the fees paid by the Company for their services. PwC annually performs an independent audit of the consolidated financial statements and expresses an opinion on the conformity of those financial statements with U.S. generally accepted accounting principles and the effectiveness of the Company’s internal control over financial reporting. PwC also conducts quarterly reviews of the Company’s financial statements.

 

We review with PwC the scope of its services, the results of its audits and reviews, its evaluation of the Company’s internal control over financial reporting, and the overall quality of the Company’s financial reporting. We meet regularly with PwC, and separately with the Company’s Internal Audit Coordinator, without management present. We also meet regularly with management without PwC present, and we discuss management’s evaluation of PwC’s performance.

 

For 2008, we have reviewed and discussed the Company’s audited financial statements with management and PwC. We have reviewed and discussed with management its process for preparing its report on its assessment of the Company’s internal control over financial reporting, and at regular intervals we received updates on the status of this process and actions taken by management to respond to issues and deficiencies identified. We discussed with PwC its audit of the effectiveness of the Company’s internal control over financial reporting. We discussed with PwC and the Company’s Internal Audit Coordinator the overall scope and plans for their respective audits.

 

We have reviewed with PwC its judgments about the quality of the Company’s accounting principles as applied in the Company’s financial reporting and other matters as are required to be discussed with us under generally accepted auditing standards of the Public Company Accounting Oversight Board (United States), including those described in Statement of Auditing Standards (SAS) No. 61 (Communication with Audit Committees), as amended. We also received from PwC and discussed with PwC its written disclosures and the letter regarding its independence from management and the Company as required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the audit committee concerning independence. We concluded that PwC’s independence was not compromised by the non-audit services provided by PwC, the majority of which consisted of tax services.

 

In reliance on the reviews and discussions referred to above, we recommended to the Board (and the Board subsequently approved our recommendation) that the audited financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 2008 for filing with the SEC. We also evaluated and selected PwC as the Company’s independent auditors for 2009, which the shareholders will be asked to ratify at the 2009 Annual Meeting of Shareholders.

 

Audit Committee

 

Henry W. Howell, Jr.

(Chairman)

 

Margaret Hayes Adame

Katherine M. Hudson

Arthur C. Martinez

 

 

Organization of Information

 

This Compensation Discussion & Analysis (“CD&A”) provides an overview of our executive compensation philosophy and programs. It highlights information on the compensation of our named executive officers which is included in the compensation tables accompanying this CD&A. The CD&A includes the following sections:

 

 

 

 

 

 

 

Executive Compensation Philosophy

 

Objectives

 

Our compensation framework, which has continued to apply for 2008 and is expected to continue for 2009 compensation programs, identifies our six objectives for the design and administration of our executive compensation programs:

 

 

 

 

We believe that executive compensation should:

 

 

Our performance goals are designed to meet challenging financial and strategic expectations set by our Board of Directors for our entire organization, to reinforce each executive’s role in driving Company performance and to motivate our executives to manage effectively over the long term.

 

We also believe that executives should own a significant amount of Company stock because we want our executives to share the same long term investment risk as our shareholders based on our performance.

 

Compensation Elements and Targeted Mix

 

The Compensation Committee of our Board of Directors (the “Compensation Committee”) reviews and approves all of the compensation policies for our executive officers and other members of senior management. Our executive compensation program includes the following elements.

 

Direct pay:

 

 

Indirect pay:

 

 

Direct Pay

 

We structure the direct pay mix for our senior executives to include significant variable compensation components that are “at risk” based on performance. We allocate a substantial portion of variable compensation in the form of annual and long term incentive pay, which may result in a potentially significant variation in pay from year to year based on our results and performance. This structure reflects the significant impact our executives have on our success.

 

For our CEO, at target levels, approximately 17% of direct pay is targeted to base salary, 21% to annual incentive and 62% to long term incentive pay. For the other named executive officers, other than Mr. O’Leary, our Interim CFO, the percentage of direct pay targeted to base salary is approximately 32%, annual incentive is approximately 22% and long term incentive is approximately 46%. Mr. O’Leary has a percentage of direct pay targeted to base salary of approximately 37%, his annual incentive is

approximately 18% and his long term incentive is approximately 45%. We believe that our substantial weighting of direct pay toward performance based “at risk” compensation creates the opportunity for above-average compensation if sustained superior performance is achieved, and much lower (or no) incentive compensation if our performance goals are not met. The proportionately greater “at risk” compensation for our CEO reflects his role and responsibility as our senior executive most accountable to our Board of Directors and shareholders for our entity-wide performance.

 

For 2008, the proportion of long term incentive compensation opportunity provided in the form of equity versus cash for our CEO was 72% versus 28%. For our other named executive officers, the corresponding percentages ranged from 75%/25% to 80%/20%. We weight our long term incentive opportunity substantially to equity over non-equity because we want our executives to share substantial risk with our shareholders. For our performance goals set in 2008 under our AIP and LTIP programs, the Committee does not believe that the goals or incentive plan structures would result in excessive risk that inappropriate business decisions or strategies would be made or implemented by our senior executives. These goals are entirely consistent with our financial plans and strategies and operating model reviewed with our Board, which monitors operational and financial performance and material business decisions and initiatives throughout the year. For 2009 performance goals, the Committee will follow this same approach.

 

Indirect Pay

 

Our executives participate in IFF sponsored benefit programs, many of which are broadly available to our employees. We also maintain other benefit and perquisite programs designed for our senior executives that our independent compensation consultant has advised our Compensation Committee are in line with market practice. The value from these programs represents a small percentage of overall executive compensation.

 

Principles for Setting Compensation Levels

 

We use a global grading structure for our executives, with compensation ranges for each grade. Executives are placed in a particular grade based on internal factors (including scope of responsibilities and job complexity) and an external market evaluation. Our Senior Vice President, Human Resources prepares initial recommendations on executive positions and grade levels for Compensation Committee approval, after review and input from our CEO and the Compensation Committee’s independent compensation consultant. The external market evaluation is based on published third party general survey information and a review of like positions within our select peer groups described below. This is known as “market benchmarking”. This benchmarking also provides information that we use in internal pay review among positions and grade levels.

 

The compensation decisions our Compensation Committee considers each year take into account the compensation range for each executive’s grade. Our actual determinations within the range are based on the executive’s performance relative to job responsibilities and objectives, the executive’s contribution relative to overall Company performance, the relative position of the executive’s base salary and total compensation against the benchmark and against his or her peers within the organization, long term potential, and retention objectives. The Compensation Committee also uses benchmarking to help us determine the appropriate mix of compensation (that is, to determine the appropriate allocation among base salary, annual incentive and long term incentive compensation) in order to (i) maintain a competitive compensation program and (ii) provide appropriate incentive to achieve the financial results we believe to be in the best interests of our shareholders.

 

We periodically review and update our job positions and we typically update the external market and peer group data at least every two years. We last reviewed and updated our job positions for our senior executives in December 2007.

 

The Compensation Committee uses benchmarking data when it sets the executives’ base salary and the target values for our annual, long term, and equity choice incentive compensation each year. The Compensation Committee does not take into account actual or potential gains from short term or long term

incentive awards or from equity awards in establishing elements of executive compensation (e.g., salary, AIP or LTIP values and performance goals, equity choice values or level of retirement benefits).

 

The Compensation Committee does not refer to specific compensation tally sheets or wealth accumulation analyses.

 

In the event relevant performance measures on which incentive payments are based are subsequently restated or otherwise adjusted in a manner that would reduce the size of a payment, the Compensation Committee would expect to seek recovery of or reduction in these incentive payments, but only if the Committee determines it appropriate under the particular circumstances, including misconduct, failure to exercise oversight, or other appropriate circumstances as may occur.

 

Benchmarking

 

Defining a single and appropriate peer group for our market benchmarking is a challenge because the Company has few publicly traded competitors. Our industry is highly fragmented, both geographically and across product lines. Accordingly, the Compensation Committee, with assistance from its independent compensation consultant, identified two separate and distinct peer groups, and other data sources (e.g. general industry market surveys), to conduct our market benchmarking. The Compensation Committee considers the following criteria in identifying our executive compensation peer groups:

 

 

The Committee does not further adjust peer group data based on size of peer group companies compared to our Company.

The peer groups, which consist of the following members, represent two market segments: (1) consumer product companies and (2) specialty chemical and flavoring companies.

 

 

The Compensation Committee last reviewed our executive compensation peer groups in 2007 and did not make any changes in the selected peer groups. At that time, IFF was approximately at the median of both peer groups in terms of revenue and market capitalization. The peer groups and other data sources provided by independent compensation consultants and our human resources management are used for compensation benchmarking for all named executive officer positions.

 

Our peer groups for compensation benchmarking are different from the peer group used in our financial performance graph included in our Annual Report on Form 10-K. Both the compensation and financial peer groups include companies that are international in scope and representative of the customer groups to which we sell our products. However, the financial performance peer group includes companies that exceed the size criteria identified for our compensation peer groups. The Compensation Committee believes that comparably sized companies for the compensation peer groups better reflect the competition we face for executive talent.

 

The Compensation Committee also, for more general purposes, uses the Towers Perrin Executive Compensation Database, a broad based third party survey, and general industry and local market data as sources for compensation comparisons and to obtain a more general understanding of current compensation practices. This data is also supplemented by information and recommendations from the independent compensation consultant on recent market trends, covering all elements of executive compensation.

 

The Compensation Committee does not apply a specific weighting to each data source when making compensation comparisons. With the help of its independent consultant, the Compensation Committee

develops a “market consensus” for each executive position and considers each of the data sources. The Compensation Committee attempts to use a consistent set of peer companies, general third party survey sources and approach to market analysis year to year in making its compensation decisions. In December 2007, for use in making compensation decisions in 2008, the Compensation Committee with the assistance of its independent compensation consultant, established for each executive position a relative importance of market reference points (i.e., Consumer Products, Specialty Chemical, and general industry data). By this means, the Compensation Committee determines the most appropriate market reference points to use in developing the market value for each executive position and reflecting the most relevant source for competitive executive talent.

 

The Compensation Committee generally targets total direct pay for executives in the 60^th -65^th percentile range of our market consensus. While our benchmarking analyses provide the Compensation Committee with this general range for direct pay compensation levels (10% above or below the 60^th-65^th percentile range of the market consensus), actual compensation levels within the particular benchmarking ranges are determined annually. For individual compensation decisions within the general market benchmark framework for salary, AIP and LTIP target rates, and values under the long term equity choice program, the Compensation Committee considers several factors, including but not limited to:

 

 

All of our named executive officers, with the exception of Mr. O’Leary who is in an interim position, were within 10% of this target range for total target direct pay for 2008. Actual compensation versus target varies principally based on Company financial performance.

 

Role of Outside Advisors and Management

 

The Compensation Committee retains independent expert consultants for recommendations on executive compensation. Since 2005, the Compensation Committee has retained W.T. Haigh & Company to review our executive compensation philosophy and programs and to recommend potential changes. As a result of this review, in 2008 the Compensation Committee in conjunction with W.T. Haigh & Company:

 

 

W.T. Haigh & Company reports directly to the Compensation Committee and serves as its independent advisor. W.T. Haigh & Company also works closely with our management as part of that firm’s engagement by the Compensation Committee to gain an understanding of our executive compensation programs and our management structure and make-up. To date, W.T. Haigh & Company has worked exclusively on executive compensation initiatives on behalf of the Compensation Committee and does not have other consulting arrangements with the Company.

The Company retains Steven Hall & Partners for advisory services concerning compensation plan documents, including the Company’s Executive Separation Policy, and Buck Consultants for actuarial work and other services relating to the Company’s retirement plans and other post-employment benefits. Company management also uses other compensation firms from time to time to obtain compensation market data and marketplace trends.

 

Our CEO and our Senior Vice President, Human Resources also work extensively with the Compensation Committee and with W. T. Haigh & Company on executive compensation matters, including recommendations concerning:

 

 

In determining total direct compensation decisions, the Compensation Committee also considers the CEO’s evaluations and recommendations concerning the performance of each of the named executive officers (other than the CEO) and considers the CEO’s own self-assessment of his own performance against the Company’s stated financial, operational and strategic objectives.

 

Throughout the year our CEO and Senior Vice President, Human Resources regularly communicate and meet with the Compensation Committee to provide analysis, supporting information and recommendations, and generally to discuss compensation matters as they affect particular executives as well as broader groups of employees. Our CEO and Senior Vice President, Human Resources also are invited to attend Compensation Committee meetings for these same purposes. Our CEO does not participate in making decisions for his own compensation.

 

Program Components and Policies

 

Salary Plan

 

The Compensation Committee reviews the salaries of our CEO and other named executive officers annually, as well as at the time of promotions or other changes in responsibilities. Salary increases are generally based on each executive’s performance versus pre-set financial and non-financial objectives and overall position responsibility. Another factor in determining initial salary and increases in salary for senior executives is benchmarking against our peer groups. The salaries of our named executive officers generally do not change substantially year to year, except to reflect changes in market benchmarking or when an executive officer assumes a larger or different role. The Compensation Committee’s general philosophy is to establish named executive officer base salaries in a range of approximately 10 percent above or below market target; with the exception of Mr. O’Leary, the 2008 named executive officer base salaries are all within this range. Mr. O’Leary’s base salary as Interim Chief Financial Officer is more than 10 percent below the peer group market target for chief financial officers.

 

The Compensation Committee determined that the salary of our CEO was in line with market consensus and determined not to increase his salary for 2008. In December 2007, the Compensation Committee, with the assistance of its independent compensation consultant, determined to increase the

salary grades of the Group Presidents for Flavors and Fragrances. Coincident with the increase in salary grade, both Group Presidents received salary increases and an AIP and LTIP target percentage increase from 60% to 80% of base salary. Mr. Mirzayantz’s salary increase was 8% and Mr. Vaisman’s salary increase was 13%. The increase in grade and compensation was in recognition of the increased relative value of the Group President positions in terms of scope, scale, and accountability for the Group’s performance, to reflect the performance of each Group President, and to reflect competitive market conditions based on the market consensus. Also in December of 2007, the Compensation Committee, with the assistance of the Senior Vice President, Human Resources and its independent compensation consultant, and as proposed by the CEO, determined to increase the salary grade of Mr. O’Leary, who at the time was the Company’s Vice President, Corporate Development. Coincident with the increase in salary grade, Mr. O’Leary received a salary increase of 10% and an AIP and LTIP target percentage increase to 50% of base salary. The increase in grade was in recognition of increases in responsibilities that included Information Technology and Capital Appropriations. Mr. O’Leary’s compensation did not change when he was named Interim Chief Financial Officer. In 2008, other named executive officers received salary increases ranging from 3.5% to 3.7% consistent with general market trend percentage increases identified by the Committee’s independent compensation consultant and by our Senior Vice President, Human Resources’ review of general market data points.

 

Annual Incentive Plan (“AIP”)

 

Each named executive officer, for 2008, has an annual incentive award target stated as a percentage of base salary—120% for our CEO, 80% for our Group Presidents, 50% for our Interim CFO, and 60% for our other named executive officers, with the opportunity to earn significantly above target incentive compensation for significantly above target or superior performance, and lower than target (or no) annual incentive compensation for below target performance. The AIP target is earned based on the achievement of specific quantitative and strategic enterprise, i.e., Company-wide performance goals, along with individual contribution toward the enterprise results based on unit or functional goals. Each executive has a range of potential awards which can be above, at and below target levels. Performance targets are established by the Compensation Committee by the end of March each year.

 

Each year, the CEO proposes and reviews with the Board, our annual and long-term financial goals, operational plans and strategic initiatives. With this Company financial model, operating plan, and strategy, the CEO, the Senior Vice President, Human Resources, and the CFO develop recommended AIP performance metrics for consideration by the Compensation Committee, with consultation from the independent compensation consultant. Overall, the AIP payout may range from 0 to 200% based on performance against objectives, with threshold performance set at 25% for each criterion.

 

The AIP amount paid to each executive following the end of the year depends on the performance achieved against the goals and individual contribution. Failure to meet the threshold level of performance overall will result in no AIP award for that year. The performance goals set by the Compensation Committee for each of the annual financial performance metrics under the AIP are derived from the Board-approved goals for our Company. Our achievement of target levels would meet the Board’s financial expectations for Company performance for the year. For the five AIP plan years from 2004 to and including 2008 the actual overall corporate percentage payout under the AIP against those annual performance goals ranged from 0% to 113%, with an average payout of 66% over the five year period. For this same period, excluding extraordinary or special items (restructuring charges, pension curtailment loss, material gains on disposition of assets, and certain one-time tax benefits), our local currency sales grew by a compound annual growth rate of 3% and our adjusted earnings per share grew by a compound annual growth rate of 9%. In addition, our return on invested capital (excluding restructuring charges) increased from 12% to 15%, while our operating profit excluding extraordinary or special items (restructuring charges and pension curtailment loss) increased by 15%.

 

For 2008, the AIP enterprise performance metrics, which we call our scorecard, were sales growth in local currency, earnings before interest and taxes (represented as profit margin as a percentage of sales), and return on invested capital. These performance criteria were established by the Compensation

Committee for 2008 and are each viewed as being strongly connected to and aligned with shareholder interests. A goal of local currency sales growth is representative of both share and market expansion while a margin goal of earnings before interest and taxes ensures that such share or market expansion is profitable and produces a significant level of cash flow which our Compensation Committee believes is a critical measure of our operating success. A return on invested capital goal ensures that executives are achieving appropriate returns for capital employed. These criteria are also key measures for evaluating our annual progress against our long term corporate strategic plan of winning new business with major customers and increasing profits in targeted geographic areas or business categories.

 

For 2008, the specific target levels established for each of the three performance criteria were based on growth over 2007-achieved levels and were consistent with the Company achieving its previously announced strategic financial goals of growing local currency sales by 4% per year, improving operating margins to 18% of sales by the end of 2009 and growing earnings per share on average by 10+% per year. In considering the enterprise scorecard, the targets related to each of the three financial criteria were each assigned a 23.3% weight in determining total AIP payout since the Compensation Committee believes that each of these goals equally fosters the Company’s financial success.

 

The Compensation Committee also established specific strategic AIP goals for 2008 related to:

 

 

These non-financial goals were designed to influence and reward performance on particular operational matters on which day-to-day efforts directly impact business results and our organization’s longer-term strategic success. Each non-financial strategic goal was assigned a 10% weight in determining enterprise scorecard results. The total of the three financial goals at 23.3% each and the three non-financial strategic goals at 10% each cumulatively represent 100% of the 2008 enterprise scorecard for the AIP.

 

Our actual performance against our 2008 AIP enterprise scorecard’s financial objectives was 40%. In determining achievement against financial objectives, the Compensation Committee considered whether to include or exclude the effects of extraordinary, unusual or infrequently occurring events, such as restructuring charges, severance costs and outsourcing costs, and the Compensation Committee approved certain adjustments from reported GAAP results. The Committee approved these adjustments, which impacted payouts both positively and negatively, in order to focus on core operating performance, without taking such special items into account. Since performance against financial objectives was under target, performance against non-financial strategic objectives was limited to the same 40%.

 

The AIP payout for 2008 for the named executive officers, based on the actual achievement of financial and non-financial strategic objectives and individual performance factors, is discussed in greater detail in conjunction with the Grants of Plan-Based Awards Table at page 50. The 2008 AIP payout for our CEO and Mr. Meany was 40%. Mr. O’Leary’s 2008 payout was 62%, which was higher than the enterprise payout, in recognition of the additional responsibilities he assumed as Interim Chief Financial Officer following Mr. Wetmore’s departure. The 2008 AIP payout for Mr. Vaisman and Mr. Mirzayantz was 70% and 0% respectively. Mr. Vaisman’s AIP payout was higher than the 40% enterprise payout as a result of the performance of his business unit. Mr. Mirzayantz’s AIP payout was lower than the 40% enterprise payout as a result of his business unit’s performance against objectives and failure, in one instance to provide adequate oversight to ensure compliance with Company policy. The payout to Mr. Wetmore, whose employment terminated during 2008, was based on the 40% enterprise payout but was pro-rated to reflect the number of days he served as an employee during 2008.

 

The performance metrics for 2008 are also expected to be used for 2009 AIP, along with improvement goals for working capital. For 2009 AIP, the Compensation Committee also determined that they will formally consider additional performance factors in determining the aggregate AIP payout pool and

performance of our executive officers. The Committee made this determination in recognition of the difficult business planning environment exacerbated by the current volatile economic environment. It is the view of the Committee, and supported by the independent compensation consultant, that a broader and more flexible assessment approach is needed to establish a fair basis for determining 2009 AIP payout. Specific financial and strategic goals may be supplemented with an ability to conduct a mid-year review of goals based on updated economic conditions and forecast for the balance of the year. In addition, increased reliance on relative measures and other performance factors, along with a mid-year market comparison report of compensation actions taken by companies in the peer groups and trends going forward, will be considered.

 

Long-Term Incentive Plan (“LTIP”)

 

Each executive officer has an award target for a 3-year performance cycle based on the achievement against quantitative corporate performance goals. The Compensation Committee develops and approves the performance goals at the beginning of each performance cycle.

 

A new 3-year performance cycle starts each year:

 

 

For the 2008-2010 performance cycle, the LTIP performance objectives are compound earnings per share growth over the 3-year period and total shareholder return (TSR) relative to the S&P 500. For the purpose of measuring TSR, the Compensation Committee measures changes in stock price plus dividends paid (assuming the dividends are reinvested) for the S&P 500 companies over the performance period. The Compensation Committee continues to believe that growth in earnings per share is a key indicator for measuring improvement in our long term shareholder value. The target for this criterion remains consistent with the Company’s strategic goals. Additionally, we believe that TSR versus other stock investment choices shareholders may have is another good indicator of our overall long term performance, and directly ties our executive’s compensation opportunities to our share price appreciation and dividend payments relative to a major large-cap index. In terms of goals for TSR relative to the S&P 500, the metrics are as follows:

 

 

The specific target established for earnings per share was determined by the Compensation Committee to be consistent with, and result in, achieving the Company’s previously announced strategic goal of growing earnings per share on average by 10+% per year and if this target is achieved, this strategic goal would be met.

 

Each of the two criteria was assigned 50% weight in determining total LTIP, and the threshold achievement was set at 70% of target, and maximum achievement was set at 130% of target. For the LTIP cycles that concluded from 2004 through and including 2008 the actual overall corporate percentage payout under the LTIP against those long term cycle performance goals ranged from 45% to 146%, with an average payout of 103% over the five LTIP cycles based on our successful financial results over the aggregate 5 year period. The performance goals set by the Compensation Committee for each of the segments of the 2008-2010 LTIP are derived from the Board-approved financial goals for our organization. Our achievement of target levels for each of the two performance criteria would meet the Board’s financial goals for Company performance for each segment of the 2008-2010 LTIP cycle, both on an annual segment basis and on a cumulative segment basis. The minimum, target and maximum goals are also set so that the relative degree of difficulty is generally consistent from year to year.

 

For the 2008-2010 performance cycle the Compensation Committee determined to administer the three year LTIP cycle in four equal performance segments: Year 1, Year 2, Year 3, and Cumulative. The

Committee also established that 50% of the value of LTIP would be paid in cash and 50% would be paid in full value shares, based on the stock price at the beginning of the cycle. At the beginning of each cycle, EPS goals are established and locked in for each year of the cycle, and relative TSR performance is determined at the completion of each performance segment. At the conclusion of each performance segment, the dollar value and number of shares is “banked” based on performance of that segment. When the three year cycle is concluded, the cumulative dollar value and cumulative number of full value shares is paid to the executive. The Committee believes that the segmentation of each three year LTIP cycle reduces the “all or nothing” risk that could occur in years of extreme performance, either good or bad. However, unless otherwise stipulated in a separation agreement, the executive must continue to be employed at the time of award payment following the three-year cycle in order to receive any award for that cycle. The Committee also believes that paying 50% of the LTIP value in full value shares with the share price set at the beginning of the cycle creates a stronger alignment between executives and shareholders and provides additional incentive for executives to achieve superior Company performance, which makes it more likely to produce share price appreciation over the three-year cycle.

 

For the 2008-2010 performance cycle, the LTIP award target for our CEO was set at 200% of base salary and for other named executive officers ranged from 50%, in the case of our Interim CFO, to 80% of base salary dependent upon salary grade which is consistent with benchmark consensus range for these positions. The LTIP payout for the 2006-2008 cycle for the named executive officer group, based on the actual achievement of quantitative objectives, is discussed in greater detail following the Grants of Plan-Based Awards Table at page 50. The payout for the 2006-2008 LTIP cycle was 115% and represents an improvement over the prior year due to improved financial achievements against pre-set performance objectives. Extraordinary or special items, such as restructuring charges associated with certain outsourcing projects and position streamlining, were not included in the determination of results against targets.

 

The Compensation Committee periodically reviews and adjusts the mix between short term and long term incentive compensation opportunities and between cash and non-cash opportunities based on (1) benchmarking and other external data, (2) recommendations from its independent compensation consultant and (3) recommendations from our CEO and Senior Vice President, Human Resources.

 

Equity Choice Program

 

In 2008, the Compensation Committee continued the Equity Choice Program under our 2000 Stock Award and Incentive Plan to include the equity component of our long term incentive program and to facilitate stock ownership by our executives. The Compensation Committee strongly believes that providing a significant long-term equity incentive opportunity ties directly to its goal of creating increased shareholder value. Approximately 50% of each executive’s annual long term incentive award value is targeted to be delivered through the Equity Choice Program. The other 50% is targeted to be delivered under the LTIP program. Of the total long term incentive opportunity provided to executives, approximately 75% is delivered in the form of equity compensation. The Compensation Committee believes that this substantially links our executives and our shareholders on investment risk and return.

 

The Equity Choice Program is designed to address different career stages, financial situations and risk profiles of our executives. The program gives the executives a choice as to how they receive their equity awards. We believe the Equity Choice Program provides an attractive recruiting, motivation and retention tool for executive talent. The Equity Choice Program encourages stock ownership and real investment in our Company. The program, combined with our share retention policy, improves the alignment of our executives’ investment in our Company with that of our shareholders.

 

The Company offers the following equity opportunities to eligible participants, including our named executive officers, under the program:

 

 

PRS and SSARs were added as an equity opportunity in 2006 as part of the choice program. PRS is Company stock that is purchased at a significant discount (50% of fair market value at the grant date) and vests 3 years from the grant date. Executives fund the purchase of PRS from their own financial resources, thereby putting the executive’s own personal resources at risk. Executives have the rights of shareholders (such as voting and non-preferential dividend rights on PRS) during the 3-year restricted period. SSARs provide upside potential and alignment with shareholders because SSARs have no value if the stock price stays the same or goes down.

 

The grant opportunities are “risk adjusted” to reflect the varying degree of risk with each form. RSUs are valued to reflect that they continue to have value even when our stock price stays the same or declines. RSUs also do not require a cash investment by the executive. PRS is valued to reflect the actual up-front purchase of the stock (at 50% discount). The risk adjustments determined by the Compensation Committee with input from its independent compensation consultant were unchanged for 2008 from 2007 and were as follows:

 

 

In 2008, the Compensation Committee determined that, under our Equity Choice Program, eligible participants (including our named executive officers) are granted annual equity awards within a range of certain dollar values depending on the participant’s grade level. The specific ranges by grade are as follows:

 

 

The specific dollar amount granted within the range is determined by the Compensation Committee considering factors such as individual performance and overall contribution to the enterprise, future potential of the executive, and need for retention. Choice award values allocated to each executive are dollar denominated and are converted to actual shares or units on the grant date based on each executive’s election. Executives elect to receive their choice award in increments of 10% across the three forms of equity opportunity. RSUs have a 50% maximum value allocation. The choice award value is then risk adjusted up or down based on the executive’s choice. For example, if an executive’s choice award value is $100,000 and he or she elects 100% of the award in PRS, then the value used for share election at the grant date is $120,000 ($100,000 choice award value x 120% PRS adjustment factor). The executives’ elections are required to be made in advance of the grant date, and once an election is made it may not be changed.

 

The Compensation Committee approved the choice award values allocated to each executive at its regularly scheduled meeting on March 3, 2008 and approved the grants to be made on May 6, 2008. All 2008 choice awards cliff vest three years from the grant date, which the Compensation Committee believes is consistent with its executive retention goal, and SSARs expire seven years from the grant date.

For 2008, the total dollar value for the NEO choice awards was:

 

 

In addition to his Equity Choice award, the Compensation Committee determined to award Mr. Meany 2,000 RSUs under the 2000 Stock Award and Incentive Plan. This award was determined in consideration of the need to strengthen retention.

 

The Committee does not consider either an executive’s outstanding equity awards or realized appreciation from past equity awards in setting annual equity choice value levels, since it considers outstanding equity awards or realized equity award appreciation to represent compensation for past services.

 

The grants to each named executive officer under the program are identified in the Grants of Plan-Based Awards Table at page 50.

 

Defined Benefit Pension Plan and Supplemental Retirement Plan (“SRP”)

 

Effective January 1, 2006 the Company’s defined benefit pension plan was closed to new employees. In place of the defined benefit pension plan the Company created an enhanced 401(k) savings plan for new employees only. In 2007, in order to manage the inherent risks associated with defined benefit pension plan obligations, the Company determined to freeze the defined benefit pension plan for all participants who, as of December 31, 2007, did not meet a combined age and service total of 70. The Company determined this age and service threshold in consultation with outside advisors and in balancing the management of financial risk with the interests of long serving employees. Employees who were affected by the pension freeze, which was effective December 31, 2007, became eligible for the enhanced 401(k). Of the 30 most senior executive officers of the Company only Mr. Meany, a named executive officer, was grandfathered under the pension plan.

 

For those senior executives who were grandfathered under the plan, including Mr. Meany, the retirement benefits under our tax-qualified defined benefit pension plan may be limited under IRS rules covering tax-qualified retirement plans. A non-qualified supplemental retirement plan (SRP) was established to pay that part of an executive’s retirement benefit that, because of the IRS limitations, cannot be paid under the tax-qualified pension plan. Benefits are calculated under the SRP in the same manner as the tax-qualified pension plan. The Compensation Committee believes that the full retirement benefit earned by an executive under our retirement benefit formula should be paid without reduction and that a supplemental plan is common in the industry and important for the attraction and retention of our senior executives.

 

We do not have a policy regarding the crediting of additional years of service under our SRP. However, as described under Termination of Employment and Change in Control Arrangements at page 63, additional years of service may be credited to a participant in connection with certain terminations within two years following a change in control. Our rationale for granting this additional credit is consistent with our rationale for other enhanced severance benefits offered in connection with a change in control as described under Executive Separation Policy (“ESP”) below at page 41. In addition, on a case-by-case negotiated basis, from time to time, executives may be credited with additional years of service.

Deferred Compensation Plan (“DCP”)

 

We offer to U.S.-based executives an opportunity to participate in our deferred compensation plan (DCP), as a cost-effective benefit that enhances the competitiveness of our compensation program. The DCP provides participants with a way to delay receipt of income and thus income taxation until a future date. When deferred, the amount of compensation is not reduced by income taxes, and the executive can choose to have this “pre-tax” amount deemed invested in one or more notional investments that generally track investment funds offered under our 401(k) savings plan. Although the executive will eventually owe income taxes on any amounts distributed from the DCP, the ability to invest on a “pre-tax” basis allows for a higher ultimate after-tax return. By providing a wealth-building opportunity through the DCP, we are better able to attract and retain executives at IFF.

 

Through the DCP, we also provide the same level of matching contributions to executives that would be made under our 401(k) savings plan but for limitations under U.S. tax law. We also use the DCP to encourage executives to acquire deferred IFF stock that is economically equivalent to ownership of our stock but is on a tax-deferred basis. If an executive elects to defer receipt of cash compensation and invests it in credits of deferred Company stock under the DCP, we credit an additional 25% of the amount deferred in the executive’s deferred Company stock account contingent on the executive remaining employed by the Company for the full calendar year following the year when such credit is made. We do this to encourage executives to be long term owners of a significant equity stake in IFF, to foster an entrepreneurial culture, a close alignment between the interests of executives and those of shareholders and a deeper commitment to IFF.

 

IFF’s costs in offering the DCP consist of the time-value of money costs, the cost of the matching contribution that supplement the 401(k) savings plan, the 25% premium for cash deferrals into deferred stock and administrative costs. The time-value of money cost results from the delay in the time at which we can take tax deductions for compensation payable to a participating executive. If notional investments within the DCP increase in value, the amount of our payment obligation will increase. This treatment limits our costs to the time-value of money cost resulting from our paying income tax on the returns of our direct investments earlier than the time at which we are able to claim tax deductions by paying out the deferred compensation. Our supplemental matching contributions and premiums on cash deferrals into deferred stock for named executives are reflected in the Summary Compensation Table at page 45 and in the All Other Compensation Table at page 48.

 

Perquisite Program

 

The perquisites program offers non-monetary benefits that are competitive and consistent with the marketplace as determined through a market study conducted by our independent compensation consultant in 2006. Under the perquisites program executives are eligible to receive certain benefits including:

 

 

As part of his employment agreement Mr. Amen is entitled to receive a $25,000 annual allowance for financial planning, tax preparation and estate planning services, rather than the above limits. The Company also pays Mr. Amen’s dues for a luncheon club in Manhattan, and provides a car and driver for him in recognition of his varied business commitments and for business efficiency reasons.

 

The personal value of all perquisites (other than the annual physical examination) is reported as income to the individual and accordingly is subjected to tax. The Compensation Committee believes that

the total value of our perquisites program is reasonable. Additional details concerning perquisites are included in the footnotes to the All Other Compensation Table at page 48.

 

Executive Separation Policy (“ESP”)

 

We provide severance and other benefits under our Executive Separation Policy (ESP) to senior executives whose employment is terminated not for cause and not due to a voluntary termination. This policy helps us in competing with other companies in recruiting and retaining qualified executives. When recruiting an executive from another company, the executive in most cases will seek contract terms that provide compensation if his or her employment is terminated by us in cases in which the executive has not engaged in misconduct. The level of separation pay is based on a tier system and the tier an executive participates in is based on the executive’s grade level. All named executive officers other than Mr. O’Leary are in Tier I. Mr. O’Leary is in Tier II. The specific separation pay by tier was determined by the Compensation Committee and developed with the assistance of its independent compensation consultant and the Senior Vice President, Human Resources. We believe that the ESP provides a level of separation pay and benefits that is within a range of competitive practice of our peer group companies.

 

We provide such separation pay and benefits on the condition that the departed executive not compete with us, solicit our customers and employees, or take other actions that harm our business for specified periods following termination. In addition, having pre-set terms governing the executive’s separation from service tends to reduce the time and effort needed to negotiate individual termination agreements, and promotes more uniform and fair treatment of executives.

 

In line with what the Compensation Committee understands (with the assistance of its independent compensation consultant and with input from the Senior Vice President, Human Resources) is competitive practice, we provide a higher level of severance payments and benefits if the executive were to be terminated without cause or elects to terminate employment with good reason within two years after a change in control. These protections provide a number of important benefits. If a change in control event is developing, executives who lack these assurances may act to protect their own interests by seeking employment elsewhere. Change in control transactions take time to unfold, and a stable management team will help to preserve our operations and shareholder value either by preserving the sale value of IFF or, if no transaction is consummated, by ensuring that our business will continue without undue disruption. In addition, having change in control protections in place encourages management to consider, on an on-going basis, whether a strategic transaction could be advantageous to our shareholders—even a transaction that would yield control of IFF to a third party and result in job loss to the executive. We provide for acceleration of vesting of equity awards upon the occurrence of a change in control, without regard to whether the executive will be terminated. In this way, executives can realize value from their equity awards in the same way and at the same time as shareholders in connection with the change in control transaction, and thus these terms encourage executives to consider and support transactions that could benefit shareholders.

 

Some aspects of change in control protections can be expensive, particularly payments that offset the adverse tax consequences to the executive if the U.S. golden parachute excise tax is triggered. Our Compensation Committee intends that the total cost of change in control compensation to the executive group, including the named executives and additional executives covered by the ESP, would not exceed levels that are typical in acquisitions of large publicly held companies and represent a reasonable cost to bear for the benefits to IFF and its shareholders resulting from having change in control protective provisions in place for executives.

 

In 2007, the Compensation Committee, on a prospective basis reduced the level of severance under the ESP in situations of termination not for cause and not involving a change in control. For Tier I eligible executives hired after October 22, 2007, severance was reduced from 24 to 18 months. For Tier II eligible executives hired after October 22, 2007, severance was reduced from 18 to 12 months. The ESP benefits available to our named executive officers were not impacted by these changes, and no changes were made to Tier III eligibility.

 

Additional details regarding our ESP are included under the heading Termination of Employment and Change in Control Arrangements at page 63. Additional details regarding the separation agreement we executed with Mr. Wetmore, which is consistent with the Company’s Executive Separation Policy in all material respects, are included under the heading Termination of Employment and Change in Control Arrangements — Other Separation Arrangements at page 67.

 

Mr. Amen’s negotiated employment agreement also grants him certain additional rights upon termination of his employment. These rights are described further under the heading Termination of Employment and Change in Control Arrangements — Other Separation Arrangements at page 66.

 

Mr. Wetmore’s Separation

 

On August 31, 2008, we entered into a separation agreement with Douglas J. Wetmore in connection with his termination of employment. The terms of his agreement are consistent with our Executive Separation Policy (as described in conjunction with the Potential Payments Upon Termination and Change in Control Table at page 69), and provide as follows:

 

 

 

 

In accordance with the terms of the grant agreements, the number of shares above for the grants made in 2007 and 2008 reflect the pro-rated number of shares granted for the time Mr. Wetmore worked during the original 3-year grant term. The remaining portions of those grants (13,959 shares of the May 8, 2007 SSAR grant, 9,483 shares of the May 6, 2008 SSAR grant and 1,422 shares of the May 6, 2008 RSU grant) were cancelled.

 

 

 

 

 

Mr. Wetmore was also entitled to reimbursement up to $3,000 of legal and professional fees for the negotiation and documentation of his separation agreement.

Executive Death Benefit Plan

 

The Company’s Executive Death Benefit Plan provides participants, including each of the named executive officers, with a pre-retirement death benefit equal to the excess of twice the participant’s annual base salary (excluding bonus and other forms of compensation) above the death benefit provided by the Company’s basic group term life insurance plan for employees and retirees (the “Basic Plan”), less $50,000 of group coverage. The plan also provides a death benefit post-retirement, or pre-retirement after attainment of age 70, equal to twice the participant’s base salary (excluding bonus and other forms of compensation) for the year in which the participant retires or reaches the age of 70, assuming the participant was an executive officer, less $12,500 of group coverage for retired participants and less $50,000 for senior participants (those who have attained the age of 70 and remain employed with the Company).

 

Tax Deductibility

 

The Compensation Committee’s general policy is to structure executive compensation to be tax deductible. The Compensation Committee also believes that under some circumstances, such as to attract or retain key executives or to recognize outstanding performance, it may be important to compensate one or more key executives above tax deductible limits.

 

In 2008, all named executive officer compensation was tax deductible.

 

Stock Ownership and Share Retention Policy

 

Beginning January 1, 2004, pursuant to our Share Retention Policy, executives must retain a portion of any Company shares received through Company equity award plans.

 

The required share retention is 50%-75% of net gain shares for the CEO and other named executive officers and 25%-50% for other designated senior executives. “Net gain shares” are the shares remaining from a stock option or SSAR exercise after payment of the exercise price and taxes, or the shares remaining after payment of taxes on the vesting of restricted stock or restricted stock units. Beginning January 1, 2007, any Company shares sold or traded by an executive to fund PRS purchases under the Equity Choice Program are not subject to the share retention requirement.

 

Once an executive reaches a targeted ownership level of our common stock, he or she is exempt from further share retention requirements provided such targeted ownership level is maintained. The targeted ownership levels are based on the value of Company shares and are five times base salary for the CEO, and three to four times base salary for the other named executive officers. If an executive does not satisfy the share retention requirements, he or she may not be granted additional equity awards.

 

At year end 2008, all named executive officers were subject to continued share retention requirements, other than Mr. Meany, who had satisfied the targeted ownership level.

 

Additional detail regarding ownership of our common stock by our executives is included in the Beneficial Ownership Table on page 19.

 

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis included in this Proxy Statement. Based on those reviews and discussions, the Compensation Committee has recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement for filing with the SEC and incorporated by reference into the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

 

Compensation Committee

 

J. Michael Cook (Chairman)

 

Marcello Bottoli

Alexandra A. Herzan

Burton M. Tansky

 

None of the members of the Compensation Committee was at any time during 2008 or at any other time an officer or employee of the Company. No executive officer of the Company serves as a member of the board of directors or compensation committee of any other entity that has one or more executive officers serving as a member of our Board of Directors or Compensation Committee.

 

The following Summary Compensation Table details compensation during 2008.

 

Summary Compensation Table

 

 

 

 

 

 

 

Employment Agreements or Arrangements

 

Mr. Amen

 

Our Board elected Robert M. Amen as its Chairman and the Company’s Chief Executive Officer on July 1, 2006. We entered into an employment agreement with Mr. Amen in connection with his hire. Under this agreement, Mr. Amen’s employment term continues for four years. Either we or Mr. Amen may terminate the agreement on or after the fourth anniversary of the agreement by giving one year’s notice. Upon expiration of the four year term, Mr. Amen’s employment will continue on an “at will” basis and will be covered by established Company policies and programs. Mr. Amen is entitled to the following compensation under the agreement:

 

 

Mr. Amen also participates in the Company’s Executive Death Benefit Plan described at page 43, pursuant to which the Company has purchased, and pays the entire cost on, a corporate owned life insurance policy on the life of Mr. Amen. The plan provides a pre-retirement death benefit equal to twice his annual base salary (excluding bonus and other forms of compensation), less $50,000 of group coverage, or a post-retirement death benefit equal to twice his final base salary (excluding bonus and other forms of compensation), less $12,500 of group coverage.

 

Mr. Amen’s employment agreement also grants him certain rights upon termination of his employment. These rights are described under Termination of Employment and Change in Control Arrangements — Other Separation Arrangements at page 66.

 

Mr. Wetmore

 

We entered into a separation agreement with Mr. Wetmore in July 2008 in connection with his separation from employment as the Company’s Senior Vice President and Chief Financial Officer effective July 31, 2008. This agreement is described under Termination of Employment and Change in Control Arrangements — Other Separation Arrangements at page 67.

 

Other NEO’s

 

None of our other NEOs is a party to a written employment agreement. Their compensation is generally determined by the terms of the various compensation plans in which they are participants and which are described more fully above in the Compensation Discussion & Analysis beginning at page 27, in the narrative following the Grants of Plan-Based Awards table beginning on page 53 and under the heading Termination of Employment and Change in Control Arrangements at page 63. In addition, their salary is reviewed, determined and approved on an annual basis by our Compensation Committee.

 

The following table provides information regarding grants of plan-based awards to our named executive officers during 2008.

 

Grants of Plan-Based Awards in 2008