UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No.   )

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Time Warner Inc.

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April   , 2011

 

Dear Fellow Stockholder:

 

You’re cordially invited to attend Time Warner Inc.’s 2011 Annual Meeting of Stockholders. The meeting will be held on Friday, May 20, 2011, at 10:00 a.m. (local time) at the Omni Hotel at CNN Center in Atlanta, Georgia. A map with directions to the meeting is provided on the last page of this Proxy Statement. If you are unable to attend the meeting in person, please listen to the webcast live on the Internet at www.timewarner.com/annualmeetingmaterials.

 

Details about the business to be conducted at the Annual Meeting and other information can be found in the attached Notice of Annual Meeting of Stockholders and Proxy Statement. As a stockholder, you will be asked to vote on a number of proposals.

 

Whether or not you plan to attend the Annual Meeting of Stockholders in person, your vote is important. After reading the attached Notice of Annual Meeting of Stockholders and Proxy Statement, please submit your proxy or voting instructions promptly.

 

We look forward to seeing those of you who are able to attend the Annual Meeting in person.

 

Sincerely,

 

Jeffrey L. Bewkes

Chairman of the Board
and Chief Executive Officer

 

YOUR VOTE IS IMPORTANT. PLEASE PROMPTLY SUBMIT YOUR PROXY
BY INTERNET, TELEPHONE OR MAIL.

Time Warner Inc.
One Time Warner Center
New York, NY 10019-8016

 

The Annual Meeting (the “Annual Meeting”) of Stockholders of Time Warner Inc. (the “Company”) will be held on Friday, May 20, 2011, at 10:00 a.m. (local time). The meeting will take place at:

 

Omni Hotel at CNN Center
Grand Ballroom, M4 Level, North Tower
100 CNN Center
Atlanta, GA 30303

 

(see directions and parking instructions on back cover)

 

 

The purposes of the meeting are:

 

 

The close of business on March 25, 2011, is the record date for determining stockholders entitled to vote at the Annual Meeting or any adjournments or postponements thereof. Only holders of the Company’s common stock as of the record date are entitled to vote on the proposals described in this Notice of Annual Meeting of Stockholders and the accompanying Proxy Statement.

 

You can vote your shares using one of the following methods:

 

 

Whether or not you plan to attend the Annual Meeting in person, please promptly submit your proxy or voting instructions by Internet, telephone or mail by following the instructions found on your Notice of Internet Availability of Proxy Materials, proxy card or voting instruction form. Any holder of record who is present at the Annual Meeting may vote in person instead of by proxy, thereby canceling any previous proxy. Please note that if your shares are held through a bank or brokerage account, you will need to contact your bank or broker to obtain a written legal proxy from the record holder of your shares to vote in person at the Annual Meeting.

 

If you are planning to attend the Annual Meeting in person, because of security procedures, you should register in advance to be admitted to the Annual Meeting. You can register in advance by calling (855) 896-3388 by Wednesday, May 18, 2011. In addition to registering in advance, you will be required to present government-issued photo identification (e.g., driver’s license or passport) to be admitted to the Annual Meeting. Inspection of packages and bags, among other measures, may be employed to enhance the security of those attending the Annual Meeting. These procedures may require additional time, so please plan accordingly. To avoid disruption, admission may be limited once the Annual Meeting begins.

 

Time Warner Inc.

 

Paul F. Washington

Corporate Secretary

 

April   , 2011

 

TABLE OF CONTENTS

 

TIME WARNER INC.

One Time Warner Center
New York, NY 10019-8016

PROXY STATEMENT

 

This Proxy Statement is being furnished in connection with the solicitation of proxies by the Board of Directors of Time Warner Inc., a Delaware corporation (“Time Warner” or the “Company”), for use at the Annual Meeting of the Company’s stockholders (the “Annual Meeting”) to be held on Friday, May 20, 2011, at the Omni Hotel at CNN Center in Atlanta, Georgia, commencing at 10:00 a.m., local time, and at any adjournment or postponement, for the purpose of considering and acting on the matters set forth in the accompanying Notice of Annual Meeting of Stockholders and in this Proxy Statement. Stockholders attending the Annual Meeting in person should follow the directions provided on the last page of this Proxy Statement.

 

As permitted by rules adopted by the Securities and Exchange Commission (the “SEC”), the Company has elected to provide the majority of its stockholders with access to its proxy materials over the Internet rather than providing them in paper form. Accordingly, the Company will send a Notice of Internet Availability of Proxy Materials with instructions for accessing the proxy materials via the Internet to most of its stockholders of record as of the close of business on March 25, 2011. If you received a Notice of Internet Availability of Proxy Materials, you will not receive a printed copy of the proxy materials unless you request it by following the instructions in the notice for requesting printed materials. On or about April   , 2011, the Company will begin mailing the Notice of Internet Availability of Proxy Materials to stockholders entitled to vote at the Annual Meeting, as well as printed copies of the Proxy Statement and accompanying form of proxy to some stockholders.

 

A copy of the Company’s 2010 Annual Report to Stockholders has been sent simultaneously with this Proxy Statement or has been made available to all stockholders entitled to vote at the Annual Meeting.

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to Be Held on Friday, May 20, 2011:

 

This Proxy Statement and the Company’s 2010 Annual Report to Stockholders are available electronically at www.timewarner.com/annualmeetingmaterials.

 

Time Warner stockholders should submit their proxy or voting instructions as soon as possible.

 

If you received a Notice of Internet Availability of Proxy Materials: Please submit your proxy or voting instructions via the Internet using the instructions included in the Notice of Internet Availability of Proxy Materials.

 

If you received a paper copy of the proxy materials: If you are submitting your proxy by mail, please complete, sign and return the proxy card. To assure that your proxy is received in time to be voted at the Annual Meeting, the proxy card must be completed in accordance with the instructions on it and received prior to the Annual Meeting. If you are submitting your proxy by telephone, follow the “Vote by telephone” instructions on the Electronic Voting Instructions section of the proxy card delivered with the proxy materials. If you are submitting your proxy by Internet, follow the “Vote by Internet” instructions on the Electronic Voting Instructions section of the proxy card delivered with the proxy materials. Whichever method you select, to assure that your proxy is counted, you must submit it prior to 1:00 a.m., Central Time, on May 20, 2011. If your Time Warner common stock, par value $0.01 per share (“Common Stock”), is held in “street name,” you should submit your voting instructions in accordance with the instructions on the voting instruction form provided by the bank, brokerage firm or other nominee that holds Common Stock on your behalf.

 

What proposals are being presented at the Annual Meeting?

 

Time Warner intends to present the following proposals at the Annual Meeting:

 

 

Other than matters set forth in this Proxy Statement, Time Warner does not know of any business or proposals to be considered at the Annual Meeting.

 

How does the Board of Directors recommend stockholders vote?

 

The Board of Directors recommends stockholders vote FOR the election of the nominees for election as directors; FOR the ratification of the appointment of Ernst & Young LLP as independent auditors of the Company for 2011; FOR the approval, on an advisory basis, of the compensation of the Company’s named executive officers; FOR the approval, on an advisory basis, of a vote on executive compensation every “3 YEARS”; FOR an amendment to the Company’s Restated Certificate of Incorporation to remove absolute majority vote provisions; and AGAINST the stockholder proposal described in this Proxy Statement. When voting via the Internet or by telephone, you may indicate that you wish to vote as recommended by the Board.

 

Who is entitled to vote?

 

Only holders of record of Common Stock at the close of business on March 25, 2011, the record date, are entitled to vote at the Annual Meeting.

 

How many votes do I have?

 

Every holder of Common Stock on the record date will be entitled to one vote per share on all matters properly presented at the Annual Meeting. On March 25, 2011, there were          shares of Common Stock outstanding and entitled to vote at the Annual Meeting.

 

How do I attend the Annual Meeting?

 

For admission to the Annual Meeting, stockholders should register in advance by calling (855) 896-3388. In addition, stockholders will be required to present government-issued photo

identification (e.g., driver’s license or passport) to be admitted to the Annual Meeting. The Annual Meeting will begin at 10:00 a.m. (local time) on Friday, May 20, 2011.

 

How do I vote?

 

If you are a holder of Common Stock on the record date, you can vote in the following ways:

 

 

By Internet: by submitting your proxy (if you are a registered holder) or voting instruction form (if you hold your shares through a bank, brokerage firm or other nominee) by following the instructions included in the Notice of Internet Availability of Proxy Materials.

 

 

By Internet: by submitting your proxy by following the “Vote by Internet” instructions on the Electronic Voting Instructions section of the proxy card at any time until 1:00 a.m., Central Time, on May 20, 2011.

 

By Telephone: by submitting your proxy by following the “Vote by telephone” instructions on the Electronic Voting Instructions section of the proxy card at any time until 1:00 a.m., Central Time, on May 20, 2011.

 

By Mail: by marking, dating and signing your proxy card in accordance with the instructions on it and returning it by mail in the pre-addressed reply envelope provided with the proxy materials. The proxy card must be received prior to the Annual Meeting.

 

 

Even if you plan to be present at the Annual Meeting, you are encouraged to vote your shares of Common Stock by submitting your proxy or voting instructions.

 

What does it mean to vote by proxy?

 

By submitting your proxy, you authorize the persons named in the proxy (Paul T. Cappuccio, John K. Martin, Jr. and Karen Magee) to vote your shares at the Annual Meeting in accordance with your instructions. All shares entitled to vote and represented by properly executed proxies received prior to the Annual Meeting, and not revoked, will be voted as instructed on those proxies. The Board does not currently know of any other matters to be presented at the Annual Meeting. If any other matters are properly presented at the Annual Meeting for consideration, the persons named in the proxy will have discretion to vote on those matters in accordance with their own judgment to the same extent you would be entitled to vote. They may also vote your shares to adjourn the Annual Meeting and will be authorized to vote your shares at any adjournments or postponements of the meeting. In accordance with the Company’s By-laws, the Annual Meeting may be adjourned, including by the Chairman, to permit the solicitation of additional proxies. You may not appoint more than three persons to act as your proxy at the Annual Meeting.

May I change or revoke my proxy after I submit my proxy or voting instructions?

 

Yes, you may change your proxy at any time before it is exercised by either:

 

 

The written notice of revocation or subsequent proxy should be delivered to Time Warner Inc., One Time Warner Center, New York, NY 10019-8016, Attention: Corporate Secretary, or hand delivered to the Corporate Secretary before the taking of the vote at the Annual Meeting.

 

If you are a beneficial owner and hold shares through a broker or other nominee, you must contact your broker or nominee to revoke any prior voting instructions.

 

What if I submit my proxy card or voting instruction form but do not indicate how I am voting?

 

 

What constitutes a quorum?

 

The presence, in person or by proxy, of the holders of a majority of the Common Stock outstanding and entitled to vote at the Annual Meeting constitutes a quorum and is necessary for the conduct of business at the Annual Meeting.

What vote is required to approve the proposals?

 

 

With respect to Proposals 1, 2, 3, 5 and 6, you may vote FOR, AGAINST or ABSTAIN. With respect to Proposal 4, you may vote for every 3 YEARS, 2 YEARS, 1 YEAR or ABSTAIN.

 

How are abstentions and broker “non-votes” counted?

 

If you are a beneficial owner of shares held in street name and do not provide the bank or broker that holds your shares with specific voting instructions, then under New York Stock Exchange rules, the bank or broker will have discretion to vote your shares on Proposal 2, but not with respect to the other Proposals, in which case your shares will be counted as a “broker non-vote” on those proposals.

 

Abstentions and broker “non-votes” are not included in the tabulation of the voting results on the election of directors or other issues requiring approval of a majority of the votes cast and, therefore, do not have the effect of votes in opposition. Abstentions and broker “non-votes” will, however, have the effect of a vote “against” any proposals requiring the affirmative vote of holders of a majority of the outstanding shares of Common Stock entitled to vote, such as Proposal 5. Broker “non-votes” and shares with respect to which a stockholder abstains are included in determining whether a quorum is present at the Annual Meeting.

How can I find the voting results?

 

The Company will disclose the final results of the voting in a Current Report on Form 8-K filed with the SEC within four business days of the Annual Meeting.

 

What does it mean if I receive more than one Notice of Internet Availability of Proxy Materials or set of proxy materials?

 

It means you have multiple accounts at the transfer agent and/or with banks and stockbrokers. Please submit proxies or voting instructions for all of your Common Stock.

 

I share the same address with another Time Warner stockholder. Why has our household received only one Notice of Internet Availability of Proxy Materials or set of proxy materials?

 

The SEC’s rules permit the Company to deliver a single Notice of Internet Availability of Proxy Materials or a single set of proxy materials to one address shared by two or more of the Company’s stockholders. This practice is intended to reduce the Company’s printing and postage costs. The Company has delivered only one Notice of Internet Availability of Proxy Materials or one set of proxy materials to stockholders who hold their shares through a bank, broker or other holder of record and share a single address, unless the Company received contrary instructions from any stockholder at that address.

 

If you have received only one copy of the Notice of Internet Availability of Proxy Materials or set of proxy materials and wish to receive a separate copy for each stockholder in your household or if you have received multiple notices or sets of proxy materials and wish to receive only one, please notify your bank, broker or other holder of record, or Broadridge Financial Solutions, Inc. at (800) 542-1061 or in writing at Broadridge, Householding Department, 51 Mercedes Way, Edgewood, NY 11717.

 

Who will bear the cost of solicitation?

 

Time Warner will bear all expenses of the solicitation, including the cost of preparing and mailing the Notice of Internet Availability of Proxy Materials and the proxy materials. In addition to solicitation by the use of the mail, directors, officers and employees of Time Warner may solicit proxies and voting instructions by telephone or other means of communication. Such directors, officers and employees will not be paid additional compensation but may be reimbursed for reasonable out-of-pocket expenses incurred in connection with such solicitation. Time Warner has retained D.F. King & Co., Inc. at an estimated cost of $24,500, plus reimbursement of expenses, to assist in its solicitation of proxies. Time Warner has also agreed to pay the reasonable expenses of banks, brokerage firms and other nominees for mailing the Notices of Internet Availability of Proxy Materials and proxy materials to beneficial owners of shares held of record by such banks, brokerage firms and other nominees.

 

Director Nominees for 2011 Annual Meeting

 

Upon the recommendation of the Nominating and Governance Committee of the Board of Directors (the “Nominating Committee”), the Board nominated for election at the Annual Meeting the slate of 13 nominees listed below. The section “Directors of the Company” on pages 29 to 41 of this Proxy Statement contains information regarding the backgrounds of the nominees, including the key skills and professional qualifications that the Board considered in concluding that the nominees are qualified to serve on the Company’s Board.

 

Directors are elected by a majority of the votes cast unless the election is contested, in which case directors are elected by a plurality of the votes cast. If an incumbent director nominee in an uncontested election receives more “against” votes than “for” votes, the director must submit an offer to resign from the Board. The Board will then consider the resignation offer and may either (i) accept the resignation offer or (ii) reject the resignation offer and seek to address the underlying cause(s) of the “against” votes. The Board is required to make its determination within 90 days following the certification of the stockholder vote and make a public announcement of its decision, including a statement regarding the reasons for its decision if the Board rejects the resignation offer.

 

Each of the nominees currently serves as a director of the Company and, other than Mr. Wachter (who was elected by the Board of Directors in October 2010 in accordance with the Company’s By-laws), was elected by the stockholders at the Company’s 2010 Annual Meeting of Stockholders. The nominees for director at the 2011 Annual Meeting will be elected to serve for a one-year term until the next annual meeting of stockholders and until their successors have been duly elected and qualified or until their earlier death, resignation or retirement. If any director nominee is unable or unwilling to serve as a director at the time of the annual meeting of stockholders, the persons who are designated as proxies intend to vote, in their discretion, for such other persons, if any, as may be designated by the Board. As of the date of this Proxy Statement, the Board of Directors has no reason to believe that any of the nominees will be unable or unwilling to serve as a nominee or as a director if elected.

 

The persons named in the proxy intend to vote such proxy for the election of each of the 13 nominees named below, unless the stockholder indicates on the proxy that the vote should be “against” any or all of the nominees.

 

 

James L. Barksdale

William P. Barr

Jeffrey L. Bewkes

Stephen F. Bollenbach

Frank J. Caufield

Robert C. Clark

Mathias Döpfner

Jessica P. Einhorn

Fred Hassan

Michael A. Miles

Kenneth J. Novack

Paul D. Wachter

Deborah C. Wright

 

Vote Required for Approval

 

A majority of the votes duly cast by the holders of Common Stock with respect to each director is required for the election of that director.

 

The Audit and Finance Committee of the Board of Directors (the “Audit Committee”) has appointed Ernst & Young LLP as independent auditors of the Company to audit its consolidated financial statements for 2011, and the Board of Directors has determined that it would be desirable to request that the stockholders ratify such appointment. Representatives of Ernst & Young LLP will be present at the Annual Meeting with the opportunity to make a statement if they desire to do so and to respond to appropriate questions from stockholders.

 

 

 

Vote Required for Approval

 

The affirmative vote of a majority of the votes duly cast by the holders of Common Stock is required to ratify the appointment of Ernst & Young LLP. However, stockholder approval is not required for the appointment of Ernst & Young LLP because the Audit Committee is responsible for selecting the Company’s independent auditors. No determination has been made as to what action the Audit Committee or the Board of Directors would take if stockholders do not ratify the appointment.

 

In accordance with Section 14A of the Securities Exchange Act of 1934 (the “Exchange Act”), which was added by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), and the related rules of the SEC, the Company is providing stockholders an advisory vote on executive compensation.

 

The Company’s executive compensation program is designed to advance the philosophy of the Compensation and Human Development Committee of the Board of Directors (the “Compensation Committee”) of motivating and retaining executives, holding the executives accountable for business and individual performance, and aligning the executives’ interests with those of the Company’s stockholders. To align executive pay with both the Company’s financial performance and the creation of long-term stockholder value, a significant portion of the compensation paid to the named executive officers is linked to performance-based short-term incentives (e.g., annual bonus) and long-term incentives (e.g., equity awards with multi-year vesting schedules or performance periods). The Compensation Committee continually reviews the compensation program to assess whether it achieves the desired goals.

 

The Compensation Committee and the Board of Directors believe that the Company’s 2010 executive compensation programs align well with the Compensation Committee’s philosophy and are linked to the Company’s performance. Stockholders are encouraged to read the “Compensation Discussion and Analysis” on pages 55 to 81 for information about the Company’s executive compensation programs and how they reflect the Compensation Committee’s philosophy and are linked to the Company’s performance.

 

The Company will ask its stockholders to vote on the following resolution at the Annual Meeting:

 

“RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation paid to the Company’s named executive officers, as disclosed in the Company’s Proxy Statement for the 2011 Annual Meeting of Stockholders pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narratives.”

 

 

 

Vote Required for Approval

 

The affirmative vote of a majority of the votes duly cast by the holders of Common Stock is required to adopt this proposal. However, the vote on executive compensation is advisory and, therefore, not binding on the Company, the Board of Directors or the Compensation Committee. The Board of Directors and the Compensation Committee may take into account the outcome of the vote when making future executive compensation decisions.

 

In addition to the advisory vote on executive compensation in Proposal 3 above, in accordance with Section 14A of the Exchange Act, the Company is providing stockholders with an opportunity to vote, on an advisory basis, on whether future executive compensation advisory votes should be held every year, every two years, or every three years.

 

After careful consideration, the Board of Directors is recommending a vote in favor of holding an advisory vote on executive compensation every three years. In reaching this recommendation, the Board has considered the relevant legislative and regulatory requirements, the Company’s compensation programs and governance policies, the results of prior votes by the Company’s stockholders regarding proposals to hold advisory votes on executive compensation, the views expressed by the Company’s stockholders in discussions over recent months, and evolving industry practices.

 

The Board notes that the Company’s stockholders have expressed a range of views on the appropriate frequency of holding an advisory vote on executive compensation, and that in recent consultations the Company’s stockholders have expressed support for either a triennial or annual vote in approximately equal numbers. The Board has determined that, on balance, holding a vote every three years, with the flexibility to hold a vote more frequently if appropriate, is the best approach for Time Warner for the following reasons:

 

 

The Board of Directors looks forward to hearing from its stockholders on this Proposal and reviewing the results of this advisory vote.

Stockholders may cast their vote on their preferred voting frequency by choosing the option of one year, two years or three years or may abstain from voting. In considering this vote, stockholders may wish to review the information presented in connection with the advisory vote (Proposal 3) above and the “Compensation Discussion and Analysis” on pages 55 to 81.

 

 

 

Vote Required for Approval

 

The vote on this proposal is not intended to approve or disapprove the recommendation of the Board of Directors. If one of the frequency options (one year, two years or three years) receives the vote of a majority of the votes duly cast by the holders of Common Stock, it will be the frequency preferred by the stockholders. Because this vote is advisory and not binding on the Company or the Board of Directors, the Board will consider the vote, but may decide that it is in the best interests of the stockholders and the Company to hold an advisory vote on executive compensation more or less frequently than the option determined to be the frequency preferred by the stockholders.

 

The Board has approved an amendment to the Company’s Restated Certificate of Incorporation and a related amendment to the Company’s By-laws, and recommends that the Company’s stockholders approve the amendment to the Company’s Restated Certificate of Incorporation described below. The purpose and effect of these amendments will be to remove all remaining provisions in the Company’s Restated Certificate of Incorporation and By-laws that provide for stockholder action by more than a simple majority vote (i.e., a majority of the votes cast) other than where Delaware corporation law requires a different vote standard.

 

Specifically, the Board recommends that the stockholders approve an amendment to the Company’s Restated Certificate of Incorporation to remove the provisions in Articles VII and VIII that provide for an absolute majority vote standard (i.e., a majority of the Company’s outstanding shares) for certain stockholder actions. The amendment to Article VII removes the absolute majority vote requirement for stockholders to adopt, amend or repeal any provision of the Company’s By-laws. The amendment to Article VIII also removes the express requirement of an absolute majority vote (i) to amend, alter or repeal Article VIII, Article IX (which limits the liability of the directors of the Company to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director to the fullest extent permitted by law), or Section 5 of Article IV (which authorizes the Company to redeem shares when a redemption is necessary to prevent the loss or secure the reinstatement of any license or franchise of the Company or its subsidiaries from a government agency) of the Restated Certificate of Incorporation or (ii) to adopt any provision inconsistent with Article VIII, Article IX, or Section 5 of Article IV of the Restated Certificate of Incorporation.

 

The Board has also approved an amendment to the Company’s By-laws to change the required vote of the stockholders to amend the By-laws from an absolute majority vote to a simple majority vote, subject to and effective upon the approval by the stockholders of the proposed amendment to the Company’s Restated Certificate of Incorporation.

 

In making this recommendation, the Nominating Committee and Board have considered the requirements of Delaware law, the potential governance implications of changing the stockholder vote standards, discussions with Company stockholders over the course of several months, and the vote in favor of a stockholder proposal calling for the Company to implement a simple majority vote standard that was presented at the Company’s annual meeting of stockholders in 2010. Based on these considerations, and the recommendation of the Nominating Committee, the Board has determined that the amendment to the Company’s Restated Certificate of Incorporation to remove the provisions in Articles VII and VIII requiring an absolute majority vote is in the best interests of the Company and its stockholders.

 

Summary of the Proposed Amendment and Required Vote Standard

 

The proposed amendment to the Restated Certificate of Incorporation is set forth in Annex A to this Proxy Statement, with deletions indicated by strikeouts. The form of the Certificate of Amendment to the Restated Certificate of Incorporation is set forth in Annex B to this Proxy Statement. The following description of the proposed amendments to Articles VII and VIII is qualified in its entirety by reference to the proposed amendment set forth in Annexes A and B.

 

Article VII of the Restated Certificate of Incorporation:  If the proposed amendment is approved, Article VII of the Restated Certificated of Incorporation will be amended to remove the requirement for an absolute majority vote for the stockholders to adopt, amend or repeal any

provision of the Company’s By-laws. As a result, the Company’s By-laws would govern the vote required for any amendment to the By-laws by the stockholders. As noted above, the Board has approved an amendment to the By-laws that will become effective upon the approval by the stockholders of the proposed amendment to the Restated Certificate of Incorporation. The By-laws, as amended, will require that any amendment to the By-laws approved by the stockholders must be approved by a majority of the votes cast by the stockholders entitled to vote thereon who are present in person or represented by proxy at a meeting of stockholders, i.e., a simple majority vote. Therefore, if the proposed amendment is approved, once the Certificate of Amendment is filed with the Secretary of State of Delaware and becomes effective, the vote required for stockholders to amend the Company’s By-laws will be a simple majority vote.

 

Article VIII of the Restated Certificate of Incorporation:  Article VIII requires an absolute majority vote to alter, amend or repeal Article VIII itself, Article IX or Section 5 of Article IV of the Restated Certificate of Incorporation or to adopt any provision inconsistent with any of those sections. If the proposed amendment is approved, Article VIII will be amended to remove the express requirement of an absolute majority vote and will simply provide that the Company reserves the right to amend, alter or repeal any provision contained in the Restated Certificate of Incorporation in accordance with law. Article IX limits the liability of the directors of the Company to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director to the fullest extent permitted by law. Section 5 of Article IV permits the Company to redeem shares of its common stock or other series or class of stock from stockholders if the redemption is necessary to prevent the loss or secure the reinstatement of a license or franchise from any governmental agency that requires some or all of the holders of the Company’s common stock or any other class or series of stock to possess certain qualifications. This provision protects the Company’s ability to take the steps necessary to retain valuable licenses and franchises granted by a governmental agency that might otherwise be subject to forfeiture based on the identify or qualifications of the Company’s stockholders.

 

The amendment to Article VIII will not have any current impact in practice because Delaware corporation law requires approval by a majority of the outstanding shares entitled to vote thereon to amend a corporation’s certificate of incorporation, which is an absolute majority voting standard. If Delaware corporation law is amended to provide for a different voting standard, then that voting standard would automatically apply to amendments to the Company’s Restated Certificate of Incorporation.

 

Implementation of the Proposed Amendment

 

If the proposed amendment is approved by the stockholders, the Company will file a Certificate of Amendment to the Restated Certificate of Incorporation with the Delaware Secretary of State promptly after the Annual Meeting, and the Certificate of Amendment will become effective upon filing. In addition, if this proposal is approved by the stockholders, the amendment to the By-laws (to require a simple majority vote for stockholders to amend the By-laws), which was previously approved by the Board of Directors, will become effective.

 

 

Vote Required for Approval

 

The affirmative vote of a majority of the Company’s outstanding shares of Common Stock is required to approve the proposed amendment to the Restated Certificate of Incorporation.

 

Mr. William Steiner, 12 Abbottsford Gate, Piermont, NY 10968, the beneficial owner of 4,200 shares of Common Stock, has advised the Company that he intends to propose a resolution at the Annual Meeting. Mr. Steiner has appointed John Chevedden of 2215 Nelson Ave., No. 205, Redondo Beach, CA 90278 and/or his designee to act on his behalf in matters relating to the proposed resolution. The proposed resolution and statement in support there are set forth below:

 

6 — Shareholder Action by Written Consent

 

RESOLVED, Shareholders hereby request that our board of directors undertake such steps as may be necessary to permit written consent by shareholders entitled to cast the minimum number of votes that would be necessary to authorize the action at a meeting at which all shareholders entitled to vote thereon were present and voting (to the fullest extent permitted by law).

 

Taking action by written consent in lieu of a meeting is a means shareholders can use to raise important matters outside the normal annual meeting cycle. A study by Harvard professor Paul Gompers supports the concept that shareholder dis-empowering governance features, including restrictions on shareholder ability to act by written consent, are significantly related to reduced shareholder value.

 

The merit of this Shareholder Action by Written Consent proposal should also be considered in the context of the need for improvement in our company’s 2010 reported corporate governance status:

 

The Corporate Library www.thecorporatelibrary.com, an independent investment research firm, rated our company “D” with “High Governance Risk” and “Very High Concern” for executive pay — $19 million for our CEO Jeffrey Bewkes.

 

Mr. Bewkes’ pay was too concentrated in market-priced stock options. Thus small increases in our company’s share price (unrelated to CEO performance) can result in a windfall.

 

Our board was the only significant directorship for 5 of our directors. This could indicate a significant lack of current transferable director experience for 40% of our board. Regarding the future trend in our director selection process, two of our newest directors bring experience from D-rated boards: Fred Hassan from Avon Products and William Barr from Dominion Resources.

 

Michael Miles was marked as a “Flagged (Problem) Director” by The Corporate Library because of his Citadel Broadcasting directorship as it went bankrupt in 2009. Mr. Miles was still allowed to be on our Executive Pay Committee and attracted our highest negative votes.

 

We had no independent Board Chairman, no Lead Director, no shareholder right to proxy access, no cumulative voting and no shareholder written consent. In spite of this we also had two inside-related directors who made up 40% of our Nomination committee (independence concern): James Barksdale and Kenneth Novack.

 

Please encourage our board to respond positively to this proposal and remedy the above type of practices: Shareholder Action by Written Consent — Yes on 6.

COMPANY RECOMMENDATION:

 

	(i)	Without proper procedural protections, stockholder action by written consent (as proposed in the proposal) can deprive stockholders of a voice on an important matter and of information regarding the matter approved in the written consent;
	(ii)	Stockholder meetings are a better method to raise important matters for consideration by stockholders, and holders of 15% of the outstanding Common Stock already have the right to request a special meeting of stockholders; and
	(iii)	The adoption of the proposal as proposed will not enhance the Company’s existing corporate governance practices, which already provide stockholders with meaningful access to the Board and significant rights and protections.

 

First, without procedural protections, stockholder action by written consent can exclude minority stockholders from participating in an action or even receiving information regarding the matter approved in a written consent. The proposal provides no procedural protections, such as a requirement to provide a description of the proposed action and the reasons for the proposed action. This means that, for example, a group of stockholders representing a majority of the Common Stock could take a significant action, such as agreeing to sell the Company, without providing prior notice to all stockholders, an opportunity to discuss or raise objections to the proposed action or an opportunity to vote on the proposed action.

 

In addition, the proposal does not provide for reasonable procedural protections to prevent or limit the abuse of this mechanism for stockholder action. For example, if multiple groups of stockholders are able to solicit written consents at any time and as often as they wish, the solicitation of written consents could create a considerable amount of confusion and disruption among the Company’s stockholders.

 

Second, the Board believes that presenting matters to stockholders at a stockholder meeting is a superior method for stockholder action. The Company’s Common Stock is widely held by a large number of stockholders and, therefore, soliciting the Company’s stockholders for written consents would be expensive, time-consuming and impractical. By contrast, stockholders can present appropriate matters for a vote by the stockholders at an annual or special meeting by following advance notice and disclosure requirements, as set forth in the Company’s By-laws or as otherwise required by SEC rules, which allow all the Company’s stockholders to have an opportunity to be informed about matters that are being presented to stockholders for a vote. At a stockholder meeting, stockholders are able to ask questions, discuss any concerns or views that they have regarding a proposal, and vote on the matter. Under the Company’s By-laws, holders of 15% of the outstanding Common Stock may request that a special meeting of stockholders be held. Thus, the Company’s stockholders already have an effective mechanism for raising important matters for consideration by stockholders outside of the normal annual meeting cycle.

 

Third, the Company believes that its stockholders already have significant access to the Board, and rights and protections that reduce the need to be able to act by written consent. For example:

 

 

 

The Board believes that the Company’s existing corporate governance policies and practices provide stockholders with meaningful access to and accountability of Board members and better methods to bring matters before all the stockholders in an orderly and non-discriminatory fashion. Accordingly, the Board believes that the proposal, in the form presented, is not in the best interests of the Company or its stockholders and, therefore, it recommends a vote AGAINST the proposal.

 

Vote Required for Approval

 

The affirmative vote of a majority of the votes duly cast by the holders of Common Stock is required to adopt this proposal.

 

Time Warner is committed to maintaining strong corporate governance practices that allocate rights and responsibilities among the Company’s stockholders, Board of Directors (the “Board” or the “Board of Directors”) and management in a manner that benefits the long-term interests of the Company’s stockholders. The Board regularly reviews and updates its corporate governance practices in light of proposed and adopted laws and regulations, the practices and experience of other leading companies, the recommendations of various corporate governance authorities, and discussions with and the expectations of the Company’s stockholders.

 

During 2010 and early 2011, the Board took a number of steps to further enhance the Company’s corporate governance practices, including the following:

 

 

 

 

The foregoing changes reflect in part the results of the Company’s long-standing practice of engaging with stockholders on corporate governance matters and responding to their views. In addition, following the adoption of Dodd-Frank Act in July 2010, the Company had additional discussions with stockholders regarding their views on various aspects of the legislation, including the stockholder advisory vote on executive compensation and the frequency of holding such vote.

 

The remainder of this section of the Proxy Statement summarizes the key features of Time Warner’s corporate governance practices.

 

The Company has a corporate governance webpage at www.timewarner.com/governance. The Company’s By-laws, the Corporate Governance Policy (which includes the categorical standards for director independence), the charters of the Board’s three standing committees, the Policy Regarding Audit Partner Rotation, the Report on Executive Compensation Consultant, the Company’s codes of conduct, the Policy and Procedures Governing Related Person Transactions, the Policy on Determining the Leadership Structure of the Board of Directors, and the most recent Report on Determination of Current Board Leadership Structure are available on the Company’s corporate governance webpage. These documents are also available in print to any stockholder who requests them by writing to the Office of the Corporate Secretary, Time Warner Inc., One Time Warner Center, New York, New York 10019-8016.

 

The Board’s primary responsibility is to seek to maximize long-term stockholder value. The Board selects senior management of the Company, monitors management’s and the Company’s performance, and provides advice and counsel to management. Among other things, at least annually, the Board reviews the Company’s strategy and approves a business plan and budget for the Company. The Board also reviews and approves transactions in accordance with guidelines that the Board may adopt from time to time. In addition, the Board reviews and approves the leadership structure of the Board on at least an annual basis. In fulfilling the Board’s responsibilities, directors have full access to the Company’s management, internal and external auditors, and outside advisors.

 

As described in the Corporate Governance Policy, the Board is charged with general oversight of the management of the Company’s risks. The Board considers, as appropriate, risks among other factors in reviewing the Company’s strategy, business plan, budgets and major transactions. Each of the Board’s committees assists the Board in overseeing the management of the Company’s risks within the areas delegated to the committee. In particular, the Audit Committee assists the Board by reviewing a report from management on at least an annual basis on the risks facing the Company, management’s actions to address those risks, and the Company’s risk management processes. The report is also provided to the Board. In addition, the Compensation Committee oversees risks related to the Company’s compensation programs and policies and reviews at least annually management’s report on such risks.

 

The Board undertook its annual review of director independence in March 2011 and determined that 12 of the 13 current directors (or 92% of the Board) and 12 of the 13 nominees for director are

independent under the listing standards of the NYSE and the Company’s By-laws and Corporate Governance Policy, which includes the categorical standards for director independence adopted by the Board. To assist the Board with its determination, the categorical standards follow the NYSE rules and establish guidelines as to employment and commercial relationships that may affect a director’s independence and categories of relationships that are not deemed material for purposes of director independence. The following directors were determined by the Board to be independent: James L. Barksdale, William P. Barr, Stephen F. Bollenbach, Frank J. Caufield, Robert C. Clark, Mathias Döpfner, Jessica P. Einhorn, Fred Hassan, Michael A. Miles, Kenneth J. Novack, Paul D. Wachter and Deborah C. Wright. Mr. Bewkes is an executive officer of the Company and thus cannot qualify as an independent director. Each of the current directors is a nominee for director and there are no nominees who do not currently serve as a director. Each member of the Audit Committee, Compensation Committee, and Nominating Committee satisfies the respective standards of independence applicable to such committees.

 

In evaluating the independence of each director, the Board considered the following types of transactions or relationships:

 

 

 

The Nominating Committee and the Board of Directors reviewed the transactions or relationships described above and, based on the Company’s categorical standards and the NYSE rules governing director independence, the Board determined that the transactions or relationships did not impair the applicable director’s independence.

 

Policy on Determining the Leadership Structure of the Board of Directors.  Under the Company’s Policy on Determining the Leadership Structure of the Board of Directors, the Nominating Committee is responsible for reviewing the leadership structure of the Board on at least an annual basis and at times of potential change in individuals holding Board leadership positions (e.g., retirement, resignation, or renewal of employment agreements). As part of this review, the Nominating Committee evaluates: (i) whether to have a Lead Independent Director, (ii) the responsibilities of the positions of Chairman of the Board and Lead Independent Director, and (iii) the qualifications for those positions, including whether the position of Chairman of the Board should be held by the CEO, an independent director, or a non-independent director other than the CEO. The Nominating Committee makes its recommendations to the full Board, which is responsible for approving the leadership structure of the Board. The policy sets forth the factors the Nominating Committee and Board consider in making the determinations.

 

In January 2011, upon the recommendation of the Nominating Committee, the Board determined that the current structure, with one individual serving as Lead Independent Director and another serving as the Company’s Chairman of the Board and Chief Executive Officer, is effective and appropriate. The report on the Board’s determination of its leadership structure is posted on the Company’s corporate governance webpage. As set forth in this report, the Board believes that having a single individual serve as both Chairman and CEO is effective and appropriate and provides clear governance, leadership and accountability as the Company executes its strategy as a content-focused company, including the digital transformation of its businesses. The Board also believes that the current structure has provided for an effective flow of information to, and discussion among, members of the Board regarding the Company’s strategy and performance.

 

As described in the report, the Nominating Committee considered numerous factors prior to providing its recommendation to the Board that the current Board leadership structure be maintained, including (among other factors): (i) the scope and nature of the respective responsibilities of the Chairman of the Board, CEO and Lead Independent Director and the qualifications for each position, (ii) the current policies and practices that the Company has in place to ensure independent oversight of management, (iii) the views expressed by the Company’s directors and stockholders regarding the Board’s leadership structure, (iv) the practices in the United States and other countries, (v) recent legislative and regulatory developments relating to board leadership, and (vi) the impact that changing the current effective leadership structure would have on the Company.

 

Lead Independent Director.  Mr. Caufield has served as Lead Independent Director since 2006. He was most recently re-elected to the position in May 2010 by the independent directors. As described in the Company’s Corporate Governance Policy, the Lead Independent Director presides at executive sessions of the Board (see “Board Meetings, Executive Sessions and Attendance” below) and serves as the liaison between the Chairman and the other directors (unless the matter under consideration is within the jurisdiction of one of the Board’s committees). In addition, the Lead Independent Director’s responsibilities include (i) advising the Chairman of the Board with respect to the schedule, agenda and information for Board meetings (including possessing the ability to include specific items on those agendas), (ii) advising the Chairman of the Board with respect to

consultants who may report directly to the Board, and (iii) being available, as appropriate, for communication with the Company’s stockholders. The Lead Independent Director will also serve as the Chairman of the Board on an interim basis in the event of the death or disability of the Chairman.

 

The Board of Directors generally holds at least six meetings each year, including a meeting devoted to addressing the Company’s strategy. The Board of Directors also communicates informally with management on a regular basis.

 

The Company’s independent directors meet by themselves, without management or any non-independent directors present, at every regularly scheduled Board meeting. Any independent director may request additional executive sessions. These executive sessions are led by the Lead Independent Director, except for those portions of the executive session when it is appropriate for a Chair of the committee that has primary responsibility for the matter being discussed to lead the discussion.

 

During 2010, the Board met 10 times. No incumbent director attended fewer than 75% of (i) the total number of meetings of the Board held during the period for which he or she served as a director or (ii) the total number of meetings of the committees held during the period for which he or she served as a committee member. The Company’s directors are encouraged and expected to attend the annual meetings of the Company’s stockholders. Eleven of the 12 directors nominated for election at the 2010 Annual Meeting of Stockholders attended that meeting. Mr. Döpfner was not able to attend the meeting, and Mr. Wachter was appointed to the Board after the 2010 Annual Meeting of Stockholders.

 

The Board of Directors conducts a self-evaluation of its performance annually, which includes a review of the Board’s composition, responsibilities, leadership and committee structure, processes and effectiveness. Each standing committee of the Board also conducts an annual self-evaluation.

 

Upon joining the Board of Directors, each new director is provided with an orientation regarding the role and responsibilities of the Board and the Company’s operations. As part of this orientation, new directors meet with members of the Company’s senior management. From time to time, the Company’s executives and the heads of its business groups make presentations to the Board regarding their respective areas. The Company is also committed to the ongoing education of its directors and therefore reimburses directors for reasonable expenses relating to ongoing director education.

 

The Board has three standing committees: the Audit and Finance Committee (also referred to as the Audit Committee), the Nominating and Governance Committee (also referred to as the Nominating Committee) and the Compensation and Human Development Committee (also referred to as the Compensation Committee), each of which has a written charter that is posted on the Company’s corporate governance webpage. Each committee is composed entirely of independent directors. The Chair of each committee is elected by the Board and rotated periodically. Each committee holds regular executive sessions at which management is not present. Each committee is also authorized to retain its own outside counsel and other advisors as it desires.

The table below provides a brief summary of the committees’ current members and the number of meetings held by each committee during 2010:

 

 

Audit Committee.  The Audit Committee assists the Board of Directors in fulfilling its responsibilities in connection with the Company’s (i) independent auditors, (ii) internal audit function, (iii) ethics and compliance program and risk management policies and processes, (iv) responses to any regulatory actions involving financial, accounting and internal control matters, (v) earnings releases and guidance, financial statements and systems of disclosure controls and procedures and internal control over financial reporting, (vi) capital structure and financial capacity and strategy and (vii) the performance and funding of the Company’s retirement programs.

 

The Board has determined that each of the members of the Audit Committee is financially literate in accordance with the NYSE listing standards. In addition, the Board has determined that each of Messrs. Bollenbach, Clark, Hassan and Wachter and Ms. Wright is an “audit committee financial expert” as defined under rules promulgated by the SEC.

 

Nominating Committee.  The Nominating Committee is responsible for assisting the Board in relation to (i) corporate governance, (ii) director nominations, (iii) committee structure and appointments, (iv) Board leadership structure, Chairman and CEO performance evaluations and CEO succession planning, (v) annual Board performance evaluations, (vi) non-employee director compensation, (vii) regulatory matters relating to corporate governance, (viii) stockholder proposals and communications, (ix) related person transactions, and (x) the Company’s corporate social responsibility activities.

 

Compensation Committee.  The Compensation Committee is responsible for (i) approving the compensation of and employment agreements for, and reviewing benefits provided to, the Company’s senior executives, (ii) approving long-term incentive awards, (iii) overseeing the Company’s disclosure regarding executive compensation, (iv) reviewing the Company’s overall compensation structure and benefit plans, including risks related to the Company’s compensation programs and policies, (v) reviewing the Company’s response to regulatory developments affecting compensation and stockholder advisory votes regarding compensation, (vi) reviewing and recommending officer appointments, and (vii) overseeing the Company’s human development

programs, including recruitment, retention, development, diversity and internal communication programs.

 

Consistent with the Company’s categorical standards for director independence and the charter of the Compensation Committee, none of the Compensation Committee members (i) has ever been an officer or employee of the Company or (ii) was a participant in a “related person” transaction in 2010. None of the Company’s executive officers serves, or in 2010 served, as a member of the board of directors or compensation committee of any entity that has one or more of its executive officers serving as a member of the Company’s Board of Directors or the Compensation Committee.

 

In accordance with the Company’s Corporate Governance Policy and the Nominating Committee’s policy statement regarding director nominations, the Nominating Committee and the Board take into consideration many factors, including independence, in reviewing candidates to select as nominees for director. The Nominating Committee and the Board also apply the same criteria to all candidates, whether the candidate is proposed by a stockholder or is identified through another source.

 

Criteria Applicable to All Directors.  The Board of Directors believes it is important for the Board to reflect the appropriate combination of skills, professional experience, and diversity of backgrounds in light of the Company’s current and expected future business needs. Each director must possess certain personal qualities, including financial literacy and a demonstrated reputation for integrity, judgment, and business acumen, as well as high personal and professional ethics. In addition, each director must be at least 21 years of age at the commencement of service as a director and less than 72 years of age at the time of nomination.

 

Each director must have the time and ability to make a constructive contribution to the Board, as well as a clear commitment to fulfilling the director’s fiduciary duties and serving the interests of all the Company’s stockholders. Each director must satisfy the requirements of antitrust laws, which limit service as an officer or director of the Company’s significant competitors. In addition, to help ensure that directors have sufficient time to devote to their responsibilities as a member of Time Warner’s Board, the Board has determined that directors should generally serve on no more than five other public company boards. Directors are also required to offer their resignation upon a significant change in their primary professional responsibilities, and, in such case, the Nominating Committee will make a recommendation to the Board as to whether to accept the offer of resignation.

 

Additional Criteria for Incumbent Directors.  Incumbent directors on the Board are expected to attend the meetings of the Board and of any committees on which they serve and the annual meetings of stockholders, to stay informed about the Company and its businesses, to participate in the discussions of the Board and its committees, to comply with applicable Company policies, and to provide advice and counsel to the Company’s management.

 

Additional Criteria for New Directors.  The Nominating Committee has identified additional criteria for new members of the Board in light of the Company’s current and expected structure and

business needs. The following criteria may further evolve over time depending on changes in the Board and the Company’s business needs and environment:

 

 

Independence.  Under NYSE rules, the Company must have a majority of independent directors who satisfy applicable independence standards. The Company’s By-laws also provide that a majority of the members of the Board must be independent. In addition, the Board has established the objective that a substantial majority of the Board should be independent. The Board and the Nominating Committee have established a policy that any newly nominated non-employee director must satisfy the requirements to be an independent member of the Board. For a director to be considered independent, the director must satisfy the applicable regulatory requirements, including the NYSE’s listing standards, and the categorical standards for director independence set forth in the Company’s Corporate Governance Policy. The Board must also determine that the director has no material relationship with the Company or its subsidiaries and that the director is free of any other relationship — whether with the Company or otherwise — that would interfere with his or her exercise of independent judgment. All of the Company’s directors and nominees for director are independent, except for Mr. Bewkes, the Company’s Chairman and CEO.

 

There are a number of different ways in which an individual can be nominated for election to the Board of Directors.

 

Nominations Developed by the Nominating Committee.  The Nominating Committee may identify and propose an individual for election to the Board. This involves the following steps:

 

 

 

Stockholder Nominations Submitted to the Nominating Committee.  Stockholders may submit names of director candidates, including their own, to the Nominating Committee for its consideration. The process for stockholders to use in submitting names of director candidates to the Nominating Committee is described below under “Other Procedural Matters — Procedures for Submitting Director Recommendations and Nominations.”

 

Stockholder Nominations Submitted to Stockholders.  Stockholders may choose to submit nominations directly to the Company’s stockholders. The Company’s By-laws set forth the process that stockholders may use if they choose this approach, which is described below under “Other Procedural Matters — Procedures for Submitting Director Recommendations and Nominations.”

 

The Corporate Governance Policy describes the principles and practices that guide the Board of Directors in carrying out its duties, including its size and composition, the categorical standards used in analyzing director independence, the criteria and process used in selecting directors, leadership structure, term, compensation and stock ownership, responsibilities, communications with stockholders, meetings, committees, and education and orientation programs.

 

To help assure the highest levels of business ethics at the Company, the Board of Directors has adopted the following three codes of conduct.

 

 

 

The Time Warner Inc. Policy and Procedures Governing Related Person Transactions sets forth procedures for the review and approval or ratification of transactions involving related persons, which consist of directors, director nominees, executive officers, holders of more than 5% of any outstanding class of the Company’s voting securities, and immediate family members or certain affiliated entities of any of the foregoing persons. The Nominating Committee (or its Chair, under certain circumstances) is responsible for applying the policy with the assistance of the General Counsel or his designee (if any). Transactions covered by the policy consist of any financial transaction, arrangement or relationship or series of similar transactions, arrangements or relationships, in which (i) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (ii) the Company (including any of its consolidated subsidiaries) is, will or may be expected to be a participant, and (iii) any related person has or will have a direct or indirect material interest.

 

The policy also includes a list of categories of transactions identified by the Board as having no significant potential for an actual or apparent conflict of interest or improper benefit to a related person, and thus are not subject to review by the Nominating Committee. These excluded transactions consist of the following:

 

 

 

The General Counsel or his designee will assess whether any proposed transaction involving a related person is a related person transaction covered by the policy. If so, the transaction will be presented to the Nominating Committee for review and consideration at its next meeting or, in certain instances where waiting to the next meeting is not advisable, to the Chair of the Nominating Committee. Review of a proposed transaction should occur before the commencement of a transaction or entry into a contract related to a transaction that requires review under the policy. If advance Committee review and approval of a related person transaction is not feasible or not identified prior to commencement of a transaction, then the transaction will be considered and, if the Nominating Committee determines it to be appropriate, ratified at the Nominating Committee’s next regularly scheduled meeting. In determining whether to approve or ratify a related person transaction covered by the policy, the Nominating Committee may review such facts and circumstances and take into account such factors as it deems appropriate. Since the beginning of 2010, there were no transactions with any related person that were reportable as related person transactions under SEC rules and no transactions covered by the Policy and Procedures Governing Related Person Transactions.

 

Time Warner is committed to effective corporate governance practices, including keeping stockholders, the investment community and others informed of the Company’s activities relating to environmental, social and governance matters. The Company intends to update the information about its corporate social responsibility efforts regularly as appropriate on its website to provide stockholders with information in a dynamic and timely manner. As a result of discussions with stockholders represented by Investor Voice, working on behalf of Newground Social Investment, the information available on the Company’s website will include a discussion of the Company’s engagement with its stockholders and others, the Board’s role in reviewing sustainability matters, and other areas related to the Company’s corporate social responsibility efforts.

 

The Time Warner Ethical Sourcing Guidelines set forth the standards in areas such as employment, health, safety and the environment that the Company expects its vendors to follow. The Company expects that its vendors will establish and actively review, monitor and modify their management processes and business operations so that their operations align with the principles set forth in the Guidelines. The failure to follow the Guidelines may impact a vendor’s ability to continue to do business with the Company. The Guidelines are posted on the Company’s website at www.timewarner.com/citizenship under the topic of Global Supply Chain — Ethical Sourcing.

 

The Board of Directors believes that the Company would be best served by a board of directors consisting of individuals who have a variety of complementary skills, professional experience and backgrounds and who bring diverse viewpoints and perspectives to the Board. The Nominating Committee and the Board consider these individual skills, professional experience and backgrounds in the broader context of the Board’s overall composition, so that the Board collectively possesses the appropriate skills and experience to oversee the Company’s business. In light of the Company’s current and expected business needs, the Board considered the following categories of business experience in evaluating the director candidates to be nominated for election to the Board of Directors.

 

 

Set forth below is information regarding each of the 13 nominees, including their age as of the date of the 2011 Annual Meeting, current and prior professional experience, tenure on the Company’s Board, service on the boards of directors of other companies, and key skills and professional qualifications that the Board considered, along with the information under “Professional Qualifications of Director Nominees for 2011 Annual Meeting” above, in concluding that the director nominees are qualified to serve on the Company’s Board. To the extent that any of the director nominees previously served as a director of either the company then known as America Online, Inc. (“Historic AOL”) or the company then known as Time Warner Inc. (“Historic TW”) prior to the merger of Historic AOL and Historic TW on January 11, 2001, this prior service is described in the information set forth below.

 

 

Under its charter, the Company’s Nominating Committee is responsible for reviewing the compensation for the Company’s non-employee directors and making recommendations to the Board of Directors for its approval. In carrying out this responsibility, the Nominating Committee reviews information provided by Stephen Hall & Partners, an independent consultant, regarding compensation paid to non-employee directors at other public companies, most recently the Fortune 200 companies and the same peer companies used by the Compensation Committee when determining executive compensation. Executive officers of the Company and other members of management help coordinate the delivery of materials containing the information provided by the Nominating Committee’s independent consultant to the Nominating Committee members, but do not determine or recommend the amount or form of compensation for the Company’s non-employee directors. Final compensation decisions regarding director compensation are made by the full Board of Directors, based on recommendations by the Nominating Committee. While the Board does not tie non-employee director compensation to a specific peer group percentile, the overall compensation level places Time Warner near the median for its industry peer group, which consists of the 23 companies described on page 66 of the “Compensation Discussion and Analysis” section below.

 

In December 2009, upon the recommendation of the Nominating Committee, the Board approved the following compensation program for non-employee directors, which sets each non-employee director’s overall compensation at $250,000:

 

 

 

No additional compensation is paid for service as a committee chair or member or for attendance at meetings of the Board or any Board committee. Mr. Bewkes is the only director who is also an officer of and employed by the Company (or any of its subsidiaries). He does not receive any additional compensation for his Board activities.

 

Annual Cash Retainer.  The annual cash retainer is intended to provide a balance between cash and equity compensation, as well as to allow the directors to use the cash to pay taxes on their RSUs as they vest without having to sell shares to pay those taxes. New directors who join the Board after an annual meeting of stockholders receive a pro-rated cash retainer.

 

Options.  Stock options granted to directors in 2010 (prior to September 16, 2010) were made from the Time Warner Inc. 2006 Stock Incentive Plan (the “2006 Stock Incentive Plan”). Grants of stock options to non-employee directors after such date are made under the Time Warner Inc. 2010 Stock Incentive Plan (the “2010 Stock Incentive Plan”). The number of stock options granted with a fair value of $40,000 is based on the closing sale price of a share of Common Stock as reported on the NYSE Composite Tape on the date of grant and the Black-Scholes methodology of valuing

options. New directors who join the Board after an annual meeting of stockholders will receive a pro-rated grant of stock options. All of the options granted to non-employee directors have an exercise price equal to the fair market value of the Common Stock on the date of grant and a term of 10 years and vest fully in one year and immediately if the director ceases to serve as a director of the Company under certain conditions, including because the director is not nominated by the Board of Directors to stand for re-election at the annual meeting of stockholders, is not re-elected by the stockholders at the annual meeting, or resigns after receiving fewer than a majority of “for” votes of the votes cast in an uncontested election of directors.

 

Restricted Stock Units.  The RSUs represent a contingent right to receive the designated number of shares of Common Stock upon completion of the vesting period. The number of RSUs having a fair value of $85,000 is determined based on the closing sale price of a share of Common Stock as reported on the NYSE Composite Tape on the date of grant. New directors who join the Board after an annual meeting of stockholders will receive a pro-rated grant of RSUs. All of the RSUs granted to non-employee directors in 2010 vest and shares of Common Stock are issued and delivered to the non-employee director (along with any distributions retained by the Company) on the anniversary of the first day of the month in which the RSUs were granted. The RSUs also vest in full upon the termination of the non-employee director’s service on the Board on account of (i) retirement either due to a mandatory retirement policy or after serving at least five years as a director, (ii) failure to be re-elected by the stockholders after nomination, (iii) resignation after receiving fewer than a majority “for” votes of the votes cast in an uncontested election of directors, (iv) death or disability, (v) the occurrence of certain transactions involving a change in control of the Company, or (vi) under certain other designated circumstances, with the approval of the Board on a case-by-case basis. If a non-employee director leaves the Board for any other reason, then his or her unvested RSUs are forfeited to the Company. During the vesting period, the directors may not vote the RSUs or transfer their rights with respect to the RSUs. The directors are entitled to receive dividend equivalents on the RSUs in an amount equal to the regular quarterly cash dividends declared and paid by the Company at the same time that the dividends are paid on outstanding shares of Common Stock.

 

Expenses.  Non-employee directors are reimbursed for expenses (including costs of travel, food and lodging) incurred in attending Board, committee and stockholder meetings. While travel to such meetings may include the use of Company aircraft, if available and appropriate under the circumstances, the directors generally use commercial air or rail transportation services. Directors are also reimbursed for reasonable expenses associated with other Company-related business activities, including participation in director education programs.

 

The Company provides directors with representative samples of the Company’s products (such as DVDs), promotional items and other merchandise. The Company also periodically invites directors and their spouses to attend Company-sponsored events, such as film premieres, screenings and cultural events. The Company believes that receiving these products and attending these types of functions serve a business purpose by expanding the directors’ knowledge of the Company’s business, products, services, business partners and other constituencies. The Company also invites directors and their spouses to attend the annual meeting of stockholders and, from time to time, other events. The Company generally provides for, or reimburses expenses of, the spouses’ travel, food and lodging for attendance at the annual meeting of stockholders and other events to which directors’ spouses and guests have been invited. For the year ended December 31, 2010, the aggregate incremental cost to the Company of these Company products, events and related expenses was well below $10,000 per director. The Company also reimburses the non-employee director for the estimated taxes incurred in connection with any income recognized by the director as a result of

the non-employee director’s or spouse’s attendance at such events. The reimbursements paid by the Company in early 2011 for such taxes incurred by certain directors in 2010 are included in the All Other Compensation column of the table below.

 

From time to time, spouses may also join non-employee directors on Company aircraft when a non-employee director is traveling to or from any Board, committee, or stockholder meeting. While the Company generally incurs no additional cost, this travel may result in the non-employee director recognizing income for tax purposes. The Company does not reimburse the non-employee director for the estimated taxes incurred in connection with such income. In limited circumstances (such as medical emergencies or other exigent circumstances), non-employee directors may also use Company aircraft for personal use. Such personal use of Company aircraft will result in the non-employee director recognizing income for tax purposes, and the Company does not reimburse the non-employee director for any taxes incurred in connection with such personal use.

 

Ownership Guidelines.  The Company’s Corporate Governance Policy provides that directors are encouraged to own Common Stock (whether obtained through the exercise of stock options, the vesting of RSUs or the purchase of shares). In addition, under the Company’s Corporate Governance Policy, it is expected that, within five years of joining the Board, a non-employee director will own at least 10,000 shares of Common Stock. Seven of the non-employee directors own at least 10,000 shares of Common Stock and three of the non-employee directors are expected to own at least 10,000 shares of Common Stock by May 2011 due to the vesting of RSUs on May 1. The remaining two non-employee directors have been members of the Board for less than five years.

 

Deferred Compensation Plan.  The Company maintains a deferred compensation plan for non-employee directors. Under the Time Warner Inc. Non-Employee Directors’ Deferred Compensation Plan, non-employee directors may elect each year to defer receipt of 10% to 100% of their cash compensation payable during the next calendar year. During the time that the cash compensation amounts are deferred, each director can elect from the following crediting alternatives to determine the amounts that will be paid: (i) the amount deferred plus annual interest at the prime rate in effect on May 1 of each annual period plus 2%, (ii) the value of a hypothetical investment in shares of Common Stock made at the time of the deferral, plus the notional reinvestment of dividend equivalents based on any regular cash dividends paid by the Company on the Common Stock, or (iii) an allocation of 50% of the amount deferred to each of the crediting alternatives. The crediting election can be changed by the director at any time with respect to cash compensation earned after the date of the election. Amounts deferred are payable in cash in a lump sum or in installments after a director leaves the Board, based on the director’s election made at the time the director elected to defer receipt of the compensation.

 

Prior Retirement and Deferred Compensation Programs.  The Company does not currently maintain a retirement plan for its non-employee directors. Prior to 1996, the Company maintained a plan called the Time Warner Retirement Plan for Outside Directors. Mr. Miles participated in this plan due to his service as a director of Historic TW. When he leaves the Board, he will receive a payment of $30,000 and another payment of $15,000 in the following year, which reflects the 1.5 years he served as a non-employee director of Historic TW prior to May 1996, when the plan was frozen. In addition, Mr. Novack receives retirement benefits under the terms of the Company’s benefit plans as a result of his past service as an employee of the Company.

 

The Company also has a prior deferred compensation plan for non-employee directors under which the directors could previously elect to defer all or a portion of their cash compensation. Amounts deferred under this deferred compensation plan are increased based on the seven-year Treasury bond rate or the hypothetical investment of the amounts deferred in shares of Common

Stock and any dividends thereon, with the higher valuation of the two used to determine the amount paid upon distribution. Amounts deferred are payable generally upon the director reaching age 70 or ceasing to be a director of the Company for certain specified reasons. The Company currently maintains accounts under this plan on behalf of Mr. Bollenbach.

 

The table below sets forth 2010 compensation information regarding the Company’s non-employee directors. The material factors necessary to understand the director compensation set forth in the table are described in “Director Compensation” above.

 

DIRECTOR COMPENSATION
FOR FISCAL YEAR 2010

 

 

 

 

 

 

The following table sets forth information concerning the beneficial ownership of Time Warner Common Stock as of January 31, 2011 for each current director, each nominee for election as a director, each of the persons named in the Summary Compensation Table and for all current directors and executive officers as a group as of January 31, 2011. None of the foregoing persons beneficially owned any shares of equity securities of the Company’s subsidiaries as of January 31, 2011.

 

 

 

Based on a review of filings with the SEC, the Company has determined that the following persons are holders of more than 5% of the outstanding shares of Common Stock as of December 31, 2010:

 

 

 

In accordance with its charter, the Audit Committee assists the Board of Directors in fulfilling its responsibilities in a number of areas. These responsibilities include, among others: (i) the appointment and oversight of the Company’s independent auditors, as well as the evaluation of the independent auditors’ qualifications, performance and independence, (ii) the appointment and oversight of the Company’s Chief Audit Executive and the Company’s internal audit function, (iii) oversight of the Company’s ethics and compliance program, (iv) oversight of the Company’s response to any regulatory actions involving financial, accounting and internal control matters, (v) oversight of the Company’s risk management policies and processes, (vi) review of the Company’s earnings press releases, financial statements, and systems of disclosure controls and procedures and internal control over financial reporting, and (vii) oversight of the Company’s financial structure, financial condition (including financial capacity) and capital strategy.

 

To assist it in fulfilling its oversight and other duties, the Audit Committee may retain outside counsel and other advisors as it deems necessary to carry out its duties. In addition, the Audit Committee regularly meets separately with the internal auditor, the independent auditors, management and in-house counsel.

 

Independent Auditors and Internal Audit Matters.  The Audit Committee has discussed with the Company’s independent auditors their plan for the audit of the Company’s annual consolidated financial statements and the independent auditors’ evaluation of the effectiveness of the Company’s internal control over financial reporting, as well as reviews of the Company’s quarterly financial statements. During 2010, the Audit Committee met regularly with the independent auditors, with and without management present, to discuss the results of their audits and reviews, as well as their evaluations of the Company’s internal control over financial reporting and the overall quality of the Company’s accounting principles. In addition, the Audit Committee has received the written disclosures and the letter from the independent auditors required by the Public Company Accounting Oversight Board Ethics and Independence Rule 3526, Communication with Audit Committees Concerning Independence, regarding the independent auditors’ communications with the Audit Committee concerning independence. The Audit Committee has also discussed with the independent auditors the auditors’ independence from the Company and its management. In determining that the auditors are independent, the Audit Committee also considered whether the provision of any of the non-audit services described below under “Fees of the Independent Auditors” is compatible with maintaining their independence. The Audit Committee has also appointed, subject to stockholder ratification, Ernst & Young LLP as the Company’s independent auditors for 2011, and the Board concurred in its appointment.

 

The Audit Committee has reviewed and approved the annual internal audit plan and has met regularly with the Chief Audit Executive, with and without management present, to review and discuss the internal audit reports, including reports relating to operational, financial and compliance matters.

 

Ethics and Compliance Matters.  The Audit Committee has reviewed and discussed with the Chief Ethics and Compliance Officer and management the Company’s ongoing efforts to sustain and enhance its ethics and compliance program to promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law. The Audit Committee has periodically received reports from the Chief Ethics and Compliance Officer and management concerning the Company’s ethics and compliance program, as well as reports on specific ethics and

compliance matters. During 2010, the Audit Committee reviewed and recommended that the Board of Directors approve the Company’s revised Standards of Business Conduct, which forms the cornerstone of the Company’s ethics and compliance program. The Audit Committee has also overseen other initiatives in this area, including training programs and other efforts to increase awareness among employees of the Company’s ethics and compliance program.

 

Financial Statements as of December 31, 2010.  Management has the primary responsibility for the Company’s financial statements and the reporting process, including the systems of internal and disclosure controls (including internal control over financial reporting). The independent auditors are responsible for performing an independent audit of the Company’s consolidated financial statements and internal control over financial reporting and expressing opinions on (i) the fair presentation of the Company’s annual consolidated financial statements in conformity with U.S. generally accepted accounting principles and (ii) the effectiveness of the Company’s internal control over financial reporting.

 

In this context, the Audit Committee has met and held discussions with management and the independent auditors with respect to the Company’s audited financial statements for the fiscal year ended December 31, 2010. Management represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles.

 

In connection with its review of the Company’s 2010 year-end financial statements, the Audit Committee has reviewed and discussed with management and the independent auditors the consolidated financial statements, management’s assessment of the effectiveness of the Company’s internal control over financial reporting and the independent auditors’ evaluation of the effectiveness of the Company’s internal control over financial reporting. The Audit Committee also discussed with the independent auditors the matters required to be discussed by the Statement on Auditing Standards No. 61 (Communications with Audit Committees), as amended and as adopted by the Public Accounting Oversight Board in Rule 3200T, including the quality and acceptability of the Company’s accounting policies, financial reporting processes and controls.

 

In performing its functions, the Audit Committee acts only in an oversight capacity and necessarily relies on the work and assurances of the Company’s management and independent auditors, which, in their reports, express opinions on the fair presentation of the Company’s annual consolidated financial statements in conformity with U.S. generally accepted accounting principles and the effectiveness of the Company’s internal control over financial reporting. In reliance on the reviews and discussions referred to in this Report of the Audit and Finance Committee and in light of its role and responsibilities, the Audit Committee recommended to the Board of Directors, and the Board approved, that the audited financial statements of the Company be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC.

 

Members of the Audit and Finance Committee

 

Deborah C. Wright (Chair)
Stephen F. Bollenbach
Robert C. Clark
Jessica P. Einhorn
Fred Hassan
Paul D. Wachter

 

The Audit Committee has established a policy (the “Pre-Approval Policy”) requiring its pre-approval of all audit services and permissible non-audit services provided by the independent auditors, along with the associated fees for those services. The Pre-Approval Policy provides for the annual pre-approval of specific types of services pursuant to policies and procedures adopted by the Audit Committee, and gives detailed guidance to management as to the specific services that are eligible for such annual pre-approval. The Pre-Approval Policy requires the specific pre-approval of all other permitted services. For both types of pre-approval, the Audit Committee considers whether the provision of a non-audit service is consistent with the SEC’s rules on auditor independence, including whether provision of the service (i) would create a mutual or conflicting interest between the independent auditors and the Company, (ii) would place the independent auditors in the position of auditing their own work, (iii) would result in the independent auditors acting in the role of management or as an employee of the Company, or (iv) would place the independent auditors in a position of acting as an advocate for the Company. Additionally, the Audit Committee considers whether the independent auditors are best positioned and qualified to provide the most effective and efficient service, based on factors such as the independent auditors’ familiarity with the Company’s business, personnel, systems or risk profile and whether provision of the service by the independent auditors would enhance the Company’s ability to manage or control risk or improve audit quality or would otherwise be beneficial to the Company.

 

The Audit Committee has delegated to its Chair the authority to address certain requests for pre-approval of audit and permissible non-audit services between meetings of the Audit Committee and the Chair must report her pre-approval decisions to the Audit Committee at its next regular meeting. The Pre-Approval Policy is designed to help ensure that there is no delegation by the Audit Committee of authority or responsibility for pre-approval decisions to management of the Company. The Audit Committee monitors compliance by management with the Pre-Approval Policy by requiring management, pursuant to the Pre-Approval Policy, to report to the Audit Committee on a regular basis regarding the pre-approved services rendered by the independent auditors. Management has also implemented internal procedures to promote compliance with the Pre-Approval Policy.

 

The Audit Committee is responsible for the appointment, compensation, retention and oversight of the work of the independent auditors. Accordingly, the Audit Committee has appointed Ernst & Young LLP to perform audit and permissible non-audit services for the Company and its subsidiaries.

The aggregate fees for services provided by Ernst & Young LLP to the Company with respect to the years ended December 31, 2010 and 2009 are as set forth below. The lower fees for 2010 as compared to 2009 reflect the reduced services required following the separations of Time Warner Cable Inc. and AOL Inc. from the Company in 2009.

 

Fees of the Independent Auditors

 

 

 

None of the services related to Audit-Related Fees or Tax Fees presented above were approved by the Audit Committee pursuant to the waiver of pre-approval provisions set forth in the applicable rules of the SEC.

 

This Compensation Discussion and Analysis (“CD&A”) describes and analyzes the compensation provided to the following “named executive officers” for services provided to the Company in 2010. Their compensation is set forth in the Summary Compensation Table and the other compensation tables that follow this CD&A.

 

 

 

This CD&A is organized as follows. First, the Executive Summary (pages 56 to 62) discusses the Compensation Committee’s compensation philosophy and summarizes key information included in the rest of this CD&A. This CD&A then describes the Components of Executive Compensation (pages 63 to 64), How Executive Compensation is Established (pages 64 to 68), and the Compensation Committee’s decisions about the named executive officers’ 2010 Compensation (pages 68 to 78). Finally, this CD&A addresses Other Compensation Policies and Practices (pages 78 to 81) that help advance the Compensation Committee’s compensation philosophy.

 

The Company encourages you to read this CD&A in conjunction with the advisory vote to approve the compensation of the named executive officers as discussed in this Proxy Statement. See “Proposal 3 — Advisory Vote on Executive Compensation.”

Executive Summary

	•	Retain and Attract Talent.  Compensation should reflect the competitive marketplace, so the Company can attract, retain, and motivate talented executives.
	•	Accountability for Business Performance.  Compensation should be tied in part to the Company’s financial and operating performance, so executives are held accountable through their compensation for the performance of the businesses for which they are responsible.
	•	Accountability for Individual Performance.  Compensation should be tied in part to the individual’s performance to encourage and reflect individual contributions to the Company’s performance.
	•	Alignment with Stockholder Interests.  Compensation should be tied in part to the Company’s stock performance to align executives’ interests with those of the Company’s stockholders.
	•	Independence.  An independent committee of the Board should be responsible for reviewing and establishing the compensation for all the Company’s executive officers and its divisional chief executive officers, as well as the Company’s overall compensation and benefits programs. The committee should have the power and funding to retain its own advisers, who report directly to the committee, to assist the committee in carrying out its responsibilities.

Hold accountable

Hold accountable

Align with

Retain

for business

for individual

stockholders’

and attract talent

performance

performance

interests

Base Salary

√

√

Bonus

√

√

√

√

Equity Awards

√

√

√

√

Benefit Programs

√

	•	The Compensation Committee approved an increase in Mr. Bewkes’ base salary from $1.75 million to $2.0 million, which was consistent with the employment agreement he entered into in 2007 that provided that his salary would be increased to $2.0 million if the Board of Directors elected him to serve as Time Warner’s Chairman. Mr. Bewkes declined the increase when he was elected Chairman effective January 1, 2009 due to the economic environment at that time. In addition, in recognition of Mr. Bewkes’ individual performance, the Company’s performance under his leadership, and the competitive market for talent among major media and entertainment companies, the Compensation Committee approved an increase in Mr. Bewkes’ target bonus from $8.5 million to $10.0 million, and an increase in the target value of annual long-term incentive compensation from $8.5 million to $10.0 million.

	•	The Compensation Committee approved an amended and restated employment agreement for Mr. Martin that provides for (i) an increase in his base salary from $1.0 million to $1.5 million effective January 1, 2010, (ii) an increase in the target bonus from $2.0 million to $3.75 million beginning with the bonus for 2010, and (iii) beginning in 2011, an increase in his target value of annual long-term incentive compensation from $3.0 million to $3.25 million. The terms of the agreement reflected Mr. Martin’s integral role as the Company’s senior financial executive, his strategic leadership on key company-wide initiatives, and the competitive market for executive talent.
	•	The Compensation Committee also approved an amended and restated employment agreement for Mr. Cappuccio, which provides for (i) an increase in his base salary from $1.0 million to $1.25 million effective July 1, 2010, and (ii) beginning in 2011, an increase in the target value of annual long-term incentive compensation from $1.8 million to $2.75 million. Mr. Cappuccio’s target bonus remained at 200% of his base salary, with the bonus for 2010 pro-rated. The increases in Mr. Cappuccio’s

		compensation reflect Mr. Cappuccio’s performance and leadership role in major corporate initiatives and transactions as well as the competitive market.

	•	Acting on the Compensation Committee’s recommendation, the Board approved changes to the Company’s domestic retirement plans and programs as part of its efforts to provide competitive benefit programs that attract, motivate and retain employees in a more cost-effective manner, mitigate risks, and reduce the volatility of such plans and programs. In March 2010, the Board approved amendments to the Company’s domestic defined benefit pension plans to freeze benefit accruals effective June 30, 2010 as part of a transition to a “savings plans-only” model for retirement programs. The Company now maintains a qualified savings plan and non-qualified deferred compensation programs that limit the Company’s match to a percentage of employee deferrals on up to $500,000 of eligible compensation.
	•	The Compensation Committee approved changes to the executive compensation programs to further align the executives’ compensation with the stockholders’ interests. It changed one of the financial measures used in determining annual bonuses from Adjusted Operating Income Before Depreciation and Amortization (Adjusted OIBDA) to Adjusted Divisional Pre-Tax Earnings. The new measure not only is more consistent with the Adjusted Operating Income measure used beginning in 2010 to evaluate the operating performance of the Company, but also is intended to provide greater accountability for capital allocation because it measures operating performance after depreciation and amortization.
	•	Following discussions with institutional investors who had raised a concern that failing to accrue dividend equivalents could provide a disincentive to management to recommend to the Board that it increase the Company’s dividend, the Compensation Committee also approved a change so that PSUs awarded as part of long-term incentive compensation beginning in 2010 will include the accrual of dividend equivalents on the shares that ultimately vest and are earned based on the Company’s performance. The dividend equivalents will be distributed in cash to the participants following the vesting of such PSUs. Further, to continue the use of long-term incentive compensation that aligns the interests of the executives with stockholders, the Board adopted (and the stockholders approved) the Time Warner Inc. 2010 Stock Incentive Plan in 2010, which is the only active equity compensation plan used by the Company.
	•	As part of its regular review of the personal benefits provided to the named executive officers, the Compensation Committee reduced the reimbursement for financial planning services to $30,000 per year beginning in 2010, eliminated the reimbursement of dues for private dining clubs used for business purposes beginning in 2011 (reflecting the informal practice for the last two years), and required executive officers to pay for executive dining services.
	•	The Company also regularly engages with its stockholders to discuss the Company’s and the stockholders’ perspectives on compensation, governance and disclosure practices. The Company values these conversations and considers them and other feedback from its stockholders when evaluating the Company’s compensation programs, policies and practices. Following the adoption of the Dodd-Frank Act in July 2010, the Company discussed the requirements to conduct stockholder advisory votes on the compensation of its named executive officers and the frequency of such votes with many of its institutional stockholders, as well as other aspects of the legislation.

		These discussions helped inform the Board of Directors’ recommendation on Proposal 4 — Advisory Vote on the Frequency of Holding Advisory Votes on Executive Compensation.

	•	Revenues rose 6% to $26.9 billion, the highest growth rate since 2004.

	•	Operating income rose 21% to $5.4 billion. Adjusted Operating Income increased 17% from 2009. Diluted Income per Common Share from Continuing Operations was $2.25 for 2010 compared to $1.75 for 2009.
	•	The Company issued its business outlook at the beginning of 2010 and raised it each quarter during 2010, and then delivered Adjusted Earnings per Share for 2010, which exceeded its most recently updated business outlook.
	•	The Company delivered strong Free Cash Flow (see page 71 for a definition of Free Cash Flow).

														Individual Performance
														Amount
						Company Performance Amount												Rating
										Rating Multiplied								Multiplied				Actual
		2010 Target								by 70% of Target								by 30% of				Bonus
		Bonus Amount				Rating				Bonus				Rating				Target Bonus				Amount
Jeffrey L. Bewkes		$	10,000,000				146	%		$	10,220,000				140	%		$	4,200,000			$	14,420,000
John K. Martin, Jr.			3,750,000				146	%			3,832,500				145	%			1,631,250				5,450,000
Paul T. Cappuccio			2,250,000				146	%			2,299,500				130	%			877,500				3,150,000
Patricia Fili-Krushel			1,700,000				146	%			1,737,400				130	%			663,000				2,400,000
Gary L. Ginsberg			1,600,000				146	%			1,635,200				130	%			624,000				2,250,000

						Number of								Number of
		Target				Stock				Number of				Target				Total Grant
		Annual				Options				RSUs				PSUs				Date Fair
		Value				Awarded				Awarded				Awarded				Value
Jeffrey L. Bewkes		$	10,000,000				620,997				96,285				96,285			$	9,592,702
John K. Martin, Jr.			3,000,000				191,615				34,434				34,434				3,164,944
Paul T. Cappuccio			1,800,000				114,969				20,660				20,660				1,898,943
Patricia Fili-Krushel			1,350,000				82,642				15,495				15,495				1,430,292
Gary L. Ginsberg			750,000				35,644				6,405				5,872				720,857
Edward I. Adler			1,000,000				61,216				11,478				11,478				1,059,487

 

The chart below summarizes the key components of the Company’s compensation program for executive officers and how each component advances the Compensation Committee’s compensation philosophy.

 

 

Role of the Compensation Committee.  The Compensation Committee, which consists of five independent directors, is responsible for determining compensation of the named executive officers and other executive officers, including the review and approval of (i) new employment agreements or amendments to existing agreements with the executive officers, including the base salary, target bonus, and target annual long-term incentive amounts provided for in the employment agreements; (ii) increases in base salary, target annual bonus and the target value of long-term incentive compensation; (iii) annual bonuses paid and equity awards granted to each executive officer; and (iv) changes to personal benefits provided to executives.

 

In carrying out its responsibility, the Compensation Committee follows a schedule over the course of the year. At the beginning of the year, the Compensation Committee reviews recommendations

regarding compensation for each of the named executive officers for the year and approves base salary levels, target bonus levels, target annual long-term incentive compensation levels, and equity grants to be made to each named executive officer as part of the long-term incentive program.

 

With respect to the annual cash bonus, at the beginning of each year, the Compensation Committee reviews and approves the Company-wide financial and individual performance goals to be used in assessing performance and determining the cash bonuses for the year. At the conclusion of the year, the Compensation Committee (i) certifies the performance achieved under the Annual Incentive Plan, including the maximum bonus that can be paid to each participant, (ii) reviews the performance of the Company and each executive officer against the established financial and individual goals, and (iii) exercises its discretion in approving the cash bonus for each executive officer. The Compensation Committee also reviews and certifies the level of performance achieved for long-term incentive programs that have pay-outs determined by performance, such as PSUs.

 

Role of the Board of Directors.  The Board has retained the authority to approve new executive compensation plans, new equity plans and material amendments to existing executive compensation plans. It has delegated its authority with respect to other executive compensation matters to the Compensation Committee. The Board receives reports from the Compensation Committee on its actions and recommendations following every Compensation Committee meeting and acts as it determines appropriate on the Compensation Committee’s recommendations. The Board also reviews the Company’s executive compensation and benefits programs each year, including the key terms of employment agreements for the named executive officers.

 

Role of Management.  Management provides data, analysis and recommendations for the Compensation Committee’s consideration regarding the Company’s executive compensation program and policies and assists the Compensation Committee in carrying out its responsibilities. During 2010, materials for the Compensation Committee were generally reviewed by the Chairman and CEO (Mr. Bewkes), the Executive Vice President, Administration (Ms. Fili-Krushel) and members of the legal and finance departments prior to being provided to the Compensation Committee. Management also coordinates with the Compensation Committee’s independent compensation consultant to provide the compensation consultant with information with respect to executive compensation matters in connection with the compensation consultant’s role advising the Compensation Committee. During 2010, the Chairman and CEO, the Executive Vice President, Administration, the Senior Vice President, Global Compensation and Benefits, and the Vice President, Global Compensation, each generally attended Compensation Committee meetings. The Chairman and CEO participated in the Compensation Committee’s review of the performance of the other named executive officers. The Compensation Committee also meets regularly in executive session without management present.

 

Role of the Independent Compensation Consultant.  The Compensation Committee retained Pay Governance LLC as its independent executive compensation consultant in 2010. During January 2010 (prior to the founding of Pay Governance LLC in February 2010), Towers Watson served as the Compensation Committee’s independent compensation consultant. The compensation consultant reports directly to the Compensation Committee and advises the Compensation Committee on a wide range of executive compensation matters. The Compensation Committee meets regularly with the compensation consultant without members of management present. Members of the Compensation Committee also communicate with the compensation consultant outside of the Compensation Committee’s meetings as desired by such members. During 2010, at the Compensation Committee’s request, Pay Governance LLC (i) provided competitive market data on compensation (including perquisites and severance benefits) for executives, (ii) conducted analyses related to proposed executive employment agreements and compensation levels, (iii) provided advice

with respect to executive compensation matters, including long-term incentive programs and share utilization and pay mix, (iv) reviewed annual proxy statement disclosures, (v) provided the Compensation Committee with an analysis of the compensation of the named executive officers as reported in the Company’s proxy statement for the 2010 annual meeting as compared to the compensation provided to executives by the companies in the Company’s peer groups as reported in their proxy statements, (vi) assisted the Compensation Committee with its annual charter review, (vii) provided the Compensation Committee with advice regarding the requirements of the Dodd-Frank Act and the implementing regulations, and (viii) advised the Compensation Committee in connection with the adoption of the 2010 Stock Incentive Plan and the modification to the PSUs to include retained distributions based on regular cash dividends paid by the Company. All of the services Pay Governance LLC provided during 2010 were to the Compensation Committee, and Pay Governance LLC did not provide any additional services to the Company. The Compensation Committee has reviewed the services provided by Pay Governance LLC and determined that Pay Governance LLC is independent in providing compensation consulting services to the Compensation Committee. For additional information regarding the Compensation Committee’s compensation consultant, see “Executive Compensation — Independent Compensation Consultant.” The Compensation Committee considers the consultant’s advice and analysis as one of many factors in making compensation decisions.

 

Use of Peer Groups.  The Compensation Committee believes that an understanding of the compensation provided to executives in comparable positions at peer companies is important and helps to ensure that the total target compensation provided to the executive officers is set at an appropriate competitive level to reward, attract and retain top performers over the long term. The Compensation Committee does not target a specific percentile or use strict benchmarking of total target direct compensation, because this approach can lead to increases in compensation solely due to increases in compensation among peer group companies. Similarly, although the Compensation Committee is provided with information for the peer groups regarding the individual components of compensation, the Compensation Committee does not separately set targets for individual components or benchmark different elements of compensation against the different peer groups. In 2010, the Compensation Committee utilized an entertainment/media peer group and a larger industry peer group selected as a result of an evaluation of the peer groups conducted in 2009.

 

Entertainment/Media Peer Group.  This peer group includes the following companies in the media and entertainment business because they are the companies with which Time Warner competes most directly: CBS Corporation, News Corporation, The Walt Disney Company, Viacom Inc. and, when data is available for a position, Sony Corporation and NBCUniversal.

 

Industry Peer Group.  This peer group includes multi-national and multi-divisional companies with consumer-oriented branded businesses that generally have revenues similar in size to Time Warner, and is intended to reflect a broader range of major companies with which Time Warner may compete for executives. This group consists of the following 23 companies:

 

The Compensation Committee assesses the competitiveness of its executive compensation by comparing how total target direct compensation for an executive officer (consisting of base salary, target cash bonus and the estimated value of stock-based awards) compares to the two peer groups. The Compensation Committee generally assesses competitive compensation information on an annual basis, in connection with new executive compensation arrangements and other changes in an executive’s compensation. The following table shows how the named executive officers’ total target direct compensation compared against the two peer groups as of the dates indicated. The number of companies from each peer group reflected in the information for each of the Company’s executive vice presidents varies because information is not available for comparable positions at every company in the applicable peer group. The companies in the entertainment/media peer group included in the information for each named executive officer are listed in the table below. For the industry peer group, the size of the sample pool ranged from a low of five companies to a high of 20 companies.

 

 

 

General and Compensation Mix

 

The compensation for the named executive officers is designed so that a substantial majority of each named executive officer’s target compensation is tied to performance, utilizing measures that correlate with the long-term creation of stockholder value. The charts below reflect the mix of 2010 total target variable and fixed compensation for Mr. Bewkes individually and for the named executive officers (other than Messrs. Bewkes and Adler) as a group. For the purposes of the charts, total 2010 target variable compensation includes the target annual bonus and target annual value of long-term incentive compensation.

 

In determining 2010 compensation, the Compensation Committee considered (i) data on market compensation levels (including information for similar positions at companies in the peer groups), (ii) the terms of each named executive officer’s employment agreement, (iii) the economic

environment, (iv) the performance of each named executive officer, (v) the nature and scope of each named executive officer’s duties, (vi) the named executive officer’s prior compensation and performance at the Company, and (vii) the pay of similarly situated executives within the Company. In making its determinations, the Compensation Committee exercises its discretion with respect to the factors considered, as well as their relative importance, to arrive at a compensation decision for each named executive officer based on the totality of the information considered. In reaching its compensation determinations for Mr. Bewkes, the Compensation Committee also considered the differences in his roles and scope of responsibilities as Chairman and CEO for 2010 as compared to the other named executive officers. The Compensation Committee determined that the compensation for Mr. Bewkes was appropriate in light of the broader scope and the level of his duties as compared to the executive vice presidents, as well as the compensation levels for executives in similar positions to Mr. Bewkes at the peer group companies.

 

2010 Base Salary

 

In reviewing each named executive officer’s base salary for 2010, the Compensation Committee generally considered the factors discussed above under “2010 Compensation — General and Compensation Mix.” The Compensation Committee approved an increase in Mr. Bewkes’ annual base salary from $1.75 million to $2.0 million in recognition of, among other things, Mr. Bewkes’ performance, including overseeing the development and execution of the Company’s corporate strategy, the Company’s operational and financial performance under his leadership, and competitive market factors. The increase in Mr. Bewkes’ base salary was also consistent with the terms of Mr. Bewkes’ employment agreement, which provides that his salary would be increased to $2.0 million if the Board of Directors elected him to serve as Time Warner’s Chairman of the Board. Mr. Bewkes was elected to serve as Chairman of the Board effective January 1, 2009. At that time, due to Mr. Bewkes’ recognition of the economic downturn and its potential impact on the Company’s businesses, Mr. Bewkes declined the increase in his base salary and continued to receive a salary of $1.75 million during 2009.

 

In connection with the entry into amended and restated employment agreements during 2010, the annual base salaries for Mr. Martin and Mr. Cappuccio were increased from $1.0 million to $1.5 million (effective January 1, 2010) and $1.0 million to $1.25 million (effective July 1, 2010), respectively. In approving the increase in compensation for Mr. Martin, the Compensation Committee noted Mr. Martin’s exceptional performance as Chief Financial Officer, the integral role he has played as the Company’s senior financial executive and in providing strategic leadership on key Company-wide initiatives, and the competitive market for executive talent. The Compensation Committee determined the increase in compensation for Mr. Cappuccio to be appropriate based on his performance and leadership in major corporate initiatives and transactions, the valuable legal and strategic advice he provides on behalf of the Company, and competitive market compensation information.

 

In connection with the hiring of Mr. Ginsberg, who joined the Company on April 5, 2010, the Compensation Committee approved his compensation and employment agreement. The agreement provides for an annual base salary of $800,000.

 

The Compensation Committee did not change the base salaries of the other named executive officers. As noted above, Mr. Adler’s employment with the Company ended effective July 31, 2010, and Ms. Fili-Krushel resigned effective January 1, 2011 to accept a position with another company.

 

The Company believes that the base salaries paid to the individual executive officers covered by Section 162(m) of the Internal Revenue Code for 2010 will be deductible by the Company, except for the portions of Messrs. Bewkes’ and Cappuccio’s 2010 salary that exceeded the $1.0 million limit.

2010 Annual Bonuses

 

The Compensation Committee determined bonuses for 2010 for each of the named executive officers (other than Mr. Adler) within the overall context of (i) the framework discussed below and (ii) the Annual Incentive Plan, which was approved by stockholders at the 2009 Annual Meeting of Stockholders. The Annual Incentive Plan, which uses a performance measure based on the achievement of positive net income, is designed to allow the Company to pay annual cash bonuses to certain executive officers that qualify as performance-based compensation that is deductible by the Company for income tax purposes under Section 162(m) of the Internal Revenue Code.

 

The discussion of the bonuses awarded to the named executive officers does not include Mr. Adler because his employment relationship with the Company ended during the year. Pursuant to the severance provisions of his employment agreement, Mr. Adler received an amount equal to his pro rata “average annual bonus” for the period January 1, 2010 to July 31, 2010. See “Executive Compensation — Potential Payments Upon Termination of Employment or Change in Control” for the definition of “average annual bonus” and additional information regarding the terms of Mr. Adler’s separation from the Company.

 

Framework for Determining Bonuses.  The following describes the process by which the Compensation Committee determines the annual cash bonus and how the process was applied for determining the cash bonuses for 2010:

 

 

 

*  The Company defines “Adjusted Divisional Pre-Tax Earnings” as Adjusted Operating Income plus/minus Income (Loss) from investments in unconsolidated joint ventures. Adjusted Operating Income is defined as Operating Income (Loss) (as defined by U.S. generally accepted accounting principles (“GAAP”)) excluding the impact of noncash impairments of goodwill and intangible and fixed assets, gains and losses on operating assets, external costs related to mergers, acquisitions, or dispositions, as well as contingent consideration related to such transactions, to the extent such costs are expensed, and amounts related to securities litigation and government investigations. The Company defines “Free Cash Flow” as Cash Provided by Operations from Continuing Operations (as defined by GAAP) plus payments related to securities litigation and government investigations (net of any insurance recoveries), external costs related to mergers, acquisitions, investments or dispositions and excess tax benefits from the exercise of stock options, less capital expenditures, principal payments on capital leases and partnership distributions, if any.

 

		% of				2010 Financial
Performance Measure		Financial				Performance								Performance
($ in millions)		Component				Framework								Rating
						50%				150%
Adjusted Divisional Pre-Tax Earnings			70%			$	4,765			$	5,265				150%
Free Cash Flow			30%			$	2,000			$	2,800				137%
2010 Financial Performance Rating															146%