UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A INFORMATION

 

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934 (Amendment No.     )

 

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o  Preliminary Proxy Statement

o  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

þ  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to §240.14a-12

 

HANESBRANDS 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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1000 East Hanes Mill Road

Winston-Salem, North Carolina 27105

 

 

March 12, 2010

 

Dear Stockholder:

 

You are cordially invited to attend the Annual Meeting of Stockholders of Hanesbrands Inc., a Maryland corporation, which is being held on Tuesday, April 27, 2010, at 8:30 a.m., Eastern time, at the Jumeirah Essex House, Grand Salon, 160 Central Park South, New York, New York 10019.

 

At this year’s Annual Meeting, you will be asked to (i) elect nine directors, (ii) ratify the appointment of PricewaterhouseCoopers LLP as Hanesbrands’ independent registered public accounting firm for our 2010 fiscal year and (iii) transact such other business as may properly come before the meeting.

 

We are furnishing proxy materials to our stockholders over the Internet. We believe that this “e-proxy” process expedites stockholders’ receipt of proxy materials and lowers the costs and reduces the environmental impact of our Annual Meeting. On March 12, 2010, we mailed to our stockholders a Notice of Annual Meeting and Internet Availability containing instructions on how to access our Proxy Statement and Annual Report and authorize a proxy to vote your shares. The Proxy Statement and the Notice of Annual Meeting and Internet Availability also contain instructions on how you can receive a paper or e-mail copy of the Proxy Statement and Annual Report.

 

If you requested and received a paper copy of the proxy card by mail, you may sign, date and mail the proxy card in the envelope provided. You can authorize a proxy by telephone or over the Internet as described in the enclosed materials.

 

We appreciate your continued support and interest in Hanesbrands.

 

Sincerely yours,

 

 

Richard A. Noll

Chairman of the Board of Directors and

Chief Executive Officer

 

HANESBRANDS INC.

 

NOTICE OF THE 2010

ANNUAL MEETING OF STOCKHOLDERS

 

The 2010 Annual Meeting of Stockholders of Hanesbrands Inc., a Maryland corporation, will be held on Tuesday, April 27, 2010, at 8:30 a.m., Eastern time, at the Jumeirah Essex House, Grand Salon, 160 Central Park South, New York, New York 10019 for the following purposes:

 

1. to elect nine directors;

 

2. to consider and vote upon a proposal to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for our 2010 fiscal year; and

 

3. to transact such other business as may properly come before the meeting or any adjournment or postponement thereof.

 

Stockholders of record at the close of business on February 18, 2010 are entitled to notice of, and to vote at, the Annual Meeting.

 

Whether or not you plan to attend the meeting, we urge you to authorize a proxy to vote your shares via the toll-free telephone number or over the Internet, as described in the enclosed materials. If you requested and received a copy of the proxy card by mail, you may sign, date and mail the proxy card in the envelope provided.

 

By Order of the Board of Directors

 

Joia M. Johnson

Executive Vice President, General Counsel and

  Corporate Secretary

 

March 12, 2010

Winston-Salem, North Carolina

 

ADMISSION TO THE 2010 ANNUAL MEETING

 

An admission ticket (or other proof of stock ownership) and some form of government-issued photo identification (such as a valid driver’s license or passport) will be required for admission to the Annual Meeting. Only stockholders who own Hanesbrands common stock as of the close of business on February 18, 2010 will be entitled to attend the Annual Meeting. An admission ticket will serve as verification of your ownership.

 

 

No cameras, recording devices or large packages will be permitted in the meeting room. Bags will be subject to a search.

 

TABLE OF CONTENTS

 

HANESBRANDS INC.
1000 EAST HANES MILL ROAD
WINSTON-SALEM, NORTH CAROLINA 27105

 

PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 27, 2010

 

 

 

Why did I receive this Proxy Statement?

 

You have received these proxy materials because the Board of Directors of Hanesbrands Inc., a Maryland corporation (“Hanesbrands”), is soliciting your proxy to vote your shares at Hanesbrands’ 2010 Annual Meeting of Stockholders (the “Annual Meeting”) and at any postponement or adjournment of the Annual Meeting. This Proxy Statement includes information that we are required to provide to you under the rules of the Securities and Exchange Commission and that is designed to assist you in voting your shares.

 

Will I receive a printed copy of this Proxy Statement?

 

You will not receive a printed copy of the Proxy Statement or our Annual Report to stockholders in the mail unless you request a printed copy. As permitted by the Securities and Exchange Commission, we are delivering our Proxy Statement and Annual Report via the Internet. On March 12, 2010, we mailed to our stockholders a Notice of Annual Meeting and Internet Availability containing instructions on how to access our Proxy Statement and Annual Report and authorize a proxy to vote your shares online or by telephone. If you wish to request a printed or e-mail copy of the Proxy Statement and Annual Report, you should follow the instructions included in the Notice of Annual Meeting and Internet Availability. The Notice of Annual Meeting and Internet Availability is not a proxy card or ballot.

 

When and where will the Annual Meeting be held?

 

The Annual Meeting will be held on April 27, 2010 at 8:30 a.m., Eastern time, at the Jumeirah Essex House, Grand Salon, 160 Central Park South, New York, New York 10019. If you plan to attend the Annual Meeting and have a disability or require special assistance, please contact our Investor Relations department at (336) 519-4710.

 

What proposals will be voted on at the Annual Meeting?

 

At the Annual Meeting, stockholders will:

 

1. elect nine directors;

 

2. consider and vote upon a proposal to ratify the appointment of PricewaterhouseCoopers LLP (“PricewaterhouseCoopers”) as our independent registered public accounting firm for our 2010 fiscal year; and

 

3. transact such other business as may properly come before the Annual Meeting or any postponement or adjournment thereof.

 

The Board of Directors is not aware of any matter that will be presented at the Annual Meeting that is not described above. If any other matter is properly presented at the Annual Meeting, the persons named as proxies on the proxy card will, in the absence of stockholder instructions to the contrary, vote the shares for which such persons have voting authority in accordance with their discretion on any such matter.

Who is entitled to vote at the Annual Meeting?

 

If you were a stockholder of Hanesbrands at the close of business on February 18, 2010 (the “Record Date”), you are entitled to notice of, and to vote at, the Annual Meeting. Each share of Hanesbrands common stock (each, a “Share”) outstanding at the close of business on the Record Date has one vote on each matter that is properly submitted to a vote at the Annual Meeting, including Shares:

 

 

On the Record Date there were 95,589,192 Shares outstanding and entitled to vote at the Annual Meeting and there were 43,491 record holders of Shares. The Shares are the only outstanding class of voting securities of Hanesbrands.

 

Who may attend the Annual Meeting?

 

Only stockholders who owned Shares as of the close of business on the Record Date will be entitled to attend the Annual Meeting. An admission ticket (or other proof of stock ownership) and some form of government-issued photo identification (such as a valid driver’s license or passport) will be required for admission to the Annual Meeting. An admission ticket will serve as verification of your ownership.

 

 

No cameras, recording devices or large packages will be permitted in the meeting room. Bags will be subject to a search.

 

How many Shares must be present to hold the Annual Meeting?

 

The presence in person or by proxy of stockholders entitled to cast a majority of all the votes entitled to be cast at the Annual Meeting constitutes a quorum for the transaction of business. Your Shares are counted as present at the Annual Meeting if you:

 

 

Abstentions and broker non-votes are counted for purposes of determining whether a quorum is present at the Annual Meeting.

If a quorum is not present when the Annual Meeting is convened, the Annual Meeting may be adjourned by the presiding officer.

 

How many votes are required to approve each proposal?

 

Directors will be elected by a plurality of all the votes cast at the Annual Meeting, either in person or represented by a properly completed or authorized proxy. This means that the nine nominees who receive the highest number of “FOR” votes cast will be elected as directors. Stockholders cannot cumulate votes in the election of directors.

 

Ratification of the appointment of PricewaterhouseCoopers as Hanesbrands’ independent registered public accounting firm requires “FOR” votes from a majority of the votes cast at the Annual Meeting, either in person or represented by a properly completed or authorized proxy. If the appointment of PricewaterhouseCoopers as our independent registered public accounting firm for our 2010 fiscal year is not ratified by the stockholders, the adverse vote will be considered a direction to the Audit Committee to consider another independent registered public accounting firm for next year. However, because of the difficulty in making any substitution of independent registered public accounting firm so long after the beginning of the current year, the appointment for our 2010 fiscal year will stand, unless the Audit Committee finds other good reason for making a change.

 

What are broker non-votes?

 

If you have Shares that are held by a broker, you may give the broker voting instructions, and the broker must vote as you directed. If you do not give the broker any instructions, the broker may vote at its discretion on all routine matters (such as the ratification of an independent registered public accounting firm). For other matters (including the election of directors), however, the broker may not vote using its discretion. A broker’s failure to vote on a matter under these circumstances is referred to as a broker non-vote.

 

How are abstentions, withheld votes and broker non-votes counted?

 

Shares not voted due to withheld votes, abstentions or broker non-votes will not be counted as votes for or votes against and will have no effect on the outcome of the matters being voted upon at the Annual Meeting.

 

How do I vote?

 

You may vote in person at the Annual Meeting or you may authorize a proxy to vote on your behalf. There are three ways to authorize a proxy:

 

Internet:  By accessing the Internet at www.proxyvote.com and following the instructions on the proxy card or in the Notice of Annual Meeting and Internet Availability.

 

Telephone:  By calling toll-free 1-800-690-6903 and following the instructions on the proxy card or in the Notice of Annual Meeting and Internet Availability.

 

Mail:  If you requested and received your proxy materials by mail, by signing, dating and mailing the enclosed proxy card.

 

If you authorize a proxy to vote your shares over the Internet or by telephone, you should not return your proxy card. The Notice of Annual Meeting and Internet Availability is not a proxy card or ballot.

 

Each Share represented by a proxy properly authorized over the Internet or by telephone or by a properly completed written proxy will be voted at the Annual Meeting in accordance with the stockholder’s instructions specified in the proxy, unless such proxy has been revoked. If no instructions are specified, such Shares will be voted FOR the election of each of the nominees for director, FOR ratification of the appointment of PricewaterhouseCoopers as Hanesbrands’ independent registered public accounting firm for our 2010 fiscal year, and in the discretion of the proxy holder on any other business as may properly come before the Annual Meeting.

If you participate in one of the 401(k) Plans and have contributions invested in the Hanesbrands stock fund in that 401(k) Plan as of the close of business on the Record Date, you will receive a voting authorization form, which will serve as voting instructions for the trustee of the 401(k) Plans. You must return your voting authorization form to Broadridge Financial Solutions, Inc. (“Broadridge”) on or prior to April 22, 2010. If your voting authorization form is not received by Broadridge by that date, or if you sign and return your proxy card without instructions marked in the boxes, the trustee of the 401(k) Plans will vote Shares attributable to your investment in the Hanesbrands stock fund in the 401(k) Plan in which you participate in the same proportion as other Shares held in the Hanesbrands stock fund of that same 401(k) Plan for which the trustee received timely instructions. If, in any of the 401(k) Plans, no participants vote their Shares, then the trustee will not vote any of the Shares in that 401(k) Plan, even if the trustee votes Shares held in one or both of the other 401(k) Plans.

 

If you participate in the Employee Stock Purchase Plan, you will receive a voting authorization form, which will serve as voting instructions for the administrator of the Employee Stock Purchase Plan. Shares will be voted only at the direction of participants in the Employee Stock Purchase Plan. You must return your voting authorization form to Broadridge on or prior to April 22, 2010. If your voting authorization form is not received by Broadridge by that date or if you sign and return your proxy card without instructions marked in the boxes, your Shares held in the Employee Stock Purchase Plan will not be voted.

 

How can I revoke a previously submitted proxy?

 

You may revoke (cancel) a proxy at any time before the Annual Meeting by (i) giving written notice of revocation to the Corporate Secretary of Hanesbrands with a date later than the date of the previously submitted proxy, (ii) properly authorizing a new proxy with a later date by mail, Internet or telephone, or (iii) attending the Annual Meeting and voting in person, although attendance at the Annual Meeting will not, by itself, constitute revocation of a proxy. Any notice of revocation should be sent to: Hanesbrands Inc., 1000 East Hanes Mill Road, Winston-Salem, North Carolina 27105, Attention: Corporate Secretary.

 

What does it mean if I receive more than one Notice of Annual Meeting and Internet Availability?

 

If you receive more than one Notice of Annual Meeting and Internet Availability, it means your Shares are not all registered in the same way (for example, some are registered in your name and others are registered jointly with a spouse) and are in more than one account. In order to ensure that you vote all of the shares that you are entitled to vote, you should authorize a proxy to vote all proxy cards or Internet or telephone proxy authorizations to which you are provided access.

 

How is the vote tabulated?

 

Hanesbrands has a policy that all proxies, ballots and votes tabulated at a meeting of stockholders shall be confidential, and the votes will not be revealed to any Hanesbrands employee or anyone else, other than to the non-employee tabulator of votes or an independent election inspector, except (1) as necessary to meet applicable legal requirements, or (2) in the event a proxy solicitation in opposition to the election of the Board of Directors is filed with the Securities and Exchange Commission. Broadridge will tabulate votes for the Annual Meeting and will provide an Inspector of Election for the Annual Meeting.

 

How does the Board of Directors recommend that I vote?

 

The Board of Directors recommends that you vote FOR each of the director nominees and FOR ratification of the appointment of PricewaterhouseCoopers as Hanesbrands’ independent registered public accounting firm for our 2010 fiscal year.

 

Our Board of Directors has adopted Corporate Governance Guidelines, which provide a framework for our corporate governance and cover topics including, but not limited to, composition of the Board of Directors and its committees, director qualifications and director responsibilities. The Governance and Nominating Committee is responsible for overseeing and reviewing the Corporate Governance Guidelines and reporting and recommending to the Board of Directors any changes to the Corporate Governance Guidelines.

 

Our directors are elected at the annual meeting of stockholders and will serve until our next annual meeting of stockholders. Our Board of Directors currently has nine members: Lee A. Chaden, Bobby J. Griffin, James C. Johnson, Jessica T. Mathews, J. Patrick Mulcahy, Ronald L. Nelson, Richard A. Noll, Andrew J. Schindler and Ann E. Ziegler. All but two of our directors, Mr. Noll and Mr. Chaden, are independent under New York Stock Exchange listing standards and under our Corporate Governance Guidelines. Mr. Noll is our Chief Executive Officer; Mr. Chaden is a non-management director.

 

Board Leadership Structure

 

Our Corporate Governance Guidelines provide that the Governance and Nominating Committee will from time to time consider whether the positions of Chairman of the Board and Chief Executive Officer should be held by the same person or by different persons. During 2008, the Board of Directors, upon recommendation of the Governance and Nominating Committee, determined that Mr. Noll, our Chief Executive Officer, should be elected to also serve as Chairman of the Board effective January 1, 2009. We believe that by serving in these dual capacities, Mr. Noll is well-situated to execute our business strategy and business plans to maximize stockholder value. Mr. Noll has primary management responsibility with respect to the day-to-day business operations of our company and is in the most effective position to chair regular meetings of the Board of Directors and to help ensure that key business issues and interests of all our company’s stakeholders (stockholders, employees, communities and customers) are communicated to the Board.

 

Mr. Mulcahy has been serving as the Lead Director since January 1, 2009. In connection with the decision in 2008 to combine the positions of Chairman of the Board and Chief Executive Officer, the Board of Directors determined to replace the position of Presiding Director with the newly created position of Lead Director effective January 1, 2009. We believe that the designation of a Lead Director, together with the combination of the positions of Chairman of the Board and Chief Executive Officer, contributes to a more efficient and effective corporate governance structure. On an annual basis, the Lead Director is chosen by the independent directors of the Board of Directors, after considering the recommendation of the Governance and Nominating Committee. The Lead Director chairs all meetings of the non-management and/or independent directors in executive session, and also has other authority and responsibilities, including:

 

 

 

Our corporate governance structure ensures that independent directors will continue to effectively oversee our management and key issues related to strategy, risk and integrity. In addition, because of enhancements to corporate governance rules and regulations effected by the Sarbanes-Oxley Act of 2002 and the New York Stock Exchange listing requirements, we believe that independent directors play an important role. Only independent directors serve on our Audit Committee, Compensation Committee and Governance and Nominating Committee. Non-management and independent directors regularly hold executive sessions outside the presence of the Chief Executive Officer or any other employee of the company.

 

Risk Oversight

 

The Board has delegated oversight of Hanesbrands’ risk management function to the Audit Committee. The Audit Committee discusses policies with respect to risk assessment and risk management, including significant financial risk exposures and the steps our management has taken to monitor, control and report such exposures. Management of Hanesbrands undertakes, and the Audit Committee reviews and discusses, an annual assessment of Hanesbrands’ risks on an enterprise-wide basis. The manner in which the Board oversees risk management is not a factor in the Board’s choice of leadership structure.

 

In 2009, our Board of Directors met six times and also held regularly scheduled executive sessions without management, presided over by the Lead Director. During 2009, our Audit Committee met nine times, our Compensation Committee met four times and our Governance and Nominating Committee met five times. In 2009, each incumbent director attended 75% or more of the meetings of the Board and of each committee during the periods that each such director served on the Board or such committee. Our Corporate Governance Guidelines provide that, except in extenuating circumstances, each director will be expected to attend all meetings of the Board of Directors and of committees to which he or she is appointed, and all annual meetings of stockholders. All of the members of the Board then in office attended our 2009 annual meeting of stockholders other than Alice M. Peterson, who ceased serving on our Board at the time of the 2009 annual meeting, and Mr. Johnson.

 

Our Board of Directors has three standing committees: the Audit Committee, the Compensation Committee and the Governance and Nominating Committee. Below is a list of committee memberships, which is followed by a description of each committee. The directors who are nominated for election as directors at the Annual Meeting will, if re-elected, retain the committee memberships described below immediately following the Annual Meeting, and the chairs of the committees will also remain the same.

 

Committee Membership
(as of February 18, 2010)

 

 

 

 

 

Audit Committee

 

The Audit Committee currently is comprised of Mr. Griffin, Ms. Mathews, Mr. Nelson and Ms. Ziegler; Mr. Nelson is its chair. Each of the members of our Audit Committee is financially literate, as required under applicable New York Stock Exchange listing standards and is independent under those listing standards. In addition, the Board of Directors has determined that each of Mr. Nelson and Ms. Ziegler possesses the experience and qualifications required of an “audit committee financial expert” as defined by the rules of the Securities and Exchange Commission. No member of the Audit Committee serves on the audit committees of more than three public companies.

 

The Audit Committee is responsible for assisting the Board of Directors in fulfilling the oversight of:

 

 

The Audit Committee is also responsible for discussing policies with respect to risk assessment and risk management, including significant financial risk exposures and the steps our management has taken to monitor, control and report such exposures.

 

Under Securities and Exchange Commission rules and the Audit Committee’s charter, the Audit Committee must prepare a report that is to be included in our proxy statement relating to the annual meeting of stockholders or annual report filed on Form 10-K with the Securities and Exchange Commission. In addition, the Audit Committee must review and discuss our annual audited financial statements and quarterly financial statements with management and the independent auditor and recommend, based on its review, that the Board of Directors include the annual financial statements in our Annual Report on Form 10-K.

 

Compensation Committee

 

The Compensation Committee currently is comprised of Mr. Johnson, Mr. Mulcahy and Mr. Schindler, with Mr. Schindler serving as its chair. The Compensation Committee is responsible for assisting the Board of Directors in discharging its responsibilities relating to the compensation of our executive officers and the Chief Executive Officer performance evaluation process, and for preparing a report on executive compensation that is to be included in our proxy statement relating to the annual meeting of stockholders.

 

The Compensation Committee is also responsible for:

 

 

Governance and Nominating Committee

 

The Governance and Nominating Committee currently is comprised of Mr. Johnson, Mr. Mulcahy and Mr. Schindler; Mr. Johnson is its chair. The Governance and Nominating Committee is responsible for:

 

 

In order to assist our Board of Directors in making the independence determinations required by the New York Stock Exchange listing standards, the Board of Directors has adopted categorical standards of independence. These standards, which are contained in our Corporate Governance Guidelines, are included as Appendix A to this Proxy Statement and are also available on our corporate Web site, www.hanesbrands.com, on the “Investors” page under the link “Corporate Governance.” Seven of the nine current members of our Board of Directors, Mr. Griffin, Mr. Johnson, Ms. Mathews, Mr. Mulcahy, Mr. Nelson, Mr. Schindler and Ms. Ziegler, are, and Ms. Peterson was, at the times she served on our Board during 2009, independent under New York Stock Exchange listing standards and under our Corporate Governance Guidelines. In determining director independence, the Board of Directors did not discuss, and was not aware of, any related person transactions, relationships or arrangements that existed with respect to any of these directors.

 

Our Audit Committee’s charter requires that the Audit Committee be composed of at least three members, all of whom must be independent under New York Stock Exchange listing standards and the rules of the Securities and Exchange Commission. Each of the members of our Audit Committee is an independent director under the New York Stock Exchange listing standards and meets the standards of independence applicable to audit committee members under applicable Securities and Exchange Commission rules.

 

Our Compensation Committee’s charter requires that all of the members of the Compensation Committee be independent under New York Stock Exchange listing standards, “non-employee directors” within the meaning of Securities and Exchange Commission Rule 16b-3 under the Securities Exchange Act of 1934 (the “Exchange Act”) and “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) and the regulations thereunder. Each of the members of our Compensation Committee is an independent director under the New York Stock Exchange listing standards, a non-employee director within the meaning of Rule 16b-3 under the Exchange Act and an outside director within the meaning of Section 162(m) of the Internal Revenue Code.

 

Our Governance and Nominating Committee’s charter requires that all of the members of the Governance and Nominating Committee be independent under New York Stock Exchange listing standards. Each of the members of our Governance and Nominating Committee is an independent director under the New York Stock Exchange listing standards.

 

Our Board of Directors has adopted a written policy setting forth procedures to be followed in connection with the review, approval or ratification of “related person transactions.” For purposes of this policy, the phrase “related person transaction” refers to any financial transaction, arrangement or relationship in which Hanesbrands or any of its subsidiaries is a participant and in which any director, nominee for director, or executive officer, or any of their immediate family members, has a direct or indirect material interest.

 

Each director, director nominee and executive officer must promptly notify our Chief Executive Officer and our Corporate Secretary in writing of any material interest that such person or an immediate family member of such person had, has or will have in a related person transaction. The Governance and Nominating Committee is responsible for the review, approval or ratification of all related person transactions involving a director, director nominee or executive officer. At the discretion of the Governance and Nominating Committee, the consideration of a related person transaction may be delegated to the full Board of Directors, another standing committee, or to an ad hoc committee of the Board of Directors comprised of at least three members, none of whom has an interest in the transaction.

 

The Governance and Nominating Committee, or other governing body to which approval or ratification is delegated, may approve or ratify a transaction if it determines, in its business judgment, based on its review of the available information, that the transaction is fair and reasonable to us and consistent with our best interests. Factors to be taken into account in making a determination of fairness and reasonableness may include:

 

 

If the Governance and Nominating Committee decides not to approve or ratify a transaction, the transaction may be referred to legal counsel for review and consultation regarding possible further action, including, but not limited to, termination of the transaction on a prospective basis, rescission of such transaction or modification of the transaction in a manner that would permit it to be ratified and approved by the Governance and Nominating Committee.

 

During 2009, there were no related person transactions, or series of similar transactions, involving us and our directors or executive officers.

 

Stockholders and other interested parties may send written communications directly to our Board of Directors or to specified individual directors, including our Lead Director or any of our non-management directors, by sending such communications to Hanesbrands Inc., 1000 East Hanes Mill Road, Winston-Salem, North Carolina 27105, Attention: Corporate Secretary. Such communications will be reviewed by our law department and, depending on the content, will be:

 

 

The Governance and Nominating Committee is responsible for screening potential director candidates and recommending qualified candidates to the full Board of Directors for nomination. The Governance and Nominating Committee will consider director candidates proposed by the Chief Executive Officer, by any director or by any stockholder. From time to time, the Governance and Nominating Committee also retains search firms to assist it in identifying and evaluating director nominees. In evaluating potential director candidates, the Governance and Nominating Committee seeks to present candidates to the Board of Directors who have distinguished records of leadership and success in their arena of activity and who will make substantial contributions to the Board of Directors. The Governance and Nominating Committee considers the qualifications listed in Hanesbrands’ Corporate Governance Guidelines, which include:

 

 

Although we do not have a policy regarding diversity in the nomination process, as noted above, diversity is one of the qualifications that our Corporate Governance Guidelines require our Governance and Nominating Committee to consider in identifying and evaluating director nominees.

 

The nominees for election at the Annual Meeting possess experience and qualifications that our Governance and Nominating Committee believes will allow them to make substantial contributions to the Board. Moreover, in selecting nominees, we seek to ensure that our Board collectively has a balance of expertise, including chief executive officer experience and expertise in the areas of international businesses and consumer products, as well as expertise in functional areas such as finance. All of our director nominees have served in senior leadership positions in large organizations and have experience with corporate management issues, including the oversight or preparation of financial statements. As current or former chief executive officers of public companies, Mr. Mulcahy, Mr. Nelson, Mr. Noll and Mr. Schindler have experience in, and possess an understanding of, business issues applicable to the success of a large publicly-traded company. As current or former chief financial officers, Mr. Nelson and Ms. Ziegler possess financial acumen acquired through working experience, including an understanding of financial matters and the preparation and analysis of financial statements. Mr. Chaden, Mr. Griffin, Mr. Mulcahy and Mr. Noll have served in senior leadership positions with companies engaged in international business. As president of the Carnegie Endowment for International Peace, Ms. Mathews has practical experience in the international area, and serves in a policy-making role that is relevant to Hanesbrands’ global activities. Mr. Chaden, Mr. Mulcahy, Mr. Nelson, Mr. Noll, Mr. Schindler and Ms. Ziegler have experience in the area of consumer products. As a result of their current or former employment with our company, Mr. Chaden and Mr. Noll have extensive knowledge of Hanesbrands’ business and the apparel industry. Mr. Johnson has practical expertise in the area of corporate governance, and Ms. Mathews has practical expertise in the areas of environmental policy, labor and human rights advocacy and non-governmental organization relationships. Mr. Chaden, Mr. Griffin,

Mr. Johnson, Mr. Mulcahy, Mr. Nelson, Mr. Schindler and Ms. Ziegler have working experience in corporate governance through their experience serving as directors of other public companies.

 

Any recommendation submitted by a stockholder to the Governance and Nominating Committee should include information relating to each of the qualifications outlined above concerning the potential candidate along with other information required by our Bylaws. The Governance and Nominating Committee applies the same standards in evaluating candidates submitted by stockholders as it does in evaluating candidates submitted by other sources. Suggestions regarding potential director candidates, together with the required information described above, should be submitted in writing to Hanesbrands Inc., 1000 East Hanes Mill Road, Winston-Salem, North Carolina 27105, Attention: Corporate Secretary. The Governance and Nominating Committee has not received any stockholder recommendations for director nominees for the Annual Meeting. Stockholders who want to nominate a director for consideration at next year’s annual meeting should refer to the procedures described in “Stockholder Proposals for Next Annual Meeting” on page 48.

 

On an annual basis, our Board plans for succession to the position of Chief Executive Officer, as well as to certain other senior management positions. To assist the Board, our Chief Executive Officer annually provides the Board with an assessment of executives holding those senior management positions and of their potential to succeed him. The Chief Executive Officer also provides the Board with an assessment of persons considered potential successors to those senior managers. The Board considers that information and their own impressions of senior management performance in planning for succession in key positions.

 

Our Global Business Standards, which serve as our code of ethics, apply to all directors and officers and other employees of our company and its subsidiaries. Any waiver of applicable requirements in the Global Business Standards that is granted to any of our directors, to our principal executive officer, to any of our senior financial officers (including our principal financial officer, principal accounting officer or controller) or to any other person who is an executive officer of Hanesbrands requires the approval of the Audit Committee. Any waiver of the Global Business Standards will be disclosed on our corporate Web site, www.hanesbrands.com, on the “Investors” page, or in a Current Report on Form 8-K.

 

Copies of our corporate governance documents, including the written charters for the Audit Committee, Compensation Committee and Governance and Nominating Committee, as well as our Corporate Governance Guidelines, Global Business Standards and other corporate governance information are available on our corporate Web site, www.hanesbrands.com, on the “Investors” page under the link “Corporate Governance.”

 

Audit Committee Report

 

The information contained in this Audit Committee Report shall not be deemed to be “soliciting material” or “filed” or “incorporated by reference” in future filings with the Securities and Exchange Commission, or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), except to the extent that Hanesbrands specifically incorporates it by reference into a document filed under the Securities Act of 1933 or the Exchange Act.

 

Each of the members of our Audit Committee, which was established in accordance with Section 3(a)(58) of the Exchange Act, meets the standards of independence applicable to audit committee members under applicable Securities and Exchange Commission rules and New York Stock Exchange listing standards. The Audit Committee assists the Board of Directors in oversight of the integrity of Hanesbrands’ financial statements, financial reporting process and systems of internal accounting and financial controls, Hanesbrands’ compliance with legal and regulatory financial disclosure requirements, the independent auditors’ qualifications

and independence, and the performance of Hanesbrands’ internal audit function and independent auditors. The Audit Committee operates under a written charter, a copy of which is available on our corporate Web site, www.hanesbrands.com, on the “Investors” page under the link “Corporate Governance.”

 

Management is primarily responsible for establishing and maintaining adequate internal financial controls, for preparing the financial statements and for the public reporting process. PricewaterhouseCoopers, the Audit Committee-appointed independent registered public accounting firm for the fiscal year ended January 2, 2010, is responsible for expressing an opinion on the conformity of Hanesbrands’ audited financial statements with accounting principles generally accepted in the United States of America. In addition, PricewaterhouseCoopers expresses its opinion on the effectiveness of Hanesbrands’ internal control over financial reporting.

 

In this context, the Audit Committee reviewed and discussed with management and PricewaterhouseCoopers the audited financial statements for the fiscal year ended January 2, 2010, management’s assessment of the effectiveness of Hanesbrands’ internal control over financial reporting and PricewaterhouseCoopers’ evaluation of Hanesbrands’ internal control over financial reporting. The Audit Committee met nine times (including telephone meetings) during the fiscal year ended January 2, 2010. The Audit Committee has discussed with PricewaterhouseCoopers the matters that are required to be discussed by AU Section 380 (Communication With Audit Committees), as modified or supplemented. In addition, the Audit Committee has discussed various matters with PricewaterhouseCoopers related to Hanesbrands’ financial statements, including critical accounting policies and practices used, alternative treatments for material items that have been discussed with management, and other material written communications between PricewaterhouseCoopers and management. The Audit Committee has also received written disclosures and the letter from PricewaterhouseCoopers required by Public Company Accounting Oversight Board Rule No. 3526 “Communications with Audit Committees Concerning Independence” and has discussed with PricewaterhouseCoopers its independence from Hanesbrands and its management. In addition, the Audit Committee has received written material addressing PricewaterhouseCoopers’ internal quality control procedures and other matters, as required by the New York Stock Exchange listing standards. The Audit Committee understands the need for PricewaterhouseCoopers to maintain objectivity and independence in its audit of our financial statements and internal control over financial reporting. The Audit Committee pre-approves all services, including both audit and non-audit services, provided by our independent registered public accounting firm.

 

Based on the considerations referred to above, the Audit Committee recommended to our Board of Directors that the audited financial statements for the fiscal year January 2, 2010 be included in our Annual Report on Form 10-K for 2009 and selected PricewaterhouseCoopers as our independent registered public accounting firm for the fiscal year ending January 1, 2011.

 

By the members of the

Audit Committee consisting of:

 

Ronald L. Nelson (Chair)

Bobby J. Griffin

Jessica T. Mathews

Ann E. Ziegler

 

Auditor Fees and Services

 

The following table sets forth the fees billed to us by PricewaterhouseCoopers for services in the fiscal years ended January 2, 2010 and January 3, 2009:

 

In the above table, in accordance with applicable Securities and Exchange Commission rules, “Audit fees” include fees billed for professional services for the audit of our Consolidated Financial Statements included in our Annual Report on Form 10-K and review of our financial statements included in our Quarterly Reports on Form 10-Q, fees billed for services that are normally provided by the principal accountant in connection with statutory and regulatory filings or engagements, fees related to services rendered in connection with securities offerings and for the fiscal years ended January 2, 2010 and January 3, 2009, the audit of our internal control over financial reporting and consultations concerning financial accounting and reporting standards.

 

“Audit-related fees” are fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under the caption “Audit fees.” For the fiscal years ended January 2, 2010 and January 3, 2009, these fees primarily relate to social security audits and various other services.

 

“Tax fees” for the fiscal years ended January 2, 2010 and January 3, 2009 include consultation, preparation and compliance services for domestic and certain foreign jurisdictions.

 

Pre-Approval of Audit Services

 

Our Audit Committee pre-approves all services, including both audit and non-audit services, provided by our independent registered public accounting firm. For audit services (including statutory audit engagements as required under local country laws), the independent registered public accounting firm provides the Audit Committee with an engagement letter outlining the scope of the audit services proposed to be performed during the year. The independent registered public accounting firm also submits an audit services fee proposal, which is approved by the Audit Committee before the audit commences. The Audit Committee may delegate the authority to pre-approve audit and non-audit engagements and the related fees and terms with the independent auditors to one or more designated members of the Audit Committee, as long as any decision made pursuant to such delegation is presented to the Audit Committee at its next regularly scheduled meeting. All audit and permissible non-audit services provided by PricewaterhouseCoopers to Hanesbrands during our past three fiscal years were pre-approved by the Audit Committee.

 

Under our charter, each of our directors is elected to serve until the next annual meeting of stockholders and until his or her successor is duly elected and qualified. If a nominee is unavailable for election, proxy holders may vote for another nominee proposed by the Board of Directors or, as an alternative, the Board of Directors may reduce the number of directors to be elected at the Annual Meeting. Each nominee has agreed to serve on the Board of Directors if elected. Set forth below is information as of February 18, 2010, regarding the nominees for election, which has been confirmed by each of them for inclusion in this Proxy Statement.

 

No family relationship exists among any of our director nominees or executive officers. To the best of our knowledge, there are no pending material legal proceedings to which any of our directors or nominees for director, or any of their associates, is a party adverse to us or any of our affiliates, or has a material interest adverse to us or any of our affiliates. Additionally, to the best of our knowledge, there have been no events under any bankruptcy act, no criminal proceedings and no judgments or injunctions that are material to the evaluation of the ability or integrity of any of our directors or nominees for director during the past ten years.

 

 

 

Our Board of Directors unanimously recommends a vote FOR election of these nominees.

 

The Audit Committee has appointed PricewaterhouseCoopers as our independent registered public accounting firm for our 2010 fiscal year. While not required by law, the Board of Directors is asking the stockholders to ratify the selection of PricewaterhouseCoopers as a matter of good corporate practice. Representatives of PricewaterhouseCoopers are expected to be present at the Annual Meeting, will have an opportunity to make a statement, if they desire to do so, and will be available to respond to appropriate questions.

 

If the appointment of PricewaterhouseCoopers as our independent registered public accounting firm for our 2010 fiscal year is not ratified by the stockholders, the adverse vote will be considered a direction to the Audit Committee to consider another independent registered public accounting firm for next year. However, because of the difficulty in making any substitution of independent registered public accounting firm so long after the beginning of the current year, the appointment for our 2010 fiscal year will stand, unless the Audit Committee finds other good reason for making a change.

 

PricewaterhouseCoopers was first appointed as our independent registered public accounting firm for our fiscal year ended July 1, 2006. For additional information regarding our relationship with PricewaterhouseCoopers, please refer to the Audit Committee Report on page 11 and the Auditor Fees and Services disclosure on page 12.

 

Our Board of Directors unanimously recommends a vote FOR ratification of the appointment of PricewaterhouseCoopers as our independent registered public accounting firm for our 2010 fiscal year.

 

The following table sets forth information, as of February 18, 2010 regarding beneficial ownership by (1) each person who is known by us to beneficially own more than 5% of our common stock, (2) each director, director nominee and executive officer and (3) all of our directors, director nominees and executive officers as a group. The address of each director and executive officer shown in the table below is c/o Hanesbrands Inc., 1000 East Hanes Mill Road, Winston-Salem, North Carolina 27105. On February 18, 2010 there were 95,589,192 shares of our common stock outstanding.

 

 

 

 

 

 

 

In 2009, we compensated each non-employee director for service on our Board of Directors as follows:

 

 

Directors who are also our employees receive no additional compensation for serving as a director.

The following table summarizes the compensation paid to our non-employee directors for the fiscal year ended January 2, 2010.

 

Director Compensation — 2009

 

 

 

 

In December 2008, after reviewing information about the compensation paid to non-employee directors at the Benchmark Companies (this term is defined below in the Compensation Discussion and Analysis section under “Developing Competitive Compensation Practices”), the Compensation Committee determined not to make any changes to compensation for non-employee directors for 2009, other than to provide for an additional annual cash retainer of $20,000 to be paid to our Lead Director (currently Mr. Mulcahy), a position newly created in 2009. After a similar review conducted in September 2009, the Compensation Committee determined not to make any changes to compensation for non-employee directors for 2010. We expect that the Compensation Committee will conduct a similar review each year and may alter director compensation following any such review.

 

Under the Director Deferred Compensation Plan, a nonqualified, unfunded deferred compensation plan, our non-employee directors may defer receipt of all (but not less than all) of their cash retainers. At the election of the director, amounts deferred under the Director Deferred Compensation Plan will (i) earn a return equivalent to the return on an investment in an interest-bearing account earning interest based on the Federal Reserve’s published rate for five-year constant maturity Treasury notes at the beginning of the calendar year, which was 1.72% for 2009 and will be 2.65% for 2010, or (ii) be deemed to be invested in a stock equivalent account and earn a return based on our stock price. Receipt of awards of restricted stock or restricted stock units to non-employee directors may also be deferred under the Director Deferred Compensation Plan. Amounts deferred, plus any dividend equivalents or interest, will be paid in cash or in shares of our common stock, as applicable, with any shares of common stock being issued from the Hanesbrands Inc. Omnibus Incentive Plan of 2006 (the “Omnibus Incentive Plan”). The amount payable to participants will be payable either on the withdrawal date elected by the participant or upon the occurrence of certain events as provided under the Director Deferred Compensation Plan. A participant may designate one or more beneficiaries to receive any portion of the obligations payable in the event of death; however, neither participants nor their beneficiaries may transfer any right or interest in the Director Deferred Compensation Plan.

 

We believe that our directors who are not employees of Hanesbrands should have significant ownership stakes in Hanesbrands. Our non-employee directors receive a substantial portion of their compensation in the form of restricted stock units and also may elect to receive their cash retainers in the form of options to purchase our common stock or to defer receipt of such amounts under the Director Deferred Compensation Plan and have such deferred amounts deemed invested in a stock equivalent account. To promote such equity ownership and further align the interests of these directors with our stockholders, we have adopted share retention and ownership guidelines for our non-employee directors. A non-employee director may not dispose of any shares of our common stock until such director holds shares of common stock with a value equal to at least five times the current annual equity retainer, and may then only dispose of shares in excess of those with that value. In addition to shares directly held by a non-employee director, shares held for such director in the Director Deferred Compensation Plan (including hypothetical share equivalents held in that plan) will be counted for purposes of determining whether the ownership requirements are met. The Compensation Committee reviewed the guidelines during the fiscal year ended January 2, 2010 and did not make any changes.

 

Under our insider trading policy, directors and executive officers are required to clear in advance all transactions in Hanesbrands securities with Hanesbrands’ legal department. Further, no director, executive officer or other employee of Hanesbrands is permitted to engage in “short sales” or “sales against the box” or trade in puts, calls or other options on our securities. These provisions are part of our overall program to prevent any Hanesbrands directors, officers or employees from trading on inside information.

 

This compensation discussion and analysis provides information about our compensation objectives and policies for our principal executive officer, our principal financial officer and our three other most highly compensated executive officers (we refer to these officers as our “named executive officers”), who for the fiscal year ended January 2, 2010 were Richard A. Noll, our Chairman and Chief Executive Officer, E. Lee Wyatt Jr., our Executive Vice President, Chief Financial Officer, Gerald W. Evans Jr., our President, International Business and Global Supply Chain, William J. Nictakis, our President, Chief Commercial Officer, and Kevin W. Oliver, our Executive Vice President, Human Resources. It also contains analysis about how and why significant compensation decisions were made, and places in context the information contained in the tables that follow this discussion. This section is organized as follows:

 

 

Introduction

 

The Compensation Committee is a standing committee of our Board of Directors. It is composed solely of independent directors who have no employment or business connection with Hanesbrands. The Compensation Committee is responsible to our Board of Directors, and to our stockholders, for developing and administering our compensation program for our Chief Executive Officer and other executive officers. The Compensation Committee has the authority to retain an independent executive compensation consultant to assist in the evaluation of compensation for our executive officers, including our named executive officers, and to help ensure the objectivity and appropriateness of the actions of the Compensation Committee. The Compensation Committee has the sole authority to retain, at our expense, and terminate any such consultant, including the sole authority to approve such consultant’s fees and other terms of engagement. Frederic W. Cook & Co., or the Cook firm, serves as the Compensation Committee’s executive compensation consultant. The Cook firm assists in the development of compensation programs for our executive officers and our non-employee directors by providing information about compensation by the Benchmark Companies (this term is defined below under “Developing Competitive Compensation Packages”), relevant market trend data, information on current issues in the regulatory environment, recommendations for program design and best practices, and corporate governance guidance. The Cook firm does not provide any other services to Hanesbrands, and this independence was an important factor in the Compensation Committee’s selection of the Cook firm. The Compensation Committee selected the Cook firm as its compensation consultant during 2007, after conducting a rigorous search and examining multiple firms; the Cook firm had been serving as its executive compensation consultant prior to such search.

 

At the direction of the Compensation Committee, our management has worked with the Cook firm to develop information about the compensation of our executive officers. Our Chief Executive Officer uses this information to make recommendations to the Compensation Committee regarding compensation of our executive officers, other than the Chief Executive Officer, and the Cook firm provides guidance to the Compensation Committee about those recommendations. The Cook firm makes independent recommendations to the Compensation Committee regarding the compensation of our Chief Executive Officer without the foreknowledge of management. The Compensation Committee uses this information and considers these recommendations in making decisions about executive compensation for all of our executive officers. All decisions regarding compensation of executive officers, including our named executive officers, are made solely by the Compensation Committee. Members of management and a representative of the Cook firm participated in meetings of the Compensation Committee during 2009. The Compensation Committee meets in executive session following most of its meetings, and each executive session includes some time when no persons other than the members of the Compensation Committee are present. Members of management and representatives of the Cook firm may be asked to attend portions of an executive session where the Compensation Committee wishes such persons to provide information to the Compensation Committee or where such attendance will otherwise be helpful to the Compensation Committee.

 

Objectives of Our Compensation Programs

 

We are committed to providing market competitive total compensation packages to attract and motivate talented employees. We actively manage our compensation structures and levels to adapt to changes in the marketplace and the continuing evolution of our company. We also seek to align the interests of our executives, including our named executive officers, with our stockholders. The Compensation Committee reviewed our compensation philosophy during 2009 and did not make any changes to our overall philosophy.

 

The goal of our compensation programs is to create a sustainable competitive advantage by achieving higher productivity and lower costs than our competitors. Our compensation objectives at all compensation levels, including for our named executive officers, support this goal by:

 

 

 

To accomplish these goals, we use the following operating principles:

 

 

Developing Competitive Compensation Packages

 

As noted above, one objective of our compensation program is to attract and motivate highly qualified and talented employees through compensation packages that are appropriately competitive with compensation packages offered by other companies in the apparel industry. To determine what constitutes a “competitive” compensation package for named executive officers, the Compensation Committee generally considers total compensation, comprised of base salary, annual incentive compensation (which we refer to as the annual bonus) and long-term compensation, as well as the allocation among those elements of compensation, at benchmarks determined by market rates of compensation paid by selected comparable companies. For these purposes, the Compensation Committee determines “market” rates by considering compensation paid by two groups of companies: Peer Benchmark Companies and Validation Benchmark Companies, which we refer to collectively as the “Benchmark Companies.” Hanesbrands’ annual revenue is similar to the median revenue of the Benchmark Companies. During 2009, the Compensation Committee did not make any changes in the companies comprising the Peer Benchmark Companies and the Validation Benchmark Companies. The Benchmark Companies were identified and selected with the assistance of the Cook firm.

 

Peer Benchmark Companies.  Our primary peer benchmark companies, which we refer to collectively as the “Peer Benchmark Companies,” were selected due to their similarity to us primarily in terms of industry and to a lesser extent revenue size. Our Peer Benchmark Companies are V.F. Corporation., Jones Apparel Group, Inc., Liz Claiborne, Inc., Quiksilver, Inc., Phillips-Van Heusen Corporation, The Warnaco Group, Inc. and Carter’s, Inc.

 

Validation Benchmark Companies.  Twelve additional companies were selected for purposes of validation because of the relatively small number of Peer Benchmark Companies. These companies, which we refer to collectively as the “Validation Benchmark Companies,” are companies with revenue sizes similar to ours from the consumer durables and apparel, food and beverage and household and personal product groups. The Validation Benchmark Companies are Fortune Brands, Inc., The Black & Decker Corporation, Newell Rubbermaid Inc., Brunswick Corporation, Hormel Foods Corporation, Mattel, Inc., The Hershey Company, The Clorox Company, Jarden Corporation, The Stanley Works, Hasbro, Inc. and Del Monte Foods Company.

 

As one illustration of our use of benchmarking, we consider compensation information from the Benchmark Companies to set total target compensation for our named executive officers. We consider total compensation paid at the median level by the Benchmark Companies, as well as total compensation paid at the 25th and 75th percentile levels, with a goal of targeting total compensation opportunities for our named executive officers at levels that are reasonable in comparison to this range based upon the relative experience and scope of responsibilities of the named executive officers, the marketability of their experience and how critical their position is to our efforts to execute our strategies. When we evaluate benchmark information on this basis, we refer to it as applying our “executive compensation benchmarking criteria.”

 

Once we have set total compensation opportunities in this manner, we consider the allocation of compensation among the various compensation elements by the Benchmark Companies in allocating the total compensation opportunities of our named executive officers among the elements of compensation that we offer. We also consider relative experience and scope of responsibilities of the named executive officers, the

marketability of their experience and how critical their position is to our efforts to execute our strategies. After considering these other factors, we confirm that the result is reasonable by applying the executive compensation benchmarking criteria.

 

Linking Total Compensation to Performance

 

Our compensation program seeks to link the total compensation we pay to our named executive officers to our company’s performance as reflected by its annual performance and stockholder value. We believe that the performance of individual officers is best viewed through the impact of their performance on our company’s performance as reflected by achievement of annual performance targets that are considered to be drivers of long-term stockholder value. As a result, for executive officers, our compensation programs focus on the performance of our company, rather than individual performance. We pursue our goal of linking total compensation to performance through both the equity-based compensation and non-equity based elements of total compensation. Our executives with the most senior leadership positions within our organization have the greatest ability to influence our company’s performance. As discussed below in “Elements of Compensation and Analysis of Compensation Decisions,” both the long-term incentive awards as a percentage of total compensation and the bonus opportunity as a percentage of total compensation of these executives are greater than that of our other employees. Because both the value of long-term compensation and annual bonus opportunities are tied to the performance of our company as reflected by its annual performance and stockholder value, the total compensation of our named executive officers has the potential to increase or decrease based on our performance and that of our common stock.

 

Aligning the Interests of our Named Executive Officers with Stockholders

 

Our compensation program also seeks to align the interests of our executives, including our named executive officers, with those of our stockholders. The equity-based portion of the long-term compensation element of our compensation package serves this purpose. A greater portion of the total compensation opportunity for our named executive officers is comprised of equity-based long-term compensation as compared to our other employees. See “Elements of Compensation and Analysis of Compensation Decisions” below for a comparison of the portion of the compensation paid to our named executive officers that consists of equity-based long-term compensation. For 2009, our named executive officers received a mix of stock options and restricted stock units that vest over time, the value of which depends on the performance of our common stock over time.

 

For 2010, the long-term compensation element of our compensation package was expanded to include a variable portion to be paid in cash after the end of a three-year period and earned upon Hanesbrands’ achievement of certain performance measures. For more information about these awards, see “Actions Relating to 2010 Compensation.”

 

Recoupment.  To further align the interests of employees with the interests of our stockholders and strengthen the link between total compensation and our company’s performance, under the Omnibus Incentive Plan the Compensation Committee may make retroactive adjustments to, and employees, including named executive officers, would be required to reimburse us for, any cash or equity-based incentive compensation paid to employees where such compensation was predicated upon achieving certain financial results that were substantially the subject of a restatement, if as a result of the restatement it is determined that the employees otherwise would not have been paid such compensation, regardless of whether or not the restatement resulted from the employees’ misconduct. While the foregoing decision is made in the discretion of the Compensation Committee, the Omnibus Incentive Plan provides that Hanesbrands shall, to the extent permitted by governing law, require reimbursement of any cash or equity-based incentive compensation paid to any named executive officer where: (i) the payment was predicated upon the achievement of certain financial results that were subsequently the subject of a substantial restatement, and (ii) in the view of the Compensation Committee the named executive officer engaged in fraud or misconduct that caused or partially caused the need for the substantial restatement.

In addition to the long-term incentive compensation element of our compensation package, the Hanesbrands Inc. Annual Incentive Plan (the “AIP”), our annual incentive program, provides for payouts tied to the achievement of annual performance measures that are considered to be key indicators of the success of our business strategy. Payments made pursuant to the AIP are also subject to recoupment in the same circumstances as described above for the Omnibus Incentive Plan.

 

Elements of Compensation and Analysis of Compensation Decisions

 

Determination of Total Compensation and Allocation of Compensation Elements

 

As discussed above, in setting total compensation opportunities for our named executive officers, we apply the executive compensation benchmarking criteria, and also consider the relative experience and scope of responsibilities of the named executive officers, the marketability of their experience and how critical their position is to our efforts to execute our strategies. This process results in total compensation opportunities at different levels among the named executive officers.

 

Once we have set total compensation opportunities in this manner, we consider the allocation of compensation among the various compensation elements by the Benchmark Companies in allocating the total compensation opportunities of our named executive officers among the elements of compensation that we offer. We consider the factors used in determining total compensation in allocating compensation opportunities among the elements of compensation. After considering these factors, we confirm that the result is reasonable by applying the executive compensation benchmarking criteria. After reviewing information about the allocation among the elements of compensation at the Benchmark Companies, the Compensation Committee approves an allocation among these elements for our named executive officers that is intended to further the objectives of our compensation policy, such as our objective of aligning the interests of our named executive officers with those of our stockholders through compensation with value that is tied to the performance of our company. The allocations approved by the Compensation Committee result in different allocations among the elements of compensation for the named executive officers.

 

Actions Relating to 2009 Compensation

 

In December 2008, the Compensation Committee reviewed total compensation opportunities for Hanesbrands’ executive officers, including the named executive officers, applying the executive compensation benchmarking criteria. As a result of such review, the Compensation Committee made the following determinations:

 

 

 

 

 

For our named executive officers, the percentage of total compensation opportunity for 2009 represented by base salary, annual bonus at target levels and long-term incentive awards is illustrated in the chart below.

 

 

Actions Relating to 2010 Compensation

 

In December 2009, the Compensation Committee again reviewed total compensation opportunities for Hanesbrands’ executive officers, including the named executive officers, applying the executive compensation benchmarking criteria. As a result of such review, the Compensation Committee made several determinations.

 

 

 

 

 

For our named executive officers, the percentage of total compensation opportunity for 2010 represented by base salary, annual bonus at target levels, long-term cash compensation and long-term equity compensation is illustrated in the chart below.

 

 

Base Salary

 

The base salaries for our named executive officers are determined based on their experience and the scope of their responsibilities, both on an individual basis and in relation to the experience and scope of responsibilities of other executives. The Compensation Committee also applies the executive compensation benchmarking criteria. These factors result in different compensation levels among the named executive officers. Base salaries are reviewed annually, and adjusted from time to time to reflect individual responsibilities, performance and experience, as well as market compensation levels.

 

Annual Bonus

 

Bonus compensation pursuant to the AIP is designed to motivate performance and to advance the interests of Hanesbrands by linking a portion of annual compensation to the achievement of financial objectives and key performance indicators, while contributing to increased long-term stockholder value. Because, as noted above, our compensation programs focus on the performance of our company rather than the performance of individual officers, individual performance targets are not set for our executives. The design of the AIP is intended to make it easy for participants to understand what performance is required to earn bonuses,

consistent with our operating principles of transparency and clarity in communicating our compensation programs.

 

Bonus opportunities exist for performance at a target level and for performance at a maximum level. No bonus opportunity exists for performance at or below a threshold level, but a pro-rated amount may be earned if performance is above the threshold level but below the target level. Our executives with the most senior leadership positions within our organization have the greatest ability to influence our company’s performance, and their bonus opportunity, which is tied to the performance of the company, as a percentage of their base salary is greater than that of our other executives and employees. In addition, the Compensation Committee considers information about the bonus opportunities available to comparable officers at the Benchmark Companies, and this may result in bonus opportunities differing among the named executive officers. The chart below illustrates the 2009 bonus opportunity, expressed as percentages of base salary, for each of our named executive officers at the threshold, target and maximum levels.

 

 

Discussion of 2009 AIP Payments.  For 2009, the components used to determine bonus amounts under the AIP for our named executive officers were sales growth and operating profit excluding certain publicly disclosed actions, which we refer to as operating profit. Given our business model and where we were in our restructuring plans for our company, the Compensation Committee considered these performance measures to be key indicators of the success of our business strategy and also to be appropriately linked to the long-term performance of our company’s equity. For 2009, the Compensation Committee determined to use operating profit on an excluding actions basis as its operating profit performance measure rather than net operating profit after taxes, which it previously used as a performance measure. The Compensation Committee made this change to allow employees and investors to more easily track our progress on meeting these targets by reference to our earnings releases and other information we file with the Securities and Exchange Commission, in which we report our results for these measures. For 2009, sales growth was weighted 25% and operating profit was weighted 75%. For example, a named executive officer would be eligible to receive 25% of target bonus if sales increase at the target level over sales for the previous year, and would be eligible to receive 25% of maximum bonus if sales increase by the maximum level over such prior period sales. In addition to these two financial measures, in previous years we also used a number of operating measures, referred to as key performance indicators, to determine bonus amounts under the AIP for some of our named executive officers. While we continue to use key performance indicators to help determine annual bonuses for other employees in our organization, the Compensation Committee made the decision not to use such key performance indicators for the named executive officers for 2009, based on the recommendation of management, in order to focus our most senior executives on our most important financial objectives.

 

Sales Growth.  In recognition of the severe U.S. recession and more specifically the unprecedented downturn in the domestic retail environment, we acknowledged that in 2009 sales would likely be below 2008 levels. Given that 2008 sales declined significantly, and in an effort to incent our executives and management team to maximize our sales in this difficult environment, we set our sales target level for 2009 at minus 3%, which, if achieved, would be lower than the 2008 decline. The threshold and maximum levels were set at five percentage points below and above the target level, or minus 8% and plus 2%, respectively. Under the AIP for 2009, sales growth of minus 3% would result in the named executive officers being eligible for the portion of their bonus attributable to sales growth at the target level, while sales growth of 2% would result in them being eligible for the portion of their bonus attributable to sales growth at the maximum level. For the fiscal year ended January 2, 2010, sales declined by approximately 8.4%. Because this is below the threshold level of minus 8%, the named executive officers did not receive any bonus attributable to sales growth.

Operating Profit.  Under the AIP for 2009, operating profit of $415 million would result in the named executive officers being eligible for the portion of their bonus attributable to operating profit at the target level, while operating profit of $311 million and $622 million would result in the named executive officers being eligible for the portion of their bonus attributable to operating profit at the threshold level and the maximum level, respectively. We determined our targets for operating profit by reference to net operating profit after taxes. Setting targets by reference to net operating profits after taxes takes into consideration the return that holders of our equity and debt expect to receive, further linking total compensation to performance and aligning the interests of our executive officers, including our named executive officers, with those of our stockholders. We set targets by reference to net operating profit after taxes for a fiscal year by multiplying our net invested capital as of the end of our previous fiscal year by our weighted average cost of capital for our previous fiscal year. These components are discussed below. These targets are set objectively by reference to our capital employed.

 

Our net invested capital is equal to our total assets minus total current liabilities. Our investors and employees can determine those amounts by reference to our earnings releases and other information that we file with the Securities and Exchange Commission. As of January 3, 2009, we reported total assets of $3.5 billion and total current liabilities of $0.7 billion, resulting in net invested capital of $2.8 billion.

 

Our weighted average cost of capital is a weighted average of the cost of our equity (determined by reference to the return on 20-year U.S. Treasury bonds and a risk premium determined by reference to materials published by Ibbotson Associates) and the cost of our long-term debt and the current portion of long-term debt (the average interest rate paid during the year on the amount of our debt that is outstanding at the end of our fiscal year, as adjusted for taxes). As of January 3, 2009, our cost of equity was 10.9% after tax, our cost of debt was 7.9%, and our weighted average cost of capital was 9.2%.

 

We multiplied our net invested capital of $2.8 billion as of January 3, 2009 by our weighted average cost of capital of 9.2%. We divided the result, $259 million, by one minus our estimated tax rate for 2009 of 22%, and then set our 2009 target level of operating profit at 125% of that amount, or approximately $415 million. We multiplied this number by 75% and 150% to set the threshold and maximum levels of approximately $311 million and $662 million, respectively. We disclosed our operating profit and how it related to our net operating profit as determined in accordance with generally accepted accounting principles, when we released our earnings information for completed fiscal periods during 2009. Other than those reflected in our publicly disclosed earnings information, no adjustments were made to our operating profit for purposes of the AIP. For the fiscal year ended January 2, 2010, operating profit as reported on an excluding actions basis excluded accelerated depreciation included in cost of sales, accelerated depreciation included in selling, general and administrative expenses, spin off related and other expenses included in selling, general and administrative expenses, inventory write-offs included in cost of sales and restructuring. For the fiscal year ended January 2, 2010, operating profit, as reported on an excluding actions basis, was $343.4 million, or 31.2% of the target amount.

 

As a result of Hanesbrands’ performance for the fiscal year ended January 2, 2010, each of our named executive officers received bonuses at approximately 23.4% of their target bonus amounts.

 

2010 Targets.  For 2010, the Compensation Committee considered the fact that our company’s restructuring efforts have largely been completed and concluded that earnings per share growth would be a better profit measure than operating profit in aligning the performance of our named executive officers with stockholder value as it incorporates aspects of growth, profitability and capital efficiency. Therefore, the Compensation Committee decided that for each of the named executive officers, sales growth and earnings per share growth will be the two measures used for the AIP for 2010, weighted 25% and 75% respectively.

 

Hanesbrands has determined that, because the restructuring charges associated with our consolidation and globalization strategy were substantially completed in 2009, beginning with 2010 we will no longer report results on an excluding actions basis. However, certain non-recurring, infrequent or unusual actions may occur from time to time that would have been excluded from earnings per share reported by Hanesbrands if it were reporting results on an excluding actions basis. While we currently do not expect any of those actions to occur in the next two years, if any such actions occur they will be excluded from earnings per share for purposes of the AIP to the same extent they would have been excluded if we were continuing to report on an excluding actions basis.

The earnings per share growth and sales growth targets under the AIP for 2010 are tied to our long-term growth objectives for these measures. Earnings per share growth will be determined by considering any increase in our earnings per share on an excluding actions basis for the fiscal year ended January 1, 2011 as compared to earnings per share on an excluding actions basis for the fiscal year ended January 2, 2010. Earnings per share growth of 15% would result in the named executive officers being eligible for the portion of their bonus attributable to earnings per share growth at the target level, while earnings per share growth of 25% would result in the named executive officers being eligible for the portion of their bonus attributable to earnings per share growth at the maximum level. The threshold level of earnings per share growth was set at 5%. Sales growth of 3% would result in the named executive officers being eligible for the portion of their bonus attributable to sales growth at the target level, while sales growth of 6% would result in the named executive officers being eligible for the portion of their bonus attributable to sales growth at the maximum level. The threshold level of sales growth was set at 0%.

 

As discussed above, the targets and measures used for the AIP for 2010 are the same as those used for the awards under 2010-2012 Performance Cash Award Program that comprise as part of long-term compensation for the named executive officers commencing in 2010.

 

Long-Term Incentive Program

 

The Omnibus Incentive Plan permits the issuance of equity and cash incentive awards to our employees, non-employee directors and employees of our subsidiaries to promote the interests of our company and our stockholders. The Omnibus Incentive Plan is designed to promote these interests by providing such individuals with a proprietary interest in pursuing the long-term growth, profitability and financial success of our company.

 

For 2009, the two types of long-term incentive grants awarded to our executive officers were stock options and time-vested restricted stock units. Restricted stock units and options vest according to schedules established at grant, conditioned on continued employment with Hanesbrands, with vesting in the event of a qualifying termination of employment for death, disability, retirement or involuntary termination or a change in control as determined at the time of grant. We believe stock options align the interests of our employees with those of our stockholders, because the stock options, with exercise prices equal to the closing price of our common stock on the date of grant, have value only if our share price increases after the date of grant. We believe that restricted stock units similarly align the interests of our employees with those of our stockholders because the value of this element of compensation increases or decreases with our stock price. Additional details regarding the awards made pursuant to the Omnibus Incentive Plan during the fiscal year ended January 2, 2010 are discussed below under “Discussion of Summary Compensation Table and Grants of Plan-Based Awards Table.” Equity awards to executive officers and other employees are approved as a dollar amount, which on the grant date is converted into a specific number of restricted stock units and, in the case of certain executive officers, including the named executive officers, stock options. The number of restricted stock units is determined by using the closing price of our common stock on the date of grant. The number of stock options is determined by a third party using a Black-Scholes option-pricing model, with the closing price of our common stock on the date of grant as one of the factors used. The exercise price of the stock options granted is the closing price of our common stock on the date of grant.

 

For 2010, in addition to stock options and restricted stock units, we granted a portion of the annual long-term incentive compensation award for our named executive officers in the form of an award under the 2010-2012 Performance Cash Award Program that is tied to the achievement of performance measures by our company.

 

Stock Option Amendment.  Like many companies, during 2009 our stock price declined significantly with the deterioration and volatility of financial markets in recent periods. As a result, many of the stock options held by our employees, including our named executive officers, have been substantially “underwater” (meaning that the exercise prices are significantly in excess of the current fair market value of our common stock). Many of these stock options had an original term of five years or seven years, and were scheduled to expire in 2011, 2013, 2014 or 2015, giving them a limited time during which to recover value prior to their expiration. If an option expires while still underwater, it confers no value to the holder yet still results in compensation expense to the company.

On July 27, 2009, the Compensation Committee approved an amendment (the “Stock Option Amendment”) to all stock options having a five-year or seven-year term and an exercise price ranging from $22.37 to $29.35, to extend the option term by five years or three years, respectively (that is, to the tenth anniversary of the original grant date). In making its decision to approve this amendment, the Compensation Committee considered that extending the term of the stock options would allow them to recover value and thereby provide the intended compensatory benefit and performance incentive. The Compensation Committee also considered that having stock options with terms shorter than ten years was not consistent with current best practices in the marketplace or our company’s current practices. The Compensation Committee did not adjust the exercise price, vesting schedule or any other features of the stock options. A ten-year term is expressly permitted under our Omnibus Incentive Plan. The Compensation Committee determined that the additional incremental accounting expense associated with this modification, which is reflected in the “Grant Date Fair Value of Stock and Option Awards” column of the Grants of Plan-Based Awards table below, was reasonable in light of the benefit conferred.

 

Discussion of 2009 Long-Term Incentive Plan Grants.  Our executives with the most senior leadership positions within our organization have the greatest ability to influence our company’s performance. Therefore, the value of their long-term incentive awards as a percentage of their base salary is greater than that of our other employees.

 

The table below shows annual compensation and long-term incentive compensation at the target level for each of the named executive officers for 2010, 2009, 2008 and 2007. This table presents information that is supplemental to, and should not be considered a substitute for, the information contained in the Summary Compensation Table which appears below under “Summary of Compensation.” This table is not required by Securities and Exchange Commission rules, and we have chosen to include it to help investors better understand how our named executive officers are compensated. Amounts are target amounts and do not necessarily reflect exact amounts that were or will be paid.

 

Target Annual and Long-Term Compensation

 

 

 

 

Post-Employment Compensation

 

Our named executive officers are eligible to receive post-employment compensation pursuant to the Hanesbrands Inc. Pension Plan, or the “Pension Plan,” and our defined contribution retirement program, which includes the Hanesbrands Inc. Retirement Savings Plan, or the “401(k) Plan,” and the Hanesbrands Inc. Supplemental Employee Retirement Plan, or the “SERP,” and pursuant to Severance/Change in Control Agreements, or “Severance Agreements.” Each of these arrangements is discussed below.

 

Pension Plan.  The Pension Plan is a defined benefit pension plan under which benefits have been frozen since December 31, 2005, intended to be qualified under Section 401(a) of the Internal Revenue Code, that provides the benefits that had accrued for any of our employees, including our named executive officers, under the Sara Lee Corporation Consolidated Pension and Retirement Plan as of December 31, 2005. Because the Pension Plan is frozen, no additional employees will become eligible to participate in the Pension Plan, and existing participants in the Pension Plan do not accrue any additional benefits after December 31, 2005.

 

Defined Contribution Retirement Program.  Our defined contribution retirement program includes the 401(k) Plan and the SERP. Under the 401(k) Plan, our executive officers and generally all full-time domestic exempt and non-exempt salaried employees may contribute a portion of their compensation to the plan on a pre-tax basis and receive a discretionary matching employer contribution of up to a possible maximum of 4% of their eligible compensation not in excess of certain dollar limits mandated by the Internal Revenue Code ($245,000 for calendar years 2009 and 2010). In addition, we may make an employer contribution to exempt and non-exempt salaried employees of up to an additional 4% of their eligible compensation.

 

The SERP is a nonqualified supplemental retirement plan that provides two types of benefits that we refer to collectively as the “Defined Contribution Component” of the SERP.

 

 

As discussed below under “Nonqualified Deferred Compensation,” at the end of 2008, we provided all active participants in the SERP with an election to receive the accrued Defined Contribution Component of their SERP benefit as of December 31, 2008 in the form of a lump sum payment in 2009 or 2010.

 

The SERP also provides benefits, which we refer to as the “Defined Benefit Component” of the SERP, consisting of those supplemental retirement benefits that had been accrued under the Sara Lee Corporation Supplemental Executive Retirement Plan as of December 31, 2005. As discussed below under “Pension Benefits,” at the end of 2008, we provided all active participants in the SERP with an election to receive the accrued Defined Benefit Component of the SERP benefit in the form of a lump sum payment in 2009 or 2010.

Severance Agreements.  We have entered into Severance Agreements with all of our executive officers, including our named executive officers. The Severance Agreements provide our executive officers with benefits upon the involuntary termination of their employment other than for wrongful behavior or misconduct. The Severance Agreements also contain change in control benefits for our executive officers to help keep them focused on their work responsibilities during the uncertainty that accompanies a potential change in control, to provide benefits for a period of time after a change in control transaction and to help us attract and retain key talent. We determined the levels of severance provided to our named executive officers under the Severance Agreements by reference to market studies conducted prior to entering into the first Severance Agreements in connection with our spin off. We believe the levels of benefits offered by the Severance Agreements are appropriate and competitive and that these benefits were reasonable in light of Hanesbrands’ status as a newly public company following the spin off. Compensation that could potentially be paid to our named executive officers pursuant to the Severance Agreements is described below in “Potential Payments upon Termination or Change in Control.” Each agreement is effective for an unlimited term, unless we give at least 18 months prior written notice that the agreement will not be renewed. In addition, if a change in control occurs during the term of the agreement, the agreement will automatically continue for two years after the end of the month in which the change in control occurs.

 

Other Compensation

 

Plans and Arrangements.  Our executive officers, including our named executive officers, are eligible to participate in certain employee benefits plans and arrangements offered by our company. These include the 401(k) Plan (which is described above), the Hanesbrands Inc. Executive Deferred Compensation Plan, or the “Executive Deferred Compensation Plan,” the Hanesbrands Inc. Executive Life Insurance Plan, or the “Life Insurance Plan,” and the Hanesbrands Inc. Executive Disability Plan, or the “Disability Plan.” Under the Executive Deferred Compensation Plan, a group of approximately 240 executives at the director level and above, including our named executive officers, may defer receipt of cash and equity compensation. We offer the Executive Deferred Compensation Plan because programs of its kind are offered by some of the Benchmark Companies, and because we wanted to allow those of our executives who were participating in a similar plan offered by Sara Lee prior to the spin off to maintain a similar benefit after the spin off.

 

The Life Insurance Plan provides life insurance benefits to a group of approximately 80 employees at the level of vice president or above, including our named executive officers, who contribute materially to the continued growth, development and future business success of Hanesbrands. The Life Insurance Plan, which includes both a death benefit and a cash value, provides life insurance coverage during active employment in an amount equal to three times annual base salary, and, depending on the performance of investments in the plan, may offer continuing coverage following retirement. The Life Insurance Plan also provides executives with the opportunity to make voluntary, after-tax contributions that may be allocated by the executive into a range of investment options. The Disability Plan provides long-term disability benefits for persons employed by Hanesbrands and its subsidiaries as eligible executives. The Disability Plan provides disability coverage for a group of approximately 80 employees at the level of vice president and above, including our named executive officers. If an eligible employee becomes totally disabled, the program will provide a monthly disability benefit equal to 1/12 of the sum of (i) 75% of the employee’s annual base salary up to an amount not in excess of $500,000, and (ii) 50% of the three-year average of the employee’s annual short-term incentive bonus up to an amount not in excess of $250,000. The maximum monthly disability benefit is $41,667 and is reduced by any disability benefits that an employee is entitled to receive under Social Security, workers’ compensation, a state compulsory disability law or another plan of Hanesbrands providing benefits for disability.

 

Perquisites.  We offer limited perquisites to our executive officers, including our named executive officers, including an executive car allowance and company-paid medical examinations.

 

Share Ownership and Retention Guidelines

 

We believe that our executives should have significant ownership stakes in Hanesbrands. To promote such equity ownership and further align the interests of our executives with our stockholders, we have adopted share

retention and ownership guidelines for our key executives, including our named executive officers. These ownership guidelines vary based upon the executive’s level and range from a minimum of one times base salary to, in the case of the Chief Executive Officer, four times base salary. The Compensation Committee reviewed the guidelines during the fiscal year ended January 2, 2010 and did not make any changes.

 

Our key executives have a substantial portion of their incentive compensation paid in the form of our common stock. In addition to shares directly held by a key executive, shares held for such executive in the 401(k) Plan, the Executive Deferred Compensation Plan and the SERP (including hypothetical share equivalents held in the latter two plans) will be counted for purposes of determining whether the ownership requirements are met. Although it is currently the practice of our executive officers not to participate in our employee stock purchase plan and thereby not to benefit from the discounted purchase price for our common stock available under that plan, any shares held in that plan in the future would also be counted.

 

Until the stock ownership guidelines are met, an executive is required to retain 50% of any shares received (on a net after tax basis) under our equity-based compensation plans. The Compensation Committee reviewed compliance by our executive officers, including our named executive officers, as of the end of October 2009 and determined that, with the exception of two executive officers, who joined our company in 2007, each of our executive officers other than Mr. Noll had achieved ownership of between approximately 65% and 200% of the shares set forth in the guidelines during the time following the spin off in September 2006; Mr. Noll had achieved an ownership percentage of approximately 240% of the shares set forth in the guidelines.

 

Under our insider trading policy, directors and executive officers are required to clear in advance all transactions in Hanesbrands securities with Hanesbrands’ legal department. Further, no director, executive officer or other employee of Hanesbrands is permitted to engage in “short sales” or “sales against the box” or trade in puts, calls or other options on our securities. These provisions are part of our overall program to prevent any Hanesbrands directors, officers or employees from trading on inside information.

 

Impact of Certain Regulatory Requirements

 

Section 162(m) of the Internal Revenue Code limits the tax deductibility of certain compensation paid to our chief executive officer and our three other executive officers, other than our chief financial officer, with the highest total compensation. This provision disallows the deductibility of certain compensation in excess of $1 million per year unless it is considered performance-based compensation under the Internal Revenue Code. We have adopted policies and practices that are intended to take into account the maximum tax deduction possible under Section 162(m) of the Internal Revenue Code for our annual bonus payments and stock option awards; however, there can be no guarantee that the IRS will agree on the amount of those deductions. In addition, we may forgo any or all of the tax deduction if we believe it to be in the best long-term interests of our stockholders. Time-vested restricted stock units are not deemed “performance based,” and therefore are not tax deductible if the value at vesting, in combination with other non-performance-based compensation such as salary, exceeds $1 million for an executive officer. We expect that approximately $5,133,839, $1,364,932 and $294,717 of the compensation payable to Mr. Noll, Mr. Evans and Mr. Nictakis, respectively, will not be deductible.

 

In making decisions about executive compensation, we also consider the impact of other regulatory provisions, including the provisions of Section 409A regarding non-qualified deferred compensation and the “golden parachute” provisions of Section 280G of the Internal Revenue Code. For example, we have attempted to structure the Severance Agreements so that they will not result in adverse tax consequences under Section 409A.

 

In making decisions about executive compensation, we also consider how various elements of compensation will impact our financial results. In this regard, we consider the impact of applicable stock compensation accounting rules, which determines how we recognize the cost of employee services received in exchange for awards of equity instruments.

 

The following table sets forth a summary of compensation earned by or paid to our named executive officers for the fiscal years ended January 2, 2010, January 3, 2009 and December 29, 2007.

 

Summary Compensation Table

 

 

 

 

The following table sets forth a summary of grants of plan-based awards to the named executive officers for the fiscal year ended January 2, 2010.

 

Grants of Plan-Based Awards in 2009

 

 

 

 

 

 

 

 

As discussed above under “Elements of Compensation and Analysis of Compensation Decisions,” the base salaries for our named executive officers are determined based on their experience and the scope of their responsibilities both on an individual basis and in relation to the experience and scope of responsibilities of other executives. The Compensation Committee also applies the executive compensation benchmarking criteria. For the fiscal year ended January 2, 2010, bonuses were paid in accordance with the performance targets set under the AIP. See “Elements of Compensation and Analysis of Compensation Decisions” for an analysis of the salary and bonus paid to our named executive officers for the fiscal year ended January 2, 2010.

 

For 2009, consistent with the objectives of the Omnibus Incentive Plan of providing employees with a proprietary interest in our company and aligning employee interest with that of our stockholders, we made long-term incentive awards in the form of stock options and restricted stock units. For executive officers, including the named executive officers, the form of these awards was split evenly between stock options and restricted stock units that vest 33%, 33% and 34% on the first anniversary, second anniversary and third anniversary, respectively, of the date of grant. As discussed above, for the 2009 fiscal year, the Compensation Committee changed the allocation of Mr. Noll’s long-term equity compensation so that he received 50% of the value of his 2009 long-term incentive award in the form of stock options and 50% in the form of restricted stock units; in 2008 Mr. Noll received his entire award in the form of stock options. The Compensation Committee made this change to more closely align with the practices of the Benchmark Companies and to align Mr. Noll’s long-term incentive mix with that of the other named executive officers. The number of stock options granted to each recipient was determined based on a Black-Scholes option-pricing model. The exercise price of the stock options is 100% of the fair market value of our common stock on the grant date. The awards made to our named executive officers for 2009 were granted in December 2008; as a result, these awards were reflected in the “Grants of Plan-Based Award Table” for the fiscal year ended January 3, 2009.

 

For 2010, we made long-term incentive awards in the form of stock options, restricted stock units and awards under the 2010-2012 Performance Cash Award Program. For executive officers, including the named executive officers, the form of these awards was split 40%, 40% and 20% among stock options, restricted stock units and performance cash awards, respectively, although the aggregate amount of the long-term incentive award for each named executive officer did not change from 2009. The stock options and restricted stock units vest 33%, 33% and 34% on the first anniversary, second anniversary and third anniversary, respectively, of the date of grant. The stock option and restricted stock unit awards made to our named executive officers for 2010 were granted in 2009; as a result, these awards are reflected in the “Grants of Plan-Based Award Table” above and the full grant date value of these awards is included in the “Summary Compensation Table” above.

 

More information about the stock options, restricted stock units and performance cash awards we have granted is included above in “Elements of Compensation and Analysis of Compensation Decisions.”

 

On July 27, 2009, the Compensation Committee approved the Stock Option Amendment, pursuant to which the original five-year or seven-year term of certain stock options was extended by an additional five years or three years, respectively (that is, to the tenth anniversary of the original grant date). All of the stock options so amended were underwater at the time of the modification (meaning that the exercise prices were in excess of the then-current fair market value of our common stock). The exercise price and the vesting schedule of the stock options were not adjusted. For additional information regarding the modification of these stock options, see the discussion above under “Elements of Compensation and Analysis of Compensation Decisions — Long-Term Incentive Program.”

 

The following table sets forth certain information with respect to outstanding equity awards at January 2, 2010 for each of the named executive officers.

 

Outstanding Equity Awards at Fiscal 2009 Year-End